brave new world -- would you want to have underwriting standards in terms of, for example, the scaleddownpayment -- scaled down payment over the cycle? what about this basic question of designing a system where there is discretionary counter- cyclical and underwriting standards? does anyone want to >> i think it has some merits. it would be difficult to enforce this down payment. there has to be some six locality in terms of the amount going for word -- some cyclical ity. >> you want to have some flexibility and some discretion, but also some baseline.

>> it is asking a lot of the market and regulators in the middle of a housing boom, there are issues of affordability. especially at that point where the private sector will be allowed to lower down payments. that is what they will do. it will be viewed as a market where housing prices are increasing. the collateral is increasing. even keeping the rules so they are not pro-cyclical so that we have standards maintained over the cycle is a critical place we need to be. >> you look like you may want to weigh in on this. >> there was the timothy geithner interpretation of polllack.

the fact that markets and regulatory systems are caught up in the boom -- everyone makes the same mistakes at the same time. that is why we want to try to design these elements, but but i don't view this primarily as government discretion. i've you ever buddy's foresight as exceptionally limited -- everybody's foresight. i would like to see me sorts of standards -- how do you define a prime loan? you can work into the definition of what it shelby to be securitized and it would have this countercyclical element and

if i could add this. a prime loan would have to have a mortgage information form. >> are these the only loans that can beat securitized? >> i am giving an example of how you might build standards into a market. you might do it through defining. >> what is to stop over time the non-prime from taking more market share? >> we have to address that. >> how do we do that? >> i am yielding my time. [laughter] that with theo marketplace?

theoretically, these securitized loans -- therefore limit the participation. i am a market in vester. >> it did not happen. what will stop it from happening in the future? before this is a 20-year phenomena. luckily guarantees are [unintelligible] >> bill, i want to see if we can sharpen the distinction. there is concession to -- consensus on the broad elements.

in your vision of a new realism you would have a share of the mortgage market the government is providing support through capture a larger share of the market andy alternative universe? the government's role would-be below 30%. you were saying you would have to be larger than that. >> we note it is 95% now and bridging between now and the future. to suggest we return to the old days in which investors of securitized loans they were adequately covered is not

realistic. we are speaking not only to the liquidity, but the cost. we can go private, but the cost is 300 basis points. pimco buys mortgages at 8%. is that the market we want going forward? that excludes almost every new homeowner. recognizing we don't want government in the housing market, but it is a necessity in this day and age. >> i want to give you this last word. you said you want the guarantee only to cover catastrophic

losses after the guarantee fee and other forms of capital? why don't you elaborate on what they are doing? i know we will have a chance in the next session to talk about a broader range of issues. this question of design is going to be the most important thing to get right. we have to be focused on what incentives it creates and what it does for access to housing finance. you get the last word to say how you change the design structure. >> i think this is one of the most difficult elements of the redesign. i would reiterate i think that

even a limited it guaranteed that covers catastrophic losses could provide liquidity for the market bill is talking about. i think it is imperative to the design to make sure the private sector is taking the first losses and the guarantee would kick in to cover catastrophic events only after the reserve fund is exhausted. it could be through equity or requiring private mortgage- backed securities to stand in front of the guaranteed debt. that is a critical point. this issue of the guarantee is about balancing liquidity and

protecting taxpayers. reserving the government role in the event of these catastrophic losses and requiring the catastrophic losses to be there. >> my thanks to all of you who were substantive and thoughtful. i appreciate the excellent job, so i will give the floor to the second panel. [applause] thank you very much. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> thank you all, we will get started with the second panelist. i will introduce each of the panelists for a moment in the

order i will ask them a first question. i will mix it up with a different question and open it up to more of a back and forth. we are lucky to have a broad set of views with a lot of historical vantage points on this crisis, so i want to start to focus on the historical lessons and broaden it out to try to connect the discussion today to the future of housing finance. are important but they are one piece of a range of other ways the government

intervenes in the mortgage market. how should we be zero -- thinking about those goals? we will hear from the chief economist of moody's. i would say mark is a leading voice many people look to on the future of our economy. next we will hear from our co- president of wells fargo mortgage. then we will hear from lou, who is president of -- his bio, the father of the securitized mortgage market. would you agree with that?

abraham is chief executive officer of a global credit risk management company and one of the most significant mortgage insurers today. ellen is executive vice president at shorebank corporation. she was the director of the treasury's office of thrift supervision as well as the director of the fdic. finally, mike is the director of policy and housing and also brings a wealth of experience on the intersection of housing finance and housing policy, both

as a professor, chairman of public policy and founding director for community capitalism and served as assistant secretary for development and research mark, let me start with you. we have had a discussion about the gse's. we have seen enormous engagements of the government currently in this cyclical role. some debate about whether that role in guaranteeing mortgages should be pulled back, or expanded, but given your perspective, what would you say

about what that rule ought to look like. what should that role look like? >> i thought you were going to ask me if the phillies were going to win the world series. let me make two points. it is clear the government should play a larger role in the housing market. that involves two things. it is clear the government needs to provide a significant backstop to the housing market. the entry into the housing market after the great

depression was motivated by that fact. millions of people lost their homes as a result. the government entered into provide that backstop. the necessity is evident in recent avevents. had the fha not stepped in, the housing crisis would have been much worse. it is on the gun, house prices are down 30%, but it is easy to say the price declines and hit to the economy would have been greater. now the government has 50% of

the purchase market. there are two things that the government should do in its role. it has to provide access to affordable housing. this will be more important going forward because lower income houses are under more stress than they have ever been. it will probably get worse. they will not have access to housing which is a necessity. that does not mean a single- family home. we have not paid close enough attention to rental housing. not everyone should have a single-family home.

government has to play a large role going forward. the government's role in housing needs to be pulled back significantly compared to where it is today, but also compared to where it was prior to the crisis. the boy is still quite large. the private market is dormant and cannot step in unless the government steps out. the crisis is still ongoing. house prices are down 30%. we will see more price declines. the reo -- the share of total sales will rise significantly. when housing values are falling,

nothing works that well in our economy. the home is still the largest asset on most people's balance sheet. it affects small businesses to get a loan to hire. when i got my first business loan i put up my home for collateral. the government cannot >> it out now, but it is important for the government to reduce its place in the housing market. it is over subsidized. we are not getting our money's worth. the home ownership rate is no higher to similar countries like

the u.k. and australia. we are not getting our money's worth. we are redirecting bible resources to housing. that means it will not go to -- we are redirecting other resources to housing. we cannot afford it. we have huge fiscal problems. we will have to scale back the subsidy provided. and no industry will benefit more than housing if we successfully address our fiscal problem. i think it is key for us to scale back the subsidies that we provide to housing. >> thank you. you had a front-row seat before

the crisis and through the crisis on making mortgages, the effects of that. give us a sense of how you would change policy to avoid the kind of crisis we have been. >> to prevent a crisis, history can give a useful guide in terms of mistakes that have been made, but also further back in time. there is a solid group to draw from. we think about four key policy areas that require attention to ensure the future health of the housing market.

lenders need to have an interest in the quality of every mortgage they make. we need to revisit all aspects of the business model that encourages -- in terms of how to do that, the risk retention requirements as well as qualified loan provisions -- if they are implemented well will go a long way towards making this happen. there needs to be a level playing field for all parties across the entire mortgage business. regulations need to be consistent across all parts of the mortgage market wit capital requirements applied to comparable loans. we need to ensure we have

consistent enforcement of the rules for all market participants. they cannot operate in areas where regulators don't have the caliber of resource needed to do the job effectively. as history has shown, landing will flow to the lowest common denominator. this can serve as a solid guy. third, the roles of all the various parties involved need to be clearly defined and very well understood throughout the entire life of the mortgage loan. servicers need to understand obligations to the bar were and investor in the act without the threat of litigation.

if not come on when things go bad -- if not, various parties will need to forge solutions on the fly. fourth, in a government guarantee made available to the gse's should be explicit. opinions differ as to whether the government should continue in supporting a conventional mortgage market. given the size and nature of the housing market, wells fargo believes -- we believe an explicit government guarantee will be required to ensure there is sufficient credit.

i want to emphasize the guarantee should only apply to the performance of the mortgage market. where appropriate, we also believe the government should provide financing subsidies or direct credit risk based on transparent policy choices. one of the challenges in front of us this how best to mary together state government guarantee with private capital that minimizes risk to the taxpayer. i know you received 300 letters in that, we laid out what the framework is to move the discussion forward. there is a wide range of ideas,

but we have to get this right. i look forward to the discussion. >> with the unique perspective you have and the role of the of whative us a sense the key moments were where they gse's got off track that led us to where we are. >> i would like to give you a minute -- i feel like mark anthony. i think it may be important to know what it was we were supposed to do. the market i came to in the 70's -- i was not there at the beginning.

when i came in the 1970 cost the homeowner would have -- smaller communities did not have access to 30-year loans at fair prices. there was little standardization and that was true for underwriting documentation. the most important contribution was to standardize the securitization process. they allowed equal access and lower rates for many years. they also determine the level of acceptable credit risk. you could not get anything done

without agency underwriting or standards. you could not create an rmbs that was not agency standard. the agencies for three decades did their job. they provided standardization and liquidity. there was the critical fall that the secretary talked about, the implicit government guarantee. it gave them the force to create the modern market. since the government guaranteed was provided free and with less oversight, the moral hazard was

always there. the privatization of profits -- the answer to the question is in 2000 to the non-agency market started to experience with traditional mortgage forms. fha has a brilliant history of doing this, but we started to -- we expanded the definition of all data to include almost anything. at the same time the private level market began challenging the norms for down payment. it was still rated aaa and still

oversubscribed. we just kept pushing the envelope further. the inherent weakness came alive. i agree, people sometimes say a need to expand homeownership, that is true, but it was much more a profit motive. they lowered their standards to further exacerbate this. and they bought $500 billion of the loans that created the problem. i would also tell you the dodd- frank bill addresses many of these issues.

we always had regulations but the part was those that never got enforced. what the bill does not deal with is the second mortgage issue. it is totally silent on second mortgage. -- thisn't resolve this was built not on a revolving credit account. i think we should remember freddie mac was part of the bank system. we should remember what the agencies brought to it and make

sure what the new structure is can still provide access standardization and the other benefits and a -- they only failed when the achilles heel, the profit motive came in. who will make institutions driven by profit behave differently than two agencies which used to say they were public service entities? >> thank you, lou about what dodd-frank could accomplish with the need for risk management.

we are moving towards more careful risk-management on an institutional basis. how can we ensure we have responsible innovation. how do we make sure we don't lose the benefit of -- and market that benefits consumers while protecting them of the excesses'? >> we can address that by saying innovation is usually a good thing. it has been one of the hallmarks of the american success story. there have been many good innovations that requests unmet needs and reduce costs and

created best -- better risk- management tools, but problems arose when it certain innovations stretched beyond their original purpose. two examples come to mind, the first is the [unintelligible] created for the good bar workers who could not meet credit standards. but otherwise were creditworthy. these were compensated by other large factors like large down payments, but these products were offered to a broader spectrum of our worst with weaker credit and without

strong compensating factors. the next example were piggyback loans. initially they could work well for the tiny niche they were designed. as the secondary market started buying these loans and treating first loans as low-risk loans, without requiring the originator to retain slin in the game -- hopefully the check contained in

the reform -- it will provide [unintelligible] i think the marketplace and the competitive nature [unintelligible] equally as important is to incentivize the right type of innovation and speaking here with the benefit of what is a failure and success. we need to think about their regulatory framework that questions, scrutinizes and

monetarist products more vigorously, and treats them differently. prudent limits on [unintelligible] even in the most well- intentioned analytical tools. [unintelligible] more so than the introduction of the new products themselves. rewards for innovation stretched out on lack of rest so there is an opportunity to reap handsome rewards, but only based on -- i would like to share something. our short-term incentive program is now a medium-term program

with half of the payment delayed by a year. finally, direct risk retention that result in more skin in the game and achieve the benefits of checks and balances for risk sharing. [inaudible] to share the risk and assume some can be as effective as retention and a way to get an additional perspective from someone willing to put scan in the game. the challenge -- skin in the game.

the art of progress is to preserve order amid change. discipline can only work if it is [inaudible] even during periods of destruction is critical. it requires both public and private sector is working together. they should provide only a layer of guarantee and setting standards [inaudible] layers of capital at whatever future entity plays this limited role. participation can be paid for through fees and sound underwriting and appraisals,

but limiting the government guarantees to a safer gap of 70%. i recognize the need of boris with less down payment, but my industry has met the needs of borrowers [inaudible] the fha has a continued role in terms of meeting needs of borrowers who are capable of becoming homeowners. leslie, there is no perfect solution. there was a serpent even in the garden of eden. we have to make sure we watch out for those serpents. >> thank you. ellen, you spent a lot of your

career working on innovation as it relates to underserved communities. i wonder if you could give us a sense about whether we should continue to try to target those underserved populations and how to do that. >> an answer to the first part of the question, at these statistics are telling. with house prices lower, we had 18.6 million households spending more than half on housing. that includes one in 4 renters. it is undoubtedly worse now. only one-quarter of the

households eligible get it. more than two full-time minimum- wage jobs are needed to rent eight two-bedroom apartment. there has been devastation in a small rental market. and as these situations are, they are worse in low-income areas. the federal government has many different ways of performing its role, direct action and guarantees. i know mike will talk about everyone's favorite deduction.

regulatory context. i don't think you can lead it to the fha alone. what kind of support is needed? in the current situation in which 95% of home mortgage originations are -- the private sector will not do it on its own. we should just stop having that debate. there is no mortgage finance communities of color. this suggests that federal support this not sufficient.

the welcomed reforms may exacerbate this problem. because their rigging the market up of loans -- ridding the market. we have to pay more attention to access to credit because it will be good credits, but it's is absurdly expensive and we will tell the system -- kill this system we want to protect. they need support from the federal government in order to be able to be available in low interest rate environments. there was a brief mention of

the experience of other countries. other countries have done without as much over government support -- the underwriting standards are much more conservative than we have in this country. i think there are variations on but those stains that are important, but that is not the direction this country wants to go and. fannie and freddie support has been critical and multifamily markets. >> [inaudible]

>> more of that subsidy will probably go to rehab and protecting existing subsidized properties. that is harder to do. there is insufficient financing available for small rental housing structures. this was a product of the savings and loan industry. and it has been the province of no one and unless we pay attention we will lose huge amounts of affordable housing stock. i will not talk about guarantees. i will talk about regulatory context.

i will talk about what will be needed to bring back affordable housing in the underserved market. the community reinvestment act surfaced. this is very encouraging bank regulators are working hard to make fair -- [inaudible] one element of making it work better regulators cannot do is the primary market will originate certain loans unless there is a secondary market. just make it applicable to the

market does not work. [unintelligible] it is the secondary market national -- [unintelligible] it is useful in the secondary market. i suggested a more fruitful framework for building a regulatory context, particularly for any entity taking advantage of a guarantee it is focused on market needs were the support is important for the ability for the regulator to modify the concept.

i think small rental ought to be added but it is flexible. the secondary market is primarily an outlet. this leads to the -- a useful measure is to make sure the secondary market mirrors the primary rather than ignoring difficult segments. there also needs to be regulatory support for innovation. this can be a research and

development that will more effectively serving public market for more risk. this can work my husband has been part of the national security crowd. this administration picked it up in a special innovation fund. innovation sponsored by the government can have a print -- tremendous impact. there is a small fee on each issuance can fund such a fund. airline ticket fees also charge. this is not a new idea. i think the government needs to

help the secondary market meet goals for underserved populations. they have lots of tools to do it. thank you. >> mike, let me give you a little more space. you heard a broad range of issues that touch many ways the government interacts. what are we missing here? what has not been said that needs to be said? >> as i look over the historic arc of housing finance, i think the housing finance system has become over the last 25 years in a much more dominant shaper of housing policies than it was in the past.

i will elaborate on that more later. this is not without consequence. we have gone from financing low-income rental housing through guaranty bonds at below market interest rates to assist them of blaring a variety of rental subsidies -- layering a variety of rental subsidies. any changes in the housing finance system or secondary markets that fail to take these

realities of the injured dependency of housing policy goals could easily derail progress of critically important housing programs. just a small example of this issue of the role of a gse's going forward, in the multifamily sector the gse's have outperformed the broader securities market. there are severe the faults they indeed delinquencies, but the reality is because of the customized needs of various investors, a substantial segment

is held in portfolio. there seems to be a broad sense -- a growing sense going forward, even if we have gse's we can -- don't need portfolio addresses -- how do you address the needs of affordable rental housing investors in various segments of the market in a standardized way where securities could wrap a guarantee around affordable multifamily debt? another thing to point out is so

much of the challenges we face with assisted housing were the causes of earlier policy decisions. federal policy created the need by making a deal with private investors that if we could attract them into the sector we would allow them to prepay their mortgages to take advantage of rising market opportunities. some of our most affordable rental housing is dropping out of this system. we need to make sure the secondary market will recognize the need to preserve this housing that is vital to low

income citizens. i was not sure i could say this, but allen said i would. we do have to deal with the issue that mark and others addressed, but we cannot rebalance national housing policies without addressing the market distortions caused by the disproportionate support of homeownership over renting. right now according to cbo the government spends $4 a supporting homeowners for every dollar it invests in low income

rental housing in the benefits to a tax. in the $250,000 category -- it is about 10 times greater for the higher income than the lower income. there is no explicit his public policy justification for a subsidy to the higher income conner -- higher in come home buyer. there are lots of ways of addressing this, but this discussion has to be part of it. it is also the case that we are doing a lot of work on fiscal

challenges. i realize most of the home ownership benefits come through the tax system, whereas 80% of rental comes through spending programs. this has implications for the issues we are talking about. 20% of rental subsidies we have seen what they collapse of the tax credit really means to our assisted housing suppliers. it has brought production to a hulalt. we really have to think about how the equity needs of rental housing investors will be provided. if you look over time you will

see what the equity requirements of rental investment are in the assisted housing sector our policy-determined. we have never had investors having to put heavy duty equity in front of a development of assisted housing. >> we have about 10 minutes left. we had a lot of discussion on the early panel about -- seemingly some consensus around the issue of explicit vs implicit guarantees.

one of these central questions brought up around connecting housing finance is the nature of the affordable housing goals and how that should change to be more explicit, more direct, some have called for a tax that would go directly to affordable housing, obverses a system that tried to in bed -- imbed affordable housing. i wonder if you want to comment about the nature of that discussion we will need to make going forward. >> you have to do both. i think he liked has made the point clear that particularly as

we are going into attempting to solve the fiscal crisis, relying on existing appropriations will not result in a positive housing policy so i think there is more money that needs to come into the system. i also think it is a matter of all parts of the system. and all parts of the systems use the government, as we managed to demonstrate over the course of the last two years. even if you just limit it to the parts of the system that have access to the guarantee, they need to take their role in making housing affordable. when we have a world in which, you know, a large portion of this population is paying a

certain amount of money for housing, we have to mainstream the issue of affordability. it cannot be off in the quarter. or else we will not have -- not only a three-tier system, but we will have a five-tier system. >> i want to make a remark. i am really constantly distressed by this crisis being used as an excuse to say we should change the nature of home ownership. we are as 69%. many say we should have 60%. it is not the borrowers. arkansas restructure loans occurred every day, i see lower middle income people who put whatever money they had in the house that they could never before have afforded it, because there were sold something that

made no sense. they could have bought a house. it might have been more modest, but it would then a house, and now they are in this position where they are facing foreclosure. we have a golden opportunity in front of us. we have millions of units. in the first instance, we should not be taking these people and by one form or another, second mortgage or another, forcing of foreclosure, even when the lender does not want to foreclose. but it is happening. we have always, in the past been into to turn the curisis an advantage. we have millions of units that are vacant. let's do or rent to own program. we know it works. we have seen it work over and over again -- let's do all rent program.t to own it would make sure that millions of units that are turning into

abandoned properties, we make them work. this is a once-in-a-lifetime opportunity to in franchise a whole class of people like we did in taxes. bill took -- we were selling houses in houston at $10,000. they said, this is crazy. we are selling these houses to speculator. he took all of the inventory from all the banks, because it was insured, and he created the fifth award program. it was one of the most depressed neighborhoods in houston, and we did all rent own program that turned around the fifth ward. it turned around the system for two decades in the country. we are not doing that. we are bemoaning our fate, and we are saying that poor people have to go to rental housing. i do not agree with the premise

one bit, especially now in the most affordable period in our history with millions of units going to waste. >> to frame this topic of affordable housing, you talked about the goal and you can talk about the broader need. what we have seen historically is that the structuring of goals as they were structured for fannie mae and freddie mac proves to be complex, very difficult, near impossible to administer in a national way. i think that goes without saying in terms of the look back. i think there is also clearly all role for the government to pay in a very explicit way to provide some support for housing in certain areas. what do you do in between? there is merit in creating a structure for housing that is a conduit -- conduit entities would pay a fixed fee, so it is

a known up front. channel those funds into local markets. i think that spectrum of possibilities will be more useful to pursue than to reinstitute a bowl structure as we saw in the past. -- reinstitute a goal structure as we saw in the past. >> by fall into a camp that supports imposing a duty to serve on the beneficiaries of mortgaged-backed security guarantees or whatever form the guarantee may take. i do not think personally that the affordable housing goals contributed significantly to the crisis. on the other hand, it is not at all clear how significantly they added to the net supply of

affordable housing. the irony of the big debate in my mind about zero rolthe role f goals is that the regulator has a low level data -- the loan level date that could inform this issue. secretary geithner has said we want to figure out what caused the problem. there is literature about the role of the goals and all of it is using data that is less than perfect in order to come to their conclusions, while the gse's have the data and it ought to be made public. i would favor a continuation of the duty to serve. >> mark, we begin with you. i will let you have the last

word. >> the phillies will win the world series. well, i think it's fair to say that what i hear is a great deal of consensus, that we have parties coming from different perspectives, but it seems that there are significant commonalities and one is that the government will have to continue to play as a deterrent role going forward. there is no way around a-- they will have to play a role going forward. the economy is too fragile, and real require that the government remains intimately involved in these markets for a long time to come. >> thank you very much. fascinating session. we look forward to the rest of the conversation today. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010]

>> in a few moments, a heritage foundation proposal for the economy, the budget, and foreign policy. and a half hour, former ambassador chris hall on on the political situation in iraq. after that, a discussion with former secretary of state madeleine albright and george shultz. later, of form of housing finance that included remarks from secretary geithner and housing secretary shaun donovan. in "washington journal" tomorrow morning, we focus on the future of the fannie mae and freddie mac with barry zigas of the consumer federation of america. armey talks about his article on the relationship between that t party and republicans. -- the tea party and

republicans. "washington journal" is live on c-span every day at 7:00 a.m. eastern. the heritage foundation in washington baster report on policy proposals for the economy and budget -- based report on policy proposals for the economy and budget. this is about a half-hour. >> thank you for joining us

today. it is my privilege to welcome you for the release of "solutions for america". i want to welcome our online viewers. following are two speakers, we will take questions from the web and those of you in the room today. i want to remind all of you watching on line, that you can email us at speaker@heritage.org. if you are interested in a recording, we will have that available on our website later today. it is my privilege to turn the program over to ed feulnerf wh o will make some remarks. >> thank you. on behalf of our board of trustees and our staff, it is my pleasure to welcome you here today for a special event, the unveiling of our publication

"solutions for america". after 19 months of liberal change america is in need of new ideas, new policies, and a new solutions. liberal politicians have been campaigning on the notion that the other side, that is we conservatives, are not offering anything new, that we have no policy ideas, no alternatives. i think solutions for america proves that is false. "solutions for america" is a comprehensive guide to reforming government, a set of 128 policy alternatives in 23 broad categories that define what a more conservative government would look like. "solutions for america" presents a powerful policy agenda that will resonate with mainstream america and it is a real alternative to the excesses' of the over reache we currently see in washington.

unprecedented power and control has been centralized in washington. the government has grown exponentially in size, scope, and reach. yes, we have opposed these bold power grabs and we believe we should have opposed them. however, that is not to say that we do not have alternatives. we do. one of the main concerns that we have is what is happening in terms of entitlements, for example. very specifically and personally, i have three grandchildren, and it is unfair for my generation to be saddling each of them with a two of the thousand dollars mortgage with no house attached to it -- a $200,000 mortgage with no house attached to it, because that is their share of entitlements -- social security, medicare, and

medicaid. what have the liberals given us? the economy is down, unemployment is up and americans are more pessimistic about the future than at any time since the 1970's. that is why we answer these challenges in "solutions for america". the policies within "solutions for america" have two things in common -- they return power to the people and they are bold and transformational ideas. no, they are not necessarily new ideas. some of them have been around for a fair length of time, but they are bold and transformational. one thing we have learned is massive government expenditures and intervention in areas like energy, health care, and education have forced the government to do less well t hose thinigs it should be -- those things it should be doing, such as providing for the common defense. individual freedom, entrepreneurship, federalism

have been ravaged by the left's radical agenda. we want to make sure america its backs to the fundamentals as outlined by our founders in constitution. -- the constitution. "solutions for america" we believe provides the policy fuel for that agenda. some of the specifics that we talk about in "solutions for america" include -- placing a firm cap on federal spending at 20% of gdp, and limiting the future growth to inflation plus population, require the three and item programs i mentioned it to live within a firm of, congressional rate ly-approved budget.

limit the spending of welfare programs and require recipients to give something back for what they are getting. pay federal workers' wages and benefits comparable to what their counterparts receive in the private sector. re-commit to peace through strength, repeal obama-care and on and on. revive a federalism as one of the fundamental believes that we as conservatives believe in, where states are traditionally the laboratories of experimentation, where the federal government can learn so much as it did in the 1990's on subjects like welfare reform, from wisconsin, from michigan, from other states we are experimenting. "solutions for america" offers something new -- real reform based on conservative ideas and principles. the counterpoint to thought was an expensive government programs is not different thoughtless and expansive

government programs. members of congress now have a series of policy alternatives to the failed philosophy of bigger government, higher taxes, greater control, and more spending. millions of americans have stood up to demand a return to limited constitutional government. we believe that "solutions for america" presents a way to make that vision of reality, to build an america where freedom, opportunity, prosperity, and civil society floors. thank you for being here. -- and civil society flourish. >> ed described the reasons of why we put these recommendations and to this report, "solutions for america". in a nutshell, it is no ordinary

time in this country. we are at a tipping point. a lot of other serious people have looked at our trend lines and say we are on an unsustainable course. this report addresses that and would seek to make america unsustainable nation once again. two of the big ideas i want to emphasize relate to our entitlements. if there is any take away, i would ask from you today, it would be to realize that the era of unchecked and unlimited entitlements must come to an end. the first recommendation relates to the middle class entitlements. we propose it to endto end the g

for that and require congress to look at those programs every few years or every year to figure out if they are on course or not in to make necessary changes, instead of letting them go on automatic pilot. the other big idea -- one expert look at that, and you add all the programs scattered throughout the federal budget, no one knows how much we spend. it is one trillion dollars per year. it is $30,000 per family with kids to qualify for benefits. is that welfare state really working and alleviating poverty? many experts say that poverty is as intractable today as it was when we first started this endeavored back in the 1960's. what we propose there is -- one is to take a look at them and a holistic way in the federal budget. have congress consider them as

one entity, a category called welfare spending. cap the money spent and let it grow according to inflation. require congress to look at the programs, determine which ones work to alleviate poverty, which ones do not, and do something about those programs that have failed. believe me, there are quite a few of those. the other thing we propose is to turn a portion of the welfare receipt into a loan that will be repaid over time as the person surmounts poverty and becomes more self-sufficient. we propose putting in more work requirements for food stamps and housing. there are other big ideas in this report. another one relates to federalism. what we get at here is the sense that, over the years, the relationship, the balance of power between the federal and the 50 state governments, has

been altered so that the federal government now dominates. most state level organizations that come to washington to represent the state's are petitioning for more money. they worry about a formula. they are not worthy of the notion of sovereign state governments. and this report has a number of chapters in it, each of which goes through a specific recommendation on how to devolve those responsibilities from the fed to the states and give the states a chance once again to be the lead in addressing these aspects of people's daily problems and lives. there is an ongoing debate in

washington about how bold we need to be. there are some who argue that the american people are not ready for bold solutions. they are do incrementalism, gradual, to wewaan the american people from where they are today as supplicants of the welfare mentality so they can then adopt good ideas. there are others who are ready for this. the believe the american people can actually sustain big thinking, bold ideas, turning the government upside-down in ways that are going to get us a sustainable once again. it is with those kinds of people on capitol hill that we cast our vote right now. we think this is the way to go. this is not a time for tepid thinking. it is not a time off to be overly cautious, because the baseline of doing nothing is the worst possible outcome right now. that is what we see across the

board, not just our domestic policy experts, but our national security experts. a recent panel, a review panel, including jim tallon, it came to the conclusion that the trend lines in military personnel are leading to a trainwreck. we are dealing with problems in national security as well. we think it is time for big think and bold proposals. i just want to say at the end that there is a premise that doing these things will create sacrifice and be the political equivalent of a root canal. our argument is that the root canal comes by doing nothing, it comes when you let the trendlines accelerate. we have to change these programs. you have to get federal pay

equal to a private-sector counterparts. you have to get the entitlement programs are structured so that people under the age of 50 once again can have a firm belief that they may get something out of medicare and medicaid and social security when they turn 65. right now, the average person under 50 has discounted that. we take these ideas are beneficial. it will help the country get turned around. we are aggressively marketing these ideas in the capitol hill in the weeks and months ahead. we look forward to your questions. [applause] >> thanks, ed and mike. if you are watching online, please email us at speaker@heritage.org. >> my question is whether the root canal would be waiting to do some of this stuff.

i do not see calculations for what economic effects might come in six months or year as this is adopted. a lot of what i see from republicans -- seems like cancelling tarp. it seems the trap that the democrats got into -- promising a lot and not acting. >> a couple things. the base line includes a big round of tax increases beginning january 1. one of our top recommendations is to do no harm. it is never a good idea to raise taxes. it is especially dumb to do that during a recession. you can go beyond that. because we are in recession, there are a couple of policy ideas we included that would be beneficial and create a special burst of job creation. one of them is to take the top corporate tax rate down, and

what we recommend is put it down to the level of the average of our 38 largest trading partners, which would take it about 12 points down. we want businesses to write off the cost of investing in plants and equipment immediately, because that will give confidence for businesses to do those kinds of investments and create jobs and grow their firms. right now, there is uncertainty. the ideas we put in there would have an immediate, short-term, beneficial effect. the rest of it has a long-term benefit, because the trend lines are so negative, once you start seeing demographic changes from the retirement of the baby boom generation -- this is a short and long term benefit. giving a lot of responsibility back to the states and the revenue that goes with that, in transportation, education, health care, law enforcement. it will help improve the quality

of those kinds of services when the states are the ones in charge of designing and delivering them as opposed to the one size fits all federal approach. >> a quick follow up. one thing that the democrats promised a year ago and is if we pass the stimulus we will find the things that are shovel- ready. [unintelligible] if you get this stuff enacted in february, how long would it take for businesses to reap the benefits? >> we would suggest lowering rates and investing in equipment, and in that has an immediate effect. it lowers the cost of making decisions and makes it easier for them to grow their firm. that is a short-term benefit that shows up very quickly. >> other questions? yes, sir. >> i see you do have a couple of

pages on holding terrorists accountable perry has heritage taken a stand as yet on the proposed -- has a heritage taken a stand as yet on the cordova initiative, islamic center and after the named city in spain that was conquered by an army acting in the name of islam? i see you do not address that directly in this booklet. >> ed? >> no, we don't. a couple fundamental principles. number one, at the heritage foundation we believe in federalism. there should be local control, local autonomy in questions such as zoning, etc.. we obviously believe in freedom

of religion. nobody questions that. but what i think in our debt we feel, we believe -- in our gut we believe very strongly is that respect for other faith traditions has to be neutral. we do respect other faith traditions, but we expect other faith traditions to respect ours and others as well. if the organizers of the cordova scheme in new york really want to bring people together, there are plenty of alternative sites in lower manhattan, that this is something that is splitting the community apart. it is not a very sensible way to act in terms of showing concern, of bringing us together. they should consider whether there are not less controversial ways to bring about their religious harmony they say they want. this is not just a random site

in lower manhattan. i've been to ground zero with friends and officials in the york. i know how it is considered sacred ground. i think it is a very, very bad call on their part. >> we will take a question from one of our facebook of yours. "how do you possibly get america back on track when the president and those who control congress are so off track? [laughter] >> well, we are very optimistic at heritage, and we also believe that if you look at the polls in the last 18 months, the american people have looked at and digested the ideas and policies foisted on us by this administration and the leadership in the house and senate. if you look at the polls, there

is a right tilt on a range of issues. america has always been somewhat right of center. it was even right of center on election day 2008. since then, it has turned several more degrees right. they've seen reports about the debt. they have seen the way the stimulus plan has worked or not worked, that the intervention in private firms putting unions ahead of creditors for bankruptcy situations, like they did with chrysler's. a range of exposures to these kinds of policies has made america more receptive to the ideas in our report. our optimism is on abounded. my expectation is that come january, the kind of people that will be in congress will look a lot different and vote differently than the ones there today. i guess is we will see a lot of them calling us up and asking

for briefings and explanations on how to take these ideas and develop them even more. >> two additional comments. mike is right when he stresses what the basic political tradition is. gallup has been asking the same question for decades now. there are twice as many self identified conservatives as there are liberals. that has been reaffirmed within the last two months. number two, a simple phrase that all of you know well -- tera party. >> gary. carrie. >> social security. the bush administration tried to go towards privatizing it, and the campaign fell flat. what is a way to improve the issue of saving social security

without having to scare seniors and end up dividing seniors between people who are young? >> one challenge there is to draw a direct link between the kinds of ideas you talk about with respect to social security and the intergenerational effects of not doing anything will have on kids and grandkids. i think what we found over the years is that even when the older folks see the numbers laid out in the understand the implications in terms of taxation on their children and grandchildren, the taxes that would have to be levied to pay for the promises being made to the current generation of retirees, they start to realize that they do not want to do that to their kids and grandkids. there is a political bond that one can create with that kind of education. in the report, we have an idea that is very new and will be

fleshed out more in future, but it is exciting. if a worker decides after age 65 they want to stay in the workforce, alleviate them from having to pay payroll taxes and do the same on the employer's side so that the fight thca tax would go away after you turn 65. that would be an incentive to keep older workers in the workforce and free up money that could be used to keep them in private health plans and out of medicare. you can keep people living and working in the private sphere for a longer period of time. you can recalculate the benefit that would be given to somebody so that you could end up helping a trust fund as well without hurting the worker. it is an exciting new way to put more money on the table and that would alleviate the so-called pain that some might see from increasing retirement ages. >> i have question for you from

a facebook user from tampa, florida. "how do we stop the entitlement mentality? how we encourage people to pull themselves up rather than relying on a nanny state to do that?" >> i wonder where this person's coming down. i take heart. there is of poll that "national journal" did, looking at how people view self- reliance. americans are very self- reliant, and they do not like feeling part of the welfare state. they want to do things on their own. they trust themselves and the decisions they make much more than they trust a government. i think the most important aspect to remember is that the

american spirit is with us on this. they are calibrated to be receptive to these ideas. i think they will embrace them when they are put out in a way that will not be distorted by special interest groups. when it is a fair debate, we win. i expect the resources will be there to have a fair debate in the years ahead. >> additional questions from the room? >> one section that seems to be missing, i think, is pretty important is campaign finance law. >> full and instant disclosure is the best way to reform campaign finance law, and getting down in the muck, as the last questioner asked, is going in exactly the wrong way. every regulation begets another

regulation and a prospective a violation so that hillary clinton's campaign is now being fined for something that allegedly happened before. let's just to have instant disclosure on the internet and let people know who is supporting whom and for how much. >> should caps be got rid of, caps on contributions? >> i would personally favor it. i am not sure we have taken a public position. >> i think the caveat that goes with disclosure is that there is no limit. if someone gives a lot of money to one campaign and it becomes public, there is an accountability that is created and you have a public discussion. and then that creates a

discipline on how that goes for. we are totally libertarian on that. >> we are now. [laughter] >> any other questions? al? >> i see you do have a section on making federal policy marriage-friendly. have you defined marriage? >> i think we have. >> the traditional definition of marriage. >> one man and one woman. >> gwynn, yes. >> for either one of you. michael, you say the american spirit is with us on these issues. a lot of these proposals have

been floated in various ways before. how confident are you that the spirit on capitol hill is with you? how many of these do you have, allies with and sponsors for on capitol hill? is a substantial, or are you still working on that? >> we have a number of them. we believe the welfare reform proposal will be introduced by a congressman named jimmy jordan from ohio in the months ahead. and some of the other ideas have been developed over time. for example, during the stimulus to abate, jim demint offered a number of these tax ideas that got 36 votes in the senate. some of the federalism ideas we are working on in the house. my guess is we will have four or five pieces of legislation they will introduce early in the next

congress to reflect that kind of thinking. there is more work has to be done on that as well. the other point is that when the last time there might have been really strong reform in the mid- 1990s in a lot of these areas, as much as we could for cds as unsustainable, itthese as was far off in the future. today is that much closer. social security is in the red seven years ahead of projections. it is going to be in the red for the rest of our lifetimes. when you look at it 15 years earlier, people were talking about it in an abstract way. that time is now. that will force the sober people on the hill to look at this in a different way. i would not underestimate the power of this incoming freshman class of members in the house

and senate to shake things up a little bit and redefine the baseline for debate. >> i want to remind everybody that you could find the full report at her itage.org/solutions. i want to thank everybody for coming today. i thank all of you for joining us. take care. [applause]

>> in a few moments, former ambassador chris hall on the political situation in iraq, in 40 minutes, a discussion with former secretaries of state madeleine albright and george shultz. after that, of forum on housing finance, including remarks from treasury secretary tim geithner and housing secretary shaun donovan. a couple of live events tomorrow on c-span. the national business group on health reports on how large companies are adjusting their employer-provided health benefits to prepare for the new health care law. that is at 10:00 a.m., eastern. at 6:00 p.m., the funeral

service for former alaska senator ted stevens. speakers will include a vice- president joe biden. talks between the two leading political parties in iraq have broken down. former ambassador to iraq on the political situation there. this is 40 minutes. >> it is my pleasure to introduce a man who needs no introduction, ambassador chris hall. he is here to answer your questions about his time in iraq and about the transition and giving his perspective on that moving forward. thank you for coming. >> my tour was supposed to be

one year, but in the world cup as they say, i went into extra time. it is a pleasure to be here. i left iraq a few days ago, said goodbye to people at the embassy. it is quite a time of transition. we have all whole new cast of characters coming in. i think anyone who deals with iraq is very much aware of the fact that the problems of that country are severe, but the potential is a very great. and i think those of us that were there for the time we are there do the best to make things better. i hope i have done that for embassador jimmy jeffrey who leaves tonight. jim and i have talked on many occasions about the transition there. there is a lot going on. one of the main things we do is to try to be helpful on government formation.

the rockies had a very close election - -the iraqis had a very close election. it is not an easy to put the government together. we have tried to be very helpful and will continue to be helpful, because iraq does need and the governme government. we have worked fairy hard with our military colleagues to make this your year of transition -- we have worked very hard to make the transition from military to civilian-led programs. i am sure you all saw the horrific news this morning with a suicide bombing in front of a military installation in which scores of people were killed. iraq offers no refuge for those in need of instant gratification.

it requires you to stay at it, but i do believe there is real progress there as we speak. major oil companies are beginning to put drill bits in the ground. iraq will emerge as one of the major auto producers of the world. producers of the world. i think the rockies are making some progress. i leave their with a sense of having done what i can do with my team in terms of making it a little better than the way i left it. i know that jim jeffrey approaches it with great enthusiasm. i certainly wish them the best. >> [unintelligible] i wanted to ask you about al qaeda and a rock. iraq.

they are described as being defeated or back on their heels. what is to stop them from rebounding, particularly once u.s. forces are gone at the end of next year? >> there are 55,000 going to 50,000 troops by the end of august. the key issue is not the overall number of forces, but what the mission has been. on june 30, 2009, that turned out to be a very important date, because that was the date that u.s. forces were out of the cities and towns and municipalities. as a consequence, there were challenged by the aqi attacks. the iraqi forces were challenged. i think they rebounded. i think they did a credible job of continuing to ensure reduction and a level of

violence. when that violence gets 20, which we would all like -- when the violence gets to 0, which we would all like, i think it will take awhile. to some extent, it is a function of developing institutions in the country. it is also developing the kind of political consensus necessary to do with security issues while at the same time preserving human rights in gains the country has made. it will take some time. but the question you posed is what is the role of u.s. troops there. the role has apparently shifted from combat operations to an advise and assist role, to helping iraqi forces. i think they are doing that and will continue to do that, and i am confident what can be done will be done in terms of dealing with these insurgents with the

understanding that it will not go to zero. >> my question was intended to be about al qaeda in iraq rather than u.s. troops. are they still connected in some city giveaways to al qaeda? >> they have great difficulty communicating outside of country. they have difficulty communicating with each other, and we know this from the various means. they have the funding problems that have cropped up. so, i know you have heard many people say from many podiums that they are on the run. i do not want to get into that. but what can be done is being done. do i think the problem is getting worse? and all. i think it is getting better. it is a testimony to a couple of things. what our forces have done and what the iraqi forces have done. a number of the operations against the al qaeda forces are

planned and executed by iraqi forces in a way that was unimaginable just a year and a half ago. i think what is frustrating to all of us is to wake up in the morning and hear about some bomb blast killing scores of people. understandably, everyone wants to know when that will end. that is difficult to predict. >> how is the local support for al qaeda in iraq as compared to several years ago? >> it is a very important factor is that there is no local support. that is why we monitor very closely the situation, and making sure that payments are being received. but we do not see an uptick in support for insurgents. if you look at the dissipation in the elections, sunni voting patterns marks tremendous

voting. al qaeda in iraq is not able to hold onto a city unlike in the past. is much think there 's support. on the contrary, there is a generally volscian at their behavior. we need to stress the idea of inclusive government -- on the contrary, there is a general revulsion at their behavior. -- this is to forestall any reverse of the pattern i just described. >> there are a couple of laws that passed. you struggled along with the un to have these past. what is the status of that law? >> i got there in april of 2009, and everyone talked

about the oil law. i saw a virtual stalemate in the council of representatives. i supported the approach of going ahead and doing contracts, that is, these are not ownership contracts. these are oil service contracts. the iraqi government has made a very credible effort on that. they have reached over to the kurds and address some of the issues there, where the kurds had wanted to export some of the oil directly. i think a lot of the problems, a lot of the issues we are seeing as requiring an order law actually get done. there is indeed for an oil law. i hope they pick that up when the council of representatives sits and contemplates laws.

it was needed to stimulate investment, in the investment is now there. in terms of stimulating investment, i think they have found a very reasonable work around. i think you will see iraqi oil production in the next 5-10 years becoming a very significant. it is around 2 million barrels. if things go well in 7-10 years, we will look at 8 million barrels, maybe higher. >> a quick follow up on that? >> -- it also deals with revenue sharing and other issues. >> they basically worked out the revenue sharing issue of 17% on the oil for the kurdish regional government. they have reached an agreement where the contracts that were

signed with the kurdish regional government had been accepted in baghdad. a lot of these issues, to the extent that oil was an impediment in reconciliation, oil is no longer an impediment in reconciliation. there are other issues that need to be addressed, involving the provincial powers, involving the relationship with the center to the provinces, but oil is increasingly not one of these issues thanks to a very practical approach which was to go ahead and get going with contracts. to be sure, some of the companies will find problems for which an overall framework would be helpful, but i think it has been worthwhile moving ahead and not allowing this sort of overall issue of an oil lot to prevent investment from coming in. targetedday's attack new recruits.

are you concerned that whoever is behind that attack will shift their tactics to attack the iraqi security forces as opposed to just civilians? and two, d you want to see a kind of military base -- do you want to see a kind of military base, with agreement with the new iraqi government? >> with regard to future forces, we have a status of forces agreement now. the agreement has certain benchmarks, one of which was the withdrawal of u.s. forces from the cities, towns, and municipalities, and that was achieved. it told the iraqi people that the u.s. means it when it signs an agreement. that overall status of forces agreement extends to december 31, 2011. that is the basis on which we

have any forces in iraq. any future forces or speculation about that would have to depend on a new agreement, and there is no agreement right now. so the agreement that people focus on is the agreement that ends in 2011. i will not speculate what will happen in a year and a half, except that there needs to be a new iraqi government. they need to look at the implementation of the current agreement and they need to look at what they see as necessary in the future after the expiration of the -- >> but would you like to see a military force based there? >> of these jobs and never have anything to do with what you would like. again, i will not speculate on what should be done later on. i have not been paid to speculate. i am paid to make sure that we implement, that we work together with the military to implement the agreement that was laid out,

that is the status of forces agreement agreed in -- agreed upon in december, 2008. >> the first question, please? >> mr. ambassador, can you say is of foreign and servobserver,u expect newry of all lucky to be the primeal-maliki to be minister? >> he has a state of law coalition that won 89 seats. and the other coalition won 91 seats. everyone else is much smaller. there is a certain logic to having them work together. they have a lot to work out. there are bumps in the road. we saw one in the last 24 hours. i would be careful of drawing any heavy-duty conclusions, when you hear negotiations break down

in that country. people do not like each other until they like each other. i would be careful about extrapolating when you see developments like that. >> news coming from iraq says that the u.s. proposed a new southern coast in iraq that would balance power? >> the u.s. has not been proposing things. we have not been importing ideas from washington. there are a number of ideas out there in iraq. one of the ideas being discussed among the political parties, coalitions, was the notion of taking something called the political committee for national security and seeing if that pcns which had gone moribund in recent years, and

see whether that political committee, like the national security committee, whether that could be revived in a new coalition government. there has been a lot of discussion about what to do on that, how to run it. would you, for example, have a chairman who would only be in charge of having this political committee or national security council, with the chairman of that council be someone who only has that job? would it be someone who has another position, such as president? there have been a lot of discussions. it is an ongoing issue. a number of the parties are looking at what they feel will be a better solution. right now you have a prime minister, a president, a speaker of the parliament. so, in this concept, you would also have a secretary general of

the national security council of some kind. but whether that ultimately is part of a solution that found among a coalition that is able to come up with 163 seats, it's hard to say. i can tell you that nobody has any were near 163 seats. that is why this has gone on for five months and going on six months. maliki has 89; alawi has 91. they have to work this out. they're working at different models for resolving this. if you created this thing, what would happen to the powers of the prime minister? there is a body of opinion in iraq that somehow the prime minister has too much authority and some people say that is a constitutional flaw. some people's late more at the doorstep of maliki. there are different opinions,

but it is ongoing. >> what role is iran playing? >> whatever role they are playing it is never helpful. it seems the run-ins do not understiranians do not understa. they have a very troubled relationship with iraq. in the long run, if they want a good relationship, they have to do a better job of respecting iraq's is not just iran that is interested in iraq. other countries are expressing too much interest. and so i think that when these

problems are solved, they're going to be solved with made in iraq solutions. amigos of -- for some geographic distribution over here. >> this is not a question based on any kind of future. it is based on your experience. that equation between shi'a, sunnis, and kurdish, how do you see it today? >> relationships? i think sectarian politics in iraq sometimes are overstated. it is an identity issue in politics. party heads -- parties tend to have as affiliation with a certain -- the kurdish parties are very -- are very definitely kurdish, the shi'a parties are very definitely shi'a, and where most of the sunnis voted disputes that concept as you

heard from the shi'a allawi yesterday who disputed the notion that iraqiya is actually a sunni party. but i say that it is an identity issue. it is probably a reality there. but sectarianism is not on the rise in iraq. if you look good some of the clerical-type parties, they have not done well in iraq. there is the tendency for more secular parties. the iraqiya claims to be very secular, state of law coalition aims to be more secular than sectarian. i think it is a question of how the political process will develop in the coming years, and i think overall you will see iraq do what it has often done in history, which is to be more secular than sectarian. >> just a follow-up, you say how the political process will develop. had you see it developing

because you used -- they used sunni moderates to cut their roots of the senate jihadists, and so what is the next we are doing? -- the sunni jihadists, so what is the next we're doing? >> my own personal view of the tendency in iraq is more toward secular parties. what you see other identity issues emerge whether you see people from the south feeling they are different from people in the center's opposed to shi'a feeling like they are different from sunni -- all politics have identities. i am not really ready to predict precisely how it develops in iraq except to say that i think is going to be less a rig date -- less a religious identity and more secular identity.

>> i wanted to get your thoughts on how much of a drag in the political formation process -- how much of the recent spike in violence do you see that being related? and is there sort of a drop date that they need to get this done by or things could deteriorate even worse than they have? and there seems to be a loss or an inching toward a loss in the trust of the iraqi people in this government to take care of their needs. >> i did not have a metric on that. my sense is that the process has dragged on too long. my sense is that there is a -- there is impatience among the public with their politicians. the fact that you have gone there since probably january or february since there was a law passed in the council of representatives to today -- no laws. that is obviously too long. someone asked earlier about oil laws and there ought to be more

investment laws and bands like that. i have no doubt that this has gone on too long. but the problem is how to fix it. first of all, with regard to security, i am not sure one could really lay the security issues or the lingering security issues at the doorstep of fluoridation -- government for vacation -- government formation. i am not sure there is a causal relationship there that is obvious to me. but clearly iraqi people want to see their politicians pick up the pace. we were hopeful in the last few weeks as we saw the two leading parties work together on this. they had some useful ideas in terms of the power sharing.

you heard the press conference between maliki and barzani just two weeks ago which was upbeat about the degree to which the kurds felt comfortable with the direction of the state of law and iraqiya discussions. how that plays out today is hard to say that i would caution people that things that are impossible become possible. things that are possible become impossible. >> d.c. a role that sistani can play in breaking the political impasse? is that something that could help? >> that is hard to say. i know that he is following this issue on a daily basis. he obviously has a lot of

wisdom about the political process. he knows the players very well. all the players have gone and seen him. they are in constant communication with him. i suspect that any role he can play, he is playing. and i suspect that he is playing it in the best way he can to ensure that there is a positive outcome here. he believes, and everybody agrees there, just about everybody agrees -- when the government is finally formed, you will see sunnis, shi'a, and kurds in that government together. you will see a government that is very much balanced. when you look at the offers made to iraqiya, they have been offered as a party, where most of the sunnis voted, you'll see substantial offers of important the positions there. i think everyone understands the need to bring all, as they say

in iraq, components together. and i think sistani has made very clear his view on that and how he is conveying that view probably best left to him. >> looking back, what did you see happen in the year and a half you were there that you did not expect you might say? and what did you not see happen that you thought you would say? >> the first thing was -- when i arrived there with over 140,000 troops, i was not sure how that was going to work, and that worked very well. i was concerned especially by the june 30 date on u.s. forces pulling out of the cities, and i think that has worked very well. and it worked very well in a couple of ways. the iraqi forces stood up, and notwithstanding these horrific

events that we all shudder about. but nonetheless, overall, the trend lines toward less violence in the cities has continued. when you go outside of the green zone and you see a plate glass window being installed in iraqi shops, you realize it is because people are -- the sense of insecurity that prevailed there a couple of years ago has been changed. i was pleasantly surprised with how that developed. i was on its pleasantly surprised by the way de- baathification -- that issue flared up again. it is obviously a wedge issue. it is perceived as being very much an issue of setting the sunnis back on their heels, questioning their ability to play in the political process.

that was extremely worrisome, but i think they got through it. and i was struck in that case and by other cases where iraqis often take things to the brink where you're not really sure what room for maneuver there is except to jump into an abyss, and yet they find a solution. so it is a place where you have on a new constitution that has not been tested through precedence. it as a country where you have democratic institutions that are functioning that also have not had the kind of strain put on them since this close election. and yet i think there is an understanding of the rule law and the fact that solutions need to be found that are found within this constitution. certainly i think when you are

an american diplomat there and you're constantly talking to people and getting a sense of how they feel, it is interesting to get from the same person two views that may actually be conflicting. you will hear from people that they want to see fewer u.s. forces, and then you'll hear from that same person they want to see more u.s. forces. and so that capacity to hold two conflicting views simultaneously is an acquired taste. >> what a man, i'm getting this person from the boston globe. >> i was hoping you could just tell us what the government of iraq still relies on the u.s. government for. my understanding is that a lot of the military logistics and stuff, supply chain stuff, is still being done by the u.s. military. how accurate is that and hal

over the next year will those gaps be bridged? >> i think you ought to direct that question in the pentagon. i am not in a position to tell you what the irs are platforms are available to the iraqis -- i s r platforms are available to the iraqis or come from us or whatever. there is also a u.s.-iraqi transition where general or odierno and his forces have been painstakingly, assiduously looking at ways to turn over equipment to the iraqis and capabilities to the iraqis. and that is going on at a rather rapid pace. but i can also tell you that the military -- the embassy, we worked on something called a joint campaign plan. we worked weeks and months on this manhattan-sized phone book plan. and what you see are areas that

are in green meaning the transfers have happened, amber meaning they are in process, red meaning they need some more work. all of these various issues, whether it is readiness for their forces or the state of the equipment, procurement of equipment, training for their forces that are all of these issues monitored very carefully on a regular basis by our u.s. forces to determine where the efforts should be. it is quite a comprehensive transition package, and so when general odierno says it is appropriate that we get to 50,000, he is not just saying that because that is -- the president laid that out, but also because, due to the president laying that figure out back in the camp lejeune peach, the military has worked on making sure that when we get to

50,000, we will have done these transitions. >> we have time for just a few more questions. >> mr. ambassador, a couple of questions in one. can you say that iraq is stable today? what legacy are you leaving for iraq? and finally, what lessons can we learn from iraq as far as security and terrorism in afghanistan is concerned? >> i think iraq is increasingly stable and i think the security problems are not ones that have broad political significance they have terrible significance for people involved in them, obviously, but they are the kind of security problems that are not somehow shaking the

political structures. so i take from that a sense of stability in the country. iraq has been around a long time, so i think we can take heart from the direction there. in terms of the legacy, someone else should answer that question. but what i like to think is that we have been able to establish a relationship with iraq with an appropriate amount of engagement on the u.s. civilian side and an amount of engagement that is appropriate to building a long-term relationship. you cannot be hands-off in iraq. you cannot go there and say that as an iraqi problem, not my problem -- because frankly it is everybody's problem. i like to think that over the

course of time that i was there, we made sure that we had an appropriate relationship, that we engaged the iraqis across the border. for example, i was the first ambassador to be able to visit all the provinces because no one could visit provinces before because the security situation did not permit it. it permits it now. i was able to do what an ambassador could do in a normal relationship. i think the u.s. relationship with iraq is in a position to grow and to be self sustaining and to be long-term. and that is what we sought. we did not want a situation where we would be considered an occupier and therefore a sense is you leave, we go back to what we want to do. i think the iraqis very much want to have that long-term relationship. and i like to think that during the time i was there, there was an increasing trend in that

direction. with regard to afghanistan, i understand why you are asking. everyone in washington talks about afghanistan and iraq, almost conflating them like tw of different countries with the same situation. -- like two different countries with the same situation. different such a question. afghanistan has been around for a long time, it will be around again. it is amazing to meet people -- for example, we have a person at the embassy who was working at the embassy the used to be a peace corps volunteer in afghanistan just a few years ago -- 30 years ago, actually. afghanistan does not have to be violent all the way that -- all the time the the way that it is. but at the same time, when you looked at the mineral wealth of iraq, the fact iraq now has all

the major countries, including all the permanent members of the un security council with enormous investments in iraq said mineral sector, i think you can see the potential there which will be more problematic for afghanistan. again, one has to be really careful of these types of cartoon comparisons, but certainly we have the right strategy in iraq. it is clearly going in the right direction. however been much happier today if there was a new government formed. i would be much happier if they were once again arguing with each other in the council of representatives, but that day will come. do i take a question from mark here? >> at the risk of raising afghanistan and iraq in the same sentence again, my question is about a question of resources

and high-level attention. as the situation in afghanistan gets more and more difficult, do you leave fearing that iraq could wind up, just by virtue of limited bandwidth, not getting the kind of sustained high-level attention and resources that it needs for this policy of engagement that you have described? >> i have to tell you this is sort of the charlie wilson's war scenario, the movie where at the end of the movie we forget about afghanistan and the rest is history. i have never lacked for senior level attention from washington. during my 16 months there, i never liked -- lacked for senior people being well-informed and engaged and visiting. i never had that problem. i never lacked for the washington bureaucracy offering me tips on how to do my job.

[laughter] it was amazing, every day, a new idea that i never thought of, and i appreciated every one of them. i think the issue will be more on the resource side, where people need to understand that the overall national security outlay in iraq is plummeting. as we pull out striker brigades and things like that, the overall outlay of funds we are putting in iraq is coming way down, and yet we are having trouble getting some things funded that are so much cheaper than what we have been funding. funding for peace is a lot cheaper -- a lot less than funding for war. and yet we're having some challenges there. you have to be respectful of the fact that there are a lot of outlays that are needed, not just in iraq, not just in

afghanistan, but in west virginia and places like that. i think we have to be respectful of what our congress has to look at every day in terms of tradeoffs. but i do like to think that people will understand that if we can stay at it for a few more years, and that is what we're talking about -- we're not talking about an open-ended commitment that will go on and on for 30 more years. we're talking about a few years during which the iraqis will get this oil potential on -- up and running, and will not require assistance from us. but if we create a gap, if we fail to do it now on the assumption that they are going to have their own oil, they do not have their own oil now. they will but they do not now. it behooves people to understand that it is going to take a few more years, at the end of which we will have done the job and we will not have to be funding iraq or have projects for the rest of the history.

thank you very much. this is probably my last time here. it is a funny feeling, but that the sea wall. i go off to denver, colorado, and i'm going to be the dean of the korbel school of international studies at the university of denver. i will retire august 31 after 33 years, plus two years in the peace corps. will i be in washington on the 31st? probably not, but i will come through in september and have a proper farewell. i will invite some of you. [laughter] great to see you all. thank you very much. >> in a few moments, a discussion with former

secretaries of state madeline albright and george shultz. in a little more than an hour, of forum on housing finance, including tim geithner. after that, the heritage foundation report on the economy, the budget, and foreign policy. one of the washington journal" tomorrow morning, we will focus on fannie mae and freddie mac. the chairman of freedom works, dick armey, parks about his article between the relationship between the two party and the republicans. and a series of financial regulations law continues with a look at how it may affect consumers. our guest is from that consumer research group. it is live on c-span every day at 7:00 a.m. eastern.

now, former secretaries of state malibu albright and george shultz. they are interviewed by the former state department kalb forndent martin calle little more than an hour. >> i am pleased to introduce the program moderator for the evening. marvin has had a distinguished 30-year broadcast career. he served as chief diplomatic correspondent. he was also the moscow bureau chief and moderator of meet the press. he was the founding director of the center for policy at the kennedy school of government at harvard university.

he is a writer in residence at the u.s. institute of peace. he is a presidential fellow at the george washington university as well as edward r. murrow professor emeritus at harvard kennedy school of government. please welcome kalb. [applause] >> thank you. thank you and good evening and welcome to this special event with two very special people. madeleine albright and george shultz. both having served eds -- as secretary of state, albright with president clinton and shultz with president reagan our conversation will focus on war and peace building. rarely in american history have we been confronted with some many daunting challenges not only the economic challenges which are daunting enough but in addition, two wars in iraq and afghanistan, the threat of

global terrorism, the threat of nuclear proliferation and climate change. there are flickering of good news. the communications revolution inspiring political hope around the world we will all remember what happened in iran last year. there are organizations such as the yet states institute of peace which is actually trying to turn these folks -- these hopes into reality. what is realistic? what is possible? what should our priorities be at this crucial moment in our history? who better to ask then secretary of state george shultz and madeleine albright? secretary shultz served in both the nixon and reagan administrations with nixon and secretary of labor and reagan as secretary of state. he played a key role in framing of foreign policy that led ultimately to the end of the cold war. a ph.d. in industrial economics, he has taught at mit, chicago

and its stanford. secretary of bread served in the carter and clinton administrations with carter on his national security council staff and with clinton as his un ambassador and van as the first woman to serve as secretary of state. a ph.d. in public law and government, she teaches at georgetown and chairs a global strategy investment firm. you have noticed no doubt that shultz worked for a republican president and albright for a democrat. we are balancing the ticket or at least trying to. >> you do not know something. there is a little club of former secretaries of state. >> i will start by assuming that you are both back in government and therefore back in power although that does not necessarily follow.

>> what would be our overriding priority? what problem must use of today and how would you go about doing it? >> the first thing i would do is say to be effective for around the world, we must be strong at home. we must get our house in order. for decades, we have been spending more than we earn and it has gotten totally out of control. we are losing respect. we have to get control of ourselves. that is number one. number 2, we have to do better on the energy problem. we have to learn how to use alternatives to oil and coal,

deal with the carbon problem, and get control of ourselves on that basis. with that kind of stance and strength, then we would like to see hard work in trying to get ourselves to a world free of nuclear weapons. i might say that president obama is doing a very important and strong drop in that regard. i am very impressed with what he is doing. >> you mentioned a couple of very important issues. how would you go about doing that? on the economic front, many people have talked about the need to do this. very few people have done it and what i am asking is how would you do it? >> it has been done before. i hate to say it but we inherited an economic mess when president reagan took over.

it got straightened out. it can get straightened out. the key is economic growth. adopt policies that give you economic growth. and that is what will generate revenue. combine that with controlled spending. we have to get our social security system back on track. conceptually, it is easy. it is clear what the problem is and how to deal with it. we need to get the political gumption to do it. the biggest problem is out of control spending and that is the health area. it is it harder problem but i think very doable. >> secretary albright, you're burning issue of the day and how would you go about handling it? >> what i find interesting is that we presume we turn as secretary of state is they are

addressed as issues of foreign or domestic policy. that is one of the major aspects of what we are dealing with. it is very hard to separate the foreign from the domestic policy which means that if i were there, i would think that we would have to do a better job of explaining to the american people the combination of these problems. the other part, if you look at the issues that were mentioned, the plethora of them. what i think is the biggest problem is we do not have the international institutional structure to deal with it. in fact, there is not confidence in any of the institutions that are out there including domestic institutions and the foreign institutions. i am a great advocate of the usa. does it really work? there is a row question on that. i was just asked to head a group of experts looking at a new strategic concept for nato.

i believe in nato. is it really the alliance that is going to take this into the future? to the international financial institutions work? for me, one of the biggest problems is who does this? what are the institutional structures? i think those are individual issues. if it were a lottery every day about the biggest problem in the world, i would say pakistan. it has everything that gives you an international migraine. all the issues are collected there. i would spend a lot of time on that. any one of the issues that you mentioned or george mentioned, and the worst issue is looking at how the worst weapons, nuclear weapons, that they did not get into the hands of the worst people, the terrorists. >> if i think most of us listening to both of you would agree with everything that you have said.

but it seems to me that nothing is really going to happen unless there is a presidential leadership merit to congressional cooperation. at the moment in washington, where i live, there is however you define it political paralysis, political warfare. how are we going to make any progress in this climate? what needs to be done? >> come on out to california. the government is great out here. [laughter] >> stick in washington for a minute. [laughter] >> i do not know the answer to your question. i have a sense that sometimes divided government works better when one party or the other has it its way. i thought the second clinton term was very good.

the reason why it may work better is that everybody knows that you cannot get anywhere unless you find solutions that are broadly agreeable. it tends to push consensus and tells people that is the way they have to work. maybe we will get something like that if the congress is a little more balance after the next election. >> i definitely cannot go along with that. [laughter] >> you wanted all republican? question no. i think that is part of the government -- part of the problem. i have been in the opposition. i know what it is like. it is more fun when you are not. the bottom line is there is not a sense of trying to find a bipartisan solution. george mentioned we have this

small club. the truth is, most of the former secretaries of state are republican. we have spent a great deal of time together looking at joint solutions because in fact we have faced similar problems together. i think that is the kind of thing that needs to be seen. it is not a matter of if you are a democrat or a republican if he did not have the best interest of the country really in mind and heart. it is not happening. it goes to the point that i made which is i did not think there is confidence in institutions. if you look at the polling numbers, congress and numbers are very far down. there is this anti-incumbency feeling that is unfortunate. >> there is this question i have just been given. do you ever want to give up because it is so hard? it is offered by alyssa who is aged nine. she already got the message. >> i think that is overstating

it. i think it will get rated. i think the fact of the matter is people broadly see, never mind the people in washington, regardless of party, there is a general perception that it is not working. we are going to have to do better. we will get that point through to the people who are in charge. >> we have known that for the past two presidential elections and it has not gotten through. what has to happen? there are many people who genuinely feel that some other catastrophe must first happen to galvanize the american people into recognizing a serious -- how serious the problem is and doing something about it. >> there is an utter catastrophe had to guess right now. it is the runaway spending. not only at the federal level but at the state and local level.

i think people are perceiving it and saying we have to get control of ourselves. that is why i said at the beginning that getting control of ourselves is the key. they have to have a strong pace to work on the problems. >> i think the chances of us returning to office are zero. bottom line, there is something magical about public service. and the possibility of trying to make a difference in these issues. the assumption is that people in various offices.

we need to turn the attention to where it belongs, the media. [laughter] >> that is the -- the first time i heard that was during the nixon administration. >> what i think is very important to solve the issues is to have an educated and informed citizenship. that is what democracy is about. unless we figure out some way for people to use this bountiful amount of information in some way to understand things rather than to be riled up by it, i think that is one of the major problems. i usually get there at the end of the discussion but i thought since you, i think it is a genuine issue. [applause] what is so interesting as we have more information than we have ever had. this may surprise you but i actually listen to right-wing radio when i tried and it is amazing that i have not to run over somebody. [laughter]

it basically elises anger from a certain group. i do think that there is a genuine responsibility that the media is not selling and since this is co-sponsored, i think it is a very important point we need to deal with. >> it may surprise you but i agree with everything you say. [applause] >> moving on. [laughter] >> a key thing would be how to strengthen our diplomacy? i am reminded that secretary of defense gates was the one who said he would give some of the pentagon budget to the state department to strengthen its role in problem-solving around the world. we have heard about diplomacy being a kind of soft art or smart way of accomplishing your aim. why is diplomacy, why does it

seem so inadequate to the tasks before us? >> first of all, because we have not devoted the resources that are needed. to support the state department and the building up the resources there. secondly, we should do a better job of seeing to it that the senior people stay. we have experienced foreign service officers retiring at the age of 50 and so on. that is when they are at the top of their game. we should keep them there because we have to conduct global diplomacy. we need first class people and many of them to do it. that should be an easy thing.

as secretary paul gradually moves the budget up, the secretary of when you have an important post, very qualified foreign service officer does not necessarily get to do that job. in a sense, you are taking the people who have made a profession out of dealing with these issues somewhat out of the action. i think we need to keep him in the action. not just analyze and report, but do the work of diplomacy that is necessary. >> am i listening to criticism

of president obama decision to place special envoy is and keep troublespots around the world's -- around the world? is that what you are saying to us? >> to a certain extent. it is something that is -- that has grown ever time. it is also true of ambassadorial posts. it is important that some of these posts be open to foreign service officers so that you have the chance for the professional people to move up in two important roles. >> let me remind our audience that you are listening to the commonwealth club of california radio program whose speakers today are former secretary of state madeleine albright, george shultz. we are discussing the challenges facing in the nation.

i would like to ask you both, starting with secretary albright's, up we are old enough to and remember that there was this great phrase about politics stopping at the water's edge. we always live with an assumption that when it came to foreign-policy, we are all in it together. now it seems that there is a republican foreign policy and a democratic foreign-policy and there is even a joke in washington that it would be good for president obama and his foreign-policy if -- in afghanistan if the democrats lose a great deal in november and the republicans when. what is this business about to foreign-policy is? it is in a dangerous for the country? >> i do believe that we need to have a bipartisan foreign policy. i worked on that. a lot of people might of been surprised that i was very good friends and work with jesse helms. he was chairman of the foreign

relations committee. there were a series of issues that we had to deal with and i believe in that. but it goes to the point that we have made a couple of times, which is a lack of sense of what we can do to help the country instead of helping ourselves. i do think that there has to be -- i believe that president obama has done more to reach out to the other party in order to try to develop this kind of a policy. in washington, i am trying not to be overly partisan in stating this, senator mcconnell basically it is mr. no. that does not help. it through a number of organizations, we have been trying to figure out how to get to a bipartisan foreign policy. it is very confusing to our friends and enemies what exactly

is going on. i think this is a moment. can i go back to something? on the issue -- i teach a course. foreign policy is trying to get some countries to do you watch. i teach a course called the national security toward us. we are still the most powerful country in -- national security toolbox. we're still the most powerful country in the world. you look in the toolbox and there is not a lot in there. you have the threats of the use of force, the use of force, intelligence, and law enforcement. that is it. if you look at problems, you have to pick out the tools and mix and match. one of the most interesting things that i teach about is the relationship that secretary shultz had over the question of

-- it is something that has been going on a very long time. we are at war. the have two doors. at the moment, it seems that it is easy enough to say that the pentagon -- it is hard to get some of the back for the state department. look at the budget. the bid to gun has something like $85 billion. the state department -- the pentagon has something like $85 billion. the state department has less. there has to be that we calibration. i fully agree with secretary shultz in terms of having the diplomat to have more power. i am not sure i fully agree about eliminating political diplomats. not the special interests. we were political appointees. >> i am thinking about -- >> this is a very practical

issue. it has to do with a divided government. i can tell you that it is hard to get confirmation for a variety of people in the post of ambassadors. secretary clinton and president obama need to get started on what was going on in the middle east. >> secretary schulz, the appearance of the united states in afghanistan, for example, is very much khaki in color. the top man is now a general petraeus, a very admired, experienced. he is the boss. even the american ambassador is a former general. the question that comes up as, -- comes up is, the generals

tell us that in afghanistan, the ultimate compromise is a political one. you can put tons of additional troops in afghanistan and you will not win the war. what is holding -- why is it that we appear to be so linked to a military appearance and therefore a military outlook? or so 8 scenes? what would be your judgment on that? >> in afghanistan, we have to get the concept right. i do not think we're there yet. we went into afghanistan in 2001 and we had a brilliant success. we made common cause with local tribal groups and they wanted

the savings we did. we were able to use our comparative [inaudible] effectively. we got what we wanted. we got control. our mission morphed into trying to create and afghanistan that had never been there before. a country with a central government, democratically elected, that has an army that can keep stability. that is not afghanistan. we've got to get back to the notion that -- general petraeus understands that. i have the feeling that as the policies in afghanistan were going to look something like that. now we have a huge problem that we have not thought through strategically.

we are looking at it tactically. it comes because the nature of the warfare we were experiencing is different. our adversaries do not wear uniforms. to our adversaries -- our adversaries use inexpensive weapons to create chaos. our adversaries implant themselves in civilian places, like hospitals and schools, mosques and so on. they fire from there. if you fire back, you cause a lot of so-called collateral damage that you have a hard time with. so you meet that with the rules of engagement that take our comparative the advantage away from us. it is hard to use -- that is so we have to think through. >> maybe we can not win?

>> may be that we have to have some different strategies and tactics to deal with a different kind of warfare. i might say that this problem is pervasive and we will face it everywhere. we go to afghanistan and we go to iraq, what we do in yemen and somalian? and so on and so on. >> secretary albright, the believe that winning is tactical in net debt -- possible in afghanistan? the president did say that we would have to win. >> first of all, i think that someday i will teach a course of the unintended consequences of foreign policy decision. the afghan story is a very long one that actually began several centuries ago. but i can track it from the

current administration reaction to the soviet invasion to be rated administration providing stinger missiles and a variety of issues. it has been going on for a while. he talked about the spending -- the initial victory. the bush had been station took their eye off the ball and went to iraq. there are many reasons for what is going on. this is why i said that pakistan was so important. we can win in terms of trying to limit to the extent of the terrorist activity if we deal with pakistan. i think see it as a regional issue. what lending has been defined as is trying to get rid about qaeda. according to things that one has heard, we're doing pretty well and getting ourselves read of al qaeda. it has to be a bottom alt. i think that general petraeus'

approach to insurgency is something that has great validity in the afghan issue, but the only way we will be able to deal with afghanistan is there a regional solution, which means dealing with pakistan and india and trying to see it as a regional issue. >> we have not talked out all -- talked at all about israel and the arab states. there is a question from the audience -- is that possible to achieve peace in the middle east during the current rally of the obama administration? i think that the author of that question has a mind that there has been significant differences a pair between israel and the united states. but there has been the most recent efforts on the part of the two leaders to straighten things out. get to the main point.

secretary shultz, you were there in the 1980's. when things were very rough. >> i was there two weeks ago. [laughter] >> looking back over the last 30 years or so, and putting your own experience right there for us now, what do we have to do -- what can we do to actually make peace more achievable between the israelis and the arabs? >> i think we want to build on the good things that are taking place. there are two of them that are important. whatever you may think about the iraq war, we are where we are. where we are is said on this and is not there -- said jonassaint is not there and there is a reasonable chance that there will there will emerge in iraq a

government that is reasonably represented were shiites and kurds someone manage to get along so much. they are essentially a wealthy country. if they can get their act together, you will have something in the middle east in the arab world that has never been there before. i think that will be important. it will drive iran crazy. right next door will be a country that respected the will of the people and it is obvious that their own regime does not. that is one thing. the other thing that struck me when i was in israel recently -- i had the opportunity to meet with the prime minister of the palestinian authority.

he is doing very interesting work on the west bank. there is economic growth on the west bank. economic institutions, financial institutions, political institutions are forming. with the help of a brilliant three-star general, there are security institutions developing. i would try to nurse these two things -- nourished these two things and try to connect what is happening with the west bank with the negotiations that people are trying to get under way. it is interesting to me that the developments in the west bank are being supported by jordan. to the extent that you can keep jordan involved, you have a state to deal with that can help

the palestinians. so i would be nourishing that developments, which i think it's promising. >> secretary albright, how does one actually, when you are secretary and you're trying to do this, how do you nourish that kind of small growth, that seedling? how do you do it? i have been covering this for almost 50 years and every time he gets close to something, a couple of bad guys throw a few grenades here and there, they kill some people, governments have to defend themselves, suddenly, everything is thrown into a -- how do you manage these kinds of things? >> it goes back to your question about diplomacy. for instance, there is a story on the front page of "the new york times" today about living conditions in gaza. it does talk about what they are

doing on the west bank and saying that the people of god said do not like what is going on in the west bank. -- the people of god that saying they do not like what is going on the west bank -- gaza. working through -- encouraging the saudis and others to try to sort out some of the issues in gaza. we cannot do it all by ourselves. in the experiences that we had at camp david, i wish we had been able to spend more time getting the moderate arabs to be more supportive. some of the proposals that have been made. i think that the diplomatic subtext of this is very important. i actually would try to figure out some way -- one of the most

interesting countries at the moment is turkey. turkey is in a fight with israel at the moment. on the other hand, they had a very interesting influence in the whole region. there has to be more bite in by other countries in the region. by other countries in the region. how did get those in power to be able to get above that and criticized those that have done the grenade or whatever and keep going? that was the brilliance of its academe. he said we have to negotiate as that there was no terrorism and fight terrorism as if we were not trying to negotiate. you have to do both at the same time. >> let me go back. the reason why i