in debate format, you can click on all of them and watch them for yourself the next question is from colorado, thomas, democrats line. you're going to be the last. caller: in colorado, they have done a good job with the mail out ballot. it is working fine here. what i would like to see is you can walk up to any atm and use a debit card think it the right amount of money or whatever out of it that would eliminate many errors. it tells you about the candidate and everything. thank you. host: a number of people have written about the process of atm-like voting.

guest: i think, again, having some kind of independent voter- verified paper record is essential in all of this. and using it to check the software totals that are produced is essential. one of the things we talk about is that atm's worked so well. there are differences. voting is a secret act so that if there is some problem with your atm tour, you know it. if there is some problem with your vote and recording your vote, you cannot know it because the ballot is secret. there needs to be some independent record of that vote. i do think at some point perhaps with a more

sophisticated registration system that as automated, electronic, it may be easier to have people vote in different locations, rather than having to go -- i do not think we are there yet, unfortunately. we are going to have to continue with the various voting systems that we have. host: we have a couple of other resources. the brennan -- our guests, you can hear more if you like. also, the map from "usa today" is from their web site and there are active links where you can find out what kind of voting system, county by county, is in place there. you canno do more experimentingt

the "usa today" side. we now close out the "washington journal." we'll see you tomorrow morning at 7:00 a.m. eastern. until then, have a great day. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> we will be live in about an hour as the congressional oversight panel looks into the tarp funds.

kenneth feinberg will testify. our live coverage begins at 11:00 a.m. eastern. the daily beast post a form in new orleans today on environmental and political issues. spike lee and bob schieffer kobe guests today. stanley mcchrystal will be a guest on friday. live coverage begins on c-span2 and online ad c-span.org. >> follow the key races and candidates on c-span. archived debates online at the c-span video library. upcoming event coverage and other helpful resources are available.

follow the election coverage or 3 election day. >> each night, we're showing debates from key races across the country. >> president obama continues his campaign swing through the west today. he is in washington state to campaign for patty murray. tonight, the president heads to california where he will rally for senator barbara boxer and other democratic candidates. then he stops in nevada before returning to the white house on saturday.

race isida governor's rated a toss up. candidates debated earlier this week. the second debate between the candidates -- a poll put the republican ahead of the the democrats by six percentage points. the debate is just under an hour. >> and now, your host. >> welcome. the candidates are the democrats alex sink republican

rick scott. the candidates will be signaled by a clock that is located on the stage. we will allow the candidates 30- second rebuttal. here is our panel. kelly dunne and adam smith. we have asked the audience to hold their applause. airtime is limited, so let's get started. we begin with a question and we begin with jobs. you have proposed sparing hiring by a series of tax credits and to pay for that you were talking about spending cuts. your opponent is talking about bringing the government back to size that it was in 2004. where are you going to cut spending, and how many jobs are you expecting to create? >> i want to thank the viewers

and the people in the audience and the sponsors of this important debate so that people all over florida can hear directly from the candidates. i'm running for governor because i am bringing my 26 years of experience right here in the state of florida and to address the critical economic challenges that we have in our state today. we have very high unemployment. we have to get state headed in a different direction. i put together a specific plan almost 10 months ago. we will revitalize -- we will vitalize our economy. florida is not a state of large corporations. our state was started up and i've spent my career and in providing for tax cuts and i'm

target. i am providing a plan for remaking and diversifying our economy by bringing new industries into the state. >> mr. scott. is the basis work" for your campaign. you have seven steps for 700,000 jobs. some have said that the economy will generate more than those 700,000 jobs in just four years. leadership to thank florida for doing this and for everybody for watching. i want to thank my family, my wife. we have been married 38 years this year. my mother and my daughter,

alison and her husband. our plan is seven steps to 700,000 jobs. our plan says we're going to get the state back to work running the state like a business. watch how you spend every penny. i will be the jobs governor. i will do what i have done in business. and then i will cut property taxes by 90% and phase out the business tax. we will be the number one state. i want to complement alex on one thing. our budget is a mess. i will not take any state-based funding for my campaign. >> you are going to add 700,000 jobs on top of what the economy will bring. there are currently 1 million

floridians on employed. >> this stage to be the number- one state for job growth. no income tax per we have beaches and weather. but the expansion of the panama canal. this should be the number one state for job creation. >> in rebuttal to that? >> i might add that in looking bush's lan, jenna bub economic adviser has said it is flawed. it would mean cutting $18 million out of the budget. we'll be interested in hearing how to cut $18 million out of the budget. rick scott talks about creating 285,000 jobs.

he was a corporate raider. he went and bought hospitals all around the country and shut many of them down. that is how he built his business. >> our first question is from the panel. -- our first question from the panel. >> you would cut 6000 jobs. is this the right time to put 6000 floridians on the unemployment line? >> my plan is seven steps to get 700,000 jobs. we will reduce the workforce. if it looked at every year, if we reduce the work force 5%, it is $300 million. we have between tall% and 60% -- we have piecing -- we have between 12% and 16% attrition.

we have to get this back into the hands of people -- the more we do that, people will build their businesses. this state is built on people who want to build their businesses. more money we get back into their pockets, this state will grow. my opponent will start attacking cook we built a wonderful company. we took care of 100,000 patients a day. we had -- we reduced the cost of health care. i am proud of what we have accomplished. >> very specifically, what concrete steps would you have taken to ensure our economy is in better shape than it is right now? >> i would have taken several different and more specific steps. this started with the subprime

crisis, hitting southwest florida very hard. plots of rampant mortgage fraud. this is what i would have done. -- lots of rampant mortgage fraud. i went expedited transportation projects. those that we have, it takes too long, 18, 24, 36 months. i would have streamlined regulations that we could have expedited more transportation projects. i would have been more aggressive as an economic ambassador. i will wake up every day and ask for a list of companies for me to call to recruit to come to florida, or for companies who are in florida are now who want to grow and expand and offer them my helping hand to assist them. another thing that has happened is that we're in a critical situation on the space coast.

we knew it was possible that the federal government would be reducing funding of nassau, -- of nasa, and i would have been on top of that. >> the next governor will be in crisis mode, facing a $2 billion shortfall. where is that money going to come from? >> the estimates of economists, you are right, that the deficit could be between $800 million and $2 billion. i have specific suggestions in closing that gap. part of my business plan is for reforming government. i have put aside $700 million through cuts in middle management and through other inefficiencies like the way the state uses its real estate. they are all outlined in my plan perry would have between

$2,000,000,000.-12949677 dollars in medicaid fraud. we have to go after that kind of medicaid fraud -- between $2 billion and $3 billion in medicaid fraud. we do not want to hurt services to floridians. >> how would you come up with a shortfall of? >> that is step one of my plan. you go back and do exactly what you do in business. look at every business and say, can i do that less expensively? if you do that, there are significant savings. you benchmark. you ask if other states can do that less expensive way. you can save significant amounts of money. we have benchmark other states. we can show there is significant savings.

my point talks about how she can save $700 million. that is obama math. she has gotten letters about how to pay for $12.5 million in new spending? which taxes does she have to raise? sales, cable, wire -- is she going to have to propose an income tax? >> may i respond to that? the first think i have to respond to is that those charges, billions of dollars, that is outlandish. we cannot trust anything you say. you have been throwing mud and negative advertising ever since the republican primary, and your charges have been out lenders. there is not a single provision for any kind of tax increase in any of my plans but might

transportation plan, my energy plan, my transportation plant -- it is not there. this is a fairy tale fabrication. >> you received a letter. you did not respond. what is the number? you are proposing significant -- what is the number that you are proposing? we're walking into a deficit over $2 billion. we know we have to save money. obama math does not work here. you cannot save $700 million and then spend $12 billion. >> i have to respond to that. >> 30 seconds to correct i do not know what obama math is. i was a 4.0 math major and the know-how to add numbers. [applause] >> let's continue. anthony.

>> let's talk about education. starting with mr. scott. the governor vetoed legislation that would have tied teachers' salaries to student performance. would you sign the measure if it came back next year for which the change -- or would you change it? >> this is exciting. every child in this state has the same opportunity i had. i started in public housing. i have lived the american dream. every child has the same opportunity. we have to look at every child as an individual. moving one child from this level to this level. we have to compensate them. we have to make sure we train our teachers the best way we can. our parents should have all the choices it possible.

just because you live on this block, you should have the choice of any school. he should have the choice and charter school or home schooling. my opponent does not use the word "choice" one time. we have to make sure we do this. this is for the kids. we should give as much choice for parents as possible. >> let me just clarify -- do i get a response? thank you. well, rick did not really answer the question, because you asked a question about whether he would sign the same legislation that went to the legislature last year. i would not sign a bill like senate bill 6. this is the reason why it is because while parts of the bill provide for performance pay for

teachers, something i agree with, all of the school board's, the parents, the teachers around the state recognize that legislation for what it was. it was nothing more than a tallahassee bureaucratic -- taking control of our schools. i would never signed a bill like that. my plan is comprehensive. i put together a 27-page education plan -- >> what specifically? >> i do call for accountability. get all the stakeholders around a table and you build out what you think of the most important factors. it cannot be just one thing. i would build out a number of factors and i would test it out. in my company, i never would have rolled out an incentive compensation plan statewide

without knowing whether it will work. i would have tested it out just to be sure it was working correctly with the results which for one, which is it better performance. >> thank you. >> one of the things mr. scott has brought is what you are willing to take responsibility. let's look over a few controversies in your past. bad pension investments what you sat on the oversight board. audit problems while you're on the audit committee. tell us about that. do you take responsibility for any of those? >> i take responsibility for all of them. let me go through what i do take responsibility for. we have a division of insurance agent licensing. i went back to check the charges that were made. our lawyers and their agencies

licensing people have assured me that they're doing what i expect, which is to follow the law that has been on the books for years and follow the guidelines and rules which were passed in 2002 and signed by jeb bush. we follow the laws. when it comes to the pension fund, rick scott is trying to blame me for the global collapse of the stock market. that is not going to carry water. our state pension fund is one of the four strongest funds in the country. he played all of these ads to scare seniors. they are afraid they will not get their pension pay. >> there was a drop in a third of the value at a time when the economy was tanking. you had warnings that some of the investments or in risky

securities. >> the problem was the executive director of the pension fund did not inform his board members that he had a problem with some investments. i held him accountable and i asked for his resignation. we hired a new director that has qualified experience to run a pension fund. so yes, i hold people accountable to do the job they are expected to do. this whole pension fund issue -- isn't it something that rick scott would accuse me of being a responsible for a global financial collapse when our own states of florida suit rick scott for insider trading and defrauding the shareholders of which our state pension fund was one of the major shareholders. >> can i respond?

>> you can do that in his answer. you pay a $1.7 billion for line for medicaid fraud. how does this make you qualified to be governor of the state? >> on the guidelines of the convicted felon, she did not follow guidelines. you can see a list of people that she didn't follow the guidelines. she could have changed the guidelines and she did not. she was told multiple times that they were in very risky investments. she waited until after the fact. she talked about insider trading. that lawsuit was dismissed completely. when she was it nationsbank, when her tellers were paid

kickbacks for referring to elderly citizens, they were fined by the state and they were sued by the state. the company falsified its accounting. they were sued and they did paid fines. there is a big difference in insider-trading cases -- mine was dismissed. >> we will allow for a bottle. >> rick scott -- will allow for a rebuttal. >> rick scott sold -- he was charged with 14 felony charges. these charges that he is telling the people of florida about me, the lawyers have brought the suit against nations security has said publicly, rick, that i

had nothing to do with the spirit that was not a company that i was associated with. the people of florida have been hearing your charges and your negative attack ads over and over again, when you have a lot of explaining to do yourself. >> $1.7 billion in fines. either you or your too distant as manager. >> we built a great company. i start with my life savings of $125,000. >> we have heard that. >> what i focused on was making sure patients were taken care of. outcomes or better. patients had satisfaction. i could have done a better job of hiring more auditors and making sure the company complied with the medicare

records. you have to broaden your focus. do what ronald reagan said -- trust but verify. that is what i bring to the table. you focused on it and you get better, and that is what i have done. >> you have created another successful company and you had a deposition relating to a lawsuit involving the company just days before you file to be a gubernatorial candidate. why not allow people to see that deposition? >> there are 20 + million lawsuits filed every year in this country. companies,nvolved in there are frivolous lawsuits that are fishing expeditions. they go when all the time. those are the same trial lawyers that backing my opponent. that case has nothing to do with my run for governor.

i have elected not to release saiit. >> some parents and teachers said teachers are teaching to the test. do you believe these tests of the best way to call public schools accountable? and of the best for the students of floor mat? >> we have to have a way -- are they best for the students of florida? if there in that class for nine months -- that is one way to measure it and it should not be the only way to measure it. our second daughter teaches special-needs kids. in business is the start with a measurement program and an upgraded and improve it. that is one way to do wiit. but you go from how effect that was in moving that individual

student. you can do it in business and should be able to do would in education. i think f-cat is one way to do that now. it should be one measurement. >> he talked about your plan for teachers accountability 3 do you think the f-cat does it for a florida? >> every year i was always -- my son is in the audience tonight. i was waiting for those test results to be sure that my children were performing against a national test, and i believe the f-cat has gone away from that. our children need to be held up to national standards. this test is one way to evaluate students. we should have ways to evaluate and measure student performance

all during the year so that when you get to november and a child is falling behind, you don't have to wait to the end of the year to say we need some help here. we need to turn this system around. i'm going to ask our teachers and art superintendents and principals and our professionals what is important and help they think we should evaluate our students. there are other ways besides testing. >> thank you. we will take a quick rate two, minutes. -- we will take a quick break, two minutes. welcome back. this event is being seen by voters across the state. we'll get right back to our questions and the panel. >> the next government is likely to face legislation requiring

police and law enforcement to check the immigration status of people they suspect are here illegally. is this a good idea? >> thank you. we americans -- is my microphone on? sorry. ok. sorry. all of us are frustrated by the lack of action by the federal government in implementing a comprehensive reform plan that would be consistent across all states. the plant i would offer that i believe is appropriate for florida -- this is the plan i would offer by believe is appropriate for florida. they are taking jobs away from floridians and from legal immigrants. i have the support and endorsement of the organizations in this state, in addition to

democratic and republican sheriff and the state of attorney. i have talked to them about the proper weight to enforced our immigration law. our law enforcement officers have been subject to a tremendous budget cuts. they -- our shirts are concerned about the future. they need to be able to it -- our sheriffs are concerned about the future. i would support the immigration -- i would support the alex sink immigration plan. >> we are a country of immigrationts. she has lived the american dream. she joined the u.s. navy after high school and retired after 20 years as a lieutenant commander. we have to come up with the way that people can come here

legally and people know what the rules are correct we need to come up with a work visa program that works for our employers. we need to do that. my contras was to be up on employers. we need to come up with the way some employers know how to comply with the law. it is common sense. if you are in our country illegally and you are stopped by law enforcement they should be able to be asked if they are legal or not. my opponent wants to talk about her endorsements from law enforcement. i have been endorsed by sheriffs all across the state. >> mr. scott, four weeks we've ad treated to endless-an

after a negative ad. tell us what you admire about your opponent. >> sure. >> looked at me. >> i admire her commitment to our family. you can see that she is committed to rich children and to her husband and being a great family person, which i admire the e. >> mrs. sink? rick hasire that wr been married to its high school sweetheart for seven years and for his lovely daughters. >> now say other nice things about each other.

that was too easy. you have been a successful businesswoman. he has been a successful businessman. both of you, when it comes to creating jobs and tax cuts and spending cuts come there is a lot of similarities in your platforms, and much more some among the senate candidates last night. do you think he would make a bad governor? >> i think i agree with many of the newspapers that endorse me in the state. i have done 10 newspaper endorsements but i don't think rick scott has got a single one. rick scott is unprepared to be the governor of our state. >> despite the fact he has had multiple successes in business? >> i did not think leading a large hospital corporation that was charged with the largest medicare fraud find in the history of this country would

rate him as being a highly successful ceo when his board have to ask him to leave the company. i think there is an issue of trust and character and integrity. the thing that is more worrisome, i believe he has not made himself available to a single newspaper editorial board. when you go into those boards, you cannot talk in sound bites anymore. you have to sit there and talk in detail about your policies. all we have heard in support of rick scott is a bunch of sound bites. >> you can respond to that, but beyou think mrs. stink would a bad governor? >> i'm going right to the voters. i'm talking to voters every day. that is how i will spend my time.

i think the best way to compare my opponent and the is this. she " isn't tallahassee insider. she has been there for years. she had her shot. the state has lost over 800,000 jobs per pension fund has gone from 7% over a funded to 13% underfunded. she is a failed fiscal watchdog. look at nations bank and the nation, these are things you have to deal with. she supports everything obama supports. if we believe that -- if you believe obama's plant is the right plan for the country, then you should vote for. obamacare is a disaster. she believes his policies are the right solutions. they are clearly not the khmer

respond to that? -- may i respond to that? >> certainly. >> i have been talking to the people of florida for 29 years. no newspaper ever wrote anything negative about my character and my integrity and my career. i think talking to the -- i have been talking to the voters of florida for five years. i handle my job very well. many newspaper editorials have lauded my compliments. >> you will not answer the question about what you would have done differently on the jobs per if i was a senior account i would be scared to death of having you spend another four years in office. the pension fund is 13%

underfunded. you paid a kickback to tellers. if you want to attack my background, that is great. i have built a very successful company spirit you have been a failed fiscal watchdog -- >> thank you. let's move on. >> i received a call from a viewer in palm beach county and he wanted me to ask about your opponent's idea to test recipience and he acquitted this to kicking somebody when they are down percocet you would not oppose this. >> i said i did not think the state of florida it should be using taxpayer money to fund somebody's drug habit. there has to be a way to be sure that our taxpayer dollars are not enabling somebody to continue to be a drug abuser. before we implement and across

the board plan, i am -- i am a pretty fiscally responsible person. i would like to know what the cost to the taxpayer would be for implementing a plan like that. >> is this the right thing to do in an economy like this when people are losing their jobs? we cannot incident that ever went on welfare is doing drugs. >> you have to think about the children of those families. when there is drug abuse, those kids are having problems. and so it will save money. we will make sure the recipients do not use drugs. if you do test people, the do the right thing. those children will be taken care of. we'll find the problems earlier rather than late. >> i want to ask about property

insurance. sonny is the fifth anniversary of hurricane wilma. property insurance is exposed in key areas of the state most vulnerable to storms. how did you make a citizen's less of a liability without soaking homeowners with extra premium costs? >> i put out a specific plant and how to deal with this. we have to take from what has happened over the last four years while my opponent has been in office. what has happened is -- we have 1.2 million policyholders. we have over 5 $1 billion worth of record you have to make sure you understand -- you have to

understand what insurance companies do not want to do business in our state. they cannot quantify other risks, like sinkhole risks. we're not going out and talking to these insurance companies and finding what their problems are. the ceo of state farm came to town, came to tallahassee, and nobody would meet with him. we have to deal with the issues that are causing them not to want to do business in our state. >> same question for you. >> the ceo of state farm did come to tallahassee and i did agree to meet with him. they were threatened to pull out of our state entirely. i implored him and work with the state farm agents and other tosurance agents in the staite beg them not to leave our state.

unfortunately, rick, you need to understand that for so many people, citizens' property insurance is the only choice they have. it is not the insurer of last resort. and so the only way for us to get ourselves out of such a heavy reliance upon citizens' property insurance company is to be sure that we have to policies in place, as i will do as governor, to attract global capital and to come back and compete for our business, and i know i can do it. >> you had four years. we have gone from insurance of last resort to insurance of first resort. you have not solved the problem in the last four years. you have not proposed anything that will deal with the sink hole risk. nothing has happened with regard to that.

more insurance companies are leading all the time. state farm is not excited about being in the state. nothing you've done so far has worked. >> i do want to bring up something about ricks scott's plan. he is calling for the regulation of insurance rates in this state. there has to be a way for insurance companies to stay honest. otherwise, they will just charged with ever raked they please. deregulation of the insurance market is not the enter for floridians. >> that is not accurate. we have to make sure that insurance companies dree policy holders fairly. we have to make sure that we treat insurance companies fairly, so that they can make a profit so that they cannot stay in business. -- so that they can stay in business. you have not solved this problem

in the last four years. >> a final word. >> he made a comment about, we have to be sure that insurance companies treat policy owners fairly. y to gety, but they tr away with things all the time. my office hears the complaint frequently. rick scott has made a proposal that we eliminate something called the bad faith lost in this state. that would be a disaster because if we did that, the insurance companies which is be able to delay paying claims for however long it wanted to. they have deep pockets and it would hurt premiums and the policy owners to collect the believe homosexuality is immoral? >> i believe marriage is between -- i have been married between

30 years and i believe marriage is between a man and woman. >> would you bar gay couples from adopting children? >> children are raised in more healthy environment if they are raised by a couple. >> what about you? >> it is not. let me mention that rick did not answer the question you asked. he has a history of answering evasively in all of his depositions that he has given. i would just invite people to go to factsforflorida.com and see what rick scott is hiding? the direct question is, no, i

did not believe it is immoral. my position -- i am a mother. i care about the best interest of the chalker i think is to be left up to the judge and the social worker and the people who are closest to that child to make a decision about the most loving home environment that that child should be living in the quest many people watching are facing foreclosure, or they're so under water with their mortgage because their value has dropped by 50% or more that the may be forced to walk away. does the government have a role in helping these people that are teetering on the edge or have lost their dream home? >> our government caused the problem by making money too cheap. the way to solve this is to go to my fitness plan. get people back to work.

seven steps to 700,000 jobs. moving back into the state and home values will go up. that is a way to help consumers long term. >> is there anything specific -- somebody right now who is watching and as soon as those people go back to work, i will be saved. specifically, is there any help beckham the extended to these floridians? >> government can make sure this is a condition informant so people can build companies and get jobs. we can make sure homeowners are treated fairly if they're going through a foreclosure or things like that. we will solve the problem long term by getting this state back to work but i'm committed -- i have lived the american dream. my father was a truck driver with a sixth-grade education and

was laid off almost every thanksgiving. what we learned is we had to go out and work hard, and that is what i want to do as governor. >> same question to you. can the government do something to help these home owners who are either out of a home or about to be? >> what i have already done as your chief financial officer -- when i became aware of this problem, i pledge to members of the florida bar because it takes elrich to try to figure out how to navigate through this morass in this system. they put together -- we have 1000 lawyers pro bono, willing to give free time to counsel with family's going through foreclosure. i am proud of the bar stepping

up and doing now. listeners can go to my website and click on florida housing helper we have given hundreds of seminars around the state, pulling together lenders and credit counselors and consumer credit people to help floridians figure out how they can save -- stay in their homes. that is the kind of hope that we continue to give and a will give if i am the next governor. >> question about taxation pick floridians paid a sales tax if they buy an item in a store on main street, but not if they buy the same item online. do think and in a net sales tax is a good idea? >> now is not the time to be talking about any taxes. floridians are hurting. our economy is a challenge.

i would not propose any tax increase at all in any area at the present time at all. >> it would level the playing fall between main street businesses and on-line. >> i have talked about the retailer's. problem with the internet -- or the lack of internet sales tax is that our local mom-and-pop stores who are paying rent to be extra malls are highly disadvantaged because if you want to bought a pair of shoes, it is cheaper to go on the internet and buy it there because you don't have to pay sales taxes. but down the road, as i work with the legislator, and many of these issues, we do have to address the fairness issue because our local retailers are very disadvantaged on the sales tax issue. i did not advocate any increase in sales taxes. >> i am against any sales tax

increases. i do not think -- our taxes are t all high -- our taxes are too high. spending proposals and what tax she will increase. we have seen tonight that she is receptive to increasing the internet sales tax. she has back property-tax increases, water tax increases, cable tax increases. she is going to have to propose some taxes. >> same question. [applause] >> some retailers believe this levels the playing field. >> i understand the issue. i'm against any tax increases at

all. we are taxed enough. i will try to reduce taxes to get money back into the pockets of businesses and individuals so they can get this economy going again. >> i am going to stand here -- there you go again. i said earlier in this debate that you are joseph throwing out -- you are throwing mud out pick $12 billion. i don't know where you get that number from. there is no number like that in any of my plants. this is what we cannot trust rick scott. he keeps bringing back the same old mud and the simple dirt all over again. i do not want the listeners to know he can throw these statements out without having to respond the >> my opponent is clearly an obama liberal [applause]

. [applause] >> please, no applause.those. she does not know what they are. she is not responsible for the taxes. no different than what president obama -- we know all this spending and his proposal will cost us a lot of money. >> we are going to have to leave it there. each candidate has an opportunity to share final thoughts. i turn it over to alex sink. >> thank you for much for giving me this opportunity to participate in this very important debate. thanks to all the sponsors and friends who are in the audience tonight. i came to florida 26 years ago to follow my dreams, just like many floridians have come to this wonderful state for a wanted to make a good living and

raise a family. i have been blessed that i have been able to realize those dreams. we know that our state has enormous economic challenges right now. i am running for governor because i want to bring my values to the governor's office. i am still the girl who grew up on a family farm. the values i learned to their -- that i learned there import like being honest. when your neighbor's need help, you have to got offer a helping hand to your neighbors. all i want for florida is to bring those values into the governor's office, and dennis hull lead your state as your next governor. i want a more accountable government and i do not want to be at anybody's governors but yours. tonight, if you believe in a stronger economy and more jobs,

i am inviting you to come with me a call if you believe in local control of school, come with me. if you think character and integrity are important in the person who is our next governor, then i will ask you to trust your vote for me. thank you so much. >> i would like to think leadership florida, the florida press association, and nova for hosting this event. you have a clear choice. you have a choice between a tallahassee insider, and obama liberal, someone who believes that obama's policies are the right policies for our state. our state is clearly heading in the wrong direction. record unemployment. almost 50% of our homeowners are under water on their mortgages. we clearly need new ideas and

someone with a proven record for getting results. i am not a politician. i am an outsider and a business person. i create jobs, balanced budgets come and help people. i have a detailed seven-step plan. i will hold tallahassee accountable for every dollar they spend. i will great private sector jobs. if you're happy with the way up tallahassee is operating company should probably vote for my opponent permit if you want jobs and to turn the state around, if you want to change what tell house works, then i asked for your vote. i will take my 35 years of business experience and i will run the state for the benefit of taxpayers and for families. thank you very much. >> to like, mr. scott. -- thank you, mr. scott.

election day is november 2. make sure people out and vote. thank you for voting. -- thank you for watching. go out and vote. >> the congressional panel overseeing the troubled assets relief program is about to meet to look at executive pay. witnesses include kenneth feinberg. other witnesses include scholars and consult on exhibit in the compensation. while we wait, discussion from the "washington journal is morning's "washington journal" on the tarp oversee -- oversight hearing. ted kaufman was appointed to the post by harry reid.

elizabeth warren resign to be an adviser to the new consumer financial protection bureau. . .

[captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> the meeting at the congressional oversight panel will now come to order. >> my name is ted kaufman. i am the chairman for the congressional oversight panel for the troubled assets relief program. i want to begin by drinking my fellow panelists for the work they have done.

-- by thanking my fellow panelists for the work they have done. it really is remarkable what the panel has done. tarp has been among one of the most controversial programs in government history. i hope to help carry our work forward in that spirit. we are wo here today to examine the money paid out to the companies under tarp. no one can argue against public interest. in the context of executive pay, i think everyone will agree it is very difficult to define or measure. after all, a paycheck represents

many things. it represents the source of the family's palm livelihood, a tool for retaining workers there represents the value that an employee adds to the work force, represents a cost to the employers bottom line, and in the case of bill that financial institutions of the check represents a transfer of wealth from taxpayers to corporate executives. a paycheck that is too high is clearly out of public interest. a paycheck that this tois too l create problems also. even a paycheck that is needed may still create perverse incentives. s.d.l. paid $10 million in company stock may take reckless risks to drive it to $20

million. the company could bring inbev problem by requiring executives to hold the stock for 10 years. -- the company could bring in the problem by requiring executives to hold the stock for 10 years. this is complicated and controversial, but also a profound importance. treasury, acting under authority can get executive pay right, it could help delay the foundation for financial stability or could lead to financial collapse. today we would it from expert witnesses who have long practice navigating these waters. thank you for your time, and look forward to your testimony. now i would like to turn to mr. mcconnell. >> good morning, and thank you senator. welcome to the panel. over the past two years members of congress, academics, and private sector participants have

debated the compensation structures employed by recipients and by other institutions in the financial contagion that erupted and the last quarter of 2008. some contain that the cause and effect relationship exists between the structure of an employee's compensation profits package in the risk they're willing to take on behalf of his or her employer. i refer to this as the "show me the money" theory. likewise, some tarp recipients may have packaged loans and securitization vehicles without having properly betted underlying collateral and sold the secured its ties stanches to investors, who then may have an elected to forgo any legal

investigation of the financial integrity of the transactions. other commentators reject the show me the money theory and argued that financial crisis of 2008 and beyond was not spawned by mis-directed compensation policies, but instead rose from the bill year of mortgage originators and investigators -- by tehe failure of mortgage originators and investigators. i refer to this as the white hart, and the head. . under this approach, directors, officers and other institutions would not have knowingly taken any action that could have resulted in a loss of their employment, the material valuation of their stock

incentives or the big currency takeover of the f -- the bankruptcy takeover of the firm's. as and other instances, the solution to the inquiry may not reside solely within the domain of the theory or hybrid of those. although it has a certain visceral appeal and a significant to note that relatively few professionals of the impending financial tsunami. those who dismiss the show me the money theory may be disappointed as we discover more about how the sausage was actually made in the residential mortgage securitization factories. in the final analysis, i suspect both theories may help explain the genesis of the recent financial crisis. the compensation packages offered by recipients encouraged a certain amount of

excessive and unnecessary risk- taking, the consequences of which unfortunately were not fully appreciated by the tarp recipients themselves, federal and state regulators, or the capital markets. the most challenging work remains ahead, however, as we struggle with the remaining fundamental inquiry. how does an employer structure of compensation program so as to identify and minimize unnecessary and excessive risk- taking while encouraging managers to assume sufficient risk so as to assure the long- term profitability of their employer? thank you, and i looked forward to our discussion. >> mr. summers. >> thank you, mr. chairman. good morning. let me say what a pleasure and honor it is to be with their new chairman. secondly, i would like to express my appreciation to all of our witnesses, and in a

particular, kenneth feinberg for appearing before us today and being open to our views in the course of his work in for his strenuous efforts in some many difficult circumstances on behalf of the american public. tarp is a program which uses public funds to subsidize private businesses. and in the process, extends to the private business is implicit and in some cases explicit guarantees. while there is extensive debate, that is at 2 little relevance to those that have little or no market cost or have escaped bankruptcy thanks to the generosity of the american public. we are here today to ask what compensation practices were and are in the public interest? i believe there are three dimensions to this question. the first is compensation practices under tarp should have contributed and should contribute to a sense among the american public that karpov'ta'o

purpose was american spirited. this issue is critical to the very legitimacy of our national government in capacity as a nation to address ongoing economic crisis and to engage in national economic policy-making in the future. anin this context i am particularly curious about the somewhat peculiar notion drawn that billions of dollars of executive pay was not appropriate, but was nonetheless in the public interest. i look forward to learning how that could be. second, compensation practices should have led to economic and career consequences for executives of failed firms. there was and is a profound public interest in mitigate the moral hazard initiated when executives of too big to fail institutions learn that in the

words of the new york attorney general, heads i win, tails i lose. kymme wk' "the wall street journal" reported that overall compensation was higher in 2009 and 2010 than had been in 2007. during the four-year period of the continuing financial crisis amounted to $430 billion. this is during the time when wages of american workers fell. finally, and thirdly, compensation practices under tarp should be aligned with the public interest book as investor and implicit guarantor. in pursuing this goal, tarp has

faced the problem of equity prices and a number of tarp recipients that were so low to be options. executives with equity-based competition faced little downside exposure. this situation would seem to encourage reckless risk-taking, like the pursuing foreclosures without the proper documents. i hope today we can learn how tarp measures up against these objectives and what approaches to executive pay make them a sense in light of them. thank you. >> thank you, senator kaufman. i would like to start by thanking all the witnesses for appearing before our panel today. i appreciate you taking your time to travel here and help us with our oversight responsibilities. as we are all aware, the issue before us today examining the

efforts to regulate health firms compensate executives -- to regulate how firms compensate executives is one of the most recent issues. taxpayers remain incensed about the large bonuses received by executives at firms that received enormous bailouts. much of the discussion has focused on several issues -- should executives received bonuses? to bonuses cost managers to focus on short-term gained as opposed to the long-term growth of the company? and have executives been captured by management so they rubber-stamp managerial decisions instead of engaging in the appropriate amount of oversight? while i recognize there could be instances in which it is not always perfectly in line with shareholders, i believe in a

free-market, these problems can and will be corrected. however, in my opinion, the fact that for the past four years the federal government has made it clear that it would use taxpayer money to ensure larger financial firms against failure creates a distortion that exacerbates the problems mentioned above. in other words, a financial sector is not a free-market, and if we could simply return it to a free-market, if we could get rid of all of the government guarantees, then many, if not most of the problems, with largely disappear or no longer be of concern to taxpayers. it also means that by focusing on these problems week failed to fix the true problem that is 6 and some much of that and there. -- that is creating so much of the anger. in almost every setting shareholders of firms will choose to pay, workers in an

inefficient manner. the one exception is when the government guarantees and does not charge the firm for the guarantee. in this case, shareholders will choose to incentivize workers that will encourage them to take an excessive amount of risk. one obvious solution to this problem is to simply let firms faile for at least charge firms for the insurance they are being provided by the taxpayers. regardless of what one thinks is optimal solution, i think we can all agreed these issues remain important and very interested in what the witnesses have to say. once again, i would like to thank all of the witnesses for agreeing to appear before the panel today. finally, i would like to extend a special welcome to our new chair, senator kaufman.

ithis is especially exciting for me because i am no longer and it was a member -- i am no longer the newest member kinnepower ofe panel. i am fairly confident that are hearing today will be much shorter than the hearing i first participated on for aig. >> i want to start by recognizing senator kaufman. i am thrilled to have been able to join us, and i want to congratulate harry reid for such a great appointment. when i first started, one of the things that became clear was that of the misaligned compensation incentives in the

mortgage origination process, particularly those a round of mortgage brokers was harming consumers and poor reasoning that the market. -- and poisoning the market. worse, such as a line compensation incentives permeated throughout the entire securitization process, as did the full risk of the products was consistently off loaded on to others. the entire financial system is rife with potential for similar conflicts between short-term profits and long-term sustainability. i hope the focus on the best ways we have collectively learned to a line risk with compensation so that we do not again need another tarp. or possibly get, another master

position for kenneth feinberg. [applause] [laughter] i hope to draw on mr. feinberg's experience with heart and the other witnesses experience to explore the pros and cons of rule-based first as principal- based approach to compensation. at the same time, the enforcement of principle requires vigilance and discretion. an additional area worth considering is that compensation and misaligned pay incentives are not just a concern for those generating revenue with an institution, the incense -- incentives is arguably just as important.

i am pleased the panel is exploring the topic of executive compensation, and i do very much appreciate mr. feinberg's attendants with us here today as well as the other experts. compensation is an unfinished business and this is an important hearing for our panel. thank you. >> i am pleased to welcome our first witness, kenneth feinberg. it was -- he has demonstrated an incredible ability to have support for tough assignments and as a great public servant. we go way back when we were both involved with senator kennedy. i want to thank you for your service and thank you for joining us. we ask that you keep your oral testimony at 3 minutes and it

will be printed in the official record. >> it has been 30 years since we first met. i want to emphasize i am the former special master. acting special master is right here along with kerr's lawsourt. i also note the presence of patricia murphy. i just want to emphasize a couple of points. this whole issue of causation was sort of preempted by congress when it came to my role. congress delegated to the secretary of the treasury, who delegated to me, the legal responsibility for linking

executive compensation to regulation. prof. murphy and others can talk about whether it is a good idea for government to get involved in this. i have emphasized repeatedly that my role was very limited to just seven top recipients. that is all the statute conveyed to me, even as to those seven, my role in actually regulating pay was limited to the top 25 officials as a mandatory matter. i had other voluntary discretionary regulatory authority, limited somewhat by the statute and regulations. in effect, to some extent, to some extent, of my role is a side show because if you really want to get answers to the question of causation, executive pay, what is a corporate regulation, look to the federal

reserve, sec, fdic, the g-20, and new legislation that is now double of the land. my role was rather limited. we did find some prescriptions we invoked and implemented. time and pay to performance. very ltd. guaranteed compensation. cash. very ltd. guaranteed cash compensation. tiger rest of an executive's compensation to stock in the company for which he or she works. -- tie the rest of the executives' compensation to stock and the company for which he or she works. compel the executive to keep the compensation in the form of equity. non-transferable assets for over periods as long as four years.

the law requires immediate investing of the compensation, but we decided in a mood that i think was important that the long-term compensation of any individual top official in the seven companies should be deferred as much as possible, so that the long-term success or failure of that company will be tied to the long-term competition of the executive. i think it is sort of elementary. i am not sure everyone agrees with me on this, but this is what we concluded. we watnednted to minimize risks, and appropriate

allocation, we wanted to maximize performance. we wanted to look to the seven companies and see how competitive our pay packages would be relative to other companies that are in the marketplace that we had no authority to regulate. finally, we wanted to make sure that the top officials were paid based on what they contributed to the overall performance of the company and its shareholders. anfinally, we heard over and ovr again that if we did not provide competitive pay packages, those parts of officials would leave and go elsewhere. -- coast, officials would leave and go elsewhere. -- those top officials would leave and go elsewhere. they are still there. 85% of the seven individuals who

's pay we regulated are still there. the final response is to panelists holders. why did the special master conclude at the end of his tenure that as to officials at 17 top recipients, not just the seven, but the 17 top recipients -- or why did i conclude at the end of my tenure battle low certain compensation practices led to compensation that was inappropriate and not justified, why did i not demand that that money be returned to the tax payer? answer -- >> you are out of time.

how did you judge your success as special master? >> issin think we did exactly wt the statute, what congress, and what the treasury regulations asked us to do. we were confined by the legal regulations and statutes, and overall in a very limited way, we did exactly what we were trying to do, and frankly, we now see other federal agencies of adopting many of the prescriptions i mentioned in their own effort to rein in executive pay. >> there are other numbers used. you said there are metrics i feel good about or i feel bad about. >> that is most important. i also looked at the metrics that demonstrate that we

substantially reduced while we thought was an appropriate -- was inappropriate. i think the executive pay that we stepped mostly consentual with the company's demonstrates a drop in the overall executive pay, some think i think was important to do. >> [inaudible] >> whether or not that will happen, i do not know. i draw conclusions from that question. it is a bit pre-mature to say whether companies will go back to business as usual. i have only left a couple lamonts ago. we will watch. -- i have only left a couple of months ago.

you have to look at each individual company and see how that company reacts to criticism when it comes to pegg. -- when it comes to pay. >> you do have some views about whether or not specifically what happens the other thing you looking for is long-term affect. >> that is right. the two ways you will find about a broader impact is what the agencies wil are doing, and it will be interesting in the next few years to seek it companies unthat were not under my jurisdiction voluntarily adopt

those prescriptions. >> you kept track of what the pay was four -- can we have that? -- you kept track of what the pay was before you got involved -- can we have that? >> the final report. >> thank you. >> mr. feinberg, you were charged with that interpretation and implementation of certain statutory and regulatory provisions regarding executive compensation. what is your assessment of the statutory and regulatory provisions? i think they worked. it was a very limited role. i doubt that congress or the

treasury wants any expansion of that role. i think in the limited area that i was asked to regulate, we did it, we didn't pursue into law, we did it effectively. -- we did it personalpursuant to law, we did it effectively. >> if you are asked to draw the provisions against a no vote, how would they differ? >> clearly we would want to change some of the lake which of the statute that prevented -- that required that compensation in an annual year happen immediately. the problem we ran into is that for the top 25 officials,

besting was required immediately. cash bonuses were curtailed. cash compensation was really curtailed. i think we would want to tinker with some of those incentives or requirements. i think of rawhidverall those we major areas. >> in answering the question, do not be constrained by the career of roles. -- by the current roles. how does an employer structure our compensation program to identify risk but also minimize any unnecessary and excessive risk, but still permitting the executive to take sufficient rest so the company prospers?

how do you balance that? >> very difficult. my first answer is a hedge to say that every company has an environment that is different. i am not sure you can answer by saying that gm should provoke the same prescriptions as bank of america. i think they are very different. i would say the fundamental conclusion we drew is you want to set up a compensation package that provides competitive cash to that employee, but in a competitive amount. we said under $500,000 annually. and the appropriate balance should be struck by giving the remaining competition in a given year in stock in that company,

but over are relatively link the amount of time -- lenthgthly and mouth of time. -- amount of time. >> ok. thank you. my time is up. >> mr. silver's. >> before i let you continue, and what you were about to say before, let me express my view that i think your work has undoubtedly significantly improved competition practices in the financial sector and in the specific companies that you had authority over. >> you are setting me up, mr. silver's. >> i am indeed. but i am trying to be nice first.

i would like you to tell me why you found in your final report that a significant amount of the compensation paid to the 17 firms referred to, what you found a significant amount of the composition during that time after the enactment of tarp to be inappropriate. >> it was inappropriate because there were taking taxpayer money. >> that as sinister and a -- that is an extraordinarily helpful lead in to where you left off. because i want to know should you have called it back but how to reconcile the fine dinner with your sacha story obligation around the notion of the public interest? >> it is a very close question,

i admit to. i debated this for many weeks. i concluded for the following couple of reasons that it would be inappropriate to call back the money. first, 90% of that money that was an appropriately paid to those executives -- that was an appropriateinappropriately paido citigroup that had already paid every dime. >> they have not repaid every dime as we sit here today. >> that is correct, but under my statutory and jurisdictional -- >> i understand that, but the

public interest mandate was not confined to public aid. it seems to me that what you really did come at and if it is not true then tell me, but what keira really did is concluded that -- but what you really did is concluded that it was not in the public's interest to have an accurate finding because it would trigger a process of recapture that you felt was not in the public interest to capture. >> you say it well. but let me go on and remind you that i also recognize i had no authority to force that money back. all said i could do under the statute was -- all i could do was the speech or request.

at the time the money was an appropriately paid to the executives, that violated no law at the time or violated any regulation at the time. >> but that was not your standard. your standard was the public interest. i understand you made a judgment about what was in the public interest in terms of consequences, but that was also not your mandate. irony is that in your own way you have determined that that competition violated the public interest. >> dr. thomas d.. >> i thought he made a very good point about the limited role you

had. it is something we should all keep in mind. we have a lot of experience in this issue so we would like to draw on your broader experience. one question that at have is you are supposed to look at what would be competitive and what are some terrible firms predict imperils firms. if-- comparable firms. i do not think ceos of bankrupt firms get paid a lot. is that something you consider when thinking about what would these people be paid had it been looking for a job, just as ceo of a firm that they drove into bankruptcy? >> yes, we looked at all of these variables when you're coming up with a competitive pay

package. >> you mention 85% executives were still there. what was the expectation? i am trying to get a sense of what a competitive pay package would have been. you would expect a normal amount of turnover at these firms. did you investigate what turnover was like before they implemented tarp. maybe you paid them too much. that seems like a high number to me. do you have a sense of what that is? >> i must say, i always viewed this whole issue of pay as 21 variable as why people stay where they are. this argument that was presented to us, i found dubious at the

time and i still find it dubious. people stay at jobs for a lot of reasons, only one of which is their pay. >> as a college professor, probably you get paid more as a consultant. you are right, that is a common finding. talk a little bit about aig. it was reported that they receive some sort of special consideration. they were not based on the value of the stock, but at some relative of that stock. is that the case? and if so, why? >> i do not believe so. that was proposed. we tried to work something out with the suggestion that the common stock was not worth

enough' to are appropriately compensate top officials, but we worked out a compromise with the federal reserve's ,aig, pompous of financial stability. it turned out that that ended the day they did agree that the common stock under our formula would be appropriately used as a compensation device. >> the $500,000 line in the sand. you said you try to come up with a competitive amount. where did that come from? >> it was not a line in the sand, we allowed variations. we concluded, based on the packages that were submitted to us, based on evidence we took on our own it anecdotally, empirical evidence we took on our own, and also our sense of

what congress and treasury intended in the statutes and regulations, at the end of the day, we exercise our discussions based on the variables. >> following up on that, it is clear is a fundamental debate on executive compensation. as i mentioned in my opening statement in your referenced in your stomach there is a lot of work being done by federal bank regulators. the guidance put out in june took a principled based approach. i would be interested in your experience, and you set out the six principles that guided you. do you see the proper role for government and a principal-based or in a rule-setting a framework or combination of those?

>> combination. the one thing i had to do that no one else had to do of course was actually put pencil to paper and come up with the dollars. coming up with the dollars, i would have thought at the outset of the assignment, there would not have been much interest. only 175 people. it turns out the principles plus rulemaking is fine, but asking government to translate that into you will make $1 million or 800,000 or 5 million, that is government intervention, which i think, should be very limited and should not be expanded upon. >> what are the specific pay issues that are more susceptible to principal-based first israel's? -- vs. rules. are there other specific pay issues that you think rule-

based is appropriate? >> very important that compensation be spread. and not be guaranteed and tied to the overall performance of the company where the official works. we made sure -- perhaps our most important prescription -- we concluded that compensation should be in the form of stock, the stock which cannot be transferred, except overhauling t a ,iolenghty amount of time. >> that is a principal opposed to a role? >> right. >> we hear many of the

commentators to the federal reserve guidance that said principal-based give rise to bigness, ambiguity with respect to compliance, and i think it is clearly tied to enforcement. what is the enforcement regime on a principal-based? >> i want to debate the federal reserve more on that. it seems to me that what we found is that their rules delegated to the special master the ability to provide more detailed principles that would be used to effectuate derosa. the danger i think with pay is that you'll come up with vanilla rules. what is the underlying detail behind their role that is a principle that will be adopted? i think it is an important difference. >> i would like your view on the guidance put out by the federal bank regulators as getting at

the issue of this. >> again, it remains to be seen. to me, only test with their rules put out by the agencies, what impact do they have and practice? i think it is too early to comment, other than to say, and vigorous enforcement will determine the effectiveness of the rules or principles. >> thank you. >>do you think your work has led to an idea of where reasonable pay is? >> yes, i do. >> what were the main elements of its? >> the main elements of 10 should pay should be, cash-base, the remaining competition in

stock in that company that cannot be transferred except for over a long time, and more effective corporate regulation of golden parachutes, perks, severance payments and plans. and i think the final report pretty much plays out the blueprint that we think is a pretty good model. >> can you comment, and this goes beyond this thing, but has real impact. my impression is that using stock as an incentive and the price of stock is sometimes it works and sometimes it does not. you are in executive and has a good market going, the dow jones goes up 3000 points and to working. you're making a fortune and yet nothing to do with it. conversely, when the market

turns down, the compensation committee say we did not cause the downturn. and our company is doing just what it was during the last three years. >> that is the argument. and my response would be a couple of things. one would be there has been diversity and competition. and it cannot be all stock or all cash. we concluded if the market improves and corporate officials get a windfall, because the stock soared, win/win. that is the pre-market. that is all right. -- that is the free market. >> except for that when it goes down, they should take the hits. in most cases they do not. they say it is not our fault.

>> that is a corporate governance issue, too. >> i understand that, but when you're dealing with the issue of what is reasonable pegg, that is clearly your concern. -- i understand that, but when you are dealing with the issue of what is reasonable pay, that is clearly your concern. >> it is all about enforcement in the corporate culture. >> would it be fair to say that in a reasonable model, it should be stock but not only determination of whether an executive does a good job? >> absolutely. >> i know you said the school is not out yet and how wall street will pegg, but is always risky to refer to newspapers, but "the wall street journal" says it is on pace to reach record levels

in 2010. they said incentives on wall street have not been changed. if that is the case, how you feel about your tenure and the ability to change coulters? -- and your ability to change cultures? >> i think then that our work has not been successful and is not being followed and it is a problem. but i think if that is the case, there are other agencies that profess to rein in executive pay, like the sec and the federal reserve. i think the mandate calls to them to pick up the slack. >> i really do think everyone agrees it would be better if

we did not turn to that, if we had a model. it is very disturbing it then fact, given the opportunity to do this, that people cannot take advantage of it. you have to wonder about word answer is. >> i think that is right. >> if a company pays a portion of the competition in the form of stock, at a point when the stock prices are at historic lows, will executives have an incentive to engage in risky behavior for upside gains and delimited downside loss? >> we had to debate that. that is argument. the way to minimize that is perverse pay packages that include cash to a certain extent, and secondly have that stock transferable only in over our relatively high lenghty

period so that whatever short- term game that corporate official might try to be incentivize to do over the long- term life of that company, we thought it less likely that that type of risky behavior would be maximized because over the long- term, especially with corporate governance and place, we thought it would make it more likely the long-term interest and the company would be aligned with the corporate official. >> sure. if you talk to employees of merrill lynch, pierce stearns, citigroup -- bear stearns, citigroup, and a number of others who had incentives coming into the fall of 2008, and i cannot say they were all wiped out, but they lost all locked.

nonetheless, they created the mess with the compensation programs in place. it now have these new and improved compensation programs that are determined on long-term incentives, are we in effect copying what was in existence in 2005 with the exception of a meaningful clawback? >> i am not sure about that. i tend not to agree with that. i am not an expert on this. i have a statute to enforce, but to what extent with those executive pay packages, the

>> i understand. i am not necessarily leaning towards the idea of the compensation packages causing the problem. but a lot of people or. so they are proposing deferred compensation as a way to solve the problem. but my fear is we may be solving the wrong problem or at least not solving the correct problem. >> what is the alternative? we concluded it you want to curb risky behavior, tell them they

are guaranteed 5 million in cash. we concluded that that, as a relative matter, would be more risky in terms of the company's long-term growth and success than the method be adopted. >> i would think to the contrary. that is a good one. it is hard to come by. unless you can play first base to the yankees, which i cannot. my time is up. >> mr. silver's. s. >> i want to continue that line of question, but maybe from a little bit different angle. let me just take one case study that haunts me, which is angela mizzoila.

4 million and composition taken out. securities fraud settlement. giant headlines. had to pay back 67 million of the 400. 7 million foreclosed families. a deeply damaged property loss system that has been the foundation of our system for 300 years. all of the work of this panel and the partarp -- countrywide seems to have been a substantial contributor to that. the nets circumstance is -- it is a pretext tax income of three in an million dollars. -- it is a pre-tax income of

$300 million. >> there gets a point -- do not forget that as to the one that did 75 officials be dealt with, we did illegally obligate tap everyone's packages. -- do not forget that as the 175 a share shofficials we dealt wie didn' legally obligated cap ever wants packages. >> i want to come to the big question. this panel has found repeatedly that tarp bunsens as an implicit

guarantee of the major financial institutions, and it is my opinion that there has been an implicit guarantee uncertainty has grown with the size. why doesn't make sens it makes t is the truth of the matter, to have pay the equity base for those institutions? >> , what is the alternative? what if we do not bail out these companies? >> i know my fellow panelists would like to have that happen. there is an implicit guarantee operating. as long as we have institutions

of that size, it will operate. and i am not being critical of your work in respect, because you applied, i think, in a very thoughtful way the public thinking around long-term equity-based compensation, but these institutions have a kathe government guarantee behind them. >> you may be right. i think your question is better directed to the chairman and the congress in terms of an overview as to what the appropriate role of government is. economists had erred spoken and delegated to me through the treasury certain limited function. >> they did not delegate to you equity-based pay. >> i understand that, but when

you talk about the meltdown you are discussing, i am not sure what the pay package would be that would minimize the likelihood of that type of meltdown. you are talking about a meltdown that maybe should have resulted in the seven companies not being protected by the government. >> my time has expired. i think too big to fail should not be too big to fail. i thank him for that question. . .

>> you may say that. i must say, one thing i love in this job is the desire of these companies to get out from under any government regulation. i mean, citigroup and bank of america, as i anders stand it, borrowed money to get out from under -- as i understand it, borrowed money to get out from t.a.r.p. my role was so limited, all i could do under the statute was

and tinker with ways that might be a model to deal with these seven companies. given that framework, we did what we were supposed to do. >> let me ask you about that. your description is correct that you were limited in what you could do. you could scare people. you described it that in order to get out from under you, they paid back t.a.r.p. quickly. do you think that is a good thing? >> congress and certainly did. congress but the number one thing i could do was get those companies -- congress thought the number one thing i could do was get those companies to pay back the taxpayer.

>> a want to be clear. the companies that went bankrupt took anything they got. i am not sympathetic. there are other companies that came under your purview. the rules of the game changed. the final rules regarding what you were allowed to do were adopted after the original t.a.r.p. legislation in 2008. do you think many of the executives were aware when they took the original t.a.r.p. money is what they were agreeing to? and do you think it is fair to change the rules of the game in the middle of it?

>> you would have to ask each company and each corporate official who made these decisions what they knew and when they knew it. i do agree with the argument that once congress provided substantial taxpayer assistance to these companies, i was, in effect, a predator for the taxpayer. i am hard-pressed to accept the argument that it was inappropriate for us to change the rules. the taxpayers were creditors. the government had a right to influence pay practices, and i think we did exactly what congress wanted us to do. >> i would agree, i think they learned a valuable lesson about what comes from taking money from the public trust. >> we talked about what should

be the regulatory regime principle regarding incentive compensation. another key question is the scope of the institutions that should be subject to the standards. where should we draw the line? your line was pretty clearly drawn with respect to t.a.r.p. recipients. i would be interested in your views as to expanding that out. should it cover only insured banks? what about other financial institutions like securities firms and insurance companies? should we only be focusing on those systemically significant institutions? beyond the explicit guarantees of insured banks but to include those with implicit guarantees? >> i am not the experts there. you are asking a very legitimate

question to somebody who had just seven institutions to worry about, and we would worry at 3:00 a.m. what to do with those seven. whether the federal reserve and fdic should expanded their scopes. you are asking the wrong witness. >> maybe i will come at it a different way, because i think your experiences are helpful. what should be the principles that we are guided by in determining the scope? is it simply protecting the taxpayer, whether through explicit -- as a result of explicit guarantees or implicit guarantees? is it financial stability? >> financial stability protect the taxpayers. in my situation, you are right. i had a rather explicit mandate tied to the fact that the

taxpayer cut a check to each of these seven companies and that made us a creditor. i do not think that is the way to do it next time, but i do think that in terms of prescriptions, there ought to be ule tiede tied to -- rol to tax their -- taxpayer protection and financial stability in the marketplace. >> we are also talking about whether this should extend to the shadow banking system, to the extent that controls the we put in place and used to regulate entities may shift some of these activities of compensation programs into less regulated. >> i think that is right. in my experience, be careful about looking only at the issue of scope. i think what we learned in our

office is enforcement is more important than the scope. at the end of the day, korea and the front-line enforcing these regulations -- "are in the front lines -- who are in the frontline in forcing these regulations? >> where we left off in principles versus rules, i think the first time a regulator takes a significant enforcement action, of the industry will say, give me the rules. we cannot live with ambiguity. give me the rules and we can comply. you have seen very different institutions. with regarding to -- with regard to investment banks changing

into holding companies, i am interested in your view as to how much culture is involved. >> culture is critical. goldman, morgan, they are different. one fascinating aspect of what i learned is that the relics of -- relative lack of interest in the public when it came to gm and chrysler. almost all of the media and public attention was addressed to bank of america, citigroup, and aig. there was, relatively speaking, much, much less interest in general motors, chrysler, gmac, chrysler financial. part of that was driven by the fact that if you look at the pay packages of these wall street firms relative to gm and chrysler -- i think if i

remember correctly, the top three people of the 25 that citigroup got more compensation before we arrived than all 20 -- at citigroup got more compensation before we arrived then all 25 people led gm. it was astounding. >> i think it is because americans believe that they are the people that caused all this unemployment and foreclosure, and they are the only ones still making money when everyone else is floundering. that is the cause and effect. want to thank you for your testimony. it is eliminating as usual. thank you for your public service. >> thank you to the panel. this is the third opportunity i have had to meet formerly -- formally with you.

we will continue the fine work of the special master's office. >> thank you. will the second panel come forward? >> very good. i am pleased to welcome our second panel, a truly distinguished group of academics and industry experts to will help us evaluate compensation restrictions and the work of kenneth feinberg.

we are joined by a professor from the university of south carolina school of business, the senior partner and compensation advisory partner, a co-chair of the international governance network, and another professor. we will begin with professor murphy. please keep your testimony to three minutes. we will put the whole record of your testimony on the record. >> good afternoon. i have been asked to address a set of 11 very provocative questions. i want to begin by commending the panel for asking exactly the right questions even though they are very hard questions. i have three minutes to summarize my responses, so my challenge is what to do with my remaining time. i have offered a very detailed 25 page report answering these

questions and talking about these issues. i will refer you to my report and wait for the q&a for specific responses to specific questions, but i would like to mention some general and emerging themes from my responses. first, when t.a.r.p. was enacted, congress was angry at wall street. the suspicion of their culture -- the suspicion was that their culture was at the root of the financial crisis. congress has abandoned the traditional wall street model of low salaries and high bonuses. one intention was to punish the executives allegedly responsible for the crisis. more charitably, congress

decided that the only way to save wall street was to destroy its bonus structure. while ostensibly designed to implement the pay restrictions, treasury's final roll circumvented congress by a -- by enacting restrictions that were more sensible from the obama administration but were not the ones enacted by congress. there were more severe pay restrictions on firms requiring exceptional government assistance. in my opinion, these changes benefit taxpayers. third, the special master, guided by a well-intentioned but ill defined public interest standard was forced to navigate

between the conflicting demands of politicians who insisted on punishment and taxpayers and shareholders to were legitimately concerned about attracting, maintaining and motivating executives and employees. too often, the politicians one. ultimately, the most productive aspect of the restrictions was the pressure they put on target recipients to escape the restrictions by repaying the government more quickly than anticipated. government should not get involved in executive compensation within the financial sector or more broadly, in my opinion. >> thank you for the opportunity to testify. i am a law professor at boston university. i teach and research in

corporate law. i have been doing work and corporate executive compensation and investigating the incentive executive of banks' compensation preceding in the financial crisis and its potential role in causing the crisis. to suggest that curbing executive incentives might curb executive of risk-taking is worth considering. a light regulatory touch might be best. i have a different approach than perhaps some of the other panelists. i think it would be useful to focus more on portfolio

incentives and less on annual pay. the current discussion of financial executive compensation structures has missed what i believe is a very critical issue, the issue a portfolio incentives. that has been an almost singular focus of annual compensation structures, to the virtual exclusion of any consideration of portfolios. most executives hold large portfolios in their own firms' securities, primarily stocks and options, and other claims on the firm. because these portfolios typically dwarf the value of executives' annual pay packages, these portfolios exert much stronger influence on their risk-taking ban does annual pay. at the end of 2006, the average large bank ceo had a portfolio

worth $92 million. by contrast, the annual compensation was a mere $5 million. when you consider stocks, options, and other claims to the firm, they have more influence on ceo decision making than the annual pay. we should be thinking about the structure of annual pay being adjusted in regards to portfolio incentives. the other idea i want to raise is that we should think about paying financial executives with something other than their equity in the firm. theoretical and empirical work outside the banking context suggests depth -- suggests that an increase in inside debt decreases the appetite for risk.

i also believe that when we think about the form of executive pay, we need to think about it as part of an integrated ki of a multifaceted financial regulatory system. it is not a substitute, but a complement to the existing regulation. >> good afternoon. and would also like to express my gratitude for the opportunity to be here today. my background is as an active manager with the institutional community, in particular in engaging companies on matters upper executive compensation. -- on matters of executive compensation. i would like to get right to the point of some of the various exhibits -- very significant aspects of the executive compa.

i think the most significant differences of opinion come with a tart -- come with t.a.r.p. the implementation of executive compensation is complex though the matter is quite simple. in general, i give kenneth feinberg good marks for climbing that mountain, but there were suspects there were unaddressed. let me get right to some significant aspects of compensation where i think you should pay particular attention. first is exposure. disclosure is important to investors because that is how we understand plans. i think companies need a rigorous process in justify not only the design of compensation plans but also their implementation. there is a certain amount of rigor that goes into the plant when you know that you have to

justify it. term structure, which i think would be consistent with the issue that the previous panelist just got too, is another area where i think there is a significant disconnect. by term structure i mean the number of elements of a plan that lead to an alignment of interest along the horizon, not only annual payout of versus long term pay, but also the mechanics of long-term debt, the type of metrics involved in that. there are all types of equations you cannot look at to see if the plan is in alignment with your interest as an investor. with regard to financial institutions in particular, there is a big disconnect between the cycle of the industry and where the interest is driven. it is way too short term. there are several metrics that i would point to, one in particular that is prevalent in

the industry. they are not risk adjusted, and i think that as a role in emphasizing certain risks, and it missed an opportunity for compensation plans to mitigate risk-taking behavior. i am just going to list the other areas we will talk about later in the questions, the mechanics of the plan, the role of committees, in particular whether they have a subjective or formulaic process, risk as a category, and employee contracts, severance, change and control. >> good afternoon. thank you for inviting me. my background is a bit different. i am an executive compensation consultant to boards of directors and have been for over 25 years. in the last 15 years, i have spent most of my time with financial institution companies, so i am pretty knowledgeable t.a.r.p. and those issues.

i have spent the last several years of pretty heavily involved in the issues and questions that of, among many committees -- that have, among many committees -- come up among many committees. the debate -- the intervention by the government in the united states and europe has got us thinking about this. we've really now have to move on to where we need to go. when we look back at 2008-2009 and t.a.r.p., aside from the

special master, there were other aspects that have actually been very positive, and we do not spend enough time talking about them. one thing that has come out of target in terms of compensation -- of t.a.r.p. in terms of compensation is that the were risk -- the word "risk" is coming out of everyone's mouth. this is an issue that did not exist prior to 2008. also, there was a mandatory stay on pay, an end to golden parachutes as we knew them, and other practices we had tried to get away with for a long time. these changes have been broadly accepted by all other country

companies -- all other companies. that and other changes the problem do not need as much press. -- there have been other changes that probably do not need as much press. risk was not front and center in compensation, mostly because companies did not know how to manage it. they are all wrestling with that because of regulation. they will learn how to get better at it. there is a consideration of risk in the development of h.r. plants that was never there before. i think, in terms of where we have been, i do not call the

special master's program in a paper performance structured -- pay-per-performance structure. it did not change anything. i think stocks are an easy way to think you are paying for performance, but they're not. >> could you wrap it up? >> yes. we focus so much on wall street , and as a result, all of these other regional banks and communities have to live with the outcomes. there is a huge difference there in how we do things and how compensation is a minister. >> thank you.

>> i think probably the most significant and lasting impact from t.a.r.p. and the special master's work is in the area of risk and the interaction of risk and executive compensation. the work is somewhat in its infancy and there is greater emphasis on the micro-risk in the companies and less emphasis on a macro-risk. >> how do you think the special master did? did he do a good job of balancing the appropriateness, fairness and competitiveness? >> i think he had a thankless job. i can only imagine how difficult it was when you look to the variety of companies and situations. i think he did implement the program as it was put in place, with little choice, but i do not

think it was a model for the future. >> i have a tremendous amount of sympathy for the role. i think it is incredibly difficult under the circumstances. i would give him positive marks in a number of areas. i think there are some nuances to, particularly when i referenced turn structure -- term structure, which come to my knowledge was not addressed. i think it might be good to set structures for long-term performance. >> i have tremendous amount of respect for ken feinberg. i think that the salary stock approach was a useful way to generate a larger perspective than what came before. i think there are other approaches that could be done as

well. it is a hard task. we do not know very well how to limit executive compensation. for 20 years, we have been trying to get executives to take more respites -- more risks. tothe 1990's, we wanted incentivize companies to be leaner and meaner and came up with performance-based pay. now we are trying to do the opposite. it is a tricky act. >> as mr. feinberg himself recognized, he had very limited tools available to him. what he was doing was constrained. he had base salaries to work with, uh restricted stocks, and a new concept of satirized --

stocks.ed i was disappointed that he did not take more of a taxpayer perspective. how do we maximize taxpayer return and protect shareholders? i do not think protecting taxpayers meant punishing executives by lowering the competitive compensation. there are large potentials for upside gain and large potentials for downside losses. i do not quarrel with the structure he established -- with the work of mr. feinberg in the structure that was established. >> i would like each of you to respond to this question. how does a t.a.r.p. recipient, a

too big to fail t.a.r.p. structured a compensation program so as to identify and minimize unnecessary risk taking while assuming sufficient risk so as to ensure the long-term profitability of the enterprise? let's start with professor murphy. >> unnecessary and excessive risks are easy to detect in hindsight. it is something very hard to identify ahead of time. i share your concern that the too big to fail guarantee is because of a lot of concern. it is more concerning and

government investment in to companies where we can actually measure the return on investment. i believe that the best way to encourage executives to not take unnecessary and excessive breast is to make sure that their long risks is tossive cresca make sure that their long run health is tied to the long run of the company and that there are disincentives for taking government money. >> wasn't that tried in the 1990's? >> when we uncover all of the causes of the financial crisis, i expect that we will find that

financial compensation parlayed -- played a small role compared to housing policy and other policies. >> it sounds like it is just difficult to do this, difficult to look into a crystal ball and figure out what is excessive and unnecessary risk taking today. >> absolutely. i think if you go back three years ago, no one thought the countrywide was taking unnecessary risks. he was helping people get into housing that could not have afforded it before. >> absolutely. >> first, we have to look a portfolio incentives. second, we need to pay

executives in part with things like debt securities issued by their own firms. that may be a way to make executives at too big to fail firms be more concerned about risk. market pricing of the bond would to some extent reflect risk- taking by the company. the devil is in the details. we do not know how much is the right amount, the right proportion. the research on inside that incentives is relatively new. conceptually it seems to make sense, but i think whatever we do, we should be cognitive of the fact that we are really going down a road of experimentation to some extent. >> taking some debt as

compensation, does that make the executive conservative, and is that in the best interest of the equity-childers you may want the executive to take more -- equity-holders, who may want the executive to take more risk? >> certainly shareholders would be less excited about executives taking depth -- taking debt, because they are interested in the stock price. it seems to me it is not just stockholders concerns we are concerned about, we are concerned about preserving the insurance funds and too big to fail.

>> thank you. my time is up. >> i would like to push you a little further. do you think, in relationship to your ideas, that there is a difference between the stress test institutions which we would use as reciprocity for too big to fail and say a typical bank with fdic insurance in terms of the suitability or the need for your type of compensation? >> by the way, i have to say that i was gratified that you knew what was in my paper. we do not get by subscription volume for the academic papers we write, so i am grateful. i do think one important facets

of this type of compensation is the you have to worry about the depth of the market in the securities. if you do not have a lot of financial institutions involved, you cannot be as confident that the market will support the risk-taking. the smaller the bank, the less volume in debt trading, the more that will be a problem. >> you had an exchange with mr. feinberg about the set of unique circumstances of the implicit and in some cases an explicit guarantees that the government's has as a holder of stock. watery reflections on that --

what are your reflections on that? >> do you mean how do we fix that? >> and no, i will not tax you with that. as we continue to be at citigroup and aig, we continue to be in that position. what is the appropriate policy in regards to pay at institutions where the government has that kind of interest? >> because a large taxpayer investment in those institutions, we want to worry about getting the taxpayers' money out. at the same time, we are worried about -- >> there has been a lot of talk about how much we want the money back. do we want that back at the expense of stabilizing the institutions? >> absolutely not. the point has been made that, to the extent that we make the

compensation constraints to onerous -- too onerous, that provides incentives for companies to get out from under -- they do not want the government being an investor. >> so should treasury allow them to leverage up recklessly? i need to stop there. mr. white, you talk about an issue you had with the construction of time horizons. can you expand on that? >> the point that i would make is that, one of the things we looked at very closely when examining executive compensation in any industry is whether or not the inherent compensations are consistent with the cycle the industry finds itself in, the opportunities, the challenges. it is very circumstantial, and i

agree with the comments that it is a case by case scenario. in this situation with the financials, i think the disconnect is probably larger than most other industries in that, i believe the cycle they operate in this multi-year. there leveraged against the economy, but their compensation programs are heavily weighted toward annual cycles. that disconnect was not addressed. the micro-risks are coming up the scale very fast, but at the same time we are missing the elephant in the room. the potential implications are this. in an industry that is short- term focus, they may

overcompensate based in the immediate slope. they may overemphasize behavior's in each aspect of the term. did i cover that? >> yes, and my time has expired. you've covered it admirably. >> i think the point the professor made is important to remember. i recall being in graduate school and seeing papers telling us about the fact that executive pay was not closely enough tied to the risk of the company. i think you have had a major influence. prof. murphy, i would agree with your claim that one of the primary affects of the special paymaster was to encourage companies to pay back t.a.r.p. funds quickly. i think that was an advantage.

do you agree that it was a good outcome? >> i agree that it was a good outcome, but i share the potential concern that, to the extent the companies borrowed money from the private sector, they have not really escaped the problem, but they have got not the taxpayers' dime. at the pet was beneficial, but when we are talking more broadly about -- i think that was beneficial, but we're talking more broadly about regulating pay, if you can escape the regulations by taking particular actions, if we regulate more broadly they will not have that opportunity. >> i think one of the problems

inherent in all of this is the fact that firms are insured against failure, too big to fail. there has been a proposal by the president of the federal reserve bank of minneapolis to float bonds against these companies, and the price of the bonds will be what we are charging goldman sachs to ensure them. -- to ensure them. -- insure them. once firms are forced to pay for this insurance, and they will take fewer risks. >> it is an interesting idea.

i think aig will create from thesebo'do's bonds. we will see how that works out. it is a fact of life. we can reward executives on the upside all day long, but we are never going to be able to analyze execs sufficiently for a huge -- penalize executives sufficiently for a huge downside issues. we are never going to be able to punish them sufficiently for downside occurrences to eliminate this problem. >> professor wright, this plan seems related to yours. either way, the cost becomes

part of something they have to take into account. what are your thoughts? >> it sounds plausible. i would want to read the paper. i guess you have to find some private institution or group of institutions to take the failure risks of goldman sachs or whoever you try to ensure. then the shifting the credit risk to those institutions selling insurance. it is just sort of moore's side bets -- sort of more side bets. >> we are talking about using bonuses and long-term rewards to reward performance and discourage excessive risk- taking. i am intrigued by a the use of

sub-debt. the return on equity is is not a risk-adjusted measure and this is a missed opportunity. those are corporate-wide or at least bank-wide measurements, and may not reflect risk taken by individual executives. two executives generating $1 million in earnings may have a very different risk profile. i would be interested in some of your reaction as to what are the appropriate metrics to use to distinguish and change behavior under those regimes? >> i do this for a living so i can certainly opine on it. what is going on on a broad

scale and most financial institutions is an assessment of where their risk is, what is the greatest level of risk within the organization. space-bar with credit and look beyond that. the credit markets operate -- they start with credit and look beyond that. the credit markets are operational. if you start with the theory that you can look at each of the major business units and ultimately the smaller ones and assess the greatest press, then you can really charge the risk weighted assets. that has become an incentive metric. a business that may bring in $20 million from the bottom line and one that takes in a lot of

capital and is risky besides, then you are weighted further. secondarily, you say what is the time horizon? if this is a risky type of business, how do we pay it, and we do not have to pay at the same as we do in other business units? >> is this where callbacks come in? >> absolutely. callbacks are being used across the board. you do not know when that issue is going to rise. they are being very broadly put into programs. absolutely, the time horizon, the balance of cash and other forms of compensation, even though it might be cash but

longer term in nature, is being determined. >> thank you. would any other witnesses like to comment on that? >> there are going to be two ways to charge executives for risk. one will be an up-front way of how we measure performance. i certainly endorse what she said. more generally, to the extent possible, we need to hold the executive accountable for the downside as well as the upside. >> the special master was it intended to have an impact on executive compensation down the road. do you think that happened? >> i think there is an effect from t.a.r.p., government intervention and the public outcry.

i think that has been a huge impact on compensation committees, on management understanding the level of scrutiny, and the fact that the treasury and the regulators have gone around with these reviews, how serious endeavor and the environment is than it used to be. -- serious and different in the environment is than it used to be. i think the aspect has gotten more important is the issue of governance. it is a whole different level of looking at compensation than before the crisis. >> do you think it has affected executive compensation? >> i think it has today. i have the same concern mr. feinberg offered, which is canid stay the course? -- can it stay the course?

we need the regulations. we need them interpreted and implemented appropriately. there is a lot of education that needs to occur on that side. i cannot take an examiner seriously if he does not know anything about compensation. it is going to take a while, but i think there is enormous room to say, look, we get it, we want to do the right thing, we understand what happened. we have all been extremely hard by it, the public as well as the employees. right now it resonates broadly. >> i think the area with the longest lasting impact will be in the area of sensitivity to risk. the second will be in areas around the periphery of

contractual arrangements. i suspect those will be longer lasting. i am anticipating the companies will unwind some of the restrictions that have been put in place there. i think the work laws are foundational for half the fed in particular will play an oversight role. hopefully the nuances of the things we are bringing forth today will be drivers. i would agree that our right restrictions on incentives are ultimately not going to be -- from an equity holders perspective, that is a tool that we need. >> we are in the process of cracking tarp. them all focused regulatory attention -- they have all

focused regulatory attention on executive compensation and financial institutions. how it plays out in terms of actual behavior, i think there will be an interaction between the regulators and the regulated that will be interesting. >> i think we can connect the dots directly from t.a.r.p. to the financial regulation act, which is the most sweeping regulation on financial firms in u.s. history that will affect executive compensation for decades to come. >> i want to read a sentence to you and get your response. you say that while delivering

compensation in stock reinforces long-term focus, it does not guarantee the existence of paid- for-performance programs or a culture that ultimately evaluate individual risk taking. what do you mean? >> this goes back to some of the comments that were made by mr. feinberg. stock is an important vehicle in executive compensation, a very important vehicle. when we think about stock, it is given to you as a restricted stock. we call it, all you have to do is breathed stock. it is a guarantee. the stock might go up and the stock might go down, but there is still a great chance of getting something.

on the other hand, options create people to blow through and want to get big numbers. but at least they do not get paid if they do not have some kind of performance. you go back to the point of, to me, the company develops the isk.ure of respit from everything i have seen, and there are companies that from their hearts were willing to take enormous risks. >> that is helpful. what an employee -- what if an employee runs a division and that division does very well? that division makes a lot of money for the company, but the

company overall does poorly. what happens to that employee? >> that is a decision for the compensation committee. if i even had a sales person who was extraordinary in a year in which the rest of us were not getting bonuses, do you want to pay or don't you? that is part of your philosophy and design. people might very readily say no, you are part of the team and we will not structure compensation that way. i join the company or do not join the company, you know the facts. an employee who walks away from that company may not be well received. >> that is a decision for the committee.

>> is said that t.a.r.p. pay restrictions were ultimately destructive and designed to meet political objectives rather than their projected purpose of protecting u.s. taxpayers. that is very interesting to me. >> i am talking about are restrictions in the 2009 bill that were changed in treasury restrictions. the elimination an exclusion of any kind of bonuses, stock options, signing bonuses, a severance bonuses, any type of except of -- any type of incentive pay except for modest amounts of restricted stocks coupled with no restriction on base salaries would run counter to any concept of best practices in compensation design.

>> it sounds like we have moved away from that. >> we are the special master talk about his own vision for a -- for pay. it was the opposite. it was low base salaries coupled with higher incentives for long- term performance. >> prof. murphy, you have said that you think they should be more aligned with common equity. is that right? >> i think they should be aligned with the long run value of the firm. >> you just talked about options as something that you thought -- you thought there should be an ability to have more stock options. >> i included an arsenal of tools that compensation practitioners use.

>> what instrument did the federal government hold in the at the time this was passed? >> preferred stock. >> that was the dominant instrument, was it not? >> that is correct. >> was the government not effectively the guarantor of these firms? >> that is correct. >> in what sense was the government's interest to the same as the interest of the common stockholders? >> i was not insinuating that they were. >> stop. what was the public interest in this? was it to maximize the financial was it to maximize the financial payouts based