that i work9 hours pe wk, i'm not really making a lot of money. host: someone on twitter has the same experience. guest: that's right. again, for some items its true where there is a cost to american-made products. the dual find a lot of products at competitive prices, but they are not widely available. that is an impediment. other economies that weathered the recession a lot better than the united states have a working-share programs where you are able to avoid layoffs in manufacturing by cutting the hour. the government helped to supplement wages a little, but it kept people working and kept money flowing into the economy. as a result, in terms of

output, gdp, and employment, countries that did this such as germany and sweden there a lot better than the u.s. did. and when people are not working in manufacturing and 5.5 million people lost their jobs in manufacturing, that is wages that are not circulating elsewhere in the economy. an economist estimates that we lost 286 billion dollars in wages in manufacturing just because of the layoffs over the last decade. think of the goods that all that money circulating in the economy would do. that is why it is all important to grow the sector. host: arizona, steve on the independent line. caller: good rning. the problem with this administration and government to have right now is they are lacking common sense. the problem is we have fair trade, i mean to say free-trade.

what we need is a fair trade. here and taking it. another thing ise are looking at oil. i saw something on c-span where they were talking to a gentleman about putting cesar chavez -- putting chavez on the terror list. we have enough oil to be independent. we need a corporate tax. we need to get the regulations. the epa is killing us -- we need to get the regulations off. guest: that is valid. it is a lot of arguments we hear from manufacturers. let me talk about the trade component. this is really important. this is what gets the least amount of attention in

washington. we have an enormous tde deficit with china. it was $275 billion last year. that money allows china to buy our debt. they want to do that because at is how they manipulate their currency. we are the country that is going to end up on the short end of the stick. we have tools been used to stop this. president obama stated very clearly in the 2008 campaign that if chinaamped in manipulating its currency, that he would use our markets as leverage -- if china stepped on manipulating its currency. he has not done that. that is incredibly disappointed me. it is a direct promise that he made to manufacturersnd manufacturing workers. by the same token, this republican congress has done nothing for manufacturing. they have had the opportunity for six months to bring up the sign a currency bill which passed overwhelmingly last year. auto perversion passed in the senate with 67 votes in 2005.

if this thing got to the floor of the house, it would pass overwhelmingly. -- a tougher version passed in the senate with 67 votes in 2005. call your congress people. i was wondering why we cannot go back. i know we had more regulations around the second world war and prior. and why we could not get international regulations to evenhe playing field so there's a global minimum wage and the same thing with our environmental so they can move corporations all the way around the globe so does not benefit them. guest: that is a really interesting point, tanya.

we have agreement that allows for the free flow of investment, the free flow of capital, the free flow of goods, not the free flow of labor and not kind of leveling regulation. it creates labor arborruitrage, where mufacturing goes in search of a lowest wages. that has been detrimental to a country like the united states. this was discussed during the climate legislation. if we are going to have our manufacturers meet a standard for carbon, unless a chinese firm is meeting that same standard, we could apply to an off-setting tariff to level the cost of that good coming into the united states. that would be the only way to really avoid aassive amount of manufacturing jobs lost in the

united states. but we do need to think about,, as we're doing these industrial and trade agreements, how to avoid labor arbitrage, how to harmonize in our mental standards instead of degrade them so that we can create a high-road manufacturing possibility for everyone. it is a problem that has not been solved elp. host: republican, chicago, illinois. caller: i have to be assured comments. first one being is i think there's a real misconception about people who have lost their jobs in this country. it seems to be badly misunderstood everybody tt lost their jobs or blue-collar workers. i can speak for myself and othershat we have advanced degrees and areut of work. it is not a matter of not having job skills. we have them. there are no jobs. second, we are always told the

american people need to compete with countries like china and india, that we need to be more advanced. if they are so advanced than we are, why do they need manufacturing jobs? host: trudy, wh kind of work are in? caller: administrative. 've been out of work since 2009. a lot of people with advanced degrees are out of work. host: thanks for sharing your story. guest: i completely agree. i speak to a lot of people around the country that are in a situation like you are, but they worked in the public sector, they worked in the service sector, or they have worked in the skilled trades or construction. they have a great set of skills, but there are no jobs available. we are in a situation like that where we need to figure out a

way to create jobs in this country. the talks in washington on the debt ceiling and the deficit, too focused on austerity and not focused enough on what we can do to create jobs in this country. there's this thing that is called the beltway delta said the back loop that makes this sound blind to concerns of people like you who have a great skl saps who would be eager to work but there are no responsibilities -- have a great skill set. writessomeone on twitter righ -- that brings up the idea that a lot of people make money from the work that happens overseas. those taing the talk about the

bringing jobs alone may actually be earning money from what's happening overseas. guest: it happens probably more than people pink, we're either there's the stockholder or a business a public official was involved with that did precisely what you are talking abo. it happens probably more than you think. former officials write about a lot of the economic policies in a way that is harmful to the united states. they don't reveal who their clients are right now. oftentimes their clients are companies that have sent jobs offshore. i don't think theres enough attention paid to it and i do think that it's

>> testimony coming up on the war powers act and military action in that yet. after that, he committee marks up u.s. military action in libya for one year, barring ground forces with exceptions. and then the president talks about manufacturing and u.s. jobs. then tim pawlenty on the president's foreign-policy initiative, why he feels he could do a better job. earlier today, senator joe lieberman and tobben -- tom coburn release their bipartisan proposal aimed at reducing medicare spending. from capitol hill, this briefing is 25 minutes.

>> good morning, and thanks for being here. i will not surprise anyone in this room if i say there are a lot of issues that tom coburn and i disagree on, but there are two big things that we agree on that bring us here together this morning. the first is, we both love our country and we can see it heading over a fiscal cliff, coburnpeople like tobbetom and meat come together to bring it back into balance. the second thing is, we both love our children and grandchildren and we do not want to leave our country to them in such an economic mess that they will not have the same opportunities we had growing up

in america. that is why tom and i are making this proposal that will cut our national debt and preserve medicare as a government program for current and future seniors. there's not much disagreement about the basic facts of america's current for it -- current cross will -- the current fiscal crisis. our debt is growing by more than $1 trillion per year. the biggest, but not the only drivers of the debt are entitlements, including medicare. if we do not deal with the entitlements, we will never balance the budget again. almost 50 million americans depend upon medicare now, and about 20 million more people will go on medicare during the next 10 years. mostly because of retiring baby boomers. each medicare beneficiary, each

medicare enrollee, will on the average take almost three times more out in medicare benefits than they contribute in payroll taxes and premiums. the numbers vary based on income and family structure. but that is basically what is. about three times more out than you put in. that is why we say that the status quo in medicare is unsustainable. and what we mean is, when we do nothing, medicare will go broke and take our government down with it. medicare part "a" which is for hospital insurance, will be bankrupt by no later than 2020 for, according to the congressional budget office, and as soon as 2016, five years from now, according to some experts. parts "b" and "d"will continue

to drain increasingly large and unsustainable amounts from our federal treasury, adding to our already enormous debt. this led tom and me to two painful, but unavoidable conclusion. the first is, we cannot balance our budget without dealing with mandatory spending programs like medicare. the second thing is, we cannot save medicare as we know it. we can only save medicare if we change it. and that is what the medicare reform plan that senator coburn and i are proposing today will do. it will save over $600 billion in medicare costs over the next decade, extend the solvency of medicare for america's seniors by about 30 years, maybe more, and reduce medicare's 75-year unfunded liability by about $10

trillion. our plan contain some strong medicine. but that is what it will take to keep medicare alive. we believe our plan administers the medicine in a fair way. in gas just about everyone to give something to help preserve medicare. but it asks wealthier americans to give more than those who have less. in our plan for the first time in medicare history, we will offer to protect seniors from paying more than $7,500 out of their pockets for health care in any one year because of a serious medical crisis or long- term illness. here are some other details in brief of what we propose. we are going to require higher income americans to pay more per share of medicare part "a," the andy. foreparts end, we will ask them

to cover the -- of four parts b and d, we will ask them to cover most of the cost. we will replace the requirements with a unified deductible of $550 and limit medigap coverage to cost sharing to encourage wider use of health-care services. we will increase the eligibility age for medicare over a 12-year time frame from 65 to 67, to reflect real life gains in life expectancy. and we will make clear as eligibility -- as the eligibility age for medicare increases two months each year, so, too, will the access to the exchange's increase under the affordable care act.

we will increase 35% of the program's cost for part "b" and "d" for enrollees. premiums for beneficiaries now cover only 25% of parts "b" and "d." the rest is paid by the taxpayers. even though johnson signed into law in 1965 and made clear that the intention was that the government would pay half the cost and beneficiaries would pay half -- the other half. we will provide a three-year pay for, sgr doc fix to provide stability to the system. the sgr is in need of a permanent fix and this will provide congress the time to come up with one. and we will work to rid of the

waste and fraud in medicare. we know that some part of our proposal will make some groups unhappy. and it will provide an easy target for attacks by those who understandably want to preserve the status quo. but the status quo only leads to the collapse of medicare and fiscal disaster for our country. we are way past the point when we can save medicare and cut the debt. while keeping all of the interest groups satisfied at all of our constituents happy. if there ever was a time for politicians to stop thinking about the next election and start thinking about the next generation, it is now. i am pleased to be working with tom coburn on this. he has a long time record of

thinking about the next generation and not the next collection. he has built up tremendous expertise in the area of government financing. after i voted against the reihan plan when it came to a vote in the senate, i said to myself, okay, i have done that. but the alterative now is not to do nothing. because if i do nothing more, medicare is going to go bankrupt. i set out to find out how we could change medicare to preserve it as a government system. i wrote an op-ed in the washington -- "washington post" and tom pulled me aside and said, i appreciate what you are doing and i think we can work together. if we did work together and we came up with this program, which i hope, and i believe it doesn't create a bipartisan beachhead, if you will, around which perhaps the gridlock and

breakdown in discussions in dealing with the debt ceiling and our debt overall can occur. senator? >> let me say what a pleasure it has been to work with bill on this. the time to put a smoke alarm in the house is not when the fire starts. it is to put it in before. the real question we have out in front of us that people are not coming to grips with is, it does not matter what politician is standing up here, five years from now, medicare will not be the same. we cannot borrow enough money to keep it the same. we do not have the capability to do that. the time to fix medicare is now. and the time to put it on a footing that will truly save $10 trillion will markedly reduced the unfunded liability and markedly increased its life expectancy. i will not go into the details of what we have outlined. joe has done that.

i believe what we have to do is act and the longer we wait to act, the more painful it is going to be for the people that are very dependent on these programs. rather than come down to a time where we have to make drastic cuts in available care for american citizens, the time is to preserve that now in a way that will better cause utilization and better outcomes with access to the health care they need. if we will take your questions. >> you talk about all americans sharing the pain of your plan, but i noticed you have not asked the medical companies to share in that. >> we did not ever have that discussion. that is a contentious issue. there are a lot of people that think that the government can

buy cheaper than what has been supplied so far. i am not sure i believe that. it actually goes to a broader question. right now, we are losing half of our medical device industry in this country. we are going to lose a large portion of our pharmaceutical industry. to say that they cannot have a profit when they are competing for medicare, under part "d," it is an instance where they got it totally wrong. nobody considered a $12 billion unfunded liability for part "d. we want to move in a bipartisan way. is that an issue that marked the divides democrats and republicans? yes. i know what the projections are, but it is my belief -- and it does not mean i am right. it is just my belief. while we did -- why would we do

that? it would just make it harder for us to get funding for medicare. >> i thought the government ought to be able to negotiate drug prices like the drug companies do with other programs, like the v.a.. but if you want to put this on the table and have a discussion, that is what this prize is all about. -- price is all about. >> the age has been raised from 65 to 67. how you get democrats to sign onto a plan like this? >> two things. if you had asked me five years, certainly 10 years ago, would i be supporting a plan like this to change medicare, i would have

said i cannot imagine doing it. but it seems to me in studying the numbers, the alternative to this plan is to not to continue to go on with the status quo. the status quo and leads to the collapse of the entire medicare program and terrible suffering by the people and depend on it. it is now almost 50 million americans, going up to over 70 million in the next decade or so. what i would say to democrats about parts of this, there are strong medicine issues in this. yes, there are, but we still have to address these issues. tom and i had very productive discussions. we already did increase the medicare tax on americans who make over $250,000. but this had some pretty

progressive parts to it. we are asking wealthier americans to pay more. more than people who do not have as much money. and we do it within the medicare system. and i think that as a fair way to go. >> you lay out in here the different brackets that will be paid out of pocket. will those dollar amounts be having to change constantly with inflation? >> they will have to. that will be a detail that we will ride into the legislation. we are going to have all sorts of questions like this gentleman just asked. what are the options? the option is not to do nothing. the option is, how do we find a way forward that preserves medicare in a way that we can get it through congress and also preserves the country?

in the long term, what is going to be the largest cost for the met -- the federal government? it will be medicare. if you do not go after the biggest first and try to make sense of the reforms -- nobody is going to like this plan. we understand that. but nobody wants the present medicare to vanish and those that are absolutely dependent on aid to not have anything. what is what to happen in 2016 if we have not solved all our other problems? what is going to happen? how much more painful will it be then if we do not make some of these smaller adjustments now? you will never control the cost of health care in this country until you reconnect some of the purchase of that health care with the individual.

it just does not work. because everybody thinks someone else is paying for their health care. and that is not just with medicare. it is everywhere. that is why we have no control over the concept. one out of $3 spent on health care in this country does not help anybody. and the reason is that there is not a market force. we are going to put a little bit of market forces in this. but we are also saying that everyone gets to share. from the very wealthy to low- income. >> this is probably pretty expensive and will not have that much left over for long-term financing. >> the total 10-year cost is about $275 billion. but it will change each year as we get more people in it. the number is actually pretty small for the first three years.

>> it is $40 billion for the first three years. >> [unintelligible] >> yes, i have. >> how do you reconcile that? >> the assumption is that we have the age progression to the social security age. if it is repealed, that we put an exception to that in our bill. if the affordable care act continues, then the age requirement will go up. but if it goes away, we are not doing it. >> there are no exchanges? where would those folks get insurance? >> we do not change the age, so it does not change. >> oh, i'm sorry. >> there was a 1% cap of people making over $250,000.

is that gone now? >> it is, and that was part of the negotiating process. it would have been an increase in income tax on people making over $250,000, and in the negotiations we conducted, you know, i think we could agree on finding other ways to ask people to give more to medicare. for example, asking them to pay a percentage of the prescription drugs and we have a much higher maximum out of pocket on part "a" for wealthier americans. the 2.9% tax now covers all income. it is a progressive tax, and the health care reform bill made it even more progressive by adding another 1.9%.

that was part of the negotiating that brought this together today. >> are you considering may be doing an outsider discussion? >> we are going to send copies of this, of course, to the white house, and to the bipartisan leadership. in fact, all members of the senate. the first after the press conference is trying -- is to try to get a couple hundred senators to join us. and that is being pretty direct. [laughter] i will tell you, i find that a lot of our colleagues -- i hate to use the word depressed. i do not mean in a clinical way. they are downtrodden. they are with the downcast about the failure of the process here -- really downcast about the

failure of the process. we are hoping that at least two of us can get together across party lines. but there are others who want to do something similar. at a minimum, maybe we have offered some ideas here that the vice president and the president will want to consider as part of the ultimate agreement. >> [unintelligible] of medicare as part of the debt ceiling [unintelligible] >> the mandatory spending and entitlement are the biggest driver as we go forward. they are all ready unbelievably high, $14 trillion. we are not going to get anywhere back toward balancing our federal budget unless we deal with entitlements. it is just a quick question of when. if we do not do this when we

finally have to, and if it is the middle of a financial meltdown, it will be impossibly painful for an individual enrolled in medicare, and for our country. it is -- the sooner you take the strong medicine, the sooner you will get healthy again. if you do not take it, the results are not so good. but here i am going over to the doctors area of expertise. >> medicare has to be changed. you can live in la la land and say it is going to stay the same, but no, it is not. we will not have enough money to afford it. there is a dead ball coming in the world. it is going to hit next july. -- a debt wall coming in the world. it is going to hit next july.

if we do not have our house in order by that time, every american will suffer precipitously. we need to be about fixing at. this is a component to fixing that, and we need to shake the political shackles and start doing what is best for the country and not what is best for any party. it does not matter who is in power when that happens. we will be told what we are going to do. it is critical that people like joe and i come together give up something. he gave up something, and i give up significant things. when you see my $9.3 trillion program, you will see what i gave up. we need to walk and talk together and tell the truth about what it is. if you do not fix medicare, you cannot fix your country. now is the time to do it in a bipartisan fashion.

thank you very much. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011] >> thursday marks defense secretary robert gates final day on the job. we will give you a final tribute to the secretary -- defense secretary who served both president bush and president obama. he will be replaced by cia director leon panetta. that will be live on thursday at 9:45 a.m. central and also at c-span.org. next up we have tim pawlenty outlining his foreign-policy intentions. he also criticized the foreign

policies of the president and why he -- and stated why he thinks he can do a better job. >> good morning. thank you for being here. i am delighted to have a chance to share my views about some of the most pressing foreign policy issues and opportunities and challenges that face the united states. but before that, i would like to thank the council on foreign relations for their tremendous hospitality that they provide not just today, but throughout many decades advancing the cause of deliberation and discussion on debate and matters of foreign policy. i am grateful for your presence here this morning. i want to speak paint -- plainly this morning about a number of opportunities and dangers we face today in the middle east. we have a situation where a revolution roiling in that region offer the promise of a more democratic and prosperous

arab world. from morocco to the arabian gulf, the escape from the hand of oppression is now a real possibility. now is not the time to retreat from freedoms rise. at the same time, we know that these resolutions can bring to our forces that are neither democratic, nor forward leaning. just as the people of egypt, tunisia, libya, syria, and elsewhere see a better life of genuine freedom, the leaders of radical islam see a chance to ride political turmoil into power. the united states has a vital stake in the future of this region. we have been presented with a challenge as great as any we have faced in recent decades. and we must get it right. the question is, are we up to the challenge. my answer is, of course we are.

if we are clear about our interest and guided by our principles, we can help steer events in the right direction. our nation has done this in the past. at the end of world war ii in the last decade of the cold war -- and in the last decade of the cold war, and in the more recent war on terror, and we can do it again. but the president has failed to carry out an effective and coherent strategy in response to these events. he has been timid, slow, and too often without a clear understanding of our interests. our clear commitment to our principles and parts of the republican party now seem to be trying to outbid the democrats in appealing to isolation of sentiments. this is no time for uncertain leadership in either party. the stakes are simply too high. and the opportunity is simply too great.

no one in this administration predicted the events of the arab spring. but the freedom deficit in the arab world was no secret. for 60 years, western nations excused and accommodated the lack of freedom in the middle east. that could not last. the days of comfortable private deals with dictators were coming to an end in an age of twitter, youtube, and facebook. and history teaches there is no such thing as stable oppression. president obama ignored that history lesson. instead of promoting democracy, whose fruit we now see ripening across the region, he adopted a murky policy. he called it, "engagement." that meant that in 2009, when the iranian ayatollah stole an election and the people of that country rose up in protest,

president obama held his tongue. his silence validated the mullahs, despite blood on their hands and nuclear centrifuges in their tunnels. while protesters were killed and tortured, secretary clinton said the administration was, "waiting to see the outcome of the internal irani and processes." she and the president waited long enough to see the green revolution crushed. engagement also meant that in his first year in office, president obama cut democracy funding for a civil egyptian society by 74%. as one american democracy organization noted, this was perceived by egypt and democracy activists as signaling a lack of support. they perceived correctly. it was a lot of support. engagement also meant that when crisis erupted in cairo this

year, as tens of thousands of protesters gathered in tahrir square, secretary clinton declared, "the egyptian government is able." two weeks later, mubarak was gone. in a visit after mubarak's fall, democratic groups refused to meet with her. and who can blame with thethem? the pro-democracy political party, these are the very people that president obama cut off and secretary clinton dismissed. the engagement policy and syria, led to the calling of bashar al- assad a reformer, even as hundreds of protesters were dead in the street. president obama's plan was to give us thought, "an alternative vision of himself."

does anyone outside a therapist's office have any idea what that means it? by contrast, i called for assad's departure on march 29. we should call for it again. the leader of the united states should never leave those willing to sacrifice their lives in the cause of freedom wondering where america stands. as president, i will not. we need a president who fully understands that america never leaves from behind. we cannot underestimate how pivotal this moment is in the police in history. we need decisive, clear-eyed

leadership that is responsive to this moment of historical change in ways that are consistent with our deepest principles and safeguards our vital interests. opportunities still exist amid the turmoil of the arab spring, and we should seize them. as i see it, the governments of the middle east fall into four broad categories, and each requires a different strategic approach. the first consists of three countries now have various stages of transition toward democracy. the former republics in egypt, tunisia and libya -- iraq is further along on his journey to democracy. for these countries, our goal to -- should be to help promote freedom and democracy in the region. elections that produce anti-

democratic regimes undermine freedom and stability. we must do more than monitor polling places. we must redirect foreign aid away from efforts to merilee build good will. we must direct those efforts to building good allies, a genuine democracies, governed by a free people according to a rule of law. and we must insist that our international partners get off the sidelines and do the same. we should have no illusions about the difficulty of the transitions faced by libya, tunisia, and especially egypt. whereas, libya is rich in oil antony's yet this small, egypt is large, populous, and -- and to the sierra is small, each of his large, populous and poor. having rejected mubarak, too many egyptians are now

rejecting the beginnings of the economic opening engineered in the last decade. we act out of friendship when we tell egyptians and every new democracy that economic growth and prosperity are the result of free markets and free trade, not subsidies and foreign aid. if we want these countries to succeed, we must respect them by telling them the truth. in libya, we must stop bleeding from behind. recognizing the tnc as the government of libya and unfreezing assets so that they can afford essential services as they march toward tripoli. beyond that libya, america should always promote universal

principles that undergird freedom. we should press new friends to end discrimination against women, to establish independent courts, and the freedom of speech and the press. and we must insist on religious freedoms for all, including the region's minorities, whether christian, shiite, sunni, or baha-i. the second -- or bahai'i. the second category is the kings. these kings have understood that they must forge a partnership with their people, leading step- by-step to market -- more democratic societies. these monarchies can smooth the

path to constitutional reform and freedom and thereby, deepen their own legitimacy if they choose this route. and if they choose this route, they, too, deserve our help. president obama spoke well about bahrain in his recent speech. but he neglected to order two important words, "saudi arabia." u.s.-saudi arabian relations are at an all-time low, and not primarily because of the era of spring. they were going downhill fast long before the uprisings began. the saudis saw an american administration yearning to engage iran just at the time they correctly saw iran as a mortal enemy. we need to tell the saudis what we think, which will only be effective if we have a position of trust with them. we will develop that trust by demonstrating that we share

their great concern about iran and that we are committed to doing all that is necessary to defend the region from iran in -- iranian aggression. at the same time, we need to be frank about what the saudis do in their own country to ensure stability. above all, they need to reform and open their society. their treatment of christians and other minorities, and their treatment of women is indefensible. and it must change. we know that reform will come to saudi arabia sooner and more smoothly if the royal family access and designs it. it will come later and with turbulence and even violence if they resist. the vast wealth of their country should be used to support reforms that fit saudi history and culture. but not to buy off the people as a substitute for lasting reform.

the third category consists of states that exist that are directly hostile to america. they include iran and syria. the arab spring has already vastly undermine the appeal of al qaeda, and the killing of osama bin laden has significantly weakened it. the successful peaceful protests in several arab countries has shown the world that terror is not only evil, but will eventually be overcome by good. peaceful protest will soon bring down the assad regime in syria. the 2009 protest in iran inspired arabs to seek freedom. similarly, the arab protest of this year in the fall of prejean after brogan regime -- regime after broken regime, inspired

more. but in sticking to the share of side for so long, -- bashar al- assad for so long, the obama administration has frustrated efforts in the region. the governments of iran and syria are not reformers. they support each other. to weaken or replace one is to weaken our place the other. the fall of damascus would weaken hamas, which is headquartered there. it would also weaken hezbollah, which gets its arms from iran through syria. it ended would weaken -- and it would weaken the iranian regime itself. to take advantage of this moment, we should press every

diplomatic channel to bring bashar al-assad to an end. we need for -- more forceful sanctions to persuade them that assad is too expensive to keep. we also need to work with turkey and the european nations to further isolate the regime and we need to encourage opponents of the regime by making our own position very clear right now. bashar al-assad must go. when he does, the mullahs of iran will find themselves isolated and more vulnerable. syria is their only ally. if we peeled away, it will hasten their fall. that is the ultimate goal that we must pursue. it is the singular arbor city offered to the world by the brave men and women of the -- the singular opportunity offered to the world by the brave men

and women of the arab spring. freedom is not just born of particular ethnic groups unified. but it is born of -- this is a moment to ratchet up pressure and speak with clarity. more sanctions, more and better broadcasting into iran. more assistance to access to satellite tv and the knowledge that comes with it. and very critically, we must have more clarity when it comes to iran posing nuclear program. in 2008, kennedy barack obama

told aipac that he would "-- candidate barack obama told aipac that he would " always defend the security of our allies, at israel. this year, he said, we remain committed to preventing iran from acquiring nuclear weapons. i have to ask the question -- are all of the options off the table -- on the table or not? it is no wonder that even our closest allies are confused. the administration should enforce all sanctions for which a legal authority already exists. we should enact, and then enforce new, pending legislation that strengthens the sanctions, party giddily against the iranian revolutionary guards -- particularly against the iranian revolutionary guards, who control the people. and in the middle of all of this is israel.

israel is unique in the region because of what it stands for. and it -- and what it has accomplished. and it is unique in the threat it faces, the threat of annihilation. it has long been a bastion of democracy in a region of tyranny and violence. and it is, by far, the closest ally in that part of the world. despite wars and terrorist attacks of various forms, israel offers all of its citizens, men and women, jews, christians, muslims and others, including 1.5 million arabs, freedom of religion, freedom of speech, and the right to vote, as well as access to independent and democratic rights. nowhere has president obama lacked judgment more stunningly

than in his dealings with israel. it breaks my heart that the president of this country treat israel, our great friend, as a problem rather than an ally. the president seems to genuinely believe the israeli-palestinian conflict lies at the heart of middle problem in the east. he said in cairo in 2009 and again this year. president obama could not be more wrong. of the uprising in tunis, cairo, tralee, and elsewhere are not about israelis and palestinians. they are about oppressed people yearning for freedom and prosperity. whether those countries become prosperous and free is not about how many apartments israel builds in jerusalem. today, the president does not really have a policy toward the peace process. he has an attitude.

and let's be frank about what that attitude is. he thinks israel is the problem, and he thinks the answer is always more pressure on israel. i reject that anti- is real attitude. i reject it because israel is a close and reliable democratic ally, and i reject it because i know the people of israel wants peace. the israeli-palestinian peace is further away right now than the dave barack obama came to office. but that does not have to be permanent. -- then the day barack obama came to office. that does not have to be permanent. peace will only come if everyone in the region perceives clearly that america stands strongly with israel. i would take a new approach. first, i would never undermine israel's negotiating position, nor pressure it to support borders that jeopardize security and its ability to

defend itself. second, i would not pressure israel to negotiate with hamas or if palestinian government that includes hamas. unless hamas renounces terror, access israel's right to exist, and honors the previous israeli- palestinian agreements. in short, hamas need to cease being a terrorist group in both word and deed as a first step toward global legitimacy. third, i would ensure assistance to the palestinians immediately ends if the hatred taught in classrooms continues. that incitement us and now. -- must end now. fourth, i would recommend inculcating moderate forces now. when the palestinians have

moderate forces who are capable and understand a rule of law and who understand that war with israel has doomed to generations to hate, violence and poverty, then peace will come. the middle east is changing before our very eyes. but our government has not kept up. it abandoned the promotion of democracy just as arabs were about to seize it. if started too cozy up to dictators just as their own people rose against them. it downplayed our principles and distanced us from key allies. all of this was wrong. and these policies have failed. the administration has abandoned them, and that the price of the american leadership in the region, in a region that since world war ii has looked for us -- to us for security and progress, and now wonders where

we are and what we are of two. the next president must do better. today, in our own republican party some look back and conclude an hour projection of strength and defense of freedom was a product of different times and different challenges. times have changed. but the nature of the challenge has not. in the 1980's we were up against a violent totalitarian ideology bent on subjugating the people and the principles of the west. while others sought to coexist, president reagan instead sought victory. so what must we today. -- so must we today. america is exceptional and we have a moral clarity to lead the world. it is not wrong for republicans to question the conduct of president obama military leadership in libya. there is much to question.

and it is not wrong for republicans to debate the timing of the military drawdown in afghanistan. though my belief is that general patraeus' voice ought to carry the most weight on that important question. what is wrong is for the republican party to shrink from the challenges of american leadership in the world. history repeatedly warns us that in the long run, weakness in foreign policy costs us and our children much more that we will ever save in a budget line item. onerica has already wo political party devoted to decline, retrenchment and withdrawal. it does not need another one. our enemies respect and respond to strength, just like in the cold war. sometimes that means military

intervention. sometimes it means diplomatic pressure. it always means moral clarity in work and word and deed. that is the legacy of republican foreign policy at its best, and a banner our next republican president must carry around the world. our ideals of economic and political freedom, of equality and opportunity for all citizens, remained a dream of the people in the middle east and throughout the world. as america stands for these principles, and stands with our friends and allies, we will help the middle east to transform this moment of turbulence into a moment of more lasting -- into more lasting opportunity for peace and progress. thank you very much. i look forward to your questions and discussion. [applause]

>> decline, retrenchment, and withdrawal. really? >> here are some examples that support that characterization. at a minimum, the commander in chief and a leader of the free world needs to lend more clarity and rhetorical strength to the values and principles that we support and embrace here and around the world. at the beginning of the green revolution in 2009, when you had people standing in iran asking where the president's stance and he stands essentially moved on those issues -- nude on those issues, that is retrenchment and withdrawal rhetorically. when you have the united states with the most impacting and

forward leaning military leader in history in afghanistan, general patraeus, and when he calls for a research of troops to be at the maximum -- a surge of pertroops to be at the maximum level for a little while longer, with the goal of making sure afghan security forces are trained in volume and quality, so they can at least reasonably take up more of the challenge of security in afghanistan and the president draws down those troops, notwithstanding the recommendation and to the political calendar, that strikes me as retrenchment and withdrawal. and the list goes on. in syria, notwithstanding the fact that bashar al-assad is not a reformer, is a known killer,

and a president refuses to address the issue, all of those things are examples. >> you said america is exceptional and we have a moral clarity to lead the world. what is that moral clarity? >> the moral clarity is that we and other developed nations around the world support these principles and more -- human rights, free and fair elections, the free and fair flow of information, the ability for people to express themselves freely, to worship freely, to associate freely. those are values and principles that we can speak to with moral clarity because they are values and they are shared by many of around the world, but not all. and when preeg -- when people oppressed them into radical ways, we should in the very least stick to that, but we have more clarity to do so because

they are our values. and they are universal values as well. >> the tension between those values and operation -- in operation and the security issues in iraq, what do you do about a state -- you mentioned radical islam early on. what do you do about a state that chooses to oppose the united states and its interests, but out of the values believing that they have followed a democratic process and have become what they believe they should be, but then pose a threat to the united states? >> which state would you highlight as an example of that? which state has followed a democratic process that leads you to that conclusion? >> you are speaking of a list of principles by which you would govern and the tension between freedom and security as a perennial one. at what point do you draw a line? >> i thought your question was promised under the state that

has a democratic result. but nonetheless, these four categories that i put forward in a speech was this. the onerevolution and are at the doorstep of freedom. we should help them. we have these longstanding monarchies, many of whom have been partially friendly to the united states, but you can see the handwriting on the wall. it may be a year, 10 years, 20 or 30, but they cannot sustain the system they are on. there is a continuum between the where they are and more shared power with their people. we need to use the leverage we have to move them as constructively as possible down the continuum for what they have now to a better place of shared power with their people. the failed have states.

syria, iran, and yemen, and they need to be dealt with in an aggressive manner, and we need to recognize we have our great ally israel that shares in our values, principles, and security concerns, and we need to stand shoulder to shoulder with them and embrace the challenges and opportunities of the region more broadly. the essence of your question is where is the dividing line between democracy and tyranny, and the answer is you cannot flip the switch overnight and moved to running -- historically troubled governments to democracy, but you can use the leverage available to nudge them, cajole them, encourage them, inspire them, incentivized of them to move down the continuum towards democracy and it does not happen overnight. look at the balkans, romania, serbia, kosovo -- these are not short projects. these are multi-decade

projects, and they take sustained commitment within the country as well as their enablers beyond. ronald reagan did great work in romania and poland and afghanistan, part on3, not always by using expressive military intervention, and a change the country, but it starts with a president who is going to lend moral clarity, strength of voice and values, so the individuals who are dissidents, reformers, dreamers, hear the voice and no at least as personally and directionally we stand with them. >> you may a linkage hit early on. the post world war ii era, the decade after the world war, and war on terror.

these are three examples of the call that triumphs. defined the war on terror and what you would do in the next phase of that if you were in power. >> we need to recognize this is not -- there is not a known beginning and end to this yet. we are accustomed to a mindset in this regard were people might see a clear beginning and a clear and to the challenge and to the need. unlike past conflicts, the war on terror is likely to be not just about afghanistan and iraq. it is going to be transnational, it is going to be a multi-year, if not multi decade, it is going to be episodic, it is going to end and flow. the threat will take different forms in different places at different times. it will be asymmetrical, and it will be significantly different as we well know, then some of the historical examples that you cite. we need to steel ourselves for

that future. there's only one person in the country that can raise awareness and remind the american people about the importance of this cause, and the opportunities and risks of making sure that we remain vigilant. the people who killed 3000 of our citizens in this city and other places on september 11, 2001, still exist area the mindset still exists. their plans still exists, and as soon as they have the opportunity to kill 30,000 or 300 million, they will try. this may not be how the uconn in an orderly and reasonable successful fashion, drop down the troops in afghanistan, this is going to be about do we have the steely eyed determination to see this threat, called by name, identify it however it exists,

and defeated before it manifests itself and operational liza's it itself so that it -- threatens the security of the united states. that is not the direction this president is headed in my view, and is not the direction of fortunately that a good job of even the republican party now seems to be headed, and i tight -- and i take sharp issue with us. >> we will now take your questions. please state your name and affiliation. start here. >> thank you very much. i am wondering if you can shed light on your support for the idea of change agents, in syria, libya, and iran. who are those change agents?

how can you be sure that this change agents that would be acceptable to washington that would be an individual that with some power in the capital, as opposed to somebody who could be -- but how do you have visibility on the change agent no one in the country has visibility on right now? >> a very good question, but the premise is, how can you guarantee x? and the answer is, the world as a domestic price and there is no guarantee in these uncertain situations. when you are flying in the clouds and navigating an uncertain situations, you need to make sure your compass is set to true north. that is why it starts to make sure that you have a president who enunciates clearly about what our values and principles are. people then ask, what comes after hitler? what could happen after that? hitler was awful and needed to

go. is there a danger about what comes next? let's take libya as an example of many. each of these countries is different. they have different histories, backgrounds, relations with the united states, and a one size fits all formula does not fit. -- does not work. in libya, there are the kinds of risks that your question implies, but we know there is a significant chunk of rebels are western educated, seem to desire freedom and democracy or a better way, what markets and the like. is that all of themno? no, but is it in our best interest that gaddafi is going to go, to maximize the odds of those who are favorable to our values?

yes. is there a guarantee? no, the world is a risky, complex place. that does not mean that we should cut under the table. we get in there and compete with dahlias, information, resources, and the power of the marketplace, but that does not mean we need to invade militarily. there are a lot of leverage is that you can deploy it that will influence the course of these countries. can we guarantee the outcome? no, but in libya, but once the president says gaddafi must go, you cannot let a dictator thumb is no -- knows that the president of the united states in the free world. leaving him there indefinitely is not an option. you cannot leave him sit there, because if he were to survive and to reestablish any

capability at all, i would guess one of his main motivations is going to be retaliation, and guess who it is going to be against. gaddafi must now go, and letting him linger indefinitely while the president wrings his hands is not a good idea. he needs to go. >> you mentioned president reagan several times. you think your foreign policy approach would have more in common with george h.w. bush or george of the bush? >> i would like to believe i would have my own foreign policy that would reflect upon the best of the foreign policy success of our country and republicans. i think there are positive examples within both of those administrations on foreign policy successes, some challenges as well, obviously. i do not think it is one or the other. i think there are strong and positive elements in both, and

times change, circumstances change, so these are complex issues and complex parts of the world with lots of nuances to suggest a cookie cutter doctrine for the region i think is under utilization of our abilities, our capability, and our thoughtfulness. >> you are not running in a primary right now are you? >> just to get away from the middle east -- how would your policy toward north area be different from what ever the policy is the day -- is today? [laughter] >> north korea is one of the most concerning challenges that we face in the foreign-policy arena.

i think north korea will most likely best respond to a multifaceted approach, one prong of which is a prominent an important role for china in that discussion, and it is not the only lever, but an important lever. we do not have all of a control about how and when and whether china it exerts more influence in that discussion, but we need them to be involved. that does not mean we abdicate or before or subjugate to china. we need to take a leadership role in it. you are dealing with a leadership structure that is fragile, and certain, potentially erratic, unpredictable. [inaudible] when you're facing these difficult situations, we have to get back at articulating what we stand for and what we believe. first of all articulate it, and second, are there ways to

influence it? north korea is not an goal or poland or afghanistan, but to the extent we have lovers, whether they be implicit or explicit to try to change north korea internally, that is a good option for us, at least one option for us, and we will need some help in the region. we have people who are particularly connected to number 3. look at the transition in south korea. great success has been made there with a different system, never set of values, different approach, but i would suggest reagan gave this a pretty good blueprint about how you, short of an invasion, influence events inside a country in a constructive, positive way, in many instances. >> when you talk about gaddafi a must gossad moscow, -- gaddaffi,

must go, assad must go. how would you deal it with more specificity -- boots on the ground, special operations again, is it to say, hard to do. >> start out by being clear about your expectations. in egypt we have an 82-year-old dictator, whether it was this spring's resolution -- revolution, are attack, stroke, or other and for the, was not long for that position. that you have mubarak their 430- some years, and what was the plan but between a dictator and chaos? there was not one. he thought it was his kid. that was not quite work either. what was our plan?

why have we done to prepare for that moment? as it unfolds in an abrupt moment toward the end, we had president -- vice president biden say, mubarak is not a dictator. really? yes, he is. then we have the director of our intelligent infrastructure go before congress and say the muslim brotherhood is largely a secular organization. really? then we have hillary clinton saying, do not worry, the situation in egypt is stable, as mentioned in my remarks. no, it was not. how is that helpful as we reach out to the people on the street? then they dispatched a person to that munich security conference in egypt -- in europe, to issue a communique informally. gibbs says mubarak must now, and

we mean yesterday, and then as i understand the chain of events, it was whispered to a designee of mubarak that we did not need it, you can stay awhile, something to that effect. the point is in the early days, hours, and weeks of that event in egypt we had a confused, very accord married, very unclear, a very has a tent administration. clearly, mubarak was a dictator and was not long for his position. clearly we need to be in the business, for the chaos of trying to have a capacity in place for a better way forward in egypt. that took care of itself in terms of the events on the ground, and now we better be whoping out with the ngo's are about the business to building capacity in egypt and to maximize the likelihood that will happen.

assad is not a reformer, and to this day, this administration would not utter the word he needs to go and he is a killer. they were hesitant to do it, and the implied he was a reformer and there was the time and held for him to renew himself. does that mean we're not going to use military force in syria? no, necessarily, but are there other things to do to effect change in syria? absolutely, and this administration in my view is reluctant to do it, does not want to do it, is not dedicated to it, does not believe it a leadership role in it. as to gaddafi, says not afghanistan. it is a relatively simple placed geographically, but it is it fair to say the united states and its allies want gaddafi to go, he would be gone.

you say you have x number of days to go, you can either go the easy way or the hard way, but you need to go. ryan reagan tried to kill him in the 1980's. there is more than sufficient reason to go and get gaddafi. >> you have tried to follow the war powers resolution in libyan military action? >> i would reserve as executive for robert of the argument that the war powers act does not apply. however, in the case that it might and as a courtesy and of respect for the congress, i would have more fully consulted with them, because the case that made as a courtesy to the congress, not necessarily as a legal obligation. >> you would have consulted with congress than obama? >> i think he had a couple of

leaders over first-and witches -- over for sandwiches. on march 7, i said established or threaten the no-fly zone in libya at that moment. gaddafi on the ropes, rebels was on the momentum. and he was openly talking about leaving voluntarily. we seized the moment at that time -- at the seized the moment, we would have gotten him out without much difficulty. the president dithered, waited for the united nations, allowed him to get off the canvas and give us the now complicated situation that we now have. that is very unfortunate. as it relates to the case that could have been made to the congress on how to do that, as a

courtesy and gesture of respect i would have done that, but i do not concede the notion that it is required by the war powers act. >> we have a question online. in a recent debate he said iraq was a shining example for the middle east. the number of experts and a recent meeting said the shiite majority was on to eliminate the sunni by driving them out of the country. my question is, for whom it is iraq a shining example? >> for those who like democracy, more open societies, increasing appreciation for democratic institutions, and principles. it is iraq guaranteed to be a shining example forever or much longer. no. it is a continuum and a moment

in time. is it guaranteed to stay that way in light of sectarian concerns, in light of other challenges within iraq? we do not know the answer, but in this moment of time, is it an example of progress that can and has been made in a difficult region with a complex and long seemingly insurmountable history, absolutely. please, go to the back sir. >> i want to ask a question that john ask you about states that democratically choose leaders who are opposed to american values, that and under.

i assume one of the reasons the administration hesitated in egypt is they thought whoever placed the president would be anti-israel. that is all logic of democracy in a region where anti- americanism runs high. the you have reason to think that is wrong, or if it is correct, are you saying that the united states should be prepared to pay that strategic price for the important moral gain of having a more democratic middle east? >> are you asserting that the elections in egypt were put to the vince? >> since the middle eastern public is brought by anti- american, and you spend time there and would have no doubt about that, democratic election in a country like egypt or jordan are going to bring the power people who are more anti- american than the autocratic

regimes that cannot have to respond to public opinion. that might be a price that the united states has to pay to bring about a more democratic middle east. the you have reason to think that is not such a price, or the you think it is a price worth paying? >> you need to look at it over time. we have monarchies -- the third category in my speech -- we have accommodated, supported, engaged with on a tactical and strategic level over many years and many decades. the argument for not pressuring them to much for change is because they have out, david us with respect our security and that is the essence of what you are describing. the next question is, how much longer in the world of twitter,

facebook, social networking, instant media, is that sustainable? if you believe it is not in the intermediate and long-term sustainable, are we best served to let least try to move those countries than the continuum towards a better future so the transition can be orderly, predictable, and more likely successful than have it he wrapped in a cataclysmic moment of revolution, the debris, political debris, and security debris for which is concerned? that is what i try to describe in the remarks, so i hope you caught that, but the point was not to say to these third group marquees described in the speech that we are on to the man or otherwise require you to flip a switch from what you are now to democracy in 24 hours. what i try to say is to think about, within the realm of

monarchies, you have occurred middle eastern monarchies all the way through spain or the united kingdom, where sir mcneill, obviously, over a reasonable period of time, with our friendship, leverage, mutual interest, hopefully increasing amounts of shared values, can we move them on a continuum so they have more shared power with their people that begins to convince the people in those countries that there is hope, in an orderly fashion, and it decreases the likelihood of a dramatic or catastrophic moment for which the outcome is even more uncertain. that is what i am trying to described. at least for that category of countries. there is also the failed states and those who have already gone to the revolution. >> you are not trying to send a message to elizabeth ii? [laughter]

watch out. you are with us or against us. i knew we would get kate middleton in here somehow. >> you implied in your remarks and in the answer to one of the fall questions that secretary clinton and the president worked to slow to embrace and support the reform movement in egypt. what do you to abandon president mubarak, our ally of three years. by not having what you described, in a more orderly transition, access is open to the gaza strip. that could be a pathway for weapons that would threaten israel. >> i do not accept the premise. he was either gone in the

revolution, a gaunt in the election, or gone through human life expectancy sometime within the next few years. the question is not whether mubarak was going to go, the question is what would happen once he went. it happened more suddenly because of the revolution. when you have 32 years' worth of his brain --his reign featuring parliamentarian elections that were stolen and the united states of america says nothing, that sends a pretty powerful signal. is that the only thing that led to the problems mubarak had? no. was it one recent example? maybe.

it is emblematic of the 32 years' worth of suppression, tierney, a dictatorship, denial of rights, stolen elections. if you do that long enough, eventually, you will have a problem. it is inevitable, predictable, the undeniable. we need to get ahead of it, not behind it. that same pattern will come for everyone of those countries in the region eventually. the question is not what is the outcome, the question is can we make that out, more orderly, predictable, stable, secure, and more oriented toward the security interest of the united states? i do not accept the premise that one option was to leave mubarak around. he was not around much longer anyway you cut it.

>> thank you for a thoughtful morning. [applause] > [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011] >> earlier today, the senate foreign relations committee debated and approved a limited authorization of u.s. military involvement in middle's operation in libya. part of that discussion was about the president and the war powers act. we will show that to you tonight beginning at 8:00. here it is a little sample of what you will hear tonight. a conversation between john kerry and bob corker. >> thank you, mr. chairman. thank you for your testimony. >> thankou, mr. chairman.

i have heard many ces where you have tried to justify the ends or the means for the end -- and die have talked about libya and muammar gaddafi in your handling of this. those are two very, very separate issues. people have very differing opinions about what is happening in libya but still have strong concerns about the way the administration has handled the process itself. i do not think it is helpful to meld the two together and i think of waters downhe issue at hand. i find a humorous, sitting here on the foreign relations committee, the most deliberative body in the world, some say. basically you guys have not provided witnesses from the department of justice or the pentagon. we seem to take that as a humorous thing. the administration has basically said there's no reason for us to

get any better resolution from congress, and yet the senate today in this urge to be relevant is rushing to give the administration irresolution even though it is basically saying in this case that the senate is irrelevant. i want to ask this one question -- now you have taken this argument and seen the response you got from both sides of the aisle, are youtill glad that you have travelled this route as it relates to the argument you have made about the war powers act? >> senator, i believe this argument. i think it is correct. i would not be here if i did not believe it. >> i did not ask that. are you glad that you created an issue where no issue had to exist by taking this narrowly defined route and sticking a stick in the eye of congress?

is that something you are glad you have done? >> senator, that was not our intent. you felt they stick with stock, that's not our goal. you have said a number of things i thought i should clude in my answer. one, the war powers resolution is not a mechanical device. it has to be construed in light of the facts of the time. otherwise, the 1973 congress would be making decisions instead of the congress of 2011. it has to take account of the circumstance. with regard to witnesses, i'm the legaldviser of the state department. the footnote in one of my testimony reviews, times the legal of visor's have appeared before this comttee and others -- this is my committee of jurisdiction. you voted my confirmation. so i am here for the conversation.

it was our position from the beginning that we were acting consistently with the zero or powers resolution, but we would welcome support because as senator lugar said, it would be -- a president always value a bipartisan support for this kind of effort or mission. finally, you asked whether we have made errors. i think this controversy has probably not played out exactly as some would have expected. i'm sure there are many places where someone have urged, and i would have bn among them, comi up with -- coming up earlier for more briefings and to lay out these legal positions. for my part of that, i take responsibility. but i do believe that the end of the day, the last thing we're

saying, the thing we're not saying, is that the senate is irrelevant. >> we are making ourselves irrelevant. let me do this. this is a long answer. i want to give the respect of answering. i would like to have a couple of extra minutes -- if you want to say anymore regarding my opening comments -- >> however the legal question is addressed, there is a fundamental question of what to do about the civilians in libya. at is a decision on when it should the senate can make a decision this afternoon. >> i do not think making decisions are any different from what came out. we are rushing to make ourselves irrelevant by passing something al that basically says -- you know what it says. the chairman mention that since no american is being shot, there

are no hostilities. by that reasoning, we could drop a nuclear bomb on tripoli and we would not be involved in hostilities. that goes to a preposterous argument being made. one of the issues of precedents you are setting is that predators now, the president of the united states, and the justice department of this administration has spent lots of time trying to deal with ople's rights as it relates to terrorism and that kind of thing. yet basically, what you're doing by arguing this narrow case, as saying any president of the nine states can order predators strikes in any country and that's not hostilities. we know what predato do. i think you know what they do. lots of times human beings are not alive after they finished their work. arguing're doing is

that president can order predator strikes in any place in the world by virtue of this narrow argument yet taken. at is not hostilities and connors plays no role. >> that is not what i am arguing. the obviously, s credit -- of a predator strikes were at a particular level or floor carpet bombing using predators, that would create a dramatically different situation. but the scenario i have described to senator casey is a very different. within the constraints of this particular mission, without ground troops, the predators are playing a particular role with regard to the elimination of certain kinds of assets of muammar gaddafi being used to kill his own civilians. even the numbers senator casey

mentioned are not close to the kind of level we would consider to be ones that would trigger the pullout provision. the imrtant thing and the thing that has beensked is are we presenting a limited posion? yes. because all four limitations are what bring it within a line ofhe statute. we do not say any element of could be expanded out of shape and require reexamination of the war powers resolution. i gave the example of the un security council designation, desert storm, that required approval because of the scale of the operation. i think the president has established a precedent by taking this argument that any president can use predators in any country the wish because

that is limited hostilies without congress being involved. i'm probablgoing to come to a close quicker than i won because of the time. we do have limited time flying over ltd. -- over libyan airspace, do not? >> yes. >> we do know there are numbers of types of weapons that they have that could take down our aircraft that are not necessarily lead fixed positions, correct? >> that is correct. >> to say our men and women in uniform are not in a position to encounter hostilities is pretty incredible. you cite that hostilities has never been defined. i read the house conference which basically reported out the war powersct. they tried toake it a lesser

level. they started out with armed conflict. they started out with hoilities and did so in such a matter to talk about the kinds of positions that exist on the ground. when you say these are not hostilities, that is patently not the intent of congress when they pass the war powers act. you introduce a mathematical formula. i'm sure future presidents will use a mathematical formula if we are only doing x% of the bombing than we are not involved in hostilities. but i find that not in any way to jive with what the house sent out in its reporting language. i know my time is up and the chairman is getting impatient. i did not support your nomination. i thought you are right there --

a very intelligent person, very well learned. but i felt you had the likelihood to subject u.s. law or to cause it to be lesser important than international law. while i made no statement to that effect publicly, i told you that privately when we met in our office. that is exactly what you have done. you have basically said the united nations has authorized this and there is no need for congress to act. we're goingo narrowly defined hostilities. i would guess at night, however people of your categories get high-five' y're talking to other academics about this cute argument that has been utilized. i think you have undermined the incredible -- the integrity of this the destruction and the ingrity of the war powers act.

by taking this very narrow approach, you did great disservice to our country. i do hope as some point we will look at the war powers a in light of new technology and in light of new conflicts and define it in a way that someon using these narrow and defeat arguments does not have the ability to work from congress. >> i was not growing impatient. i think it is time -- is important to give you time to these conversations. i value our relationship lot. i do have to tell you based on what you just said that your facts are incorrect. your basic facts on which you are basing your judgment is incorrect. let me tell you why. first of all, the president of the united states accepts the

constitutionality of the war powers act and sout to live by it. no president has done that yet. >> i did not argue that. >> you come to the next point. having done that, the president sent us a letter before the expiration of the time. in the letter, and i'm going to put that in theecord, he says the dear mr. speaker, and the president pro tem and the senate, march 21st, reported to congress that the united states, pursuant to requests from the arab league and authorization by the united nations security council to prevent a humanitarian crisis in libya. i could read the whole thing, but he says, pursuant to our ongoing consultations, i wish to express my support for the bipartisan resolution drafted

by senators kerry, mccain, feinstein, levin and lieberman, which confirms the congress supports the mission in libya and both branches are united in their support of the libyan people. he asked us to do that before the expiration of the 60 days. but we did not do it. do not blame the president. the congress of the united states did not do it. let me tell you why, bluntly. both leaders in both houses were willing to do it. let's be honest about this. >> i am being honest about this. i have the ability to express my opinion just like you did. and to use the facts just like you do. i do not want to get into a debate about this right now. >> you are not letting me finish my point. you are saying the president violated the process and did not come to the congress. he did come to the congress. he sent us a letter due to authorization and we did not do it.

that is the simple fact here. moreover, there is a constitutional question he because in paragraph b the warowers act, it says the president shall terminate any -- will submit it unless the congress has declared war or has enacted a specific authorization within the 60-day time frame. if congress does not act, congress can in effect by its lack of action challenge the constitutional right to do something. that is a constitutional standoff. any senator could have gone to the floor of the senate with a resolution during those 60 days. no senator chose to do so. all i am saying is i'm not going to sit here and let everybody throw a dart at the white house saying the president violated this or that.

secondly, sent us a letter before the expiration of the time asking us to pass the authorization. third, i will say this as a chairman, nobody wanted to do it. so, here we are. the relevant question is -- i agree. there are some serious constitutional questions about predators, how did they fit, and i think the legal adviser has accepted that. we need to exercise our responsibility to modernize this. but there fact that hostilities are taking place, and they are, does not mean the united states armed forces have been introduced into those hostilities of their not being shot at or not at risk of being shot at. if there is no risk escalation or of the mission is narrowly defined. i know none of us want to get trapped in the legalese here.

we want to try to dthis in the right way, but it is wrong to suggest that somehow the president went outside the constitutional process here when in fact, congress, us, has done nothing in the 60 days to declare war or not. >> i would just respond that i think the central element of my argument to mr. koh, , i respect his intellect but i don't respect his judgment on this case. the focus of my argument was hostilities. by a nearly defining that are being cute by where you say i support the constitutionality of the war powers act but on the other hand, since we are not really involved in hostilities, we don't really need to deal with congress. that's the part. th just haened on the 15th.

i don't think anybody in this body had any idea that the president would take such a narrow, narrow interpretation of hostilities. i don't think anybody knew that. i think the president wishes he had handled this fferently because what has happeneis, by being cute, they have introduced a whole other debate that suld not be taking place. my guess is they might have gotten overwhelmg support for a limited operation whether i support it or not. what they have done by trying to have it both ways, which is what they did with the june 15th letter, is interject a debate that has to do with credibility, integrity, and to me, is a gat disservice to this country. i stand by what i just said. it is factual. i would be glad to debate this all along. >> hopefully w don't have to do that. without we can do it

debating it all along. but i do think iis important. i did hear you say are rushing to get a resolution and i hrd you say the senate is irrelevant. i think when you measure those things against the reality of what the president asked us to do, any of this issue is because the senate >> we are going to show you all of the testimony and the questions. apple lead off our primetime tonight at 8:00 -- that will lead off our primetime tonight at 8:00. remarks from republican presidential candidate tim pawlenty on the president's foreign-policy and why he thinks he can do a better job. then we will hear from the

president as he heads to iowa. last year, the president signed a law known as the dodd-frank act into law. we believe a panel discussion on the implementation and impact of that legislation and how it affects international financial regulations. this was part of an all day conference. it is a little over an hour. >> international coordination, there are enough leads to wander around and when you think of these problems. we live in a global financial system. coordination, how do we make sense of it? i am pleased to introduce our

last panel facilitator. over to you. >> thank you very much, charles. thank you to all of you die- hards for being here. my name is steve weissman and i am -- i get to be the moderator and act like the journalist i used to be. that is a pleasure for me. to appear with two colleagues. morris has held many positions at the imf and was deputy director of the research department. nicklaus will -- is also here. he is a visiting fellow at the peterson institute. he is a senior fellow at

breughel. it is the brussels-based economic policy think tank. both of these gentlemen have done a lot of work on the international aspects of the regulation that we have all been talking about today. i am going to call first on nicolas to give us the state of play on the international cooperation on preventing banks that are too big to fail and shoring up the international banking system so that all major institutions and the countries where they reside 10 make sure that -- make sure to minimize the holes and the system great nicklaus will bring us up-to- date on the process and where it stands. morris will talk kilobit about

-- will talk a little bit about his sense of whether these steps have been up to the task that lies ahead. we will have a conversation and open it up for questions. it is a pleasure to introduce you to nicholas. >> thank you very much. i feel privileged about being invited to a discussion. the news of the last few days have helped me make the point of why this last panel is relevant to the general discussion because in 2008, there was a sense in europe that europe was the victim of something that was happening in the u.s. and lax

oversight of the financial sector. europe was hit by contagion. we mentioned what is happening in money-market plans out of concern for contagion into european banking sector because of what happened in greece. interdependence goes both ways. meet be very brief on giving an update. if we are talking about other jurisdictions out of the u.s., in europe, we are still in a

financial crisis to the extent that the u.s. -- i think it's fair to say that the core institutions of the u.s. banking system have been tested. there is no longer a sense of banking problems. the u.s. may have some other issues to solve. in the european union, the banking crisis has been a lingering sense 2007 and has never been resolved. there have been different forms of stress tests. not entirely successful. we are in the midst of the third round right now. the results will be announced sometime in july, but we are some of -- we are still in the midst of a crisis that has not

been resolved. the situation is slightly different in the u.k. and switzerland, but at the court of the euro zone, the crisis is there. the credits -- the europeans have made significant process in one -- progress in one area. that is changing the institutional architecture print the dodd-frank act has not touched too much the question of overlap between privatization of federal regulation agencies in the u.s. in europe, there has been a significant buildup of federal supervisory authority.

the eu had a federal legislative framework, but no supervisory authority at eu level. they have not been created, not that strong. they exist now periods they have a strong mandate compared to what was not possible. in terms of the rest of the logistics, europe is far behind the u.s. there is no equivalent. there have been some pieces of the eu process that is more fragmented than the u.s. in the u.s., you have one big bill. in the you, you have several little pieces on each of the chapters.

legislation has been passed. this is not that different from what they have presented in the u.s. case. the really big piece, derivatives, resolution, and capital requirements are still a work in progress. some of these aspects do not have a dramatization by the commission. basically, it is far behind the curve compared with the u.s. rest of the the world, i will not handle a huge complexity. i will just say that asia has two main features at this time. first, there are feelings that they have not been in the enterprise. there has been a trade crisis. it refers to the global financial crisis.

they refer to it as the north of atlantic crisis. it is more accurate. they also have tremendous competition between financial center is buying for this. -- senger vying for this. aged is not have the same level of financial integration -- asia does that have the same level of financial integration. market developments may not be such a good parts in terms of financial regulation and keeping the multi banking system there. i will keep that as a temptation, which as you can imagine, is something that is

contradictory with the financial centers. as a global level, i do not think the problem is that there are many global bodies. it is rather a weakness of these bodies which generally are working on the government will basis that makes it difficult for them to take firm positions. i think we will expand on this. i am not going to delve much into this. let me deal with the financial harmonization. this is a very ambitious rhetoric at the level of the g especially the first few meetings. the truth is that harmonization of rules is more difficult with this financial crisis than it was before. the reason for that is that it is easier to harmonize rules when you are liberalizing and

deregulating and then when you are regulating the financial system. the reregulation will be with local factors. additionally, to increase importance of the emerging companies -- countries like china and india, which seem to have a more focused view of put itovereignty, let's that way. it is less practice of this at an international level. it makes it more difficult to reach executive harmonization where they have a much bigger profile as a consequence of the crisis. they have lost a lot of other

things in the financial space. there hasn't been progress at the basel committee and also -- there had been progress at the basel committee. they are hoping for the progress. they are still making progress in terms of global endorsement. there are also concerns about fragmentation. the other is central counterparties for derivatives. they made mention of this. each one wants to have its own house for understandable safety reasons. the results may be fragmentation of the markets. the same mystery for credit rating agencies.

-- the same is true for credit rating agencies. they make no important jurisdictions. it is difficult to imagine that this will not affect the rating. we may have a fragmentation of this. preeti agencies have not covered them. -- rating agencies may not have covered them. let me finish with this. this is one of the biggest unresolved issues of the entire crisis. even senior regulators and the knowledge that there is no solution at hand on how to deal with systemic important financial institutions. we do not have a formula for

cross border resolution sas. this is good but not sufficient. even in the increase of several percentage points of requirements, we do not refuse the possibility of a cross border in the future. i guess we are going to come back to this question. i will stop here. >> good afternoon. it is a great pleasure to be here. i want to thank you and charles taylor for inviting me. this session deals with international constraints on the effectiveness of dodd/frank. i will argue that the problem is not that we have many multilateral institutions dealing with financial read regular check -- dealing with financial regulatory reform.

there are rules and guidelines that conflict of one another or dodd/frank. the problem is that some key aspects of financial regulatory reform are set by international standards bodies and that in order to get agreement within those bodies you have to settle for standards that are inadequate. in other words, you have to settle for half a loaf because many members of the committee's will not go along. i'm going to illustrate my argument by discussing two elements. one is dealing with financial regulatory reform, mainly basel 3, mainly on the capital standards that was announced this weekend. the second is dealing with reform of the international monetary system, mainly what has

been done about global payments imbalances. in both cases, and the message is clear. while they oppose a number of stringent capital requirements on companies, it is always recognized since the late 1980's that minimum capital requirements for banks would have to be determined by international agreement. in september 2010, the committee announced the agreement on common equity requirements and on the capital conservation. it is brief. it was alluded to earlier. the requirement was increased from the existing 2% of assets under basel 2 to 4.5%. the buffer was set at 2.5. when you put them together, you have 7%. thereto standards for judging that outcome.

-- there are two standards for judging that outcome. one is to compare it to basel 2 and the other is to compare to what was needed in light of this. if you take the first standard, i think it is clearly better. if the compared to the second standard, which i would say is the more important one, it is very inadequate. why would one say that? some of the reasons have been mentioned earlier. let me mention some of the studies that point in a different direction. it was a 2010 study that noted as recently as the first quarter 2010 the four largest u.s. banks at the lower end of the cycle were holding a comment here one capital ratio of about 8%. that was four times the regulatory minimum. why were they holding more? the market was pressuring them

to do so. from that, others concluded that 8% is the market induced a minimum near the bottom of the cycle. according to the imf, u.s. banks lost about 7% of assets during the last crisis and more if he would do it in the terms of risk related assets. large banks, to meet the minimum after losing several% of assets, you need about 15% at the top of the cycle. if you use not to the aid is term -- 8% of that in the 10%, then you would get an answer closer to 17%. lossu wanted to isuse the for all banks, it should be a 4%

and he would 12%. you would be somewhere between 12% and 17%. that is kind of what you would come out with using that methodology. that is a lot different than 7%. if you lot of -- if you lost 5%, you would be down to 2%. he did not have a lot. you not get a lot of lending. the 2011 bank of england study came to a very similar conclusion, capital requirements were much higher than in basel 3. a 2011 study shows persuasively that's increase equity capital would not force banks to reduce lending. it cannot reduce funding costs for banks.

banking dad did not provide market discipline. -- did not provide market discipline. it would not force banks to set aside funds that could otherwise be used for lending. they conclude that if we have much higher capital requirements than was agreed under basel 3, we would have very big benefit. we would have memel social costs. you could have done it in this once-in-a-lifetime opportunity due to the prices. you did not do it. what you got was half a loaf. in addition, when basel 3 was announced, it was agreed that the countercyclical buffered was going to not be mandatory but would be put in according to national circumstances. you could do if you wanted to do it. if you did not want to do it, you did not have to do it. you have to say there is all this talk about macro-

provincial. what does that mean? a key element of that was going to be counter cyclical capital requirements. that is what the buffer is about. that is not part of the package anymore. you have to say, and number of members of the g-20, if they were willing to go along, why are they going to put in a countercyclical buffer? you are probably not going to have that either. what are you going to have to do the math growth-prudential -- macro-prudential? you lost one of the elements. if this was a disappointment, you might ask, why do we not get more of an ambitious outcome? for most of the published

reports, it looks like the u.s., you like -- u.s., u.k., and switzerland would be in favor something closer to what i talked about here as the optimum. european members of been g-20 are thinking about losses associated with the ongoing european sovereign debt crisis. they were opposed. in addition, other members like canada and australia that were not hard hit and without the same motivation for wholesale reform, they were not for it either. there was enormous pressure from private sector financial institutions exerted in various ways including early study showing that the effects on the real economy would be disastrous. some people say you are too pessimistic. it was not that bad.

firstly, most of the credit losses during the crisis were borne by the largest institutions, about $100 billion. we are glad to get the certification charges -- these surcharges that will make up for it. if you wanted as a way to discourage too big to fail and you do not get them, there are other ways to do that. some of you may have seen the speech that nicholas mentioned. he was originally talking about a surcharge that would be somewhere around 1% at the low end and maybe 7% at the high and. 70% plus 7% is close to 14%. over the weekend, at the high- end it looks as if you have 2.5%. even i get -- you did not get anywhere near that. what about the other things?

there are a number of them. the problem is that we mentioned many times. we have not gotten very far in cross border resolution. if you look at the institutions, they all have a huge number of this. you are not there. you could envision some kind of charter that would deal with that problem. they have a prototype regime to do that. nobody thinks that will happen. that is a must have some other disaster. a law that people mentioned living wills. those could be helpful. our supervisors really going to simplify these institutions?

are they going to shrink them? what is really going to happen? so far, that is a long shot. they have been a big fan. they were voted down in the amendments. if you think of those, they would have to be vastly different for europe and the u.s.. if you take the combined assets of the three largest banks, 2009 is about 40%. if you take that same computation for european countries, it is somewhere normally between 140% over 400%.

. he composed much more than the minimum. some people say it is not possible. i say look at switzerland. they have had a report recently. they have motivation. ubs lost cause them. they have 10% equity. do i think this is gonna happen? i do not think so. let me now move to the other area. another area where international constraints may impact this may have to do with global payments

imbalances. china is the classic case. a 2010 study showed that financial imbalances run-up to the crisis. countries also experienced large capital inflows. you get more and stability and more of a credit them with me -- and more of a credit them when you have these large capital flows. they were associated with large increases. if you look at the work at the bis, what is the best warning indicator of the banking crisis? it is the joint occurrence of a credit boom. this does the best, including

protecting the u.s. banking crisis. if you are talking about capital inflows, the counterpart is this large surplus. surplus wentl from 2% of gdp to tens term in 2007. it declined to about 5%. a key factor in this is the evolution of what happens suit real exchange rates. during the 2002 to 2007 time, it china was engaged in exchange markets. sometimes it was up to 10%. studies of misalignment bounce that the r and b is undervalued

by 20% or so on average. at the peak, it was probably 30% or 40%. wasn't this currency manipulation? do not they have rules against that? should they have opposed a penalty? the answer to those questions would be yes. the reality is different. it was slow to recognize the size. they impose no penalties on china. china blocked publication. meanwhile, they have been engaged in all these exercises series dues payments imbalances. the sec had no effect. they have caused no changes.

they are engaged in projecting large currency manipulation. they failed to corrected after it has been identified. it to be subject to the wto approve trade policies. the problem is that you cannot get anybody to agree on that. not enough countries can agree on that to make that go. it has been recommended by academics. paul volcker and a bunch of other wise men. it has not happened. on the to keep problem strictly relevant to the effect that they can have on promoting financial stability, mainly global payments imbalances, we are still a long way away from where we need to be. the problem is not an alphabet soup of financial regulation. if this that the international soup we have a suit then to make

a meal. this is where we are. >> let me ask a couple of clarifying questions. first of all, you hear at the wayne -- echoing that there is a resistance to some of the capital requirements that are considered essential. on an international basis, the results of been disappointing. does this provide a further incentive to the united states going it alone to strengthen its own financial regulation? our regulators more likely to keep american financial institutions?

>> the short answer has to be yes. if they have activities in the u.s., they are competing with u.s. banks. vinnie get a competitive distortion. how serious is this? how much of a concerned should it be to u.s. authorities we have a different response in retail banking, periods investment banking is very

different. these activities tend to be tradable. they tend to travel a lot when they are on the opportunities. the cannot look at this. the bottom line is that it is not the only way to look at this issue. they have mentioned switzerland. switzerland has imposed what some call requirements on the two largest banks. it has to much at stake for its own financial stability. it shows a race to the bottom in terms of capital requirements. as i mentioned, this is very much linked in the case of europe. we have not sold our banking prizes. the concern is to manage a

crisis and not to basically make -- build a system that would come. the actions are about managing this. >> isn't that pretty common? >> i think it is common. i think the baking industry in the west hammers on the argument that if we have been requirements that are stricter than our competitors have, is a great disadvantage for us. despite the fact that they would be safer. this is not seem to sell. lobbyists good to congressman and tell them you are there and away american jobs.

it is like the argument when they come of from summer camp. they say the food was awful. they give you such small portions. people want the business. this is what it is. if they are not going to do it, we should do it anyway. it makes sense. i not see any evidence about this argument. what happens is that whoever is a sizable will cause them to say, yes, we have heard the arguments about this at 15%, and we will only go to seven.

the treasury, which show that this was the most important thing, with capital, they decided to go for the agreement. they decided to go for the lesser agreement. we will hold up the agreement, and we will hold on for a stronger agreement. let's take half the loaf, and this is better than no loaf of bread. >> this is deliberately not leave and a cynical question, at the same time. you mentioned this at the outset of the crisis in 2007 and 2008.

this is a lot of finger waving in the united states. you do this with the europeans were you get the house in order. >> this is a great situation -- with a short answer. the other answer is that the united states, with due respect, the united states is looking more at the u.s., and europe is very inward looking with the united states as well. we will go into this.

i do not think the u.s. has a natural dependency when it comes to financial regulations. this may be justified by the fact that the united states has put these capital markets and to work. >> we have one final question before we go to the floor. the european concern is that the system is so weak right now, how seriously must we take this argument? we study the stress test, and the sovereign debt crisis and how weak are these institutions right now. should we be involved with looking into this too hard?

>> the treasury has been constantly hammering this message with the european counterpart. >> if the hammering is going on, -- >> the leverage is limited. and perhaps this is a good thing depending on your point of view. this is a major decision with a system in europe. the european economy is not very different in the european countries.

this is not very constructive, with the capture of the financial sector. >> this would not be constructive this would be interesting. >> the official line in europe is that we cannot have these defaults. we are trying to persuade the banks into rollover of this, and so this will not need to be reflected. we have this rather than continue to put this into greece and others. that is where they are until that doesn't work anymore. then they will have to move somewhere else. they will have to push the case

that hard. we have what we were hearing earlier on. we had some of those instruments, and it is unlikely that you'll be able to work this out. this will be a recapitalization of the banking system. i would rather see this done sooner rather than later. that isn't -- that is what is happening in europe. and given that the past crisis is still reasonably fresh memory, --

>> we were wanting to ask this question. >> he had a lot of good viewpoints. i heard this at brookings a couple of weeks ago, with the issue of the european zone with the u.s. financial regulations. some of them are harmonizing with the rest of europe, and some of them, unilaterally, did not play well in the financial sandbox. there is such a size -- there is such a thing as the one size fits all capital requirement. and this is the kind of approach that has to be taken.

we still ended up commenting on these concepts. >> if you look at the european union, especially at the level of the european commission, creating an internal market place with several countries, harmonization is, in and of itself, for good reason, is a problem that we no longer have in the united states. but there was a time long ago when fragmenting was an issue it in parts of the world. i would not criticize the european commission for being involved with this.

this tends to be projected with the rest of the world in ways that can be surprising or exotic. this is something that would be easy to describe. and i agree with the premise, and this is a more pragmatic compromise. this is part of the harmonization. >> we did not go very fast on bossell 2. it is hard to say that this was a bad thing. they clearly got it wrong in

several fundamental respects. but now you would like something that's much more ambitious. you will be a little bit slow, or we will not go where you want to go. i think that these things matter. we are trying to have a stronger one rather than a weaker one. i say that this is the most important element of the financial regulatory situation. if you really did this right. after all the huffing and puffing, we got one that was rather modest. i would think that it would be nicer to have a stronger one. if we felt strongly enough, we could do something with this. i saw the comments as he was

trying to control the currency with a capital requirements. this is within the u.s. team. would this be too much? we will take what we can get. >> would this be more effective at dealing with the financial arguments in terms of the financial institutions? >> i think that this would be helpful if we could get the u.k. to line up. we would still leave out some major players.

bossell 1 came about because the u.s. and u.k. were at the lead. the united states and the united kingdom and switzerland with at least be a start. they say that they will go for more, to get somebody that they want. with a push 10% of the common equity for the retail operation, they would lead the wholesale operations to be determined by this process. this is clearly not willing to go with unilateral on the wholesale acquisitions. paul lee because of their own banks and being subjective to tougher requirements than those elsewhere. we can get the u.k. and

switzerland with us and it would be better than going alone, but i do not know if it will be different. >> it is only about two banks. one of them was not billed out because the swiss government had made a profit during the crisis. the conclusions that they had drawn from this is basically, we don't want these huge banks. this is not the conclusion that the u.k. had made, or the united states. one way to look at this unconfirmed decision -- and there is a debate in parliament. this is something that looks like the proposal. this is a way to say, we will go back to the banking system, and

i do not think that this is a choice that the united states or the u.k. is ready to make. >> i had one hypothesis on why switzerland has a high capital requirement. i think that they have the best ratio of the size of a banking sector and i think it is a good example that they may want the capital requirements to be. in a way, this is like a private capital requirement. it says that if i do not have money to give you in the end game, let's figure out what capital requirement i will charge you. my sense is the reason why the countries are not getting pushed to that limit is because the banking sector implicitly explores the fiscal strength of the government because they can be built up.

today, it is conceivable that there could be $250 billion. it does not seem outside the scope out -- of the u.s. balance sheet. the moment you talk about 3 billion -- a three trillion dollar sector it seems hard for them to manage. >> we have iceland and ireland. the island case as well. they did the bank debt on to the government's balance sheet. so you have fiscal problems and you have a spectrum of switzerland is closer to one. you have others. i think a relevant question in these issues is, what can you afford?

what can you afford to pay? that is why those ratios of bank assets for the three or five largest to gdp where gdp is a proxy or instructive. the question is, if you are talking about three or four big ones in the u.s., 40 or 50% of gdp is not chicken feed. not 200%. it is not like the u.k. and others. it is not a trivial number. the economy is not losing the search for attempts in banking. you have that for the u.s. as well. barclays and deutschebank taking market share from goldman sachs or jpmorgan because that

would be a bonus. the reason why this is a concern to the u.s. is the u.s. wants to have their banks in the plainfield and you could double that. switzerland has made an unusual choice out of necessity for the reason you mention which is -- [inaudible] and let's be reasonable and leave other countries to build huge banks. i am sure this was would agree with this depiction and it is simplistic on my part of that is what we have seen for ubs.

the conclusion is the future will have large banks only in large countries. switzerland was -- this was a small country. germany and the u.k. are countries that are too small to report. we have seen this disturbing abolition. like the relationship between banks and government and externalities' and implicit guarantees. the only institution that can compete on a global scale with the large economies of scale will be headquartered in the largest countries which is disturbing. switzerland has nestle. they are no longer in banking . >> in the back. >> the national champion model

has been invoked. it appears to be official policy because it is mentioned by jamie dimon and tim geithner. prodi the best analogy is in the u.s. beer from industry where we have boeing which is backed by the export import bank and the eu has airbus which is also backed by substance. why do we pick as our champion the worst run and least well- capitalized companies perhaps in the economy. this would-be like sending in the bantamweights to the heavyweight championship fight. there is hardly any questioning.

a related question is why are the biggest institutions the worst run? any thoughts on this? it seems it is taken for granted that it is in our interest to make sure we are out there are losing the most money. >> you referred to financial institutions but in general. we have five instead of four. another layer of aspirational too big to fail banks. >> would that be your narrative? >> i think, you know. there are a number of institutions in the u.s. who might to make a judgment? somehow they are run.

my sense as an outsider is some are better run than others. there is a certain diversity there. i think it is interesting but there is this mentality in banking more than in other industries. this is linked to the crucial -- [unintelligible] fulfil in national economies which makes it difficult for governments who considers it has nothing to do with their ownership structure. it is to be a big question for the future whether in the you, we will build a truly integrated banking market. there have been some steps in

the direction. we have a global economic integration in manufacturing and services. to me that is one big question for the future and the crisis has made this question less than before 2007. before 2007 there was this general mood of deregulation which made it credible that we would have a global financial system. it is integrated at global level and much as the case now. >> a question about basel. someone commented in one of his recent papers that he thought the imposition of minimum standards of harmonization and

regulatory practices have helped make the large banking institutions more like. basically reducing the diversity of the banking system and therefore perhaps made it more vulnerable to systemic shocks. any comments on that? >> i have seen some of these papers contrasting differences between european and u.s. institutions because we had a leverage requirements and they did not. there was another -- i have been more aware how the differences have motivated bigger. -- behavior. basel was slightly better -- basel iii is inadequate.

i do not think there will be quite -- the principles are sort of better. are we progressing, i suppose that it is not something that generates great enthusiasm. in contrast i think all ling's considered, dodd-frank was -- i give them better marks than i expected when the process started. i thought it would be more watered-down. after the crisis i thought basel iii would be stronger and this would be the time when it

would be tougher on the banks. it has worked out a bit in reverse for me. >> i want to ask a related question to your is which would circle back to, when you cited dan terullo's almost throwing up his hands over the cross - bordered resolution. there was the toughest issues that members of the project wrestled with. so if we are moving toward these national champions, that are looking more alike, even though they retain differences that you mentioned that could be analyzed, with there be any

hope, does that make this cross border resolution authority more difficult if we are really talking about a limited number of behemoths in the world. >> the financial markets have been degraded over the past decades. banks have internationallized and we do not know if the crisis will result in the reversal of this international's asian and integration or whether it will continue. we frankly do not know. i'm slightly less negative on basel 3. maybe that is a difference of

perspective. i think we can agree that requirements are not going to prevent international banks from failing in some cases and therefore the issue you mentioned which is the question of cross-border banks. it is one of the issues which has not been resolved. policymakers are talking as if they do not have a clue. they experience has -- this is difficult to resolve. in the geographical space which is poorly integrated at a political and legal level, we have not really practiced. there is a discussion on going but at this point, the resolution remains a national

matter. so my sense, this is a research project. the commission gives perhaps an indication of one possible way forward. not the traditional glass- steagal separation. they're making a distinction between tradeable versus non- tribal financial services. they are mostly tradeable on wholesale and investment. it is a different way of looking at it. and here it is not about saying

one type of guarantee. i personally do not believe that. but it is a different framework. the commission was right to say it let us regulate financial services in the u.k. but that means retail. we have to leave wholesaled to an international discussion. the question is what form does this take and we're at the beginning of that decision. >> i think the facts we have not gone anywhere in cross border resolution is troubling. i even thought about saying, the default regime ought to be the fans. everyone will have to -- it will have to be capitalized and that will be expensive to the industry but since you're not getting anywhere on cross

border, this is a solution. insurers there is accidents there to pay the liabilities. it is better than chaos. and so if we do not get some sharing agreements soon, there is an incentive to do that. let's go to bring fans. it is something we know what to do -- how to do and it is better than nothing. maybe that will motivate discussion about trying to get cross border moving. >> thank you very much. thanks for inviting me to moderate this discussion altria thank you for paying such close attention at the end of the day. thank you. [applause] >> we have a 15 minutes chance, you may relax.

i am not planning to use 15 or 5 minutes. just one or two. thank you for attending and thanks to stern for sponsoring the event. we had a lot of different positions represented during the day. thank you again and godspeed. [applause] [applause]