committee in the latest inquiry, and in large part, indeed almost entirely that on those specific issues this committee was unanimous. therefore, what ever additional statements that proved more controversial, which are included in the report, the main findings of the committee, which relate to misleading evidence to the committee, this committee thoroughly agree. therefore, i hope that is the area where all of those privy to the debate will concentrate. >> >> thank you very much. could i may be asked to explain why they think rupert murdoch is not fit to run a company, and theyer mp to explain why think he is fit? to those that are found guilty willsleading parliament, you take them to the parliamentary sell, or what is

the punishment? theell, in terms of what consequences are, to some extent, not for the first time come at this committee is exploring uncharted water. we have gone as far as to say wethere will be others with more knowledge and experience. >> we made the decision yesterday. given an amendment.

as you all know, the description is something to consider when deciding whether to give a broadcast license. it is a very decisive definition. -- precise definition. the committee is making a judgment based on the regulation in the u.k., and that was not something we investigated. you may have personal opinions hist report murdoch and company, but that was not something we were in a position we thought to make a judgment on. it was an opinion presented. that is what we agreed on in unanimity. >> the alternative you? -- view. >> the reason i support the statement that he is an unfit person to run and or the international organization, you have to look at the fundamentals. in my view, they acted as if they were above and beyond the world.

to suggest that there was some did of glass ceiling that not reach rupert murdoch or james murdoch, is astonishing. to suggest that a huge amount peopley was paid out to with whom senior executives were employed is incredible. i think the general public will draw the conclusion that it is astonishing that people at that wasl did not know what happening. as i said earlier, he was the top. >> [inaudible]

to me, quite clearly rupert murdoch is fit to run an international company. he has been running businesses since before i was born. he has employed hundreds of thesands of people around world. he has made a huge difference to the media industry. we have seen absolutely no evidence to suggest that rupert ofdoch was aware of any these things that were going on at news international, news of the world. if i thought he had been aware of what was going on and andberately covered it up may be committed only a crime in doing so, then i would have been happy to say i do not think he is a fit person to run a company. we have seen absolutely no evidence to suggest that was the case. of course he has made mistakes. of course james murdoch has made mistakes. we all make mistakes.

we all wish we had done things differently from time to time. hindsight can be a wonderful thing, but to take that to say this person does not fit to run a major international company for he has been doing that decades seems to be not only way over the top, but also completely ludicrous. >> the bottom line is we had no evidence on this. no member of the committee could find it in their heart to said that either james or rockford murdoch's has misled the committee. nobody. even after the report is published. nobody was going to exclude -- conclude that he or his son has misled committee.

therefore the line about rupert murdoch not being at the person was stuck on the basis of no evidence presented to the wemittee whatsoever, and just could not support it. as i say, even though many votes went against my point of view, i would have definitely voted for the report. >> david grossman, a bbc news night. the questioning so far has concentrated on the division within the committee. can i ask, why was it so important to get in the line about rupert murdoch being a fit major to run a international company when the expense has been, or the cost of getting the line in has been allowing opponents of the process to portray it as along party lines and political payback or whatever? >> there is a judgment you have to make with these reports. whether you go for a weaker report and gain uniminity or stand up for what you believe, and where i came to and the

majority of members came to is we needed to raise the bar. that was because of the last report in 2009, the truth is we were negligent in this -- made a mistake. we invited rebekah brooks to give evidence on three threeons, and on occasions she rebuffed us. we decided not to compel them to give evidence because there was a huge amount of pressure placed on the committee. there was an election looming. there were also political pressures for us to do that. i did not want us to be accused of conducting our responsibilities.

i wanted the committee to be courageous and confident about the most powerful media mogul in this country. it would have been wrong for the news of the world's tallest to lose -- news of the world journalist to lose their job just because of who it is. i just felt it was important individualember, member of the committee in collectively that we set down. >> when the game was up in terms of the one that reporter, as you will see from the text, possibly two rogue journalists, what we saw from news corp. was a clear strategy. we were being invited to blame tom crone. you will see from the corporate conclusions, and not just the conclusions regarding rupert murdoch, that we simply declined the invitation.

>> quoted my good friend when he made the comment in the chamber [inaudible] i am almost certain you and the colleagues would of been asking, why are the people at the top of beeninternational not identified? i would just say that -- >> on the 14th of july, 2011, the committee was unanimous in the division and recorded vote rupertons james and murdoch. we were united in wanting to see the evidence. we disagreed on where the evidence conclusion came out. >> that is true. >> was it open to the conservative members of the committee to publish of dissenting report, a minority report, and if it was, could one explain why you chose not to do it?

>> simply on procedural issues. obviously any member of a select committee could prepare a minority report, but actually, as we have emphasized, a very large part of the report was unanimous, therefore it was thatbly more sensible where there were divisions it was made clear in folks that are recorded and appear on the back of the report, but the fact is a reportirst part of the was supported by everyone in something that all of my colleagues felt was the most important outcome. >> not all conservative members of the committee agreed with ofh other on every aspect the report. it was not that we had a block conservative view on this. it would seem to be feasible to have a minority report, because if you look at the divisions, we andd in different ways different amendments. >> [inaudible]

>> we voted against the report. >> if that sentence was not in the report -- >> we probably would have all voted for the report. andread i just ask sanders this, if you have voted the other way, then as the only member who voted on the committee, then it would have been split, which would have what that the testing but have come into play, and the report would have been rejected. if that is the case, i would ask mr. sanders, you have a lot of vote,sibility for your and why did you decide to vote with the labor members, and did

you consult other people in the party? >> we all have a collective responsibility as a committee to seek the truth. was the evidence that presented, from my experience with the previous committee that looked at hacking, and the evidence presented to this one, i took a decision on that. any one member at the end of the day could be the person holding the balance of power, depending on how individuals make their mind up. it just happens it was in one section of this report alarm -- along party lines. it certainly was not in other divisions. how the chair exercised his casting vote, i have no idea at all. the chairman can only cast a vote in this circumstance in which it arises. >> indeed. what i would say is that it is a matter of some regret to me

that the committee was not able to produce a unanimous report, particularly when on a large number of issues the committee was in agreement. the unanimous pollution has been diluted by the fact that the committee was unable to agree. wallne whelan with "the

street journal." could you clarify which aspects of the report were unanimously agreed upon? >> if you look of the voting, it becomes apparent, but in terms of the main conclusion, those relating to the individual names, specifically those that concern, crown, those conclusions were agreed unanimously. >> thank you. i am wondering what you think the public is supposed to make of this, because we have had months where they of seem this report. this is an opportunity to give a lead and say what you think come in we have ended up with a committee report that is split down party lines. i know you've disagreed on comeus aspects, but you away in the end in a report that does lack credibility. that matt -- that must be a matter of great disappointment

to you and members of the committee. >> the main the focus of this committee in its most recent inquiry was to answer the question whether or not we were misled in the evidence we were given, because on that subject we intend to table a motion to parliament, and it is on that whether there is in a motion in the committee. tos is a unanimous report parliament that the committee was misled on named individuals. >> you have probably noticed from the individual members of the committee that they are all unique in their strong views and wills. i happen to think that is a good thing, but it does mean sometimes you get split reports. i have no doubt you will be able to interpret the report and put both of use to the public so they can form their own view. it is my view they have are ready for the of review on his company, and this further shows

how power corrupt institutions of the united kingdom. this is the paragraph about astonishment. >> this is from itv news. d be filled this will be deceived? it says the whole thing was corporate governance. is this the view of the whole committee? what would you recommend they

do? >> the question has already been answered. the motion before the house will be about parliament being misled. the question doesn't arise. as to the failure, i voted against it. there were failures. it tests taking its house. it is not for members of the select committee to apprising them on what date will do and don't do. >> this is where it comes back to the fact that this will concentrate.

this is a huge one. >> emotion for the house will be to decide whether people are guilty. we are all agreed on that. that is the substance of the report. it is the first time it has been done since the 1950's. we spent some time talking about it. it has been gentle. >> he is the editor of the new york daily news. we have just found that he has misled a select committee of parliament. i would hope that a little bit of attention would be paid for the unanimous findings of the committee. furthermore, if somebody comes in front of parliament and lies to it, what happens next? we do not necessarily have the procedures in place.

we will be referring it to find out what to do. but his conclusions have been drawn about people misleading parliament on which we were united. there is a lot in the support of which they could be completely agreed. and you know that's the shame that we weren't able to agree on the report itself but the line about rupert murdoch. >> thank you. james cusick from the independent. is any news corp advisor attempted contact or influence the outcome of this report? and i know that some members of the committee have been contacted, i think by fred michel, but anyone else? >> welcome in terms terms of the evidence, which i think rupert murdoch presented to lisbon and four, lisbon contacts which it is called, and this committee, i mean, they named a number of members which are those currently on the committee and, indeed, members of the previous committee. i certainly have spoken to fred michel. always adopted a policy of an

open door, not just in this inquiry but all inquiries, but if people wish to come to talk to me about, to get the point of you i will listen to the. but the question about wheth or not they attempted to influence to the extent that they were putting their capes, but they didn't do anything which was improper, i heard people came to see me who have just a strong view in the other direction. >> i just completely, i was exact with the chairman said, i can put my hand on my heart and say nobody has ever tried to influence what i said in a corpore if anybody knows anything about me they would know it would be -- try to influence what i think the i think i'm sufficiently independently minded, to be completely, you know, i won't be affected by endless attempts. certain i can put my hand on my heart d say i actually -- that

actually did not happen. >> that would be counterproductive to try to influence philip in terms of changing any of his opinions in any report. and likewise myself, i don't know fred michel. they have not contacted me during this inquiry and i cannot despite my name being there in leveson, remember anyone contacting are trying to influence me on a previous inquiry because that would be ridiculous and stupid i wod think. [inaudible] [laughter] from news international. >> i don't think i have been lobbied. >> yes, front row. >> this all looks like a bit of a shambles, mr. chairman. you've ended up with a report that half the committee voted

against. do you consider that you failed? >> no, because i think as i said, most of my colleagues have spoken have said, that the main findings of the committeef the area which we were asked to examine which whether parliament had been misled, the committee voted unanimously and i hope, therefore, that will be what people concentrate on. that may be a big no, but i would like to think that people will concentrate on that, and certainly that would be the message that we will be relaying to the house of commons for motion. >> it was put to our discussion that if you leave this light out that we will bear the support, and he decide not to pay something for. it is all right for people to different political views to disagree indefensible fashionon things that are close to the heart and about which they get very much. the news -- he was completed

within his rights to do so. it is not a bad thing and not a shambles when people have genuine disagreement in principle, disagree take vote and put those agreements on the record he had every right to do so. >> you need focus on negativity and reort, but i think the most important issue that is racier today is that this committee has expose criminal activity to establish press and media. that has led the leveson inquiry -- [inaudible] so i know it's always a comfort zone to be in a negative zone, we are hopefully shone the light on what was criminal activity and also what was not. >> the report says that rupert murdoch's self portrayal as an opera proctor was, you consider,

a misleading account of his involvement and influence of the newspapers. are you acsing him of misleading us? >> that was, that was, that is my amendment and you've got the text thre. what we've found, what we found on times when it is soon to come is they forgot, didn't remember, or as tom said, this is such a small part of my empire, our empire, that we didn't pay it too much attention. and their weird testimony which is recounted from rebekah brooks, that when chief executive should speak torupert murdoch every other day. you can draw your own conclusions from that. this is a fruitlessly, of course. this shouldn't be a focus simply on robert byrd ah -- rupert

murdoch because there's a focus ofhe news international. if there was one phrase from the last report that resounded around the world including australia i think, the faceless collective amnesia. if there's one phrase apart from rupert murdoch which should possibly tackle in the same weight ithe support, it's one that is used in amendments by me, from the and from tom watson, but the question that our colleague adrian saunders first asked in session, and that was about willful blindness. and that phrase, willful blindness, in respect to the whole corporate conclusions be the failure to follow up very public wrongdoing, not just on n the phone talking, and discipline the perpetrators, i think that phrase should reeive focus as well.

>> hi. rupert murdoch to give evidence to the committee. some slightly sort of, i don't quite understand why concerted members of discussion about rupert murdoch was some of ultraviolet to the committee but perhaps they could explain the. and furthermore why did not propose any alternative amendment if he disliked the characterization of rupert murdoch? and in particular why don't they support amendment vis-à-vis the fit person statements? >> first of all, in terms of, well, why do we not put an alternative, that was an amendment before. we were voting to restate the status quo of the report. so you don't put forward an amendment to an amendment that has not yet been voted on. that's just, yeah, i don't we understand your point really. >> go on. >> that'sfine.

>> we have to decide whether rupert murdoch misled us and what he said department of an no one proposed at any point that he misled parliament. now, there is in the corporate, a next step actually, the corporate line, that was an amendment i supported in the votes. and there we were critical of the cup as a whole putting too much emphasis on the river of internal investigation and the action been taken by the cover. that is a criticism of james murdoch as was other executives named in the portraits i think we have been critical both of his role in some of the things he said. but what no one has proposed is that he misled parliament. >> nobody said that rupert murdoch wasn't aust about party to the report your i don't think anybody said that. i think what you said was we didn't agree on conclusion in a report about rupert murdoch. naudible] >> if you look at the decisions

and the vacuous he would've greeted the status quo of the report without that particular amendment. [inaudible] >> we don't believe he misled -- we were looking at, the whole purpose of our inquiry was a people mislead the committee in our report back in 2009? we don't believe, i sent sealy -- i'm not sure that anyone about rupert murdoch misled the committee. we haven't seen any evidence that james murdoch misled the committee. we concluded that the three individuals that we've already mentioned did mislead the committee. that's why we didn't agree with the conclusion about rupert murder. [inaudible] there was no evidence there to suggest that. >> you've already. it does say, this was not done by oneparty voting. at the end of the conclusions

andaccept,. [inaudible] so that his comment in the conclusions and that would've stood even without the additional line that he was soaking we have. we had to divide on the whole report. >> were there any objections from committee to one of their members putting out their own version of the boo before the report was finalized? what charged you take mr. chote to make sure that no privileged information given to the gain was used in dial m. for murdoch, especially given the finest of report on page 312? >> well, what i would say is that almost all the evidence that was presented to this committee was published on the internet almost the same day, or very shortly afterwards. the terms of privileged information which is not

available actually does very little which we didn't make public. the ones we did make public is where we're specifically asked not to do so. i was not aware that tom watson in his book -- which was not made public but perhaps he would like to address that. >> thank you. good to see you again. [laughter] firstly, your service held a broad so i'm told i can't see you for libel. secondly, all the information in the book comes from either public sources, and were i thought the committee may what's the evidence i submitted it, some of which was used, most of which was accused. because of the justice issue. but i'd like to put a question to you. can you tell me why paul staines held the need to destroy his hard drive after he broke the

story? i'm not sure this is an opportunity for the committee to ask questions of the press to it's not normal contacts. i would ask you to pursue that after. >> josh holliday from "the guardian." you are each newsgroup in the report to waive legal privilege. why do you think that would be significant and would you consider revisiting your conclusion if it is significant? >> well, we, i think it was a chance for the committee to persuade news corporation to withdraw privilege to the loose report. but possibly we also got -- after the evidence of rupert murdoch gave to levinson last week when he was specifically asked about this by justice leveson. and he seemed to attack burton &

copeland in a statement way kind of lengthy executives for the cover-up. and there was this mumbled comment to do in the corporate and i think be really important that we just clear things up to it that report in 2006 i like is that there was wrongdoing, other than phone hacking, then it shows that there is a conscious -- consciousness of the company at the time and executives should have acted. i think it was too late for us to take a view on that. but you asked, i believe it was a unanimous view of the mmittee that that report should have privileged and should be submitted to levinson. [inaudible] >> documents that we receive any investigation came as a result of privilege being way. clive goodman opinion, the notes from mr. pike's conversation with colin myler all came as result of privilege being way. so i think it's -- [inaudible] >> one of the difficult and committing conclusions in this

report is been that many people know far more than we give it that includes lawyers, claimants and civil claims. because even though those have been settled, there were disclosures affected by court confidentiality. in the gordon taylor case, a limited waiver of legal privilege ws given. some people might speculate that might have the effect of just dumping tom crone and colin myler. but we also asked for a waiver of privilege to be given in the max clifford case. we just wanted everybody to come clean and tell us exactly what they knew. and they refused to do that. i just want, there are other parts of this report apart from rupe murdoch. there's a section on the police. the police and cps failed over a long period of time, not just mr. yates and others. but one ofthe hings we don't

cover in a poor, the report covers a lot of ground, i made this comment is more interesting legal magazines come that there was a succession of lawyers, burton & copeland, indeed michael silver lease qc who continue to represent the corporation and civil claims, who we know knew that what news international was telling us about one rogue reporter for defense was untrue. now, it's come out in our conversations and discussions with the spears council of parliament is not what is referred to not strictly accord for legal quotes. but we've not seen seen anyone of those lawyers resigning on prinple. whenthey knew that what we've been td and the general public was being told was not the truth. >> to say, that there was much disagreement in the committee about this idea. i don't believe lawyers have to represent their clients best

interests within the lockout and that is all they have to do, i don't see any occasion for lawyer to resign for havg done his job as he is obliged to do under the law. on the mater of burton & copeland, i do, i'm glad you brought this up. i do think it's an important one. this is an amendment which i was very pleased to support, it's absolute a quite right and i would like to tke this opportunity to call on news corporations management and standards committee to release burton & copeland from privilege at once so that we can have transparency and be quite sure that there is nothing further being concealed. that is the opposition. he was right to make the minute and received unanimous support from everybody on the committee. >> to questions for mr. woodson. neither words fit androper are in the corporate what do you think happens with you on ofcom

to look at the evidence presented to the committee? and also you call for this parliant to have been in corporate to continue to happen urgently? >> okay. just -- just to be precise we use the words not fit person but we don't use the and proper to say get that right. and on the scottish parliament part. look, we saw jack yesterday. he was a taet of hacking. and we know that thomas sheraton, now knows he was a target of hacking when he was a member of the scottish parliament. when we found out similar things had gone on in the westminster partner, we ordered a new inquiry. sabah told party leaders of scotland can come together and organize their own inquiry to find out what was scope of the inusion and the privacy was, and where the focus was.

>> chairman. i wonder if you could guide us on a bit of a process in terms of the motion that is going to go before the house. you say in the report, the press release which is the own misleading committee. can you only put motion before the house to the committe unanimously agrees, or whether come down to the vote as well that they may split along same lines has done so for? and secondly, what is the cash to i know you know parliamentary guidance on what the penalty for being contempt upon my become but what with the committee must have some sort of you on what you would like to see perhaps an apology? >> welcome in terms of the motion, my hope is that segment will be agreed upon. the reason the motion will focus on specifically misladg the committee is because that is the matter for the housef commons. on other matters like committees report, the governments respond within a period, and the

committee can sometimes request a debate. that would be the normal proceeding for us like many a report. but in this instance, we are reporting what we believe have been a contempt, which is a very different matter. and, therefore, a debatable motion in the house seemed an appropriate way forward and it will focus specifically on whher or not attempt a good. now, your questionf the house agreed to have been content, what happens next, i believe there is precedence, although quite a long time ago, for a defendant to be called before the house, to be abolished and have the houses conclusion made clear to them. but to be quite honest i don't know. i suspect that would be a matter of debate, perhaps by standards and privileges in house by leader of the house and others. at this stage we are intending to table the motion, and no

doubt that parking will be involved in consequent discussions about what would happen if it is then in the house of commons. [inaudible] spent contempt of parliament. and certainly that is not the case at the moment, but i think we need to find consequence for misleading parliament. >> we could spen hours on that particular debate, but perhaps we shouldn't. >> gene with "the wall street journal" but isn't possible then your motion will accuse rupert or james murdoch of content, our only in milder, and crohn's because it is not conclude that eier rupert murdoch or james murdoch are potentially guilty of content. is made another -- other conclusions but about the specific question about misleading evidence, this committeis therefore department, we named three.

>> clearly we are sad after five years not finished yet. we have not been able to go further because of the police investigation. there are other things that made emerge, which may want a re-examination of the evidence. and i just stress here the human cost. lin mulcaire was not operating in isolation. he does we have not yet had the most bound database. we have not been able to make the links between what the detective was doing, andompare thevidence we're given. other private detectives were doing the things at the same time including mounting surveillance over at least one member of the committee. it's been admitted in the civil case that computer hacking went on. with all the pieces fthis

which are yet to be put together. at the end of the day the human cost of this, the intrusion into the ordinaries dash the arctic peoples lives have to be at the forefront of our thoughts and i hope your thoughts. this was an organization with its newspapers that give moral lectures to public that acted as we now knw them morally and criminally if so. held itself above the law. >> thank you. we have no more questions. thank you very muc. >> [inaudible conversations] [captioning performed by national captioning institute]

[captions copyright national cable satellite corp. 2012] >> a bloomberg summit on the state did the u.s. economy. then a discussion on the housing market in u.s. dollars. later, and remarks by alan greenspan. presidential race. he thanked his supporters and announced a suspension in a youtube message this morning. watch him live on c-span at 3:00 p.m. eastern. >> spend a week in oklahoma city with american history television. check in on literary life with c-span2. from galileo, copernicus and others. sunday, oklahoma history on american history television. toward the bombing memorial with tory.

plus a look and african american life in 1920 because of. we explore the history and literary life of cities across america. >> bloomberg custody summit on the states and the u.s. and global economies today. chris van hollen of maryland and alice of the some symbols committee agree joint -- by the wereon bowls committee joined by congress. this is about an hour.

>> with that, we would like towe are beginning with the state of the a economy. my colleague is going to bewe are going to do a quick discussion. let me tell you about this first. he is an editor of bloomberg news responsible for government and economic genomics. here are two of our panelists. is the professor of management. he's director of the volatility institute. he is a nobel prize laureate. we thank him for being here. you are the chairman of research associates. p r the author of the pulitzer prize.

the new york times said it is necessary reading for a ceo's. this is by takagi experience >> -- by a technology geeks. >> you last that here we are. the economy has been growing for almost three years. what is the most confounding thing about this recovery? theresponse was that recovery is still quite slow. unemployment has not dropped below 84%. should he be surprised? >> we expect this to be a long recovery. financial crisis tend to have slow recovering some. -- recoveries.

it is hard to imagine to have a recovery if you're trading partners are weak. we did not anticipate the sovereign debt crisis. this is a real negative. i think it is still moving. >> the term is a modest a moderate. what has happened to get us beyond the modest part? >> i think we need to take a little look back at the great depression where we had a similar financial crisis. it lasted years and years. in 36 and 37, there was an effort to rebalance the budget to stop the deficit spending. the economy turn back down again we need to keep our eyes on historical events and recognizing the need for stimulus in the short run is still with us.

the long run austerity that is needed to bring our expenditures in line is ever more important. what cannot cut the stimulus about turning the economy back down again. beshould be chairman really surprised? >> not particularly. >> we did a paper about a year and a half ago. it was stepping but bad news. 10 years after the crisis, a

level of gdp per capita it is thebelow that predicted by chance in years prior. financial crises have long lived consequences. we always have a very pronounced leverage cycle. the office of regulatory ones. >> i think the regulatory overshooting is very interesting. >> is also about the importance of business confidence. this has a feedback loop. >> you knew what the top rate

will be 10 months from now? or for what your of our mental policy will be. it is probably really valuable. >> what does the fed do now? >> chairman bernanke stressed a number of times on wednesday that there are things that with and the fed that are not. what would your advice be? >> they are not willing to get inflation above the goal. they're not willing to use the balance sheet above what they battlene in much the softens. this is the best it can get. that is not particularly good. there is still scope for a

balance sheet action that is conditional. energyt the drive toward self-sufficiency, what was made? >> but we look at energy the tell went and the question of growth of the as production. certainly what we have seen in natural gas helps to offset some of the prices. one thing that has become a parent is a very long supply chain. we would have less jobs created by shell gas. if the oil prices not race, we would be looking at higher oil prices. >> let's talk a little bit more

about the employment as that. how is the drop in its self- sufficiency reshaping the labor market? but at a macro and regional level? >> it creates i t jobs in california. even i think i was more focused on energy security and balance of payments and not so much on if you have rather large dollars bigg invested, it has a impact in radiate into the economy. this is a discussion about jobs. >> in terms of the economic data that is being released, the

consensus is that he got off to a pretty encouraging start. now the narrative has been slowing down. are we heading for a repeat of last year or the slowdown became quite substantial? this is on the menu again? >> we're going to the middle of the first quarter. volatility dropped, will the aggregate was 45% down to well below average. this was last august. we had a blip up in the past few thes that corresponds with

new gdp numbers. i do not think this is the beginning of the next high negativey and information for the economy. there are a couple of reasons to feel encouraged by the numbers even though they're not up to expectations. they are still robust. there are some reasons to look inside the numbers to fill in courage. particularly interesting is residential construction which was up 19% from previous quarters.

when you couple that with the housing price varies, if you read it carefully, he can say it looks sort of like the bottom is believable but the bottom has been reached. my suggestion is that the housing market is recovering. this gets added to consumer expenditures. if we could business to get along, maybe this recovery is alive and well. >> do not count out the resilience of the market economy. they want to grow unless they are impeded. the world is a risky place. there is a banking crisis then europe. we face a fiscal cliff on december 31.

in a world in which you have such uncertainties, investors reasonably lack conviction. if you do not have conviction, it is wealth that brings it up to trends. eager the trend. to bad news is that it is press. we went there a severe crisis. we grow something in the neighborhood of 2%. can we do better? most assuredly. we are impeding our own progress. >> accompanying that increase in consumption was a decline. how significant is that? >> i do not think it is. i think it is mostly about the orderly pattern of gdp. there is a lot of demand associated with the earlier rise ofenergy prices at the end 2010 into 2011.

we have a lot of purchases of durable late in the year. it tends to be paid close to the wealth income ratio. that is the bad news. we destroyed something like one in 3/4 years worth of income and what we did to ourselves and 2000 a and 9. as long as we do not get that door of the wealth creation, there is a need to save. think consumption is not the overall contributor to gdp growth. we had some good news. we are a big nation. we are building this on the coast. this is a contributor to g.d.p.. we have a strong external factor. this is gone to offset the higher savings rate. >> let's talk about this. most consumer confidence has been attributed to consumer prices.

where are we going? >> this is partly what we are talking about. starting in november, we entered a new phase in relations with iran on the nuclear weapons. a lot of things happened. our sanctions go in at the end of june. they are already starting to have their impact. last week, there were havezations said they will to meet in a neutral city of baghdad to continue. this is taking seven or $8 out of the oil prices. we are still on a trek to see the oil market tighten as the sanctions go into place. the question is where it the other supply will come from. that will determine the price. there is the question that oil

thees are a drag on economy. they take purchasing power out of the economy. i think this is one of your big the wind spirit >> tavis of macro economic -- big head wind. >> patel as of the macroeconomic impact. -- tell us of the macroeconomic impact. >> in 2008, and we were basically looking at how the world discovered the emerging- market. that was the fundamental. this time it is a tight oil markets. there is the need. >> it is always of this. this is more material and prices are going up. it is global demands. this is an offset. >> two months before lehman brothers collapse, all prices hit their peak. he was hurt the most that you will that were paying some of crime mortgages.

>> china was perceived to be one of the heroes. now we have china slowing. >> stimulus that out of control. it was too much of a good thing. it turned out to be very difficult to monitor. when once apiece but it is open, then every municipal -- when the once the spigot was open, then every municipal could be on a building spree. this is ultimately going to be a big problem. i think the fact that china is able to sit down and make five- year plans and design policies that are targeted at whatever particular problem they have in

mind is very promising. if we were to come up with five- year plans, it might be a useful exercise if you can carry it out. >> a five week plan. >> there are a variety of things that china can do. i think it is a concern. >> i am calling the build out of china. i think the fact that china is able to sit down and make five- year plans and design policies that are targeted at whatever particular problem they have in mind is very promising. if we were to come up with five-year plans, it might be a useful exercise if you can carry it out. >> a five week plan. >> there are a variety of things that china can do.

i think it is a concern. >> i am calling the build out of china. it is one of the fundamental factors driving the economy. we tend to think that everything is well organized. there is this disarray that is going on in terms of the leadership. it is a transition point. it only happens once every 10 years in china. it adds to the uncertainty. the line between the public and private sector is at best and distinct. -- indistinct. the good news is that it means there is a lot to leverage. the bad news is that every 10 years or so they have to take a hit associated with the mistakes he make in terms of allocating capital and credit on such a large scale. that probably the case

chinese officials would not take that hit in the year of transition, a year in which the global economy is at risk. the problem with china over time as there is more market related activity in china, it will become less and less a decision of the official community when to take the hit. we do not think they are there yet. continuinga contributor to global growth. that is good news. the u.s. is at best a trend and europe is in a recession. >> one of the undercurrent under the leadership change is the struggle about how much the economy will be driven by beernment and how much will more market oriented. we're seeing the play out in front of our eyes. >> we have been talking about the debt in the chinese context.

let's talk about the u.s. context. most attention is focused on what happens the first tuesday in november. we are also headed into another debt ceiling episode soon after the next administration. are there any declined about this? -- clients asking about this? >> here is the bad news. we're mostly going to spend all summer looking at in trade betes on who's going to present and to is going to control the house and senate. we talk about what they will do in power. fiscal policy is going to be material. we have dug a 5 percentage point hole where the g.d.p. in 2013 associated with the bush tax cuts. the problem is it takes a

decision. it takes the lame duck congress and the president to agree to something to avoid that 5% cliff. secretarye time, the of treasury will have to declare a debt ceiling of emergency. we may have a problem with funding the government. if you think back in august, the last time we have a problem, it was a funding the government problem. it was a debt ceiling problem. there is a fiscal cliff.

that is a lot of uncertainty. >> doesn't sound good to me. >> if i were able to do what needed to be done, a lot of these problems will be there. i see these as political issues. there are risks associated with china. the risk that we're talking about here are made by ourselves. it is a real shame that the focusedl system is not more on what is good for the country but what is good for the party. this is a across the board statements. to the economy is going to be heard by this attitude. >> the forecast is that we muddle through. >> do not drive it into the

chasm. the general principle is when you are making a forecast, the presence of the tale could say something about investors taking on risk. in an environment in which the tells are so stretch out, you do not get the creation. your central tendency is the best. if you look at the political problem, it is very dominating. as a result of the last four more, they become polarized. >> we do this counts of the party line votes of the house and senate.

we are as polarized as 1870 on. it just at the previous peak, it was arguing about reconstruction. we are looking at unemployment benefits. it is the same extent as backing the nation together. >> they work on a bipartisan basis. they are there before. >> is there any way that washington is helping? >> give us a minute. >> the fed has provided

extraordinary policy ones. if you drew the 15th things that washington could do to help, it is like 14 or 50. i think everyone appreciates that it is not possible given how polarized their system is. there is pressure on our monetary policymakers to do something even if they do not have an effective incident. -- instrument. >> speaking about the disagreements, it is sharper years has been in many about the role of government and what it should be in the economy. i think the overhang that we have is so awesome that it is the dominating political factor.

>> thank you. >> we have a question that we like to look on the panel. how does the fed ignore non core inflation when it is the driver of the trend? we will put that to you first. >> this is an inner house dispute apparently. the fed, they care about inflation. price stability is something that is in the eyes of the beholder. they are not material in the decision making. you are at the display. -- right place.

they will see through the blips that it has the effect of energy prices. a it seems to me that we as global society may need to rethink our hatred of inflation. a little bit of inflation would do a whole lot for the u.s. economy. it to do a whole lot of good for europe. its could allow for the weaker economies to be more rapid and seamless. our notion of what this targets should be revised. we have not had serious inflation in decades. i think we have overdone it.

>> daniel yergin, you want to weigh in? >> one thing you're saying, you can see that there are policies that are buckling under the pressure. 25%you imagine if we had unemployment? what would happen to our political system? >> let me hand it back. let me put this question and answer all but you. i am ben bernanke right now. i was likely enough to put to him at the top of the news conference. what is keeping him of most at night? what should he do about it? >> a trend that wealth creation is prepared. if the major risk to economic

progress is politicians, it is really hard for an independent central bank to weigh in on it. >> anybody else want to weigh in on its? feel, too.ow i it does not seem to me that the fed does not have a lot of effective tools. if i were ben bernanke, i think i would be worried that the rest of the government was not doing what is needed. we are going to go over time here. i want to go back to something.

the talked about inflation. nking our hatred. how do we do that? >> we have all this house is under water. how do we deal with the foreclosures tax if we had inflation and house prices went up, they would be above. there seems to be inflation as an easy way to do it. if he saw this as a benefit to the way that has a market where, i think everybody would feel like they were more comfortable with that. >> inflation has no paid tax.

part of the answer is when there's a thing but hard process,, you have to think about it. historically, how did government look down on that index they had a little bit of inflation. it worked in the '50s and '60s. central bankers have asserted for reasons that are mostly flaming pit this was the goal. we never had the conversation in the united states about what the right goal is. it should be part of the

national dialogue. this should be about fiscal policy and about central banking. the election to be important. >> the lot with that. -- good luck with that one/ . >> thank you very much. we appreciate your participation. we're going to ask you to make way. we are going to head in and talk about another profound issue. the fiscal cliff, revenues and debt. this discussion is going to be led by my colleague, and the team leader for congress at bloomberg news. theirnelists are taking seats. gene dodaro, the competition -- comptroller of the united states. he heads the u.s. government

accountability office. we appreciate him being here. alice is a senior member. she also ran cbo. many hats. we have chris van hollen, a houseg democrat on the committee. is also a member of the super committee and involved in the spending issues on capitol hill. credit for being here. -- thank you for being here. >> we have to talk faster we can try to get there all of it. >> on december 31, a tax cut expire as as the payroll tax cut for workers. it to rise from 35% 255%. -- to 55%. spending will begin in january. the alternative minimum tax has millions more tax payers. the u.s. debt limit will

probably run out in january. given that congress had enough problems finding $200 billion to extend the tax cut, what are the chances of congress addressing the cliff before the end of this year? what are the potential economic and fiscal implications of congress waiting? >> you want me to lead off on that? [laughter] the previous panel said the problem was gridlock on capitol hill. s to the first part of your question whether there is a prospect of us resolving some of these issues before the would sayi regretfully, no. having served on the super committee, a combination of cuts and revenue that were not successful, i believe these

major issues will have to be dealt with after the election. i say that out of regret. i do think that the cocktail of issues that you mention could have a positive action, especially because you have the expiration of the 2001 and 2003 tax cuts. there are very few people that keep all ofhould those tax cuts to expire. but it does create an opportunity to take what has been described as a balanced approach, a combination of revenue plus cuts. i am not suggesting you can resolve all these issues in a six week session. that is think realistic. especially tax reform as a piece of it.

but i do think that it provides an opportunity to move forward. if we do not seize that opportunity, we are in a world of hurt going forward. >> i totally agree with that. i do not think anything will happen before the election. i wish it would then there are people talking about, if we get that chance, what will we do? i do not think it is realistic. this confluence of bad things, many of which were deliberately put in place to be bad things, things that you did not want to happen to force an action that is more reasonable, i think that will help. cannot putnly together a grand bargain in six weeks that everybody would sign on to in a lame-duck session. but they could put together a framework that would kick the

problem into the next section of congress, but not too far, a deadline of six months or would say we will avoid this catastrophe and give ourselves the time to put together a grand bargaining. the congressman has used a lot of what came out of the commissions. as a super committee, they got close but did not get there. the pieces are all non. this could be the chance to do it. not act, thenes we will have an economic catastrophe, which will force the next congress to do something. everybody's taxes go up, as you cut mindlessly across the board, that will be a wake up call. but we should have the sense to

avoid it. >> i think the action forcing event to talk about will require action sometime before the end of the year. hopefully to achieve the balance of maintaining economic growth but developing and lang bagram worked for a plan to do with the fiscal imbalance, which is -- laying the groundwork for a plan to deal with the fiscal imbalance. i am optimistic congress will rise to the challenge to be able to do that. >> you mentioned a short-term extension, kicking the can down the road. isn't that it what has been happening? congress could not agree on the payroll tax cuts so they waited until february. lot of short-a

term extensions, even of routine authorizations. >> a very bad way to run a government. absolutely terrible. do not think we have a choice right now. if the grand bargain could come together, that would be better. i do not think it is feasible and it is feasible to do a framework which says we are going to do these kinds of things to entitlement programs, we are going to do this. i hope comprehensive tax reform that will give us a simpler tax system with lower rates and more revenue. that is what we need. if we put those things in place and say, ok, congressional committees, you have until june 30 or some reasonable period, there is a chance that your colleagues might actually do it.

right? >> let me say, i agree and on almost everything doctor rivlin justice said. it is hard to get it done in three weeks. a lot of work has been done on tax reform but a lot remains to be done. there is a lot of misunderstandings about what lower the rates and expand the base. in terms of what the numbers are, there are different numbers out of different organizations. that is the goal. dr. rivlin said, an important part of that is deficit reduction at the same time. if you were to create a structure and make sure you kept short views on the process, that could be a recipe for success. the danger is that you just get

to the end of the three months to kick the ball down the road. i do believe that outside pressures will be great enough to require forcing the action and we have tried -- these efforts are designed to try to force action because the alternatives are worse. >> and they are the law of the land. >> no doubt. it is an action-forcing event. >> doesn't a lot of this reston in the election in november? is there an ideal? is it true when packages have tended to pass, they have been in divided governments? >> i think it depends on the election and i do believe that the outcome, one outcome will

favor a solution more than the other. obviously i am a democrat. i would propose to everybody on a non-partisan basis, what of outcomes in the selection do you think it would best lead to a solution? every bipartisan group has said we need a balanced approach. it means that revenue house to be part of the solution and reforms need to be part of the solution. i would suggest that if one platform of no revenue increase, on a platform of additional tax cuts, which will lose revenue, that makes it difficult for that candidate to turnaround and enter into a balanced, and bipartisan deficit-reduction agreement. i have seen people turn quickly

on their positions but i think that kind of gymnastics is politically unlikely and therefore, if you believe we need agreements and you believe that the only real likely outcome is a balanced approach, i would challenge people to say, that can hit it would do it. how would a republican president has run on a platform of no new revenue, not one penny, turn around and enter into a balanced agreement? >> i agree with that. i think it will be interesting if mr. romney went to see how he gets out of the box he has built for himself. one way out for republicans in general is to say, we really meant lower rates. we did not mean that we would

not raise more revenue and we believe that the lower rates will raise more revenue and therefore we are willing to broaden the base drastically. what republicans have not done is to say how they would broaden base and to get where, for example, congressman ryan wants to get on taxes or where mitt get in terms of lowering the rate. you would have to get rid of all of the exemptions, exclusions, and that means the tough stuff nobody wants to talk about. home mortgage deductions. the exclusion of employer paid health benefits. charitable deductions. you name it. these are controversial issues. there are ways of putting together a plan that will protect homeowners but be less generous to those at the top, for example.

nobody has been willing to talk about that of the republican side. there is a vague thing of we are going to lower rates. >> if you're talking about dropping the rate from 35% to 25%, you are going to have to do exactly what doctor rivlin said. that is my. when i say if tax reform as part of the process, it is hard to get it done in the six weeks because there is going to be reluctance to make radical changes. i think there are things we can do and there are ways to do it where you are not picking on anyone deduction. you are taking the marty feldstein approach. i am not endorsing the proposal but the idea is you're not picking on anyone but you are

reducing the value overall. in order to get to 25% that is 4.6 trillion dollars in revenue. that is on top of the five trillion dollars from the end of 2001. making a that up by reducing some of the tax expenditures, that is a challenge. i have not seen anybody show us how you do that without reducing vote progressivity of the tax code. that is a challenge we have made to them and they have not put anything on the table to show us it would not increase the relative burden on middle-class. >> as an independent, i defer to mr. van hollen and ms. rivlin on

those issues. i would only say that everything needs to be on the table in order to solve this. revenues, spending, mandatory, it all means to be addressed in order to come up with a solution that will put us on a sustainable path. >> the gao has been goodthey art of a much larger older population and their health care. >> those are really the two main drivers. it affects state and local governments. we have fiscal challenges. it compounds the problem as the federal government deals with these issues. there will be important consequences. they need to be factored them. >> -- without being factored in.

>> they have only recently began to return to pre-recession levels. what the effects of the 2009 stimulus winning can ensure policy makers that they do about the state? >> what makes sense? what is the discussion? >> i will take a stab at that. back to the recovery bill. much aligned by colleagues. they help create up to 4 million jobs. he saw a direct correlation between the end of the stimulus package and an increase in the public sector employment. we have seen positive growth for

25 months. side, thelic sector recovery bill ended after about two years. you have seen it. that continue to be a drag on the economy. that is one of the reasons why the president had a number of elements including a major infrastructure investment which not done.ave we have very high unemployment. it is over 15 seller. we had big meets. needs. the other is to provide state and local governments to prevent the lay offs. i just want to emphasize what he has said in the past? we need to do two things at the same times. they're not contradictory at all.

>> what you hear on bloomberg radio, at government employment is going down. that is that the federal government. it is the state and local governments laying off teachers and firefighters. we need some counter action to that.

this has been my team for a long time. i think we should have been focusing on how these two things are not into that appeart. >> health care costs and changing demographics are the

two main drivers but at the national level and at the state level as well. i think that is really important. a sensitivity be and tax reform issues. >> another report said a year ago that there are 81 opportunities to reduce potential government duplication. we have such concern about the deficit. why is it so hard to bring in inefficiencies? you have a lot of experience in this. do you want to take that? >> it is hard because there may be duplications and programs.

there certainly are. every program has a constituency it is serving. the motivation to do these difficult tinkering things and defense or domestic spending. it is limited. you go through an enormous effort and political cost. >> as part of the budget control act, we did put spending caps on discretionary spending which is

close to $1 trillion over 10 years. this will build a greater process if they are maintained. these are important recommendations. >> i am really worried that we're squeezing down government too much. it is true that it will be hard to do the consolidations and reductions rights. even if you do that, there are lots of things we need our

government to do. we should be investing in a whole other thing that makes our government run better. >> a couple things are important. but the 81 areas that are mentioned, 40 or so of them dealt with over lots. the rest work conteswere cost-sg opportunities. it would have been tens of billions of dollars in savings. there has been action taken on about 60 of the 81 areas. most of these are dealing with this issue. it allows us to hundred $85 billion. some encouraging signs. they have required all the agencies to address appea.

hopefully, the dialogue will continue. >> there is talk about a grand bargain. maybe it would occur. maybe there was an opportunity. this has not happened. what would it take to be able to reform taxes and not have major effects on the deficit?

>> it is going to take as adopting the kind of remark that has been proposed by the bipartisan commission. they laid out a path away and said you have got to get here through this combination of revenue in some tough cuts including reforms and modernization of the health program. as he started out the conversation, i do think that has the potential for bringing the parties together. of gridlock.t it is pretty clear that they will not allow one penny from additional tax revenues to go for the purpose of deficit

reduction. all the tax cuts would expire. that is about $5 trillion. it suggested about $2 trillion could to deficit reduction. you could see a possibility where you couple that with cutbacks in a number of areas. the can achieve deficit reduction. we need to be very careful in the process that we do not hurt the fragile recovery. i agree that investments that makes in thet economy do help strengthen our economy whether it is infrastructure or education. >> i agree with that. we may have this staring us in the face in november.

i hope so. the bargain has been on the table for quite a long time now. the history is a history of opportunities missed. i hope we do not miss the next one. a peace has already been done. there were three or four pieces. we have done this. it was in the budget control act spending a dollars trillion. we need to go back and cut discretionary spending. we need to solve the other to pieces of which is how do you keep the economy going while you face in these long run deficit measures. think there are lots of ways

of doing that. more stimulus particularly directed to easing the pain of state and local governments. >> walmart question before we run out of time. talking about the balance approach appeared a version made it to the house floor a few weeks back. what encouragement should it may? >> for those of us who have really dealt into simpson-bowles know, there is a huge difference. it goes to the argument we are having on baseline issues. it is arcane but a very important debate. the proposal was about $1

trillion in revenue short of what simpson-bowles proposed. they assumed that we would achieve the revenue that we would gain if the tax rate on the top to% went back to 39%. that is about $1 trillion in revenue over the next 10 years. the starting point assumed that revenue. in the proposal offer on the floor of the house, they essentially ignore that revenue. ito it changes the balance. while that may have been paraded out as a version, the massive did not square. i support the framework. i support the ratio and the accounting methodology. i do not necessarily agree with

every recommendation. we have an obligation to come alternative. i support the frame work there. the proposal on the house just was $1 trillion in revenue. that is a pretty big difference. >> listen, thank you for participating in this panel. it was a great discussion. we're going to move on to our next panel. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012] donovan spoke about the market today. the role of congress and restructuring fannie mae and freddie mac. he was joined by officials who also addressed the state of the u.s. dollar. this is about an hour. >> we are going to move from one

tricky subject to another. the housing situation. my colleague is a senior economic analyst. if they want to start making here, and that will be great. shaun donovan should be very recognizable, the secretary of housing. he is the former director of the housing agency under president bush. we also have the chairman. he is the u.s. treasury department for geithner. we are very pleased. please, send your questions. some this questions. >> thank you for joining us.

i'm very excited about this panel. there have been $7.90 trillion essence the bone. mortgages are delinquent. there are 11 million under water borrowers in the u.s. right now. the question i have right now that is on everyone's mind has been directed to you. have we reached a bottom yet in the housing market? >> my view is that the housing market, it is important to realize what we have recognized. all of this housing what happened before the president walked into office. the third straight month of housing declines. made real progress.

the number of them is falling is down by half from where it was. we are seeing the home sales since the crisis began. this was up year over year. most importantly whether it is on sales or contracts being designed for credit availability is, we really have begun to see a different view in the market. there is real progress. there are a set of places with three critical barriers.

the broader economy is that we still have to go on the theme of a family is falling into foreclosure. we have to limit the number of new foreclosures that came here. with theo deal inventory that is dragging down to many of the hardest-hit markets. credit availability is a real issue. we have 15% 220% of home buyers that could be successful who are either priced out of credit for making the decision not to of the cost of getting a loan. those are three key areas that we continue to push on. we made real progress on each of those over the next few months. we're going to keep pushing on that front. >> even if housing has turned the corner, there's upwards of

maybe three or 4 million foreclosures expected to go on the market. 2 million foreclosures are actually still in the pipeline. during the bush administration, there was an ownership society encouraged an increase in this rate by initiatives such as zero out payments mortgage. they said it had declined to the lowest level in 15 years. these began over 10 years to the crisis that we're seeing right now. lots thats contributed to the crisis. the ownership probably push too hard. the housing goals that were set were too high in both the

ministrations. that pushed them too much. it is easy to blame congress and wall street. we have an asset bubble around the world. they have bubbles almost twice our bubble. their housing prices are down. it is not just u.s. policy that caused this. we are bumping along the bottom. i agree with the secretary that the up bombs are more than the down bombs. that -- be up bumps are more than the down bumps. it is really hard for them to get comfortable enough to buy this.

we are having troubles making loans. we're seeing things that are starting to make mortgages. >> where the stand as the architect behind the bailout? has the government done everything they can do to turn recovery?re a housing >> the finance system is broken. it is ending up on the government balance sheet. what they talked a little bit about banks making loans, the truth this the balance sheets has shrunk by about 20%. we're now down to about $3

trillion. thanks a going the opposite way. the providers of credit are government sponsored. they have insufficient capital to support the risks they were underwriting. there is a need to really rebuild capital to support that stock. we still do not have a plan to that support.

the first duty he was obligated to reform was to restore their sovereignty. there was a simple path to adding capital to this part of government. in a historically low interest- rate environment, this could be raised without impacting credit formation and availability. it can protect us against future losses. we have gone through the worst crisis in two generations. we had $7 trillion of support. there's now some of john kerry been recapitalized.

we are still sitting with the housing sector. it is under government ownership. it is still undercapitalized. until we figure out how to bring capital back to fannie mae and freddie mac, you will not have that from parties. >> i want to be very clear that there to pieces of what they're talking about. one of the actions they can take are the actions that requires congress to move. we have gone down that path. we have raised this in the way that jim descried four times. -- described four times.

we want to bring private capital back in there. the recommended that they'll loan limits be lower. in addition, we raised it. we're taking a step to make sure there is more capital. we are working cooperatively to raise the gp's that did happen. you can argue whether they went far enough. we are looking at ways to restructure their guarantees to put more capital. the market share is shrinking as a result of that. where i will agree is that there is much more that needs to be done. we need action in congress to

lay out a framework. >> i am willing to ask him to respond. everyone seems to agree that we need to get private capital back to the housing system. the question i have for you is can private capital combat without the reforms? >>--, back without the reforms? >> no. the future of those holders, are we liquidating? is that the game plan? are we free organizing them? until that question is answer comment there will be risk takers around the edges. you're not going to have a

massive resurgence of the system. it is terrific -- horrific. the government turns this off quickly. you can have a radical interruption. it can have a disastrous impact on housing prices. if the government stays in baldinvolved, the returns will remain low. unfortunately, the congress does have to act. in the interim, i think the concern which has to act as well. there is a credit risk that the

government is sticking to these entities. he can do this on his own motion. whether they agree we raise this as part of the tax, there is a tax to pay for this. is not promoting a housing goal. promoting a housing part. my goal is that we have these in conservatorship. neither are they serving budget difficulties. that weally important come up with a plan.

what is to be done? +++

. .

>> setting aside what is politically popular in terms of the corporate side of things, i think there is agreement that lowering the corporate rate is important to generate the jobs growth we need right now. despite the statistics you put out what corporations are paying, i think the focus on the job creation and economic growth demands that we focus on lowering the corporate tax rate for those reasons, which does not lower the revenue but encourages companies to operate and set up shop here. >> we have one more from our audience.

what is the timing to get tax reform? will an extension get passed? your prediction, will we get an extension into next year for whoever is the next president? will it be? in the lame-duck kirby for them? >> nothing happens until the election, nothing happens between the election and the inauguration and the new house and senate. if you have a republican house and president, you get something that looks like the ryan plan. if you get a democratic president, you have loggerheads. >> even though nothing is going to happen, i agree with grover intel after the election and may be between the election and inauguration depending who wins. if there is a lot of work being done now. committees are holding hearings. we have gone in there many times. there is a lot happening with of

the hope of having the political situation stabilizes. >> i think whoever wins, it is going to be very hard to do these things in a short period of time. my prediction would be they kick the can down the alley until maybe even the middle of 2013 until they have the time to put the thing together. >> thank you. [applause] a good discussion. we have one more panel left. we saved the best for last. we appreciate everyone's participation. we're going to focus on wall street, washington, the future of banking. my colleague megan hughes is going to moderate this discussion. we are joined by the founder and managing partner.

you know his responsibilities as well for the 9/11 fund. our thanks to ken. he is the ceo here in washington and we are also pleased to have the commissioner with the trading commission who has been leading the investigation into amex global among other things. -- mf global among other things. >> obviously we have a diverse panel. i want to start by getting all of your takes on that question, what our banks going to look like five or 10 years from now? we have so many unknowns. we have so many rules yet to be written. where do see this going? >> we have issued over 60

proposals regarding title seven implementation. we have finalized 30 of those rules and many of those rules are complex and complicated than they do not just affect banks. they affect a lot of companies that trade in commodities and energy. from our perspective, this is much more comprehensive and that changes that will happen to the derivatives that we regulate is much more broad than banking but for the banks, we regulate and will become a swap dealers. i think there are a lot of implications for the rules, a lot of changes. a lot of costs associated with compliance for these rules. we issue the final definition last week. at least u.s. banks and those

companies to trade in derivatives no whether they are or are not swap dealers and will have to register. >> there was some criticism about 2 was expected to be a dealer from the proposal. >> i think we were a much more true to the statutory intent. >> big picture, you think we will be safer it? will our institutions the stronger? >> i think that is yet to be seen. >> we will move onto harvey. >> i guess i would start by saying i think the major affect of dodd-frank is to declare that everyone is a bank. it does not matter what business you are in, you are now potentially going to be banks. those that are are regulated as

if they were banks. the others can be declared to be the equivalent. now we have safety and soundness instead of the risk factors that have built our economy for firms that are not to engage to enter banking. i think the industry in five years is going to look very different from the way it looks now. i think there will be more concentration then we have party had. i think dodd-frank is pushing concentration. in addition, there will be heavier restraints on the subsidiaries and affiliates and banks getting into other activities. about five years from now, i am predicting we will see the

evolution of investment banking boutiques. congress has eliminated all investment banking firms so that the only people who are providing risk capital our equity, a private equity funds. i think we will start to see the reentry of firms that are devoted to investment banking. that may help our economy but the question is, everything in dodd-frank is pushing us in the direction that is going to hurt our economy over the next five years and make all banks looked as if there are monolithic and not supposed to do anything but commercial banking. >> my limited role when it comes

to banks or corporate compensation, but the next five years, it will be interesting to see how much the government wants to interfere into private decision making concerning banks or corporate compensation. what you saw was populist retribution. you saw congress intervene directly when it came to a decisions involving a very few people in a limited number of companies that receive tarp assistance. the real decisions will be made if the government stays involved, not with treasury. everybody understands that was a unique, unprecedented intervention. the question is, what will the federal reserve say? what will the rules to say about

compensation? a few weeks ago citicorp, in terms of shareholder revolts, it remains to be seen but i think you are riding against a tide which is historical the private market players, compensation is a private decision, made by private companies based on how market forces. i tend to be skeptical in good times just how much government will have to say about this area of compensation. >> we will be getting back to that because i have a lot of questions. i want to go to mf global because we're talking about risk and the future and what changes need to be made. you are in charge of that issue. give us a status update and what

have you learned in the investigation? >> i've looked at our investigation having to different parts. we have law-enforcement and we have accounting. we are assisting the trusty in his efforts to receive money back into the estate. what i have learned over the past six months and what i continue to learn about the bankruptcy law, sometimes fell lack of understanding from retail customers -- the lack of understanding from retail customers may have understood the risks their accounts or the money may have been subject to with regard to their trading

activity. they had no idea there were other risks associated with trading. such as customer segregated accounts. >> were regulators aware? >> what i can say about that is that he regulations that were in place of the time required monthly reports. mf global was of filing a daily segregation records. they were in compliance. >> this was on the ground, in chicago, weekends before the bankruptcy. how do you stop that from happening? >> the data showing they were in compliance was there. we were looking at the numbers that ended up being incorrect.

we now need to look at all of the regulations surrounding segregation and surrounding how they're regulated by their dsro's. have already come forward with enhancements to their own system in how they look at what fcm do. they're looking at not only but thereon numbers , are looking at their capital the looking at the risk exposure. so, there are several enhancements that have already been put forward.

the cftc will come up with amendments. >> how long will this take? will havek the dsro's enhancements in place very shortly. probably summer before we proposed any of the amendments to our rules. hopefully this year but i cannot predict a. >> to either of you want to weigh in? do you think it is realistic we can predict -- prevent mf global? >> i do not think it is realistic. i do not think you can prevent it. what you can do is create enough checks and balances in the system to deter a lot of what we are seeing. i grew up in brooklyn. there used to be a word for what we are saying at mf global. we call that fraud. [laughter]

as far as i am concerned, that is what this is. people lie, steal, cheat. there is only so much you can do with regulations. you have to build in other processes that people will get caught if they do the wrong thing. one of the concerns that mf global. saddam is you have a wonderful and -- agency and they have 600 employees. this is, in my view, like shooting at a herd of buffalo with a pea shooter. there is no way that the cftc can help police the markets when they're deprived of resources or given the authority

to help conscripts resources out of the private sector. that is a big thing that house to come out -- has to come out of mf global. >> a lot of them are trying to strip funding from your agency while you are being given more responsibilities. what is your feeling on the resource issue? >> i do not disagree with what harvey said. you cannot deprive an agency of resources while we are being asked to implement almost 100 new rules and have an enormous responsibility for the market. which should keep in mind that four years ago when i came to the cftc, we had 450 employees and now we have almost 750. the agency has grown rapidly.

>> proportional with your duties. >> those duties have not kicked in yet. we have grown exponentially, probably more than the agency has grown in the history of the agency over the last four years. i think it is appropriate. that we have 700 employees. i am not sure if it is inappropriate to have 1400 employees, which is where the plan was going. >> mutual funds will have to also register. >> right. that was one of the things, i do not know if we have the resources to deal with the data. >> the data being there is clearly not -- harvey mentioned

a roach motel. >> the problem is that dated checks in but never checks out. one of the best analogy is is a wonderful movie called "indiana jones and the raiders of the lost ark." if you remember, the ark was sent in a box. it looked like 4 million other boxes, all the same. nobody would ever be able to find the lost ark because of looked like everything else. the answer is not necessarily to have more government personnel, it is to give government more capacity through utilizing the private sector and imposing obligations on those who take money from the investing public. that is what we need and we are

not getting it right now. >> ken, i do not want this to just be focused on regulation but also the culture of wall street. i want to talk about executive compensation, you sat down with executives from a gm, what was your take away? >> i started this job thinking that discussions about pay would involve a material gain. corporate executives, the you need another car in the garage? you need a summer home in times of economic uncertainty? you need to send the kids to private school. that is not what became emotional. what became emotional is pay as a surrogate for self-worth. self evaluation, mr. feinberg,

why are you cutting my pay? my pay is a barometer of success relative to competition. that gets emotional because it is not a debate about how much money or how much compensation is enough. instead, it becomes very personal. it mirrors what an individual feels he or she has accomplished and it becomes emotional because you are getting into a discussion about how that individual judges his or her performance in a free market. that becomes emotional when you try to use the heavy hand of government to intervene and regulates that a matter of money. thinking in try to move away from a high risk,

immediate reward, is to tie executive compensation to longer-term performance. >> that is what we try to do. we try to set the packages by saying you will get modest guarantees, under $500,000. any additional compensation you receive will be in the form of salary rise stock in your company. which cannot be redeemed immediately but must be held 1/3 and any additional money, compensation, will be tied to the ability to repay the taxpayer. that was the formula. not without controversy. very provocative, actually.

we felt that was what congress wanted to see in putting treasury between a company and its executives. >> did that work for shareholders? could that work? >> you have to go to a company from company. be careful about painting -- when it comes to compensation, be careful about using too broad a brush. every company has a different culture and approach. when you say shareholders or executives, which company at what period of time, let's look at that company and delve into the way it sets compensation. >> a lot of this is about balancing risks. >> if i can ask you a question, how would you feel if united

states government told you that as wonderful a job as you do, the right pay for work to do a 75,000 mahlers a year. that visit. i think you would object to that. the reason i say that -- >> i am not operating under the assumption i need a bailout. >> government is trying to extend its tentacles. if government paid its own people wisely, i might have more faith in having government tried to help businesses. the problem is that the business community has fallen down on the job. they never looked at compensation the way they should, as if they're spending somebody else's money and they decide what it is we want for the money we are paying and then assess what we got. until the business community

does that, and they are going to see creeping government because the outrage that is out there is enormous. businesses have to be aware of that problem. >> you think that outrage, whether it is occupy wall street, is actually going to have an impact on when we see the bonus number is? >> it hasn't but this is. ken spoke about citigroup but we are seeing a lot of companies where the use of votes are either getting a majority or getting a minority and of course they do not have any "legal" value but if you are running a business and you're trying to keep the board of directors composed in a way that helps the shareholders, you had better take notice of what they are

saying and you had better figure out how to allay the outrage. occupy wall street is pure outrage. there is a lot of outrage about the fact that people are not doing the homework. i have no objection to people being paid huge amounts of money if they perform. if they are not performing, i think it is not american to pay them a lot of money. >> how do we measure performing? risks being taken. >> the problem in your question is perfect. government is just a like nature. at the airport is a vacuum. if the business community -- it abhors a vacuum.

it's the business community -- i am not an advocate for the government doing that. different companies may have different cultures, different promises, of their industries may ward something different, but every board has to say, what is it we are trying to obtain? how do we measure what we are getting and reach agreement with our executives as to whether they lived up to their expectations or not. that is a job for business and in my view business is not doing its job. >> from government creating those standards, what happens when they do and they continue to evolve or be pushed back or be repealed and we are in the state of uncertainty, transitioning to the volcker rule, there's a lot of criticism it is being watered down.

what is your response? is that bad? >> are are a number of complicated issues that are incorporated into the volcker rule. it is not simple and you see that from the amount of negative comments submitted. it became more complicated when the provincial regulators put their own proposal out and the cftc did not so everyone thought we would have a different volcker rule. we ended up being on the same page but i think that it needs to be agreed proposed. there are a lot of issues that need to be re-thought by all of the agencies involved. i am hopeful we will go back to the drawing board.

>> doesn't that add to the uncertainty? reevaluating the entire thing? is this limbo helpful? >> i do not seek another way. -- see another way. >> i think we have the worst of both worlds. that is not unusual. what we are witnessing is everyone is anticipating the volcker rule. we have seen this brain drain from the banking industry into the hedge fund industry and so on. many of those may wind up becoming banks under dodd-frank. that will come as a shock to everyone but the difficulty is figuring out what your true objectives are and trying to come up with a narrow approach that meet your objectives but does not create problems. the biggest problem we had in

2007 that exacerbated the meltdown was a lack of liquidity. what the government has done is to declare, we do not want banks to add liquidity to our markets. there has to be a better approach to this and i believe you can instill safety and soundness on the banking operations and avoid having a systemic meltdown the way we had a but allow banks to be in a variety of businesses. i think what we have now is people are assuming it will pass. they have divested themselves of talent. we are in a difficult

environment where banks are told you must do it this way and then there told maybe you'll get a reprieve. people of did not understand when the government does that, it costs businesses a huge amount of money and it contracts and jobs. >> i know you have mentioned concerns about cost and what this means in terms of the global marketplace. talk to us about that. >> i have a concern about whether or not the agency is doing a benefit analysis and with all of the different rulemaking we have done, we have a finalized 31 rules but 13 of them have been declared major. which means, $100 million annually on the u.s. economy. 42% of the rules we have done so

far have been major, which will have an effect on those businesses and the economy and i am doubtful those banks or businesses will absorb those costs. they will pass them on and consumers will pay those costs. >> we have spent time criticizing dodd-frank, but if not these rules, then what? is anyone contending wish to go back to the way things were? >> i think we could have approached this in a more simple way. i think to thousand pages of dodd-frank has been too -- it was too onerous for the regulatory agencies to have implemented all of those rules. it is an unrealistic task for us to have been looking at all of these issues at the same time.

if we could have taken an incremental approach to clearing the trading and execution, i think there would have been the market making those decisions, business conduct standards could have been formed around those issues of trading. i cannot think of what other rules we have done but a business conduct standards obviously would have been first in line. >> harvey, the story you told was telling. you were an adviser in the throes of all of this. you sat down with regulators. tell that story. >> there was an approach made by

some who sought paulson was long when it was short. seeking to enlist them in a scheme to manipulate the markets, in talking to government officials about this, the first question every agency posed to me was, do we have any authority over this subject? can we deal with that? that was a legitimate question. >> they were asking you. >> yes. not that they were going to rely on what i said. nobody did that when i was in the government. they wanted to get a view about it. the problem is there has to be a clear assignment of responsibility. there has to be a clear

appropriation of authority to deal with problems. the difficulty with dodd-frank is that it correctly understood what the major problem was with our meltdown. that our regulatory system had failed. i do not believe any right thinking person can question that our regulatory system did not serve this country well. the problem is, if you're going to fix that, it should be an improvement. you should not come up with a new regulatory system that simply adds on to all of the problems that previously existed and exacerbate them. i think it could have been done with the three simple provisions, some of which dodd- frank tries to do, but very

awkwardly. the first was to require anyone who takes money from the investing public to supply government with a continuous stream of significant data. as to issues that will have a market impact and economic impact. the second is to assign responsibility in the government to read the data, analyze it, and dispersed the data to the marketplace. uninformed markets are markets that are right for panic. which is what we saw. the third thing that could have been done is a simple and powering up government to set tripwires so that if trends to cue in a direction, the government would have the power not to rush into regulation but to say we are going to stop this process, we're going to look at

it and try to think through what it means. is this a bad trend, do we need some regulation? that would have given us some hope that the next crisis, which is closer than many people believe, might be avoided or at least contained. i do not think dodd-frank gives us that chance. >> we are going to squeeze in one question. it is put to commissioner sommers, what about the realization of an overlaps in into dependencies? >> we should have expected that. >> i agree with whatever commissioner sommers is going to

say. >> i think it would be more efficient and effective for us to regulate the markets this way. especially as markets of all and as the lines are blurring between what is a security and derivative, it would make it more efficient. >> i agree with that. in 1974 when the cftc was being created, ray garrett was asked if they wanted the authority that he gave to the cftc. ray was a man i worked with and admired. he said, are you kidding? we have a hard enough time doing what we already have. why do we want to take on all these other things? the market has evolved since then. having a more uniform approach

to these issues would be so much better for everyone and would produce a better regulatory environment. >> i will say that the agency's are working better together now than i have ever seen them in my career. something is working. >> would you like to disagree with them? >> i know better than to disagree. >> there is plenty of money in painting. when harvey says there is a brain drain, every banking official the came to me on pay, i was told if they did not say what they ask, they would leave. the ceo would say this person is irreplaceable. i reminded the ceo of the graveyard's killed with irreplaceable people. most of them are still at their

desks. >> i want to thank our panel, a great discussion. thank you to everyone here for staying to the end. we have had a great discussion. we have had alan greenspan, another why he has dissented. we have had a lot of news and disagreements over the jobs act and the bush tax cuts, how congress might tackle those issues. a few disagreements on dodd- frank. and hopefully a lot of food for thought for all of you. policy issues to consider, economic issues, i think we can agree there is some concerns about the economy. questions about the economy. hopefully we have added to that discussion today. thank you again to our sponsors

which helped put this event on. our partners at bloomberg news, the society of washington d.c., c-span for being here to document all of this. thanks to our call exemplum radio, television for covering all of this. the other reporters as well. there are 30 of these events all around the world. your next chance is right here in washington, d.c. on june 21. a defense conference. a lot of issues to talk about. we have a great list of speakers. after the june 21 meeting, we have the municipal finance summit in the president's hometown of chicago on june 7. blumberg's summit in boston 1914. check out full details on all of these discussions. we hope to see all of you there.

thank you for attending. have a great night. [applause] [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012] >> joint chiefs of staff outlining the u.s. defense strategy. then president obama greeks and delivers remarks to the troops in afghanistan. then president obama's speech to the nation not be asked -- on the afghanistan war from the blogger air base. -- bagram air base. then a look u.s.-china relations with hillary clinton.

david lampton joins us. then, paul light looks at reforming the federal bureaucracy. his riding follows the recent gsa and secret service incidents. then a spotlight on magazines. we will discuss aig and the bailout from the federal government. "washington journal" is live every day at 7:00 a.m. eastern. >> republican candidate and former speaker of the house newt gingrich withdraws from the 2012 race. he came to supporters and announced his suspension in a youtube message tuesday morning. question this afternoon on c- span at 3:00 p.m. eastern.

-- watch him live this afternoon on c-span at 3:00 p.m. eastern. >> saturday at noon, i checked in on literary life with a book tv on c-span2 including political books. the former senator david on his "letter to america." and also a rare books from galileo and copernicus. sunday from 5:00 p.m. eastern, oklahoma history on american history tv. toward the oklahoma city bombing memorial. plus a look into african- american life in 1920's oklahoma and artifacts from the collection at the oklahoma history center. c-span's local content exports the history of cities across america. this weekend, from oklahoma city.

the martin dempsey spoke yesterday at the carnegie endowment for national peace. he focused on a u.s. security challenges and international partnerships. he also outlined elements of the defense strategy by president obama in january. it is about an hour. >> good afternoon to all of you, and all of those from the overflow downstairs. i am at jessica mathews, president of the carnegie endowment for international peace, and i want to thank you for joining us for this special event with the nation's top military officer, general martin dempsey. he picked up his position as chairman of the joint chiefs in october, succeeding adel mike mullen, who we were very fortunate to host as a speaker during the last week of his tenure. it is a pleasure to welcome

general dempsey near the beginning of his term in office and offered him a chance to sum up when he is finished in the same chair. general dempsey has inherited a tougher set than most. there are the crises, iran, syria, sudan. there are always crises. i'm thinking more of a systemic challenges. under his watch, a decade of war in iraq and afghanistan are drawing to an uncertain close, and there is the challenge of constructing an outcome there, not that looks like a conventional victory, but that looks like as acceptable as positive as we can make it. secondly, the pacific region, with its growing wealth and

military power, is taking on a new significance, and as recently prompted a major shift in american strategy, the so- called asia pivot. there are prior example and history of trying to accommodate a greater power grid this challenge has to raise at the very top. third, the coming wave of budget cuts and the challenge of matching those cuts to creating and sustaining a force that will be flexible and protective and able to safeguard national interests in a rapidly changing security environment, of which the crystal ball is still pretty cloudy.

principalsident's military adviser and a leader of 2.2 million men and women in uniform, there are no easy decisions that reached the chairman's desk, and that is certainly true for this chairman. given his enormous responsibilities, the country is very fortunate to have a general dempsey, a man of the great experience and quiet wisdom. he has served in uniform for 28 years, living in all corners of the world. as he rose through the ranks, he taught english at west point, served as an adviser to one of his predecessors as chairman, and assumed an impressive array of increasingly weighty and command. during the early days of the war in iraq, he distinguished himself commanding the first armored division. he later commanded centcom, becoming army chief of staff

last april. less than eight weeks into that job, president obama tapped him as chairman, the pinnacle of a long and distinguished military career. since taking office, he has passionately dedicated himself to rebuilding the joint force, preparing it to meet future threats, and keeping faith with our troops and their families. secretary gates has praised him for his intellectual heft, moral courage, and strategic vision. not a bad recommendation. president obama has called him one of the nation's most respected and combat-tested general's. we at carnegie are deeply honored to have him with us today. ladies and gentlemen, please join me in welcoming general martin dempsey. [applause]

>> well, thank you, jessica, for that very kind introduction, and thanks to all of you for your presence today. i have not had this kind of crowd since the last time i sang karaoke at a local -- [laughter] no, actually, that is not true. but i am encouraged to see such a large crowd, though, because it tells me you have the right things on your mind in terms of what is important for our nation as we go forward with a certain number of challenges that you actually laid out quite articulately. on occasion, some of my peers, chiefs of defense in various countries, will express a certain amount of sympathy for my plight as chairman of the joint chiefs of staff of the united states of america. i say, you kidding me? i am the chief of defense, senior military officer for the finest military force that the world has ever seen. i also came into service 38

years ago with the idea that i might actually try to make a difference, and those two things have converged for me in a rather incredible way. i consider it a blessing every day i put on the uniform to serve the men and women of this country. i was in the colorado springs the other day. each service field is the team of about 50 wounds, illnesses that have changed their lives, and the motto is "ability over disability." a fantastic thing to see. i try to keep it in context. right now in afghanistan, it is is nearing that time of day when we do most of our military operations. i think it challenges you outline for us will be we -- we will figure it out, and we will because that is what we do and

we have an asian and sons and -- a nation and its sons and daughters counting on us to do that i want to say a few words, and then we will have a chance to have that conversation advertise at there. the subtext, i think, that i would like to suggest is making strategy work. you know that over the past months, we have formulated what i guess is now being called the new defense strategy. it is new in several important ways. i will mention three of them. one of them is the rebalancing of the asia-pacific -- not that we ever left the pacific, but rather, our rebalancing to the pacific. they were asking me with great interest, what does it mean

that you are rebalancing to the pacific? i suggested to them that it's a process, not a light switch, that will work our way into it. it starts with intellectual bandwidth more than anything else, which is what i am happy to be with you today, one of the centers of gravity of thinking about national security matters in our country. we have to shift some of our international bandwidth and figure out how to balance ourselves. it is but just about resources or equipment or bases. it is about thinking. the second thing is building partners. one of the cornerstones of our new strategy is building partners. this is not of necessity because we will be doing less. it is because the world that we have seen evolve around us over the last, let's say, 20 years in general, but 10 years in

particular, is a world in which i have described as a security paradox, where although -- we are at an evolutionary low in of violence in the world right now, but it doesn't feel like that really, does it? there is a proliferation of capabilities, technologies, to middle way actors, and on state actors, that actually makes the world feel and financially be more dangerous than any time i remember in uniform -- feel and potentially be more dangerous than any time i remember in uniform. i am not saying this by way of establishing my credentials so that when budget reductions, our way, we can throw up the shield of the security paradox. it is because it generally is a paradox. i think it is a paradox that has to be met with different military forces, and among the

things that will make it work, our ability to build on existing partnerships around the global, notably the north atlantic alliance. others as well. an emerging partners around the globe. what we have seen our adversaries do is decentralize. they rarely mass against us any longer. they network and they syndicate. they network using 21st century information technologies, and the bank syndicate to other non-state actors, criminal actors, and come together and pull apart based upon moments in time. in that world, the quintessential hierarchal institution on the face of the planet, and if anybody wants to lay claim to that title during

the q&a, i would be happy to find out who you are, because i think we have the market cornered on hierarchy. but we, the quintessential hierarchical organization, have to find ways to be a network ourselves, and that means a network of interagency partners. this point in time, we better pull it off. and we have to partner with a network of countries who are like-minded with us, because it makes that network stronger. it is it not just about outsourcing capabilities. it is about building a stronger network defeat what confronts us. i was in nato, colombia, jordan, and i think that narrative i just described to you on the importance of partners was reinforced for me in those travels. i would be happy to talk with

you. building partnerships is not an easy endeavor. in fact, in nato, the 28 of us, the 27 closest north atlantic partners, sitting around in a room for what seemed to be interminable briefings and so forth -- somebody said to me, how would you describe relationships with the chiefs of defense? a kind of reminds me of a letter my wife or me when i was in operation desert storm. that is when we still wrote letters. now we text. some of you are probably texting each other right here in this room. if you have children, you know that the last time they answer to their phone was some time ago. my wife wrote me in desert storm and said, "i am just so miserable without you. it is almost as if you were

right here with me." [laughter] i confronted her afterwards on whether that was some sort of a freudian slip or something. she assured me it was a slip. she did not put that particular phraseology in the letter. but it reminded me of being in big alliances, where you are miserable without them, but i guess pretty miserable to be with them, too, to gain the consensus and common interests you need. there are a couple of things in that area that we need to take on if we consider to be among the three pillars of our new strategy, and some of those are issues of the intelligence sharing, transfer, military sales. we have to reform some of our processes and in some cases, maybe even many cases, somewhat hinder our ability to build partners.

the third aspect of this new strategy is the integration of capabilities that we did not have 10 years ago. of course, most of them are probably fairly obvious to you. if we were having this conversation 10 years ago, the acronym isr would have been somewhat elusive to all but a lifelong practitioner of the military art. most of you in the audits have probably heard that term, isr. intelligence, surveillance, and reconnaissance. it has been blended into that acronym. fundamentally, it means our ability to collect intelligence, inflammation, full motion video, remotely in ways that 10 years ago, certainly 15 years ago, would have been the stuff of a science-fiction novel. we can do it today. the second one is cyber, the

domain we call a cyberspace. domain in the sense that it has its own unique requirements, capabilities, the vulnerabilities, and opportunities. we learned a lot about it over the past 10 years, and we must continue to learn and we have to integrate these somewhat heretofore niche capabilities into our normal way of operating, because it makes us much better and smarter. the third one is the special operating forces, which over the past 10 years or so have increased about fourfold in number, but i would venture to say, 25-fold in capability. these three in particular, but not uniquely those -- there are others -- capabilities that in other times have been additive or niche are increasingly being integrated into the conventional way of operating, and, again, provide us with the

significant opportunities for the future. in the interest of completing my remarks and then get into questions, i would simply say to you that we have moved from writing our new strategy to beginning to challenge ourselves on what it will take to really deliver. the three things i mentioned here today -- rebalancing to the pacific, building our partners, adapting our policies to allow us to build our partners, and then integrating these new capabilities, are the key to that endeavor. with that, i know you are eager to ask a few questions. i am looking forward -- i asked jessica to identify those of jessica to identify those of you