it has never been clear to me how that stuff works when you're talking about a non-election situation. >> i felt mr. trumka dismissed some of the challenges that the nrb has now with some regulations they put through that would perhaps make union organizing easier. they it's -- they say it's right to turn down some of those passes but it is still being challenged in court. if that's the case, there won't be anything in place to make union organizing easier. that is one less thing that mr. john van their unions will have. >> we are out of time but thank you for being with us. thank you for being our guests on "newsmakers "road to the white house." >> i seem to have earned a

certain place where people will listen to me and i've always cared about the country. the greatest generation, writing that book, gave me a kind of platform that was completely unanticipated. i thought i ought not to squander that. i ought to step up as a citizen and journalist and father and husband and grandfather. i see these things, i should read about them as artists -- and try to start a dialogue about where we need to get to next. >> in his latest, tom brokaw urges americans to redefine the american dream and sunday live, in death your questions for him. in his half-dozen boats, he has written about the greatest president -- renovation, the '60s and today. in-depth at noon, eastern today. >> this past week the

congressional executive committee on china held a number as the meeting on human rights abuses. [speaking chinese] i fear for my other families lives and they have installed seven video cameras and even an electric fans. he said that those security officers near my house -- he basically said we want to see what else watch -- what else they can build a. >> watch the entire hearing on line at the studio -- cspan video library. one year after the u.s. raid the killed osama bin laden, the state department

counterterrorism court never spoke about the u.s. fight against al-qaeda and countering violent extremism. his remarks are part of a conference hosted by the marine corps university looking at terrorist organizations and how they have evolved. this is about one hour, 10 minutes.

>> thanks to everyone as the star of the afternoon session for coming here today and taking part in this discussion. i encourage you to continue to do so this afternoon. you have a lot of experience and expertise. full participation this afternoon.

great background and honored to have you with us. a warm welcome. [applause]

>> thank you very much, general and thank you for reminding me of the difficulty i have had in holding a job. [laughter] i have to say that if you are really going to be education command, i envy you the title greatly. that sounds terrific. it is a real pleasure to be back at quantico and particularly to be here today on this anniversary day. i cannot think of a better place to be that one of the nation's centers of innovation, thinking, and training about dealing with the threats that we face and a place that has played such an important role in the imbalances that have brought us so far in the struggle against terrorism. i would like to thank minerva for inviting me to the conference and i applaud you for addressing the question of how terrorists and radical groups

and it is a provocative -- provocative and timely one. anniversaries provided very good time to take stock and assess where we are and where we are going. this week, we find ourselves at the 1-year mark at the death of osama bin laden. that mission success was the result of extraordinary courage, and intelligence. i mean intelligence not only in this sense of the information we had about what was going on but intelligence about how to conduct such an operation. it was, moreover, a real testament to that great american issue of results. it builds on the work and the determination of countless intelligence collectors and analysts. , military planners, special operators, as well as a host of other counter-terrorism professionals across the government and across many years. over last week or so, with

sybarites the opinions expressed in the media and various public fora that takes stock of where we are in the war against al- qaeda. as most of you know, papers from the abbottobad compound are going to be released this week and that will create further debate. i want to set the table for your discussions by looking at where we are regarding al-qaeda, what the environment is in which that network operates, and then offer some thoughts as to what more we need to do to achieve our common goal of reducing the danger from this group. let me begin by giving you an assessment of the threat of landscape. i will start with the core and work my way out word.

as everyone knows, the death of osama bin laden was the outstanding landmarks thus for in the fight against al qaeda. he was the al qaeda founder, sold commander for 22 years, and iconic leader, someone his personal story had a profound attraction for violent extremists. we should also not forget that he was the prime advocate of the group's focus on america as a terrorist target. we know now that even in the years when he had to carefully limit and manage his contacts with the rest of his organization, he was more deeply involved in directing its obligations -- its operations and setting its strategy then we had thought. as most of you are undoubtedly aware, but what was not only -- just some of -- osama bin laden was not the only one who vacated last year. another one in south asia left

the scene. a senior operational commander, was killed in pakistan and mauritania.

i think we have to acknowledge that the al qaeda core remains a threat and recognize that at any given time, it could carry out something that strikes at u.s. interests at home and abroad. al qaeda is on a path to decline that will be difficult to reverse. of course, the core is not the only story. despite the serious blows of western pakistan, as well as those elsewhere, the global network of al-qaeda remains an enduring threat to the united states. much of al-qaeda's activity evolves through its affiliates and many individuals remain receptive to the ideology. more work needs to be done. among the al qaeda of phillips

-- eliot's, the one in the arab region is a particular threat. and card obama attempts have _ quite clearly the direct threat directaqap poses to its friends and allies. it has benefited from last year's political crisis in yemen and the paralysis that accompanied ed. in these circumstances, al qaeda in the arabian peninsula has been able to seize territory and hauled it to require resources and new recruits. yemen has held its election and the abbey people are taking -- and the yemeni people are taking important steps. this will not be a simple process. it may not move rapidly but as the yemen transmit corp. -- transition happens, we will contribute support.

elsewhere in the gulf, in iraq, we have seen the persistence of another aq affiliate. iraqi security forces continued to confront aqi and have shown substantial capability in their dealings against this group. aqi has suffered leadership losses and remains unable to mobilize in the majority of the sunni community. it continues to be able to commit intermittent high-profile attacks in iraq, sometimes a rash of them at a single moment. towards the end of 2011, aqi was believed to be expanding to syria and looking to exploit the uprising.

civil strife creates the kind of environment that terrorists are drawn to and undoubtedly, some are attempting to mitnick's manipulate and this -- exploit the situation. the opposition groups may not be aware that they are -- al qaeda is even their but many have disavowed any desire to cooperate with aqi. in east africa, al-shabab remains the primary driver of instability. announced a, they wer merger. despite this, we know that most of al-shabab, the foot soldiers, are very much focused on events within somalia. still, there's a willingness in the region as a result of the

2010 bombing in uganda and its continued stream of threats against kenya, burundi, and elsewhere. these had been particularly focused on the troop contributors. with the assistance, the traditional federal government in somalia, has made significant gains in degrading al qaeda. tractors within al-shabab and the death of key leaders and organizations and popularity as a result of its failure to address people's basic needs during last year's humanitarian crisis have further weakened the group but a good to mr. foes -- pose a threat to all.

al-qaeda and the islamic magreb has to start the been the weakest. its primary focus until recently remains kidnapping for ransom. aqim has garnered millions of dollars. these new found resources have tended to distance themselves but there are clear indications that the group has actively participated in a number of key battles in northern mali. the recent coup there had significant increase the freedom

of movement and hampered the region's ability to sustain pressure on the safe havens and terrorist supply lines. boca haram is not nfl up but a loosely organized affiliate of criminals, and extremists. it has starkly focuses on internal nigerian issues. it exploits line -- longstanding grievances in the northern part of the country. bobo haram launched attacks across northern africa that signal its ambition and capability to attack nigerian targets. despite having suffered shattering setbacks on a number of occasions, the lack of progress in resolving legitimate grievances combined with the heavy-handed tactics of the nigerian security forces has led to the group's resurgence.

despite the weak organization, its brand of violent extremism is gaining ground and cannot be overlooked. ned.emain concer boca haram may have strengthened its abilities. we remain concerned about threats to the homeland. in the last several years, individuals who appeared to have been trained by a aq. these individuals have direct ties to international groups,lone wolf terrorists also pose a threat. as a result of its weakened status, al-qaeda and especially the aqap affiliate is appealing

to people to commit individual acts of violence and that has become one of the main thrusts of a group of the moment. the case last month in toulose illustrates this. it is likely that there are other individuals in this category out there. you can remember our experience with the fort hood shooter a couple of years ago. i would like to turn to the larger historical circumstance that are shaping the battle. over the past year in the middle east, there have been a number of events that have greatly discredited the extremist argument only violence can bring about change. should be is movement results in durable democratically-elected governments, the al qaeda single focus will be severely

illegitimized. this would be a strategic blow. from a security perspective, we have a great deal to gain. democracy has increased descents and it is weakening those who call for violence. we have no illusions that this process will be painless or >>. revolutionary transformations undoubtedly come with many bonds and the road. as inspiring as the moment may be, we're not blind to the perils. terrorists can cut cause significant disruptions for states undergoing democratic transition and the states themselves are often distracted, weekend, or otherwise find they have capacity in their ability

to deal with terrorist effort. the libyan revolution profoundly affected countries. the resultant dispersal of weapons, refugees, and the return of previous the exiled fighters has inevitably change the situation in the mali and raised concerns in other countries. the rebellion and mentioned before was spurred five buck -- by these events that has provided aqim with greater freedom of movement. the chaos in syria also threatens to create an opening for extremists whose -- who are at odds with the desire of the syrian people. while history appears to be going in the right correction broadly, we cannot count on it going in the right place everywhere all the time. we see this in nigeria.

what more do we need to do to defeat or reduce the terrorist challenge? what sustains a terrorist groups is the promise of new recruits. terrorists are killed or captured in the golan to planned new attacks. these groups will have to lose their ability to recruit new members. how do we stop the inflow of new recruits and prevent those who take up arms from achieving their goals? our cameras -- our counter- success has to do with cooperation. although we have not been able to prevent all attacks, we have disrupted dangerous conspiracies, taken bad actors of the street, and broken up highly capable networks. as a global community, there's much to be proud of. we have become exceptionally adept at tactical

counterterrorism. we cannot stop there. we need to extend their success from the tactical to the strategic level. that means we have to undercut ideological and rhetorical underpinnings that makes the violent extremists world view attracted to some individuals and groups will also addressing local grievances and other drivers. we have an opportunity to build with our global partners to deliver a blow to al qaeda. to be truly successful, we'll need to focus our efforts on the aq affiliate's and make serious inroads against terrorist recruitment. working with our colleagues in the interagency, our strategic counter-terrorism work focuses on two main lines of ever, first building the capacity to blunt

the drivers of extremism. when there is a recognition of the need on other states and the political will to address that need, we can help with programs to build the capacities of our partners. our goal is to increase the stability of barbara's, developer law enforcement and legal institutions and a better job tracking, arresting, prosecuting and incarcerating terrorists while respecting human rights and securing their borders. of course, even the military are fully engaged in this effort particularly through the many different training programs that you undertake in countries around the world. one of our goals is to build relationships with partner countries and with law enforcement, the ata program is most effective in countries that

have the political will and law enforcement skills to use and sustain the vast training we provide. this formula has been especially successful in such countries as indonesia, turkey, colombia and some countries in northern africa and jordan. it is important and now we're also working to put the capacity-building effort atop the international agenda. this particular through the global terrorism formula. we have 30 founding members of a counter-terrorism body launched by secretary clinton on september 22 last year in new york. the gctf initiative is a major effort by the obama administration to build the international architecture to deal with 21st century threats. its primary focus is on capacity-building in relevant areas, they hope to increase the

number of countries capable of dealing with terrorist threats within their borders and the regions. this forum will provide much- needed venue for middle eastern and north african countries undergoing transitions to engage with the united states and other western countries out some sensitive issues. this could include how to best support roulade law against counter-terrorism. -- rule of law against in counter-terrorism. at the september launch, we saw at two major accomplishments that demonstrated the action oriented nature of the gctf. in that area, members mobilized some $100 million to support the

training of prosecutors, judges, police, and prison officials in countries seeking to shift away from a press of approaches to counter terrorism. the disappearance of those repressive methods is one of the most hopeful signs that we can launch one of the key drivers of radicalization. the money will assist these countries shifting in the political world. it can train the key officials necessary to apply the laws and in keeping with universal human rights. united arab emirates stepped up and will sponsor and host the first-ever international center of excellence and countering violent extremism. we're working closely with them to develop a center which is

scheduled to open in abu dhabi later this year. its target audiences will include government policy makers, police educators, media, online communicators, and religious and other community labor leaders around the world. countering violent extremism, is really at the core of our policy and is very much about interrupting the flow of new recruits. we're working to address the local drivers of radicalization that lead people to adopt the al qaeda ideology. we are working to undermine the aq narrative. we know that violent extremism forces were there as marginal as asian and alienation and perceived or real deprivation. there's a broad understanding across the government that we need to address the underlying conditions for at risk populations of and need to do more to do this.

to counter aq-related propaganda, we stand up the counter-terrorism communication to push back against their online media activities. the center is housed at the state department but it is an interagency endeavor with a mandate from president obama in the form of an executive order. the mission is to use public communications tools to reduce radicalization by hq and its affiliates -- by aq and its affiliates. we challenge the purveyors of islamic messages with a mixture of text, video, and other communication. we know that all successful work involves more than messaging. we're working with the interagency is to develop programs that would provide alternatives such as encouraging

their use of social needs to generate constructive local initiatives perry we're also looking to support their skill- building and mentoring efforts. we're looking in particular at domestic and international youth empowerment approaches that have a track record of effectiveness to save those can be adapted to the current challenging circumstances. lastly, we must counter radicalization, and this will be the key to sustainability of this effort. in this vein, we are sponsoring an the less present ribble edition and reintegration. -- led by the united nations into regional crime and justice research institute. and the international center on counter-terrorism in the hague. this initiative provides a former policy makers, practitioners, and an expert, multilateral organizations can

share best practices. through this initiative, countries can request technical assistance in addressing issues of violent extremism within their prisons, which i am sure you all will agree are one of the foremost incubators of terrorists today. well, to sum up, new terrorist threats require innovative strategies, and we have seen the nature of our enemies. we need creative diplomacy, and we need ever stronger partnerships. building partner capacity, countering violent extremism, engaging partners both bilaterally and multilaterally are essential tools for dealing with this evolving terrorist threat. as i hope you will agree of this review, we have made a lot of progress. but, quite obviously, there remains a great deal to be done. on the civilian side, the military side, and on the international community, the historical talk -- context is promising. we have made real success.

as we recall on this day in particular. but now, -- but now is not the time to let up. it is the time to redouble our efforts. and i want to thank you for the opportunity to be here today, and i look forward to your questions. [applause] >> all right, i realize the only thing standing between you and lunch and standing between you and a close -- a glass of beer on a long day, i, too, what you think the organizers of the conference, both for the affirmative opportunity but also for inviting me to be a participant. the format of the last group here is different. it is supposed to be a more open kind of discussion, rather than

a panel of presentations. i think what we will do is to ask each of the panelists to spend a few minutes with their thoughts on how al qaeda will wrap up, may be touching it to the themes that have already surfaced, and i will make a brief thing after that. then throw it open the conversation amongst ourselves and interaction with the audience. we will see how that goes. without any further ado, someone who needs no introduction, dr. norman cigar who is responsible for getting us all here. start us off. >> thanks, tom. to raise three points for further discussion, to raise more questions perhaps, and how al qaeda may end or might end, what we can do perhaps to push it along in that direction. even if we look to those models,

and we're not water-type models. i think one can pretty much see that it is very unlikely that the nucleus could be integrated into the system. does not mean that portions cannot. gaddafi was fairly successful in recent trading day portion -- reintegrating with some individuals associated with al qaeda. some of the individuals or part of al qaeda. he broke them off in 2009 by appealing to them, by putting pressure on them, although he only read step -- released about 900 out of 5000, and the other four thousand out after he fell. factions can be looked at in

that way. by and large, very difficult to do. by military means or political means, i think it may be difficult also, because one can -- at least in the original the fillets are task forces, many are rooted in grievances that may be endemic or long-lasting, whether in yemen or iraq or syria, there will be variety -- or libya. or elsewhere. that may respond or may be rooted in factors that have to be addressed, and they may all be different. management. from my perspective, i think that is perhaps the more realistic -- to try to reduce

this threat to make it less lethal, to a level where perhaps we find "acceptable." a low level of threats, recognizing that it may not go away entirely. like crime. i mean, new york city has 36,000 uniformed personnel in its police force. you bring it down to a level that you contain it, perhaps, as a more reasonable measure of success, as a more reasonable goal that can be achieved, which is not easy. the other issue is how do you push it along in that direction? how do we get there? if that is your goal. well, there is the direct approach, and we have been doing that. target can anticly if you want the strategic center of gravity

leadership. dismantle the organization. logistics, finance, recruitment, intelligence, and often local governments are better at doing that than outside forces. and some have done a very good job. saudi arabia, in particular, and others as well. but that is a way -- that is a direct means. but i think, also on the indirect, which is perhaps longer and more frustrating in many ways has to accompany that. and that is to try to isolate, if you want the nucleus from a much larger group of potential sympathizers, potential recruits, or the combat support. people provide intelligence, logistics, the ability to move, all the intelligence, all of that. and to try to isolate by making

it less likely that this much larger pool of auxiliary's will be there. some issues are very difficult to address, but with the arab- israeli issue, if there was genuine progress to proceed towards a just solution, i think that would affect a lot of people, particularly in the arab world, who may be at the margins better very necessary for a movement like -- by al qaeda to have the ability to operate. or maybe more locally kashmir or elsewhere, there are these regional issues as well. long term. but i think that they have to be addressed. how do we know where we get there? how do we know we have succeeded? no, parades, peace treaties, that is a different type of war termination.

it is a consensus. we do not know. i do not know when people will say that is acceptable, just like crime. there will be some incidents every year, but that is bearable given the available resources and costs and the threat. that is something that society has to determine, the political structure and the public, and that is not something that just emerges automatically. not something you can plan for. but it is something that has to be at least pondered if one wants to get there. it may be ugly before we get there. wmd may be used. never know. if a group like al qaeda does feel essentially threatened, then you never know. or more radical elements come to the floor as leadership in the

established leadership of superiors. that is certainly not to be excluded. dirty bombs, things like that. it may be very, very messy, because if the system, and to some extent it has fragmented, one may find solutions one place that do not work in another place and some parts of this worldwide movement may be very pacific can abolish may not be amenable to reduction in threat, or certainly not at the same pace. so that success may be uneven, and especially now, we may have the appearance of new feeders, if one wants to say, perhaps in syria, perhaps in libya, or they do have very messy situations which are beyond external control, really, and a lot of it

is locally determined. my bottom line is, i think most reasonable, most realistic solution or end state would be to try to manage the problem, to reduce the threat as much as possible, but be realistic and say this is not going to go away completely very soon. >> and ben connable joins us from the rand organization to get his thoughts. >> thank you. the limits are our ability to analyze this, really present in a case study approach. i did a case study of about 89 cases for insurgency, and you're drawn to conclusions that btu to believe past is always prologue, and you're bound by the kind of cases you have available to you. the kind of cases we have

available to us for terrorism tend to be regional or state- centered or local cases where a group has a local grievance and can enter into a local political process. of the case study approach as i have looked at fort terrorist group and the extent to look at these regional cases. in particular. look at a recent publication that i recommend it called "how terrorism ends," and i looked at but spoke about terrorist groups. they're both lead off, i think, within the first paragraphs saying all terrorist groups end. that is based on existing case study analysis of these local regional routes. the question we address ourselves in a panel like this when dealing with al qaeda is, is this a case that breaks the mold? is there a mold-breaking case? easter to think about all the kinds of ending setter imagine in these studies, there are limits to the number of outcomes, but there's some outcomes a possibly have been

imagined because the cases are still localized. so the key -- the six cases that cronin it envisions, the broadest number of outcomes, they are all ones that have been attended or considered for al qaeda, and i think what we have seen in the discussions today, and certainly with your comments, nobody is very clear that any of these are going to bring an end to al qaeda. decapitation. well, we decapitated al qaeda, for all intents and purposes. we killed the head of the organization, but it is arizona organization. it is transnational. not regional, not local. in that way, it can become unpopular in some areas but remain popular in other areas. it can collapse in on itself that the leadership level and at local levels, yet still support -- survive because the name itself, al qaeda, the brand is so powerful and so valuable that the decimation of the al qaeda leadership or a change in leadership or some kind of

defeat on the battlefield is not likely to eradicate the value of that name. so the chances for another council, another group, another leader to rise up, to replace decimated leadership is actually fairly strong. you can activate the best decimate the leadership and so the fall of the subordinate groups that we discussed today, aqap, shebaa, etc., and they can continue to operate in simply wait for leadership council to emerge -- and al-shabab. i consider one of cronin's endings, which is transition. the my transition into insurgency or traditional combat. transformation. this might be the mold-breaking ending. they transformed into another type of terrorist organization. their main entrance national group, but they the best themselves and their operational wing. the aqsl no water implicates themselves directly in operations, as they do now. they no longer see themselves as the vanguard for the global

terrorist group -- movement, and instead, the report back to or and he more to their name, which is the base. they serve as a guidepost, which they do. they serve as a logistics organization, which they do. and they served to inspire through magazines like "inspire" which aqap produces, i believe. it is feasible that there would take this approach in separate themselves from organizational groups that might lead us to target them or provide justification for us to target senior leadership. it is also possible to consider the emergence of new leadership. al-zawahiri is not the most popular guy amongst islamist extremist. if he were killed, another decapitation strike, potentially some but not directly implicated in operations could take his place. it might not even be necessary to know who we're dealing with in terms of leadership. you can have a situation like zoro where the idea of al qaeda

is a thing that is powerful, not the individual behind the mask. so those are all things that i consider, and i recommend both of those studies to you. audrey cronin and seth jones. their studies. >> i want to call on colonel michael lewis, who is well known that the marine corps university. >> i am wearing urban camouflage for a reason. i wrote a lot of that. paper issued that could not think the al qaeda brand is popular, but i do not think it is valuable i think it is also interesting and important to separate al qaeda central from the al qaeda affiliates. maybe i will use the word franchise, because in a way, they're carrying a product for cause of the forward from central. the product they're bringing forward i think is essentially to the part. it is a world view. by a world view, i am talking in

the context of narrative sort -- narrative freight -- framing. it is we would make sense of the phenomenon we see and experience in the world. there are expectations that al qaeda has helped craft or take on and put together to help explain the actions of different actors in the world. that is the narrative that they propagate out to their affiliates or to anyone interested in buying that. along with that is the program. and the program is kind of day so what -- ok, so if you all believe like i believe in you see the world the way i see the world, what are we going to do? i think is interesting to look at al qaeda as a social movement. i say that because they are a political organization, hoping to affect political change. to affect political change, you need masks. -- you need mass. not just numbers in that people, but mass in capital as well. they need to be sent this as a couple people in their mother's basement complaining about the world. they need some kind of force

that effect. i will argue that al qaeda's program is not set up for success in that regard. the main reason why is that -- it is a program of violence. it is conducting violence, and it is propagated in narratives to sustain violence. that is not ultimately have purchase with mass, with a lot of population. it is great, we have identified it as a way to open a political space. we have no voice in the political sphere, the need to have someone to get your word out, some way to get attention. but once you have done that, once you have opened the political space, there needs to be a political dialogue to transition to political change. i do not think it exists we can get some of the theorists' out there, and you can argue whether al qaeda has actual fears that the -- fierce. you can argue that we do not follow our fuehrer's either. using a violent approach, you're going to have an outcome that is

violent and involuntary, which is essentially we take over the world and force everyone to subsume into this. or there's kind of a violent voluntary, which is more like with some of the strategies. one talked about causing enough consultation in the world revelations such that there was confidence in their government. when they lose confidence in their governments, they become essentially it savages and have no guidance that al qaeda will provide the guidance through the mechanism of islam to unite everybody. there are a lot of assumptions there. assumptions of hamas and 80, which doubled as you know, outside of the mind of a miss america candidate, there's no world peace or everybody thinks we're going to believe the same thing, right? [laughter] i do not think there's a lot of purchase their did it ever ready to believe that. essentially, al qaeda is not an existential threat to the u.s.. it is really not. it is something that is definitely painful. it is a threat to world peace,

but it needs to be treated in a way that does not -- i think we talked about earlier today, does not turn the mouse into an elephant. they have enough weakness in their own program that they're trying to propagate that it will not sustain itself, unless we prop it up. >> ok. >> i find myself in violent agreement with all three of the palace. we have used the words integrate -- the birds it -- verb's integrate, erratic, management. i would add to those constraints and a degree, which is 3 similar to what norman said about restrict and transition, and we talked about eventually getting them to the point where there are a couple of angry people having a beer and complaining about the world in somebody's basement. it went from being a serious threat to any sense. that, to me, means we're taking away time and space from them, and also, you know, degrading

their capability. an excellent question on the etiquette -- on the decapitation. my answer to that is, how do you decapitate a starfish? it cut its head off. there's no head. you create more of them. i like the work that phil williams and others have done on attacking networks by degrading their capability, by going after critical notes. very interesting that we have had a series of aborted bomb attacks in the u.k. and united states, most notably the times square one. brilliant strategic planning and absolutely amateur execution, especially with making the bomb. what i have been told is that we made a point in iraq of targeting bomb makers. that is an example of degrading and networks capability from really hurting you. that, to me, is the strategy. and i think of terror as a what debt -- as a weapon and a tactic. i like this turn transition and so on. the thing we also have to think about is some of these groups

and a desire to win. the farc, those in burma and thailand, they're carving out a living space. there in this thing called alternative government. the issue is reducing it to a threat, to something you can live with. i will conclude the comment that was said in northern ireland. two things. what a lousy place to hand me a gin and tonic. and we have achieved an acceptable level of violence that you do not want to say that, not a nice thing to think about it but is essentially, that is how we have negotiated an arrangement with organized crime. we do not like it, but we do not want to rid ourselves apart or over focus on trying to get rid of it, so we reduce it below an acceptable threshold. the one to add anything at this point or started open to the group? ok, anyone? sir, you get the first question. please wait for the microphone. >> i will comment very briefly. matt jones, marine corps.

i will make a comment. i think we should be sensitive to the notion, as some have already begun proclaiming, that this is in effect already over, and with respect to al qaeda, they may have been reduced to an acceptable level of violence with respect to the united states. disregard the question of regional affiliates and go with the notion that these are really no more localized phenomenon, the than a local thing. -- national thing -- international think of it could be something like the kbr of international terrorism their it is over from our perspective to the part of the program, there would-be social movement is the notion of moving the u.s. from the regional stage to greet the pope called space to overthrow the lesser evils and create their own fate. it that is not the primary objective and more, than we do not care at a fundamental level.

police we can say that al qaeda, as it was, has ended, regardless of whether it still uses the name. i would end by saying how we respond to their condition determines a lot, where the day end or not, and i will open the to comment. >> i am not sure that one could say that, you know, it is over and the fat lady has sung. there is always then enter regeneration unless you keep managing and controlling. and if they have a local focus in some ways, but even the yemeni branch of al qaeda, speak of yemen, they are a springboard to moving eventually into saudi arabia and the rest of the gulf. this is not -- there fighting a local conflict. that is their focus. but they speak about the red sea. and theaters. they speak about theaters. they do see an interconnection among the theaters as, you know,

there's going to be an egyptian army, a yemeni, or peninsula army, arabian army. greater syria. and, you know, jerusalem and all that. but their sites are not only 10. local. even the menus of their literature is. this is a springboard. we're going to build a force from here. because it is the ideal place to generate a force. >> [inaudible] >> dialogue or? >> [inaudible] >> i think you have to take what they say seriously, because that is their intent. whether they have the capability is another matter altogether. but the intent, certainly if you ignore it or local governments ignore it, then it can generate.

that is the intent. that is their plan, if you want. how you frustrate the plan? you have to be able to ensure that does not happen. >> i agree. it is not an existential threat. that is fairly obvious. and i think it is great point. it is something that we imagine as an existential threat, and you make it into an elephant, and it is important to be reminded of that, that it is not. however, i do think it has influence on our interests around the world, particularly if you think about al-shabab end the piracy affect off the coast there, you think about our ally in morocco and existential ability spilling over from malian places like that. algeria, i do not know if i would go on the record in call them an ally, but i do not want them to be destabilize further. instability in general harms us

anywhere because we have global reach and global interests. while we may have camped them down to a great extent, i did not address counterterrorism in my talk, and i am not sure i have a good message for that. i think abu ghraib has a pretty clear idea what needs to be done. maybe that is what it needs to take. maybe the idea of the long war, which i think we officially abandoned, maybe that needs to be brought back. >> i think what you're getting at, there was an earlier question about third-party intervention. there is a measure of understanding and and understood response. sometimes the question is, maybe the main recruiting tool and the main engines for insurgencies the presence of the counter and surgeon. you have to make a decision as to whether your intervention and character of your intervention is excess -- exacerbated in conflict not. i am not an isolationist, but i

think the measure of responses probably the key point. >> mila, and would be not our concern -- my only comment would be not our concern. we return to a policy where we have a much smaller footprint, advice and assistance -- advise and assist. we seem to be better with a smaller footprint than a big one. >> [inaudible] >> hand over the microphone, please. >> when you're talking about existential threats, of course we can all agree, even the attack on the world trade center was not an existential threat to the united states. but for the people who were there, it was, and the political ramifications of that caused a massive reaction. so every generation of some major attack somewhere could end up creating a situation where our colonel over here will be involved in trying to do the same thing all over again. this is why this long term

containment idea here seems to have a lot of logic to it, and perhaps we just up to recognize it is going to be there. we cannot close our eyes and hope there will go away. but at the same time, we can keep it to a level where they can do that again to us. it is about doing it again to us. our nato allies at the same thing. to make sure it stays that way, what are your thoughts about the things that need to be done to get people in general to understand that? the only country where there is probably an existential threat that they're worried about is israel. not from al qaeda but from some others. two or three bombs in the right place could destroy the country. that is not the case here. even the dirty bomb that was talked about. what are your thoughts about that? >> i think we have entered the era of security force assistance in partnership engagement. we're not going to have the resources to conduct limitless

global operations against all of these groups. we do not have access to all of these areas. we're already seeing an increase in security forces. in my personal opinion, that seems to be the right way to go. the force multiplier or whatever term you want to use. >> back to narrative framing. there is a role for us in framing this conflict in all these conflicts. that is one way to do it. the propensity for us to take responsibility and culpability for the success of any operation against terrorists globally and be the world -- i hate to use the flippant term, but the narrative that we propagated that we have a responsibility for acting against all global terrorists. in fact, in many ways, in bolden's them and perpetuates their narrative. if we continue, and i know we are in there is an active campaign to do this, if we continue to talk in this way such as this is a problem either

regional that we would be glad to support with your problem globally where we must subscribe to, i think there is value their to their overall understanding. at the same time, you have to accept that there will be a tax. there are five or six an orchid -- anarchist's that tried to blow up a bridge here the other day. did they get the same news as an islamic terrorist and a bomb attempt? >> it occurs to me that one of the principal reasons that al qaeda and affiliated groups are allegedly more durable than secular organizations is that they are religious in character, religious and inspiration, so they have been there for more staying power than secular organizations, either national or separatist or ideological.

but it also occurs to me that monotheistic religions, there have been times a religious excitement followed by religious dormancy that the united states is gone through several great awakenings over the course of to go back toonly goo sleep. once upon a time, there was a jewish messiah from the ukraine the one to lead the children of israel back to the holy land. he was arrested in istanbul and converted to islam. so this messianic movement dissipated and the same is true for islam as well. i mean, there is the case of sudan the jobthe coppe of the head of someone in the 1880;s, and the movement under

way. the group is motivated by religious commitments does not necessarily mean it is going to be in derek indefinitely, because the experience, a list of the three monotheistic religions in the world is that times of excitement and so on and so forth go away. people go back to sleep or return to their normal forms of religious expression. >> the mila concern on that is i am in a nearly as worried about truck bombs and airplanes as i am by anders behring breivik barry phenomenon in norway or the small team that went to mumbai. i think that is infinitely more lethal and much harder to stop. like to agree with you on that, but i think the internet is a game changer. it becomes possible for these social and audiological movements to keep energy out there, and i think we are going to see a lot more of these individual kinds of things, like the man in france.

i mean, europe, i do not see movements, organizations, but i see a lot of very undifferentiated rage as things funneled and mobilized the logically. how to counter that is very tough. >> i do not want to discount the power of religion, certainly. but it might be interesting to look at is, as more of an ideogram for the oppressed. it has replaced global communism in a lot of ways as a guidepost for the oppressed, even those who are not islamic. on this very brave the -- on this britta, that is a fantastic loan will to bring up. he mentioned in court that he got a lot of his information from al qaeda and mention "inspire" magazine -- all anders behring breivik. there are non pakistan and india and muslims in the united

states. there are caucasians who have a script to al qaeda and shifted over. some of that might be driven by religion, but it is important to consider the concept of the idea that there's always some kind of larger umbrella group or umbrella concept out there for the oppressed, and maybe this is it. >> there is the ideological side, but there is a polished teak. a lot of the analysis, political and military analysis is a very much in real politick terms. there is one on iraq, a policy evaluation from 2009 or so. we all know what the religious background is. let's talk. you know, in real politic terms, and the rest of the study was put out by the central al qaeda. in real politick terms, they look at ways and means. the people they read, for a

military doctrine, they do have, you know -- they look at that side as well. it is not just ideological. it is combination. 50/50, 80/20. it is fair. they look at geostrategic lee. they look good geopolitics. so it is not -- just a very narrow religious motivator, which is there. clearly. the framework may be. but there's also real politic. there are tangible, if you want to call them, it grievances. it is something that can be shared with nationalist, secularists, the world, and something that overarches religion. again, religion used for a very big grievances, i think. >> i have to follow up on the

comment on the movement in the arab world. one of the things that has gone around and around in my head is al qaeda may exist, but it may be overcome by other things. the arab world is not what it was a year ago, or at least our perception of it. you talked about in terms of the oppressed, the have nots, those who want, that made some fundamental change that his threat and some of the remaining governments that have, to some degree, an authoritarian or pseudo democratic status. the dcc country is coming together and looking to act globally.

the saudis coming out and talking about a gcc on the next level. what happens in the arab world if the arab world really starts to coalesce in ways we do not see against threats, for example, syria, iran, and what happens if this group coalesces and then suddenly somebody makes a bad mistake or somebody miscalculates and there is a violent act by a nation state in the region? what happens there? al qaeda could become of much less consequence given the political stage for the world. >> i am -- i am not standing up and cheering about the arab spring. so glad dictators are gone. but i also know as a historian,

they create a credible and unrealistic expectations. so i think, as somebody in egypt said, the state of the arab world as bellinger osama bin laden. it is tahrir square. on the other hand, the expectations are so high that i am worried about regional and -- instability spawning terror, which may not be al qaeda. >> al qaeda has an extensive analysis. there were shocked, as everybody was, by the arab spring. they do extensive analysis. there were areas where, in their pme courses, they told recruits not to operate in egypt, libya, syria, because it is to tufted of things have changed. syria and libya have now become potential theaters. the call these revelations of bread and jobs. the thing that the new governments are not going to be able to meet those expectations. al qaeda never planned to run

for congress or anything like that. what they want to do is serve as the vanguard to push in their direction. and do they see this, as the marxist would say, and objective plus? in some ways, they do. these are going and direction they would like to the government may have more friction with the web, more friction with israel, and that is a plus. they may become more islamic in their social policy. for them, that is a plus. are there dangers? of course. why were they crashed in gaza? because of the extension of hamas, which was an extension of the muslim brotherhood in egypt. very large. there were crushed their because they are a competitor. there are dangers, and they see that. the cannot predict. they cannot forecast. but what they will try to do is trying to take advantage of were they can.

you know, surfacing in gaps. were they see the gaps. syria, libya will try to exploit. so opportunities and dangers, just like for us. >> to answer one of your questions which is, what happens that there is a coalition formed in al qaeda becomes somewhat irrelevant? i say we celebrate. we understand dynamics. we have a hard time with the non-state actor thing. so that might be something that we are seeking. >> now if you can revive a ghost and ask about the possibility for arab unity. >> it is the same question. i think we're at the end of our time. >> i see that we anticipate stephanie walking in and doing one of these. i will close by asking all of you to thank our palace for a nice wrap up discussion. [applause] [captioning performed by national captioning institute]

[captions copyright national cable satellite corp. 2012] >> tonight bond "q&a" -- newlin >> this is not just the biography of lyndon johnson. i want to examine the kind of political power in america. i am saying this is a kind of political power. seeing what a president can do in a time of great crisis. great crisis. how he gathers all around. what does he do to get legislation moving? that is a way of examining power at a time of crisis. i said, i want to do this -- i suppose it takes three -- 300 pages. so i said, let's examine this.

>> robert caro on the passage of power, volume four in the years of lyndon johnson, his multi- volume biography of the 36th president. tonight at 8:00 p.m. look for our second hour of conversation on sunday, may 20. >> on tuesday, joint chiefs of staff chairman general martin dopsey spoke at the carnegie endowment for international peace. he discussed u.s. security talent is and international partnerships. he outlined key elements of the new defense strategy unveiled by president obama back in january. gerald dempsey also acts as the principal military adviser to president obama, defense secretary leon panetta, and the national security council. this is about 55 minutes. >> 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. of challenges. 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 no prior examples in history of trying to accommodate a greater power grid. his challenge has to raise at the very top. third, the coming wave of budget 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. as the president's principal 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. conducting the wounded warrior games. 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

-- not 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 potentially be more dangerous than any time i remember in uniform.

i came in the army in 1974. 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, -- the globe, 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- -- and they syndicate

together groups of 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 an outlook -- 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. but they will answer your text almost immediately. 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, -- information, full motion videos, signals intelligence 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 you who have the greatest possibility of asking me easy questions -- [laughter] there we go. watch out for that guy. ok, go ahead. >> let me ask you a couple of things to introduce yourselves -- to be brief and to, if you would -- this is not meant to be a press conference, but a conversation. i will start in the back, right there on the aisle. >> calling the company paid out one at go back to the big gains of earmarks when you talk about the rebalance in asia, and talk

about two things associated with that. how does that relate to the ability to execute this doctor? and what would sequestration due to carry that out? >> did you hear what jessica said? [laughter] it is a two-service approach. not unique to the pacific,it is. it is unique, if anything, to increasing capabilities. it is for what oaudience of adversaries.

there-sea battle is obviously the navy and air force areas. but this is something that i own, a few will, the joint operational concept. it is a concept to make sure we can do with anti-access in all domains. joint operational axis is intended to ensure our freedom of movement as a military. air-sea battle is the approach

for the air and maritime domain. as i said, it does not just the asia-pacific. iran has a strategy that we may have to overcome. what would be the effect of sequestration? let me talk about sequestration in particular. let me talk about the budgetary issues in general. one of the things that i have tried to articulate somewhat successfully, somewhat unsuccessfully -- you may decide that i have moved it here in one direction or the other today. even if he did not have any budget limitations, reductions, constraints, whenever adjective you use, what we really need to change, based on what we have learned with the last 10 years

or more and where we see the security environment going in the future. we tried to jump out -- i say we -- the joint chiefs and the combatant commanders in collaboration, we have jumped out to 2020 and decided what that an art that would look alie and then try to determine the materials we need. then we tried to submit a budget for 2013-2017 knowing that we would need to build this force in the next four years for 2020. the 13-17 submission was these first step in what would be four steps. we will submit the program operating memorandums. if we do not do it the way i

just described, we will be doing this with no free market and -- with no framework and we will find ourselves without in 2020. as i stand here today before you, we submitted our budget in fed pureed. it is in marked up right now in the congress of the united states. i do know what it will come back looking like. it is a pretty delicately- balanced instrument. we tried to balance the reductions and build the best possible force we could against the strategy that we articulate. when it comes back, it will not be exactly is resubmitted its pick it never is. then we will make adjustments. but that complexity, we're not finished the fyi 2013 budget yet. i don't know if you are familiar

with the first rule of -- i am not as old as i am about to sound. early in the 20th century, you may remember the sport or carnival stuff, but wing walking, the walking on the wings of by plans, the first rule was to never let go with both hands at the same time. that was for pretty obvious reasons. so when people ask me if i'm working on sequestration, the answer is, no, not yet. i have a grip on what i think 2013 will look like, but it is not done yet. and if i do this and come up short, i will get thrown off the wings. so in the spirit of my airforce brothers, i'm all in the first rule of wing walking and we have not done anything with it at this point. >> ok, right here. we will take to right here. everybody has to be very brief

because there are a hundred questions. >> i am a mom. we have a lot people who say that the pakistani by s.i. -- isi was prickly where the pakistani -- of the osama bin laden presence there. had the do the green-on-blue attacks in pakistan? >> there are a lot of threads that come together to form that question. the question of our relationship with pakistan in general is one of complexity, the complexity. also some pretty significant military-to-military. a lot of misunderstanding and a lot of mistrust.

this is not a new phenomena. it goes back truthfully decades. for example, officers of my generation had a pretty close relationship with each other because we went to each other's schools. we have gotten to know each other over time. but there is a generation behind that, for reasons that are pretty well known, they did not come to our schools and we did not engage with them and we have these kinds of generational gaps in our relationship that frankly create a lot of mistrust and misunderstanding. we are concerned and have been concerned and have been pretty upfront with them. i try not to have the relationship play out in public, but rather work it as closely as i can in private. but i do remain concerned about the safe havens that run along the eastern afghan-border -- the western pakistan border.

the insider threat or the active afghan soldiers or policemen turning on the u.s. or coalition forces, that is not one that i can see particularly as a cause and effect. the green-and-blue, if the take 100 instances, even that issue is complex. if it took 100 of them, probably 25 of them would be based on ideological and religious differences, maybe an affiliation with the taliban, maybe even affiliated with the pakistan taliban. everyone of them has their own challenge. the other 75 of that 100 would be for other reasons, whether it is tribal or having been in shelters or feeling like they were not respected or internal problems to that particular afghan soldiers family. we sometimes see that in the pressures of our own families. i think you know that what we

are working on -- we are working on it from several different directions. one of this is counterintelligence operations, biometrics, education, the tactics, techniques and procedures when we are with and around them that i would not state publicly, but allows us to always be protected. so it is extraordinary complex -- extraordinarily complex. i relationship with pakistan is one of the most complex, but one that i am always looking to maintain. >> right here and then we will move to the back. >> general, is there today a doctrine that governs the use of american military power? i have in mind the powell doctrine.

is there something similar? is there a piece of the powell doctrine that exists today in your mind as a functioning part? >> that is a great question. roughly from doesn't storm out to the middle, -- from desert storm out to the middle, there were clear objectives. we found that that model -- this is about finding models that fit in each phase of the evolution of security challenges. we found that model did not fit really will toward the end of the 1990's, as you recall, because the challenges that face us -- first and foremost, they were not as essential

necessarily. you could that galvanized the entire nation behind a particular challenge. -- you could not galvanized the entire nation behind a particular challenge. but we adapted into a peacekeeping -- after fighting against peacekeeping for some time, we conceded that the military had a role in peacekeeping and then we began to embrace it. along came 9/11 and we went to the traditional template, the powell doctrine, and what confronted us in those two tudor's was really the counterinsurgency. -- those two theaters was really the counterinsurgency. so what you heard me talk about today, i think, is kind of a

nation inchoate. we're just beginning to adapt from counterinsurgency as kind of our central organs that -- central organizing principle. if i had to put a headline on it today, it would be pretty premature for me to do it, but it would be a global network approach to warfare. it goes back to taking capabilities we did not have before, really integrating them into our conventional capabilities, partnering differently with a very different role and with very different processes to support it. and allowing ourselves to confront these network decentralize those with something other than huge

formations of soldiers, sailors, airmen, and marines. i am not there yet. i admitted up front that this is kind of an inchoate idea, but i think what we're looking for in the future is to take a counterinsurgency strategy, which is very static, very man- power intensive, and see what we can do with smaller organizations, but that our network globally and partners to deal with these challenges out there, everything from piracy to organized crime. >> general, are you comfortable with two or three at once? >> yes, then i can pick and choose which one of the one to answer. >> my name is mark parent i

wanted to pick on what you just said, partners and networking, and how you feel about working with partners and networks that have a problem with ruled wall -- rule of law and institutions, making institutions stronger, and the relationships with local law enforcement. >> prominent among lessons of last 10 years of war is -- in counterinsurgency in particular -- it is not enough to address the military. we talked about this whole -- which, by the way, it began to take some shape.

by 2005, the whole of government was on a line of the power point slide. but over time, it began to deliver. i'll give you a personal and yet to highlight this. in 2003, i became the head the division in baghdad. there was no security force, for reasons we all know and we can talk about whether not that was a good idea or not, but there was no security force. so we were the security. it became clear to us that those who were soldiers were the air force and marines and needed to find a way to get local law enforcement. so we built almost a paramilitary army. it became sort of the father of the afghan army. but it was local. we train them for a very minimal amount of time. the idea was to get a base, if

you will, on security. concurrently, the department of state began to try to build back up the police forces in baghdad. just to show you the depth of the disconnect, i was training his group of what was called national guardsmen, really, i was training them to operate in a counterinsurgency environment against an enemy that was very well armed, but wait, even by then. by october 2003, the army began to manifest itself and they were good. there were armed and equipped and organized. but the police that we were training were being trained in the investigations and traffic tickets in the traffic circles -- i am not making that up. and i am not denigrating it. we were mirror imaging our own experiences. and the police was getting

clobbered. police stations were being run over. they were being killed by the dozens. it took us a bit of time to come together, the state department and the department of defense, and now we work collaborative way on building up both the army and the police and conceded that, for a time, these police would have to have capabilities that you would not have to have it your sitting here in washington, d.c. over time, this whole government collaboration began to bear fruit. but your other point about the complexity of this, issues of rules of law and i will add corruption, are extraordinarily difficult to overcome because it is difficult to was if you can see it, let alone having -- as you know, just two years ago, we had a stand up and tied- corruption task force in afghanistan because the very mission was being placed at risk because of corruption.

we have turned the corner on fully understanding first of all how to address that as a role of government and the role of the military. as we go forward, as a learning organization, we have to keep plugging away. we are closer as an interagency -- we are a network. we are all challenging ourselves and how much better do we need to be to confront the challenges that are coming? there are new ones ahead. >> let's go to the back. >> i am with u.s. global

leadership organization. i would like to talk with you a little bit more about the experiences in the last 10 years and working with the interagency and development. many military voices have said that there will not be a military solution. it will have to be built on the ground, economic development. but that is not a military mission. can you tell us about the experiences that you have gained to work across diplomacy, development, in defense. >> i will try. but this is one where -- i will digress, but i will circle back. when i speak to groups of young criminals who are about to become general officers, often -- or at rules -- i am also last -- i am alsoirals asked to speak at other places. i tell them it's relationships.

to this gentleman's question about how do we make progress on these issues in iraq and afghanistan, fundamentally, we made progress as we started to build relationships with each other. that was for a couple of years, by the way. if there was a captain standing appear -- i think the first person i ever met in the state department, i was probably the lieutenant colonel with 20 years in the service. we had no reason to interact with each other back in those days. at least not at the lieutenant colonel level. today, you cannot find a lieutenant that has not partnered with usaid or the department of state for justice or any of the other agencies in government. how on the world will we maintain those relationships and personal connections as the conflicts dissipate and we all

go back to our cubicles? because that will happen. all my soldiers will go back to fort bragg and fort lewis and all the officials will go back to their offices and never the two shall meet. that is our mission to do something about that. oh, i did not answer your second question. clacks we have a very eager questionnaire. >> when you speak about partnerships and networks, are you including international intelligence sharing? >> i am speaking specifically about how do we share intelligence -- we do decent at that, not perfect, but we do it pretty well.

when i remember intelligence sharing in the 1990's compared to today, it is just phenomenal. i am speaking specifically about the requirement to look at our intel sharing parameters with our partners, technology transfer, military sales processes, all of us -- i am not saying anything that i have not said to those who own the processes. they are cold war processes that have not adapted themselves to what we really need to be doing today. and in order to do the strategy that we have all agreed is the right one for the country, we have to get after those processes. >> i think you mentioned iran in passing. last week, your israeli counterpart mentioned that there

has been increase prepared as by israel as well as the united states and other countries. assuming you can confirm that, is this a coordinated effort in case of a confrontation with iran? and what level of this coordination is taking place now? >> i am not sure that i have never been accused of talking about iran in passing. [laughter] let me confirm to the united states and israel -- i cannot speak to other nations. i would rather have them speak for themselves and i am sure they would rather speak for themselves. but israel and the united states have been closely collaborating on a number of fronts, especially in the area of intelligence so that we can come to a common understanding of the threat and the likely

time lines that we might have to confront. i have probably met with many more of my counterparts and that will continue. we have a common interest in the defense of israel as well as securing that -- as you know, we are trying to prevent iran from becoming a nuclear weapons state. it doesn't rise to the level of joint military planning. but we are closely collaborating. >> rick they are. >> good afternoon, general. in the past few weeks, we have seen both korea attempt to launch a rocket and the new

leader to have longer speeches than his father ever gave and we saw the military parade. if you have a better and understanding were this leadership may go or if you can share anything with us about what you understand. >> i would say that what has been interesting is that he is clearly different person than his father. that is not just a function of his age. but think he has a different view of his role in the public. not visit -- not only is it the speech he gave, but he is much more trouble than his father was. he has traveled to 55 or 56 different places around the country. i would say that a lot of those places have been to military installations. and you heard in his speech that priorities one, too, and

three for him is his militaries. that is distressing given that his country is starving to death. but the fact that he is a different leader with a different persona, i think that is worth six blown it -- that is worth exploring. the other chief of defense with whom i spend a great deal of time with in person and on the fence -- in person and on the phone is my korean counterpart. we were all disturbed by the ballistic missile launch, which came on the heels of what we thought was a positive engagement. but we maintain our military preparedness and i know that there are others working the diplomatic side of it.

>> right there. >> thank you. thank you so much for your remarks. i will throw you a softball. my question is regarding the strategic and economic summit in beijing this week. with that is the bilateral security dialogues with china. could you please share with us the issues and specific agenda that will be discussed? the second question is -- you just mentioned building a partnership. i would like to get your take on the south china sea issue, especially on the standoff between china and the philippines, especially the

u.s. established the partnership for peace. >> first of all, it is worth mentioning where i see our future with china. we're balancing ourselves back into the pacific. that is not a containment strategy for china. in fact, the greek historian described what he called this trap. it was the athenian fear of rising sport that made war inevitable. i think that -- rising sparta that made war inevitable. we don't want the fear of an emerging china to make war inevitable. so we will avoid this trap. i think there are more opportunities than liabilities. you have heard all of our senior leaders said that we embrace

china. in terms of partnerships, when i was chief of staff of the army, i was able to meet with my tla counterpart. those relationships are slow and their youthful, but they are positive. each service has a different kind of relationship, but that is because we return to work it out. two weeks from now, i will go to the shangri-la dialogue. i hope that my chinese counterpart will be there. and we will talk very openly and transparently about what we're trying to do in the pacific to both build these partners and what those partnerships are intended to do. it is simply to say that they are intended to ensure stability and also intended to assure -- make it clear that we have some interest in navigation

and commerce and access to which we intend to live. meany, we need to live to those responsibilities that we have -- meaning we need to live to those responsibilities that we have in the asia-pacific. there is also india that is modestly sized and will be somewhat influential in the future. i do know exactly what the agenda will be at that particular conference. but i can tell you what my agenda is. >> thank you for the discussion. i would like to know your definition for the world of victory in afghanistan. why is it that the most appear power on earth is taking that long to defeat the taliban?

>> i am a student of vocabulary. there are synonyms out there. victory, win, success, defeat. let me and zero in on the one question you asked about why is it taking so long because that is a fair question, i would so long it is taking t because we're trying to get it right. if we had overrun afghanistan, destroyed it, created a situation where we would make it a near certainty that the taliban could not come back because there would not be anything to come back to, of course we could. but that is not who we are. and i certainly don't think that is what afghanistan would expect of us and i happen to believe that it is not anything that any of afghanistan's neighbor would expect of us. so we have tried to do it right. we have had some starts and

stops. in some cases, we have made more progress than others. when i say do it right, it is about building a nation that has institutions to support it over time and that can provide for its own security. if you're asking me for my definition of victory in afghanistan, that is the definition. in terms of my responsibility to do that, hit his of the building afghan national -- it is treating some space by lowering violence while we build up the afghan national security forces. i came back there last week. it was one of the more inspirational days of my life. for the first time, frankly, i saw not only for mission that was capable of shooting and had the right equipment and was organized and new which squad they were in and which platoon and which company, but it was more than that. they actually felt a sense of obligation to their country, not to us.

we do not need them to have an obligation to the spirit they need to have an obligation to their own country. this was a very ethnically diverse group of young men. they are a little bit ahead of everybody else because we have placed more emphasis on them. but i will tell you, for the first time, i felt like there was some sense of nationhood there that i had not felt in the previous eight years. but it has taken so much time because the business of creating institutions where some have never existed is very hard. >> my question is about syria. recently, the prime minister of turkey mentioned something about the possibility of protecting the borders of turkey, which is a nato country, from incursions. role by the u.s. in protecting the turkey border or protecting the civilians in syria?

>> my principal responsibility is to provide options to those political leaders, both in this country and in nato. the talk about this last week in nato. they may ask what we can do. and we can do a great many things. but we cannot do everything. among the things we cannot do is guarantee a political outcome that would be better than the one that is there now. that is not for me to decide. i will tell you that come in my travels in the region, there is great concern -- that, in my travels in the region, there's great concern -- it really should be more galvanized about this. in the context of the great tragedy is also the reality that the nations in that region -- i am not speaking for myself, but speaking from having come back from the region -- they want to know what is next before they take that final step to military

action. that is where it came from in that part of the world. again, my option is to provide our leaders and as part of an alliance -- we could provide our political leaders military options. but what is our doctrine? the military instrument should never be wielded alone. >> it is clear that we could keep this conversation going easily until 10:00 p.m. but we are obliged to release general dempsey at 3:00 p.m. so those of you that i did not call upon, my apologies. please join me in thanking general dempsey for a fascinating time. [applause]

>> thank you. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012] >> on news makers, richard trumk talked-abouta friday's jobs numbers. 6:00 p.m. today on c-span. -- onight >> i do not regard this as just a biography of lyndon johnson. i want each book to examine the kind of political power in america and say that this is the kind of political power -- see

what a president can do in a climate of great crisis, how he gathers all around. what does he do to get legislation moving? that is the way of examining power at a time of crisis. i want to do this in full. i suppose it takes 300 pages. >> on the passage of power, volume 4, in the years of lyndon johnson. his multi-volume biography of the president. and look for our second hour of conversation with robert caro, sunday may 20. >> sean donovan says the housing market in the country has turned a corner. he cited declining foreclosures and increasing home sales. the secretary knows was part of an event in washington by bloomberg on wednesday.

this is about an hour. >> we will move from one tricky subject, this ifiscal situation here in america, to another tricky subject, the housing situation in america. the next panel, if they want to start making their way up here, i will do some quick introductions. sean donovan is joining us here on stage. james lockhart as well, vice chairman, former director of the federal finance agency under president bush. we also have jim mills been, restructuring officer in the u.s. treasury department. we are pleased to have the three of them here. please send your questions to

bloomberg.net. >> thank you, a gentleman, for joining us. i am excited about this panel. there has been $7.90 trillion in housing raced since the boom. one in eight mortgages are either delinquent or in foreclosure. there are 1 million underwater borrowers in the u.s. right now. the first question and the question that is on everyone's mind, secretary donovan, directed to you, have we reached a bottom yet in the housing market? >> my view is that this winter has been a turning point in the housing market. it is important to recognize what we have accomplished even over the last three years. of all of that loss of housing wealth that you talked about, it

happened before the president even walk into office. 13 straight months of declines. we have made real progress in the last three years. the number of families going into foreclosure is down by more than half from where it was. we are seeing where we saw the death of the winter home sales since the crisis began. the saw the finance industry index which was up year-over- year. that was the first time since 2007. most importantly, whether it is on sales, the number of contracts being signed, where credit availability is, i think we really have begun to see a different view in the market today from even where we were six months ago. so there is real progress. i think we have turned a corner. having said that, there are a set of places, three critical

barriers, that remain to a further recovery appeared beyond the discussion we just had around the broader economy and jobs and where support for the economy more broadly is, we still have to lower the number of families falling into foreclosure and limit the number of new foreclosures that come onto the market. we have to deal with the shadow inventory that is dragging down to many of the hardest-hit markets. at third, credit availability is a real issue. our sense is that we have 15% to 20% homebuyers that could be successful home buyers who are either priced out of credit completely or are simply making the decision not to because of the cost differential or the just the hassle of getting a loan these days. so those things continue to accelerate the housing recovery. we have been able to have

success in those, but we will continue to push on that front. >> even if housing has indeed turned the corner as secretary donovan suggests, there are maybe 3 million to 4 million foreclosures expected to go on the market according to the new york fed. 2 million foreclosures are still in the pipeline. during the bush administration, there was an initiative called the ownerships society that encourages an increase in the homeownership rate by initiative, such as the 0% down payment mortgage. yesterday, the u.s. census reported that the homeownership rate has declined to the lowest level in 15 years. those initiatives promoted over the last 10 years contribute at all to the financial crisis that we are seeing right now? >> there is a lot that contributed to the financial crisis. it started in the clinton and administration, not just the

bush administration. >> duly noted, yes. >> i think the affordable housing goals set by shante predecessors were too high by both administrations -- by sean's predecessors were too high by both administrations. we really had of credit bubble around the world. it is not just u.s. policy that caused this. my view is that we are something along the bottom. i agree with the secretary that probably the up bumps are probably little more than the down bolts at the moment, but we are not out of it. d. in frank and ollie regulations coming out of there and the -- d. and frank -- dog-

dodd-frank and all the regulations coming out of there. >> from where you set as the architect behind the aig bailout, has the demint done everything it can do to jump- start -- has the government done everything it can do to jump- start the housing market? >> 90% of every mortgage is in the government's balance sheet through fannie and freddie today. the truth is, over the last three years to four years, bank balance sheets dedicated to

mortgages were 20%. banks are going the opposite way. this is a crisis where the providers of mortgage credit, fannie and freddie, government sponsors, large banks, arguably government-sponsored, given the crisis, and private mortgage insurers were grossly undercapitalized. the problem we face now is how do we rebuild that system? we have a need to really rebuild capital to support the debt stock. and we look at fannie and freddie, we have really done nothing to rebuild their capital.

having invested a net amount, we still don't have a plan to unwind that support. nor has the administrator that succeeded generally performed the first statutory duty he was obligated to perform, which was to restore their solvency. this is a simple path to letting capital to this part of the government sector. in a historic laid low interest- rate environment, gp's can be raised and we could accomplish the task of that secreting some capital head of the government inside these entities to protect us against future loans. we have gone through the worst financial crisis in two generations. between the guarantees and the picture neri least -- and the

extraordinary least the fed provided to the system, the banking system has recapitalize. the aig's of the world have recapitalized. and we still have very finance sector that is under government ownership with no clear path to an exit. and it is still undercapitalized. until we figure out how to bring capital back to fannie and freddie, you will not have capital formation from any of the parties. >> let me jump in here. i want to be very clear that there are two pieces to a gym is talking about. one is whether the actions we can take without congress moving? and whether the actions that require congress to move? we laid out a set of clear steps we can take without congress moving and we have gone down

that path. we raised at fha our fees, just the way in that gym described, four times, including just in the last month. we have raise them even more on the longest balanced loans because we want to bring capital back in there. we recommend that the law limits be lower. they were lowered for fannie and freddie. in addition, we raised the fees for the large loans to make sure that there is more capital available to large loans. and we are working cooperatively with fannie and freddie, both to raise their g p's. that did happen. you can argue over whether they have gone far enough, but there has been an increase in the gp's there. and we're looking at ways to restructure their guarantees to be able to put more private capital. in fact, the fha market share is shrinking as a result of that.

where i will agree with jim is that there's much more than needs to be done, and particularly we need action in congress to lay out a framework to going forward. >> i sense you want to jump in here, but i will ask you to respond to this question. everyone seems to agree that we need to have private capital back to finance this summer. friday and fannie make up the lion's share of u.s. mortgages. can private capital come back without gst reforms? >> as long as we have holders of $6.50 trillion in residential mortgage credit, the future of those holders is uncertain. i will liquidating fannie and freddie? is that the game plan? will we engage in a ritual slaughter? are we reorganizing them and

setting them back into the world? until that question is answered, i think there will be risk takers around the edges. but you will not have a massive research of private capital into the system because it is too risky. it is too big a pool of debt, the fate of which and the future which is uncertain, to suggest to anyone in the right mind to step in and start to provide mortgage credit. you could have a radical interruption of the provision of mortgage credit, which could have a disastrous impact on house prices. if the government stays involved where it is without pricing credit, the returns to private capital will remain low. i agree with the secretary that congress does have to act. but in the interim, i think the

administrator, the conserve water has to act as well. and the need to raise gp's to provide proper prices is clearly required as part of a peace to get private capital to come back and also to protect the government. and he can do it on his own. while we raise gp's as part of the payroll tax, they did not good to fannie and freddie. they are supposed to be attached to the housing market. it is not promoting a house in goal. it is promoting a compromise on the hill. as a private citizen, if we have these two massive entities in conservatorship and they could easily become a cookie jar, as they did for the payroll tax cut, it is not serving bowls in

housing finance. the administration should come up with a plan to focus attention on what should be done to these two giants. until we have to that question, it is hard to imagine private capital coming back meaningfully into the sector. >> mr. lockhart, is there anything that makes you at all optimistic when you look at the political landscape? and i would like you to answer the original question. is there any thing that makes you optimistic that congress is willing to take their reforms required? >> not at the moment. we have a divided congress. there is a group that wants to kill fannie and freddie no matter what it does to the housing market. there's another group that was to keep them exactly where they are. unfortunately. it will take the november elections to break the chains. congress did raise the gp, but

it did not go to fannie and freddie. aid.ent to the payroll lai we need a government system that -- that will take congressional action. we cannot do it without congress. the administrator -- is not the administrator -- the director is starting -- if the director is starting to raise the gp dramatically, he will have the hill come down on him. because the guarantee is underpriced at the moment, if you will, the private sector will not come back until we

figure out a mechanism to encourage the private sector to comeback. and that is solving the fannie- freddie problem first. >> one of the things that the administration would like to see is a principal forgiveness on certain loans. you agree as director of the eighth age of say -- of a fake to say -- of fsha, that they should do that? >> in my view, there should be some experimentation. they need to look at various alternatives. there are foreclosures. it will destroy the housing market. we need to figure out alternatives. my view is that, if there is principal forgiveness, there should be some sort of shared appreciation to go with it.

every time you make a payment, you get a little principal forgiveness. something to encourage them to continue to do it. but we are destroying neighborhoods with foreclosed houses. they are being run down. we need to be creative. i do not think a massive program at this point because we do not know enough. but we need to start looking at the alternatives. >> very outspoken on this issue, especially with the effect on neighborhoods. what will the -- when will the administration be willing to extend the modification program? >> first of all, we are starting to see substantial principal reduction happening as a result of the recent settlement but we reached with the five large servicers. our expectation is that we will see tens of billions of dollars

of principal reduction as a result and not just on first liens, but insignificant amount of it on second liens as well, which is one of the primary barriers standing in the way of full recovery. at the same time, we significantly increased the incentives of principal reduction and we extend the program for an additional year. so we're very open to continuing to push in that direction. what we see now is the performance has been substantially improved after we pushed the servicers to improve their servicing. we now see a far lower real default rate -- far lower redefault rate.

we see a similar number that are successful that get successful after a year. dramatically improved performance. that is why you are seeing not just hemp modifications, but others that are following that model the outside of hamp. >> do you see the success of the program extended past december 12? >> we extended into 2013. we thought that was long enough. we're certainly open to looking at where the housing is going. >> you said that columbia that principle forgiveness, as a result of the market's settlement, but think you said it was a drop in the bucket. what you think the legacy of the settlement will be in the servicing industry? >> it helps create

standardization. one of the great problems with the private securitization market is that each servicing agreement was an ad hoc recreation of the wheel. but the advantage of the fannie and freddie system is that there are elements that are broadly applicable in different pools. you have vastly different contractual obligations and duties for trusties and investors. to the extent that the settlement actually creates standardization across those institutions, i think that is a real problem. >> i think there's another piece to that, too. we talked a lot about reestablishing private capital. we should recognize that there are big barriers to leaving getting a fanny or freddie or fha loan today.

whether it is credit screens are the things that are stopping a significant number of those folks who could be successful with a mortgage today. a lot of that has to do with the uncertainty that we have around the foreclosure process, around the servicing process, and also around the origination process. what was so important in addition to the servicing standards was creating a foreclosure standard that was stronger, but consistent. the nightmare scenario was more than a decade of litigation in different states to run the country that came out with different results in the end. what we need is a third leg to that store, in addition to the standards, is buy back standards. without congressional action, it is critically important for fh fa to do. we have done that. we need that to happen for

fannie and freddie loans to clear away another piece of this uncertainty. >> would you care to jump in on this? >> i agree with the secretary that the put back risk is one of the reasons that banks are doing less origination of lower quality and lower credit originn and more mortgages at this point. and certainly, that needs to be clarified. i remember fighting with fannie four or five years ago to put back -- put this back into countrywide and it would not do it because there were their biggest customer. now they have probably swung too much to the other side. we do need better standards on that. one of the issues that the private-label securities have not been touched as much as they should have in this whole process. they only were -- they are only about 9% of the mortgages but they both have about equal number of serious delinquencies. even now investors are

rebelling. we need mechanisms to look in the private labels and maybe even have buyers that will be able to work them better. the reds in 1999 there was about $5 trillion principal amount of mortgages outstanding. at the end of 2007 there were -- there was $11 trillion. we had a huge expansion of financial mortgage credit in this market in the united states. but it was a huge expansion also of mortgage derivation and securitization. that system grew too fast to have a set of standards and uniform practices. there were tremendous what the banks now call manufacturing defects in the creation of those

mortgages. you think about the creation of a car. they just made too many mortgages to fast and there are many defects that are out coming back to haunt them in the form of a put back for a violation and warranties. if we are going to be supporting this level of debt 88 million homes in aggregate. to support that system we need national standards. we need uniform laws on foreclosure. we need a system that is much more transparent and much more coherent and where the rules and obligations applicable on parties are much clearer and easily in force. the whole system of pullbacks and warranties, you know, you

buy a car and you get some warranties and they last for a little bit of time and then they die. the point is that it forces counterparties to do due diligence. this whole system that allows the warranties to survive for the life of the mortgage means nobody has to do due diligence. nobody has to look at what they're doing. i think there needs to be an organizing of the structure to force people to look at what they're buying. >> this is exactly why the president pushed so hard for dodd-frank. it is why we are now moving through the process of creating

standards for servicing for what a qualified residential mortgage would be, what the capital dead is that needs to be held. and it is why it the next step after the servicing settlement was mortgage-backed securities working group that the president put together to try to clarify in the wake of the servicing settlement did these issues are around securitization. if we can create a standard template avoid disclosure looks like for these securities going forward, that transparency could be a huge benefit in the way that jim talked-about. one of the other things that i think we ought to be -- it is also one of the other things that i think we ought to be focusing on more broadly rather than just fannie and freddie. and in the short term, we have interest rates are not providing the same boost to the economy

that we would expect to see. one of the places the fed like to focus on where we disagree on certain things, there has been very broad a -- broad agreement with a j -- with fha with fannie and freddie. we are seeing real take up in that. what we need next for congress to do, and there were bills that were just introduced and about to be introduced on this, we need them to move to the private-label market and give those homeowners and opportunity. there are about 3 million homeowners that do not have access to financing. they are current on their mortgages because they are under water. there is a lot of consensus around this in congress. it is something we need to move quickly. >> secretary donovan, this is

from someone here in the audience, i believe. much of the crisis was illusory created by overcapitalizing institutions. yet the talk about -- will we as a nation only be satisfied with a renewed bubble economy? >> and the answer to that is no. but clearly we are clearly not going back to where rework. our white paper last year laid this out in very explicit terms. it said that the fannie and freddie model was a structurally fraught -- flawed model. they need to be wound down. and what we need to replace them with in this system, we have to recognize that it is going to be more expensive to get credit. there will not the credit available on the same terms.

we do want to get back to a place where families see homes as a place to raise their kids, and an investment that they can count on for the long term. but not as an atm. fundamentally, there is no question that we should not be going back to where we had it. on the other hand, we also should recognize that homeownership does have benefits. if you look at kids that are raised in the homes that their parents own, they tend to do better in school. there are other benefits to that stability. we should be -- encouraging sustainable home ownership through the right mortgage products. and today you have families that can be successful homeowners that are getting screened out of the process where the pricing is higher than it might otherwise be because of any barriers, the uncertainty that we talked

about, and a range of other things. this is about finding the right range of products and getting back to replace of plain vanilla products, not recreating the bobble by any means. >> i cannot leave without asking this one last question. if you could be brief. if you could change anything about the housing finance system, one aspect tomorrow, what would it be? >> i would have to say conservatorship spirited -- conservatorships. the language in this town about winding fannie and freddie down, if that is what we're when to do, let's do it. let's have a concrete plan and move forward with it so we can tell private investors what the landscape is going to look like. if we're talking about winding down the government's hedge funds, let's privatize fannie and freddie and turn them back

into private mortgage insurers. but we need to get a consensus in this town between the administration and the hill on what fannie and freddie is. and i think we ought to do it soon. they are living, breathing organisms and they are providing an important service to the economy right now and the uncertainty is creating problems. if we are not careful, we will destroy these things before we ever make up our minds what to do with them. there will be talent flight and a loss to fundamentally serve the markets we are asking them to serve today. the congress and the administration really have to get together. and even if they do not have legislation, but consensus on the path forward so that the people working there can either stay and have a career, or if they're winding down, they will leave and find new jobs. i am hopeful the private capital

comes back in size and at a pace that will allow them to deal with any and freddie. i think we only have one responsible choice, which is to recapitalize them and better regulate them. that is the most important thing for housing finance right now. >> thank you. kraska thank you all for for dissipating. [applause] -- for participating. [applause] interesting discussion about housing. we will move on to another topic cover we are talking about the dollar now and currency issues. leading the conversation is the senior economist at bloomberg. and joining us on stage with him is jim adams with the lyndsey group. he is a former undersecretary of the treasury under sec -- and under president bush. and also a professor of global

.conomics a rich, i will let you take it away. the subject from on the dollar. -- the subjects, the dollar. >> thank you. it seems every time we get here the topic seems more dire. we will tackle the dollar. certainly, in major issue in the election year and a lot going on there. we have two brilliant speakers here today to help us. i guess, you cannot talk about the dollar unless you talk about the fundamentals of the u.s. economy. again, 30,000 for a perspective -- 30,000 ft perspective my

question to each of you, wtf, what is the forecast? [laughter] >> you have to think about the economy, because the fluctuations in the dollar are because of the economy. if people believe in the economy, we will hear from alan greenspan and others, if we put all of the fundamentals together, that will be reflected in the exchange rate. and there are a lot of people right now concerned about the u.s. economy fundamentals. and they should be. we're growing at a slow pace. wage growth is flat to negative. >> i would add to that a couple of points. one, and one that a lot of people get wrong, but it is a fact, if you look at the average value of the dollar since august

of 2007 when the crisis began, the fed cut rates and so on, if you just read the headlines, you think there is spectacular depreciation of the dollar. in fact, on average, it is flat. we had a time after lehman brothers won the dollar appreciated. and then we had where the dollar depreciated. but it has been relatively at the same level. that is one point to keep in mind. macro fundamentals are key. exchange rates are always relative prices. you know, w.c. fields, how's your wife? compared to what? how's the economy? compared to europe, doing pretty well. and compared to other currencies like the swiss franc, it is still relevant. on average, when you look up the dollar, you need to take into account the u.s. and the global outlook as well as risk

appetite. and right now, risk appetite is relative. no country, and certainly not the u.s. can devalue its way to prosperity. that is not a policy, and i do not think it will be the policy. that is not to say that currencies cannot go down as well as up. but i do not think it should be a policy to think of using the dollar as a tool of the valuation for a long-term strategy. >> the odds of recession in 2012? >> it is enormous, 4% of gdp. we could see a real challenge next year with respect to this. >> the average rate of growth is

muddling through. that means you are always at a higher risk of recession, because any given shock can move you closer to zero or two-. but my basic would be to muddle through. the risk of downside to the u.s. is obviously in meltdown in europe. we began the year with optimism about growth of the last two years. europe begins to get to -- gets dysfunctional and the sentiment shifts. but the baseline is muddling through. >> you had some conflict about devaluing currency. does the u.s. have a strong dollar policy? do we even have a dollar policy? >> it has been the stated policy of the u.s. treasury department that we believe in a strong

dollar. for every treasury secretary is a little different. the way i interpret that is an implicit pledge that we will not use the dollar in a competitive manner. we will not seek to do value in order to play "bigger neighbor" policy game. that does not mean we won't have adjustments in the value of the dollar with respect to external adjustment. as richard noted, because up and goes down. is it a policy tool that we target? we do not. >> you do not think we do. >> is a derivative of policies, obviously. it is an outcome of policies relative to the exchange rate. we may have a weaker dollar as a result of policy, but not direct intervention. >> you are saying it is just market determinants saying that

all of this manufacturing as exports broom as a consequence of a weaker dollar makes things pretty good in the rust belt, which happened to coincide with keep out -- a key battleground states. do you think that is a coincidence? >> i think at the point of view of forecasting at the fed, or any of forecasting, one would think of the dollar as being way -- a way to translate -- to transmit monetary policy. easier monetary policy would lead to a dollar that is otherwise lower than it would be. but the key point on average in the last five years, we have had historic week very easy monetary policy, an appropriately so. three rounds of cutting interest rates. on average, the dollars were was five years ago. that is important to remember. although we have been doing qe,

and they have in japan and europe as well. on average, it has neutralized down. >> you talk about the industrial heartland. i think there is a recognition to the fact that we have great advantages here. we have enormous productive capacity in places like ohio and indiana. and producing in china is not as easy and cheap as it used to be. this running to china to ship things back -- to run your factory and shipped back to the u.s. is not as possible any more. >> and on a secure basis, one thing that is huge, which is the shale business. >> but can be said that the weaker dollar is contributing to a lot of the commodity pricing inflation, particularly energy? >> on average, for the last five years, the dollar is not weaker. and you can always pick an interval where it has been weaker and another one word has

been stronger. >> i had a all have hair in my -- i have a whole head of hair in my earlier life, but i'm looking at it now. >> it looks pretty good. [laughter] >> there is no doubt that it certainly helps at margin with respect to exports. but there are so many other possibilities of where you're going to put energy in this country. >> what feeds commodity prices is the global qe's. we have done them and u.k. has and the ecb house. >> let's go global. and pull something in from left field. is china currency manipulator?

our government is going over there this week and we will find out some things. we will do some talking. are they a manipulator of the currency? >> the treasury department has never found them to be officially a manipulator in the strict terms of the way the law is written, which is that you can find it intends. but do they manipulate the exchange rate? absolutely, no-brainer. >> they certainly run a very actively managed system. it is not exactly six. between 2005 under john snow's or original leadership, they moved away from that. from 2005-08 it was a pretty significant turn. then they did resume after lehman brothers for about 18 months. and then began to allow it again.

-- allowing it to adjust again. the trend is to see it get inonger, but with times which the depreciation was the 0. >> i agree. but it is still undervalued somewhere from 10% to 30%, and the on how you do your analysis. but the chinese said they will move in the right direction. there is a naturalization of the currency. there will eventually open up the capital markets. but i do not think we will see if any time soon. >> anytime soon is when? what i think it is a decade away. they do not have a banking think it is ai do no getaway. they do not have a banking system that is capable right now. >> do they have a currency basket? >> globally, the dollar is down

about 60%. up from 50% two decades ago, but down from 80% four decades ago. we have oscillated from 50% to 80% for decades. it is hard how -- hard to see how it will overtake the dollar any time in our lifetime. >> on a broad basis it is 95 or 98 or whatever it is. that has not deviated too much. that is pretty low by historical comparison. currently, spain is arguably in a depression if you look at their employment statistics. u.k. is in a double dip. that is very much an accident waiting to happen. but still, the dollar is getting no respect. it >> i think is important to

note that if you replay the tape back to 2005-07, the discussion was that our country is a came in fast reserves and also holding dollars. in a time of crisis, the dollar is a great thing to hold in october of 2000. one could have extrapolated a much larger role for the euro, at least for the foreseeable future. the likelihood of the coming reserve currency is really limited. and you cannot get something with nothing. global reserve currency reserves a purpose. as the u.s. and others have written, there is a real benefit to having a global currency. i can see why a lot of countries would like to have that. but for now, it isn't not a viable alternative. >> -- it is not a viable

alternative. >> you have -- it is hard to see who knocks off the purchase a time in the foreseeable future. >> because the dollar is obviously influenced by fiscal policies. do you believe that the u.s. economy cannot afford -- do you believe the u.s. should have more fiscal policy stimulus. and can we afford it? or can we not afford to have it? >> let me jump in on that. apart from what should happen, i do not think we are going to get more stimulus. we had an excellent panel this morning. i think the fiscal cliff is going to be the action forcing event whether or not it occurs before the new year and we get some kind of combination of tax reform and a credible long-term fiscal plan, but i do not think

it will have stimulus in it. >> what would be helpful is to receive trajectories in europe and elsewhere that have the space. china has space to do more. europe is having this debate. the people in france and greece will go to the polls on sunday for more less austerity. but the u.s. has to look at what the trajectory looks like and can we muster the political will to deal with the fiscal challenges. >> what are the odds of a dollar implosion, in metaphysical meltdown, if you will? where are the odds of that right now? with our european friends used to talk about that all the time

before deerow went to the brink. -- before the bureau went to the brink. if your selling dollars, what are you buying? there is a marketing mechanism that whatever your buying gets less expensive, so if correct -- whatever you are buying gets more responsive, so it is correcting. >> compared to the global financial system of 2006 or 2007, i know it's hard to believe, but there's a lot of good work in this. there is a realm of scarcity the fault-free assets. -- the fault-free assets. the bonds of greece and portugal were trading at 10 basis points above those in 2006. that is no longer happening. yes, there is a lot of treasury and sovereign supply. there is also a big increase in demand as well.

never say never and never say 0, but look what happens when a country becomes a viable alternative. the swiss are a great example. swiss monetary policy and said to number of last year said we are not going to lead our currency and competitiveness be decimated by this huge inflow of capital. the swiss national bank has successfully resisted that. you can bet that under this scenario that we have outlined there would be others as well. it is hard to gain that because other people would have to go along. and the global economy would want to rebound out of dollars. and it is hard to know out of what. >> i cannot give you to beat up on the dollar, no matter how i try. let me ask you about the hero. >> that is much easier. that, nextk about year we have this summit again and you come back here, what are the odds that whoever is in the

euro is the same? >> it is a chronic problem. it keeps giving. it will put my children through college. i cannot see it being resolved anytime soon because your fundamental architectural flaws. you can't have it without some sort of fiscal union and you can have it without financial integration. and then there's the competitiveness problem where you saw over the last decade the cost one of in several countries. you have fundamental structural problems in europe. until europeans find the political will to overcome those challenges, i think it is a chronic problem in which we go to the brink every 90 days and we've had some half-hearted measure to take us back from the brink. >> as i said on bloomberg many

times, i'm confident that the euro survives. the weather or not it has the current 17 members or 15 or more. the numbers can change and that can be through the expulsion or resignation. >> 8 of the 17 countries are now in recession. the c.b. thought they bought the time with lte wrote and -- the ecb thought they bought some time theyltro and the relationship just became more acute with those countries. they cannot find a relationship. they put the currency in place without the underlying fundamentals. can they get there? sure, but they got a long way to

go. >> remember, part of the bargain and the appeal of zero -- of the euro was that there were no longer paying evaluation in their bond yield. one of the residual of these volumes in the periphery is that the borrowing cost plummeted. there are two things you can do with this. you can save it or squander it. i would argue that was mostly squandered, not saved. the countries in command in euro are never going to go back to arwin at 5 basis points. -- back to bar wing at five basis points. >> what do you think the fed thinks of this "weaker dollar policy"? that arguably,-our policy is an interest rate -- an instrument

in trying to prop up the biggest economies in the world. maybe the fed likes to see this, somewhat of a weaker dollar so it can boost some of those things. >> we really do not have inflation. >> the fed thinks about the transmission mechanism for its policy. the fed also recognizes that currency values reflect the value of what is going on in the rest of the world. to a first approximation, it is more less a wash. >> we have a question from the audience. i will put it to our guest here. why is it ok for the u.s. to manipulate the value of the dollar in the central bank's

purchases of treasurys with inc. money, but not ok for the chinese central bank to manipulate the u.n. withdrew its purchases with ink money. >> china tried to stabilize their markets and then tried to thwart the affect on monetary policy. it is two very different policy regimes and two different tools and two different objectives. wrightwood chinese policy be acceptable if they've manipulated the purchase with some assets other than treasury? >> if they wanted to open up their capital account and have flexible interest rates and

used interest rates to respond to the business cycle in china and that response through the exchange rate, that is fair game. intervening directly and sterilizing, i think most of the members of the imf and others have said that is not ok. it is a different regime. >> relative to where we were in 2003-05, china has come a long way. as well as the opening up of their financial markets. it is a marathon, not a sprint. but china is definitely moving in the direction of a much more open market, and giving up some control gradually over the currency. >> i think it will get there. but it is a marathon. it will take a very long time. >> and a moving dynasties, too. it is not like us. >> one more question from someone watching, perhaps here

or on c-span or bloomberg television. warren buffett says do not invest in in a fixed dollar investment. but what is your opinion on his view of the strength in currency? >> if i'm not mistaken, his track record in currency is abysmal. he should stick with companies like dearing queen and sees candy. >> i do not have anything. [laughter] >> i will let you wrap it up. >> thanks to my guest. i appreciate your time and input in solving the situation that we have here. >> thank you. [applause] >> at the same event, former federal chairman alan greenspan said president obama shorabak the 2010 s in some polls deficit-reduction plan. -- should back the 2010 since the bulls deficit reduction plan.

this is about 45 minutes. >> and now we have one of the highlights of our day. it needs no introduction. chairman greenspan, thank you for your time today. tom, the stage is yours. take it away. >> let me quote from the bible here. it is the age of turbulence. page 483. i suspect it is likely that to restore policies hannity we will first have to trudge through

economic and political minefields before we act decisively. right onng to my capitol hill where there are many minefields, and it is corrosive, is in it? -- isn't it? >> i said that four years ago and i could say the same today. there's something very unusual going on in the political system in the sense that it is quite correct, there is a huge divide between republicans and democrats. and if you are looking for caucuses, the senate and house, democrat and republican, they are all basically sigel distributions with nothing in the middle of either the senate for the house. and it struck me that this is probably unusual. but i went back and looked at

the data, but it is not. there is data that is a -- enables you to construct voting all the way back to the first congress. what it shows is that this distribution, let's say, were you are getting a big lump in the republican caucus and then the democratic caucus and nothing in between, that goes all the way back to 1850. that is not what the problem is. the problem is, despite the fact that we have had this by various distribution up until very recently, there was always the capacity to reach across the aisle and come up with compromises. because remember, it is in the nature of a democratic society, in which we have all chosen to live together, we must compromise. the question is not compromising

principles, but tactical compromises, which enables legislation to change. >> we found that capacity after november of 1963, we found that capacity in 1986 through various commissions that you have been on. how do we get them back? >> that, to me, is the fundamental question. but it is important to recognize what is. the basic problem is to recognize that compromise is implicit in a democratic society, and unless you are going to do that, you do not have supermajorities as you have in the past. >> could we get an election production out of you right now? >> yeah, but it would not be worth anything. [laughter] >> when you look at the

politics, let's bring it to this fiscal cliff. first, do we face a fiscal cliff? >> legally, yeah. obviously, there is no need to look very far to see that there is a huge fiscal cliff out there. and it is basically who is kicking the can down the road. people in the current environment do not wish to inflict pain on anybody under any circumstances. the problem is, we are not going to get out of this out of this political and economic situation exists without some pain. and the endeavor on the part of both republicans and democrats, as soon as an issue comes up where somebody is against it, they back away.

that is never how we function in this country. unless we break that, i think we are in trouble. >> we had since and bowls -- simpson-bowles. are you optimistic that we can revisit the work of the diminishing and rivlin or of bowls and simpson? >> i remember saying on one of the sunday morning shows, probably "meet the press" that the day after simms and-bolts came out, i said, something of this nature -- i know what it was. i was asked whether or not i thought it would pass the house and senate. i said the answer is, yes, it is only a question of whether it occurs before or after a bond market crisis. i still hold to that view.

i think the worst mistake that the president made was not embracing that particular vehicle ride away -- right away. there are very few initiatives that have the wonderful capability of getting republicans and democrats on board with the exact legislative language interpreted differently. what is in the simpson-vols initiative is $1 trillion tax expenditures. to republicans, those are subsidies and eliminating them is an excellent political maneuver. for democrats, it is an increase in taxes on the rich. you cannot get better than that for getting some form of

legislative compromise. basically, the ryan-wide and the widen ents -- the ryan/white i amendment address the simpson- bowles. it is the ideal vehicle. >> you show higher yields and lower bond prices on a path to 2030. you mention in your book in bond prices. you would find a bond crisis to be constructive for washington even as it could be destructive for our retirement plans and for york. why have we not seeing it now --

why have we not seeing it now? interest rates are low. there is a crisis. >> interest rates are low before they go up. [laughter] at the top of any spiky the to boom, and i'm not saying the bond market is a speculative boom. but you'll always find that just before the top, bid's outrank offers of that particular product vary significantly. and all you have to do is remember set -- for a member 1979. -- remember 1979. the treasury 10-year note had gone up to 10% yield. and the general consensus at that point was that the united states is not an inflation-prone economy. this is as soft as it can get. the next three months it went up

400 basis points. you cannot anticipate changes. in other words, basically to say -- to make an historical statement that interest rates have been low, therefore they will stay low. that is not a syllogism. >> critically, it does speak of fed policy. and i know you do not speak for fed policy after 2006. do you envision given your historical study that what we get higher interest rates it will be a sudden abrupt condition, or a glidepath that any institution, including a central bank, can get out in front of? >> the general view of market participants and investors, and indeed, this was the case in basically 2007, 2008. it lets investors -- professional investors,

institutions and the light were not aware of the fact that there was potential instability there. but remember citigroup posing princess making that wonderful statement that everyone must keep dancing until the -- citigroup's prince making that when it posted net of one muskie getting into the music stops. no one wanted to live out of -- moved out, because of fear of losing its competitive position. you're getting huge liquidity on the synthetic cdo offerings. you could not supply of enough of them. the general view is that we will have time to get out when the music stops, so to speak. when liquidity disappears, it

does not disappear incrementally. it does appears suddenly. -- does appears suddenly. this is what i think we have to confront. i do not have a clue when or if it is going to happen. i grant there is a definite possibility. one thing i can say for certain, interest rates will rise over the next 10 years. 10 years for our, our average will be higher. i will -- i would probably say that for five years, and if you kept pushing me, i would probably move it closer. markets do not behave in a simple way we would like them to behave. >> our viewers and people here in the audience, we are all buying bonds. you mentioned this earlier. before we move on to another topic, are we in a bond for right now where we see the asset flows just extraordinary and we need to get an equity prediction

from you. does that mean that stocks are cheap? >> stocks are cheap, but you have to look at the equity premium. the best estimate is jpmorgan's as far as i can tell. that is at its highest level in 50 years. with earnings still moving up, that essentially means -- at least, they have until very recently. when you run up against a very high equity premium, or in this more simple configuration, a very low price/earnings ratio. there is no place for earnings to go except into stock prices. the point i've been making recently and expanding on it is a i think we are underestimating the extent of equity stimulus as distinct from fiscal stimulus in

driving this economy. >> and you wrote a few years ago about the need for good equity markets. that has been more of an effect here that what we have seen from capitol hill? but yes, i think we do not recognize the importance -- >> yes, i do not think we recognize the importance of equity markets in a market economy. we lost globally during the crash $35 trillion in listed corporation value. equity is the collateral of the financial system. it is not only the amount, but where equity prices are, essentially tells me -- tells the bondholder, how much buffer year-old -- he holds between there and bankruptcy. and the greater the quality, other things are equal.

the equity bubble rises and then it moves from a triple b 28 aa or something like that. equities play -- from a triple b two or something -- i'm working on the relationship of where the equity premiums are in the real economy. we do have this so-called wealth effect. it is a far broader issue than that and i think what you will

find is that every time stock prices rise, especially in the context of very high equity premiums, you see a quick response not only in equity prices, but in the economy. >> recede the imf talking about -- we see the imf talking about a need to be inflated. we see paul kruger and others talking about one form of the stimulus is to get out and inflate the economy. what does that mean to you? >> it means somebody else is lending you money and your debt is rising. if you think in terms of -- for example, there is a big debate going on in europe where they are now talking about pulling back beat austerity issues. i have no objection about doing

that, but you have to remember that to the extent that you are pulling back on austerity, somebody else has to fund the gap that still exists. if you are pulling back from austerity, it essentially means that the ongoing deficits are pretty much across the whole spectrum of the 17 eurozone countries. but that means somebody has to fund it. up until now, what has essentially happened, leaving out the various alphabet of the various vehicles that would be used to fund this, it is essentially a european central banks which is doing virtually all of it. and what that means a is that asset levels are rising significantly and the fact that they are able to do that is that we have a global economy that is

partially stagnant and will continue to do so largely because i think the degree of risk aversion in the system is so high that you can i get a growth rate more than 2% or 2.5%. >> to our viewers that do not have the sophistication of the interdependence these of these institutions and the movement, the answer is at some point, as you mentioned mr. prince, the dancing stops and the music stops and you have to sit down and find a chair. if the ecb continues to provide liquidity, where is their chair? how do we clear off the crisis in europe without financial liquidation and massive consolidation? >> the ecb is supplying the chairs. that is what it is doing. >> so we got annalist shares?

>> well, so far. -- we've got and less shares? >> well, so far. looking back to history, you just do not get this type of very substantial expansion in the monetary base, if you want to put it that way, without ultimately triggering inflation. the only problem in forecasting this is that it can go on for years. in the end, it happens -- it changes in the most inconvenient time. and i do not see essentially how one gets through the european situation at this stage, because right at the moment, we are caught in a deeper dilemma where

we are fully aware of the fact -- there is a clear vision of what the bank is supposed to do and not supposed to do. it would have to be awfully fluid to reconcile what their actions currently are. they all have mr. prince's view of what can happen, or hope. everyone likes to say that we should put off the actual tough adjustments until the economy can take it. there is a presumption in that statement that the markets will allow us to do that. i am fearful that the markets are going to say, no -- are going to say no at precisely the most inconvenient times. >> are they vigilante's?

>> yes. >> when you look at europe, and i have talked about this at times when we've met, you continue to go back to cultural economics. not the purity model or the behavior of economics. cultural economics in europe is different than in america. give us the new ones they're not only in peripheral europe, but in eastern europe as they try to amend to the culture of germany. >> look at east and west germany. you have basically, essentially, to countries starting at the end of world war ii, essentially from scratch. the same language, culture, same history. they grew up and when the wall

came down, the productivity in east germany was one-third of western. and when the merger occurred, there was the recognition that it was going to take a significant transfer of funds from west germany to east germany to maintain the system. that flow is still going on. it has not fully come together. in europe, it is in been at a broader, more to the cold problem. i had a piece for the financial times may be six months ago. and also done an analysis that has been shown in several different places that really takes the issue of observing -- one i recall sitting in on the meetings with the european central bank, i would be sitting between all of these europeans and trying to keep my mouth shut. >> were you successful? >> no.

[laughter] i never have been. at least my wife tells me i've never been successful. but the problem is, there was a general expectation within the group before the row began, a recognition that there are cultural differences. but the conventional wisdom was that when the hero was actually implemented, the italians would be of like germans. they never did. but the markets believe they would because as i recall it, the lira sovereign 10-year note yielded 500 basis point over the bond two or three years before the crisis. by the time they actually move down to the bureau, that spread had gone to 20 or 30 basis points. the market believed that they would be coalesced enforced by

the existence of a common currency. regrettably, they were mistaken. and what we have found is that it was a global boom that kept the euro system together, but once the boom went down, then culture reemerged in a massive way and we are seeing the consequences of that. >> we could talk on this for hours. because of time, i want to move on. you in your retirement have been looking at elderly assets. what is an elderly asset? >> >> this is my explanation of why the economy is stagnant. you have to ask yourself what is wrong with the american economy. wrong with the american economy.