>> welcome. i serve as director of the center for constitutional studies in citizenship. today's lecture is made possible by the college alumni sarah and chris part of a monthly lecture series to address a significant and timely political historical and economic topic from a constitutional perspective. the center marks an extension of the college's commitment teaching the constitution. through teaching the enduring principles of the declaration and the constitution, kir by center seeks to inspire students, teachers, policy makers and elected officials to return to those principles for their central place in american public life. you may find out more about our programs on line and also via facebook and twitter. if you are viewing this lecture

on line, we via web cast or c-span's live stream you may submit a question by e-mailing us. i will now ask senior lailie jones to introduce our speaker. she is completing an internship at the center here this summer as part of the washington hillsdale internship program which for 40 years has sent students to washington for what we like to joke is a study abroad program. >> gretchen is the assistant business and financial editor at the "new york times." in 2002 she received the pull its her prize for her coverage of wall street prior to joining the times in 1998 she worked as the assistant managing editor at forbes mag zeen.

she has also authored or coauthored several books including great minds of business and reckless endangerment. she received her bamplet in english. today she will be speaking on the topic of the absence of accountability for the 2008 financial crisis. please join me in welcoming her. >> it's a joy for me to be here and to learn more about the college which i don't know enough about. i have a senior in high school who is shopping for colleges so i'm going to do a little due diligence for him. i appreciate the invitation to come to speak today about this issue of accountability for the financial crisis of 2008. that we are still trying to dig

our way out of. it's something that i think people few people would have predicted that four to five years after the events of 2007 and 2008 that we're still really trying to understand what happened, who did it, why, and how. going back in time a little bit. as bailey mentioned i was at forbes magazine for many years before i joined the "new york times." and one of the joys of my job there was that i could write about companies doing the right thing as well as companies doing the wrong thing. since i joined the times in may of 98, it really has felt to me like it's been all scandal all the time. first we had the long-term capital management, hedge fund debacle, we've had the internet bubble. we've had accounting scandals, enron, worldcom, et cetera. booms and busts, currency

crises, bank failures. it's really just been an amazing 14 years. and i've had a ring-side seat for all of it. nevertheless, i did feel that the material that was thrown at me and other financial journalists in the years leading up to the crisis and the aftermath made all the previous crieses seem like child's play. so now i feel like i'm almost an archeologist at an historic site still digging, uncovering shocking and really overwhelming evidence of deeply unethical activity that flourished during the mortgage mania. simply put, the amount of lying and cheating that went on during the years leading up to the crisis is almost unimaginable. i'm not sure that we even know all of it yet. first of course we had leners

who made loans to borrowers who could not repay them. the loans carried enormous fees and profits to the lenders who then sold them to wall street. then the executives did their part by putting toxic loans into mortgage securities that were sold to unsuspecting investors. those who bought the securities were told that the loans were high quality. and that's -- this was not true. when these loans failed the only recourse that these investors had was to sue the firms that sold the securities. and of course there was a ratings agency who, according to some who dealt directly with them, knew that the loans were dweable. besides high grades for the securities to held them anyway. money generated by raiding these complex securities was

just too compelling. of course, borrowers played their part. guessing on the rising real estate market they were only too happy to f.b.i. about their income or their -- fib about their financial position. their lies also contributed to the mess. while these scandalous activities were going on, financial regulators, the very people with charged with identifying and eliminating problematic practices were cheering on the miscreates. after danger signs relating to the credit mania had become obvious, officials at most regulatory agencies seemed bent on protecting the very "financial innovation that had fueled the crisis." they recoiled at blocking complex and exotic mortgage products. on the grounds that they could

increase benefits of home ownership. a goal that was claimed to be a win-win for everyone. and they raps diesed about the mar vells of derivatives and how they spread risk rather than concentrated it. so looking back that was a whole lot of bad stuff going on mfment those were just the practices during the boom years. since then, during the bust we've had a rash of bad behavior due to the practices surrounding the foreclosure crisis for example that represented the banks and heir haste to drummed troubled borrowers out of their homes forged legal documents, filed phony papers with the courts and flouted hundreds of years of property law. taken together during the boom and the bust, i would argue that this is a breathtaking

series of ethical breakdowns and compliance failures. and it led to one of the most shattering financial crises in our history. but importantly it has also generated deep questions about whether our country and those in its upper eeshlon of both business and government have lost their moral compass. pop list capitalism, like our system, is hugely beneficial to the vast majority of people. ethical tradition is needed for it to work. when you have seen your executives walk i away with hundreds of millions of dollars using share holders and innocent taxpayers holding the bag, it becomes extremely dangerous. and as more and more jobs disappear across the country,

the outside's pay amazzed like corporate executives and wall street traders become even more polarizing. this is especially so when taxpayers are asked to bail out reckless companies. now, the question that replains to be answered and it will have to be tackled by ethicists far better qualified than i, is why did greed and unethical behavior go so viral during this recent period? i think one bit of an explanation lies in a rejection by some business leaders of a very powerful social compact that many of their predecessors had once embraced. that is a duty to others rather than simply to self. according to this compact and its ideals, people in positions

of power recognized that they had immense way over investors, workers, and customers. and they agreed to hold themselves to a higher standard of care as a result. there was an unwritten rule perhaps but now it seems to have been supplanted as a notion that personal profits are supreme and that making it to the top and gaining respect in society having the largest bank account. we also i think importantly seem entrenched in a system where amoral behavior is condoned because it is not per se illegal. instead of asking if a deal is appropriate for everyone involved and doing the age-old gut check of wondering whether you'd cringe if the deal's details were laid out on the front page of the "new york

times," executives seem to view their actions much more narrowly. if you can muster an argument that what you're doing is highly profitable and not outright illegal, then go for it. who cares if it's immoral or brong or hurts people? i have obmy desk at work an old new yorkor cartoons that sums this up. in it are a group of executives seated in a board room. the man at the head of the table is saying "remember, it's not a lie if it makes us money. ." lies that made some people a lot of money were a crucial element of the credit crisis. mortgage brokers selling loans to customers who didn't understand them. wall street firms had leptsdzy securities to clients who were not told of their faulty structures.

rating agencies being high grates on securities they didn't understand or hadn't scrutinized. and very few of the participants have been held account quabble for their participation. indeed, these players continue to argue to anyone who will listen that their customers come first and that their due diligence is strong. these arguments are stunningly disconnected from reality. noble prize winning economist joseph steeglits summed things up pretty well when he said america's final players created risk, risk allocated and encouraged excessive indebtness all while imposing high transaction costs. and they brought our entire economy tot brink. to this day we hear regulators and of course those in the industry extology the praises

of financial innovation. and yet many of the innovations were roundly placed in the years leeting up tot crisis did contribute mightly to its depth and dabbling. credit default swaps and collateralized debt obligations are two perfect examples. these products amplify a mortgage meltdown and its losses. this is not what financial innovation should create. prove financial innovation should help society, not hurt it. rather than raising investors and borrowers' risk to obscure and hard to fathom investments and instruments, financial innovations should have helped these people mitigate the risk of home ownership. instead, they helped a small band of industry participants

profit at the extense of the rest of us. in spite of this, we continue to hear from bankers that tighter regulation of the financial sector will cripple their innovative tendency. indeed, these institutions, continue to resist significant regulations designed to prevent taxpayers from having to bail out any of their companies in the future. now, this failure to admit culpability is bad enough. but it has also been worsened exacerbated by an even more disturbing failure by the government to assign responsibility for this mess. holding people who are central to the crisis accountable for their roles in it has seemed just too difficult for our government regulators and

prosecutors. let's consider the case of anglo missouri lo, the former chief executive of countrywide financial once one of the nation's largest subprime lenders. he was sued by the s.e.c. in 2009 for insider trading because the regulators alleged he had publicly pronounced his company healthy while privately arrived at the quality, using words like toxic and poisoned and internal empmails he seemed to understand well the risks his company was taking in the subprime mortgage boom. but publicly, meanwhile, he maintained first class and financially sound. all the while he was selling shares that he had received as compensation while running

country wide. in fact, he told 500 million wort of stock over several years time as the subprime crisis was approaching. the s.e.c. said that he sold these shares improperly because he knew the danger that were facing his company. and yet, a year later in 2010, the s.e.c. struck a settlement deal requiring him to pay just $22.5 million to tind case. that's $22.5 million against 500 million in stock sales. that's a pretty good trade. i think most of us would take that. meanwhile, the rest of the fines that were levyeed by the s.e.c., 45.5 million, were paid by bank of america or its insurer. so what's the lesson we can all

take away from this example? while the getting is good and if you get nabbed well you'll probably be able to get off for pennies on the dollar. during the financial crisis effect it seems that we've been all too happy to lower the bar for what constitutes bad behavior. instead, one of the arguments for why there have not been more criminal prosecutions following debacle is that the actions taken by people in positions of power were not specifically illegal. it certainly wasn't right or proper the head of a large financial institution, not to understand the risks that his under lings are taking to make their bonuses. but was it illegal? perhaps not. and that's why some people say we have seen no prosecutions of

those who march the companies off the cliff. neither was it correct or proper to sell a mortgage security to companies that had been designed to fail. but was it illegal? the investment banks have sold such things argued that they disclosed the necessary details in the boiler plate of the per spect tusses. so they maintain. they did not run afoul of securities laws. not long ago, eric holder, made such a distinction in a speech at columbia university law school. he said, much of the conduct that led tot financial crisis was unethical and irresponsible. but we also have discovered that some of the behavior while morally represent hencible may

not necessarily been criminal. ." there he is explaining what everyone wants to know why there have not been more criminal prosecutions. it's hard i think for many people to accept this argument. it's just too hard to believe that a financial debacle so large and so destructive as this one did not involve any known activity. i certainly am the first to say that i am not a prosecutor but that i do understand well how difficult tl to mount a criminal case. because so many people have been hurt by the destructive activities and their outcome, it's incredibly dibtoibing to see millions of corporations walk away from their wreckage

pretty much unscathe. . yes they've suffered losses in their stockholderings. but the knowledge that they and others like them to have in this instance taxpayers, borrowers and share holders is nothing short of this. these wrecking crews appeared to have paid little for their trapsgregses. the problem is if prosecutors don't pursue a wide array of their activities then you wind up encouraging more of the very destructive behavior by not punishing these practices quickly firmly and forcefully you incent vive them to push the envelope even further the next time. if there's no pent for illegal galt then there certainly is not some for immorality. of course, again it's hard to mount criminal cases.

but only one relatively high mortgage banking firm had been sentenced to jail time. the name was lee spark cuss and he led a 3 billion. he was sentenced to 0 years in princele. all well and good. but taylor bean and lee were certainly not at the center of the financial crisis. it is possible of course that additional indictments and prison sentences will be forth coming. but the fact that so few people have been held accountable for this particular makes some people wonder there's something more pernicious at work. perhaps the concerted effort to

protect participants from prosecution. this is not an idles question. given that so many players were involved in the questionable practices that led to the crisis, many hailing from wall street and washington digging too deeply into the mass could touch the mighty participants. one might well ask whether the government really wants to identify who did what to whom during this episode. with regulators at the federal reserve, the office of supervision, the comptroller of the currency and the s.e.c. so involved in allowing the bad practicing leading up to the crisis to go on, you would wonder whether a hard nosed government investigator might not wind up probing himself or his colleagues. it's my belief that many people in washington know that if they

launched a full blown investigate, the spotlight might soon come to their door. i think it's really important to point out that our current situation with zero prosecutions stands in stark contrast to what went on before. that was a period when hundreds of banks failed. but in the wake of that mess special government asked forces authored 1100 cases to prosecutors resulting in more than 800 bank officials going to jail. many of these people were chief executives, lower level flunkee, among the best known, charles keating in arizona, and david paul head of sun trust bank in florida.

here's another data point that i find interesting because it is contrasted to today. in the early 1990s, president bush made it clear that ferretting out fraud was a top priority of his administration. trected the justice department to make these cases with vigor. if we passed forward to the current crisis we find the op sit approach. in the spring of 2008 just as the storm was gatsering, the scaled back plans to ansign more field agents to investigate mortgage fraud. at sum just weeks before the collapse of fannie mae and freddie mac lehman and a.i.g. the department of justice also rejected calls devate to task force regulation. using these complex cases, under staffs and poorly past,

only much later did the justice department why had there been so few prosecutions out of this mess? some of the prosecutors that i've spoken to in my reporting argue that the types of fraud perptrate during the s and l crisis were easier to litigate. those cases were characterized by embezzlement, stealing and other bad beepbare that was more easily identified and exposed. while we do know that wall street likes to create complexity and there's no doubt that the securities involved in this were far more convolume luted and impen trabble for investigators to farm. i think a more interesting reason for the failure to prosecute lies with an answer

i've been given by some prosecutors. it brings us right back to the collosal regulatory sale here that fueled crisis. we all know regulators declined to rein in dubious practices in the boom years. but the failure had dire consequences in addition to the millions of borrowers who were hurt and investors and taxpayers. this regular tri incompetence prosecutors argued to me led to a lack of prosecutions in the aftermath of the bubble. that's because so many of the overserious failed in their duties to compile the kinds of information that traditionally is used to build successful criminal cases. so in effect the same dynamic that helped enable the crisis, weak regulations, asleep at the

switch regulators, also made it harder to kick out fraud in its aftermath. let's go back to the sl crisis. in that period the f.b.i. opens c 50 criminal investigations using regulatory referrals and again as i mentioned a moment ago by 1992, there had been 1100 criminal prosecutions of major bank fraud resulting in 839 convictions. the more aggressive mindset among regulators could certainly have spurred more prosecutions this time around. according to officials who were involved in the sl cleanup. one of them is william black a professor of law at the university of missouri in kansas city.

he was the federal government's director of litigation during the sl crisis. he told me that the relaxed regulatory approach in the current episodes, quote, created an exceptional crim no genic environment. there were no criminal referrals from regulators, no fraud working groups, no national task force, no effect ive punishment. instead, we've had pretty much silence from the highest levels of government. michael mick case earks a federal judge in new york who had been head of the department less than a year when bear stearns failed discussed at that time setting up a task force with deputies but decided against it announcing the decision in june of 2008. now, there had been some attempts to put money into investigations, for example two years into the crisis congress

passed the fraud enforcement and recovery act allocating $165 million to the justice department and f.b.i. for new financial crisis cases. congress quietly took away all 30 million of that allocation later. put all these actions or inactions together, i think you can see how this contributed to our current and frustrating situation where parts pants in one of the biggest economic disasterses in history seem to have skated away from the scene untouched. equally disturbing the failure to put resources into law enforcement on these cases confirms a dangerous suspicion that many americans hold. that is, that there are two sets of rules in our nation. one for washington, and the powerful companies that contribute to their reelection

campaigns, and one for the rest of us. even when the securities, the top securities cops at the s.e.c. have a clear standard to pursue executives under sarbanes oxley, they come up decidedly short. after the grand fraud that enron, worldcom and delfia, congress set out to hold executives accountable. under the sarbanes oxley act of 2002 the s.e.c. was encouraged to hit executives where it hurts in the wallet. if they certified financial results that turpped out to be bogus. this was supposed to keep managers honest. they would have to hold back incentives pay like bonuses even if they themselves did not fudge the account. that was the idea anyway. the record suggests a bark decidedly worse than bite. the s.e.c. brought its first

case under section 304 of sar box in 2007. by late 2011 it had filed cases demanding that only 31 executives at 20 companies return some pay. in 2007 and 2008 most of the cases involved shenen gans relating to stock option and produced some big recoverice for the s.e.c. in the wake of the financial crisis the dollars recupid have amounted to an as strisk. from the beginning of 2009 through 2011, the s.e.c. pursued 18 executeives at ten companies. and has recovered a total of $12.2 million from nine former executives. other cases are pending. half the companies pursued by the s.e.c. during the past three years have been small and relatively obscure.

for those interested in accountability in the mortgage crisis, the clawback case brought by the s.e.c. against new centuries financial, now defunct, one of the most aggressive mortgage lenders out there, is a severe disappointment. michael missile a partner at the law firm of k and l gates and the bankruptcy examiner hired to investigate new century, uncovered seven different types of accounting fraud he said that fatnd the pay of the company's top executives in 2005 and 2006. during those years, he found brad mars, the company's chief executive collected $2.9 million in incentive pay. but when the s.e.c. brought its case it considered a much narrower series of accounting irregularities and recovered

only $542,000. never mind that as mr. missile the examiner told me, i found many serious violations in the investigations and laid them out as clearly as possible with all the supporting information. how acid yullly the s.e.c. brings these cases could not be more important. that's because only the s.e.c. can bring cases under section 304. companies can't and neither can shareholders. but even when it does crack down on wrong doors, the s.e.c. does little to discourage them from becoming residvists. according to a "new york times" analysis by my colleague ed wyyat, nearly all of the biggest financial companies in the nation, goldman sachs, morgan stanley, jp morgan chase, and bank of america

among them, have settled fraud cases by promising that they would never again violate an anti-fraud law. and yet all of these companies were found by the s.e.c. to have done just that a few years after they made their promises. the analysis of enforcement action during the past 15 years found at least 51 cases in which the s.e.c. conclude that had wall street firms had broken anti-fraud laws that they had agreed never to breach. the 51 cases spanned 19 different companies and yet in the face of this, commission has not brought any contempt charges against large financial firms in the last ten years.

it shoopt come as a surprise that trust has been decimated as a result of the crisis and its aftermath. the credit crisis was a two-pronged failure after all first the failure by the private sector to rein itself in or to limit itself to appropriate business practices in some cases second was the abysmal regulatory performance. failure by people at the highest levels of our financial system to understand the practices being pursued by some of the nation's largest banks was nothing short of breath taking. its inability or refusal to recognize peril when it was sterile them in the faith meant that ben bernanke and his regulatory colleagues were far behind when the subprime crisis began to metastasized. it seems pretty clear to me and that a lot of the readers i hear from that many people in positions of power seem to have

lost their sense of duty that obligation to others. there's a decidedly me first approach that dominates today. i don't know how to force people in high places to forego profits for proprietary. i do know that those of us in the media can help by shining light on the dark corners where such practices often flourish. still, to regain confidence after enduring this mess, i believe that at least some of the people who blew up these institutions must be held accountable for their actions investors pensioners, employees, and taxpayers all have been hurt by reckless risk taking at the highest level of some of these companies. it will be beyond exassprating if the people who created this disaster and profitted mightly from it are allowed to shrink

off into the night. i would like to close by a quote from frederick bossia, a 19th century economist and writer. it seems especially on point. he said the following. when when plunder becomes a way of life, it creates for themselves the course of sondheim's a legal system that authorizes it and a moral code that glorifies it. thank you very much lawyer attention. i would be very happy to take questions from the audience. [applause] this person's hand shot right

up. >> run locally here in a vienna virginia, if the banks fail, -- [inaudible] >> would we have fallen off? that's a very difficult question to answer. i will answer in two parts. the way i would have liked to have seen this crisis played out if i could restart the movie would be for the government to allow bear stearns to fail in march of 2008 because bear stearns was a smallish firm, it was heavily into mortgages and had made its bed. they had taken great risks and immense profits in this area.

the fact the federal reserve pushed j.p. morgan chase into the shotgun rhetoric -- shotgun wedding with bear stearns sent a pernicious message to the market that you will get help, you will get bailed out, you don't have to pay the price of failure. bear stearns would have been a less damaging failure if it had been allowed that lehman brothers was, which was a larger firm with no intercollegiate with more interconnections. if i want to go back in time and change how things were done, i would like to see what happened if bear stearns were allowed to fail. if it were allowed to failure, we could have gotten out quick. there was a six month time with -- in which very little happened. it was the call before the

storm when we had this nonstop failure -- fannie, freddie, and a.i.g.. there was a six-month window of opportunity that could have that much more aggressive about getting down assets on balance sheets, take deleverage down, so that's one answer to your question. the other answer is we have to get to a position where these large firms are not so interconnected that they can make the argument that if they fail. it was clear to me that if everyone the country than believed they were allowed to fail, that they would bring down the financial system. it was clear that you cannot let these things fail.

the action should be how can we get these banks and institutions, brokerage firms down to size that is natural and will not imperil the -- we have got nowhere with that kind of approach. >> i've noticed there were two groups you have not explicitly discussed. one is the elected politicians who empowered fannie and freddie1 barrault -- >> that the weeklong discussion. >> then of course, they spent taxpayer money to bail these folks out and then if you look at barney frank and chris dodd, both deeply involved in the

process, and the other groups is the business media. when the private sector -- shouldn't we actually blamed the business media for not blowing the whistle on some of these activities? >> i certainly agree with both of your themes. the role of legislators -- it's an enormously long conversation. i did tackle this in my book and we were quite unsparing with just how fannie mae was the leader in teaching companies how

to coopt congress and neutralize their regulator and how to make sure they were able to make all the difference about things like regulatory capital and their business model. and meanwhile get rich while they are doing it. thata huge topic and one has not been addressed in a meaningful way after the crisis. as far as the business media, i would certainly agree they did not do, we did not do as good a job as we should have in the years leading up to the crisis. i think there may be a couple of reasons for that. first is the kind of mindset that you have to have. i'm a tough reporter and i like being a tough reporter, but it's hard. you have to have a backbone at that editor willing to stand up against the pressures which are immense.

you have to have a different mindset. you don't want to be invited to people's houses that you cover. you don't want to be feeling like your part of that scene, and there are a lot of journalists who get sucked into the idea that they can be friends with the people they're covering. i don't do that kind of journalism, but i think it's unfortunate there are quite a few who do. i will also say that newsrooms have been devastated by the internet and the creative destruction the internet has brought to the newspaper business. you will have far fewer newsrooms who have local reporters covering local scandals. far fewer reporters covering business, far fewer reporters covering everything because the numbers don't work anymore and revenues are not there and you have to lay people off. that is an element that has to

be recognized. i did razz rate -- i did raise red flags or early on as early as 2005 when fannie mae had their accounting scandal and talked about mortgage crises and credit defaults wops very early on. i know what you have to take from people when you take these large institutions on and it is not fun. but if you want to educate and expose the truth, that's what journalists are supposed to do. of theirm believer standard we should hold ourselves to bear. i just wish there were more people i could consider it to say. if i am hopeful we can change that dynamic. >> we have a question from of light your. you have called for greater

prosecution against the perpetrators and have noted their actions are a moral as far -- as opposed to it illegal. how are charges justified? >> not being a prosecutor sh and not having all the facts at my disposal, i can't make that conclusion that there were broad swaths of illegality here. however it's hard to imagine you cannot bring some cases, even for regulators to bring cases against sarbanes art -- sarbanes oxley. s the degree to which there has been so of little prosecution's cents a bad signal. the case of mozillo represent

this. perhaps eric holder was right and perhaps it was no illegal activity, but i think a perception that people do not support because i think early on, reporting and my colleagues reporting shows that early on was a sense that the highest levels in washington that we should not pursue these institutions until we got i firmer financial footing. there was a sense we did not want to aggressively pursue prosecutions while we were still trying to find our way and the dire months of 2008 and 2009. that led to a lax approach to the idea of prosecuting some of these cases. and of course we have time limits and we have all kinds of statutes of limitations that are running on these cases whether

we're talking civil or criminal. there's a real danger in saying what is not do anything until things settle down and get more calm. the danger is you let precious hours, weeks go by and precious data that you need to make a case go by. i think what professor black and other prosecutors have said is that there were certainly civil cases that were not made, there were certain regulatory cases that were not made strongly enough, had even if those had been made, you'd have a different perception about -- about accountability that we have today. >> we are talking about the corporation and i would like

your thoughts on this -- corp. executives are supposed to be responsible for the directors who are responsible for stockholders. the truth is the director's are picked by the chairman, they socialize. the night before the meeting, but they and their spouses have dinner and the director is expected to look them and the eye and say you are overpaid which is very hard to do. behind that is the stockholder who is best people to vote the rascals out. the truth is, i can buy a stock of the phone right now and sell it in 10 minutes so i have no incentive to stand and fight. has anyone thought about some way to inject be true scrutiny it to the process that is not there right now? >> i have certainly heard the

question brought up, which is why we don't have more aggressive shareholder activism or even just policing of boards because there is a sense that the boards are cronies of management and to maybe they are there to justify what their decisions are but the ceo pay keeps ratcheting at that very few people are held accountable when there are disasters. one of the things that i think is the biggest this function at the system is something you are alluding to, which is the failure of large institutions that are running your money and my money, to hold these people accountable. if i -- if i vote against the

package, that does nothing whatsoever. the voting shares on behalf of thousands of people across the country, that you will have more clout. but these companies don't really take this on can't i find that to be very disturbing. they are ready to other people's money, yet they are not acting responsibly in holding boards accountable. that is really the only way you can start to get to the point where you can hold the executives accountable. we have seen a little more action not pay practices. we have seen some compensation deals rejected by majority of shareholders. that is very unusual and it seems like a start. the idea of shareholders expressing their views. but it is a slow process and if

we don't have the help of the people managing our money for us, if fidelity or vanguard award made your company does not want to rock the boat, perhaps because they have other dealings with the companies, it's a problem and dick contributes to the laissez-faire board approach that i think is, but at 70 companies. one person said to me that they thought social media could be a way to get shareholders together to act as a group. that would be a great outcome of social media but i have not seen it yet. this is a glacial process to get shareholders to vote against packages. i have as frustrated as you are.

>> washington's response to the tobacco call an act -- in response to the dog frank law, what is your assessment of that statute's potential to keep such bubbles from happening in the future? did congress know what it was doing and did obama know what he was doing what he signed it? >> i think that bought frank -- dodd-franc is 2000 pages of empirical details that ends up not protecting us, maybe not even protecting us more than we were leading up to the crisis. i like to compare it to blast the goal. clastic was 34 pages long.

dodd-franc is 2000 pages long. the last legal protect us for 70 years i don't even think dodd- franc will protect us for a few years. they were silent on fannie mae and freddie mac and did not have the spine to go after it. they did nothing about too big to fail. they will say that they did that we put together resolution authorities that will allow the aligned of a threat to the institution if it is too big and politically connected door of the press bus, we will unwind it through the resolution authority, but the problem as that it requires the committee to vote and resolve and that wind the institutions.

people would many choose not to take. it would be a moment like in 2008 which is it is just easier to bail out and make the taxpayer pay and dealing with that later than to make the hard decisions to let a firm that amount. these are large and powerful firms with a lot of friends in washington. i'm dubious that the resolution authority is going to work as well as they think that will in resolving large, and to connect to institutions. i think there were a lot of failures. but for the 2000 pages of what ever, i don't think it has put us much closer to a time where

taxpayers can't sleep at night without worrying about having to bailout companies in the future. >> thank you very much. aspiring to a list. >> you are going to be a tough one, right? >> that's the idea. my question is around regulation at holding these businesses accountable. president wilson argued the economy had become so complicated that we needed a bigger government to rein in excesses'. yet we see a movement like the tea party that wants smaller revenue and smaller regulations. it seems like you are talking both sides of the spectrum, that it would be better if we had not bailed out these businesses and just let them fall apart.

but at the same time, you want to hold people responsible. >> i think letting them fail would hold them accountable. if they failed, that would be the first up to accountability. but it is a fine line to walk. you cannot have zero regulation that can have too much regulation. where is the happy medium? i have never made the argument there was not enough regulation of the mortgage industry or financial-services industry going up to the crisis. there are plenty of rules of the book that regulators just did not pursue. i would say the answer is to have people in these jobs with appetite to regulate at have appetite to really go after the problems that they see, but there becomes this mind-set where you are a partner with the entity you are oversee and

you have a brain meld with the bankers you are dealing with. tsks many of the regulators were believing the banks had the answer on their risk assessments and could be allowed to present regulators with their assessment of risks instead of the regulator being the person who is the watchdog or policeman. i think there were rules that were completely ignored by regulators leading up to the crisis. i feel we just needed people with an appetite to regulate, which we did not have. in fact, there were many cases of partner in with institutions at the idea of reducing capital requirements and reducing those

kinds of standards. i think that was a disappointing element at work. more regulation is not the answer because you have to have people who are willing to actually regulate. in the book we wrote, we have a conversation with barney frank, asking him about his undying support for fannie mae. he had bent particularly difficult with the regulators put in place in the mid nineties to beef up regulation. he was tough and the hearings and he would rail and made life difficult for the regulators that we asked him what was the idea of being so hard on these guys just trying to do their job. he said that he felt there are trying to be too adversarial.

i said that sounds like a good thing for a regulator to be. he said that they were too adversarial at was not the right idea. people who are right about call me adversarial i have not a part of their corporate span. a regulator should not be part of the span of the institution they regulate and i thought it was an interesting comment which revealed a lot about the regulatory community and how it is seen by members of congress to oversee these people. that was my opener for me. i would argue for a more adversarial relationship that less. this person has been very patient here.

>> i don't see any hope for actual things happening. what do you think it is the ultimate answer? >> the ultimate answer to getting as out of this boom- bust cycle? >> illegal actions and immoral actions on the part of government and business. >> we just have to see a few cases. it would not take hundreds of cases. just one prosecutor trying to make his or her spurs to make people sit up and take notice. it is a multifaceted question that goes to the question of boards and investors. it is massive and there are a lot of failings at every step of

the way. what can we do as individuals to try to change this dynamic? this is the toughest question i get and i am disappointed to say i do not have a ready answer because it does feel like individuals were powerless. it does feel like individuals have no voice and are against ever increasing power on the other side of some of these very important issues. i am not without hope but the idea is people have to take some of this on themselves and whether complain to your fund company if you don't like the way they vote your shares, voting no against excess of pay even if you only have tend shares, it is that message you can't sant and there is a sense that it's not going to get a lot of traction. that is unfortunate because we

are the people who are ultimately pay the price. thank you very much for your time. [applause] >> coming up this wednesday, the ceo of j.p. morgan chase testifies before the senate banking committee about the company's recent $2 billion trading loss. they will also address the bought-franc loss. that the house financial- services committee will hold their air and on a implications of the trading loss on tuesday, june 19. we'll bring that to you live on c-span. and c-span radio. the senate finance committee chairman will outline his plans for changing the tax code on monday. he will speak at the bipartisan

policy center. we will hear from a former white house policy director at budget director. join us live monday morning at 2:00 eastern of c-span3. last thursday, eric holder was asked about leaked information about the fast and furious operation. the attorney general said the documents contained no reference to gun walking. this portion of his testimony is about one hour. >> the foreign intelligence surveillance act amendments which out protect our country from terrorist expires at the end of this year. do you support the extension of those amendments? >> we do. it's the most