people who are either standing on stage are ready or could up on the stage or laugh them off saying what are you doing here? start with chris christie. he has challenges. maybe he doesn't make it. if he rights himself, maybe he will make it. he has capacity and name to raise money and narrative of successes in terms of reforming a deep blue state. scott walker, witness ws turned blue state red. republican house, senate. governor. they reformed the pension rules there. they reformed public sector unization rules. every year they have to have an election if the union wants to have going. you're not stuck with a union voted for 50 ayears ago and nobody alive and in the union voted to join it. you are want to keep union? yes, no? can't take your money out of your pay chk. have to ask you for it. teacher making $50,000, here in

wisconsin pays $1,000 in dues. that was taken out by the city and school board and given to the union you never saw. now it sits in your pocket until the union guys come and say, can we have our thousand dollars and you're allowed to say no. oddly enough, several do. and he got a concealed carry in a pass that was one of two with no concealed carry for firearms. and every rich republican has made a contribution to him when the unions tried to recall him. only governor who's ever been recalled who successfully defeated the recall and got himself re-elected. everyone else went down in american history. pretty cool. then go to rick perry. faltered last time because you shouldn't take large quantities of pain medicine during debates. i have not had any in hours. but that said, he spoke at cpac, conservative political action conference and establishment press was saying wow, he's

incredibly articulate. yeah, when he's not taking pain medicine. very successful governor for like 14 years. so there's a real narrative that conveys a bunch of money. people in texas evidently have it. and you go down to bobby jindal in louisiana. also very successful governor. got an ethics law in montana that minnesota would have been pleased with passed in louisiana. talent, very aggressive, got school choice for 380,000 kids. could take a $5,000 voucher to any school they want to. not enough schools to do that but parents have that right as soon as schools are available for everybody who wants to take thm up on that. he could and may well run. jeb bush was governor for eight years. perfectly competent, reagan republican governor. and would be a candidate who could step up. i think somebody else may have to fall over for him to decide to step up but he could step up and do that. and then rand paul, who starts

with 15%, 20% base vote in all 57 states and there i think you have a real opportunity as a senator, he could run. other senators very difficult to run as a senator. what did you do? i passed this bill. yeah, you and 50 other guys. what do you mean you do that? increasingly -- >> increasingly they don't pass bills. >> but then you're just giving speeches. giving speeches is fine if everyone else you're competing with is giving speeches. but if you're competing with a guy that will wake up tomorrow morning and do something on the front of the state's newspapers and television, it's awfully hard to compete with them. >> you didn't say rubio -- christie, walker, perry, jindal, bush, paul. is there a top three? rarefied leaderboard there? >> i think the good news is all of those guys are being tested from the last jobs and most have been through quite a bit. christie's being run through the

ringer again. if he makes it, he will be tough as nails. if he doesn't, we will have five. but i think he's governed well in a difficult state. state of about $130 billion out of unfunded liabilities, state pension system and negotiated that through with democrat house and democratic assembly and senate in new jersey. so real progress there. sleepers, watch brownback of kansas. he could next year have an exciting legislative term just as scott walker did. back in 20 11 and that could put him up front. other than that i'm not sure i see a governor that has a legislature that would work with him to do the kind of amazing back flips where you go i know these six guys are interesting but, wow, look at the new kid in kansas. >> moving from '14 to '16 to the elections of the future, there's a pugh poll that came out i believe at the end of last week

to look at trends among millennials and it found a couple things that i think i think pertains interestingly to this conversation. first, even though they don't, they tend not to identify as labels. republicans and democrats. mostly independent. the gap between number of them that voted for obama versus the republican candidate in '12 and '08 was the largest of the last 40 years. 68% of nonwhite millennials said if it's the government's spoment to provide health care and this is the most diverse generation in american history. the generation behind it is more diverse. 71% said they want a bigger government with more services. these are not slight majorities. they are filibuster-proof majorities all tb in a pugh survey. does the republican party have a serious demographic disadvantage moving forward the next 20 years? and what's the best way to think about that? >> sure. you need to look at demographics in two different ways. democrats think of demographics they think race, ethnicity,

gender. because that's the way they think. there are also ways to look at it, look at the number of self-employed people, number of government workers versus private sector workers. people who own $5,000 worth of stock or 18% more republican and less democrat. which is why the republican solution to every problem is education, savings account, health saving accounts, individual retirement accounts, getting more people into the stock market. the democrats' answer to everything is 100,000 more cops, teachers, government employees because if you hold a government job long enough, you're more likely to be a d if you get paid more than $37,000. this is whatever demographics there are. makes you more likely to be a d or being a shareholder more likely to be an r. you add to that the other things you can change. this is why democrats shift. you look at the united states 25 years ago. 25 years ago homeschooling was illegal in just about every

state. maybe two had it legal. today it's pretty much legal in 50 states and 2 million people homeschooled and they know perfectly well the modern democratic party wants to take that away from them. add 380,000 currents who know they have a 5,000 voucher in louisiana. 300,000 in arizona. 500,000 in indiana and now 750,000 in north carolina. now, again, we're not building out schools and structures and it will be very interesting to allow people that choice but then go to a different public school or the one that's they go to now might be nicer to them when they walk in and say, i got $5,000 here and i want to know how you are going to treat my kid this year versus last year. what are you think something they will treat you with respect, which they don't do now. or i can go to another school. you tell me. think of how you're treated when walk in to buy a car versus when you go visit the department of motor vehicles. so don't think the democrats

ever come back in the states where school choice has been won. it's just as labor didn't come back in britain until they fundamentally change their viewing. remember when thatcher allowed people to buy council houses. buy your public house, council house. you can own it. people did. and ben the bolshevik who ran against her for re-election said when everybody gets in, we will steal everybody's house away and be socialist. they just got wiped out in the very areas who the demographic people would have told you those are labor voters. not when you're threatening my house. not when you're throatening my kid's education. or 30 years ago, 30 years ago there was very little concealed carry issue. people allowed carry a gun in their purse or car and swell of your back. today $9.3 million americans have concealed carry permits, starting with my parents.

the person who's made that decision is a different unanimous human being than the one who says we have a government and if something goes wrong, they will come and draw a circle, little white chalk mark and this will be helpful. the person who says i will pass on that and be in charge of myself, thanks. try and take that away from people. try and take that away from people. that's why democrats get in trouble talking about gun control because they don't understand they're threatening something they consider important. we can by expanding liberty. that's where half of the country that lives in red states are doing all of these expansions of freedom. and d's are going we voted against that. we would not want you to have that freedom. if we ever get back in wisconsin, we will take your dues out and you will never see it and you don't get to say no and we will go back to the way it was. that's not a real seals pitch, to go to people. once you give people more

liberty, you change the nature of who they are as voters. and i think you're seeing some of that with republican openness to a discussion about drug as federal issue out in the states. i don't think the challenges you mentioned will continue out. we're not the same prn at 40 than we were 20. that said, i think the modern republican party, and i work on this personally, needs to be much more aggressive with pro-immigration. take the smart people from around the world and when they come here in getting a ph.d., i'm not in favor of not letting them leave, i'm in favor of letting them stay and encouraging them to stay and stealing their airplane ticket home because we want all of this talent. and there's a lot of people in a lot of jobs that we need more people. the reason we're the future and china isn't is because we are remembering to have kids and we're remembering to have immigration.

>> we have time -- thank you. we have time for one question. make it great. t's right there. >> hi, john cummings, writer. i know you promoted liberty but how do you feel about corporate responsibility, a company through negligence or error dumps chemicals into a west virginia river and declares bankruptcy? how can our economy deal with situations like that, that doesn't just fall on the government to bail them out? >> ok. you want to have reasonable tort laws so people who pollute their neighbor's property or water along that line pay for damage they do just as if they ran a truck over you because real damage can be done. i think it's very important that we ask individuals and

businesses to be responsible for real things they do, which is why tort reform, where the trial lawyers have been getting rich going after people for stuff that the guy who owned the house before them did. some of the stuff you go after the guy with the deep pockets, again, texas passed a great number of reforms in terms of tort reform that dropped the koss of medical care in the state. more doctors are moving in texas as a result. louisiana about to pass the same collection rules. i think getting tort reform so billionaire trial lawyers that have been abusing the system and threatening people with lawsuits and basically getting paid to go aa, that sort of thing we really need to tamp down. it's killing -- not killing but damaging high-tech sector, being very unhelpful and silicon valley guys are very concerned about the abuse of the pat patrols and trial lawyers in that zone.

let's reform those so that we n focus on cases of real criminal activity by individuals or people acting collectively inside a company. >> we have time for one more uestion. guy with the beard. >> guys with beards get to go first. new rule. >> you have taken it to extremes, sir. [laughter] >> sunshine press. if whoever steps forth what metrics make an economy better? that is what is the purpose of all of these policies whether it's tax cut or tort reform or whatever? how do you measure the economy

is better here than there? you pointed to some states where the d's and r's are dominant. to you look at life expectancy, education levels? how can you tell if the economy or conomic policy is better worse? >> yeah, you want to have metrics. if you don't have metrics, you end up with all sorts of problem. i talked to the budget guy when bush came into office, bush 43 and said what metric are you going to use, right? running a.g.p., you're the government, or part of it. what's the metric you're going to have to contain the government of government? he said that would be a good idea. we should do something like that. but they never did. it wasn't even on the list of things to do. to measure the size of government. what are you trying to get to? per capita, the per capita

g.d.p. is one measure. to be fair, some people decide to be monks or war locks or something and they're not interested in that. so it's not like you're required to want to earn a lot of money but most people would prefer to have more rather than less. one measure is g.d.p. for capita. one of the things i find sad or a measure of ill health is how few people are quitting jobs and how few people are moving. in a vibrant, dynamic economy where things are chugging, a lot of penl leave their jobs for something to move to and a lot of people move, something to move towards . when you look at bad numbers, unemployment number, number who left workforce, perhaps the most scary but outside of that, i also consider that we're not moving as much as we used to. we're not leaving jobs as easily as we wanted to. you don't want people handcuffed to a job. want people to leave easily and move on to other stuff. move to a different state if they want.

so i think generally those measures and the one where's ask are you happy, that's pretty useful. and our friend at the american enterprise institute's done fine work on earned success being what translates into happiness. winning $1 million in the lottery oddly enough doesn't make you happy. earning a certain amount of money and knowing you earned it makes you happy. sometimes some of the people who make a lot of money but got it because luck of draw in hollywood or something, they don't get to be hani. they're not so sure they earned it. earned success is what correlates with happiness. like i said, happiness than money but it's probably easier to have money as the metric. >> big thank you to grover norquist. what's our funniest guy,

funniest poll? >> washington, d.c. funniest celebrity. >> stand up here a minute. >> grover competes every year and he wins most years in something called d.c.'s funniest political celebrity and he drafted me in. august or -- >> run in december. little extra time. >> i realize i have gone back to watch who's one in many of the cases. one of the winners was john love lovett, president obama's funniest speechwriter and he impersonated ariana huffington. grover won last year for impersonating dick cheney and i think my strategy will be to impersonate grover norquist. see you all there. >> you will be a star. >> enough. >> former federal reserve vice chairman and white house budget director alice rivlin also spoke at the atlantic economic summit. she said the technical glitches with the health care website were extremely unfortunate but enrollment numbers are up and

website improved. miss riv list also addressed federal judget, earned income tax credit and u.s. trade agenda. his is just over 30 minutes. >> next up, we have the honorable alice rivlin, former director of the budget office, former vice chairman of the forever board, director o.m.b. and current senior fellow at the brookings institution. you can follow alice at just rivlin. interviewing her today will be our very own derek thompson. one quick programming note, unfortunately, e.u. ambassador is very ill and really wanted to be here but can't make it so we will continue on with senator gregg after this. thanks. >> hey, thanks, everybody. alice, as you put that back on,

y you fiddle, janet yellen's first meeting is today and tomorrow. one issue she's going to have to raise is so-called evans rule, which said once employment rate falls below 6.5% it acts as a threshold. that's when you can think about raising rates. the rule with me before we realize how quickly unemployment was falling and it's not necessarily falling quickly because we're creating jobs faster pace, it's falling because the denominator is changing. people are leaving the workforce. and it's become clear the recovery sent right now at a state where we want to be dramatically raising rates. if you're an ear if that room how do , and a voice, you shape yellin's understanding of the labor market issue and how do you think she's going to try to sway this group to think differently about unemployment and raising rates? >> the first place, janet yellen doesn't need me to help her understand the labor market.

she understands it very well. she and her colleagues have been making some of these same points in speeches. and even in the fed materials for quite a while. the labor market is complicated. right now the unemployment rate has fallen quite respectablely but that's not a good indicator of what good shape we're in in labor markets because we know that a lot of people have dropped out, have given up looking for work. this has been a very deep and long recession. and the particular manifestation has been many more people who have been unemployed for a very long time and some of those people have given up. on top of that, we have people who are working part time and would like to work full time. these are often true in a recession but this is a bad recession.

we had people taking early retirement or dropping out because there are a lot of people in the age group. this is the baby boom generation reaching retirement. it's complicated i would expect that the discussion today would say a lot of those things and they may even change the statement that they make at the end to put less emphasis on the unemployment rate and more on these other factors. >> i would like to talk about the participation rate, for example. thace -- this is a huge debate in washington. the labor force rate, share of people working or interested in working who actually are working, has fallen to its lowest rate since the early 1970's. demographics have to pli a part. what else is playing a part in this? >> demographics play a big part but the depth and length of the

recession is also playing a part with a lot of long-term unemployed. and then it's overtaken by some structural factors. you also have structural factors that are not shifts from different industries. but i think it's not a surprising fact we are having fewer people in the labor force. >> right. one thing you're doing a lot of work on right now is health care research. rollout aft affordable care act, obama care, has been somewhat disastrous with the r standpoint. if you look at the democrats' forces in november, this is an enormous albatross around their neck. from a policy standpoint, what are the numbers, metrics you're looking at to determine whether or not obama care is succeeding or failing on its own merits, not just the politics of the law? >> well, the technical glitches

were extremely unfortunate. i'm shocked and saddened that this happened. although sthupet surprise anybody. anybody who's dealt with putting a big new system in, in the public sector or private sector, knows it's really hard. it doesn't work the first time. you need to test it a lot. they didn't do that. don't know why. the real question is has the website recovered? the answer to that is mostly yes. numbers are up 5 million people enrolled. hat's not 7 but getting there. so i think what we will watch over the next few months is how fast do those numbers go up, particularly in the next couple of weeks? and what happens after that? do people actually get the insurance that they thought they bought or are there going to be

more glitches? but we're doing a complicated thing and we're doing it intentionally. a lot of people say oh, we should have blown up the whole system and started over and single payer as if that were easy. but we didn't. we have a very complicated system, medicare, medicaid, and employer insurance and western filling in the last gap. it's much hard tore patch a system than to start over. so that's what we're doing. >> right. what -- one of the most ballyhooed findings on obama care, affordable care act, it would reduce the amount of work done in the u.s. economy tremendously based -- compared to previous estimates. this is misinterpreted by some people saying it would kill all of these jobs, would not necessarily kill the jobs but people who had jobs would choose to work less or give up their work. their mrk would -- health care

would no longer be tied to their employer. is this good or bad? >> probably a good thing. many of us over the years pointed out as a reason for having a different kind of health care for the -- that would cover the uninsured that there was significant number of people that were stuck in jobs because they needed the health care and they might have a spouse or child that had high health care costs and they couldn't leave their job because they would lose their health care. and they don't get more because it was a pre-existing condition. so the affordable care act has changed that. no more concern about pre-existing conditions and you could go to the exchange and buy health care and get a subsidy if you have low income. it's not surprising some of those people will give up those

jobs. >> when you look at the two issues together. on the one hand the long-term tell graphics and recession-driven decline is labor participation rate. and the number of hours less worked because of obama care, because that is giving people health care, do you have a worry that when you add these two things together, there are not enough americans working enough hours to pay for the obligations we promised ourselves? entitlements like social security, medicare, medicaid and so on? >> not because of obama care or -- but what we are seeing is what we knew was coming. baby boom generation is retiring. surprise! we have known about these people since 1946. [laughter] and you -- you haven't but i ave. so we should not be surprised if

we have a large generation of retirees and people are living longer. so this is putting upward pressure on social security and on medicare and we know that. and we've got to see what we want to do about it. it's not a terrible crisis. but it is a long-run problem that we have to face. the easy part, i think, is fixing social security. that should be done quickly because the longer you wait, the harder it is. and we should get a bipartisan group together again as in 1983 and say we need to fix this. how do we do it? and they would have to compromise. compromise isn't a dirty word. we now think of it as something terrible means you don't have principles if you compromise. that's nonsense.

we all have to have principles and we all have to think how do we solve problems and get something done? and social security is a good example of that. nobody serious wants to kill it. it's a very good program that served a lot of people well. we need to fix it and fixing it isn't very hard. >> what's interesting congress initially touches more than social security, we also talked backstage a little bit about immigration. the doc fix. tell me why you're absolutely more optimistic about this impossible body of government potentially coming to a solution on the doc fix? >> i brought up the doc fix as an example of something we were not fixing because we're so polarized that everybody agrees we ought to. what is the doc fix? some years ago people with very good intentions decided that we needed a formula for changing

physician payments under medicare and they devised one. tied it to the growth of g.d.p. but then when g.d.p. didn't grow as fast as they thought it would, it meant the doctors would be getting less and so congress in its wisdom said we don't want to do that so they postponed it and they kept postponing it and kept postponing it. the way the law was written, it was cumulative. so right now if we did want the law said -- >> went back to current law overnight? >> back to current law, that's not a surprising thing. it's the law, right? we should -- we would have to cut doctors fees something like 27%, 28%. now that's not going to happen. it shouldn't happen. fees for medicare are not that high any way. so we have got a bipartisan compromise, several committees, house and senate came together. they worked hard. they got a compromise together. to make a permanent fix to this.

it's quite sensible. it can't be passed was it's gotten caught in polarized policy. a srn party said we won't consider this unless you postpone obama care. >> you say a certain party, i assume you're not talking about the democrats? >> no, i want. i was talking about the other one. >> the other one. but it doesn't matter. there are intransigents on both sides. this is just an example of something that reasonable people on both sides of the aisle want to do and can't do it because we're in this got you politics. >> right twofment other things we want to do. one thing we want to do is help incoming equality. there are two big solutions that have been rolled out. one is raising minimum wage. the other is the earned income tax credit.

which of these is a better policy and why? >> well, would i do both. >> ok. >> we have not raised the minimum wage in a long time. raising the minimum wage would but uite a lot of people i'm an economist. i'm stuck with that. economists like to think of efficient ways of doing things. actually the earned income tax credit, which is basically a wage supplement for people who are working at particular wages, low wages, that's more efficient ay to do it. so i would do both. it discriminates against people who don't have children. it's not clear why -- >> part would raise earned income tax credit for people without children? >> it would. but that's an illustration of why it's a more targeted thing

to do than a minimum wage. >> the income tax credit, i.t.c., was founded in the republican administration. it's been raised with democrats and republicans. what are the odds we raise it this year? >> i don't know exactly but it's another example of my theme, which is if you have bipartisan support for something, do it and stop worrying about where the blame falls. >> with grover norquist was up here earlier and he has a mega theory or metta theory -- >> i'm not surprised -- >> -- for why we're so polarized. we used to have people who wanted to expand government a little bit and they compromise with people who wanted to expand government by a lot so we got a goldie loc expansion of new government. do you have -- it doesn't have to be similar in any way but a meta theory for why we're in such a terrible moment of polarization in washington today? >> i don't have a meta theory.

i think a lot of things have happened. part of it is our primary system pulls people to the right or left, depending on which party they're in. that's exacerbated by the way congressional districts are drawn. but that's not the whole story. if you look at the senate, it's polarized too and it doesn't have to do with districts. our political leadership i think has gotten out of touch with the way most people think about things. if you get a group of average citizens or representative group of citizens around the table and give them a problem, whatever it is, what should we do about the deficit? what should we do about immigration? they will sit there and talk about it and then they will cut deals. if they know they have to have a solution, they can find one.

i just wish that our congress was behaving that way. but it's not. >> right. lastly on the debt, right now it -- the deficit fell so quickly between 2010 and 12013 and it's still falling, the debt as long-term issue has stopped casting such a long shadow on d.c. politics. do you think we should be thinking more right now about our long-term debt? or are the problems we're facing in the labor market, up-front problems important enough that they should be on the front burner and we should deal with the debt after? >> it's not a choice. we have a lot of burners. and we can actually cook two things at once. i like to think of the budget situation and comparison to what it looked like in 2010. i choose 2010 because i was on simpson bowls along with judge

gregg, who we will hear from in a few minutes i think, and others. and at that time remember the recovery was just beginning. we weren't sure it would take hold strongly. deficit was very high. stimulus was spending out. we knew that the deficit would come down as the economy recovered and the stimulus was behind us. and it has. it's come down very rapidly. but we also looked ahead and saw this baby boom generation retiring, very big expenditures for social security and particularly medicare and medicaid looming at us and a lousy tax system. so the solution was fix the tax system so it's better and raises more revenue and slow the growth, particularly of the health care costs. that was the right thing to do at the time. if you look at it again now, the same patterns are there but it

looks less scary. long-term future looks less scary and there are two reasons for that but they may not be sustainable. system has olitical cut short -- cut discretionary spending a lot. both in the military and in the domestic side. when you run those out and assume that's permanent, you get very low numbers for discretionary spending. i don't know whether that's sustainable. can we run government at a smaller percent of g.d.p. than we had in 1940? i don't think so. but the other thing we -- that happened and also may not be sustainable is is the rate of growth of health care spending slowed. it slowed dramatically. we're not quite sure why that is true. part of it is the recession and slow growth. and low inflation. but part of it may be that we

finally come to our senses and realized that our health system is very inefficient and some things are happening both in the public and private sector to low the growth of costs. without reducing the benefit of health care. i hope both of true. we're working hard on how do we keep these reforms sustained so we can produce more health care for less money. that's a work in progress. not clear. but that's where i think things are. >> are you worried from a messaging standpoint, deficit hawks are sort of in a position be careful what you wish for? i was talking earlier on another panel, there are a lot of people raising the point in 2009, 2010 we need to do something about this debt. deficits and debt are easily conflated among people whose job isn't to look at c.b.a. reports all day like you and me.

it's easy to confuse these issues and as a result what we got in a way was like the opposite of what they were asking for. they wanted larger deficits in the short term, shorter deficits in the long term and they wanted do this by holding on to discretionar scombrinding because a lot of that is investment in infrastructure, in education and they wanted to cut entitlements in the long term. instead what we got is a smaller discretionary spending as share of g.d.p. since 1940's and practically no exchanges to medicare or social security. did we get the exact opposite of what the deficit hawks were oping for? >> yes. i think that's a good analysis. but the word deficit hawk, and i'm accused of being one, is used very loosely. in other words you really worried about deficits or you didn't. as you say the right policy four ars ago and still i think is

invest more in long-run growth. that does mean more transportation, more skills, that sort of thing. that's discretionary spending in general. and at the same time work to slow the growth of entitlements over time. that takes slowing the growth of health care spending, especially inefficient health care spending and fixing the social security system. and we have to fix the tax system too. i think there's some hope for that but they need a real push to come back to it. i don't think woor going to do a grand bargain. but we might do some of these things. we might fix social security. it's such a sentinel thing to do. we might have tax reform. >> we have time for a few questions. can we have one right there. >> dr. edward burger. ellis addressed the issue of

health care financing. i think i inferred from earlier remarks you made if we had chosen to in fact start anew with a new system rather than add mixed, a system, hybrid system we already have, it would have been easier and by inference maybe we would have had a better system. do i hear your remarks correctly? >> no, not really. i may have been misleading. i said easier conceptly to say blow it up all and start over. there never was a chance we could do that. i'm not even sure that the people who talk about single payer for the united states have a clue how hard it is to run a single-payer system in any country but we're a huge, diverse country with a lot of suspicion of government in our and don't think we're

going to do that and not even sure we could manage it well if we did. medicare is the single pair system. >> very popular one. >> it's a very popular one but it's not moved towards efficiency in the incentives in edicare. why not? because the politics have been against it. it is the politics of our provider groups that make it very difficult to make big changes in the direction of efficiency. i think they're coming around and some good things are happening. but i think if we suddenly -- and it's hard to imagine this said we will blow it up and have single payer system, that we would be really, we don't know ow to do that.

>> sorry, there you are. >> i'm curious about your thoughts about the fact the pace of technological change continues to improve our productivity and we continue to sort of invent things that eliminate whole job categories. and what do you think about jobs 20, 30 years from now? will we have enough jobs in this economy or the population that we have? >> yes, whether he have enough jobs. the question is how good will these jobs be? and that depends on what we do about it. if we have a filled labor force and invest in making our economy more productive, and i think that involves modernizing our infrastructure and upgrading skills and probably other things, we will have higher standard economy than we would otherwise. i'm old enough to have lived rough the cycle of the scare

of somehow machines are going to take over everything or computers are going to take over everything and nobody's going to have anything to do. we go through that every once in a while. it's ridiculous. >> looks like we have a question ack there. >> hi, i'm john cummings. question you mentioned wage subsidies of the earned income tax credit. food stamps would fall into that same category. do you think not just entrenched low wages, could they not help keep wages low by corporate welfare. second as a safety net in general, do you think there should be time limits on how long a safety net is in place? .> well, i may have said wage

what i meant to say about the ietc is it's wage supplement. unlike food stamps, which could e viewed as tied to your income. but the earned income tax credit. you earn those wages and then you get a little more. it's an incentive to work in a way that the other safety net programs, and i'm not knocking them but i think we need food housing we need subsidies for people who cannot afford housing but they're not the same thing. you're raising a very big question about is the safety net too generous? i don't think so. i think it might be better designed but if people are

hungry and people can't pay for the ordinary decencies of life, than i think we have an obligation to do something about it. >> over there. >> thank you very much. my name is jeannie williams. to talk ike to ask you more about the trade deficit and the debt and building with that the impact of health care reform. i know you have done intensive studies on the fact if we don't work on the health care reform, our trade deficit would be tremendous. and also impact of sequestration , is there a way that we can suggest to congress to work on something that sequestration? t.p.p. about jobs and

without other partners, even china. does that affect our job markets here? and to that extent, where do you think it can suggest the democratic party to work under the unions and labor law? a lot of problems converging the inimum wage, labor law and t.p.p. and job markets. >> that's a lot of questions. >> a lot of questions. >> i am pro -- pro trade and i hink you heard from ambassador fuhrman a few minutes ago and he gave the case for moving ahead on trade agreements. i would just say it's another example of my thesis, there's bipartisan support for moving

ahead on trade agreements and we can't do it at the moment. because of the polarized politics. i think that that's a shame. i don't expect a revolution. i think it's very important not to 0 oversell some of these things. i was in the clinton administration at the time of nafta, and i think it was a good thing. and it was bipartisan and the president was courageous in supporting it because he needed a lot of republican votes to get it passed. but i also think we oversold it. the cabinet spanned out and said this is the greatest thing since whenever and it will save the economy. and it's very dangerous to do that. i think nafta's been a success. but it's been a modest success and we shouldn't overrate those things. >> one more question.

right here. recently retired, i'm a principal or whatever. my question is social security. my wife and i are at that stage and we talked to a lot of people. it seems like there are way to maneuver the system to get more and more if you do it right, which doesn't sound right. that i go first and then she goes halftime and it does this. there's a book written on ways to make more money on this. i would love to hear, it just doesn't come right to me, want to do the best thing but i don't want to do something that will hurt others because they can't do it. is that understandable? >> yes. i think so. >> thank you. >> just had a granddaughter graduate from sidwell friends. great school. but i think you can't design any system whether it's the tax system or pension system or

medicare or whatever it is that someone isn't going to right a book about how to gain the system and probably make money on it. and you need to be careful when you're drafting things so that there are not kind of loopholes people can sneak through and get money they are not entitled to. but i think stick with the big picture. social security is an extremely successful program. it keeps millions of older people out of poverty and it keeps their children from having to support grandma and my children are probably grateful on that, that they would otherwise have to do. and it's a very good system. it's well designed. it just wasn't quite designed for this huge avalanche of seniors entering it now. we have to adjust it a little. it's a tweaking thing. and i would do a particular set

of tweaks. ome of which would be slightly lower benefits for people like me of people who don't really need them. i would not take them away. we need to have a stake in the system. but the top-level benefits can be a little less and we should collect more money and we could actually make the system a little more generous at the bottom. and we could fix the way the indexing is done. the president was right about that. but i think it sort of wasn't sensible to throw it up there out of the context of a total social security reform. it fits there. >> great. thank you so much, alice. thank you. [applause] >> former senate budget committee chairman judd gregg said the republican party needs to compromise with president obama on issues such as immigration and tax reform.

speaking at an event hosted by the atlantic, the former u.s. senator from new hampshire also addressed sanctions against russia, financial regulations and the overall u.s. economy. his is about 35 minutes. >> next up, we have the honorable former governor of new hampshire and former chairman of the u.s. senate budget committee. today he is speaking with michael hirsch, competent from "the national journal." please welcome senator gregg and ichael hirsch. >> how about right here? i will be able to focus a little more. you have tor gregg, been known for a long time as

master of the numbers -- >> i think you just had master in the analysis. >> the other part of the capital, hill part. but since i think these people have been pretty easily getting numbers all day long, i want to start out with a purely political question for you. you were one of those who wrote quite refreshingly last september that the republican party was in danger of failing abysmally because of what you called the crelf promotional babble of a few. in enforcing the government shutdown. we have now been through that and it appears leaders of the share hiseast came to view to some extent in terms of resolving those issues. effort to defund obama care and the government hawks you oppose.

i want to get your assessment where you think the government parties now heading into elections, has some balance been restored? >> first, great question. let me first thank the atlantic for this opportunity and it's a great pleasure to be here. nice to be here with congressman harman, who did so much in this country in the area of intelligence and making sure we had strong intelligence community. your question is really one that is very current. the party is going to obviously going through a period in the wilderness and it has to figure out how to get out of the wilderness. i compare it to some degree to the democratic party in the early '70's when the party moved and lurched to the left with the mcgovern nomination and then spent ten years trying to get back and was led back by the democratic leadership council and president clinton and al gore and others who participated in that.

we unfortunately have what i call shouters and narrowers to take the playing field and dominate the playing field for in my opinion too long as a party. national parties, and we have two and should only have two. you don't want a multiparty system in a country our size because people then go to our corners and never leave their corners and it's almost impossible to get compromise. national party must be a very big tent. it's the first step in the mad sewnian form of government, which we have, which is checks and balances of government, which demands compromise, demands that people govern by reach an agreement across the aisle and the way you reach that sort of agreement is you start with the parties gathering everybody under their tents under basic philosophies and that sort of filters up and then becomes the framework for people going across the aisle when big issues come along onto the leadership of the president at

the national level. our party unfortunately as i said, i think allowed too many people who had no interest in governing but basically had an interest in promoting themselves or their ability to raise money to take center stage and dominate. and the best example was, of course, the debt ceiling fight. we used -- i served in senate leadership 16 years as the con singularry to the leader. and we used to have a saying that actually came from phil graham, who had a lot of great sayings. never take a hostage you can't shoot. the simple fact was, you could not shoot the debt ceiling or the continuing resolution. you were always going to end up shooting yourself in the foot if you tried. on two different occasions that was proven to be true. just within the last three years. now i think we have been through that exercise and those folks who basically have been shown to be more concerned with their own

personal -- growing their own perm reputation and raising a lot of money have been shown ineffective in their ability to lead the party and put us forward as a party willing to govern have started to leave the stage a bit. and the party has got its act together. and it understands if it's going to communicate with the american people, it's going to have to show it can govern. i think the speaker of the house has been very aggressive in this area and i congratulate him for it. clearly mitch mcconnell is the republican leader in the senate understands this and has been pushing this approach. so i do believe we're starting to see a party getting much more back to the realistic need to govern as versus just simply shout from the corners. where does this translate to politically? i happen to think if not this spring, then certainly in the next congress, which i suspect may have a republican senate. the republican party is going to have to govern by reaching

agreements with this president on core issues where everything can be reached. the obvious ones are first immigration. second, gse reform, which most americans don't really care about, which is fiscal policy very important. third, potentially tax reform. and this fertile ground for agreement there and i think we can get it. >> what changes the political dynamics? let's assume that the election does yield a republican senate as well as house. is the tea party gone? is it on the run? i think ted cruz would disagree with your assessment he's about to leave the stage or has left. >> i don't think he's left the stage and i don't think that that segment of our party will or should leave the stage. they're a very important influence on policy. but i think those folks who understand that you cannot speak to the american people unless you explain to them how you intend to do something positive. you can't always be postured in the negative. you have to be at some point

posturing yourself on the positive on issues that affect everyday americans in their everyday lives. those folks within our party are going to take the basically the dominant role. i do, as i said, i see three issues where you have opportunity to have that type of consensus reached. you don't have to give up your philosophical beliefs in order to reach agreement with the other side of the aisle. gene harman classic example of that. you can reach agreements across the aisle, which are important to making america stronger and better governed nation. without giving up basic core beliefs. because there's a lot of identity of interests in our nation, most of which comes down to having people have process life and pass a better life onto their kids. >> let's talk about that fertile ground you just referred to. you wrote recently that you saw a few lights at the end of the tunnel that were not trains oncoming. d you cited the democratic

senator taking over senate finance committee as opening the door at least to dynamic scoring. you cited tax reform plan that republican congressman dave camp has put forward. you also cited chuck hagel budget. do you still think those are all realistic? obviously, the ground has shifted a little bit. widen i think has gone back on what he said and we have now as sarah palin famously put it putin rearing his head, raising questions about whether we want to pair down a defense budget as we once thought. address those if you would. >> well, yes to all three. i think first off dynamic scoring is dangerous grounds to step on as former chairman of the budget committee or ranking member, i always defended the right of c.b.o. to be irrational, which they are, on all sorts of scoring issues. there's no relationship to common sense or what the practical effects of doing something are on the people's

reaction in the economy. but in tax policy, some things are very obvious. one of which is that if you ask people to invest or you tell people or create a tax law which tells people to invft for the purposes of avoiding taxes as their primary goal, or you tell people to invest for the purposes of getting better return on their money as primary primary goal, you will get a better and stronger economy generating more revenues if you have people moving in the direction of investing for return as opposed to tax reforms. that is my view of the world. the fact that you have a progressive and a conservative viewing things in this context and a lot of other people of those ilks, dave camp, for example, that's good news. i think that at some point, cbo on some level will have to acknowledge that. that is important because you can't do a grand bargain on the

budget -- you can't even do a mini grand bargain on the budget unless you reform our tax laws, reduce our rates, eliminate exemptions and generate revenues along the lines of what simpson-bowles proposed. dave camp's plan is a starting point, he steps on just about everybody's toes and that's the way you have to start tax reform. i was on the ways and means committee in 1986 when this was done between president reagan and rostenkowski. remember, it did not start with reagan and rostenkowski. it started with bill bradley and jack kemp and took a while to bubble to the surface. they started to talk about major tax reform in 1982 and 1983 and it was not enacted until 1986. we are further down the starting point than usual because you have the chairman of the clore -- core committee and widen, the

chairman of finance who put forward his proposal so the opportunity is there. it should be taken. and it requires quite honestly presidential leadership and if president obama wants to have a legacy, reforming the tax laws may be a good one. the third issue of what secretary hagel proposed in defense spend, he didn't just propose cutting defense spending significantly. level funding it. what he proposed was thinking about it in terms in which -- which it hasn't been thought about since the end of the cold war, which is what are the threats and how do you respond to them 1234i cited, for example, eisenhower's great fare well speech, where he said the biggest threat to national defense is the defense industrial complex that fights the last war and certifies the defense community as a result of

that i disagree with some parts of it but i think the concept of thinking this way is important. the main emphasis should be on the threat and the threat toward us, for our nation, is a terrorist using a weapons of mass destruction against us and they are not nation state terrorists. they are asymmetrical. so you have to find them in a different way than you fight another nation. and that requires massive intelligence gathering capability. and he is committed to that. secondly, once you find them, you have to find the ability to deliver lethal force to them. that requires certain types of military structure, certainly a task force and a deliver force. does russia and crimea change this formula? are we going to fight a land war in europe? no. it's not going to happen. we are not going to engage militarily with the russians on the issue of crimea.

the historic roots of crimea go back to peter the great. we have leverage there that we haven't effectively use bud it's not military leverage. i think what secretary hagel has done is opened a discussion on how to approach defense spending in the post-cold war period that should have occurred before 9/11 but definitely could have ooccurred post-9/11. >> i don't want to stay on ukraine but what should obama have done? >> he should have gotten the european union and use what we have, which is considerable leverage over the european union to aggressively assert sanctions. there should have been a no holds barred sanction effort put forward by the president, get the european nations, which are obviously concerned about their gas supplies, but make it clear to them, they can be concerned about the gas supplies or they can be concerned about our

friendship. we have much more levranl than the russians have in bringing them together to assert what should have been very, very aggressive sanctions. sanction 20g people? that's like sanctioning the board of aldermen in chicago. it's an absurd -- it's embarrassing. and i think this was the -- i think it was the wrong approach. >> back to the budget. it seems to me that the last time there was a remotely reasonable discussion in this town was the simpson-bowles commission report in 2010, 2011. you approved the work. obama did not really embrace it perhaps enough. design your perfect budget that would be close to ideal but passable by both parties in the sort of bipartisan way you have proposed. give us the key elements you think would work to address all

these issues, slow growth, debt, deficit -- >> i was on the simpson-bowles commission, and the irony of that commission is that both parties in the senate and put the three most fiscally conservative republican norths were on it and the three most liberal democrats were on it and we still reached an agreement. from 20,000 feet, you don't want short-term austerity. you don't need it. it would slow the economy. what you want is a glide path that shows in the second and third decades, you have bent the curve of spending so you have your debt to g.d.p. ratio lower than 70%. our debt to g.d.p. ratio until 2008 was about 35%. very strong position. it jumped, doubled in four years

by 2012 and it was at 60%. now it is at 74%, heading to 100%. to put that in context, our debt to g.d.p. ratio, there are only five countries that have worse debt to g.d.p. ratio, one is japan who can self-finance because they save so much, so it's not a big issue them. the second is iceland, bankrupt, greece, bankrupt, italy, nobody knows what they're doing, nobody knows how they keep their books but we're pretty sure they're bankrupt. the fourth is ireland, then -- the fifth is ireland, then the united states. all the countries in front of us have fallen, except japan, which has a unique situation of massive domestic saverings. we are on the wrong path. we have breathing room because we're the currency of the world and the world looks at us and says, the united states solves its problems. and we do solve our problems. so they should have that onfidence in us.

at some point, someone will wake up and say, i just let the united states $100. 10 years from now, they will not be able to pay me $100 back. they will pay me dollars so it's only worth $70 or $80. so we'll have to spike their interest rate significantly. that will come. you can't get around that if we continue to borrow money that we cannot pay back without inflating our currency. how do you address this? simpson-bowles put the template down. i think you need to give credit for what has been done so far. think of it as a three legged stool that you address the budget issue with, the deficit issue. one leg is discretionary spending. one is entitlement spending. the third leg is revenues. the entire discretionary side has been done. $900 billion of savings in the 2011 agreement. $1.2 trillion under the

sequester, assuming it holds. that discretionary has been done. revenues have been raised $600 billion. that is a big number. it was done incorrectly. it was done by just raising rates, should have been done through tax reform, but that's a big number. what's left on the table to do? entitlements and in the entitlement accounts there are only three that count. medicare, medicaid and social security. the united states has historically spent 20% of gdp. those three accounts alone account for 20% of g.d.p. by about 2025 and they're still going up, because of this massive demographic shift. they're all related to aging. we're going from a re-- because of the baby boom generation we're going from 35 million to 75 million retired persons and the system doesn't work. we have to adjust our entire entitlement programs. not in any draconian or dramatic

way that affects present recipients. but in a way that 10 years from now 20 years from now, 30 years from now you bend the cost curve. simpson-bowles suggested raising the rate of retirement by two years, but we took 60 years to do it. so it didn't affect anybody over the age of 15. we can handle that as a couldn't i. -- country. and the president suggested changing the way we calculate c.p.i. and the house didn't take it. that was the best offer on the table for fiscal responsibility so far. so there are ways to do this. >> and these are all feasible with the new politics? >> no. unfortunately, i don't see a grand bargain coming down the street. and i don't see a mini grand bargain coming down the street. i see bits and pieces. medicare will be adjusted in a way to bend the cost curve in the out years to move -- by

moving to an income based system and a system that caps cost. bill it be debby some grand scheme? no. >> i want to open it up to questions. but one last point. i wanted to ask you about financial reform. you were very involved in 2008. you spent seven months as head of the major financial industry lobby. what's your basic assess se -- assessment of where we are now? do you think the too big to fail problem has been involved or not? what about the volcker rule. we haven't heard from you in several years on this issue. just briefly. >> dodd-frank has not accomplished its goals in the send that it was supposed to stabilize the banking system in a way that allowed more liquidity in the marketplace. it's doing just the opposite. it's contracting liquidity, contracting lending and pushing a tremendous amount of activity into off balance sheets, nonregulated entities.

has it solved too big to fail? i think it has. capital requirements are stiff and good. you didn't need dodd-frank which has produced $20 -- which has produced 20 million words and we have a new regulation every 2.6 days or something and we're only 40% of the way through it you didn't need that you needed tough capital requirements and that would have solved the problem. to a great extent. the issues that created the problem in 2008 were failure of underwriting, securitization, and as a result of that, lack of capital behind those two activities. volcker, thousand-page proposal from an idea that makes sense in concept but can't be executed in practice. it is almost impossible to separate market-making from the

structure of how a bank works in a way that will be clear enough so that you don't end up with massive regulatory oversight which kills the market for market-making. our nation's great -- one of the great american advantages is, and it really is unique to our nation, is that if you are a person who has a good idea and you go out and take a risk and start to grow that idea and hire people and create economic activity, a whole bunch of people will come along behind you and give you money to do it. it's called stocks, it's called bonds. no place else in the world does this happen the way it does here with twitter and facebook being the most recent examples. and we're undermining that in my opinion. >> we also cost the economy $50 billion in 2008. >> no question, it needed to be addressed but the way it was addressed was in a way that had very little relevance to the underlying problem and in the end has produced -- will produce

a lot of problems for our capacity as a market to be as competitive as we were before and to be as vibrant as we were before. that's one of the things drags the economy a little bit. >> let's open it up to the audience. this lady right here in the black hat. i believe it's black. >> my question to you, senator, and as far as i'm concerned, you are still a good senator. could you address the situation with russia right now where our big is on mobile has a major deal with that major elephant in russia to do major drilling in the arctic. and become so huge. and what that will do in terms of affecting us as we might change our tax code, so exxon has to pay its dues.

>> i'm not familiar with that specific issue but obviously russia has massive oil reserves and gas reserves. one of the levers we have to put pressure on them is our technology, because they can't get it without our technology. if you're talking about ways to put pressure on russia, you should talk about putting sanctions on the ability of our technology but you have to do it on other nations that have that type of technology, to be delivered to russia. this is where i think this administration has failed. they have not been aggressive enough in gathering people who have some capacity to impact the russian economy in making sure we do it in a coordinated way. as the specifics on exxonmobil and their investments there, i don't know anything about it. >> the gentleman here. >> john schilling. you mentioned the importance of providing more tax incentives

for investment, it would be useful for you to clarify that. things like the capital gains tax is really not by and large promoting new investment but supporting long-term gambling on the stock exchanges as you buy existing assets and carry them forward and sell them or the interest carry forward tax benefits for people who do a lot of active trading with hedge funds. so what are the kinds of incentives you think are important to promote real investment, that generates more productive capacity and jobs? >> i am not a big fan of incentives. i don't believe in industrial policy, whether supporting a group like solyndra or the tax laws. i believe what you do is reduce as far as you can the deductions and exemptions in the tax laws and bring the rates way down. in fact, you bring them down so far that you really don't need any capital gains differential. or dividend differential.

your top rate under simpson-bowles, we had three rates, i think they were 10%, 15%, and 20%. when you do that, people don't invest any longer for tax purposes. they invest for the best return on their money. that's the best industrial policy. because that means you're getting the most productive use out of that money and it will probably jeb ration more revenues than a tax law that gives a lot of exemptions and has right hates. in fact, i'm sure it will. that's my thumbnail answer as to that. >> yes, sir, back there. >> thank you for coming today. my name is arnold king and i own king consulting solutions a business consulting business. my questions are, what can a get the issue- to

can they fity, how the economy this year and in 2015 because talking about obamacare is not enough. e need to get back to our, get back to -- to our talk about the economy and what can we do about the economy onward? what can business do to improve ?he economy >> great question, how do we get the economy going? i believe the united states is on the verge of massive economic expansion. probably as large as we have ever had in our history. it will be driven by four basic factors. the first and most important by

far is the new energy paradigm where for the first time since the 1950's we'll be an energy exporter instead of an importer. more than that, we'll have an incredible competitive advantage over other industrial nations a ause our cost of energy by fact of two or five or in the case of japan seven or eight times less. nothing translates to an economy with more aggressiveness -- we are not just talking about oil and gas. we are talking about everything in the economy being impacted in a positive way by a lower cost of energy. we discovered massive capabilities in energy and this will translate into a huge economic opportunity for us as a country. the second thing we have going for us is that we are still the place where great ideas come from. whether it is twitter or facebook or tesla or, in my part of the country, biomedicine, we are the creative people and we are creating these ideas. the third thing we have going

for us is that there is a massive amount of capital waiting on the sidelines to invest in these ideas. so you have a lot of people who are willing to follow and take risks with their money, through pension funds and whatever else, on people who have these ideas. and the fourth thing we have going for us is we are an inherently entrepreneurial people. we are still the best place to come if you have an idea and you are willing to risk and put your sweat into it and grow your opportunities. that is just our culture. what is holding us back? the only thing holding us back is our fiscal policy, the fact that we are running these deficits and debts that put us at risk on the fiscal side. i happen to think we will straighten those out. i hope it will lead to a deprand bargain like simpson-bowles, but i think incrementally we'll get to it. we will get tax reform and we will get medicare reform which is really all that there is left to do.

so i am pretty positive about america's future and our capacity for economic growth. a lot of it is coming. 90% of it is coming because of things washington is not involved in. >> we have time for one more uestion this gentleman here. >> yes, i'm barry stern. i'm an education and work forest development advisor to the haberman educational foundation. my -- worldwide, he was reminded of this by the professor this morning, we talked about a great economic stimulus being babies. that would be true in the united states and maybe russia but throughout most of the world there's too many babies. the demographic pyramids look very different in developing countries. that translates into tremendous

unemployment throughout the world. there's a lot of angry young men, especially, around the world and the numbers are enormous. do you see any kind of geopolitical threat of lots of young men unemployed, primarily in developing countries, and are there any u.s. foreign policy initiatives and defense initiative this is a ought to ake these things into account? >> well, that is a very legitimate concern but it is not one that we as a nation or our government can do a heck of a lot about. their is no question that a lot of the radicalism in this world is driven by the fact that there are large numbers of young people who don't have much else to do but be radical. and that is especially true in some of your countries which are feeding the islamic fundamentalist movements. what can we do about that? probably very little. we cannot solve the worlds problems of unemployment.

what we can do, however is have a vibrant national economy and to the extent our economy is vibrant that does help the world. i saw some statistics somewhere about the implications of wal-mart for the rest of the world's employment, it's massive. the simple fact is, as our economy is growing, we bring a lot of people with us. the best way to make our economy grow is to highlight our strengths and our strengths are innumerable. we are so well-positioned as a country, it is staggering to me. i don't see any way that we aren't going to grow and be extraordinarily prosperous. the only thing that will stand in our way is our government. and our government will not stand in our way that long because it is full of people who are wanting to do what is right. they'll get it right after a while. it just takes a while. they'll make a few mistakes first. as winston churchill said, democracies will get things right after they have tried everything that is wrong.

we're in the process of trying a few wrong thing bus we are still moving in the right direction. we are still of the biggest and most prosperous nation in the world and the best place to live. and as we grow, the world will benefit. that's my answer to that question. >> on that high note, relatively speaking, thank you very much, senator. >> also from tuesday, an interview with former fdic chairman sheila bair. she addresses the economy, the dodd-frank regulations law and the housing economy. this is 45 minutes. >> i just googled our next guest

and when people search for her they search for timothy geithner. there's a story there. much of the story was written by sheila in a terrific book about the global financial crisis, the subprime crisis, a wonderful book called bull by the horns, fighting to save main street from wall street and wall street from itself. without further ado, please welcome the honorable sheila bair, senior advise i don't have of -- advisor of the pew charitable trust, and in a conversation with her, debra of "the wall street journal." >> thank you, chairman bair, that's how i will always think of you.

you did this conference last year and at that point you said a lot of the dodd-frank regulatory reforms had yet to be completed, we weren't at the end point yet and one of the thing this is a jumped out at me is many of the things that you ticked off at that point, leverage ratio, minimum levels of long-term debt, some of the things we wanted to put in place to prevent the banks from collapse, still haven't been finalized, are still in the discussion stages and i guess i thought as an opening question, where are we now, six years post-financial crisis, how far have we come, how much better is the financial system protected than it was previously? >> it is better but it's taking a long time. i think by the numbers, dodd-frank is about half finished. really important issues -- measures like increasing bank capital requirements, which simply reflects how much of their balance sheet, how much of their risk they need to have in equity as opposed to debt.

those are important. they have been propose bud not finalized yet. and there's an issue about long-term unsecured debt which can be triggered in a resolution to absorb losses if they fail, so make sure after they fail there's loss absorption capacity so you don't have to end up assessing the rest of the industry for their losses or go to taxpayers far bailout. those are two good examples where regulators have been talking for a long time about getting them done, act knowledging they need to get done but we haven't gotten over the finish line. i think through the stress testing process, there is more capital in the banking system now. the numbers i have seen, it's been about a two percentage point increase in capital ratios. that's good but you know, considering where we were prior to the congress, it's not nearly enough. ironically a lot of it comes from merger and acquisition

activity, not regulators forcing them to raise more capital. if you look at their off balance sheet, their capital levels are only 3% to 4%. if you're an auto manufacturer with only 4% equity would you do business with that company? robably not. it's frustrating to me this hasn't been a bigger priority. another priority is loss reserves, prior to the crisis, their coverage ratio, the nonperforming loans was over 100%, now it's 65%. and of course they've been releasing reserves to drive earnings. that makes shareholders happy and others, they can report earnings, but assuming these are the good times you should be building those reserves up.

we passed the point at which they should be releasing them, and that's an area of concern. i would say it's a bit safer. there's less reliance on short-term funding, still too much but there's been incremental progress. but it's not enough. we need to get these rules done. >> the banks sort of suggest that there's been a piling on that regulators are never satisfied, that they're continuing to talk about new things and adding more layers of regulation and capital requirements and i guess i wonder, what are you going to look for to say that either the too big to fail problem has been resolved or the financial system really is as protected as it can be knowing that regulation can't top every crisis or problem. >> i agree with them to some extent. regulation has been a moving target. there is a sense of an overarching policy objective. to e, i think there needs

be much tougher capital requirements, not these ratios that are easy to game. then also very aggressive regulatory action to make sure that they can, they do fail, they can be resolved in an orderly way in the dodd-frank process. that means they need to simplify legal structures, organize those along business lines, have more , nd alone capital liquidity that work has barely begun. i agree with you that some of this stuff has been a moving target but on others there's been a consistent theme. leverage has been one with its reliance on short-term fund regular solveability, the regulators need to move more aggressively on those fronts. even the bailable debt, we need those minimum rules in place but they haven't been proposed yet. >> for those of you who have read sheila's book, you know she was not the biggest fan of one

big bank, citigroup, basically said they wering my managed and the rest of crisis, they were one of two bank this is a needed a big bailout from the government besides the regular tarp program. there were various points of discussions about whether to remove the c.e.o. and at that point, it was big ram handit he, didn't go until he eventually did and you applauded that. the company is back in the news because their mexican subsidiary has been in the news about money laundering, whether their subsidiary was doing fraudulent business, it raises a question. are these banks too big to manage. when you have a global bank with far flung operations across the globe is it just too much? is it not the size but sort of the complexity that's the problem at this point? >> i do think, first of all, fraud is very difficult. we don't know all the facts about whether that should have

been discovered earlier or not but fraud has been a perennial problem. it affects even the -- it vexes the best of managers and regulators. you need to take that into account. citi's a much stronger bank than they were prior to the crisis buter that complex organization, anaged centrally at the top. i recently joined the board of a spanish-based bank that has worldwide operations, but they, like others, bbva and hsbc, foled -- followed a an approach where in each country you have major operations, you organize it separately, it has its own managers, boards, and capital liquidity. you can make mistakes with that model as well but then i think you're more a conglomerate a

collection of small, regional banks, as opposed to trying to manage everything centrally at the top which i think is extremely challenging. as regulators proceed with getting these large bank into resolveable forms in way this is they can be broken up in an orderly way if they get in trouble,ic will be more resolveable in the long-term. we saw this problem with j.p. morgan chase, bbva has had its problems as well. you look at wells fargo, they're not perfect either but they have a more straightforward model. it's a simpler institution to manage but they're getting into securities activity taos, so we'll see what happens there. i do think it's simplicity and -- it's complexity more than it is size and having more stand alone entity this is a have their own boards and managers is a way to tackle that problem.

there's some benefits with a global presence. if the u.s. is having problems and the emerging markets are doing well, you're in better shape than if you're just in the u.s. but the management channels are substantial. >> citigroup is now known as the new goldman zach. they have top officials in -- goldman sachs, they have top officials in washington. we have secretary lew, stan fisher, nominated for the fed, nashan -- nathan sheet, another treasury official. does it help to have people in washington who have experience on wall street? or does it hurt at this moment when we try to figure out how to rein in the banks? >> i think it's important to have diversity in your economic team and among your financial regulators. i think it's important to have diversity of perspectives, backgrounds, gee og fism so yes, when you start having a lot of people with very similar past

experiences, perhaps your team isn't as strong as it might otherwise bfment i think there's also an optics issue. it's all about the individuals and you know, all the people you named are fine individuals. but there's an optics issue too that i think we need to be sensitive of, especially since there's so much public cynicism after the crisis about government and its relationship with the financial sector, to be sensitive to that and make sure there's good diversity and you know, that you have people who are identified more with reform and public protection as well. you know, the white house has a prime opportunity, they have one more vacancy to fit. i would love to see them put a real reformer in there, somebody republican, g, a republican supported. he was strongly supported, he's currently vice chairman of the fdic. known for his strong support for reform, strong opposition to too

big to fail. having somebody like that, a go-getter who the public trusts as a reformer would add diversity and also bolster public confidence system of i hope they look at that last remaining vacancy as an opportunity to put somebody reform minded and associated with protecting the public. >> you mentioned j.p. morgan. i wanted to ask you, you had written a column for fortune in which you said you thought there was a lot of piling on going on. jamie diamond was being unfairly blamed for every sin, all of a sudden this company, that was the teflon bank, you know, everything was sticking to it now. every kind of possible allegation was being leveled at j.p. morgan. i would love to hear more about that, do you think it was sort of, the regulators sensed weakness and went after them or were they a big bank with a lot of operations that spawned problems? >> i think they made plenty of mistakes. the actions were more than

justified but it did seem like there was a particular focus on them. that's how it struck me. that's how it struck a lot of people. i think that regulators and others who enforce our rules need to be mindful of the kind of signals they send if they decide to, well, we're worried about one of these guys getting in too much trouble, we'll go after the one with the deepest pockets because they can stand it, if that's how you manage your regulatory philosophy, you give disincentive to banks to be strong, which you don't want. i do think it's something that regulators as well as the justice department and others who are charged with enforcing our laws need to be mindful of. i don't quibble with any of the suits. everything -- they had grounds. i think they was prioritization, maybe there were other banks doing the same thing that were not subject to the same kind of focus. but we do need to be mindle of -- mindful of the kind of signals and enforcement actions just like regulation should be

designed to change behavior and if the signals are confused, so are they being picked on because they're strong or because they did xyz? i think government needs to be clear about the activity that's being punished, why this is being punished and go after other institutions if there's more than one institution doing it. >> in your years of regulating banks, you've joined a bank. i was curious to hear your thoughts about why that bank, what you hope to bring to the table as an independent director but also you've been a critic in the past of european banking system. i think you said some of the banks were undercapitalized. in the early days there were concerns they were gaming their own stress tests. i would love to hear a little bit about the strength of the european banking system at the moment, whether you can they're better capitalized, less of a risk to the world's financial system than they were? >> i think they're making progress. i'm delighted to see that the e.c.b. will be doing quality review now, so they're taking

that stress testing process over and they're already seeing results. banks are starting to clean up balance sheets already before the review takes place. that's all positive. i think there are several very large, complex injure peen -- european institutions, big trading operations, that have been operating at like levels of capital. excuse me, very high levels of leverage, low levels of capital. part of that the rules need to be strengthened, the capitals need to be strengthen in europe. they don't have regulations. y rely on risk-based measures. if you have large trading operations, you can really lowball your capital with the complex modeling that is going on to determine the riskyness of your trading assets. i do this -- i do think this has been a problem. they are improving. it's been a drag on the european economy. well capitalized banks with

doyle more lending than more leveraged ones. i will say, you see the same dynamic in the u.s. if you have a bank primarily in the business of making loans as opposed to trading operations, they'll have, if you look at their capital on a leverage basis, equity to foe total assets, they'll have much higher levels of capital. that's the way it works now. if you've got a big trading book, you can have high levels of leverage. if you make loan the rules are tough. >> when you look at the exposure of the u.s. to the european banking system what do you see? are we better protected now than we were? >> i think -- i'm strongly supportive of the foreign banking organization rules that the fed recently finalized. you look at the very thin capital levels of some of the larger institutions in europe and you have to question what ability would they have to serve as a source of strength if we

got into another situation. in point of fact, their operations in the u.s. and the fed in particular was operating as a source of strength for them, the money was going that way, not coming into the u.s. the reality is, you get into a stress situation, the likelihood is assets will be there. if european bank a is in trouble in europe, to think that the fed will convince the foreign regulators of that bank to send money here, it's not going to happen. so requiring that they have, again, their own stand alone capital and liquidity, this is a model some banks follow already. their own capital and liquidity here in the u.s., regulated by a company with its own board in the u.s., that makes for a more stable financial system and provides an additional level of protection if europe has problems. if it goes the other -- it goes the other way too, if the u.s. subsidiary starts having

trouble, its segregation from the company in europe prevents these problems from going to europe. >> you need all regulatory regimes to be on the same page and doing similar resolution planning and similar plans? >> optimally you will. last lot of that that goes on already. not as explicit as what the fed did. but it's a reality if you get into a stress situation that's what's going to happen anyway. it's not quite formal. i would like to see the global financial system migrate to that kind of structure. it would make the -- they want to be large for the diversify case that brings but make them have subsidiaries. >> one of the thing this is a triggered financial reform was not a bank, but an insurer, ample i.g. it was if not the impetus, one

of the impetuses for dodd-frank. there was a gap, these large insurers had become more than insurers and nobody was policing them you said a.i.g. had not been designated an important financial institution, it now has which gives the government the right to regulate the company. but there's a huge lobbying in the works by the industry to try to get the fed to go easy on them, to not apply the same capital rules and other rules to insurers. they're saying we're different than banks, don't regulate us as such. there's a lot of support for that on the hill. janet yellen says they're sympathetic to that but their hands are tied by the law. you wrote a letter that said congress should stay out of it. what's your thoughts on this? >> for the regulated part of the insurance, we're talking about big insurance conglomerates. that's what people are worried

about. for the pieces of those conglomerates that are subject to robust state insurance regulatory regime, that should and already does have discretion to defer to that capital regulatory regime but if they're doing things outside of that regulated insurance, like credit default swaps in london, for example, then they absolutely should be subject to the same capital rules and other standards that banking conglomerates doing the same activity are subject to. and even insurance companies,ic the fed should have discretion and does to defer to a state regulatory regime it deems adequate but where do you think insurance companies put their dollars? they have mortgagebacked securities, bonds, sovereign debt, corporate debt, commercial loans, real estate loans. these are things, this is where they put their money. so the risk, whether it's a bank

making a loan or an insurance company the risks are the same. to suggest that oh, we -- because we're an insurance company we don't need capital rules, that's just not right. we need a more thoughtful dialogue. i worry that so often, these deregulatory movements can get started with sound bites. now the sound bite is, oh, we can't have bank-cent rick rules applied to -- bank-centric rules aplied to insurance companies. whether you're a bank or an asset manager, you can expose your stake holders, whether it's policyholders or depositors to harm if you're overleveraged and get yourself in trouble. if you're systemic you can expose the rest of us to harm. it needs to be dealt with. just because they're an insurance company doesn't mean we don't need additional protections. >> i'm not going to get to my next question because we're going to q&a. if folks have questions out there. think there's a mike.

>> given your experience at fdic and what you were just talking about with the mega financial institutions, how would you feel about putting up an insurance program like fdic that applied to the mega financial investment institutional companies, maybe the mfiic, that requires home to pay premium based on their size and degrees of leverage so that when a crisis comes up, and they have to be build out by the public, much more of it is covered by insurance than just by this public. today they're essentially getting free insurance as they have been for decades and there have been hundreds of billions of dollars spent bailing out financial institution this is a took excessive risks and they didn't pay anything for it and they got brought back and made

more profits until they caused the next crisis. how would you feel about having a much broader financial institution insurance program that they had to participate? >> well, i actually would go the opposite way. i think we need more market discipline. i have not given up on market discipline. i think clear rules, this is what the long-term debt requirement we're talking about that says, shareholders, bobbed holders, in this institution, or uninsured depositors going as far down as you need to to impose lesses so that their stake holders, their creditors will be subject to laws. and taxpayers will get involved. if that money still falls short, the rest of the industry will be assessed. that said, we had tried to get a fund a prefunded reserve through dodd-frank. we got it passed through the house. $150 billion fund. the idea was not to provide insurance but working capital.

you need to provide liquidity support to these institutions as you unwind them system of this fund would have been there to provide that liquidity support while any ultimate losses would have been imposed on the stake holders this d, the shareholders of the institution. we got that through the house. we couldn't get it through in the senate. i go into detail in my book as to why. quite disappointing. the administration did not support us. secretary geithner worked with several republicans actually to kill it. it was called, ironically, it was called a bailout fund system of this is an assessment i wanted to impose on institutions above $50 billion. it would be risk-based, got a lot of leverage, short-term funding, you'd pay a higher fee. it died in the senate. they called ate bailout fund and replaced wit a line of credit for treasury to provide the working capital, which is kind of silly, so there's washington for you. i would provide working capital.

we've got safety nets too big for them already. what i've been looking for and what i think we successfully got into dodd-frank, even though it's not a prefunded reserve, is to make sure the creditors of the institution know they're on the hook for losses and get more market discipline on them. and there are harsh rules in terms of firing boards and managers and three years compensation which will discipline management a bit. >> i'm a medical and social science researcher and i reviewed your book and i highly recommend it, it's a wonderful guide for explaining these complex issues as well as activism. i have three question, can you comment on senator warren's 21st -century grast-steagall act and

the efforts to restructure fannie and freddie and i don't know if you can say anything about ed demarco, i've heard that he's a hero in a sense, doing this job, trying to protect our money, whereas he was vilified by senator barbara boxer. and the last question is, one of our gubernatorial candidates in maryland is trying to few forth a foreclosure moratorium bill. is that something you think is a good idea? how might you craft it? and is there any way of going back in the last four or five years to try to help people who didn't get help but were swindled? thank you. >> a lot of questions. so warren-mccain a bipartisan bill i have suggested in my book that we accomplish that through a press process that requires market making, securities

banking activity, all be separated in stand-alone subsidiaries, autonomous from each other that have their own specialized boards and management. i would be happy to support the bill but i don't think it has traction. on g.s.e. reform, look, i think we subsidize housing too much. i would like to -- i know what i want is unrealistic. this town loves housing and we're going to throw housing subsidies to that sector until the day i die. i would like to see, just withdraw. let the mark decide how much capital to allocate to home finance. i think we skew too many resources in that direction. there are other areas of our economy that have been hurt in the process. that said, if they're not going to do that, i think the approach built on the warner-corker bill, to have at least if you're going

to have a government guarantee, make it explicit, charge for it, don't have the g.s.e. model where you're backing a for-profit, publicly traded entity, that was a bad model and one we should not revive. ed demarco used to work for me at treasury, your description is correct. i think he was unfairly vilified some of the things he did. he was following statutory mandates. he didn't have agendas. he had certain obligations as conservator of fannie and freddie, he did great work there and was pretty harshly criticized. i think we do owe him a debt. the foreclosure moratorium, that conversation would take a lot longer than we have. it's sad we've never effectively dealt with that problem and i think that's dragging our economy. the housing market is not really recovering the way it should and that's frankly because we never dealt with those under water mortgage, the distressed boar erowers, never dealt with that.

>> time for one more question. anybody? >> hello. my name is michael, i'm an economic historian with "e.i.r." magazine. the fdic, this last week, announced that it's going to sue the 16 largest banks for the libor. i think that's great. you're not the chairman -- chairwoman now but very happy to see that. does this indicate that the federal government's finally able to defend its interests with as much aggressiveness as j.p. morgan and wall street have tried to defend their interests? second main question though is, on this issue that thomas honig, as you said, on february 24 of this month, he put out his latest warning saying the derivatives bubble is grow, banks only have 4% of equity ratio to their total assets and

even with the decline in the value occurs that much you'll have a wipeout of everything and he said that bailing won't secure a banking system in a crisis because it's not going to be just one bank you can resolve. he was on a panel with you about six months ago in congress and michael capuano from massachusetts said, if you were in our shoes would you reinstate glas-steagall? he said yes, that's what i'm trying to tell you. what gives? how come it's taking so long to get this through? why as he just said is the elizabeth warren-mccain bill going to take place? we can't wait until the next crisis, it's going to be too late. as honig said in that address, you'll be bum rushed into another bailout if you don't put this in place. and lastly, he definitely should be on the federal reserve board. i'd vote for him for president, thomas honig.

>> so the libor suit, i think it's important to understand what that's about. i think -- i also applaud the fdic's courage in bringing that but they're acting as receiver. the fdic is not the regulator of large banks that do this. the fed on the u.s. side, these are not done inside insured banks, they were done in holding companies, outside insured banks but that's their primary regulator. the fdic found a hook to come in as receiver because under the theory that by manipulating the libor rate some of the bank this is a failed had losses, lost money on their loans because if the interest -- if you manipulate the interest rate down, you're charging lower rates on your loans, if you are on the losing side of an interest rate swap it would cost you money too. but their authority is limited to recovering what they can show

the libor manipulation cost those failed banks. it is one additional tool that's used and should be used, and i applaud them. but they are constrained, they're acting as receiver, they're not enforcing the law, but claiming damages for failed banks that were insured by the fdic. tom honig, i think he's great, he's a great public servant, smart, understands the financial sector, committed. again, i think -- you want him as president, i'll settle for getting him over at the fed. we need more people like that in area, you need people making the arguments, driving things forward, inertia can take this over. i think there's been a delay game here thinking that the longer dewe delay rules, the public will lose heart, people will get frustrated and go to other things and leave them

alone. and they have tremendous power. look what they're doing to poor dave camp. you can agree with that tax or not but this is unseemly, all these bullies piling on him and why -- there's nobody on the democratic side defending him. at least he stepped up. i don't get it. it's unseemly. but there are, you know, members of congress who sign their names to letters aligning with him and it doesn't seem to have any repercussion in their home district so this is one of the reasons i wrote my book, people need to take notice when this kind of thing goes on, find out who is doing it, tell them you don't like it, you're not going to vote for them if you see them doing it. otherwise all the money in new york, the financial sector, comes in and influence -- exercises influence. if voters don't provide a counterbalance, you'll get what you have now. >> thank you. we squeezed a lot into that.

>> the health care problem in the united states is going to continue and it's not going to go anywhere. if we do not deal with the issue of innovation, if we do not translate all those findings that occur at the university level, into health care products which are affordable and that treat disease and cures them and as long as we do not understand diseases, their causes and how to treat or cure them, there's no point in talking about the solution of the health care problem because health insurance coverage is going to provide health insurance but then when it comes to drugs, when it comes to the premiums, when it comes to subsidies, where are the subsidies going to come from? from taxpayers' money. it's not that people are going to just get the dollars out of the trees. people have to pay for that. and there's a limit. the economy is basically the

science of limitations system of if we don't deal with a better system of working on prevention, of working on understanding, how we could take care of our own health, then there is no point in just having health insurance because what is going to happen is what happens in colombia right now, people are covered, like what happens in panama. everybody can have access to health care or what happens in europe too in which people are covered but when it comes to medications and when it comes to drugs, governments are having problems affording them. >> the future of health care, sunday night at 8:00 on c-span's "q&a." >> c-span, for 35 years bringing public affairs events from washington directly to you, putting you in the room at congressional hearings, white house events, briefings and conferences and offering complete, gavel-to-gavel coverage of the u.s. house all as a public service of private

industry. we're c-span, created by the cable tv industry 35 years ago and brought to you as a public service by your local cable or satellite provider. watch us in h.d., like us on facebook >> microsoft founder bill gates poverty.ut global president obama announces new economic sanctions against russia. then a preview of the president's upcoming trip to the european union summit. later, the special inspector general for afghanistan reconstruction on the problem of corruption in afghanistan. next, former microsoft ceo bill povertylks about global and the bill and melinda gates foundation, which funds health care and education efforts in developing countries. forbes magazine estimates bill gates net worth