entitlement reform. if you are treasury secretary now or about to become the new one for whoever is elected how? mr. paulson: when i came to washington, that was the reason i ultimately decided to come, to work on entitlement reform. i got to work on some other things. [laughter] mr. paulson: but my own view is, it is all about entitlement about political reform. if you look at the issues, it is politically very complex. even though health care reform is complex, it isn't complex to do something better than we have now. i always thought we would extend

the coverage. i really believe there are so many people in america today who don't even know what their health care costs as long as the government is paying for it. that is a system that is really hard to have a steel with the cost. it is all about generational equity and the future of our country. i go back to what rob said. if it is about making the political system work, it takes leadership. our country doesn't deal as well with our political system with big complex, difficult issues if they are not immediately pressing, but we will figure it out. we have got to figure it out.

>> i agree with everything she said. it is even more complicated. there isn't a will for entitlement. there are many who say we should increase security benefits, and when you ask how much we should pay for it, it doesn't become part of the discussion. i think if you could reform the health care system to keep it comparable to other countries there would be enormous savings to the federal government. i know i am just repeating myself. the idea that he and i go to somebody and ask them to put up have a million dollars of money. -- half $1 million of money. to see if there is a way to create interactivity so the

middle income worker could engage. we have to get people engaged in the issues. then you could get a political environment that puts pressure on politicians so they would change their how kilis decided is in their political interest to engage. that is the fundamental question. quest when he -- >> when we think about the political environment, it creates huge problems. it's also challenging. it's a particularly interesting time to talk about that with the creation of the asian infrastructure investment bank. it was kind of unthinkable that this could have been created against the wishes of the united states. an interesting article at the

time of the meeting two weeks ago. the united states government is so bitterly divided. he went on to talk about the u.s. he says it is almost handing over legitimacy to rising powers, not so much by intent, but as a result of dysfunction and lack of resources to project power. the united states must be able to maintain its economic power. the question is what is really happening to the u.s. in terms of maintaining global economic leadership? is it really changing? does this matter? is it changing fundamentally, and will that matter?

>> if you talk to people who run businesses around the world there is a point where there is a fair amount of confidence. on the other hand, that exists with deep concern about the capacity of the united states to support things like you referred to. i think it's important to recognize with this profound erosion of support in both parties the types of institutions globally and the types of foreign policies and international policies that were so central to the prosperity of the u.s. and the decades after world war ii and the deep erosion is very hard for us to play that role. we have nothing like that in terms of resources. the profound erosion in support of trade is much harder for us

to credibly deliver on these. i think these have real costs. a lot of americans tend to look at the world and say maybe china is a deep threat to our economic security interest or there is some other power that is going to the road our position. i think it is important to understand we are still a master of our faith. the biggest risk to our relative position in the world are about politics in washington. unless you can try to rebuild the consensus we will suffer a damaging erosion in our capacity around the world to be a source of not just stability but fairness, rules of the game. >> it is he wrote in, and it matters? >> it does matter. it's not like it is beyond us. -- it is eroding, and it

matters? >> we are still the best source of relatively new views on how to make the world work better but ideas are not enough. you have to be a source of ideas. the u.s. will suffer a meaningful erosion. >> i have one more thing. i would rather invest in the united states than any other country in the world. we have tremendous comparative advantage. if you look at our demographics compared to china and europe and fast natural resources. the problem is we have got to get our policy house in order. i think we can continue to play a major role in global economic and geopolitical matters for a long time to come, hopefully in partnership with china.

it does come back to this question. i think the world needs america to be america again. >> why? >> without the united states there really is nobody to play the role the united states has played for many decades now? i think with respect to maintaining fair trade rules or cyber theft, for a whole host of these kinds of issues, there is nobody who is going to play the kind of role the united states played. the world does need america again, and we need america. >> the role is changing? >> it's changing. anybody writing this are doing that. as tim said, we are by far the biggest economy in the world. i don't see anyone out there who

is going to overtake us as the dominant force in the world if we fix our problems and if we lead by example. sure, the political system makes it difficult for us, but i think the sort of thing we need to do to show leadership is first to have our own economy perform well. we have to be a good example. it starts with what we do at home. secondly, showing economic leadership abroad. take china as an example. china has got many more problems than we have. you can make as big a mistake

overemphasizing china's strength as you can underestimating the potential. they are engaged in building around the world, investment linkages. we are better positioned to do that than the chinese are. we cannot be successful with 4% of the world's population if we are not looking to do business with the other night 6%. i tend to be an optimist. we have to get the transpacific partnership. that would be huge to get that done. it is important in terms of being able to deliver on what we say and in terms of what it means to our economic surroundings. i will tell you this is not

good to be a world any of us will want to live in if the united states does not continue to be a leader. i just don't think there is a lot that can be done internationally without passing legislation. to me this is being able to look beyond the mystic politics. domestic politics never favors foreign investment. domestic politics tends to be nervous about foreign trade, foreign investment, but these are very beneficial. it takes strong leadership. i think we all agree so we are talking to ourselves. >> my friend is in charge of the

legislation. >> he is just going in all the time working on bilateral investments with china and he is making progress. fingers crossed he will get it done, he will get trade promotion authority. it is amazing how people will start looking at things differently. >> let's go to china. your book is brand-new. i am reading it. it is fantastic. it is interesting from a business side and a geopolitical side and is well written. congratulations. china is likely to surpass the united states as the largest economy. china is our biggest foreign competitor. how to you think the american people should be approaching china-u.s. relationships? what advice to you have for the right kind of engagement in china?

mr. paulson: read my book. >> or at least buy it. >> or at least buy it. that was his joke. i don't want to take credit. >> i wrote the book. it is by far our most important bilateral relationship. china has emerged as a formidable competitor in addition to a partner. the relationship is much more complicated given they are more assertive in foreign policy. the way i look at it, it is very much in our interest to find those areas where we have a common interest. there are many areas where we have a shared interest and we are not going to make real headway globally unless we find ways to work with

china. if we are working on environmental issues. i don't know how we solve them unless we are working with china. when you look at sustaining global economic growth, we work much easier, and our economic robins become easier to solve. if you are looking at stability and peace, the nuclearization, so as i see the world today -- d e nuclearization, so as i see it is more important than ever that we get something tangible done. we don't let the competition devolve into debilitating competition. competition isn't bad. we shouldn't be afraid of competition. china is losing trade and investment linkages to help achieve economic security. we can do likewise.

i am repeating what they said. if we aren't where we would like to be 20 or 30 years it not going to be because of china. it's going to be because we did not fix our own problems. in terms of borrowing from china , i get asked that question all the time. argue concerned? the chinese own so much of our debt. no, i am concerned we have so much debt. that's my concern. the chinese are doing what is in their interest. the money they have invested is a much bigger percentage of their foreign exchange reserves than our debt. if you are a chinese investor

give me a break. i think what we need to do is expand the investment linkages. i believe chinese investment in the u.s. creates jobs. it is a very strong linkage between our countries. i think the bilateral investment treaty will also help chinese reformers open up big parts of their economy to competition from the private sector, which would be good. the last thing i will say, which people reading newspapers know, we all know economic growth in china is slowing, but maybe less people are focused on just as we have these

fundamental economic issues, their model is running out of gas. we are building up too much municipal debt. they need to fix those problems. i think that's going to be important to them and to all of us in terms of how we deal with those. tax china, too much fear and not enough cooperation. other thoughts? >> i think hank said it reasonably well. >> let's talk about women. >> can i say something? it's a very simple thing. in these kinds of questions, whether from china or coming back to governing, a huge part of what matters is you put

yourself in the shoes of your counterpart, try to understand what is important to them. what do they fear? what do they hope for? unless you are able to make the effort to do that, you have no possible chance of trying to negotiate something. i think hank demonstrated how high the return is in that kind of investment. you build trust with a bunch people -- bunch of people who are unlikely to trust you. you work very hard to build that basis for us, and i think that is fundamental. >> i would add one more thing. hey can i have written an article together about the united states and chinese relationship. there is a tremendous wariness in this country. aside from the fact it is a

mutually attractive relationship, there were all kinds of issues like climate change said no one country can deal with alone, but the united states and china together is probably the best chance the globe has of dealing with these issues. somehow or another there has to be an increase in awareness in this country. of the importance of having a constructive relationship as opposed to counterproductive. >> the challenge we have to acknowledge is there are few examples in history of having a nation in preeminent power and a rising power not ultimately come in conflict. that is not inevitable.

it takes work. the choices they make in terms of what the cooperation is and how we resolve some of these issues and how we recognize they need to have a significant say in the system going forward. this is really important. >> let's return to women and the role in the economy. i am going to start with a warren buffett quote. we once had to explain to bob that jimmy was not warren's son. >> what happened was i said, warren buffett is in favor of not reducing the capital gain stacks. he said, so what? i was going to say, who cares?

i saw president clinton and said i called alan greenspan to see if he knew who jimmy buffett was, and he doesn't know either. resident clinton said, why doesn't that surprise me? >> warren buffett said one of the reasons he was so successful, he was only competing with half the population. we know that gender gaps are a drag on our productive capacity. they put out a report that if women got the same workforce participation as men, gdp would increase by 5%, big numbers. when women can't reach the highest leadership position, and i know how hard the conference has worked just to get to 30%, so we are working hard to get 50% of the population, when women cannot get there, we are still using only part of our capacity.

what needs to be done? how do we get women to be full participants? >> somebody else start. we should ask you this. why would we have credibility relative to you? >> if he had the answer he would have written the book. >> we have to hire more women. we have to pay them more fairly. it can't be rocket science. >> yes, that's right, yet very hard to do. like a lot of the other questions we ask. we know we need entitlement reform. hank, what should we do? mr. paulson: as someone who benefits from working through strong women throughout my career our executive director is a woman, and most of our senior people are women. i thought about it a lot.

i think it's a difficult issue to deal with. the one thing i saw from my time at goldman sachs, even if men are doing their level best and don't believe they are biased in any way you tend to gravitate to the one who possesses qualities you express. my own belief is it takes a lot of push from the top down. it takes the ceo. i don't believe" us, but i think -- in quotas, but i think the ceo has to put a finger on the scale. it is going to take also policies and programs that

recognize there are differences and that there is a huge amount of advantages you get from having diversity. i have thought a lot about leadership. there is no great leader anywhere who doesn't have great people around him. everybody has strengths and weaknesses. >> are you speaking of yourself in the third person? >> only briefly. he is in the middle of such a good answer. we are going to let him have it. >> you need to have people around you who compensate for your weaknesses. i watched that. webb and who have different -- women have different

characteristics, so there are huge advantages. even if you are being totally utilitarian, it is based on merit, often if there is a men they will -- a group of men they will come to the same conclusions. i have got to tell you. i think we are going to be heading in that direction if we are not more active in driving this. if it were easy it would have been done a long time ago. >> i think this part of the answer is recognizing bias. that is where i think we have failed. the second is understanding how important it is to economies. >> i think there is a more complicated problem. years ago you and i were talking on the phone, and you said to me of the women at the top of your

class, you were one of them. very few of them went on to have active full-time careers for the rest of their lives. i remember when i was at goldman sachs. i was involved in the treasury department. i think over time the pools men and women served were roughly the same. then you have the problem when you have kids, given the social norms, a lot of women have not wanted anymore to engage and 10, 12, 6 hour a week kind of jobs. the result is the opt out of intense full-time activity that leads to the positions of leadership you are talking about. i think it is much more complicated than you are suggesting. there are all kinds of questions about that. childcare is a policy that would help. you can have flexible labor

hours. i will to you something. i know the politically correct responses to this. i could have everybody clap if i wanted to. i think it is very complicated. flexible labor hours. i think it's easy to say these things and very hard to do. i think there is a tremendous disadvantage to society. you have cultural issues, legal issues, all kinds of other issues that go way beyond the issues we face. >> let me just say one thing. everything bob said i agree. mildly point wasn't that it was easy and that we are going to get away with it. what i saw at goldman sachs, if you have women who want to keep

working, i think it's important early on to make sure they have every advantage and they have the opportunities to keep going. certain careers are harder than others. i think you could move the needle if you do something's early on. >> a lot more to do. let's talk climate change. you called it the existential threat of our time. political challenge is something, but what are the most important steps we need to take? >> i will tell you what i have come to believe. hike about mike bloomberg and tom started something called risky business. it analyzed the effects climate change will have on our country sector by sector. i have come to this conclusion personally that the most likely

cases for serious impacts. there are catastrophic effects on life as we know it. i think it's a desperate problem. i think a lot of people might disagree. they haven't internalized the urgency and the cataclysmic effects that can occur from not dealing with it. i think we need to have the research and pilot projects and policy framework that will encourage non-carbon-based sources of energy. >> the only thing i would add to that, we talk about how the governments work better on problems when there is an immediate crisis.

this is very vicious gusset is cumulative. the longer you wait, it takes away your ability to enforce outcomes. this is global and part of this is what is already baked in the cake. bob has pointed out that all those that are proposing a solution because it involves big government are ultimately setting themselves up to have government play a bigger role.

what happens, think about it for a minute, whenever there is a climate related disaster, a forest fire, a drought, a flood and it hits one geographical region, one industry particularly hard, government comes in and that's what we expect our government to do, there is a big fiscal cost for that and we all pay. bob has pointed out is a big fiscal problem. i think a lot of the resistance comes from -- is based upon people not wanting the government to play a bigger role and not trusting the government. what the risky business study does is that it doesn't recommend the policy solution, it just looks at the problem using risk-based analysis and its bar -- and it's bipartisan.

we have republicans, democrats business people. if you go and sit down with communities and talk about the range of possibilities in terms of economic impact and meet people in the middle. if you say we have a big climate problem and you are part of the problem and we want you to pay they are deniers. but if you search talking about here are the range of economic risks to you and your community they are suddenly all years. suddenly, they are all >> it is hard when the cause is in dispute. it is hard enough with the means we have to help alleviate the problem are controversial. if you start with that and try to figure out how to understand how the costs are much lower now

than later. most of these things will be deeply on popular with large segments of the population. >> we have five minutes left. you all served as treasury secretaries during very challenging times for our country. globally domestically, what is the most important thing you learned? tim wrote a great book with a lot of things he learned also worth reading as did bob. mr. geithner: i think i learned that you can't approach these jobs as if your task or

challenge is to optimize within the constraints you are given. you have to figure out a way to relax those constraints and expand the scope of what is possible and you can't do that without some capacity to figure out how to bring people together in support of those things which is about negotiating and about government and compromise. mr. paulson: i think most people think that treasury secretary is a powerful position. but unless you have the support of the president and are able to work with congress or with foreign governments or regulators don't work for you you have to engender their support. so the thing that i learned was

that it takes maybe the same skill set but a very different mindset. you have to be able to listen, you have to be able to compromise, and there is not a lot of room for ideologues. it comes down to people issues. >> i'm thinking of something that i'm not sure whether i should say are not. our mutual friend larry summers was here he would say the most important thing was to ask him -- was to call him and ask him what to do. for me, being at treasury was in a norma's learning experience. secondly, be true to yourself. it is your responsibility to say to the president of the united states what you think whether he or she agrees with you are not.

the temptation is enormous. ms. sandberg: we are to do a lightning round. it's going to work. one word, one phrase. if you can make one change in u.s. policy unilaterally, what would it be? mr. paulson: fixing our retirement system because that could save our future. mr. geithner: fiscal policy. ms. sandberg: when will the fed first raise rates? mr. geithner: when they think it

makes sense. mr. geithner: if you ask innings --mr. rubin: i think i will say another version of what tim says . i don't do get matters when but that they do it at the right time in terms of economic circumstances. mr. paulson:ms. sandberg: who is our biggest global economic competitor? mr. geithner: ourselves. ms. sandberg: top issue in the 2016 presidential campaign. mr. paulson: income disparity. mr. rubin: i would say stagnant median real wages. ms. sandberg: last book you read. mr. rubin: i'm reading three books right now.

"the last living unit in china." ms. sandberg: lightning round. mr. rubin: "political education" by mcpherson. mr. paulson: "innovators" walter isaacson. ms. sandberg: your newest piece of technology. mr. paulson: the ipad. mr. rubin: what was the question? a ballpoint pen. ms. sandberg: most important issue people are not talking about? mr. rubin: i think we are under

talking about climate change. and us getting to our plane on time. mr. paulson: i'll go with climate change. ms. sandberg: are you still walking around the office with your socks on? mr. rubin: yes. ms. sandberg: tim, you seem to have started this trend. hank, and a special sock behavior? iphone or android? mr. geithner: iphone. mr. paulson: iphone.

mr. rubin: blackberry. ms. sandberg: most economically literate president. mr. rubin: i think bill clinton was massively illiterate -- massively literate. mr. paulson: george w. bush. mr. geithner: i would say it has to be obama or clinton. ms. sandberg: paper or kindle? mr. rubin: paper. mr. paulson: kendall. ms. sandberg: news online or on paper? what do you do to relax? mr. paulson: you do the same thing i do. fishing. mr. rubin: but i really do it well. mr. paulson: he may cast better

but i catch more fish. mr. geithner: i do that too but i read. >> on next washington journal, virginia congressman gerald connolly is here to talk about the debate over nsa surveillance programs, the fight against isis in iraq and syria, and other foreign-policy issues in congress. then representative steve king of iowa, a member of the agriculture and judiciary committees will discuss the future of the nsa information gathering program, the work in

the house on immigration, and the role in iowa on the 2016 race. "washington journal" is live every weekday morning at 7:00 a.m. on c-span and you could join in with your comments on facebook and twitter. this weekend, the u.s. senate failed to extend certain provisions of the patriot act that allowed for the national security agency's bulk collection of americans telephone -- of american telephone data as well as roving wiretaps. the senate returns at 9:30 a.m. eastern. at 10:30 a.m., members will hold a procedural vote on the usa freedom act. the vote will do term and whether -- will determine whether they move forward with the legislation.

>> now more from the 18th annual milken institute global conference. this panel features global investors and wealth managers discussing the global economy, wealth, and volatility. >> she is the best-selling author at the netbook on the global economy and financial system is going to be published later this year. please join me in welcoming our host. [applause] >> good morning.

thank you for that very kind welcome and welcome to the first session of this years conference called the return to volatility. i think the subtitle of that could be "yikes, what is going to happen next?" the role has been thrown at ordinary decade. first we had a gigantic credit bubble and then an even more shocking financial market collapse is not battle turbulence and then we had a truly staggering policy response. it has in many ways typical of financial markets into the equivalent of alice in wonderland. they reckon that $1020 of aid was provided by banks. we have had a debt increase of $57 trillion according to mckenzie.

much of that actually has come from china. we also live today and it rolled extraordinarily long yields. you have a number of companies that are issuing at negative yields. it is an extraordinary unprecedented time. we still have a global economy that is at best pretty sputtering. i was noticing in this morning financial times american companies are on track. ukraine, china come in many other places as well. are we heading for significant volatility and if so, will that the good or bad because of course, the dirty secret about volatility is that we love volatility.

it helps sell papers, create news. many of you also love volatility. it create enormous opportunity for all kinds of financial rubbish. we have a terrific panel of people to talk about where it is going. many of them are very well known to you. on my far right is alex friedman, who is ceo of gamb. next to me, josh friedman, cofounder of canyon. on my left, and many was very well known to you, a veteran of his time. josh harris, cofounder of apollo global management. on his left, alan howard. on the very end, carey lathrop.

they will tell us what is happening in the world. unusual to see the bankers outnumbered but i am sure you will do well. i would to start with alex and ask you when you look at the year ahead, are you worried about an explosion in volatility? mr. friedman: i spoke on this panel last year and i hope no one will remember what i said a year ago because i am sure a big chunk of it is wrong. to that question, i expect that at some point over the next 4-6 months, we will see real volatility and the market will pull back to something like 10%. i think we have about two years left in this central banks supported run. when you think about the big drivers, i'm not smart enough to get beyond the big drivers. we are pretty much everybody

easing. you have cheap energy and falling currencies and some of the more worrisome areas particularly in europe. more importantly, there is the quote from abraham lincoln -- "life is a choice and alternatives." volatility, yes. buying opportunities, still a couple years of this rising tide environment. >> a world where everyone is grabbing for risk. history suggests that rarely ends well. mr. friedman: every 5-8 years have been market recess. we will probably do that so to speak. what would be the not end well story -- a lot of political

risk. longer, a huge structural issue around liquidity which we will talk about. he met worries me the most is that as investors are further out on the risk curve you start to see the most traditional pension funds reallocating. as they reallocate, the elderly are not factored in. not indebted nations that lot to be bailing out there elderly who thought they had asked income savings to retire on. host: history suggests it is the dumbest money that jumps on the trend at the last minute. alan, do you think we are heading for another crisis? mr. howard: the market is inherently extremely off the table in the structure we have today. that is partly due to the regulatory effects of changing the way liquidity banks offer.

clearly as we know, we have a small event and a much larger one in terms of the s&p. these are examples of where the change in market infrastructures , the volatility they produce is of a mac and dude we have not seen before. the real issue is that you any of these is small events ever lead to something bigger? we'll let it see if we get something more fundamental based in the future. host: josh, what do you make? are you concerned about the potential for not the shock in the next year or so? i am surrounded by josh's. mr. j. friedman: i think it is

sometimes easier to prepare them to predict. when you have unnatural interference on a global basis with financial markets, you get built up imbalances and they built up and build up and is a little like that last little grain you put on the sand pile and the top of it collapses. last year, we had quite a lot of volatile events take place. there were some significant out of the ordinary, major adjustments in certain areas. you had obviously what happened with the swiss franc and i think that got most macro players by surprise. what happened in oil was really extreme. the rise of isis was something generally not predicted by the general public. you now have the fed so intend a not surprising people on interest rates that they want people to the point where they do raise rates, it will be a shock. sometimes the best thing to do

is to know that eventually, all of these unnatural buildups will produce an adjustment but rather than spend to much time predicting one that will happen, maybe it is better to prepare. host: right. josh. mr. harris: i think there's been a change of the structure of the market. a people that used to make the markets for the banks and the banks were driven out of doing that. who has replaced them? really be people on the stage. when you think about the less sex income market, more than a third of it is dealing with liquidity. what happens when retail decides to move out of the daily liquidity vehicles buying assets that probably don't have daily liquidity in the event of a shock. when something bad happens, you will see an amplification of a

trend it down because the people that had to step in and buy will have much higher -- they will step the price of risk in a more aggressive way. there is a lot of capital on the sidelines. there is definitely people that will ultimately step in but there will be volatility within a range. i don't think it is bad for the system. i think ultimately, we probably having -- probably having people on the stage setting the price sky of risk -- price of risk. i think that it is what it is. the structure has changed to a more institutionalized market which will produce opportunities when things go down more aggressively and has created opportunities. you saw -- a lot of these markets are not that liquid. the high-yield market when we

had some of the fiscal issues in the u.s. are when oil crashed, you saw the high-yield market trade-off 5-10 points. you would buy a little bit of it and it will trade backup 10 or 15 points. that is the market we live in today. they are less liquid. i think there will be sort of regional ballots. there is a volatility in certain industries and structures. in natural resources commodities. there is volatility. why? the dollar is going up, china is slowing down. in retail, or the internet is remaking certain sectors there is volatility. many energy could there is volatility. i've i'm not sure you will see with the central banks these i have got your back policies. i don't think you will see broad-based volatility like you saw and last financial crisis

but you may see rolling structural volatility around different industries, different companies, different markets different regional areas. host: let's take that issue of regulation risk. i know it is something kerry has been looking at closely. i will come unto some of the geopolitical triggers for volatility. just how bad is this mismatch in the markets today? post 2008, we have seen the -- that is a big decline. it has created mismatches and pockets of potential liquidity. we are seeing the industry squealing. those of you who have not yet read your sp this morning may not have seen we had a piece this morning about how bankers are appealing for changes in the

trace reporting system. the concern about a lack of look ligety. is this going -- lack of liquidity. mr. lanthrop: i think ultimately, it will take rates rising and even if that does raise rates later this year it is likely to be the front end that moves and is probably the not -- not a longer end. the issue of regulation, i think that is something clients will throw in front of me and you will see deals go from 250 billion to roughly 50 billion depending on when you look at that. the reality is, some of that is overstated. if you think about it, you took out bank of america and merrill.

same thing with -- you took capacity out of the market but there is no doubt we have strong balance sheets. they were not there for the benefit of our clients per se. there is no question directionally that is correct. part of it is not top-down coming from a, it is bottom-up. the cost -- an inventory there's a lot more equity today then and long-term debt which is more costly. it means offers have to widen out or there has to be greater velocity in the balance sheet. there has been some element of regulation but i think some of the do structural -- the buy side has grown more than the cel-sci. we could double our balance sheet. you would still have this problem and i think the daily liquidity -- you have this

mismatch. when you think about what happened in the crisis, it was that where are you funding long-term assets and short-term liabilities? you look at things like buying longer dated assets. they couldn't roll their liabilities one the market seized up. that is what it was looking for -- the catalyst, the grain of sand that causes the whole system to collapse and everyone to run? the challenges are that different from the crisis were you would have large market moves -- and if you think about what drives that as a market maker because you have is in balance very quickly of high yield -- less summer was at 5%. very quickly the market moves to 6%, 7% to try to create equilibrium so that the sellers become holders or buyers. buyers come in and say what can you offer.

will he not a lot. aristotle in victoria around. it shuts -- really not a lot. the industry shuts down. it takes a lot to recalibrate. it immediately snaps back and ends up at 5.5%. in an orderly market, you would watch things take from 5% to 5.5%. when it goes down, you have to buy whatever you can because when you look and see what actually traded, not a lot trades when it goes down and not a lot trades when it goes from seven to 5.5. i think the markets are very prone to that type of volatility in the future. host: it strikes me as the terrible irony of 2008. everyone agreed there was too much debt and a mismatch in terms of the duration. what happens now? we have a market with even more debt out there and even more

potential miss message in terms of liquidity mismatches. -- potential mismatches in terms of liquidity mismatches. we have all heard the banks talk about the problem of a liquid market and the regulatory changes. there's an argument to be made that markets are responding with entrepreneurial zeal to find other ways to plug that gap and we don't have to have a world dominated. mr. howard: it is how i think essential bankers are looking at the way the market is going to structure. not only are the banks inventories coming down but the way they behave in terms of offering liquidity has changed. because they put more pressure cutting cost and making sure business is more effective, they are clearly cutting -- using much more junior people on those

training desks. people really have no idea how much they are really allowed to use. a specific amount of material and will not use it anymore because he is concerned if he pre-positions for a trade or trades after he may retrospectively [indiscernible] market makers are not behaving at all with underestimate. that exacerbated that time of stress. the next thing to look at is the idea that the central banks moved products to central ccp. what happened that is very slow in another has been a lot of pushback from the banks about the specific risk of that clearinghouse.

a lot of product goes there. they're taking a long time to get to that. with -- the risk has changed. after the shock, they cannot model the way they used to. we are ending up with -- it is like liquidity is forcing more and more investors to use products to hedge their portfolios. so 10 or 15 liquid products are being used even more and are of increasing interest in those products. whenever we get a small shock and positioning is one way, you get outside move in these liquid markets. we are moving towards a structure where the banks are

not going to go backwards. they are not going to let the banks take more product. less market making by the banks. more standardized products. electronic exchanges. that is the way we are going and i'm not saying it is bad but it is a very different structure. it means you're going to get these large moves but we don't know if they will ever follow through to something bigger. mr. friedman: the institution that cause the left financial crisis were the banks. yet talking about the fact they have been somewhat pushed out of the market in terms of the market-making function. actually they are much less elaborate, they had a lot more equity. they're getting out of the risk businesses.

the real question is systematically, no big is necessarily a bad thing for the system. i think they will be volatility within a range but the month of capital sitting on the sideline waiting on with all been waiting. we're often talking about the same phenomenon and when it happens come you cannot buy anything. the minute you step in and buy something, it goes right back up. the row question is, more fundamental i think. the system is like choosing your poison. if you make the banks massive to the point where they are impossible to deal with if they get in trouble, and very difficult to manage, you get -- they may be willing to step in a bit but you have created a larger systematic issue. i think we are in a better place. host: i was talking with a group of central bankers who told me back in 2008, they helped that

endowments would be liquidity providers in the crisis and that hope turned out to be completely wrong. some of them were suggesting maybe next time around, the central banks themselves will have to step in and be the market of last resort. are you concerned about what will happen? are you willing to be a big liquidity provider in a crisis? mr. friedman: you reference are important point. central bankers hoped -- hope is an important point. we all want to think there is a force that will fix things and central bankers have stepped into the void and i've been that -- and they have been that. i think i somehow learned they had no idea what their exit plan was. they knew they wanted to get on the pack but did not know how they would get off of it. central bankers are people and they do their best but they

cannot foresee all of the consequences. it gets worse when they are not driving so to speak. that is the volatility we are at right now which is essential bankers have done the vast majority of what they can do so we are shifting to the fiscal side, inherently more messy at a time when there are a lot of elections coming up over europe and downstream in the u.s. you got into the unknown known donald rumsfeld thing. greece is the most analyzed known unknown there is. i don't that is what the rails everything. will the u.k. leave the eurozone? possibly. what is happening tragically in nepal today is a reminder of the unknown unknowns. they can really derail the story and the odds are there will be one of them upscale in the next 12 to 18 months. how do you position yourself against that?

mr. j. friedman: forcible, crises come from the credit world. unless you have massive amounts of leverage at the retail level the worst crises come from overshooting on credit. left a pressure through systematic easing globally that has caused disequilibrium and buildup. institutional framework is so different now, maybe they have achieved the purpose they were trying to achieve which is to get instead of having all of the risk and concentrated mismatch located within the banks, you have a shadow bank that is quite functional. you have many institutions like a lot of the people represented on the stage who run very on leveraged or very lightly leveraged institutions that don't have daily liquidity but are able to provide capital to the market the moment when the mismatch institutions -- we get

worried when we see etf buying bank debt. that is a mismatch. there are so many institutions at don't have that mismatch that have longer duration capital that aren't terribly leveraged and there is plenty of people who are think learned that the reading capital to those types of institutions post crisis represented by the downdraft in prices is a good thing to do editor profitable thing to do and i may be a little less worried about the systematic risks of the overshoot although i do think it is clear we haven't overshoot. host: do you feel functional? mr. harris: yes. 2008, the government was the last firewall. i think it is the same. i believe if you were to have a

2008 style crisis, that would have to happen again but once it happened, the people that would be facing risk would be pricing it with their own money with their clients money in a much more analytical systematic way. i think that is ultimately -- i don't legal ultimately, the people that would have to step in have really changed and i don't think -- i do think the people that would make the markets are managers at this point and not banks. mr. harris: there is one issue -- the rise of passive governments. they are a bit of a blunt instrument. people who hold passive instruments are not aware of what they hold. last fall, it was because they had a lot of exposure to energy will stop you ask a lot of alligators who allocated, they

were a bit more surprised than they should have an. you see a version of that in china now where it has been a good investment but china is slowing and shouldn't actually be such a rising dynamic of an instrument and there will be a time when the market catches up with economics. host: a bit like in 2007 when a lot of mainstream investors realize what was sitting inside was not quite what they expected. as the loan banker on the panel, i think maybe you get four times the loan bank on the panel. let's get a word on this before he move on. is there anything you like to add on this issue?

mr. lathrop: i think one of the challenges you have and we touched on regulation being one of the issues -- one of the challenges is the changing market structure and i think probably defining managers is probably not right. we have touched here. what are the managers that have more longer term liquidity? those are the ones that can step in because whatever it is it will not be the known unknowns it will be something we don't anticipate. i think with some of the change in market structure -- more of the market is return money. when prices are going down, they will tend to sell and it is not like insurance or pension or yield driven. when you go back 30 years, there was more that have of fire --

type of fire. it has to be those 11 longer-term structural liquidity so if they buy -- it has to be those with longer-term structural liquidity. mr. harris: certainly we had a lot of people made a lot of money and the last prices weighting and stepping in. the markets did not clear. the people that ultimately cleared the markets cleared them at much lower levels than fundamental value. that was highly lucrative and very profitable for many of us. everyone saw that. everyone is waiting for that. a lot of people are saying when is the next 2008? all of the things we're pointing out. i don't believe it will be that simple this time around. i think he will have to be much smarter and opportunistic about how you play industries and i

don't think you will have this broad-based pullback. we see it today even in the stress landscape. the level of returns today are not what they were. there are many more institutional players that said there and they wait -- that sit there and wait for any type of pullback energy. kind of the vocal drumbeat of hey this is the latest thing since sliced bread. i just don't believe that we are going to have the opportunity that we all had in 2008. the system won't really breakdown as much as it did. host: a good thing for a mainstream investor. let's change the conversation

and look at some of the triggers that could start this volatility. i want to check if the audience is still awake. i want to ask you all a couple questions. a quick show of hands for those of you who are still awake. i'm going to ask you when you think the next u.s. rate rise will be. june, autumn or not at all this year? all of you think it will be in june, hands up. janet has done her work. those of you weren't looking around can see that is nobody. a rate rise in autumn. ok. those of you think there will not be a rate rise at all this year. wow. that is a lot more bears than i would've expected. any of you want to comment on

that? do you think it will be one of the sparks for potential round of volatility? mr. harris: i think the fed to see the u.s. rate rise. i think the fed is -- has a very difficult decision to make and i think that they're really thinking about it and i think it is unclear. they really want to get off of zero rates because they see the unemployment numbers going down and they know that eventually, the u.s. economy is going to get inflationary and they don't want to overshoot which is a pretty significant tell risk. having said that, the data more recently has been negative and i don't think that this movement and the dollar has surprised people in terms of its effect on the economy. the conventional wisdom was that

experts are pretty small number. movements of the dollar. matter very much and i think that wisdom is being challenged right now and earnings have been pretty poor so i think ultimately, you have this on the one hand. and my guess is i think they're naturally dovish. they naturally want to be very cautious about d really what they see as a somewhat slow u.s. recovery. my guess is they're not going to act in june. as you get closer to your and, they will be worried about christmas so my guess is ultimately, it is january. i think they will want to do this early next year. but i think there are various conditions. everything i am saying -- if we started having 300,000 job as

every month, they might move but i think that is not going to happen. i think it will move into next year. host: alex, would you agree. mr. friedman: i would slightly differ with josh and that i do agree the fed is naturally dovish but i also think they are very cute into valuations and risk markets right now. i was struck by only 2% of the last 40 years as the s&p ever been higher. there are all these downstream applications which we have touched on. my guess is they will make a move in the fall but that it will be smaller than expected and they will start to telegraph incremental moves which to me is janet's threading through the data and her really desire to

get the level they are on right now. mr. j. friedman: i think the point alex raises is one people talk about. regulators are trying to use policy to allow them to keep rates lower for longer but the point josh made about stress, for the first time probably in 10 years, we are used to having stress investors saying i want to have a 20% return. then it was 15 and as returns get compressed for the first time, you have investors saying let me buy something that yields that i have higher confidence in to get the double-digit return i need for my clients. you're starting to see -- we all know one internal leverage turns into two.

why is money flowing into credit? there was an issue a couple weeks ago in europe. they issued 100 year bonds. is there that much natural duration risk for 100 year mexican bonds. it rallied six or seven points on the break. it is pretty now below 4%. at some point come it is not crazy to think that could trade at 6%. that is a 66 quarter on a dollar point. a percent is still not a crazy number. if you're just buying it because you can use yield, what is the

only thing you can do is to sell it. you can see anyone understand why investors are moving like that because they are getting squeezed but it sets you up for more volatility and investors are going in places in a prolonged time of low rates. whether it is retirees or it is hard to make business models work in zero rates. host: that raises the question which is the issue is really not when the rate occurs, it is how fast rates go up. maybe what we should do is try to visualize janet yellen and a swimming pool which is a strange image but imagine her in a swimming pool with a giant beach ball and she is standing next to you and holding a giant beach ball underwater under your chin and essentially saying not yet not yet not yet in just one you start to relax, she lets go of

that beach ball and it shoots up out of the water and hits you hard in the face. the point being if you can imagine that that sometimes things conflict to the surface very fast by way of reaction. does that worry you? [laughter] the vision of the rates suddenly shooting up much faster than people expect? mr. howard: i think there is a big difference. a lot of them have a problem with rates. that is not a hike in their mind. as they move off zero, they will make it clear by easing it to watch her conditions. don't think they will allow the market you think they will be hiking very quickly or in any way to allow asking prices to sell off dramatically because after eight years of surveys, the last thing they want is a small hike to cause an

armageddon. in other bears any chance of that going too high. maybe a year later, we will have to see how the rates are going with europe and japan. how does that affect the dollar and corporate america? maybe that will affect the pace and the amount they hike at. host: what about you? are you concerned about the beach ball or do you think they can keep it rising slowly and steadily? mr. j. friedman: i do find the janet yellen image disturbing on all sorts of levels. [laughter] mr. j. friedman: apart from that, it was interesting to see the results of the poll. the fed has managed to convince everyone they are never raising rates because we take this poll last year and you thought it was earlier and it has moved out and moved out and when the actually

raise it come i think it will surprise everybody because no one really believes they're going to raise rates and they have raised rates on a relative basis because of the negative rates we see in europe and elsewhere globally. in some sense, you can say rates are quite high relative to other places in the u.s.. i think it is very, very difficult for us to figure out a way to actually make money predicting rates. i think the exact timing and the speed with which they increase it are equally difficult to predict and i think the world of wooded with brilliant economists who love gotten this wrong so may times in the pet -- who love gotten this wrong so many times in the past. had you protect your self question mark how do avoid the credit bubbles taking place in the system? you look at the possibility of transactions.

there are no comparisons to 2007. you don't have the massively leveraged institutions holding the securities. maybe there is less danger. i tend to think the fed is not going to do something to drastic , too quick, too severe. i have for people on the other side and i don't know but i do know going out on a risk spectrum in today's environment seems like an awfully dangerous thing to do to me given where high-yield is. we have just been avoiding it. host: many people are going out in the risk spectrum. let's try another poll and then. i'm going to vote on two things. one is will we have a greek default in the next six months? secondly, will we have grexit?

those of you think greece will default in the next six months but your hands up. 50-50 on default. and on grexit? who expects a greece will stay a part of the eurozone? not only has a janet yellen convinced many of you but angela merkel has convinced many of you. not only have half of you not expected to see greek default but only a small minority of you are expecting to see grexit. alan, is that too complacent? mr. howard: i think it is a bit complacent. what is going on in russia ukraine is currently occupying russia. i think the two together.

that could change. what does it mean one year down the road? i don't know what will happen. once you understand that, if you are a folder in one of the southern european countries, do you really want to hold your money? now the argument is to not worry about it. everyone is behaved well so unlike the greeks, we make sure there is not a problem.

i don't exact will work. what happens when you have an election in france? are they going to say we saved you so now you will relocate? those countries will do nothing. this is extremely dangerous. more than the two week event. host: and hello marco -- angela merkel saying maybe that will get resolved. host: is actually the ukraine in terms of the geopolitical risk. mr. friedman: title think there

will be a greek exit either. maybe greek should not have been in the eurozone in the first place but it is and we are in this predictable time between the articles of confederation and the constitution. you don't kick out west virginia once it is in. it is what it is. host: do you smell opportunity? go out and buy a cheap greek island? [laughter] mr. harris: it is a good place to visit. i don't think it is really significant.

a lot of the greek debt which has transferred into ec or central bank will allow it to be dealt with without systematic issues. if greece were to default. i don't think -- i think is much more of a longer-term issue. i don't see it ring an important factor in moving -- i don't see it being an important factor in moving the markets. the fixed income is zero. the rates are negative. the quantitative easing going on there is as large as all of the qa that existed in the u.s.. i think what you see in europe is what you saw in the u.s. which is massive amounts of

euros are being put into the system, stimulating the stock market, making consumers feel better, and starting to drive asset pricing up as people who move out of traditional fixed income and get into the stock market and real estate. i think you will see a rebound in europe of this and i think you already see it and when you look at what happened in the u.s., it makes sense. they are following -- it is following the u.s. model seven years afterwards. i think the ec is heading the other direction. mr. j. friedman: i would disagree and agree a little bit. i generally agree with the analysis. for financially, greece probably has -- is a small issue but politically, a big issue.

political instability -- the consequences of the exit -- they're all sorts of unanticipated consequences that could take place beyond the economic consequence. the economic consequence is the least important. we know there'd be some unanticipated parts but the political consequences could be quite significant. we don't know what type of meddling will take place in greece if it does exit. when you have an unstable world as we see in other parts of the world, you can have very large, significant, global events take place that are completely unexpected. no one expected world war i to take place. that is why i think that while financially, greece is a bit of a rounding error, politically, it is not. host: maybe it is a geopolitical contagion rather than a

financial contagion. i was very struck -- those of you at doubles this year and we know that once this year, -- last year for the first time ever, income inequality jumped to the top of the list. this year, it was topped by something else, interstate conflict. to my mind, it is an astonishing finding. mr. friedman: i am just worrying , nodding. [laughter] it is a very asymmetric global instability right now which is very worrisome, because by definition asymmetric means you cannot predict it and what was unpredictable about that was the actual trigger point. at the time, everyone thought commerce was too connected for there to be were but there was this saturation moment.

what could that be today? a lot of things. mr. harris: i would push back a little on greece. greece exiting is certainly not good for the world or europe but when you think about militarization of the soviet union and around ukraine and some of the other nations, when you think about what is going on in the middle east like were israel to attack iran were there to be -- i think that is unlikely. if you think about china being more aggressive, which china is really improving its navy and air force and military quite significantly and is acting more aggressively with new leadership. it is hard to predict. i feel like those are much

bigger. if you want to talk about geopolitical risk, those are more significant to the world economy than say grexit would be. host: those issues are being discussed over the next two days. someone trained in international politics -- the degree to which macroeconomists are waking up and realizing the numbers are not always the answer. it is a wider question that is driving things right now. let's have a look at some of the other risks. i like the i to ask the audience again. let's talk about oil. that is the key issu shaping the global economy. three choices. how many of you think the oil price will be where it is in a six months time? how many of you think it will be

$20 higher in the six months time? how many of you think it could be $10 lower? people to think the oil price will be roughly right where it is in six months time? ok. those of you think it could be significantly higher? and those of you think it could be even lower? ok. so, those of you who cannot say the majority of you think it will be roughly the same level. a significant minority think it will below or add very few expected to be significantly higher. mr. friedman: you are getting at the secular stagnation point. host: we have a global economy where demand is weak and they do not need much oil relative to stockpiles. josh, any thoughts on what that might mean?

mr. harris: we spend a lot of time trying to get ahead of the volatility in oil. predicting oil. i think it is really difficult will stop them of the factors -- difficult. in the short run, we have a 95 million barrel per day market. that is to let in 3 million barrels oversupplied to storage. it is filling up a bit. you have seen the price of oil go up a little bit. if you think about that, the 2 million -- the 2% excess supply has caused oil to go from 100 to 50. that shows you that little excess supply swings it wildly. what is happened is that the higher prices created an entrance into the market which

was north america. the u.s. show was adding one million barrels a day every year and the people that were taking supply out of the market -- that maybe market over slide and for a number of years, opec dealt with that by taking supply off. they are the low-cost producer and the saudis are the swing market maker within opec so they have lowered their production from 12 to 10. one day they woke up and said this doesn't make sense for us. we are the low-cost producer and if we allow this to continue, incident having a market that is oversupplied, we will have one 5 million oversupplied. they change their strategy and said we will not lose any more market share which i think with economically rational for them.

act to where it was, but it will climb back to $70. the service sector could get hit with the cost of production.

the problem is, what is saudi arabia going to do? what is going to happen around iraq? you have something that is very difficult to predict. what you have to do to make money in oil is to take the that it is -- you have to take a much longer if and go back to where most of the oil is. where as most of the oil in the $60-$70 range? you will probably be right eventually but short-term productions, you are predicting so much. >> the future is knowable in one

important dimension, which is demographics. we know where most of the growth is. over the longer-term. energy being one one of my best friend said the best cure for high oil prices is high oil prices, one of the best skiers for low prices is low prices. the key as an investor is, any time you look at a security, in the energy business, you have to compare it over a full range. if you decide you want to buy stressed debt and all of a sudden it is comparative, you have to say what would make that a successful investment and

compare it to buying equities. compare it to the full range of other equities. these markets do not communicate with each other as efficiently as they should. so, you get pretty big disparities between buying a bond and equity sometimes. they do not reflect the outcome as they should. >> i want to say the market said, we are going to ignore this. going back to our original discussion, there are so many liquidity stocks around semi-companies that are now cigna should can only -- prices

are going back to where it was. the market is a temporary blip. we are going to ignore this. i think it will eventually happen that an interesting comment on some of the auxiliary and tertiary effects on exhilarating easing. people ignoring the volatility. >> the main thing is if the price is slightly higher months from now, how will that affect the japanese banks? you could argue that the prices because of oil coming down. the low headline inflation does not help the europeans with their kiwi.

how will the market to react? at that point, we have no one doing qe. what will the reaction be some months from their? maybe not today, but closer towards, if it is really at that level, i do not see how it can be at that level. that is a global affect of low qe it could have an effect on markets that today have a short. it may not be the right level. >> we are coming to the end of time. about the potential for rising: attila t. given the volatility you even the mismatched liquidity in a

world where everyone is reaching for risk, can you tell the audience what is your top favorite one trade at the moment? what advice would you give to people in the audience? one thing. >> i think it is an enormously challenging investment environment. i think the most interesting part of the market is where the banks are pulling back in sort of the 8-10% fixed income space. you will are in a world where everything is overvalued. if it is quoted on bloomberg, if it is rated in the fixed income world. you have to get out of that world.

you have to buy issuers that may not be rated. you have to do things like shipping loans non-performing loans. things the market cannot really observe. -- absorb. there is interesting opportunity in off-that-run credit. in that crossover space. i think it is a very complicated world right now. >> i think, a couple ideas. i think, at the end of the day liquidity is going to win out despite all of the known unknowns. at the end of the year, economic growth is ok. to the point that josh made, the less liquid, more structured products will continue to do well. you will see low liabilities.

fundamentally, in a world where you have so much collateral trading at negative rate it may not sound that exciting but you know for the right investor that is looking for a safe, liquid well-tested, it has a stigma but that is probably why it is so cheap. i think that is a good asset. i think u.s. assets are attractive. we are starting to see flows whether it is european government bonds, european credit versus u.s. credit. institutions tend to move more slowly. i think to pick up a yield in the expected of earns, you will see fund flows in that direction. >> i think the main event from

the negative rates is there is not enough known about what is going on with these negative rates. it is having an effect on our portfolios. many investors cannot afford to hold many bonds. it is crazy. i do not know how long that is going to take. i think that will have an affect on currencies for a while until we get out of that. >> do you think european investors will eventually rebel? >> i think negative yielding assets will over time so the amount. the idea of governments you mentioned, they have demographic issues. it is not going to last. especially -- i think that is

the big thing that will play through. in the next time, i think it will be the japanese stocks. greg step in a stocks are or a bad buy? >> goodbye. -- japanese stocks are a good by or a bad buy? >> a good by. -- buy. >> josh and alex, what do you make of this? >> the flip side of having extraordinary high -- and

extraordinarily low cost of debt is that you get a number of corporate transactions taking place. this causes not only event-oriented uncorrelated equity price changes, and by the way the overlay on that is we have a regulatory structure where it is hard to predict the outcomes on transactions. we saw what happened to the time warner deal last week. we saw what happened a few weeks after that. when you get one of these negative surfaces in the market, you not only get merger transactions, but people figure out they can borrow at zero cost and pay a dividend to their shareholder. that causes a thing pong all over the place. you have bonds that go from an

investment grade two noninvestment grade. time warner is fearful. bondholders sell. now we are back. bonds are going back south. you get markets that are discontinuous and do not communicate with each other. many of these event-oriented short ration plays, have very a check up risk-rewards because of the volume of transactions and the unpredictable regulatory oversight. i would also agree with josh's comment about nontraditional lending. there has clearly been a very significant pickup of loans. 10, 12 14% area. slightly less liquid. >> alex?

alex: i think in the next 6-10 months, european equities are a good place to be positioning. you have the three dynamics we have been alluding to. you also have negative yields driving people will stop a technical shift and more demand. related to that i think we will be short some of the sovereign debt. >> german bonds suddenly volatility and will correct dramatically. thank you, guys. this has been a fascinating discussion. you are certainly racing for a lot in the next year or two. interestingly, much more of a fragmented pattern. perhaps more fragmented ban in 2008 when we had incredibly high

correlation. i think your comments on the interrelation very structure suggests it is not quite as black and white as some of the reports suggest. the question is whether some of the money sitting on the sidelines will come in. i say, i would think the biggest point of all that comes out of the conversation, to me at least, is it is not just the world of financial contagion that worries you. there is an unpredictable and alarming threat. thank you all very much for the conversation. best of luck. [applause]

>> coming up on c-span bomb -- coming up on c-span, senator lindsey graham announces his candidacy for president. that is followed by members of the iran task force on the iranian nuclear agreement. this weekend, the u.s. senate failed to extend certain provisions of the patriot act that a loud for bulk collection of americans telephone data and roving taps that allow following a suspect from one device to another. then, a procedure on the usa freedom act which limits certain surveillance procedures will stop you can see live coverage

of the u.s. senate when members return, always on c-span two. >> the new congressional director he is a handy guide to the 114th congress, with colorful photos of every senate and house members, plus bios and information and twitter handles. also, district maps. a fold up map of capitol hill federal agencies and state governments. order your copy today. it is $14.95 through the c-span online store at c-span.org. >> on the next washington journal, virginia congressman gerry connolly, a member of the oversight committee is here to talk about debate over nsa surveillance campaigns, the fight against isis in iraq and syria. then, representative steve king

a member of the judiciary committee will discuss the future of the nsa gathering program and the role of iowa in the 2016 race. washington journal is live every morning on c-span. you can join the conversation with your calls and comments on facebook and twitter. tuesday, the house transportation and infrastructure committee holds a hearing on the amtrak derailment that killed eight passengers and injured more the in 200. witnesses include the ceo of amtrak. see it live at 10:00 a.m. eastern time on c-span3. south carolina lindsey graham announced his intention to seek the 2016 presidential nomination monday from his boy had town of

central, south carolina. he served four terms in the u.s. house, several years in the u.s. air force, national guard, and national reserves, from which he will soon retire. he is the ninth candidate to officially enter the 2016 race. [applause] >> good morning. it is so good to be home. i look out and see familiar faces. friends and family. i want to thank you all for joining us on this very special day. as many of you

one bedroom, but one room, where we lived, we slept, and we ate and our parents had a pool hall, a bar, and a restaurant in this building, where they worked long, hard hours to earn a living to support us. that instilled a very strong work ethic and important values in both lindsey and me. i have some great memories of this town. one of my fondest memories was lindsey teaching me how to ride a bicycle on that sidewalk right over there. he would hold on the bicycle as i held on, give me a big push and shout, "keep pedaling, keep pedaling!" and he was the one who comforted me as i fell off the bicycle. [laughter] darline: as i got older, lindsey started to college. our parents were so proud.

he was the first in our family to go to college. when he left, we missed him terribly. i can remember being so excited on fridays, i cannot wait -- i could not wait to get out of school. i knew lindsey was on his way home for the weekend. i would stand on that sidewalk what seemed forever, waiting on the greyhound bus, and when he arrived, we would be so excited to run back down the street to see our parents, and as excited as i was to see lindsey, i think i was more excited to see the expression on my mother's face when we walked through that front door, and she saw us. when i was around 10, i remember our parents had finally saved enough money to buy a house next door. believe me it looked a little , different than. -- a little different then. we love this town and the people

in it. and then our mother started to get sick. she was in and out of the hospital a lot, and lindsey stayed by her side day and night. he never left. then on june 9, 1976, almost 39 years to the day, she lost her battle with hodgkin's disease. i was 11 years old, and lindsey was 20. only 15 months later, we lost our father. it was a really tough time for us. i can remember the day our father passed away, standing and -- standing in the living room of that house, absolutely scared to death, and lindsey wrapped his arms around me and promised me that he would always either for me and always take care of me, and i can assure you, he has done that. he has never let me down. as hard as it was for him,

lindsey went back to school while i lived in seneca with a very special aunt and uncle, but lindsey came home every weekend, unlike most college kids that age the stay on campus and had fun. lindsey came home to check on his little sister. now that i have a daughter who is almost 21, i realized how young he was and how hard that had to be on him, what a huge responsibility it was, but he never made me feel like a word in. he always made me feel so loved and so's to work. lindsey also made sure i finished high school, went to college. he even legally adopted me. lindsey has been through my side through some wonderful times. he has been through many special events in my children's lives, emily and nicole, and he has been by my side during some very tough times.