^M00:00:14 >> John Haskell: Welcome everybody. My name is John Haskell. I'm the Director of the Kluge Center here at the Library of Congress. The Kluge Center's mission, in the words of its charter, is to reinvigorate the interconnection between thought and action through conversations and meetings with members of Congress, their staffs, and the broader policymaking community. The idea being to bridge the divide between knowledge and power. So what that means that a day-to-day basis for us at the Kluge Center is that we support scholars doing innovative and specialized work and projects scholarly work to a broader audience. This annual event, the Maguire Lecture, as well as the Maguire Chair in Ethics in American History, was established in the Kluge Center earlier this century by generous gift from Carrie and Ann Maguire, longtime supporters of the Library of Congress. The endowment supports exploration of the ethical dimensions of domestic, economic, political, and social policies, including the ethical issues associated with leadership in the United States, the implications of significant issues, events, and movements in American history, and the role of ethics in shaping business, urban affairs, law, science, and medicine. Turning to the panelists, Geoffrey Boisi, is in the middle, is senior partner and Chairman of the Roundtable Investment Partners and former vice-chairmen of J.P. Morgan Chase. Amy Friend at the end is senior advisor to FS Vector. Previously, she served as Senior Deputy Comptroller and Chief Counsel at the Office of Comptroller of the Currency in the Treasury Department. And she was Chief Counsel for the Senate Banking Committee earlier this century. Prentiss Cox is Professor of Law at the University of Minnesota, specializing in consumer protection. Prentiss is in the window pane shirt in the middle, and specializing in consumer protection and is a member of the Inaugural Consumer Advisory Board of the Consumer Financial Protection Bureau. The panel is scheduled for an hour and half, a little bit more of an hour discussion among the four panelists. I'll get to the last one in a second. She's the most important one, of course, and we'll have time at the end for questions in that period, and then of course, you're all welcome to the reception afterward. Let me introduce Cathy Kaveny, who is the most recent Maguire Chair in Ethics in American History at the Kluge Center. She was here through much of the end of last year into the first part of this year. She's Darald and Juliet Libby professor of law at Boston College, and she specializes in law, ethics, and medical ethics, areas where she has written widely, really prolifically, for academic, professional, as well as lay audiences. I'm going to turn the panel over to Kathy right now. Welcome. >> Cathleen Kaveny: Thank you. Thank you. ^M00:03:16 ^M00:03:22 All right, so, just don't think of me like John the Baptist. Can just see my head here. I'd like to thank Dr. John Haskell and the entire community at the Kluge Center for a terrific setting in which to be a researcher and a scholar. To have the resources of the Library of Congress and the congenial people who work here is a great gift for anybody trying to do any form of investigation in the past with a view to trying to improve our future. So, thank you very much for your hospitality during my time here. And today, as one of the fruits of my time at the Library of Congress, we're going to be taking about complicity and moral accountability in the Great Recession. What's the great recession? Took place a long time ago. No doubt, some of the audience members were in grade school at the time. So, I've asked distinguished Professor, Prentiss Cox, to begin our discussion by drawing on his expertise at the classroom podium, as well as his extensive background in consumer protection law and advocacy. He will give us an overview of the crisis, focusing on its effects on ordinary people, especially ordinary homeowners with mortgages. Not only does Geoffrey Boisi have tremendous experience as an extraordinarily successful investment banker on Wall Street. He has also thought long and deeply about problems of moral and structural accountability. ^M00:05:08 I have encouraged him to take some of the key ethical principles that is Leadership Roundtable initially developed to help address the institutional crisis in the Catholic Church and apply them to Wall Street, these principles include transparency, accountability, competency, justice, and trust. Finally, no one knows more about the federal government's response to the crisis than Amy Friend. As Chief Counsel of the Senate Banking Committee, she was the principal staff person responsible for crafting and negotiating Dodd-Frank in the Senate, she had a front row seat in Congress as the financial crisis was unfolding, and then became Chief Counsel to the Office of the Comptroller of the currency, where she oversaw the implementation of regulations mandated by Dodd-Frank. She will help us think about the crucial task of making law and regulations that safeguard consumers and the integrity of the financial sector. A key question then and now, what are the gaps between what is ideal from a regulatory perspective and what is politically possible. But first, I want to spend a couple of minutes outlining what I mean by complicity and accountability, two words in the title of this panel. So, let's start from the fact that we all engage in moral reflection, and much moral reflection focuses on determining whether particular actions are justified or not, this is true in day-to-day life as well as in academic discussion. We debate everything from weather and when it is morally justifiable for individuals to eat meat, snort cocaine, tell a harmless lie, turn in a friend for cheating, or litter in the wild. We also ask about actions and patterns of actions of collective agents, such as corporations and voluntary associations. Take, for example, the United States We ask, is our nation's nuclear policy morally justifiable? What about the current policies of ICE with respect to our southern border? Now despite their differences, all of these questions are first-order moral questions, they consider whether it is morally justifiable for a particular agent to do something, to perform a particular cause of action in particular circumstances. But we also face second-order moral questions. Questions of complicity. Is it morally acceptable to contribute to or to make use of the fruits of another agent's wrongful actions? And despite the abstract sounding words there, we all run into questions of complicity every day, as well. For example, should you drive your uncle, who has lung cancer, to the drugstore so the he can buy more cigarettes? That's complicity question. The law frequently deals with complicity. A famous case taught in criminal law is whether the owners of the phone answering service used by a prostitution ring were accessories to the crime of prostitution. So, questions of complicity have been around for a long time, but recent decades have brought new challenges. Our globalized, interconnected, and morally pluralistic world highlights a third order of moral problems, which I group together under the heading relational complicity. As the name suggests, these sorts of problems arise in the context of ongoing complex and unavoidable sets of relationships, such as the relationships among financial consumers, financial institutions, and regulators. Each of these sectors, and the individuals and group agents within them, has no alternative but to deal with the others. It's true, of course, that individual people can choose to walk away, but they will be replaced, because the institutions themselves and the roles they create remain. Grappling with relational complicity requires us to broaden traditional complicity analysis in two ways, first, we need to grapple with uncertainty. In long-term relationships, we may not know exactly what our actions and counterparts are doing. But we have a nagging worry. What if some of their actions are dodgy? They have the same worries about us. What do we do with these worries? Second, coming to terms with relational complicity requires to expand our thinking beyond fault to harm. Of course, we need to think about whether we have contributed to the intentionally or negligently wrongful actions of others, but that is only the first step. ^M00:10:27 We also have to consider how we've contributed to a cessation that caused unacceptable harm to third parties, even if no one was at fault at the time. Addressing relational complexity requires us to be proactive, not merely reactive. To put it another way, coming to terms with relational complicity, requires us to be accountable. But what exactly does accountability entail? In my view, it entails at least in part, the exercise of moral memory. We have to think about the past through a moral lens. But at the same time, it's not primarily about the past. It's not primarily about fixing blame, finding scapegoats, or assessing damages. Accountability, rather, asks us to scrutinize the past in order to improve the future. To put it another way, accountability is a type of ethical continuous quality improvement. Now to be effective, accountability has to be dialogical. Representatives of each sector should look not only at their own sectors' actions in isolation, but also strive to consider how they contributed to an unacceptable situation when combined with the actions in other sectors. These actions, at the time, may not have been morally culpable. We all may have done the best we could, all things considered. But we will be morally culpable if we do not work together with the other stakeholders in other sectors in order to prevent a similar situation in the future. So, the purpose of today's discussion is to engage questions of relational complicity with virtues I think are very important, honesty, empathy, and imagination, taking the Great Recession as a case study. The events that precipitated the crisis took place over a decade ago, but even a cursory glance at the papers gives rise to fears that another recession is on the horizon. So, I've asked our distinguished panelists to each offer brief opening remarks, which will be followed by what I am sure will be a fascinating conversation. Thank you very much, and thank you again to Dr. John Haskell. ^M00:12:56 [ Applause ] ^M00:13:03 >> Prentiss Cox: Thank you, Kathy. As the son of a librarian, it is a special honor to be here in one of the motherships of the library world. I have been a law professor for the last 14 years, but during, from the late 90s until the summer of 2005, I was the manager of the Consumer Protection Division at the Minnesota Attorney General's Office and was the lead attorney or in the leadership of a series of cases of subprime mortgage lenders. And much of what I have to say comes from that work, filtered through reflection in the years that followed. So, I'm going to take just a few minutes and give you the four-or-five-minute overview of the financial crisis. That should do it, right, for those of us who lived through it. And then I'll take the other for five minutes to talk about just a couple of reflections on the concept of complicity, as it applies to that. The financial crisis was the result of -- and I'm going to try to present this somewhat neutrally, although I have a clear perspective on this on what I think are points of common agreement. The financial crisis was the result of a meltdown in the subprime mortgage market that caused a financial panic. Some consensus items among fair-minded observers, in my opinion, would be that the crisis observed because the subprime mortgage origination but particularly because of the spectacular rise in those types of mortgages in the period of 2003 to 2006. The lending began and was concentrated in non-bank lenders who were not supervised by any agency of the federal or state government, substantially. Although, chartered banks, both thrifts at the time and national banks, also engaged substantially in this lending, including Washington Mutual, First National Bank of Arizona, are prime examples of leading subprime mortgage originators who were chartered financial institutions. ^M00:15:09 The mortgage crisis was, in my opinion, really two separate things that linked and put together. One was this problem with mortgage origination, which we've been talking about, and the other was the problem of securitization of the financing of those mortgages through Wall Street entities. And those lenders obtained, the subprime lenders, obtained their monies basically, just to simplify it, in chunks of money. They would lend them out, and then they would take them, pool them, give them to Wall Street. Wall Street would turn them into these complex securities instruments, which I won't go into, and Geoff would know a lot more about and could help you, and so, we had this symbiosis of people selling these subprime mortgages to actual homeowners with a financial system that securitized those loans and sold them to a array of different types of investors. In the late 1990s subprime mortgage lending was a tiny share of the market. When I first went after First Alliance Mortgage Company as the first public enforcer, or my attorney general was, to sue a subprime mortgage lender during this period, it was only a tiny fraction of the market, about 2% roughly. By the time this ended in 2007, subprime mortgages, plus, it's known as Alt A, together nonprime mortgages constituted 40% of the market. So, there was this rapid explosion of this type of lending and in a very short time period. And as it exploded, these loans became layered with different types of fraud and risk. The first company I went after, FAMCO, actually had very good underwriting. These loans weren't going to go down. A quarter of their loans were what we called A paper, the best borrowers. Yet they somehow convince these people to pay a 20% origination fee on average and had exploding interest rates of 2%, but they were actually solidly underwritten loans. By the end, they had layered in these different types of fraud and risk, including undocumented loans, interest only and negative amortization loans, teaser rates, no down payments, appraisal fraud, all of which was wrapped into churning. So, they would get the loans, then they would call people up a couple years later, as they were faltering, because they were not sustainable, they'd give them a new loan, not even two years. And they would just churn these loans to the same people over and over. This resulted, by mid-to-late 2006, with a rapid rise in foreclosure and an understanding dawning on this industry between mid-2006 and mid-2007, that this was unsustainable lending. Foreclosures -- I tracked foreclosures in our home county of Minneapolis, Hennepin, during this entire time, and it was a fairly steady foreclosure rate, all the way from the 1950s when I had data, and then it went up 10 times. I'm not talking about doubling or tripling. It went up 10 times. The level of foreclosures were horrific, and the subprime mortgage market thereafter imploded in 2007. And this was an important inflection point. At the time of implosion in 2007, we already understood there was a problem in the market and had for half a year to a year. It was generally understood, but it was a problem in the mortgage market. It wasn't a financial crisis. And there was a year to a year and a half between when we all understood the mortgage market was melting down to when we had the financial crisis which became apparent in September 2018. I believe that if we didn't have that financial panic and that financial crisis, nobody in this room would be here in this room talking about this, but the extent of damage had already been done in people's lives and in affected communities. And that's going to be my point about complicity in a minute The harm to actual people on the ground had already been done. But we began to care about it when it became a financial panic, and there was like this dislocation in time. And then, finally, once the scale of these loans and the amount of the fraud became clear, a financial panic ensued because of the opacity of these destructive instruments and the failure of the financial system to understand where the investment and insurance risk lay in it, which was layered on with the housing market that had cratered, where you had a foreclosure crisis driving more people to put their houses on the market at cheap rates, which drove down housing prices, which created more foreclosures in this negative cycle that cratered our housing market, which together with the financial crisis, caused quite a problem. Now I am a bit of a time Nazi. I have taken longer than five minutes. So, I will be extremely quick about making my two points about complicity. I think if you look at the law, in civil law, we have this thing called aiding and abetting, which is actually a pretty good colloquial expression of what complicity is. ^M00:20:03 And it focuses on a combination of the knowledge that you have that the tortfeasor was engaging in the act and your assistance for that, and if you apply that to the crisis, I want to be two quick points. One, started the ending. In fact, start after the ending. After the financial crisis happened, I'd been working in the trenches up to that point, I thought finally. We're all going see that there was a lack of proper supervision. There was a lack of, you know, what the problems were here, and I was actually stunned. You might look at me as naïve, but I was a little stunned how the narrative shifted like that, and all of the sudden, we have Rick Santelli giving this rant. Even in 2014, I have a quote here. "No regrets. It was about contract law and about the government promoting bad behavior." The Cato Institute in the fall of 2009 had a forum on whether the Community Reinvestment Act, or the Government Community Reinvestment Act that had caused investments in poor communities, was the cause of the crisis. There was a blaming of Fannie and Freddie, the secondary market. They had their problems but no fair-minded observer would be looking to blame the actions of government in promoting housing as the cause of the crisis. The inaction of government in being an effective police on the market. Yeah, that's what it was, and that was a substantial part of the problem, but the idea that government programs caused this is absolutely absurd. These were instruments invented in this non-bank market, financed by Wall Street, Wall Street began to drive what instruments look like later. They were aggressively sold to people who did not create collateralized debt obligations, did not create 228 loans. The fault of the home owners was not being sophisticated enough to resist a very aggressively sold pitch, which by the way, was greenlined. In other ways, they went and found people who had equity, and they targeted them for refinances, which is what this market entirely was until just the last couple of years of it. The complicity of the people who in this stage, they had full knowledge of what had happened, and they were insisted -- they assisted in remaking that narrative, which in my opinion, makes a second crisis more likely. That's complicity in my view. Number two, another point I'll pick out. There was a prevailing at the time, at the time leading up to the crisis. We privileged abstract knowledge, and we discounted human experience. My personal view is that the wisdom, as a government regulator(ish). I've been an enforcer, as well as in the academy, lies in this intersection between understanding what's really happening in people's lives in the abstract knowledge and data that come about how our systems perform, and seeing the relationship between those. But leading up to the crash, the people who were on the ground pulling the alarm -- by the way, I do not believe this -- I believe the nature of the financial panic and the specificity of what happened was not predictable. But the idea of the subprime mortgage meltdown was utterly predictable, and it was predicted by all of us on the ground who were talking to the people whose lives were affected by these instruments. But that knowledge was not the kind of knowledge that people with power cared about. He was dismissed as anecdotal rather than saying why is this happening? Why are all of you who represent these communities coming to us and telling us that this is going on when it doesn't show up in our data? Instead, there was a sense that this was unimportant information, and I think that we can learn from that. That we can learn from that type of knowledge and who we listen to and who has part of the dialogue, in terms of how we think about these in the future, thank you. >> Thank you. Okay, we'll turn it over to Geoff. >> Geoffrey T. Boisi: I want to add my thanks to Cathy for bringing us together today and to raise important questions in a thoughtful and honest way to shed light on a very complex puzzle that affected the lives of millions around the world in a very profound way. The financial crisis that led to the Great Recession has many, many fathers and mothers and was, in my view, building over the decades from the law of unintended consequences, culminating in a perfect storm, leading to a massive loss of trust among the populace, which persists still today. Its birth, at its core, was a result of bureaucracies, both public and private, and some of their leaders not adhering to their core missions, core values, and rigorous implementation of the checks and balances they were chosen to oversee. Many of these supposed leaders were too focused on the short-term, with transactional solutions and not enough on the consequences to the common good, nor the longer-term implications of their actions. Crises that cause severe financial distress fundamentally occur as a result of deep uncertainty and loss of confidence in the system and its leaders, not just in financial institutions but in the many constituents who impact decision-making. ^M00:25:34 Political leadership, social policy makers, regulatory policy makers, monetary policymakers, management and boards of directors overseeing financial institutions, the media, who has a penchant for stirring the pot of mistrust and with their 24-hour news cycle, create almost a manic environment, and individual consumers and investors buying into a cultural attitude of me first. I win/you lose polarization. Trees grow to the sky casino mentality, which create momentum buying. Each of these contributed to creating a perfect storm. So, to use Cathy's term, complicit. Many people were complicit at many levels and not acting with accountability. And we can get into as much detail as you want in the Q&A, but the broad strokes are that the match that lit the fire was the mortgage crisis, as Prentiss just talked about. Particularly, the subprime mortgages, which coincidentally, because of their size, could have been cauterized. But it evolved into a deeper financial crisis due to this loss of trust, throughout the entire integrated, global financial system. In my view, there's been a fair amount of glib scapegoating over the years, with a strong dose of revisionist history, which I trust we can avoid today. I come to this great house of learning with a perspective of some 50 years in leadership, in both the for-profit and the not-for-profit sectors, with particular experience in the financial services industry, having served on the management committee of Goldman Sachs when it was a respected private partnership, and J.P. Morgan at its conception, but prior to the crisis, and as a reform director of Freddie Mac, having been asked to help clean up after the accounting scandal, and I actually was in the room when the government forced that institution into conservatorship, which in some eyes, was unnecessary and actually fueled the downward spiral of confidence in the markets. So, I had a front row seat to how the various participants conducted themselves during this stressful period, which some would say was in the fog of war. I do not come to criticize individuals nor decisions made during that period, as I believe any experienced leader in the midst of crisis is doing the best they can with the circumstances and facts at their disposal and given their particular background and base experience. But we can analyze outcomes and alternatives to prepare for the future. Financial crises not only upset financial institutions and markets. They can undermine the very fundamental foundation of an economy This is because the financial institutions' role in today's national and global markets is both critical and indispensable. To perform their roles well, that is, to keep the wheels of commerce and industry spinning smoothly, financial institutions must balance their private interests with broader social and fiduciary responsibilities. We entrust them with our savings, both short-term and long-term. We rely on them to allocate capital and credit to households, to business, to governments, and at the same time, they perform fiduciary responsibilities as custodians of these funds. But additionally, financial institutions are propelled by an entrepreneurial drive to grow and profit, to attract capital, and high-performing professionals so they can do their work. I believe the American capital markets' infrastructure is one of the country's most important assets, which gives us a global competitive advantage, and is crucial to our free enterprise system, which is the envy of the world, and therefore, needs to be carefully and thoughtfully nurtured and secured. Having said that, sometimes, however, entrepreneurial risk-taking overwhelms the restraint demanded of fiduciary responsibility. When that happens, the result is volatility, economic dislocation, and at worse, financial crisis. ^M00:30:16 Common threads run through the dozen or so many crises that occurred before the great recession over a 30 or 40-year period of time, and they were also evident in the mortgage crisis. There was excess use of credit. There was discernible lowering of credit standards. There was a heavy reliance on leverage, and usually, these times were preceded by a period of period of euphoria. And typically, postulates the creation of a modest regulatory reforms afterwards. Now with regard to the great financial crisis that we just encountered, there's no doubt that there were irresponsible, unsavory, and in some cases, illegal mortgage lending practices, and that surely played a role in the credit crisis. But that, in my opinion, was just the start of an understanding of the causes of what actually occurred. For it was the outgrowth of a set of potent, long-term, structural changes in policymaking, changes in business and financial markets, as well as political and cultural pressures, which were mounting over decades. Almost 100 years ago, when many small banks collapsed and depositors lost their homes, businesses, and life savings, the public lost confidence in the banking system The response was the creation of the Federal Reserve System, the Fed is the central bank, which would become responsible for overseeing monetary policy, establishing interest rates on government lending, and providing the safety net of support during times of stress, as well as providing regulatory oversight of the banks. And then, in 1933, the Glass-Steagall Act was created, and this is where there was a separation of commercial banking activities, these deposit-taking, lending, fiduciary custody of funds from principal risk-taking, capital creation, stocks and bond trading activities of the investment banks. At that particular time, many people felt that the commercial banks being involved in those risk-taking activities was a causal factor to the Great Depression, and thus, the SEC was the oversight regulator to the investment banks. Then in 1938, Fannie Mae was created, the Federal National Mortgage Association, to encourage greater home ownership, which was a good thing, making mortgages available to low- and moderate-income families by purchasing from banks and guaranteeing them through the secondary mortgage markets. But in 1968, Fannie Mae became an independently publicly owned company who now could buy any type of mortgage, not just government-supported, as they were originally conceived. And then in 1970, Freddie Mac, Federal Home Loan Mortgage Corporation, was founded, as a government sponsored entity. Also independently publicly held, and they typically bought and guaranteed mortgages from smaller banks and thrifts and provided market competition for Fannie Mae. Now both of these companies had gerrymandered government oversight. They did have fiduciary -- banks, boards of directors that had fiduciary responsibility, but they had congressional oversight, housing and urban development deployment quotas to fulfill, oversight by the Office of Housing and Enterprise oversight. The Office of the Controller of the Currency, the Treasury Department. They to follow SEC accounting rules, and behind the scenes, the Fed always had a design on oversight, and an ideological problem with their existence, and as we learned, as we got into it, those feelings and thoughts were very intense, and actually in some instances, quite personal. Then in 1974, the Employee Retirement Income Security Act, ERISA, came into being, which set rules for fiduciaries to present misuse of pension plans. So, as companies like Fannie Mae and Freddie Mac, and the bank were growing and, expanding, institutional investor activists started to clamor for greater stock performance, resulting in quarterly earnings performance scrutiny, which caused greater short-term decision-making and expansionist risk-taking moves on the part of the managements of those companies, in order to increase their -- the value of their stock. ^M00:35:22 In '77 the Community Reinvestment Act was established to encourage commercial banks and saving associations to help low- and moderate-income families to more easily develop borrowing and mortgages by low to moderate income families. During that period of time, in order to comply with some of those regulations, there was a compromising of traditional credit standards. In 1992, the Housing Community Development Act arrived, allowing HUD to increase quotas on the subprime housing lending of Fannie Mae and Freddie Mac, which in the year 2000 reached 50% of all of the mortgages that those institutions were raising. That was done by quota. It was a government-ordered kind of thing, and I will tell you just on a personal note, it was one of the first board meetings I attended, and I remember the CEO of Freddie Mac getting up and saying to the board. "Look, we do not think that this is the correct thing to do, because in order to comply with those quotas, we're going to have to end up marketing these securities to people that should not, you know, have the securities in their hands. We don't know what the ramifications of that are going to be, but we're going to take those ramifications, because we don't think it's the right thing to do. Then in 1999 the Gramm-Leach-Bliley Act came into play, which eliminated the separation of investment banking restrictions on commercial banks, allowing banks to compete again with Fannie Mae and Freddie Mac for the securitization of mortgages as well as the other investment banking, risk taking activities. Now alongside these social and regulatory monetary policy shifts, over time, the financial service industry was evolving, as well. A move away from the problem-solving advice on strategic and capital raising moved more towards the trading environment, including the expansion, some would say the explosion of securitization, particularly as credit instruments, like mortgages. These instruments were supposedly tradable. And compounding that problem, there was a proliferation of the predominance of marketable obligations, CDOs and other kinds of contrived sort of investment options for the fixed income market. And the result of that was the credit crisis was much more readily contagious around the globe, because of the existence of those securities. It became more difficult as the markets became more opaque, with the financial system expanding and more complex and more interconnected than ever before, through counter parties, global counter parties that were really new on the scene in the utilization of these securitized investments. So, simultaneously, with that, you have the expansion of the fixed-income and equity commodity side of investment banks, as well as the move toward globalization and principal investing brought greater demands for capital, which drove the heretofore private partnerships where their own capital was at risk, to become public companies, and now captive of the shorter-term results demanded by the institutional investors governed by the ERISA obligations. The traders of those organizations started to grow in power within those firms, and they became the leaders of those institutions, bringing a shorter-term transaction-oriented market-to-market view of the world rather than the longer-term relationship problem-solving, sort of statesmanlike advice approach that the traditional investment banks and commercial bank leaders had done in a previous era. The boards of directors and regulatory agencies and rating agencies, in many instances, lacked the knowledge and experience to accurately assess the risks involved in the proliferation of many of these complex products. Plus, in some cases, found themselves conflicted by the loyalties to their constituencies and the competitive aspirations and the demand of their shareholders over that period of time. ^M00:40:22 The Fed, in particular, during this period in the early 90s, start to ease monetary policy and actually exercise the lighter oversight on the commercial bank because of their new-found powers, which they were encouraging, and therefore, unwittingly contributed to the environment of exaggerated trading. All these factors started to come together in the early 2000s. First when Fannie and Freddie found themselves in the accounting scandals, ironically for absolutely opposite reasons. They shook the confidence of the stock market in both of those companies, and both companies came under intense pressure from the government, at that point, to spur the growth of the housing while confronting intense regulatory and political oversight. Both companies sought to bolster their equity capital as the value of the housing stock started to go down and market-to-market accounting provisions required them to write down loans, and the assets on their balance sheets, making financial, conventional financing problematic. When the political considerations came into play, leaving the market questioning the viability of the implied guarantee, which had persisted from the founding of these institutions, the stock market -- the stock in these companies absolutely tanked. You know, because the government didn't work with the companies and the boards of directors to work the problem, because they unilaterally had decided to go down the conservatorship rule, it was so wrenching to the equity market it further contributed to the downward cycle and the loss of trust, and it actually reduced the ammunition available to the government in dealing with some of the other problems that they were confronting, and fear took over the markets, and the rest is real history. And so, from my standpoint, that is the evolution of what happened. Now this is story of unintended consequences, violation of basic principles of standards of excellence in governance, lack of communication, a lack of foresight, political infighting, a lack of honest learning and reflection, and a lack of accountability on the part of many, many leaders, and as we go into the Q and A and the discussion, I think we can get into the -- some of the more specifics of that. >> Amy Friend: That was some amazing history. I'm not sure I agree with all of it, but I'm going to move forward and talk about the congressional perspective when the crisis hit, and thank you, Cathy for bringing us together in our different perspectives. I think it will be an interesting conversation. So, when the financial crisis hit hard, and you've heard the lead up to it, and there are many events that foreshadowed it, including the crashing of the mortgage securities market in August 2007, the government swung into action. Not always consistently but boldly and in unprecedented ways. And there were many government actors, as you heard from Geoff, who had pivotal roles leading up to and dealing with the crisis, but I'm going to focus on Congress's reaction, because that's where I had a front-row seat, having been the Senate, the Chief Counsel to the Senate Banking Committee during the crisis, and I want to talk about to critical responses to the crisis. That was the Emergency Economic Stabilization Act, which created the Troubled Asset Relief Program, and then Dodd-Frank. So exactly 11 years ago today, on September 17, the chairman of the Federal Reserve Board, Ben Bernanke, and the Secretary of Treasury, Hank Paulson, requested a meeting with the leadership of the House and Senate, and they met, and that was then Speaker Pelosi's office. And they told the assembled leadership that the US economy was on the verge of collapse, and that if Congress does not act with an overwhelming show of support for the financial services -- for the system, then we would have something that exceeded the problems with respect to the Great Depression, that would be more of a magnitude than the Great Depression with global implications that we really didn't have in the 1920s. So, congressmen and senators were shocked when they heard this, right? They could see -- they knew that things were going south, but they had no idea that it had reached that critical point. ^M00:45:32 They were told they had one week to provide $700 billion in assistance to the Treasury Department so that the Treasury could actually purchase these bad mortgages and mortgage-backed securities that they said were clogging the plumbing on banks' books and preventing banks from trusting each other and seizing up lending. So, let me just set the stage for this. This was September of an election year, a presidential election year. This was President Obama's first term. So, election -- it was a race against John McCain, and everybody knows in Washington the conventional wisdom is you cannot get any meaningful legislation passed in this critical time period because partisanship is even more prevalent than it usually is. George Bush was the Republican president with an all-Democratic house and Senate, and it was an incredibly scary time. So, very few experts in this area in Congress, and we could all just watch CNBC with the sort of, you know, sharks circling the next company, the next weak company that was going down. So, by then we had Bear Stearns collapse, which was a big investment company, investment advisor, and we had AIG Insurance Company that was going down. And Lehman Brothers was allowed to fail. So, some companies were sold. Some companies failed, and I think the market and members of Congress really didn't know what to make of it. So, members of Congress believed they had to act in order to forestall ruinous consequences for the country, and the question becomes how did a bill aimed at saving the American economy become so wildly unpopular? From the start, constituents were overwhelmingly against the bill, and they were phoning in to their members of Congress asking them to vote against the bill, but members of Congress believed they had no choice but to support the bill if they wanted to prevent the economy from plunging into the very depths. They believed what they were told by the Treasury Secretary and the Fed Chairman, who had been a student of the Great Depression, that the best way to keep Main Street going was to keep money flowing to MainStreet was to prevent the collapse of the giant institutions that had contributed, in some form or another, to the crisis. So, why couldn't Congress deliver a bill, a better bill you might say, for consumers, one that actually had the support and got their confidence? I think three factors worked against the Congress. One was the need for speed. So, they were given one week to do something that normally Congress might take years to do, and they did so within two weeks. So, I remember at that time I got very little sleep, and I often was driving home when the sun was rising to get an hour's sleep and take a shower. There was no time to conduct hearings and really deliberate and hear from constituents and hear from different groups, hear from lobbyists, hear from consumers, hear from industry. It was something that had to be done very quickly. Complexity is the second. So, speed is one. Complexity is the other, the system was wildly interconnected. Giant companies were really falling like dominoes. Few in Congress have the expertise in financial services or had a good handle on what was unfolding. So, they really had to rely, to a great extent, on those who had expertise like the Treasury Secretary. It though even this was brand-new ground for him, right? Most people were not alive who had lived through the Great Depression. So then, the third was Treasury Secretary Paulson's ideology. He had been a former chairman of Goldman Sachs, and he knew the markets, and he insisted that CEOs of these big companies, of these big banks, would not take any assistance from the federal government, if any conditions were attached. And he was so convinced that they needed to take assistance to restore faith in the financial services system. So, he said no conditions attached, and members of Congress argued vociferously against that narrative, saying that they could not go back to their fellow members or their constituents and say we just gave this free pass to this industry. ^M00:50:23 So, they fought for and won limits on executive compensation of senior executives in companies that took assistance, federal assistance. Warrants so that taxpayers would actually get the upside of these companies ever became profitable again. Nobody really knew. Foreclosure assistance, you heard Prentiss say. There was a huge foreclosure crisis, but even that met with some resistance within Congress, where some members of Congress said, but that's moral hazard. We have constituents who have paid their mortgages. Why should people down the street or in the, you know, next congressional district, why should they get bailed out, when these folks didn't? So, many of these points that foreclosure assistance was there. That there was a limits on executive compensation, etc., were lost on the public. All they heard was this is a bailout it's a bailout of companies that, again, had at least some role in the crisis. Today, I highly doubt that Congress would pass anything like TARP again. I think members of Congress lost their seats. I think a lot of the anger that we feel today was fulminated by the crisis and the perception of a bailout, but I am also convinced that if Congress did nothing, the American public would have suffered terribly. I don't believe that we would be at 3.7% unemployment now, it was 10% then, and it would've gone up, and most economists believe that the TARP was very effective, along with a number of things that other government agencies did. So, Congressman Barney Frank, former Congressman, likes to say that TARP was the most wildly unpopular highly successful major program that actually, I think, did have a big role in saving the economy and returned money to the taxpayers. So, now let me just turn quickly to the Dodd-Frank Act. So, you have heard from both Prentiss and Geoff about some of the staggering consequences of the crisis. Millions of people lost their homes, millions of people lost their retirement savings. Millions of people lost jobs. It really was staggering, the government provided not just the $700 billion of assistance from Congress, but literally, trillions of dollars in assistance in one form or another from the FDIC and from all of these programs that the Fed had actually set up to help the industry. It was just, I think, inconceivable that any single member of Congress might think they didn't have to deal with some of the underlying structural problems that led to this crisis. The group of 20, which is a group of countries, major countries, had gotten together in November 2008, soon after the crisis, and they agreed on the causes. They said it was these bigger macroeconomic policies that created a lot of easy money that was looking for higher returns on their assets, coupled with the weak underwriting, which you heard about. These opaque financial instruments called credit default swaps, which let companies hedge their risky best. The risk management practices that were fueled by some of these credit default swaps. Excessive leverage where the companies didn't have enough capital to meet their obligations. Policymakers and regulators that were kind of asleep at the switch but didn't see the risk that was building up in the system or understand some of these financial innovations. Okay, those were the causes, and they actually came up with solutions, too, that all of the governments agreed that they would work to implement, and that included better consumer and investor protections. All you had to do was see this mortgage crisis to know that consumers were given something that was exploding. Basically, it was exploding. Basically, it was a ticking time bomb. They said you needed expanded regulation over these actors that were never regulated to begin with. Transparency around these complex instruments, these derivatives, better risk management, more capital, a regime to actually unwind a company like Lehman Brothers that failed that was put into bankruptcy, but bankruptcy was never adequate. So, come up with something new so you can let one of these companies fail without bringing down the system and strengthen regulation of credit rating agencies that took a lot of these junk bonds and gave them the highest ratings. Okay, Dodd-Frank and the legislation from its very beginning contains all of those elements, and yet passing Dodd-Frank in the Senate to not a single vote to spare. So, it was 60 votes that was needed to overcome a filibuster, and 60 votes that were garnered, and that was it. So, briefly, what elements conspires against Dodd-Frank? ^M00:55:15 This is what Cathy wanted me to think about. What were the constraints that Congress placed? I think there are four. Two of them are the same that they faced in TARP. One is complexity. The crisis had -- you heard Geoff and Prentiss talk about there were a myriad of causes. There were things that built up over many years. And so, it was myriad causes that defied a simple solution. No simple solution. Second, the industry had created a lot of the complexity. These credit default swaps are a way to help them manage risk, which turned out to just concentrate risk. These incredible interconnections amongst these big companies that they didn't even understand themselves or the extent of the affiliates that they had within their companies, and the risks that they were taking on and spreading. I think few had any understanding of that. The third was the regulatory regime in the United States is so incredibly stratified and complicated, and you may not have paid attention to Geoff's slide on Dodd-Frank and all these little bubbles of all these different obligations that are -- were put upon a number of different regulatory agencies, but you know what? Dodd-Frank inherited most of that. And when Senator Dodd tried to streamline just the banking regulators, there were four at the time, plus 50 state regulators, it had no traction because they were too many interests invested in the status quo, both amongst the regulators and industry. And I'm convinced that when the public isn't educated about something, like they don't know how the whole regulatory system works, then it means that entrenched interests tend to win out. Okay, so complexity. Speed. I think members of Congress realized that if they didn't act within one Congress, that the opportunity would be gone, and memories are short. They already are. Cathy said this happened a long time ago. To me, 10 years is like nothing. And we're already, you know, deregulating, and I think a lot of people have forgotten we ever went through this crisis. So, finally, I think money and access had a lot to do with responses, and made it so difficult to pass. The Center for Public Integrity said over 800 organizations were lobbying on financial reform, and it wasn't to pass the bill for the most part and spent over a billion dollars, and that doesn't count the millions of dollars that -- in campaign contributions to key members of Congress. And there was a point where threatening to kill the bill was actually a great way to make money. So, the final thing I'll point to is what I think was a lack of leadership. I do think the bill sponsors, Dodd and Frank, were exemplary leaders who understood their bodies and how to get something passed and did so particularly in the Senate at great odds, but I think partisanship ended up trumping what I would say is the patriotic duty to move forward with a solution. The leadership in Congress never prevailed on the banking or financial services industry. The very companies that took a lot of the money, the federal assistance, to come to the table and engage with members in a constructive way to find a reasonable path forward, and I would say the industry leaders never got together in a constructive way to demand that Congress work together, Republicans and Democrats, to find a clear solution forward. So, against this backdrop, finding a middle ground was incredibly difficult. Given so many things working against the bill, it's incredible that it actually passed, and I would say, I think, it's worked pretty well. And so, despite all odds and all these constraints, we moved forward, but it shouldn't have to be this hard. I think there was a response. I think that the core elements of Dodd-Frank are quite good, and those are the ones that the group of 20 agreed to, but it should never have been that hard to pass. >> Cathleen Kaveny: Well, thank you all very much for just fascinating vantage points on with an enormously complex problem. I'm just going to ask a few questions that I think are -- they're not meant to be technical, they're meant to be just a little bit more, you know, basic, try to bring in some of the moral and the political and the, you know, the normative into this multifaceted crisis, and I guess the first is more for you, Prentiss, but for everyone. One of the things that we don't agree about in this country is what the purpose of law is. You know, especially law that engages consumers. Is the purpose of consumer protection law meant to be to protect consumers from outside influences from fraud, duress, undue pressure? ^M01:00:30 The sorts of things that can invalidate a contract, or is it also meant to protect them, in a way, from themselves. You know, so many of these, you know, the subprime mortgages involve a combination of pressure, but also of people wanting things that maybe, you know, were beyond their capacity to afford. How do you balance protecting people but also honoring autonomy and responsibility in setting regulation? >> Prentiss Cox: Okay, two minutes, all right. We already have a structure to contain fraud and deception. We have the general principles of law that do that. I would reject the underlying premise of your argument, as it applies here and more generally. It's just not my experience with what happens with people. Let me talk about how these mortgages were sold, and I think that will answer the question better. If you're somebody who's there, these mortgages were sold, not sought out, generally speaking, and that was particularly true in that period of 2001 to 2005 where the crisis was building so substantially. The homeowners with equity in their home were targeted by the subprime companies and were aggressively telemarketed, even door-to-door knocking, and they were sold and they were told the number one pitch you hear over and over again, is here's your overall monthly debt, and if you enter into this deal, we will lower your overall monthly debt. This idea that people were getting these to build next to room and a swimming pool. Actually, some of that happened -- a lot of what happened was investors doing that in a fraudulent way that wasn't controlled. When we're talking about the average homeowner, the typical homeowner got a refi loan that someone aggressively sold to them and told them it was financially prudent, and the instrument itself was incredibly complex, it had an interest rate period. The disclosures were misleadingly sold, and it looked like they were getting a better deal. The fault of the homeowner was not being sophisticated enough to see through that and resist it, but that's not really a fault. I mean, they were told, basically don't trust anyone that comes to your door would be the answer to that, and that's destructive of our markets as well as our communities. So, my experience in this field rejects that premise. I don't think that most people are irresponsible and profligate and all of that. I think that they live in a complex world. They're asked to make incredibly complex decisions that most people don't do on their jobs, unlike maybe us, and I don't think that most homeowners and most consumers are greedy, terrible people, and I think the point of consumer protection law is to make sure that we have products and services that actually appear to be as their sold, and that wasn't the case in the crisis. I hope that wasn't too much. >> Cathleen Kaveny: No, thank you. Any other comments on that? Do you -- do either of you two want to add anything? >> Amy Friend: So, I think there has to be something beyond just the you can't mislead somebody, right? I do think there has to be this concept of suitability or things like ability to repay, which is now in the law. Which is, you could give the disclosures about exactly what this product does, but if you know that the person cannot pay back based on what they have, why should we go ahead and sell it to them? And I do think we have the idea of consumer from protection in all sorts of products. Financial services is another product, and it's basic and it's fundamental and we don't sell dangerous things like, I mean, toasters and microwaves and things that just because we say these things could happen, right? If we know that they're likely to happen, they're not going to be sold. So, I think it goes beyond just you can't mislead somebody, because a lot of the disclosures are very opaque. People don't necessarily understand, and I do think there has to be some responsibility. I also think it's better for the financial system, right? If banks and financial services companies are selling things like if their customers, if they can't pay them back, that's not good for their customers. That's not good for the bank. >> Cathleen Kaveny: Okay, thank you. Geoff, do you have any? >> Geoffrey T. Boisi: No, I basically agree with both of the comments that were made. You know, there are -- you have to look at the qualities of the companies that were doing it, and there clearly were -- there were companies that were doing disreputable things. The issue is, you know, what is the oversight of that? And you know, usually, when you're selling securities, you have to go through licensing, and there is an oversight process to that. Now, in the mortgage industry, I'm not exactly sure what some of the you know, specialized mortgage companies, what requirements there were there. I don't think there were. You know, through the traditional banks, investment banks, and what but not, I don't that's where the issue was. I think the issue was really, you know, it was some of these specific mortgage companies. ^M01:06:15 >> Prentiss Cox: Could I just add one thing to that? This is an example. Early in the crisis, like I said, the first company I went after FAMCO. It's unbelievable, and where did FAMCO get their money? They got their money from Lehman Brothers. Lehman Brothers went in and looked at FAMCO. before they started lending the money and wrote a due diligence memo, and in that memo it said, paraphrasing, if we're going to deal with this company, we have to check our morals at the door. Well, they did, and they gave them all the money they wanted. This isn't a case of, you know what I mean? The money came from Wall Street, which was not part of the chartered bank financial regulatory system. It happened outside of that. We let all of that happen. In my opinion, in the name of ideological reasons, and we didn't see it. We let this whole world grow up outside of the New Deal regulatory system, which, by the way, I'll add, worked for about four generations. We had a system that worked, and starting in the 1980s and for about 20 years, we destroyed it. Our system did not have these collapses. They didn't have the S&L crisis. They didn't have all this financial panic and instability. We had a system that worked, and we made a political choice to destroy it, and I think in there is an important lesson. >> Cathleen Kaveny: So, Geoff, the next one's for you. Most people don't know exactly what goes on on Wall Street, and they don't work on Wall Street, but we have a lot of movies about Wall Street. We have Gordon Gecko who said, "Greed is good." And we've had a lot of dramas about that. Now there's two problems with this, right? One problem is that we have people who are attracted to the field who think, well, maybe I want to be Gordon Gecko. Maybe this is the way I want to live my life. Maybe this is a realistic way to think about amassing money, on the one hand, and then you have the American people on the other hand who think that the story of the collapse is really almost like a, you know, a telenovela, which is about, you know, clear villains and clear heroes and, you know, a bemused Greek chorus that you warning everyone to avoid these failings. How do you think you go about, or how we could go about, you could go about, encouraging, you know the pursuit of success, obviously on Wall Street but also integrating the values that you talk about, you know, integrity, honesty, responsibility? That's one question and how do you get across to the American public that these movies really are just a very simplified vision of how a great financial crisis can come about? >> Geoffrey T. Boisi: You know, as I've said to you privately, I mean, I find it abhorrent that, you know, financial services industry and businesses is exemplified by the Gordon Geckos of the world. That, to be honest with you, has not been my 50 years in business. And you know, fundamentally, whether it's a financial services institution, a business, government, university, or whatever, it's the leadership culture that is developed within the organization and how one does that, and I think that's where the violation really took place, you know, throughout the system, to be honest with you. And you know, my experience is, those firms that are high-quality firms who do a good job, have -- operate by a standard of excellent in building a culture which basically has a defined mission statement. ^M01:10:15 They, you know, it's usually based on providing the highest quality and services or goods they can find. The client's interest comes first. There's a commitment to integrity, say what you mean. Mean what you say and do the right thing, and we used to spend an enormous amount of time at management committee meetings, both at Goldman Sachs and at J.P. Morgan when I was there and at any of the institutions that I've been involved in is to what the right thing is. What is the greater good? Is this going to harm anybody, including us reputationally, or harm anybody in any way? And how does this solve the problem for the client, and that's what most of the focus was put on. And then there was a commitment to excellence, where there was rigor in there was reliability, and typically, there was a compensation system that was set up to reinforce the behavior that the leadership wants to have, and then there was a, not only governance structure, but a evaluation system to make sure that those -- that mission in the core values of the organization are reinforced. The organizations that I was involved in, we spent most of our time focusing on that, I will tell you, I said before, I was part of the Freddie Mac, and it was the, you know, the reformation of Freddie Mac after it had the accounting scandal. And the guy who's been vilified throughout the years, the one name mentioned his Dick Syron, who as the CEO, and he was the guy that I was mentioning before, who stood up in front of the board of directors and basically said we're not going to do this, and I don't care what they do to us, and I hope you're with me. And he tried to design a culture within that organization to bring it forward. So, I think the focus on how you develop a culture of honest excellence is really the issue, and I think a lot of organizations try to do that, but there's no question there were a bunch of bad actors. But my experience over the 50 years was never sitting around with organizations figuring out how we can take advantage of somebody. >> Cathleen Kaveny: Any other comments? >> Amy Friend: The only thing, I completely agree. I think culture is hugely important, and the Group of 30, which is an organization with different countries represented and a lot of central banks from around the world, they've looked at banking conduct and culture leading up to the crisis, and they've concluded that culture is so important, including accountability throughout mid-level management, etc. But one of the things they point out is the need for diversity in decision-making, and I think that has largely been lacking in a lot of these big companies, which is that you can't just have a homogenous group that becomes an echo chamber. They're very confident in decision making because people tend to agree, and that when you have more diverse leadership, people who are making decision throughout the company, you end up hearing different voices, and you tend to have messier decision-making, but one that is much more informed. So, I think that's something that companies now are really paying attention to and looking in terms of minority and gender diversity. I think that's going to an important part of solution. >> Prentiss Cox: In addition to that, I would say that the checks and balances that are developing and are being more readily adopted. You know, having an independent lead director, I think, is an important, constructive thing, and to have people on the boards who are not beholden to the CEO of the company, and the compensation system for board members should be looked at pretty carefully, in order for them not to, again, be conflicted by the, you know, by the compensation that is recommended by the CEO. >> Cathleen Kaveny: Thank you. I'm going to start with you, Amy, for this one. Just, again, a lot of my knowledge is coming, you know, very recently and also from some of the films about this, but one of the things that's come up both of the scholarly and the popular analysis of the situation has been the, kind of the relationship between Wall Street on the one hand and the regulators on the other. ^M01:15:18 On the one hand, it seems as if it's been almost too distant. The regulators didn't get a good grasp of what was going on until it was almost too late, and on the other hand, it was almost a little bit too cozy, where some regulators, perhaps, and some rating agency employees, you know, didn't want to really challenge some of the bad behavior that was going on because they had their own interests in maybe one day being employed by Wall Street. Do you think we've got a better balance, a better set of relationships between Wall Street and regulators and, you know, rating agencies now than we did back then, and if not, what would you want to do to improve it? >> Amy Friend: So, I don't know whether I would blame the crisis, at least in part, on regulators being too distant. They just -- I think they were reluctant to act, and part of the problem is, one they may not have understood everything, I think the industry was far ahead of the regulators in terms of financial innovation like credit default swaps. Nobody was really understanding that, but there are so many, at least in the banking area, there are so many regulators. There are four of them that were in existence before Dodd-Frank. Now there are three, and they like to act by consensus, and I know that they saw what was going on with the mortgage crisis, and I know they started with some guidance, but they wanted all four agencies to get on board so that the banks that were regulated by one would not be seen as having a competitive advantage if they weren't subject to that guidance. So, I think part of the problem is, that we sought leading up to the crisis and regulatory arbitrage where certain companies were looking for less restrictive regulators. So, I think that's a problem. And there's definitely some concerns that the regulators are too close, right? It's a remove human nature if you spend a whole lot of time with certain people, you get to like them, and you don't necessarily want to do things that they don't like. But clearly, the best role for the regulator is to be somebody that can look objectively. Can also provide advice, but you have to call the shots when you see it. So, has that changed? I don't really know. I'm not really sure. >> Geoffrey T. Boisi: I think you need character and competence in a combination. You know, my observation was, to be honest with you, going through the crisis period. There was a bit of a cookie-cutter approach to dealing with each of the companies, when each of those financial institutions were very different financial institutions and should have been dealt with in a slightly different way, not in a cookie-cutter way. And part of the problem was that there was not enough knowledge, specific knowledge, about the operations of some of those businesses, you know, by the regulators. And so, but, just like on either side of the fence, I think you have to find people of competence, but also of character, and those are the people that, you know, should be chosen to do those jobs. >> Prentiss Cox: I see it from a political power structural problem. So, you have on this chart in front of you this CFTC. The CFTC tried to regulate derivatives way back, 10 years before the crisis, and they were shut down politically from doing that because we have a system where people can buy political influence, and the financial services industry shut them down. It would've made a huge difference in the crisis. The banking regulators -- Amy, you can bite my head off at this if you want. We don't have on their the OTS. They got the death penalty in Dodd-Frank and it was -- oh is it on there? >> Amy Friend: I don't think they have that. It's not up on the screen. So, they're not seeing what you're talking about. >> Prentiss Cox: It no longer exists. It got the civil death penalty for good reason. Because the OTS was out there basically selling itself of the arbitrage, as Amy was mentioning. But I want to go after Amy's group, as well. The Controller of the Currency, the OCC, went out and said we have a structural problem with our banking regulators. They get over 90% of their money from their regulated entities, but the regulated entities get to choose who their regulator is, essentially. They can charter as federal or state. They used to be able to charter as a -- so you had the OTS basically saying "Come to us, and we won't regulate you as much." ^M01:20:01 And you have the OCC hawk actually saying, "If you come to us, we'll stand between you and those pesky state Attorney Generals that will go after you for fraud. They're literally saying this to the banks. It's a reason to do. So, we have political and structural problems here that can be solved by developing politicians and electing politicians who are committed to a public interest restructuring of the system as happened in the New Deal and did not happened in response to this crisis. >> Amy Friend: Right, and I would just say I'm not going to bite your head off because I do agree with the arbitrage and the first bill that Dodd put out actually would have taken on directly that problem amongst the bank regulators, and it is true that when you have one bank regular depending upon assessments on institutions and the other two that aren't, it does create some perverse incentives, the other thing is when you talk about competence, Geoff, I completely agree with that. You know, regulators pay a fraction of what the industry does, and so, a lot of people, just for compensation, are going to go to the industry and not go to the regulators, and the regulators have a constant need to keep up, and it's very difficult to do that. >> Cathleen Kaveny: Great, well thank you. I'd like to -- we've got a-- >> Geoffrey T. Boisi: I should just say, but there should be a much more coordinated regulatory system. >> Amy Friend: I completely agree. >> Geoffrey T. Boisi: You know, to be honest with you, from a practical standpoint, at one point, at Freddie Mac, almost 50% of the time of every employee of the firm was responding to a different regulatory request, and some of them were duplicative, and some of them were contradictory, and it was just incredible to the point where we were finally saying, look, this is so out of hand. Why not just have the Fed be the oversight, because they seemed to have the, you know, in a way, the most experienced, you know, regulator during that period of time? >> Prentiss Cox: Just this much, just a point. I appreciate that. Just a point. Fannie and Freddie were set up in the 1960s and 70s as public institutions, and they were privatized over 30 years, and that was political decisions that led to certain choices about what that made our regulatory system. >> Cathleen Kaveny: Okay, well, we've got time for one or two questions from the audience. >> John Haskell: Really quick questions. We may only have time for one. We'll go to this lady here. >> Female: Thank you for your insights. Why was nobody ever brought to justice or court or tried to for all of these fraudulent practices? >> Prentiss Cox: Well, I'm going to answer that. Actually, right, I'm going to actually defend, a little bit. What I think was the problem is we went after the low dogs, right? The people who were brought to criminal prosecution were like the mortgage officers. Oh, come on. You know, they never should've gone after those people. It was difficult to go after the people at the top. I didn't have to make those actual criminal prosecutorial decisions, but I think it would've been difficult to bring those cases. So, I'm not going to pummel people as much about not bringing the cases. I'm going to back it up and say that the criminal -- it shouldn't have been on the criminal prosecutors. We made choices about how we structured our system. People acted within those systems, and getting to the people at the top maybe should have been done that would have been very difficult, and we shouldn't have gone after the little fish and pretended like we were doing something. That I disagree with. >> John Haskell: One more quick question. >> Female: Yeah, you see parallels to the student debt crisis at all? Or potential crisis? ^M01:23:55 ^M01:24:00 >> Prentiss Cox: I'm going to jump -- I actually work on student debt issues, as well. It is a very different market. The problem -- the financial crisis problem probably doesn't exist on the student debt side, because it is over 90% federal money. So, it's public money that goes when the student debt system goes. Again, the problem with the student debt is the misery on the borrowers, and in particular, we have that 10% of the market that's private student loans that were made with almost no legislative history in 2005. My friend, Paul Wellstone, now dead, fought bitterly against. No bankruptcy discharge of a private student loan, and there's almost no legislative history on that, in my opinion, that was a corrupt decision. Again, the real problem with that is the consequences for actual human beings. It's going to play out will differently at a systemic level in my opinion. >> John Haskell: Well, we're going to wrap it up there. Join me in thanking Amy, Geoff, Prentiss, and Cathy and -- ^M01:24:57 [ Applause ]