Transcripts For HLN Nancy Grace 20091024 : vimarsana.com

people from the park. and john derbyshire on the politics of despair. reclaiming conservative pessimism. find the entire schedule thebooktv.ort at booktv.org. this is c-span, public affairs programming courtesy of america s cable companies. next, kenneth feinberg, about the decision to reduce salaries for some ceos. then, federal reserve chairman ben bernanke on the need for congressional action on financial regulations. . . good afternoon and welcome back to our symposium. i am a member of this adjunct faculty here. i am also a lawyer for e-trade bank. before i introduce our second keynote speaker, i would like to express my sincere appreciation to those who made today s symposium possible. a want to thank the dean and the law school community for hosting this event. i have been overwhelmed by everyone s support for this audacious idea that my former students and i had to do this. i want to thank natalee fields natalie fields and others. a special thanks as well go to the dene and my good friend and mentor for having taken such an active role in planning and organizing the suppose somsympoo the last detail. i am delighted that both of them have agreed to moderate this afternoon s panel discussions. i would like to think professor michel forgetting the symposium off to such a great star. with his wonderful introduction. i want to express my heartfelt thanks to my current and former students who organized and volunteered for this event. i would like to single out for recognition helen lee, carly green, and others. without their involvement, tireless efforts and unwavering support, this event would never have been possible. i would invite you to join me in showing our thanks to these people in law school for hosting the symposium. [applause] now it is my privilege to introduce our luncheon keynote speaker. a special master for t.a.r.p., he [unintelligible] at the seven companies that have received significant amounts. advance word of the pay decisions he will be making has generated media interest. he has commented he might have to move to pluto to escape his critics wrath. he is no stranger to matters that are moshin laden and at times controversy. after graduating, and working for the u.s. attorney s office in manhattan and on capitol hill for senator kennedy, mr. feinberg went into private practice and soon began to specialize in alternative dispute resolution. as one of the country s leading arbitrators and mediators, he worked on a number of high- profile matters. including an agent orange class- action litigation and valuing the famous abreu film of the kennedy assassination. mr. feinberg is perhaps known for his work administering this 7 of timber 11 victim compensation fund. during the 33 months he was special master, he held over 900 victim hearings [unintelligible] the job was summed up as follows. not only did mr. feinberg take on an unpaid and herculean task of coordinating payments to the survivors of september 11, and to families of those killed, but he also did it with a solemn solomon like wisdom and fairness that should earn him a pact a place of honor if not in the history books, and certainly in the hearts of those who came into contact with him. it is qualities like these [unintelligible] he will be speaking about his work as special master and his views on the subject of executive compensation. his remarks will be extremely relevant as many believe we must reform the pay practices in this country if we are to avoid the excessive risk-taking that was one of the main causes of last year s financial crisis. you are a true public servant. we are delighted to have you with us this afternoon. i for one hope that you will not be moving to put no any time soon. pluto any time soon. [applause] i got a leter oter on e-trad stationery. i am glad to do it. i want to thank john and the dene and the whole george washington law school community, the planning of this session. when we set this up about two or three months ago, i had no idea nor did john or the law school that i would be speaking the day after. the planning could not be better. i must say i am under a bit of pressure because in this audience, is my good friend of almost 40 years. who also teaches here at the law school. and whatever you think might be the characteristics not only of our great professor but of someone who might be the perfect independent director, is allen morrison. make sure you speak with him about what is going on here in the world of corporate governance as well as compensation determination. ok. the report john mentions that i am giving you advance warning. i am giving you old warning. the report is now available on a special master treasury website. you can go and read the report that explains the rationale used by the office of special master in determining compensation dollars. [unintelligible] now when you see this report, you ll notice what i said. my jurisdiction that is it. my jurisdiction stops with the seven companies. my mandatory jurisdiction. now, as to those seven companies, i am required by law to consider compensation for each of the top 25 that are consistent with the public interest. that is the first function under the law that i am mandated to england. that is what we did yesterday. next under the law, in the next 60 days, roughly, approximately 60 days, i must accomplish of the next objective. designing compensation structures before the seven companies for these seven companies. not look at their individual packages by design a compensation structure that they will use and implement. in paying the the next 75 officials at the highest levels. and that will be accomplished by the end of this year. then finally, there is a third statutory mandate that i have but it is not mandatory. it is purely discretionary. that s that tory member mandate a that statutory mandate allows me to clawback truck compensation that is already been paid to corporate officials, not just in the seven companies but at any company that received tarp assistance. as i have publicly said, that mandate that i have got, i am reluctant to implement. that is not to say i will not ever do it. but i am reluctant to become a bill collector or a treasury official. reaching out to and trying to get back compensation long since distributed, long since tax-and- spend. there may be situations where i will do it but they will be rare. banned from between. so those are my statutory that is the limit of my statutory authority. in this report that came out yesterday, how did we go about calculating dollars? what were the challenges that i confronted? in calculating the dollars. why is there such interest in this report? the last question i think is the easiest to answer. this seems to be a great deal of interest although there are many sources of generalized prescriptions as to how to improve the compensation decision making process, the fed has now come out with some prescriptions for the of being considered. the g-20 and others have issued prescriptive guidelines to assist in executive compensation. i am the special master at treasury who had to take these prescriptions, especially the statutory prescriptions and translate them into this means x dollars for 2009 compensation. i think this is the first time that the government has taken into account these prescriptions and translated them into you get to x and you gety and you youz. everyone was waiting to see how this would work. the problem in doing this assignment in part can be traced to the conflicting principles that are right in the statute. and the accompanying treasury regulations. on the one hand, the statute says make sure that in setting compensation, these companies thrive. that they attract talent. that may maintained talent and they are in a position where the day will come sooner rather than later that the companies will repay the taxpayer the money that is owed. then the statute says but in so doing, make sure that compensation avoids excessive risk. i am not sure what is it risk. i am certainly not sure what is excessive risk. this is a rather sophisticated audience. i think 100 people here could be asked to define excessive risk under the statute and they may very well come up with 100 different definitions. except i know when i see it. $100 million to a trader as compensation in 2009 is excessive risk. other than evaluating empirically and anecdotally each person, i am not sure you can come up with a broad base definition of excess of risk but that is in the statute to be considered. and then it says also make sure that compensation is performance based and is designed to keep and maintain officials that the company. so you are juggling all these statutory and regulatory prescriptions, trying to figure out how do i balance these prescriptions? at the same time, there is a substantial amount of understandable public citizen anger at the topic. you are trying to balance of this and expectations that steps be taken to deal with the problem with the requirements and law in the statute making sure that you are not vindictive or punitive. make sure that you take steps to get the borrowed money back to the taxpayer and there you are. that is why there is some relationship to what i am doing with the pluto analogy. the gap between wall street expectations and main street expectation is unbridgeable. it is absolutely unbridgeable. you hope you can strike the right balance so that under the statute, which is what i am obligated to follow the rule o clock, i strike that balance. the rule of law, i strike that balance. what were some of how did i go about doing this with all of these considerations? just as you would, just as you would, we received a mountain of empirical data. from the companies, from our academic consultants, from third parties that we solicited, what is this person s salary, what should look like? what is the going rate? what is the 50th percentile? the 75th percentile? the 25th percentile? how you measure compensation? empirical evidence, anecdotal evidence from the companies. we cannot work without this person. this person is essential. this person is critical. we re factoring all that information in. and when you go through the report, you will see that the report for all seven companies really calculates and determines compensation. based on the following formula. for all of them. based on the following principles which we believe will help in some measure yet to be determined in restructuring how executives get paid. in major corporations in this country. first, forget guarantees other than base salary cash. no more bonus guarantees, of retention payments, and a more guaranteed compensation. let s start with the principle that cash salaries should be substantially reduced. on average, 90%. 90% of the seven companies. let s provide a base cash salary but no more. second, what about the rest of the salary? that is not the total salary. no. did he remain to give the remainder of the salary in stock. in stock. in that company. but make sure that the stock is not immediately redeemable. so what we do is we say it if you are going to make $500,000 and york or to get to murder thousand dollars in cash, we will give you in addition to a dozen dollars in salary rise to stop. that is the statute. it has to vest immediately but it is not immediately redeemable. let s spread out up to four years. so your salary in the form of stock can only be redeemed 1/3 after two years, one-third after three years, and one third after four years and the value of that stock, you have skin in the game. the value of that stock will depend on companywide performance which is a barometer of what the stock is worth. the key there is tying your own personal compensatory interest to that of the company over a four-year. four-year period. in additional to the salary, cash plus stock. that stock will not vest for three years. if you leave within the first three years, you lose that stock. after that it vests and that is yours, but this long-term incentive stock is not redeemable until the company repays the taxpayer. so try hard. [laughter] try hard, because this portion of the stock sits and waits for top repayment. now that is basically how it works. yes, we limit perks. golf club dues, country club dues, private jets, $25,000 maximum per official unless for good cause shown, come back to the office of the special master. so we do that. clawback by statute to. by statute. if we prospectively provide salary or stock that turns out to be based on material misstatements about financial wherewithal, the law requires us to clawback that compensation. you should read the report. which is very interesting and really, i think adds to the debate. but those are the highlights of how it works. to finish before we take some questions, what are the pros and cons? what do we hear about all this over the past five months? here are some of the arguments that from 30,000 feet the year. one, this is none of the government s business. it is a bad idea to have the federal government interfering in the private marketplace. this is the beginning of a bad trend. government interference in the private marketplace treatednow, surprisingly government interference in the private marketplace. surprisingly, you do not hear about that because on the other side of that argument is the rejoinder. look, as a philosophic matter you may be right but as to the seven companies, the taxpayer owns them. so it is not simply the government interfering. it is the government representing the taxpayers as a creditor. seeking to maximize the likelihood that the money will be returned to the taxpayer. let s not get too carried away with the philosophic argument about the government intervening in the private sector when the government intervened in the private sector to save the private sector as to the seven companies and now the government wants to be a player when it comes to compensation. there is your argument. second argument is as i have said earlier, pretty much unavoidable and unsolvable. historically, it has always been this way. the different perceptions of worth from wall street versus mainstream. i mentioned this earlier. we at this company are begging you, how can you reduce this key official to a billion dollars? [laughter] $8 million? [laughter] then along explanation about the importance of the taxpayer getting their money back by making sure this person stays on the job generating revenues, the official. the million dollars, ok. $400,000 in cash. $4 million in satirized salarized stock. we are worried about losing this person. all those companies are our competitors. and they are waiting for the opportunity to grab this person. believe me, that is a 3:00 p.m. problem, trying to figure this out. a 3:00 a.m. problem, trying to figure this out. i am hoping the way we try to empathize with main street while recognizing the goals of congress to get this money repaid is through this structure that is tied to performance and longer-term, we will see. we will see. so those are some of that is the 30 minute summary. john says we have 10 or 15 minutes of questions and he promised me that with this audience, there would be plenty of good questions so i threw it open. [applause] i figured there were students here, we will have a good questions if the others do not. time for questions. what is the likelihood that this will evolve into a best practice? i do not know. i will tell you is i have said publicly, i am limited to the seven companies. i do not think it likely and i do not think it wise for the federal government to expand its reach into the private sector with other companies the way the top law was written, at least. here is some of the variables that you ask yourself as to whether executive, and best practices will be expanded. there is the regulators. the federal reserve has come up with some prescriptions. the sec is wisely working on some prescriptions. the fdic with sheila bair, they are looking. all this is to the good. i think is healthy that the regulators are taking a look at this problem. i noticed the regulators are not interested in actually calculating dollars, but that is all right. they are taking a look at the problem. with corporate america on its own voluntarily doing something on these lines? i read today in the new york times , he does not think so. well done, it will not make any difference, but well done. that was the basis. i think remains to be seen. but i am an interested observer. on the case of aig, the government owns 80% of the stock. the ceo also gets his compensation in stock. if he tells you that the plan you have put forward will make it harder for the government to get repaid, how do you balance the interests of the government as the 80% owner on the one hand with, as you say, the popular anger which does not play a role in the statute but of course, for the political sustainability of what the government is trying to do with respect to wall street is very important. that is a big challenge. it is a big challenge. what we did with aig is in the report. we listened very carefully. then write in the report, pages a8 anbnd a9, because this was an important issue. i saw the help of the federal reserve which oversees ag. i saw sought the help of people at treasury. i have to make the call, what do you suggest? they gave me some valuable advice. that aig compensation practices are unique. that the company is on the cusp and needs the help. of the special master. and we took into account independent, very credible opinions for mothers in trying to come up with very credible opinions from others in trying up tto come up with a package that will help a ig thrive. aig thrive. we tried to come up with a balance. i can say with ai, i believe we with aig we struck a balance between public dissatisfaction wtih principled decisions on compensation with principled decisions on compensation that will keep people at their chairs, attract talent, and let the company prosper in order to pay the taxpayer. that is the real goal. we shall see. was my way the only way? absolutely not. i have the assignment. i will do the best pecan. others may have done it differently. i will do the best i can. others may have done it differently. does your report cover future occupants of this position? january 1, 2009, who were the top 25 people? november 1, 2009, how many of those top 25 have left? empty. there are not 25 people that i shall consider. as of november 1, when my report is issued, there are 17. where did the other eight go? , retired, left, terminated. i do not decide 25. i decide 17. january 1, 2010, how many of those old 25 are in the top 25? how many have been replaced by #31 who is 21? and no. 68, that is 15. for a lateral hire that is no. 3. we have to in january 1 readjust the top 25 to make decisions that as to all 25. in 2009 where my work began in the middle of the year, there were a lot of empty slots. there will be less empty slots in 2010 because we will be getting our work very early and who to completed early before retirement and transfers and so on. that is how it works. it is a moving target but it is clear how the top 25 are determined. [unintelligible] in the eyes of the beholder. [laughter] i cannot say to you this guy is irreplaceable. i can only listen to the here say from the companies and independent experts that this person is essential, this person is critical. we take that into account. charles de gaulle, the graveyard is filled with irreplaceable people. thank you for being here. i am a law student, not a member of the press. you have a big advantage for everyone else that is here. my question for you is, in terms of reaching beyond the seven companies that you have jurisdiction on and changing the underlying problems with the structure of compensation, what are your views on the proposals in terms of not relying on the government to change the corporate culture but relying on shareholders having a say and incentivizing changing the paradigm in terms of compensation and removing these elements of risk? a fabulous question. really implicit in that question is how much of long-term systemic change must be attributed to corporate governance reform rather than what i am doing? that is, what about shareholder rights and independent compensation committees and independent consultants and compensation committees and say to pay? all that is not part of my mandate. i see a lot of that going on in congress. with congressman frank and senator dodd. i see a lot of others that treasury actively involved in that area. yes, i think that supplementing anything i am doing is this whole issue of what we will call corporate governance and what that means. i hear arguments about that. one is that corporate governance requires institutional reform. that will be helpful. you hear the other side which is iis all about people. you can achieve a great deal. i am not involved in that. i have enough problems of my own. i do think that is part of the overall administrative administration goal which is to reform compensation practices throughout what the special master is doing in the federal reserve but also corporate governance that is being actively considered as part and parcel of this effort. let s take two more. when the bottom line is drawn, is it about the sheer size of dollar amounts and how they are perceived? my question is, why is this not like pro sports for people can complain these players are getting so much money but the teams are going to have to pay what the market is the there to bring the good players on board. to answers to that. none of which may be two answers to that. none of which may be satisfactory. i am surprised that the reaction to my report and i am pleased about this focuses less on the dollar s and more on the structure. when you read the stories about my report, i am pleasantly surprised that there is a great deal of focus on this notion of reduced cash, sell rise stock, long term incentive stock. i like that. that is where the debate should take place. i m not sure that to my narrow confines of 175 people, it really is about the dollars. it is a commentary to look at the dollars and see how little the dollars are relative to the banks, the automobile companies. it is a commentary on the state of the automobile industry in large part. you get the analogy of the baseball players. it may be but there is something to that. the taxpayer as far as i know is not into alex rodriguez. it is not as if the taxpayers have a vested credit interest in alex rodriguez or manny ramirez. i think that is different in the case where the taxpayers as creditors have a realistic demand. they want their money back. that takes it a little bit out of the realm of the total free market, you get what you are worth. final question? [inaudible] a group gets to enjoy part of what they bring in. should that be limited? yes and we will limit that in 2010. when asked to consider commission pooling. the problem is and you ll probably address this this afternoon. the problem is a difficult one. when you say let s paid compensation to performance, what does that mean? peg compensation to performance? my performance? the performance of my unit? the overall performance of the company as a whole? it gets into this issue of how you manage and coordinate company performance. be careful about to award merit pay. merit pay might entice people to act on their own for their own parochial good, not for the good of the company necessarily. it might promote excessive risk. on the part of that individual. be careful about rewarding this unit. this unit may find itself engaged in more risk because their compensation is tied to their own parochial success, not the success of the overall company versus how you ignore the unit s performance versus we are a = a rising tide raises all ships. that is the best way versus there is a common denominator there that might be problematic. how do we deal with that conundrum? one thing we say is the company decides that. , every company is different. we will let the company have grown great leeway in determining performance. not totally way. we want to know what the performance benchmarks are and we want an opportunity to pass those benchmarks by your right to be asking the difficult question of pulling, commissions, this unit, that individual, the overall company. how do you calibrate all that in a way that will promote the real objective? we want our money back. that is the ultimate objective. you are raising a good question. i want to thank george washington and john. i wish that i had got the letter with less content in it. a little changed but that is ok. i think you will. thank you all. [applause] we want to give you this gift to show our appreciation. it vests immediately. thanks very much again. [applause] [indistinct conversations] . bernanke made remarks at a conference hosted by the bank of boston. the remarks are 45 minutes. i think it has been a good discussion. i am here to welcome our speaker, chairman bernanke. many things have occurred since his last visit in june 2008. just a year ago, we were in a situation where the stock market was in a tailspin. liquid financial assets were not so liquid. people were concerned about their counterparties. we have come quite a distance since then. thanks to the efforts of many, both in the federal government and the federal reserve but i would say none more than the speaker this morning. certain the recovery certainly the recovery is fragile and the economy is healing. another thing that is occurring recently just down the road in martha s vineyard was the president s announcement of the renomination of the chairman. i was speaking to the federal reserve bank at the time and made the announcement that the chairman had been renominated and they broke out into spontaneous applause and cheering and expression for the admiration of what he has done over the crisis. for those who heard the president described the chairman, he used words like creativity, and wisdom. all are more than appropriate. the connection to new england runs deep considering his student days in cambridge and his time visiting the federal bank of boston as a visiting scholar. i would like to welcome ben back to cape cod. we look forward to your marks. remarks. [applause] thank you and good morning. the theme of the federal reserve banks boston economic conference reevaluating regulatory supervisory and central banking policies in the wake of the crisis is certainly timely. not much more than a year ago, we in our international and our counterparts face the most severe crisis since the great depression. fortunately, forceful and coordinated policy actions averted a global financial collapse. since then, aided by a range of government programs, financial conditions have improved considerably. however, even though we avoided the worst of the financial outcomes, the fallout from the crisis has been severe. as reflected in the depth of the global recession and the deep declines in employment here and abroad. with a financial turmoil abating now is the time for policymakers to take action to reduce the probability and severity of any future crisis. weaknesses in firms together with insufficient offers were clearly an important factor. regulators and supervisors did not identify those weaknesses. supervisors in the u.s. and abroad are actively reviewing standards and supervisory approaches to incorporate the lessons of the crisis. for our part, the federal reserve is participating in a range of joint efforts to ensure that large systemically critical financial institutions hold more and higher-quality capital and improve their risk- management practices, have more robust liquidity management, and employe compensation structures that provide appropriate performance and risk-taking incentives and deal fairly with consumers. on the supervisory from we re taking steps to strengthen oversight and enforcement at the firm-wide level and we are augmenting our traditional methods of oversight with a more macro credential or systemwide approach which should better anticipate and mitigate broader threats to financial stability. congress must also act. we have seen numerous instances when weaknesses and gaps in the regulatory structure contributed to the crisis. many of which can only be addressed by statutory change. notably, [unintelligible] legislative action is needed to create new mechanisms for oversight of the financial system to insure that all systemically important financial firms are subject to effective and consolidated supervision and to establish procedures for winding down a failing systemically critical institution without seriously damaging the financial system for the economy. the rest of my remarks i would like to elaborate on these areas. i would like to report on changes already under way to strengthen the regulatory standards that limit the risks taken by financial firms and establish the capital and liquidity buffers the must hold. these problems became apparent not just in the u.s. but around the world, necessitating an internationally coordinated response. the federal reserve has played a key part in the international effort, working through organizations such as the committee on bank supervision and the financial stability board. we were extensively involved in the basel committee s decisions to strengthen requirements and we continue to work with domestic and foreign supervisors to raise capital requirements for other types of bond and off- balance sheet exposures. by conducting the supervisory assessment program u.s. supervisors took a significant step toward ensuring that banks hold adequate levels of high quality capital. led by the federal reserve, this program evaluated capital needs of 19 of the largest u.s. banking organizations by estimating their expected losses and earning capacity through the end of 2010 under a more adverse than expected macroeconomics scenario. firms that were not projected to have enough high-quality the scenario were required to raise additional capital within six months. the release of the results last spring increased investor confidence and helped open the public equity markets to these institutions. since generate one, the 19 participating firms have raised more than $150 billion of tier one common equity through share issuances, exchanges, and asset sales, increasing their average tier one, ratios from 5.3% to 7.5% as of june 30 of this year. as one indication of improved market confidence in those firms, they are supported and their spreads have fallen more than one half since the completion of the assessment. additional steps are necessary to insure that all banking organizations hold adequate capital. internationally, the financial stability board has called for stronger capital standards and a group of 20 has committed to develop rules to improve the quality and quantity of bank capital. the federal reserve supports these initiatives. the structure of capital requirements must also be reviewed. for example, to reduce the tendency of current capital requirements to promote credit note growth in booms and restrict credit growth in downturns, we supported efforts to help capital standards that would be countercyclical. countercyclical standards would require firms to build larger capital buffers in good times and allow them to be drawn down but not below prudent levels during more stressed. stressed periods. we are taking account of the systemic importance of large complex forms whose failure would pose a significant threat to overall financial stability. options under consideration include assessing the capital surcharge on those institutions or requiring that a greater share of their capital be in the form of common equity. for additional protection, systemically important institutions could be required to issue contingent capital such as debt securities that convert to common equity in times of macroeconomics dress or when losses ever the institution s capital base. the crisis highlighted weaknesses in liquidity management by major firms. short-term secured funding of long-term potentially liquid assets through repurchase agreements and asset backed paper conduit s became unavailable or costly during the worst cases of the crisis both here and abroad. in response, the federal reserve helped lead the committee development of revised principles for sound liquidity risk management which in the u.s. are being incorporated into new interagency guidance that we emphasizes the importance of rigorous stress testing to determine adequate liquidity buffers. together with our domestic and international counterparts, we re considering quantitative standards for liquidity exposures that are similar and analogous for those of [unintelligible] with the goal of insuring that international firms can fund themselves even during times of severe market instability. with supervisory and encouragement, large banking organizations have, for the most part, already significantly increase their liquidity buffers and are strengthening management of request billick liquidity risks. in addition to insufficient capital, and liquidity risk management, flood compensation practices also contributed to the crisis. compensation not only at the top but throughout the banking organization, and appropriately link pay to performance and provide some incentives. in particular, compensation plans that encourage even inadvertently excess risk taking can pose a threat to safety and salaries. the federal reserve has issued proposed guidance that would require banking organizations to review their compensation practices to assure that they do not encourage excessive risk- taking are subject to effective controls and risk-management, and are supported by strong corporate governance including board level oversight. a fundamental element of affect the financial regulation is protecting consumers from unfair and deceptive practices. the recent crisis clearly illustrated the links between consumer protection and the safety and soundness of financial institutions. we have seen the flawed financial instruments can harm families and impair financial stability. strong consumer protection helps to preserve household savings and to provide families access to credit on terms that are fair and well matched with their financial needs and resources. at the same time, effective consumer protection promotes healthy competition in the financial marketplace, supports sound lending practices, and increases confidence in the financial system as a whole. the federal reserve is taking several steps to strengthen the protection is providing provided consumers and insure these protections respond to market changes and emerging risks. as well as informed consumers are better able to make consumer decisions, effective disclosures are the first line of defense against improper lending. the federal reserve has pioneered the use of extensive consumer testing to improve the clarity of disclosures, notably from mortgages and credit cards. however, we have learned that even the best disclosures may not always sufficiently protect consumers from unfair practices. accordingly, we have written rules providing strong substantive protections for mortgage borrowers and credit card users. for example, last year, the board adopted new regulations under the homeownership and equity protection act to better protect consumers of higher priced mortgages. these rules strength in underwriting, restrict prepayment penalties, and require escrow accounts for property taxes and insurance. the rules also addressed the deceptive mortgage advertise it and unfair practices related to mortgage servicing. more recently, the board adopted new credit card rules to increase transparency and protect consumers from a variety of unfair deceptive acts and practices, rules that were largely incorporated into substantive legislation. we re currently working on rulemaking in the areas of over track protection covers mortages reverse mortgages and debit cards. supervision is the ongoing oversight that insures the rules are being followed. as i noted earlier, the events of the past two years revealed serious failures in risk management and regulated firms that in turn, underscore the need for supervisors to identify weaknesses in a more timely way and insure that institution germany the problems. the nature and causes of these failures have been outlined in reports issued by a variety of domestic and international groups in which we participate. as a complement to those efforts, we at the federal reserve have set up a number of working groups, drawing on expertise from throughout the system to evaluate all aspects of our oversight of banking organizations and to develop strategies to improve the quality of our supervision. two important themes have emerged. first, they have reaffirmed the importance of effective consolidated supervision, particularly at large complex organizations so that supervisors can properly understand risks and exposures across legal entities and business lines. second, we must combine a systemic or macro permit macro provincial approach to anticipate problems that may arise. to support these approaches,