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tv   American Enterprise Institute Conference on 2008 Financial Crisis - Part 2  CSPAN  September 24, 2018 6:11pm-6:56pm EDT

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agreed to testify before the senate judiciary committee about her sexual assault allegations against supreme court nominee brett kavanaugh. judge kavanaugh will testify at the hearing. we will have live coverage thursday, starting at 10 am eastern on c-span three. and on the radio at. -- app. jeb hensarling talked about the 2008 financial crisis at the american enterprise institute in washington dc. the congressman is poised to leave congress in his position next year.
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by me actually. as it turns out. we will try to get as much useful information as we can but i want to be sure you know this conference is a retrospective on the financial crisis and years afterwards. a lot of the things we talk about are things that happened in the past rather that will happen in the future. i will ask you questions about both. and let's start with something that is personal if you don't mind and that is you have announced you will retire. and this has been a puzzle to many of us. you are a highly respected member of your caucus . you are a potential speaker. at one point. and so i am puzzled why you
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want to leave the congress at this stage now. granted your time as chairman of the house financial services committee ends naturally by house rules or republican rule. but why do you want to leave congress entirely? >> before i address that if i could just thank you for the invitation. i guess freeman didn't get it wrong, i am having to speak so i didn't get a free lunch. at least i got lunch. the rest of you enjoy your lunch. as a member of congress i'm used to speaking and having no one paid attention to me. otherwise please enjoy your lunch. >> to answer your question, i think more people should be asking the question, not why are you leaving but why did you stay so long. probably is the more appropriate question to ask. so
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yes i am term limited as chairman of the house financial services committee and it's hard for people in this town particularly to believe it but a lot of us do have families and for those of us who have families back in our districts i live in dallas and work in washington and commute back and forth and having a frequent flyer miles. when i went to congress peter my daughter was in my arms and my son didn't exist. she is driving now and he has a peach fuzz mustache. i'm told that your children may always be on the family payroll but they will not always be in the family nast. i want to go back and capture those last few years in the nest. if you were in dallas texas soon and you see a gray ford fusion lysis tagus emg 2255, give it a wide berth.
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he's only been driving a couple of months. i am flattered by the question, so i will tell you. part of me believes in the jeffersonian model of the citizen legislator. i thought i would do 3 to 4 terms and got tempted by gavel. i don't want to be a member of the permanent ruling elite class in washington. it will probably prove to be the greatest privilege of my life but it's time to go home. but thank you. having said that there is still a lot of business. >> i hope we will get to some of that. i want to ask you about the financial crisis, something that has been bothering me for a while. i was in a group of academics mostly that was studying the crisis with a proposal.
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at one point we had a meeting with a highly placed member of congress and he is no longer in the congress. he was talking to us about what was going on at the time of the crisis and said that he was told and i assume others in congress might have been told that the government was so worried that the death of the crisis was having on people that they were actually considering cordoning off washington with the truth. is that -- you are looking at me as though it is crazy and i thought it was crazy at the time. but have you ever heard me -- heard anything like that from the administration? >> the short answer is no. i was a child in the 60s and don't recall if the capital had to be protected let -- protected in that turbulent time.
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the war between the states. i never heard that. i would hope that would be rather far-fetched and so i think to some extent peter, i am convinced that in many respects the indecisiveness and changing the game plan constantly helped exacerbate the panic in the first place. and so that kind of thinking -- i was not privy to it. i was a junior member and also being in the congressional minority at the time i assure you a lot of information didn't flow to us. i would be surprised if that was accurate but if it is it is sobering. it was a surprise and he was a democrat and he was a majority and i have no idea whether he was just telling this to a bunch of professors in order to get
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the gravity of the situation. it sounds like big news to me. one of the first one to come up with the idea. well, were you told about the dangers to the country? what about the dangers to financial systems. what were you told as the issue became current and you had to vote. do you have recollections? >> you are forcing me to have a flashback your butt at the time i was chairman of the republican study conservancy which was the only conservative caucus in the house. we now have two. from that perspective i did get to spend a lot of time on the telephone and in personal meetings with secretary paulson because obviously they -- they wanted full republican court
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for their plan. i spent a lot of time with him. but i also vividly remember coming in and saying we don't know how much money we need and frankly we don't think we need money at all. but we think we need an authorization of a really big headline grabbing number. and if you give us that number we don't think we will ever have to use the money. by the way we are designing this as an asset purchase program. not an infusion. with 2436 hrs. that changed. so we were also -- that was what we heard in early days and then thereafter it was the world as we know it is coming to an end. the sky is falling. probably the single most used if not abused term in congress is crisis. but in this case it had some weight behind it.
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credibility. it have legitimacy. and so yes, we were essentially being told we were on the precipice of the next great depression. i never believed it but having said that i did have some doubt. i did have some doubt. and so from my perspective we were being told either choose between the next great depression or the slippery slopes of socialism. and i didn't buy into it. the rush of -- if i remember right it started out as a three- page bill and ended up being a 200 page bill. like many bills. they don't really hope you read it so i have that memory as well. funny me, i don't like to vote on legislation that i don't
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have time for me or my staff to review, silly me. i remember that aspect as well. and so my thought was yes, this is a legitimate crisis. more than others. i have written on its genesis. but i also thought that we shouldn't have the plan. because i thought ultimately we will have to live with the legacy. and we have had to live with the legacy. i think part of the legacy has been 10 years of very tepid economic growth and diminish -- diminished dreams for many families. i am not convinced particularly as i look at the gse's that the same systemic risk isn't yet again building. and i just pray
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we are not on another boom bust bail out cycle. i knew we would have to live with it long term and ultimately what has it led to, a far larger footprint of the government and our economy. the thing i'm not desperate thing i'm not running for reelection. i will be looser on my metaphor . it's like the soviet army coming to liberate eastern europe and four years later they are still doing it. you know if the government came to liberate our economy i'm ready for them to leave. and go back to a much lower profile. again does is some of the things we were told at time.>> you said there was an argument for a very big number. that that would perhaps -- put people's lives at risk.
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did you vote for that big number? >> no, not only did i not vote for it but i hope this is one of the times that the new york times got it right. they credit me for leading the charge against the bailout so no, i did not support it. >> it is also not the only vote that i lost in congress ultimately. the first boat came down and went down in eight or nine days later and version 2. and that was after a huge drop in the sparc market -- stock market. >> in those days that was a big number. >> it was a big number back then.>> influential to many members. even that large, i try not to overreact to one-day market movement. number one. and number two, i knew long-term
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we would have to live with the legacy of whatever we did. and once you get on the road to bail out i don't know how you go back and re-instill market discipline. it is the greatest arbiter and protector of systemic risk. and i think even today we've lost a huge portion of that. again bailouts beget bailouts. so risk builds up in the system that would not otherwise be built up. but for having these federal backed starts. it got my attention but not in a way to make me want to change my vote. >> you are a tough guy.>> absolutely. we will get to that. >> what i'm wondering about is the democrats had not succeeded in capturing congress, and the
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subsequent election, and the republicans had been still in control of policy, what do you think the republic -- a republican congress would have done in the context of starting again in january of 2000 -- 2009. obviously one of the things that was on the table was a highly regulatory law, the dodd frank act, it wasn't called that, but that is where the planning was going. with republicans -- with a have a different way every mediating the crisis? >> i recall putting forward legislation at the time. i just thought it was critical that we have alternatives -- secretary paulson. i had an
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alternative which frankly was cobbled together from other alternatives. i know our current speaker paul ryan -- again i haven't looked at the details in years but i believe had a plan to set up a temporary insurance program for certain nbs. a little fuzzy on the details 10 years later. i assure you it would not be anything resembling dodd frank. also the ranking member of our committee at the time spencer baucus put forward a program where central to the program would have been an enhanced bankruptcy regime for a large globally connected financial institution which i think as you well know was part of the financial choice act as well. so bankruptcy versus bailout, that would've been a key
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difference. and i think hopefully what we would have done is with respect to federally insured depository institutions insist upon high levels of capital in which -- with respect to wherever we had a federal backed stock. to mortgage insurance or nbs. that we would insist upon traditional historic prudent underwriting standards and again for higher levels of capital. than what we saw in the marketplace and you know better than most. it would take a microscope to have observed the capital level . fannie and freddie were not discernible to the naked eye of humankind. i think i just made that up. >> that about does it i would say.
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the congressman did take over congress at the end of 2010 in a rather read wade so to speak. when they came in there was a lot of talk about appealing -- repealing dodd frank. why did that not happen? >> i can assure you it wasn't for lack of effort on my part. i am at least happy to say as i'm sure everybody is familiar the president did sign into law 2155 and did not repeal dodd frank but to quote the president, we at least did a number on it. it is at least substantially repealed for a community bank and a number of regional banks. why didn't that get done. unfortunately the senate is not a majoritarian institution
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which i assume everybody in this audience knows. unfortunately not everybody in america. long-standing debate. you will not find the senate revisions enshrined in the constitution and will not find it enshrined in the statute books, it is not in the code of federal regulations, it is merely a tradition. but because of that almost every aspect of dodd frank including provisions dealing with what we would call the sissy bailout. almost every other provision has to reach a super majority threshold instead of a simple majority threshold. this is what you have ended up with. again once i became chairman we put forth a piece of legislation that i believe effectively repealed and replaced dodd frank . perfect law as it was, it didn't quite see the light of
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day. never underestimate the senate's capacity to do nothing. they did at least finally act on something. that is what we had. we are looking for some reason again, most legislative matters -- >> what we see of course is that whenever legislation is passed groups form around that legislation. like it. they organize themselves in such a way as to take advantage of it. you saw that with the -->> yes.>> it becomes very difficult to repeal legislation but at the very beginning is when i was thinking there may have been a lot of talk at the beginning of the republican congress in 2011, there was a lot of talk of the possibility of trying to repeal dodd frank.
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and you think because of the senate -- >> not only that, i vaguely recall that barack obama was president at the time. this was a challenge. just for frame of reference, since donald trump has become president i have been to the oval office maybe eight times for signing ceremonies and for bills coming out of committee. and the eight years barack obama was president i went to no signings. at the oval office. so peter, that one simply was not in the cards because let's face it along with obamacare dodd frank was one of his signature legislative accomplishments. you are talking about the family dual. unless we amend that part of the constitution against the
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president veto power wasn't in the card. are you saying again that certain financial interests get vested in certain aspects of the status quo, absolutely. again i find it most ironic that post dodd frank the banks have become larger and the small banks have become fewer. quite the contrary of what we were told. unfortunately we are seeing more and more federalization of credit allocation and to politicize the credit allocation function is not a good thing for america. >> that is one of the reasons why this kind of legislation has many far-reaching affects because it does affect competition tremendously. from all institutions. as we saw many times. more have to spend more on compliance and the larger ones
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-- >> the larger ones didn't necessarily like it at the time but they learned to live with it and finally recognized it as a competitive advantage. it is a huge barrier to entry. it is a huge barrier. and we see it all the time again. the small have gotten smaller. hopefully for those that are left i haven't checked the stat recently but for a while we were losing community bank or credit union every other day in america throughout most of dodd frank. i think with a 2155 hopefully we have arrested that before it was too late but so much more remains to be seen. >> turning to things that are most current you have reintroduced the path act. at the same time. you have expressed an interest for the first time in my knowledge of allowing the government to continue to guarantee in the housing market
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through your agreement with john delaney. that was a surprise. he and others. but you invited me anyway. >> we invite you because you always have a good answer. why is it that you made us change and what has been as you described a very conservative, nongovernment view of how the economy should work? >> peter, my principles haven't changed but my time horizon has. and my rate of time preference if you will has changed. as you pointed out i am leaving office. i am not sure who the patrons saint of lost causes is. i'm not catholic. but between trying to get rid of the farm program and trying to get rid of -- i've taken on
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a lot of very very tough causes. and unfortunately after having battled for 16 years i haven't found a lot of allies. early in my career richard baker and ed worries have championed the cause of believe it or not free-market capitalism the secondary mortgage market but there hasn't been a lot of people that take this up. getting the first version of the path act through the committee was probably the toughest legislative assignment i've had in 16 years. and as i lobby the house republican conference i didn't have the votes. so i battled this for 16 years and i think you know the administration through the
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secretary of treasury is on record favoring continuing the government guarantee. so i don't believe in the government guarantee and i don't think it is wise. i think it is risky and unneeded. i certainly believe in that 10 year -- tenure i have left, it will remain part of the finance system. and perhaps this is a little of the modest exit in me. if there's going to be a government guarantee i think it modestly -- it may be a little better if i helped design it as opposed to somebody else. >> i feel very strongly that systemic risk is building within our housing finance system once again. there is a guy over there who appeared at the recent committee that convinced me of that. you were unavailable apparently.>> i answer your invitation but you don't
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respond to mine. we will let that be as it is. >> i am fearful peter that once again the systemic risk is rising. i do not offer the bipartisan plan as a good plan. i offer it as a better plan than status quo. and if i had to use an analogy -- if there is a pitbull in my backyard harassing my children and i've called the dogcatcher 16 years to pick up the pitbull and take it away, i essentially conclude the dogcatcher isn't at least -- have to put a muzzle on it and put it on a leash, preferably on a chain. so again i believe we are probably headed towards some type of bipartisan deal that preserves the government guarantee.
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maybe over the course of another generation but if we can't get it done with a republican houston republican senate and republican in the white house i'm not overly optimistic. so i decided to leave this as a marker that if you are going to do a bad housing plan this is a better way. >> let me put it to you this way, it is true that systemic risk is rising in the economy. >> it must be true. >> i told you that. it's rising and rising because of the housing market. house prices are rising. and their rising at about the same speed as they did before the last financial crisis. so many of us realizing that it is almost impossible to get legislation through congress that would stop this i've talked about it in a solution.
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there is to be a new rector of the federal housing finance agency hopefully in january. that new director has the power to withdraw freddie mac and fannie mae from the market. were reduce their footprint if you will in the market. is that something you would favor? >> it is not something i would, it is something i do. i do favor. decision-makers within the administration and in the piece i wrote in the journal. i alluded to it. the only problem we have is that could be a five-year plan and maybe a 10 year plan. as you well know they will have
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considerable powers over the housing market. i am familiar with the plan and i endorsed the plan and unless the plan is and active plan you will never get a wrong -- long- term bill out of congress that is better than status quo. i left my crystal ball in dallas so i don't know who will win the next election. what you offer is good, it is right, and it brings parties to the table. kind of the different stakeholders be it, the homebuilders, the realtors, the junior preferreds, the democrats, somebody has to shake things up at fh ha and it is taking us back to status quo. it has been undone most of the
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good work when he was there. i prefer a legislative fix if i can get one, a five-year administrative fix. a catalyst for legislation is called for. where at least i believe you can take the pressure down in systemic risk if you narrow down the types of mortgages that fannie and freddie can ultimately put their wrap around , if you ensure that gc's are properly calibrated. if you reduce conforming loan limits. and if you let the patch begin to expire, then yes, i think you will have some action but i also think you reduce the systemic risk a building now.
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so yes, i very much endorse the plan. the key decision-makers at the administration. >> that's good to hear. they don't always heed my call. i have the same complaint. the thing that worries me i would say is if we start down the path of legislation we will be wasting many years while the market continues to grow as it has. house prices will continue to grow and the likelihood of systemic risk or systemic event continues to grow. my preference is not to talk about it because it is too enticing for people in the administration and in congress because that is where the action is.
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there is a lot to be gained from putting a bill through. having interesting meetings with people who are for or against. that is why i am a little bit concerned about -- >> i don't see it as an either or proposition. i don't think it has so much oxygen. why you can't do both but fs fha director, whatever program they put in place as a five-year lifespan, that is what we know. congress could right something that is generational. so it would clearly be so much more enduring. and so to think that 10 years later the administration and five congressmen, they were exactly back to where we are.
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>> is a proposition that i -- i'm not at peace with that. i can't abide by that. again alongside you and others i am inviting this battle for the 16 years i've been in congress. i hope somebody smarter and better may succeed where i have not but i don't know who will take up the fight. again ed worries is leaving and i'm living and richard baker is left and i haven't found that person who will take up the fight. but it is a fight worth fighting and last i looked housing is still roughly 80% of our -- 18% of our economy. again there is no reason we ought to have a government guarantee and secondary mortgage market. >> the don't have anything resembling dodd frank. most of them have fairly
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comparable rates of home ownership but none had foreclosure crisis that we had. i believe if you can't get it done now i'm not sure you will get it done. i'm trying to figure out how you rationalize a bad system. i still think you can do both at the same time and i think again one may have to be a catalyst for the other. but please know hopefully nobody in this room is satisfied because it is too risky and as americans we should not settle. >> let me say that i doubt that in the future we will have someone as head of the house financial services committee that is the quality of the man that is here now.
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and we will all miss you a lot. >> thank you. [ applause ]. q&a. >> it's a good idea. i didn't know we had that time but okay.>> any questions?>> please give your name and affiliation. >> carl donovan. sir you mentioned the politicization of access to credit. if i can recall the worlds of former president andrew jackson , after he ended the second bank of the u.s. he warned that if we had another central-bank the largest corporations of powerful financial and political interest would put more financial existence until the wealth of those -- and most
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precious liberties either sold or bartered away. the question, are the words in the institution is there anything but gold and silver coin. is a still possible or relevant -- to bring back an honest account using that? >> you have an advantage on me. i have not read jackson's farewell address. i will say this. somewhat related to the dns argument. i've learned to live few things -- a few things in my political career. one thing i learned there 1000 ways i could fight for freedom and prosperity every day. we have the bandwidth to handle 45 fights at any given time. so taking on the fight of our
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current currency controlled by a federal reserve, i've chosen to take on that fight, i have not been an advocate of returning to the gold standard. i have been intrigued at times with the currency to the basket of commodities and study that proposition before. -- studied that proposition before. i think number one probably not a lot of appetite. something else i've learned. not -- we put forth some reforms in the federal reserve so i like making speeches and making votes and most importantly i like making progress for the cause of liberty as jefferson said the ground of liberty if gained
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in engines, it should be measured in millimeters instead. so again sometimes i concentrate on what do i think and where can i make a difference today. but also keep the debate alive because i think some of the work i have, i may have not realized progress for congress. but i don't see a lot of appetite and trying to break through. >> one more. >> wait for the microphone. identify your self. >> were there any serious attention paid to studying the extent forbearance towards large commercial banks, during the banking crisis? the reason i ask is over 2008
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you may have noticed that banks like citibank failed to recognize a lot of losses that were known by standards and this is the standard procedure of regulators. and the reason it's important that has they have been contemporaneously recognized they would have been forced to recapitalize in private markets. entire tarp situation that you did. somebody who may have served on the financial crisis. i wonder if any such person would be available. your speaking of a retrospective is that the question. >> going forward, i know you're interested in worked a lot and trying to figure out the right cap ratio and leverage ratio.
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with primary input into that, the numerator, what is the accounting capital on hand. when banks don't recognize losses, all the other things, they come with relevance. you have capital in there. it ceases to be anything of meeting. >> i'm sorry. i studied it before. i am not equipped to speak about that in the setting. city? what city? >> i think the question is about, how do you measure the capital? you actually had a very good approach to that. with real assets, and equity, and so, why is it not adequate for regulatory -- >> it should be. again, one of the great myths
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about the financial crisis is this whole myth of deregulation. for example, sarbanes-oxley. you could not say there was any deregulatory movement moving into the climate. although i cannot prove it, it is like a nuclear power, and i don't know anymore had a regulated industry dan banking and finance. really, that was not part of the problem. i don't think you can make the case, number one, that deregulation, certainly more regulation, but you could make the case, there were inadequate capital levels. you cannot make the case they were inadequately complex. again, i still remember, --
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raised about -- i'm not trying to take away from the smart people in the room. or from ben for nikki, when him ounces months before the crash all is well, all is well. all was not well. -- ben vernanke -- they are not gods. they are human beings. to somehow think an economy in a system as complex as ours can be reduced down to regulatory formulae, it is incorrect. it is humorous. the answer is, let's have more -- capital in the system. let's have far fewer regulations. that was the trade-off in the financial choice act. i still -- i have a few more minutes, don't they? i don't.
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all right. >> that is the right answer. >> i think we probably have two given to the gods of time. it has been very informative. we have learned a lot. >> [ applause ] >> yes. >> coming up tonight, catalysts at the -- take a look at the federal refugee settlement program. you can watch saturday p.m. eastern on cspan3. on c-span, georgetown university and columbia university host a discussion about the relationship between reporters and confidential sources in the government. my coverage starts at 7 pm eastern.
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>> this week on the communicators, executive director of the open market institute discusses his concern over companies like google, facebook, amazon and uber possibly becoming a police and threatening democracy. he is interviewed by a single. technology reporter for political. >> with google, we might start doing things like separating -- off of search. separating search from youtube. >> this sounds radical in the environment. this is something we have done many times in the past, such as at&t in 1982. at&t in 1913. we have done it with dozens of large corporations. it is our right as the people of the u.s. we structure the political ec


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