if the Government guaranteed piece is systematically underpriced, then no matter what else you do, you are not going to get private capital to come in in that context.

I think Dr. Admati has something she would like to add to this.

I think that is the basic mentality of Dodd-Frank.

Failure has to be an option.

what you want to do is eliminate the discretion, put a fixed set of rules in the hands of a bankruptcy judge

So if, in fact, the Government comes along and bails out institutions, then there is obviously some level of expectation that the Government will do this again in the future.

So is it your view that if we repeal Title II, which is the bailout mechanism of Dodd-Frank, and we made the reforms necessary for there to be a credible bankruptcy resolution that would actually be orderly and which would follow the…

But would you agree that in Title II of Dodd-Frank there is an explicit mechanism by which the regulators are empowered at their discretion to tap into taxpayer funding and execute a bailout of sorts.

Well, I see my time is expired, but Mr. Chairman----

In a market-based economy, in a capitalist system, in a free society, you have to be free to fail.

I think that too big to fail is a real concern. I think the real solution is to go to the heart of where the problem is.

I wonder if a better approach is simply to make sure that the taxpayer is not an involuntary shareholder in the institution in the first place.

The regulators themselves, as we know, are not omniscient. They are not going to be perfect. They are not going to always get it right, and in the end, eventually institutions will fail anyway.

It strikes me that parts of Title II are problematic in the way they are written, problematic in doing a slow process.

I would really seriously question the competence of the FDIC to run JPMorgan Chase or to run Lehman Brothers.

I do oppose the overall framework of Dodd-Frank, but it seems to me a couple of the most egregious laws are subjecting financial institutions that are not, in fact, systemically risky to these very onerous regulations imposes a real cost.

One of the major ways is through the SIFI designations, which I would argue then precipitate the micromanagement of these financial institutions by a host of regulators in what will, in my view, ultimately be a futile attempt to make…

I would just point--their work very significantly informed my judgment as we developed our legislation.

Management has to be all fired regardless of which managers are actually at fault.

There are direct costs of compliance, and then there are all the indirect costs of a reduction in innovation and dynamism that comes when regulators have the power to run these financial institutions like public utilities.

The bank gets executed. I mean, that is the purpose as a practical matter.

I share that view, but rather than trying to guess what the right number is, because, frankly, I do not think $75 billion is the right number either.

Credibility has to be established, and as we do that, of course, we will make mistakes.

But what I understood you to say is that you agree with the premise that the actual activities of the bank ought to be given more weight than an arbitrary dollar value of assets?

Congress did this in an immense rush, and I do not think it was a very thoughtful solution.