I can’t tell you how pleased I am to return to my hometown to help raise funds for the Bryan Area Foundation, which does so much good for the community.  The organizers of this event, including my high school class mate Julie Brown, and Mitchell Owens and Dean Spangler have done a fabulous job.  Thanks to them and the many sponsors of this event, we have already raised more than $80,000 to benefit the Foundation and the community.  Please give all of them a good round of applause.  I would add that all proceeds from sales of my book, Senseless Panic: How Washington Failed America, will go to the Foundation.

Besides doing this event for the Foundation, I’m also in Bryan for my 50th high school reunion.  It’s wonderful to see so many of my classmates in the auditorium.  I’m not sure any of them, or I for that matter, would have predicted my life path would lead me to this stage today.

A lot of people played an important role in my development, including my family and friends and my teachers and coaches from kindergarten through high school.  I’m not going to start naming them as the list is way too long, but they know who they are and that I very much appreciate their support and guidance.  Growing up in Bryan was a thoroughly enjoyable experience.  For a long time after leaving I really wanted to find a way to return and raise my family here.  Somewhere along the way, I got distracted.

My father’s parents, who settled in Bryan in the 1890s, spoke little or no English and had little formal education or money.  They had nine children, all of whom worked incredibly hard to build a successful family business.

They had very clear values and priorities:  1) a close knit family, 2) hard work and thrift to provide a better life for their family, 3) generosity to their community and those in need, and 4) absolute integrity.  They didn’t talk a good game – indeed, they didn’t talk much at all – they lived it.  Their values are the greatest gifts they shared with me.

Their story is America’s story, repeated millions of times over the past two centuries.  Their values are America’s values.

My family and I have lived the American dream.  We bought into the notion that we would work hard, save and invest, educate our children, participate in our community, and donate to those who are less fortunate.  If we did these things our lives would have meaning and our children and their children would have more opportunities than their parents.

We trusted that our government would protect us from external and internal threats, enforce the rule of law, ensure that the rules of the economic game were fair and equitable, help educate our children, and extend a hand to those in need.

Trust – confidence in the honesty, reliability and fairness of people and things – is essential to democracy, a free market economy and the financial system.  The breach of trust in recent years by our government and major financial institutions has been enormously damaging.

There were many breakdowns leading up to the most recent financial crisis:  reckless growth of Fannie Mae and Freddie Mac, the quasi governmental agencies that guarantee mortgage loans; failure of the government to deal with the real estate bubble; excessive high-risk growth of major financial institutions; unwise and highly pro-cyclical regulatory and accounting policies; a highly politicized and fragmented financial regulatory system; rating agencies and financial institutions pursuing short-term profits at the expense of long-term excellence; and excessive borrowing and spending in the public and private sectors.

Once the crisis took hold, misguided actions by government leaders escalated what should have been a controllable situation into a full-blown crisis of confidence.  With Treasury at the helm, the government careened from one crisis to the next with inconsistent ad hoc solutions which created the sense that no one was in charge with a coherent strategy.

Bear Stearns was bailed out through a government financed shot-gun marriage to JPMorgan Chase, while Lehman was allowed to fall into bankruptcy.  AIG was bailed out including its large bank creditors, while Fannie Mae and Freddie Mac were nationalized with common and preferred stockholders left holding the bag.  Washington Mutual was allowed to fail, wiping out $20 billion of bonds and $7 billion of fresh equity.

The uncertainty was too much for the markets to bear.  They could not determine which firms would topple next or how the government would respond.  Market participants lost faith in the government and each other, causing banks around the world to stop lending – even to each other.

In late September 2008 the government we had trusted to protect us from panics itself panicked.  Treasury threw together a plan – the Troubled Asset Relief Program or “TARP” – to use taxpayer funds to purchase $700 billion of toxic assets from financial institutions.  The plan was sold to Congress using highly inflammatory language (“financial Armageddon!”), which scared the public even more and deepened the economic downturn.

Treasury lost faith in its own plan and abandoned it immediately.  Instead of purchasing toxic assets, it invested TARP funds in large financial institutions whether or not they needed or wanted the money.  To add insult to injury, Treasury invested TARP funds in GM and Chrysler after Congress specifically rejected the idea.  The public was and is understandably enraged.

Government policy was and remains heavily focused on Wall Street and large institutions.  The ill-conceived, publicly announced “stress test” applied to the 19 largest TARP banks so rattled the markets that the government was forced to declare all 19 “too big to fail.”  Yet to this day no one has designed a program to assist smaller banks in smaller communities, which are deemed “too small to save.”

The enactment of last July’s Dodd-Frank financial reform legislation adds to the widespread belief that the system is rigged.  The legislation does not address the major causes of the crisis, would not have prevented it from happening, and will not prevent the next crisis.

The fact that politicians repeatedly make false claims about the legislation fuels the public’s cynicism.  Our leaders say it ends “too big to fail” while leaving in place a dysfunctional regulatory system overseeing five mega-banks which cannot be allowed to fail without creating economic chaos.

They brag about the new “watchdog” – the Systemic Risk Council – created to indentify and control developing systemic risks.  They fail to mention that the Council will be run by the very agencies – the Treasury, Federal Reserve, SEC and others – that led us into the crisis.

The damage to our institutions – public and private – will be very difficult to repair.  People have lost faith in the American dream.  We trusted that the system would be fair and just for those who played by the rules but have learned that it is not.

We trusted our government to regulate our institutions properly and protect us from economic catastrophe, and it did not.  We trusted our financial institutions to control and diversify their risks and maintain strong capital and reserves, and they did not.

We trusted our government not to panic in the face of adversity, but it did.  We trusted our government to be fair to all of America – Main Street along with Wall Street – but it was not.

Perhaps most importantly, we trusted our government not to grossly mismanage our nation’s financial affairs and lead us to the brink of disaster with a $14 trillion debt that is growing exponentially with no end in sight.  The debt is potentially so large that it will interfere with the ability of our nation to protect itself against foreign and domestic threats, educate our children, and care for those truly in need.

Millions of people have lost their jobs, homes and savings, and we have no dry powder on either the fiscal or the monetary front to do anything about it.  Our government’s response was to devote nearly two years to enacting a massive health care reform bill that does not address the major health care issues, heaps more burdens on small businesses, and adds at least a trillion dollars to the federal deficit.

Despite our many challenges, there is nothing wrong with America that we cannot fix if we muster the political courage and will to do it.  As bad as things might be today, we have been through worse – the Civil War, numerous financial panics and depressions, and two world wars.

There are two overriding issues that must be addressed without delay.  I’ve already noted the first, which is getting our nation’s fiscal house in order.  Federal spending is out of control and is robbing our children’s future.  According to the Congressional Budget Office, the Federal debt held by the public (which does not include social security obligations) was 35 percent of GDP in 2000 and is projected to reach 70 percent in 2011.  We currently borrow 42 percent of every dollar we spend.

There can be no debate that we must cut spending significantly, phased in to reduce the hardships.  While I’m not a fan of raising taxes on income and production, we must find ways to increase revenues.  The political reality is that everyone must contribute to the resolution of our fiscal crisis.

The second overriding issue is improving greatly our education system.  We are leaving far too many people behind, creating a huge divide between haves and have-nots.  Walter Shipley, the legendary CEO of Chemical Bank (which is the foundation upon which JPMorgan Chase is built), told me twenty years ago that his number one worry was the sad condition of the New York City public school system.  He lamented that fewer than half of the graduates of the New York City school system were trainable for entry level jobs at his bank.  This is simply not acceptable in America.

I’m not an educator and I’m not going to pretend to have the answers.  But I talk with a lot of educators who do have ideas on what must be done.  One answer seems to be more freedom of choice in school selection.  Another is smaller school systems with significantly less bureaucracy and more discretion given to teachers to do the job they are trained to do.  Another is to curtail extended summer vacations, which are widening the knowledge gap between the children of privilege and those less fortunate.

These things are not rocket science.  We can get our fiscal house in order.  We can greatly improve the quality and fairness of our education system.

This takes me back to leadership and the values held dear by my ancestors and no doubt by yours.  Most Americans place a high value on working hard to create a better life for their families, contributing to their communities and those in need, and behaving with integrity.

We must demand that the leaders of our public and private institutions adhere to these values.  These are not Republican or Democratic or Tea Party values, these are American values.  These should be the values of both Main Street and Wall Street.

We must hold our public and private leaders to a much higher standard than in recent decades.  When leaders in the private and public sector bring us to the edge of financial ruin, they must be held accountable and at the very least be swiftly removed from office.

Again, it is my pleasure to be with you today.  I have time left and would like to spend it answering any questions you may have.  Please don’t hesitate to ask about anything, except what my classmates might have told you I did in high school.  I will just deny whatever it is and claim that they are much too old to be trusted to remember it accurately.