Lunch Panel: Global Financial Markets: Nouriel Roubini and Mike Milken Debate Where We've Been Where We're Going

Lunch Panel: Global Financial Markets: Nouriel Roubini and Mike Milken Debate Where We've Been Where We're Going Wednesday, April 28, 2010; 12:15 PM - 2:15 PM Moderator: Matthew Winkler, Editor-in-Chief, Bloomberg News Speakers: Michael Milken, Chairman, Milken Institute Nouriel Roubini, Professor of Economics and International Business, Stern School of Business, New York University 1

Recession Ends: What Leads, What Lags Unemployment Payroll Employment Existing Home Sales New Home Sales Housing Starts April 1960 Feb 1961 +3 0 - - -2 Dec 1969 Nov 1970 +9 0-8 -12-10 Nov 1973 March 1975 +2 +3-2 -2-1 Jan 1980 July 1980 0 +1-2 -3-4 July 1981 Nov 1982 +1 +1-6 -14-13 July 1990 March 1991 +15 +2-3 -2-2 March 2001 Nov 2001 +13 +21-2 -17-16 Average +6 +4-4 -8-7 Source: National Association of Home Builders.

Gross public debt (%GDP) Advanced economies 140 120 100 80 60 66 PIIGS: Portugal, Ireland, Italy, Greece, Spain 77 79 80 82 83 85 94 101 117 125 40 20 0 Source: European Commission. 3

1974 The most important t year in financial history since World War II.

Comparison: 1973-76 and 2008-10 Dow Jones Industrial Average, 1973-1976 Dow Jones Industrial Average, 2008-2010 1000 13000 900 11500 800 10000 700 8500 600 7000 500 Date: April 19, 2010 6,547 on March 9, 2009 578 on Dec. 6, 1974 5500

High-Yield Bond Pricing 1970s and 1980s Low Pi Price Date Range High Pi Price Date Range LTV Corp. 15.000 1960-1970 1970 66.000 1982 Grolier 24.000 1974 76.000 1979 McCrory 26.125 1975 69.875 1978 Rapid American 33.000 1974 91.000 1982 Continental Illinois Realty 37.000 1975 93.000 1978 Trans World Airlines (TWA) 40.500 1960-1970 1970 101.750 1976 Gulf & Western 47.000 1974 76.875 1976 City Investing 55.125 1981 70.000 1982 Source: Datastream

High-Yield Bond Pricing 2009 2010 Low Price 2009 Price 4/19/2010 Jefferson Smurfit Corp. 7.500 89.500 Clear Channel 10.000 89.250 Freescale Semiconductor 16.000 95.250 Lear Corporation 16.000 90.000 Lyon William Homes 17.000 86.500 Hovnanian Enterprises 22.000 86.000 Michael s Stores 23.500 108.125 Burlington Coat Factory 24.000 106.000 Harrah s 25.000 99.875 MGM Grand 25.000 100.500 Source: Datastream

Current Home Ownership Rates 75% 70% 65% 60% 55% 50% U.K. Canada U.S. Denmark France Japan Germany Sources: EuroStat, HUD, Milken Institute.

Historical U.S. Home Ownership Rates 70% 65% 60% 55% 50% 45% 40% 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Sources: HUD, Historical Statistics of the United States, Milken Institute.

The prices of residential real estate in Houston (in real terms) declined 40% from 1983-1988. - OFEHO Housing Index / FRB study

Foreclosures in Houston 30,000 20,000 10,000 1,000 1980 Source: Harris County Foreclosure Listing Service 1986 1992

Annual U.S. Bank Failures 1979-2007 200 150 100 50 Source: FDIC 1980 1985 1990 1995 2000 2005

When Lenders Make Non-Recourse Loans Heads they lose -- Tails they lose If prices rise, the borrower keeps the gain If prices fall, the borrower can walk, sticking the lender with a long-term depreciating asset If interest rates rise, the value of the loan depreciates as the real average life of the asset is extended If interest rates fall, the borrower prepays

Obesity Rates: U.S. vs. World U.S. Mexico U.K. Germany France China Japan 2002MEN 36.5% 2005 WOMEN 41.8% 24.0% 34.3% 21.6% 24.2% 20.9% 20.4% 78% 7.8% 6.6% 1.6% 1.9% 1.8% 1.5% Source: World Health Organization / Estimated obesity rates for people aged 15 years and older / 2005

President Richard Nixon At the end of this decade, in the year 1980, the United States will not be dependent on any other country for the energy we need. State of the Union, January 30, 1974 Percentage of Oil 36.1% from Foreign Sources

President Gerald Ford We must reduce oil imports by one million barrels per day by the end of this year and by two million barrels per day by the end of 1977. Percentage of Oil 36.1% 37.1% from Foreign Sources State of the Union January 15, 1975

President Jimmy Carter Beginning this moment, this nation will never use more foreign oil than we did in 1977 never. Tl Televised Speech July 15, 1979 Percentage of Oil 37.1% 40.5% from Foreign Sources

President Ronald Reagan While conservation is worthy in itself, the best answer is to try to make us independent of outside sources to the greatest extent possible for our energy. Percentage of Oil 40.5% 43.6% from Foreign Sources Press Breakfast February 19, 1981

Percentage of Oil President George Bush 43.6% 47.2% from Foreign Sources When our administration developed our national energy strategy, three principles guided our policy: reducing our dependence on foreign oil National Energy Strategy Release June 10, 1992

Percentage of Oil President Bill Clinton The nation s growing reliance on imports of oil threatens the nation s security [we] will continue efforts to enhance domestic energy production. 47.2% 49.8% from Foreign Sources Statement on Energy Security February 16, 1995

President George W. Bush Breakthroughs will help us reach another great goal: to replace more than 75 percent of our oil imports from the Middle East by 2025. State of the Union January 31, 2006 Percentage of Oil 49.8% from Foreign Sources 65.5%

Percentage of Oil President Barack Obama It will be the policy of my administration to reverse our dependence on foreign oil while building a new energy economy that will create millions of jobs. Televised Speech January 29, 2009 from Foreign Sources 65.5% 66.2%

States with the worst unfunded pension liabilities Unfunded liabilities (US$ billion) % funded California 59.5 87% Illinois New Jersey 34.4 54.4 54% 73% Massachusetts Ohio 19.5 21.8 63% 87% Colorado 16.8 70% Connecticut 15.9 62% 0 10 20 30 40 50 60 70 Source: Pew Center on the states, February 2010. 23

Older workers staying longer in the work force Largely due to massive losses in retirement wealth Labor force participation rate (%) for older Americans > 75 years 5% 7% 1985 70 to 74 years 11% 18% 2009 65 to 69 years 19% 31% 0 5 10 15 20 25 30 35 Source: The U.S. Bureau of Labor Statistics. 24

Source: Centers for Disease Control Between 1900 and 2000, life expectancy in the U.S. increased 54%, from 50 to 77 years.

Worldwide Life Expectancy Growth +35 +18 +17 66 Years 26 Years +5 31 Years 49 Years 1820 1900 1950 2004 Source: United Nations Development Program

The 21 st Century will see a worldwide competition for human capital.

Immigrants in Silicon Valley More than half of Silicon Valley s science and engineering workforce is foreign-born. More than 15 percent of Silicon Valley startup companies were founded by immigrants from India. Another 13 percent had CEOs from China or Taiwan. Sources: A. Gary Shilling & Co.

Three Ways to Build Human Capital Education Health Immigration

U.S. Consumer Spending Housing 32.7% Transportation 18.0% Food 12.8% Insurance/pensions 11.2% Healthcare 5.7% Entertainment 5.1% Apparel and services 4.1% Cash contributions 3.6% Education 2.0% Personal care products 1.2% Asia Food 23% Education 15% Housing 10% Clothing 8% Other 8% Transportation 6% Healthcare 5% Communication 5% Source: U.S. Bureau of Labor Statistics/CLSA

U.S. Consumer Spending Housing 32.7% Transportation 18.0% Food 12.8% Insurance/pensions 11.2% Healthcare 5.7% Entertainment 5.1% Apparel and services 4.1% Cash contributions 3.6% Education 2.0% Personal care products 1.2% Asia Food 23% Education 15% Housing 10% Clothing 8% Other 8% Transportation 6% Healthcare 5% Communication 5% Source: U.S. Bureau of Labor Statistics/CLSA

Average Size of American Houses square feet 2,500 2,469 2,000 1,500 1,000 1970 1980 1990 2000 2006 Source: National Association of Home Builders / U.S. Census Bureau

Average Size of American Houses square feet 2,500 2,469 2,392 2,000 1,500 1,000 1970 1980 1990 2000 2006 2008 Source: National Association of Home Builders / U.S. Census Bureau

Home Sizes: U.S. vs. Asia square feet 2,500 2,469 2,000 1,500 1,000 1,200 500 Hong Kong Source: Mr & Mrs Asia - CLSA Japan S. Korea India China Singapore U.S.

The World s Top 10 Economies Today U.S. (23.6%) Japan (8.1%) China (6.5%) Germany (6.1%) France (4.7%) UK U.K. (4.7%) (47%) Italy (3.9%) Russia (2.8%) Spain (2.7%) Brazil (2.7%) (Percent of World GDP) Source: World Bank/Angus Maddison, The World Economy: Historical Statistics (OECD)/PricewaterhouseCoopers/Milken Institute/Goldman Sachs

The World s Top 10 Economies Today (Percent of World GDP) 2050 U.S. (23.6%) Japan (8.1%) China (6.5%) Germany (6.1%) France (4.7%) UK U.K. (4.7%) (47%) Italy (3.9%) Russia (2.8%) Spain (2.7%) Brazil (2.7%) China (18.5%) U.S. (16.5%) India (12.0%) Brazil (4.8%) Indonesia (3.5%) Japan (3.1%) Mexico (3.0%) Russia (2.7%) U.K. (2.3%) Germany (2.3%) Source: World Bank/Angus Maddison, The World Economy: Historical Statistics (OECD)/PricewaterhouseCoopers/Milken Institute/Goldman Sachs

The World s Top 10 Economies Today (Percent of World GDP) 2050 1820 U.S. (23.6%) Japan (8.1%) China (6.5%) Germany (6.1%) France (4.7%) UK U.K. (4.7%) (47%) Italy (3.9%) Russia (2.8%) Spain (2.7%) Brazil (2.7%) China (18.5%) U.S. (16.5%) India (12.0%) Brazil (4.8%) Indonesia (3.5%) Japan (3.1%) Mexico (3.0%) Russia (2.7%) U.K. (2.3%) Germany (2.3%) China (28.7%) India (16.0%) France (5.4%) England (5.2%) Prussia (4.9%) Japan (3.1%) Austria (1.9%) Spain (1.9%) U.S. (1.8%) Russia (1.7%) Source: World Bank/Angus Maddison, The World Economy: Historical Statistics (OECD)/PricewaterhouseCoopers/Milken Institute/Goldman Sachs

2009 The Third Greatest Year of Wealth Creation Indonesia 169% China 87% Turkey 132% Poland 80% Brazil 122% S. Africa 79% Russia 120% Mexico 70% India 120% Peru 64% Australia 108% U.K. 58% Israel 89% U.S. (S&P 500) 39% Chile 88% U.S. (Dow) 28% Date: Bloomberg / April 15, 2010