>> and neither is the first bad pun from mike holland. >> so we have a minute left. our guest host, veteran wall street executive, mike holland. you feel good about the next three months, do you? >> we're going to get the snap back from inventory. steve's optimism will be rewarded, at least in part. >> not today, it wasn't. >> not today. that's the key. the jobs thing is the key to the housing. the housing is the key to a lot of other things. until that, we know we're stabilizing but we're a little ugly level. >> it's going to be hard. >> let me finish. the stock market isn't going down. art cashin observation. it's not going down big. we had lots of lousy news the last couple days. >> it's october. >> oh, my god. >> should we be worried. >> i thought it was september, bad. watch out for next september. you know what? if it goes down a little bit after doing what it's -- >> mike, thanks.

good to see you. >> thanks for having us. >> make sure you join us tomorrow. "squawk on the street" is coming up next. live from the financial capital of the world, this is "squawk on the street." it is a thursday morning. and we have a big market day ahead of us. i'm glad i'm back here with you, scott. >> glad to have you back. >> i'm erin burnett. >> i'm scott wapner in here mark haines. here's what's front and center. >> let's start with futures and give you a sense of where we're going to open. off the lowe's of the session. we will have a a lower open in has the jobless claims, most important economic data we get every week, rose more than expected. 551,000. and obviously, that is evident we are having a very slow recovery, if you even want to use that word. >> consumer spending surged by the largest amount in eight years in august, but incomes still lag. here is a bid/ask on bank of

america. the stock will trade this morning for the first time as ken lewis steps down of ceo by the end of the year. well, 16.97. it looks like, i don't know, bank of america may open a touch higher. >> kelly is the one who broke the story. he's going to be here with new details on the succession plan on what actually could be moving the stock more. we'll have those headline in a couple of moments. you don't want to miss it. right now, we have the chairman ben bernanke on capitol hill. in prepared testimony he says an oversight counsel of regulators, not just the fed, is needed to monitor risks. now, this is going to be fascinating because it sounds like he could be going in the camp of sheila bair at the fdic who has been looking for a counsel of regulators. we'll see if, indeed that is the point. but he says the counsel should be able to card nate agency responses to systemic risk. he wants to develop a procedure

to wind down systematically important firms in a way that allows the government to impose losses on shareholders and creditors. is that really dealing with too big to fail? many are skeptical about that. meanwhile, members of the house financial services committee will make statements before he begins his testimony. and as soon as he starts speaking, we'll go there live. >> erin, the other big story, of course, this morning involves two immediate giants, general electric. david faber with more on that. david? >> we can call it a big story. of course, there may not be much of a story at all at this point. it's hard to say, scott, where the line between speculation and actual news lies on this. but none the less an internet entertainment gossip site last night started a great deal of speculation about a potential deal in which comcast would buy or take control of nbc universal. that is not the case. there do appear to be talks between comcast and nbc

universal and ge. surrounding the sale of stock. ge is preparing for the likely sale of vivendi's 20% stake. something that would take months and months to actually take place. it would be registered for an ipo. but there are any number of other things that can bubble up around that. ge has the right to buy back the stake but it will not be doing so. again, this is all i reported a number of weeks ago. that has set a t. stage for what is building speculation around another potential, which again i talked about at the time which is a sale of the stake to a third party. the problem is the stake itself is 20%, despite the interest of comcast, and there is interest of comcast, does not come along with any control whatsoever. you would be taking an economic interest in the company and yet have no ability other than to sit around like a lot of other investors at home who buy a stock.

it might not be something that comcast shareholders are happy with. if you're comcast you probably talk to ge and say are there things we might be able to work on around this to allow us to have further rights to, to have a path of control, or is there a willingness on your part, ge, to car see the control with nbc universal? is all of that on the table? does it mean that anything is remotely near and happening? no. and there are many different issues here when you talk to a lot of people around this about structure and things of that nature. certainly comcast has gone down there road before. they managed to pull at&t broadband out of at&t out of a spin merge. that would be a secenario that might make sense. but then we come back yet again to issues of valuation because comcast is larger than nbc universal, and the larger issue, which is that ge does not appear to be in a position or want to actually sell all of nbc universal and eliminate that

cash flow and earnings from a balance show that would tilt to ge capital, multiple of which is not very high. so a lot of different issues here. do we think there are talks at this point? there does appear there are, at least conversation. no doubt as i report previously that brian roberts continues to have a great interest in content in figuring out how to grab ahold of that content. we'll kaep an eye on shares of mr. roberts. we'll keep an eye on shares of comcast today. shareholders there sort of bracing for the possibility that he will yet again try and delve into an opportunity to grab ahold of content. what will it cost them. how will it be structured? if you were ultimately imagine a spin merge, comcast and the voting control the roberts family has despite the lack of economic interest, it becomes yet another factor that you have to figure out if bankers are creative folks. we'll see. i think it probably is earlier days than many people might think, judging from all the headlines out there but certainly we'll be following it closely and bringing people news

as we get it. erin, back to you. >> we'll keep following it. they have $4 billion in cash, david? buying a 50% stake is at least 16. you've got to do some kind of financing. >> stepping up with a cash purchase has a lot of problems on its own as ale which is why you think of a spin merge as ge would spin it, spin it off publicly and then comcast could merge itself. comcast would have to be 49% of that overall company for tax reasons. right now comcast is well above that in terms of value you yoo asia yags. it gets complicated. >> it does. >> that's why we'll just have to wait. >> we will. david will have it first. >> i hope so. >> that's the way it goes. here's another check on futures. we have dropped down just a little bit over the past couple of moments. i know there's concern over continuing, after all the excitement on economic data, a little bit of a down draft lately. >> jobless claims numbers certainly this morning was

disappointing. it's having an impact on the markets. in fact, let's het hit those marketing. start with our own bob pisani at the big board. good morning. >> thank you, scott. the markets begin the fourth quarter in good shape. highs for the year, but remember the big leader stocks, google, jpmorgan, apples, they're struggling to give tech the ranges they've been. stock is weaker today. that's the most reliable trade of the third quarter here. let's talk about stocks that are moving through all ken lewis' retirement or forcing out or whatever you want to call it. bank of america is off fractionally. positive comments from analyst reports this morning on that development here. let's talk stocks. paradigm, capital equipment maker. up 7%. improved demand. raised guidancguidance. more good news that semiconductor business is going to reawaken. penske automotive is down because they're backing out of the saturn deal.

they can't find anybody to continue to make the saturn the penske is about automotive parts. conversatio consolation brand. tradertalk.cnbc.com. we are negative, bob, at the nasdaq. we are looking for eight months in a row of gains here at the nasdaq. let's get to the news items. microsoft taking off the conviction buy list at goldman sachs. it is rated a buy. price target is 30. cisco buying the teleconferencing company for $3 billion. cisco was negative for most of the premarket trade. go to apple which had target raised at oppenheimer to 210. still a lot of chatter about tablet computer and what technology it might use and how it might change publishing the way the itunes changed the music industry. netflix, business week basically saying they're talking with the music studio 'they want more

money or delay their titles. activision blizzard, now at 12.20. let's go down to sharon epperson at the nymex. >> stock futures off the low of the session. oil prices just turned positive. gasoline leading the way in the petroleum complex. after more than a $3 gain yesterday, we saw on the heels of surprising decline in gasoline declines. we are still looking at the dollar rising here. that could put a cap on this, a little bit of upturn we're seeing here in oil prices. the dollar, of course, the dollar trade very important to what has been happening not only to oil but to commodity prices across the board. we're continuing to monitor what is happening in geneva. talks between iran and the u.s. and five other major world powers. rick santelli, to you in chicago. interest rates are already on their way down. the dollar index was already established, higher.

the mid year and quarter end, u.s. and japan is now behind us. in the equity markets, already under a little pressure. up 17,000 in initial. might not be in the right direction if you're an op mist. but many people say it wasn't that so much, especially when you look at down 70 on continuing. but what did bug some traders was the fact that income for august was only up a couple of tenths but spending was up over 1%. that dynamic makes traders nervous. how long can it go on? that's what they're paying attention to today. back to erin and scott. >> thank you very much. and next, charlie gasparino broke the charlie lewis story. and you're looking at live pictures of the house financial hearings committee on financial reforms. we're going to take you there just as soon as ben bernanke starts speaking. (announcer) when you need it fast.

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let's get to our commodities quarter to show you where we are setting up for this session. we will begin with crude oil, which is up about a full percent. 71.25. it's been interesting lately that $70 level has been rather hard to break. we're up 60% for the year. the other big story is gold, which is still above 1,000. even though we're down just a little bit today. forth year, though, gold is up

14%. continues to be that, well, if you're worried about inflation or armageddon, it seems to go up. right now, that means all roads lead to gold. let's move on to bank of america. >> let's take a look at that bid/ask. they're set to open higher. on-air editor charlie gasparino who broke the news has more right now on the succession planning as we wait on ben bernanke to start speaking. good morning. what are you hearing? >> it's still up in the air, is what i'm hearing. they have about 60 that they can choose from, sally is in that group, a few other people, brian is the odds on favorite from that group. but i tell you, i keep picking up rumblings they could go outside, or go to one of the board members as a sort of interim and there's two guys in particular that i hear are potential successors as an interim basis.

when i say interim, maybe the next year or so, you know what i'm saying? one guy is named ched gifford, former fleet, boston ceo. >> right. >> another guy william boardman, former bank one executive. i think he was a number two guy at bank one for a while. they were both on the board if both considered pretty confident commercial bankers. lay odds on both of those based on conversations i'm having with let's just say high-level wall street guys. i think gifford is the guy you might see run the place on an interim basis. when i say interim, a year. those other people if you look at that list, brian, tom motag, salley krawcheck, these guys, good competent executives, you wouldn't necessarily consider them to run what is probably the biggest bank in america right now. number two, after jpmorgan.

>> you raise a great point there in that there are a lot of talented people on the list you just mentioned, but bank of america has grown to such a large institution, that really no one on the list has experience dealing in all of the -- >> you're wrong about that. you're wrong about that. >> on every aspect of what bank of america does? >> yes. brian has done every aspect, i'm sure brian hasn't cleaned the bathrooms of bank of america. what i'm saying to you is that he's done many of the -- of the functions, he's run -- he's been investment banker, a lawyer. that's the problem, he's a lawyer. people wor rye about the chuck prince precedent. but so inside bank of america you would think that he has the -- the sort of -- he's done most of the jobs that puts him in the lead. you know, a lot of people like salley krawcheck, i discounted that heavily. she was a good brokerage analyst when she was at sanford bernstein. when she was at citi group, very

mixed record. not a very good cfo, according to a lot of analysts i talked to. that was the consensus. decent brokerage head. >> charlie, thank you. as you get more, we'll be eager to hear you. >> okay. >> and, charlie, i won't let anything go by without giving you this. charlie's new book "the sellout." go buy it now. back when bank of america bought countrywide, managing director of independent research firm graham fisher and company. we appreciate you being with us. >> thanks for having me. >> josh, they say this is a retirement. all legal actions are going to continue anyway. is it a retirement? >> yeah, i mean, i think it is a retirement. at some point you have to get tired of the limelight. you can't run your bank. you've got problems with the on going inquiry. you know you've got a year of regulatory reformat least battles ahead of you. there are still questions about executive comp. who needs it at some point, becomes the question. >> so do any of the names that have been thrown out there, any of these people, excite you?

would any of them be good? >> well, i think all of them are confident. i think the issue is who wants the job? at some point do they turn to someone in the mail room and say, hey, do you want it? do you want to actually have to run this institution while there's so much going on? first of all, they've got loan portfolio which still have significant problems. i'm wondering if the timing, by the way, of his resignation wasn't an indication that third your, not quart quarter, becomes the kitchen sink quarter so they can bay pay back the government. specifically, i don't know if they can attract someone in the job while they have all of these problems in their loan portfolio running the business and not able to fully focus on that because of the regulatory legislative, political sideshow in washington at this point. >> josh, is it a problem that the announcement comes without a successor name, leaving it as the hanging question? >> no, i don't think it really is. on an interim basis, i think charlie's right.

i think we probably have as good a chance of going to the board and taking someone internally that's in panmanagement at this point or outside on an interim basis. that's probably the right answer, because you do want the business line managers to actually be able to run their businesses, focus on their businesses, while the senior management over the next year is really going to have to focus on cleaning up the mess. >> ear short on time because we're waiting for the fed chairman in washington to give his testimony this morning. thank you so much. >> thank you. up next, the word on the street and the buzz beyond. >> and the check on the futures as we wait for ben bernanke to begin the testimony, as you see.

the fed chairman is going to be speaking today as well which could be a market moving event approximately let's bring in warren meyers to talk about this trading game. warren, the jobless claims numbers was disappointing. it's all about employment right now? >> it's on everyone's mind. everyone talking about the beginning of the recovery, getting out of this recession. until you see those jobless numbersleling off and starting to improved, it's going to be hard. >> that said, is it possible that the economy could still drag, the employment situation could still be weak but the market could still move higher? >> we are already see that. part of what we've seen in the rally is the fact that the markets always over react. we've got way too low on the way down. probably back now to a little

more reasonable level. it is possible to have the markets go up with the unemployment overhanging to a degree. at some point unemployment is going to win out if it doesn't correct itself. >> you guys listening to the fed chairman today? if he's asked in regards to comments and fisher, perhaps, and commit strategy, et cetera. >> absolutely. always listen to bernanke. >> let's send it to bernanke. >> -- should include at least five key elements. first, legislative changes needed to ensure that systematically important financial firms are subject to effective consolidated supervision whether or not the firm owns the bank. second, oversight counsel made up of the agencies involved in financial supervision and regulation should be established with a mandate to monitor and identify emerging risks to financial stability across the entire financial system, to identify regulatory gaps and to coordinate the agencies' responses to potential systemic risks. to further encourage holistic

approach to financial oversight, all supervisors and regulator, not just the federal reserve, should be directed and empowered to take account of the risk to the broader financial system as part of their normal oversight responsibilities. third, a new special resolution process should be created that would allow the government to wind down a failing systematically important institution whose disorderly collapse would pose risk to the financial system and the broader economy. importantly, this regime should allow the government to impose losses on shareholders and creditors of the firm. fourth, all systematically important payment clearing and settlement arrangements should be subject to robust oversight and prudential standards. and fifth, policymakers should ensure consumers are protected from unfair and deceptive practices in their financial dealings. taken together, these changes should significantly improve the regulatory system's ability to constrain the build up of systemic risks as well as financial system's resiliency

when serious adverse shocks occur. the current financial crisis is clearly nonstraighted at risk financial system can arise not only in the banking sector but the activities of other financial firms sump as insurance companies that traditionally have not been subject to the type of regulation and consolidated supervision applicable to bank holding companies. to close this important gap in our regulatory structure, legislative action is needed that would subject all systematically important financial institutions to the same framework for consolidated prudential supervision that currently applies to bank holding companies. such action would prevent financial firms that do not own a bank but none the less pose risk to the overall financial system because of the size, risk, or interconnectedness to their financial activities from avoiding comprehensive supervisory oversight. besides being supervised on a consolidated basis systematically important financial institutions should also be subject to enhanced regulation and supervision,

including capital, liquidity and risk management requirements that reflect those institutions' important roles in the financial sector. enhanced requirements are needed not only to protect the stability of individual institutions and the financial system as a whole, but also to reduce the incentives for financial firms become very large in order to be perceived as too big to fail. this perception materially weakens the incentive of creditors of the firm to restrain the firm's risk taking and creates a playing field that is tilted against smaller firms not perceived as having the same degree of government support. creation of a mechanism for the orderly resolution of systematically important nonbank financial firms which i will discuss later, is an important additional tool for addressing the too big to fail problem. the federal reserve is already the consolidated supervisor of some of the largest and most complex institutions in the world. i believe that the expertise we have developed in supervising large diversified interconnected banking organizations together with our broad knowledge of the

financial markets in which these organizations operate, makes the federal reserve well suited to serve as a consolidated supervisor for those systematically important financial institutions that may not already be subject to the bank holding company act. in addition, our involvement in supervision is critical foreign sure that we have the necessary expertise, information, and authorities to carry out our essential functions of the central bank, promoting financial stability and making effective monetary policy. the federal reserve has already taken a number of important steps to improve regulation and supervision of large financial groups building our lessons from the current crisis. on the regulatory side, we played a key role in developing the recently announced internationally agreed improvements to the capital requirements for trading activities and securitization exposures and we continue to work with other regulators to strengthen the capital requirements for other types of on and off balance sheet exposures. in addition we're working with our fellow agencies toward the development of capital standards

and other supervisory tools that recalibrated to the systemic importance of the firm. options under consideration in this area include requiring systematically important institutions to old aggregate levels of capital above current regulatory norms or maintain a greater share of capital in the form of common equity or instruments are similar loss absorbing attributes such as contingent capital chen necessary to mitigate systemic risks. the financial crisis also highlighted weakness it in liquidity risk management at major institutions including over reliance on short-term funding. to address these issues the federal reserve helped lead the development of revised international principles for sound liquidity risk management which have been incorporated into new interagency guidance now out for public comments. in the supervisory arena the recently completed supervisory capital assetsment program, the stress test, was quite instructive for our efforts to strengthen our prudential oversight of the largest banking

organizations. this unprecedented interagency process led by the federal reserve incorporated forward looking, cross firm, aggregate analyses of 19 of the largest bank holding companies which together control a majority of the assets and loans within the u.s. banking system. drawing on this experience, we have increased our emphasis on horizontal examinations on risks or activities across a group of banking organizations and we have broadened the scope of resources we bring to bear on these reviews. we are also in the process of creating an enhanced quantitative surveillance program for large complex organizations that will use supervisory information, firm specific data analysis, and market based indicators to yooid fi emerging risks to specific firms as well as to the industry as a whole. this work will be performed by a multidisciplinary group composed of economic and market researchers, supervisors, market operations specialists, and other experts within the federal

reserve system. periodic scenario analysis will be used to enhance our understanding of the consequences of changes in the economic environment to both individual firms and for the broader system. finally, to support and compliment these initiatives we are working with the other federal banking agencies to develop more comprehensive information reporting requirements for the largest firms. for purposes of both accountability the consolidated supervision of individual firms whether or not it is systematically important, is best -- >> we are keeping our eye, of course, on the fed chairman as we open things up for trading today. opening bells you are watching at the big board, the world federation of direct selling associate avon product andrea jones doing the honors. at the nasdaq, hologic. the manufacturer of diagnostic products for realm raise ag wearness for breast cancer screening. we are going to get back to the fed chairman momentarily. our market reporters are standing by here at the nyse,

nymex, nasdaq, that's where we begin with bob pisani on the floor. >> good morning. markets are in pretty good shape here. two consecutive quarters, 15% growth here. apples, googles, jpmorgans near the top of the range here and struggling to hold on right now. let's talk about what's weak here. the dollar has been up all morning. stocks have been a little weaker. g-7 is meeting this week. that means a number of people vying to jawbone the dollar up here. talk about what's moving here. for all the talk about mr. lewis' resignation or forcing out, bank of america is opening to the upside. opened up about four cents and that stock is trading up throughout the morning. talk about other ones. semiconductor equipment maker paradigm had terrific comments helping the semiconductor group. raised the guidance. helping out here. penske group has been down all throughout the evening. of course, down 9% after withdrawing the bid to buy

saturn. they can't find anybody to make the saturn cars for the next two years after gm stopped making them. remember, this is a parts play. penske is a parts company. finally, consolation brands, notably improved. tradertalk.cnbc.com. brian shactman, how is it looking for the first day of the quarter? >> it's in the red, bob. at the nasdaq, we do have the pink on or breast cancer awareness month. hologic makes breast screening equipment. still a buy though. but it's down 1.4%. research in motion up 0.7%. cisco buying the norwegian teleconferencing company for $3 billion. down. this hurts rad vision, 40% of their revenue last year came from cisco with a competitive business. people think they're going to get hurt here. down 26%. jpmorgan, busy. i want to tick through what they

have to say. moving invidia to underweight. pmc to overweight. i want to talk about jpmorgan putting them with an overweight. a few 0.1%. leap wireless, deal with target, they also were downgraded to neutral at jpmorgan, down 4.4%. scott, back to you. >> all right, brian. thanks so much, bob. as well, so we've opened lower across the board on wall street. let's get back to the fed chairman right now. >> -- and pay careful attention to interlinkages and interdependencies among firms and markets that could threaten the financial system in a crisis. for example, the failure of one firm may lead to run of wholesale funders of other firms as similarly is it chew waited where they have exposures to the failing firm. these efforts are reflected, for example, in the expansion of horizontal reviews and quantitative sure veil lns program i discussed earlier. another critical element of

systemic risk ace "american idol" jend da is a new regime that would allow the orderly resolution of failing systematically important financial firms. in most cases the federal bankruptcy laws provide inappropriate framework for the resolution of non-bank financial institutions. however, the bankruptcy code does not protect the public's strong interest in ensuring the orderly resolution of a non-bank financial firm whose failure would pose substantial risks to the financial system and to the economy. indeed, after the lehman brothers and aig experiences, there is little doubt that we need a third option between the choices of bankruptcy and bailout for those firms. a new resolution regime for nonbanks analogous to the regime choosed for banks would provide the government the tools to restructure or wind down a failing systematically important firm in a way that mitigates the risk in a economy around protects the public interests. it also provide the government a

mechanism for imposing losses on the shareholders and the creditors of the firm. establishing credible processes for imposing such losses is essential to restoring a meaningful degree of market discipline and addressing the too big to fail problem. the availability of a workable resolution regime also will replace the need for the federal reserve to use its emergency lending authority under section 133 of the federal reserve act to prevent the failure of specific institutions. payment clearing and settlement arrangements are the foundation of the nation's financial inf infrastructure. these arrange ms include centralized market utilities for clearing and settling payments and securities and derivative transactions as well as centralized activities throughout financial activities, clear and settle transactions bilaterally. while they can create significant sushtfys and promote trarns par transparency, they can concentrate on operational risks and absent strong risk controls may themselves be a source of

con tagion in times of stress. the framework for systematically important payment, clearing and settlement arrangements is fragmented. creating the potential for inconsistent standards to be adopted or applied. under the current system no single regulator is able to develop a comprehensive understanding of the interdependencies, risk and approaches across the full range of arrangements serving the financial markets today. in light of the increasing integration of global financial markets it is important that systematically critical payment, clearing and settlement arrange lt bs viewed from a system wide perspective and subject to strong and consistent standards and supervisory oversight. we believe that additional authorities are needed to achieve these goals. as the congress considers financial reform it is vitally important that consumers be protected from unfair and deceptive practices in their football dealings. strong consumer protection helps preserve household savings,

promotes confidence in financial institutions and markets and adds materially to the strength of the financial system. we have seen in this crisis that flawed or inappropriate financial instruments can lead to bad results for families and for the stability of the financial sector. in addition, the playing field is uneven regarding examination and enforcement of consumer protection laws among banks and non-bank affiliates of bank holding companies on the one hand and firms not affiliated with banks on the other. addressing this discrepancy is critical for protecting consumers and ensuring fair competition in the market for financial products. mr. chairman, ranking member, thank you again for the opportunity to testify in these important matters. the federal reserve looks forward to working with the congress, the administration, to enact meaningful regulatory reform that will strengthen the financial system and reduce both the probability and the severity of future crises. thank you. >> thank you, mr. chairman. i apologize again for my

outburst. i begin with 4:30, i used up 30 seconds before the gentleman of alabama correctly interrupted me. make that 4:30, please. okay. we can't do 4:30 so we'll do it from the eye. technologies are limited. i'll just to recap, yeah, the need to intervene and the economy was regrettable. i think it was caused by past failures. we do want to note that every item that the gentleman from texas mentioned as a regrettable bailout was initiated by president bush and his advisers, carried on by president obama. our job is to try to prevent from, we think, from happening again. one other historical reference i want to make to the chairman, and i think it's fair to note again we're trying to get bipartisanship, the chairman has been a high economic official appointed first by president bush to a couple of positions

and now by president obama. there's been reference to the economic recovery plan. and it was noted that what seem to me to be fairly simplistic economics the plan passed. even when the plan passed, appointment went up. the plan passed could instantly undo things built into the economy, seems to me questionable. but i would like you said before, what is your estimate of the employment impact of the economic recovery plan that was passed earlier this year, mr. chairman? >> i don't have an immediate number for you. part of the issue here, i think, is that only about 20% of monies that were appropriated has been put into the system. i think it still remains to be seen what the net effect will be. the estimated in the employment impact is difficult because you have to compare it to what has been the case in the absence. of course, that's very difficult. i do believe that fiscal policy can have positive effects on

growth and employment based on a large literature looking at previous episodes, the effects on consumer spending, on state and local spending and the like. i would have to concede at this point, again, because it's early in the process and it's difficult to -- >> the report did mention a number of areas where you thought it had some positive impact. >> yeah. based on our analysis, which is largely reflects studies of previous episodes, there is a presumption that we saw, for example, in the last -- in the early 2000s that consumers did respond to income transfers by increasing spending over a period of time. >> let me move on then. appreciate that. we do have more to be spent. i want to respond to the chairman's -- rather, the ranking members denial of my assertion that the republican want to leave power to the federal reserve. yes, they do.

the proposal to create a consumer takes more powers from the federal government than any other agency. the counter has been to leave the powerers where they are and to perhaps enhance their enforcement. the largest defense of federal reserve power that we now have is coming from those who oppose a consumer protection agency. the gentleman from alabama said he objected to some other things that aren't in the bill that we circulated last week. we are not talking about doing some of those things. i think they were interpretations of the administration's bill. we have already substantially rewritten it to talk about what we are talking about. but again, let's be very clear. the position that the republicans have talked about, as i understand it, is to leave consumer protection with the bank regulatory agencies, not to separate safety and soundness of consumer protection. the fdic, the control of the currency and supervision and the federal reserve, more consumer protection statutes are large in

the federal reserve than anywhere else. if you preserve that status quo, you preserve the power os ft federal reserve. i have seen no proposal from my republican colleagues that would in any way not do that. they say they want the federal reserve to only. but under their approach they would continue to be the major consumer protector of all other federal agencies. i think that is a mistake. that's why we have proposed a change. if there is a proposal to difficult pin m diminish the consumer powers, i haven't seen it yet. i would look forward to it. the notion even of a counsel proposed by the witness the other day, it would be a counsel of the existing federal regulators and he said they would retain their power. so that's where we are. the gentleman from alabama? >> thank you. chairman, bernanke, i guess you didn't know you were being invited to debate between the

chairman and i. i'd like to get back to the your testimony. but i think as you know what the republicans have proposed is consolidating financial regulation within the single agency and not bifurcating safety and soundness from consumer protection. you actually in a letter to me july 29th agreed that bifurcation had tremendous risk. i think, am i correct in that regard? >> i think there are some costs to separating enforcement and rule writing. >> thank you. and the chairman also, although i'm not sure he's read our plan, what we proposed is very similar to what senator dodd and senator warner and the senate have proposed, and that's consolidation of some of the bank supervision.

now, chairman bernanke, has you've heard from others, we are deeply concerned over the obama administration's failure to abandon an option to use taxpayer money to bail out too big to fail, non-bank financial institutions. i'm sure you're aware, or are you aware that former chairman volcker expressed his strong concern for that, also? do you share our concern that you do create -- i think mr. garrett said, you know, moral hazard? and also the question of fairness about -- and i'll end with this. this is too many questions. but as you know, you probably heard secretary geithner say he wouldn't take a trillion dollar intervention off the table. i would ask you maybe start with that and work back. would you endorse his statement

to -- >> let me, i think, address the key issue. i do not in any way support too big to fail. i think it's a huge problem. i think whatever we do must address that problem. big companies must be allowed to fail. but they must be allowed to fail safely so they don't bring down the system. so i think -- i see the resolution regime, for example, having three attives. objective number one is to avoid damage to the collateral damage to the broad financial system, and for that reason some flexibility is probably needed for the treasury or whoever is running that to bridge to a new company, take whatever actions are needed to intervene in that point. i think there are two other objectives. the second one is get rid of too big to fail. for that purpose i think the ability to wind down the firm is there and i think we should make it a very, very strong presumption that whenever there's an intervention, that not only shareholders but also creditors lose money. and that will create the market

discipline that will take away the biggest advantage of being too big to fail. and there's a third objective, i think is protect taxpayers. i want to stress very strongly that i do not support government or taxpayer vinnestments, ala t.a.r.p. what i propose is something similar to what we have now from the fdic, is that even if there are short-term extensions of credit from the government, that ultimately the full cost will be born either by the creditors of the company or by the rest of the industry. so i do very much want to address your concerns. at the same time, though, i do think that we need to have a system for avoiding the kind of chaos lehman brothers still has not resolved. still enormous amount of money tied up and confusion and uncertainty about claims. and that's just because the bankruptcy process can't deal with this in an orderly way. >> let me close by asking this. consumer protection agency. the chairman said today that --

we were talking about pure vanilla products. he says he's taken that off the board. "the new york times" in an editorial september 30th says that the agency still has the ability to create incentives that would encourage the provisions of plain vanilla products, including charging reduced oversight fees to firms that offer simpler loans. do you agree with the provision where the federal government would actually tax or charge fees if banks did not offer plain vanilla services or plain vanilla products? >> congressman, i addressed this in earlier testimony. the point i made is that there is some case for the vanilla products which relates to behavioral economics says about the ability of consumer to deal with very complicated processes or products. but i did also say i thought that the basic design ought to come from the firms, to the agency should not be designing the products.

i think i would add also that simplicity is sometimes in the eye of the beholder. one size fits all doesn't always work. may be some products that are simple and appropriate for some but not necessarily for all consumers. >> we'll be right back with the fed chairman who is before the house financial services committee. a conversation largely involving too big to fail and systemic risk. the fed chairman saying that the new counsel of regulators, not just the fed, should be the monitors of systemic risk. we'll be right back.

let's get straight back into the testimony of the fed chief and house financial services committee. >> is that something we should think about or worry about? >> should think about it. if you look at the airline industry, for example, every major airline has been through bankruptcy at one point or another. and it's been really a process -- >> i'm probably a little bit more worried about the manufacture of the airlines than the operators. i realize there's just really a few left in the world. and if there were failure there, it could be, i would think, systemic. >> tough questions there, it's not just a question of specialization. i think that unfortunately, financial crises, boons and

busts, are a longstanding problem of capitalism and they have, i think, a special role in the broader. >> and i agree. and that being the case, are you planning to come forth with a proposal to the congress of how not only we can have a systemic regulator that can identify too large to fail, but how we start winding them down or preventing them from getting that large. are we going to go into an industrial plan or a financial plan in america where we once identify we establish a way of taking these institutions down to a controllable size where their failure would not cause systemic risk? >> i don't think it's possible -- well -- to reduce all financial institutions to a size so small that they would not be a systemic consequences. and without losing some very substantial benefits of international financial flows, for example. i think the best way to do this is by making it costly -- moving

the advantages of being too big to fail. increasing the capital requirements, making it less profitable and much more constrained. and on the other hand by having this resolution authority which would tell the creditors that they will lose money if this company fails and, therefore, they will not, you know, benefit the company by providing resources or funds at below market rates. so i think those two things will remove a lot of the incentives that firms have to become too large and they will naturally tend to shrink. >> thank you. >> gentleman from texas. >> thank you, mr. chairman. chairman bernanke, yesterday we had a hearing in our committee on the cfpa, that many of us view as a financial services product approval agency. the language that we have seen from our chairman still would allow this agency to have sweeping draconion powers that it believes to be, quote, unquote, unfair or, quote,

unquote, abusive. again, fairly subjective terms. as part of that hearing, we heard testimony from the u.s. chamber of commerce. they submitted a study they did. and let me quote from that. quote, the cfpa credit squeeze would likely result in business closures, fewer start-ups and slower growth. overall, this would cost a significant number of jobs that would either be lost or not created, unquote. as you have viewed the cfpa either through the administration's white paper or due to the extent that you have knowledge of the chairman's bill, could the cfpa indeed lead to further job losses or do the chamber of commerce just get it wrong? >> well, i think it would depend on the execution. two comments. first, is that the federal reserve in our consumer regulation works within

statutory context that define the parameters of what we're supposed to do and we do things in the context of what congress has told us is the appropriate set of objectives and constraints. so that's how we operate. and i think there should be a statutory context for whatever agency is making those decisions. it's always the case though in a specific decisions about trying to balance the benefits of protecting consumers versus the cost of restraining credit availability and i'll speak for the federal reserve, which is that in our efforts, we have brought together not only lawyers and, you know, experts on the minutiae consumer law but economists and financial people and so on to try to look at the full implications for the credit markets of the decisions that we have taken. and i would say that the important for the agency to take that view as well, and one mechanism, i think, is the board of the cfpa should include some other agencies which i believe

is the plan. it balance those two -- >> is the summary of that answer maybe? >> it depends on how the -- >> we'll turn it into a two-word answer, it depends on let me move on with the short amount of time i have, mr. chairman. clearly, you're familiar with the incredible financial commitment of the taxpayer to the government-sponsored enterprises, fannie mae, freddie mac. i believe that the fed has purchased roughly $130 billion of their debt, another roughly $700 billion of their nbs. i think fa and the treasury is up to $100 billion. so we'ring looking at almost a trillion dollars of taxpayer commitment here. the legislation that the administration and the democratic majority has brought before us is almost silent on the issue of any reforms for the gses. the legislation before us will apparently regulate pawn shops

and payday lenders to the best of my knowledge, they had no role in our economic turmoil. many economists believe that fannie and freddie were central to our economic turmoil. i don't believe pawn shops and payday lenders have taken any taxpayer funds. and now we're looking at almost a trillion dollar commitment. in your testimony you said that your reform -- any reform agenda should include at least five key elements. if our reform agenda is silent on reforming fannie and freddie -- >> we're going to take a break. we're going to go back to this because obviously this is pretty important and interesting stuff and we have breaking news on the other side of the break.

breaking news. rick santelli here. ism, 52.6. that's down just a smidge. it's below expectation but remember, chicago numbers yesterday prepared market participants for this potential weakness. prices paid. they mod moderated a bit. ail a little over the 63.5. august construction spending, a real positive there.

up 0.8%. better than minus 1.1. that was originally, only down 0.2. a bit of a wash there. of course, we have august pending home sales. diana olick has those details. >> the pending home sales index based on contracts signed not closings, rose 6.4% from augusto july and now 12.4% from august 2008. the highest level of the index since march 2007. you're asking if the pending home sales index is rising, why did we see them fall in august? chief economist says the rise in pending home sales shows buyers are returning to the market and signing contracts but deal are not closing because of long delays related to short sales and issues, r. up 3.3% in the midwest. flat in the south, up around 0. %. a leap in the west. the realtors admit there could

be double counting in the numbers over the next several months because buyers whose contracts were canceled will try again with another home. the question is how many are canceled and how many delayed. erin? >> thank you, diana and rick. let's go straight to steve liesman. steve, i know you're looking down and going through this. what's your initial take? markets dropped. down 50. then down 130. now only down 97. >> you know, i think this idea of a stall or a breathe there, if you're a bear or a bull here in the economic numbers for the month of september, kind of continues here. the jobless claims number which improved two weeks ago stalled again in this improvement and kind of went the other way. i know economists are hoping for more from this ism number. i think we're kind of writing off september as kind of a breather in from august if you're a bull and kind of saying, you know what, the recovery is stalled if you're a bear here. and all we can do now is wait for october. i think tomorrow's numbers on

jobs, by the way, a little bit suspect now that this jobless claims number came out. it kind of said, you know what, even if it's gotten better, september, the full looking indicator, they did not. i would also point out that what's going on in rick's market is just defying, i guess, gravity, is the best way to put it or maybe gravity is asserting itself. >> but, steve, a 30-year bond just touched 4%. >> i'm trying to go backwards. you're got to go back to when the market reversed itself when yields started to climb. we're back to all that increase. you saw the close of 30 up to what? 24 25rk 24, 25, rick. now it's back to even now, right? >> yes. it's funny you picked out stall or breathe because i always try to be a realist, not pessimistic, optimistic. the treasure market, i think, is leaning towards a stall. >> all right, guys. >> let's go to bob pisani. bob, market obviously now

recovering. we're still down 83c compared t 50. the initial reaction was negative. >> they were concerned about this yesterday when we got the chicago pmi out the ism might be weaker than anticipated, and it was. i deed, dropping essentially the same time yesterday we were dropping going into that chicago pmi number heap. let's look a as we go into the new quarter about where the market leaders are because the financials have been holding up very well. they've been a great market leader here. they're moving alongside ways. like jpmorgan, for example. for the last several weeks they've been a side way trade. three months on jpmorgan. the big regional banks, also have been a sideways trade by and large. so no big drop. also no, real move to the upside at this point. one key weakness group is the homebuilders. once again this morning, toll brothers, all the big names here are dropping. this group has clearly rolled over. there's another three-month chart on that. finally note the steel group

also holding up pretty well but the last three or four or five days they, too, have been moving over. they should see the far end of that chart there. tradertalk.cnbc.com for more. let's get back to washington and the fed chairman. >> -- ratio, and the delinquency rate for the fha is now above 14%. that's about three times higher than on conventional mortgages. in many respects the reason for this financial deterioration is that fma ha is underwriting hig mortgages. between 2000 6 and the end of nt year they expanded 1 trillion. the fh a's very low, i would say absurdly low, 3.5 down payment policy. in combination with other policies to reduce up front costs to new home buyers, means

that the home buyers can move into their government-insured loan with an equity stake of about 2 1/2%. so in essence, the private market for loans with little or no money down has shifted on to the books of the federal government. are you concerned with the long-term consequences of this trend and the rapidly deteriorating capital cushion of the fha and are you confident this will not turn into another fannie/freddie situation which could have easily been prevented if we listened to the fed in 2004 and 2005 but ends up costing taxpayers billions of dollars. i remember when the fed came to news 2004 and said, we need to be able to regulate for systemic risk. the leverage is 100/1. basically what you're doing in government is that the congress has forced us into a position where half the portfolio has to be subprime and alt a.

we need the ability over at, you you know, for the regulators to slowly bring down this over-leveraging and bring down the portfolio size by giving us the ability to regulate for systemic risk. are you worried that we're going through that kind of a cycle again here? >> well, i should say, first, that we don't directly evaluate fhaa's position. it is true that the fha de facto has replaced, you know, the riskier part of the mortgage market and it's got a very high share of new mortgages because it's the only source of mortgages where down payments can be, you know, less than basically 20%. and so it is providing mortgage access to a large part of number of people who could not otherwise buy homes. i guess you've got two conflicting public policy goals here. on the one hand, providing

support for the housing market and housing home ownership. on the other hand, clearly, i think it's fair to say that given the lowdown payments, there is certainly greater risk of loss there, which would be ultimately born by the taxpayer than under a policy of higher down payments and higher fico scores and so on. i think that's a tradeoff that congress has to look at. >> let me ask you another question. some economists are argue that the fed not only lost control but its policy actions have unintentionally become pro cyclical, encouraging excesses insteeds of the extreme. frederick hayak won the nobel prize for argue that artificially low interest rates lead to the misallocation of capital and the bubbles, which then lead to bursts. looking back, do you agree that the negative real interest rates set by central banks from 2002 to 2006 had a dramatic impact on

the boon and the subsequent bust, especially when you take into consideration what was already an inflating housing bubble with a drastic steps taken by the federal government to encourage less credit-worthy borrowers to get into loans they cannot afford. do you think those combinations could have had an impact on that boon/bust? >> we are actually looking carefully at this question because it's very important for policy going forward. and i think we need to keep an open mind. having said that, i think that the very strong way you stated it is probably an over statement. i think there are a lot of reasons to think there are were other factors involved in the housing boon and bust, be sides monetary policy. i would say secondly that the strong, well regulated financial system should not have been crashed by increase and decrease in house prices. the failures of the regulation supervision and oversight allowed this to become as big a deal as it was. so i think that's a very high priority right now. >> get a word from new york.

>> thank you, mr. chairman. mr. chairman, what are some considerations that a systemic regulator should look for to determine what activities and what institutions should be subject to its oversight? >> so again, we may be talking about coordinated effort of the systemic risk counsel, the fed and so on. it's not clear exactly how that process would work. but there are a number of considerations and not just size. for example, what's called interconnectivene interconnectiveness, the number of counter parties the firm has around the world, the complexity of its operations, whether it provides critical services like providing market making or other yutilities to the financial system. >> is it conceivable that private equity funds or firms or

venture capital funds could fall on their systemic risk regulator? >> well, my view at this point is that i would not think that any hedge fund or private equity fund would become a systematically critical firm individually. however, it would be important for the systemic risk counsel to pay attention to the industry as a whole and make sure that it understood what was going on so there wouldn't be some kind of broad-based problem that might cuss across a lot of firms. >> as we continue to see full out from this recession, one result has been even greater consolidation in the banking and financial sector. our largest banks are now bigger than ever and events from the past year have demonstrated that some financial institutions are, indeed, too big to fail. what steps could a systemic regulator take to mitigate the continued concentration of risk in a few very large institutions? >> well, this was a very

undesirable side effect of the steps we had to take to protect the system in a short run. and as i was discussing earlier, i think it's extremely important to address this too big to fail problem. and i see several ways to do that. one would be, again, to in the regular cognition that these firms, if they fail, threaten not only their own stability and their own creditors but the whole system. i think they should be subject to extraordinary oversight, including higher capital and liquidity requirements, tougher risk management rules, and basically stronger supervision. secondly, one of the big concerns about these large firms is that as too big to fail firms, they are not subject to discipline of the market because lenders do not believe that the firm would be allowed to fail. i think that has to be eliminated and fixed. i would not be satisfied with any resolution authority that did not have a strong presumption and a strong mechanism for allowing these

firms when being taken over by the government to impose significant losses on not only shareholders but also predators. a comment is that the federal reserve in approving mergers and the like, looks at the monopoly issues and concentration issues. and our view is is that at least in retail services those are most important at the local level rather than at the national level. we always examine whenever there's a merger or expansion of a company, we always look at each of the market areas, smsas and make sure they're not a domination of that region by one or two companies. >> mr. chairman, i would like to go again back to my first question about institutions and activities where you said that depending on size that is kind of vague. what do you have in mind in terms of size or when you talk about risks, how much risk. and when you talk about

interconnectiveness, does that mean to 500, 1,000? i'm not clear. >> well, there's been some research in the fed system and elsewhere trying to layout criteria. but to some extent they would have to be a set of principles that the congress would renumerate in terms of what we would be looking at. one of the issues is that which firms systematically critical may depend to some extent on the state of the broad economy. so, for example, it might have been possible to let certain firms fail if the rest of the economy is in a healthy condition but in a situation where, you know, we're in a panic and a recession and so on, that may lower the bar, in some sense. so i can't give you precise numbers. i do think we would owe the congress some careful studies of what the considerations would be, recognizing that it might

change over time depending on the state of the economy, the state of the financial system. >> thank you. >> all right. quick break. and we're going to be back in a just a moment.

the fed chief is testifying. he continues to talk about some issues around too big to fail, saying that we need to be able to wind these institutions down safely. that is not new. also talked specifically about he looks at any merger in banks and each major metropolitan failure to see if there is too high of a concentration. the i'm police it comment is that will is not too high of a concentration right now for any of the major banks, even though they were deemed too big to fail because they got t.a.r.p. there are some contradictions here we need to get to the bottom of the testimony. >> we want to bring in a guest this morning as well because we do have a lot of economic data to react to. here with us now is moody's chief economist. john, thank you for being here this morning. the data we got is largely on the negative side. would you characterize the economy now as in a stall, taking a breather, or have any thoughts of a quick recovery just gotten a good kick in the gut?

>> no, i would think on balance the data was passable. it wasn't necessarily bad for the economic outlook. my sense is that after shrinking by 0.9% in the second quarter real gdp probably will grow by 3.7% in the third quarter and lowly the fourth quarter. this is going to be an uninspiring lackluster economic recovery, make no mistake about it. but there is nothing in the recent data that i saw that strongly suggests that the risks of a double dip recession have increased measurably. >> what sort of recovery -- give me a shape. what shape is in vogue in your thinking? >> well, let's look at it this way. the unemployment rate is going to rise further. it's probably not going to peak until march of 2010, at 10.3%. then it falls very slowly. by the end of 2010 the unemployment rate still may be above 29% mark.

that is not good. we may not see the return of material growth for payrolls on a consistent basis until the spring of 2010, at the earliest. all that being said, we're seeing some hopeful signs of a corporate credit front. we've had corporate bond yield spreads come in significantly. and this may be a foreshadowing, a much improved performance by corporate debt repayment in 2010. and in turn, this may flow over to household debt repayment. but not right away. we'll have to wait for these improvements to materialize. >> all right. thank you very much, john. appreciate it. let's go back now to the hearing on the capitol hill. >> thank you. -- when everything else that we talked about this morning gets substantially more space, it's just not a good message to send. referring to consumer laws as the minutiae of consumer

protection laws is just not a good message to send. now, let me -- let me get to the real question. on page 9 you make this comment on consume protection. the playing field is uneven regarding the field of consumer protection laws between banks and nonbanks, affiliate of bank holding companies on the one hand and firms not affiliated with banks on the other hand. addressing this discrepancy is critical both for protecting consumers and for the other parts of the system. now, my question is, he was here asking ant these nonbanks. what are the non-banks part of this that we're referring to? let's get some of those on the record. >> sure. but first, i just have to say --

>> no, no, no, no. that was not intended to draw a response from you, mr. bernanke. i got a limited amount of time. >> i disagree with your implication of that. >> all right. >> on non-bank firms there are many firms that are not -- >> such as? >> mortgage companies, consumer finance companies. >> check writing -- check cashing? >> yes. >> payday loans? >> for example. >> yeah, okay, all right. and if we give the regulation on the consumer side to a consumer protection agency of those and we give the regulation -- retain the regulation of consumer issues in other regulators with the regulated banks, tell me how that doesn't do exactly what you just described here as a problem. i don't understand that.

you know, tell me that. >> there's a big problem that currently exists and will be hard to fix, which is that many types of companies are state chartered and are supervised by the states. >> all right. so it's okay to create -- to have a consume protection agency that deals with the states but it's not okay to have a consume pro protection agency whose sole primary debt -- they come to work every day looking at consumer issues and it's not okay when some other federal agency is involved. is that what you're saying? >> no, not at all. i'm just saying -- >> now, let me just go back and ask this question. when you -- you coordinate with other agencies on safety and soundness. other agencies do safety and soundness on various

institutions. but they don't come back and answer to the federal reserve, right? >> we coordinate very closely. >> they coordinate very closely. >> and we presume that this consumer protection agency would coordinate very closely, too. they would be on this counsel that you keep referring to, wouldn't they, if we created this agency? >> yes. and we would coordinate with them. >> all right. and so how is that any different than the coordination that would take place on safety and soundness? why is it terrible to put this responsibility in the consumer protection agency and allow it to coordinate when there's a conflict? >> because there's different issues here. currently the occ does both consumer compliance and safety and soundness. >> they ain't doing much consumer compliance, i can tell you that. >> well, in theory, at least, they're supposed to do consumer compliance and safety and

soundness for a bank. but they do both. this would break it up. that's all. >> the gentleman from new jersey. >> okay. thank you, mr. chairman. just a couple questions on areas that is outside your regulatory area, but goes to the macro economic. one was mr. royce brought up before he gave you all the stats and what have you of dire prediction of the fha and i just want to delve into that a little bit more. i heard your answers on that. i mean, sort of what some of us are suggesting on legislation throughout at the very beginning is to say maybe we should treat them with some of the some requirements that we're sort of asking the rest of wall street and financial to have skin in the game and have proper capital level aspects and leverage ratios. i think from your answer you're saying, well, there's two issues here. what is congress want to do with regard to housing and get that going on the one hand but what do you want to do to protect, which is your job in part, to protect the taxpayer. how should we or how can we come

down on the one side without harming the other side? >> first, the difference in fha and gses, the gses have private debt and private shareholders. that may be more complex. i think it's undeniable that the fha loans because of the lowdown payments and so on are riskier than other mortgages being made. and therefore have a greater chance of loss which would be made up by the taxpayer. that tradeoff is your tradeoff in terms of what you think is worth, you know, what risk do you think the government should really take in order to support the housing market and home ownership. made the same decision on things like first-time home buyers tax credit. it's a cost to the government but it's a force to the housing market. i don't know how to tell you that. >> can we do it in a way by raising it up just a smidge in our bill, 5% without having a dramatic impact? >> i don't know how much effect

it would have. that would require more study. same tradeoff. make the conditions tougher and tougher, that reduces the risk to the taxpayer and reduces the number of people who can get mortgages. >> another area outside of yours but the macro issues of fdic and the issues, i don't have to tell you what they're facing right now and one of their proposals i'm reading about is going to the banks and saying, help us out here. same sort of dilemma there, isn't it? the banks are going to push back and say if you're asking us to do that we're not going to be able to make our capital level is going to go down, we're not going to be able to make the loans. where is the tradeoff in that situation? >> well, the fdic has some tough choices. >> we're going to take a quick break here from the fed chairman before the house financial services committee giving his views to best regulate systemic risks along with other views as well. natgas inventories back in just a second.

i'm sharon epperson at the nymex. natural gas inventory from the energy department coming out. we are look agent natural gas prices below very important level $4.60 right now. looking to see whether we'll continue to go lower here. we did get the number 64 billion cubic feet. increase in natural gas supplies in the last week of 64 billion cubic feet. slightly higher than the expectations. again, we are now over the all-time high for natural gas

inventories, i over 3 1/2 trillion cubic feet. rear looking at natural gas prices coming off, below the $4.60 level. again that is going to be a key level to watch. in terms of crude prices, hovering around 760. the premium from iran may be helping to offset from the weak economic data we got. we are looking at a trip 1/2 digit loss here in the dow which often brings more weakness to oil prices. right now we're holding steady. i'm going to send it now to erin and scott. >> thank you, sharon. let's go back to washington now to the hearings of the fed chief. >> to deal or cast your firms like lehman who have operations headquartered in various places of the world, so that if they go into bankruptcy that process can be quick, transparent and efficient. and i'm not hearing, you know, how we're really going to do that in this regard. >> no, that's an excellent, very important question. and you're absolutely right. it's much tougher than a lot of bank resolutions because of the global nature. there are companies who are in

120 countries around the world. there are some working groups and international bodies which are looking at the cross-border issues. and i think what we need to do is have some international agreements or some working frameworks that, you know, explain how we're going to work together to address this. if we don't do that, then what will happen is that every country will ring fence the failing institutions within their country and ultimately we may have a situation where every country will demand their own capital requirements for the subsidiary within its own country and that will be an inefficient way to, no doubt, run the system and no doubt reduce the global financial flows in an important way. so you had your finger on a very important issue and we need to keep working on it but it'sing? that has to be done in collaboration with our major partners, particularly those like the uk and yueurope. >> do you know of any dialogue, we just finished the g 4620, is

that part of the conversation? >> this is being discussed in a lot of context, including, as i said, working groups within the bank regulator groups that meet internationally. >> and, also, i know that president obama and other leaders are calling for a more stable and sustainable global trade system. you know, countries like china and germany are less dependent on export-driven growth and the u.s. is less dependent on cheap international capital to finance their deficit-driven consumption. now, there's talk of the imf playing a more crucial role in monitoring global trade, the balances in global financial institutions. but given the strong incentives to sustain the system as it is, however unsustainable and volatile it is in the long run, how do we get there from here? how do we, you know, i don't

understand how do we get there? >> it's a difficult problem. we haven't made such progress in 15 years, basically. the imf was given the authority to counsel, you know, to look at the situation in different countries and make recommendations with no binding power. that didn't really have much affect on getting more balance growth across a different country. it's also been an issue for collateral countries, with china, for example, it's been a central issue that we've discussed. i wasn't part of the g-20 meetings in pittsburgh last week but my understanding is that there was a discussion of a peer review system whereby countries would agree to let other countries evaluate whether or not they were making progress. if that's the case that would strengthen the mechanism. it's a very important issue. >> let me get this question in real quick because it's big in new york and that's dealing with commercial real estate. could you give us a quick update on the state of commercial real estate market and whether it

will be a drag on the recovery going forward or another potential systemic risk crises brewing and which markets do you think would be most vkt i. by independent crisis real estate commercial area? >> commercial real estate rem n remains a very serious product. construction loans, for example, are particularly weak. within other categories, hotels and office buildings and apartment buildings, there are differences in the situation. but we are concerned both because the fundamentals are weakening and because the financing situation is bad. for example, the commercial mortgage-backed securities market is still not really open, that it could provide a source of a lot of stress particularly for small and regional banks that have a very heavy concentration in commercial real estate. we're working hard to work with the banks and we have, as you know, our taft program which is going to try to restart the commercial --

>> crisis brewing? >> gentlemen, it's time. >> i hate to answer. we will have to watch it carefully. >> the gentleman from georgia, mr. price. >> thank you, mr. chairman. welcome once again. appreciate you joining us today. i want to follow-up on the old issue of tier one financial institutions. i think the american people are sick and tired of governmental bailouts. i think that we need to respond to that concern and fear and anger on the part of the american people and assure them that there won't be anymore. secretary geithner has said there will be no fixed list for companies that will be bailed out. are you in agreement with that? >> well, there's nobody more sick and tired of bailouts than me. i think the way this system has to be set up is that when there's a resolution, as we've been discussing, that people loss money and that the company can be wound down but does so in a safe way. as far as tier one is concerned,

the idea there would be to, if you do that, if you designate firms, would be that those would be the firms subject particularly tough capital, liquidity and other requirements to make their failure and bailout much less likely. >> mr. chairman, if i -- >> if we have any bailouts we want to have a system that puts the cost on the stri aindustrie >> the question is, do you agree or disagree with the secretary or the treasury that there should be no fixed list of companies that would be too big to fail? >> that's a change, i think, from the administration's earlier position. i think -- i have no problem with a sort of a sliding scale in a sense that the largest firms have -- >> should there be a fixed list of companies that are identified? >> i have -- i am willing to say no except i have one concern, which is that outside of bank holding companies, if there are firms which are systematically critical and they're not designated as systematically critical how do we know that

they receive special attention? that's my question. >> the question -- the concern that i have is if we're going to identify tier one financial holding companies as being somehow special and we're not -- and we're going to say that we're not going to identify companies that are too big to fail so that they have an unfair advantage in the market, aren't those two statements contradictory? >> no, because what i'm saying is that no company -- you can have a tier one company, tougher oversight, but still not too big to fail because we'll have methods to make sure that the problem of too big to fail is no longer with us because we'll have ways of winding those firms down and they will fail. >> let me just urge you to carry your disgust for bailouts to having no bailouts. and we would support you in that. i want to follow up on the comments about the fdic and the comments made by mr. garrett. it does seem to me as well that they're counting a dollar twice.

the prepayment, that the fdic is not requiring and then the continuing to use that dollar on their books for assets. is that not some kind of accounting gimmick? >> well, the banks would have to make this payment at some point in the future anyway. so they're agreeing to make the payment earlier, so from the -- so essentially from the time from now until the time when they would actually have to make the assessment they're essentially making a loan to the fdic. >> they can still use that dollar for other aspects of their own private business, correct? >> yes. >> yes. so they're counting it twice. now, my concern about all of that is, i think that's probably not the wisest thing to do, but you have said that you would like to use the model of the fdic for your own resolution authority. isn't that a flawed model to begin with? >> no, i don't think so. you know, alternative, fdic made a decision about how they wanted

to fund this. alternative would have been to bor refrom the treasury and pay t treasury back with interest. >> wouldn't that be more honest, more open? >> i based their decision on what would be the least on the banking system. i don't want to second-guess that. >> any time i count a dollar twice on my books, if i were allowed to do that by law, that would be a wonderful thing. it certainly wouldn't be more healthy for the economy. there was discussion about the banning of products, there are products out there that the statement was made there are some products there just too risky. you talked a lot about process in that, the transparency that americans ought to be able to receive when they're evaluating a product. but you never talked about a product that was too risky. are you willing to say that there are -- are you willing to identify a product that's too risky? >> no dock loans. >> how long does that list get? >> well, depends on what the

industry is proposing. but the criteria would be that here is a product that is not in a consumer's interest and that -- >> is at this time government's role to determine what's in the consumer's interest? >> in some cases, i think that we have -- for a long time the federal reserve believed that transparency disclosure was all that was needed and we've been very much pro poen nepts of that point of view. i do think there are circumstances where, you know, the benefits to the consumer are overwhelmed by the complexity and other aspects that, you know, just -- just not worth the, you know, whatever benefits -- >> mr. chairman -- >> no, i'm sorry. the gentleman -- if the people ask you a question, answer it later, can't come back again. we have a lot of people. use the time observed. the gentleman from illinois.

>> mr. bernanke, good to see you again this morning. chairman, this week the fdic passed another special assessment on our nation's banks to help shore up the deposit insurance fund. while it's true that most of the logses to the fund has been as a result of small lending institutions. these community banks have also suffered from severe decreases in the value of markets caused by loans financed by some of the largest banks in our system. i've got legislation in front of the committee, hr-2897, i appreciate if you could like a look at it and kind of write us a note back on your more expansive opinion on it. i would appreciate that. it would require the riskier banks in our financial system to pay more, not only into the deposit insurance fund but also into the systemic risk fund. my goal is to create a more efficient pricing scheme to have the companies from remaining too big to fail. what are your recommendations to prevent or discourage banks from

becoming too big to fail and what relationship do you think they should have to paying into a fund? do you think there should be differences? >> well, i discussed a number of methods to avoid too big to fail. not to repeat but to include tougher supervision and regulation and being subject to this resolution regime. but you point out another dimension, which is the assessments that would go into the fund either for a deposit insurance or for paying for any intervention that does occur. the fdic currently risk adjusts the premiums that they charge the banks for deposit insurance. perhaps it's time to revisit that. maybe they're not sufficiently differentiated. i don't know. certainly always worth considering that. and i think the same principle would apply to assessments for addressing the specials are lugs regime. those types of interventions of firms that are larger, more risky, more interconnected,

presumably would pay disproportionately relative to malsmall ban small banks, for example. >> then i would appreciate it if you and your staff could review it because it is one of the ways i'm looking at making sure it's kind of like -- i just kind of thought when i get my insurance if i was speeding or drinking, you know, i have risky behavior in terms of driving my car, i'm going to pay more in insurance. it seems to me that we've seen different kinds of behaviors and different components of our financial system. and maybe everybody should not pay the same. i'd like to see how we could do that. just one other question. so, you know, i've -- you know, federal reserve, you're the chairman. you have this huge responsibility. you come with this wealth of knowledge to the job that we appreciate as a public servant. and although you have all of these wonderful

responsibilities, right, and this wonderful talent that you bring to the job, i would like to ask you, what do you think about what we should be looking at in terms of compensation, executive compensation of people? and do you think this congress should do anything about it? how do you look at -- this is a lot of anger out there as they look at large financial institutions and executive compensation. could you -- i went through europe ands a i went from city to city, it was in late august and we were talking to the eu members and it was like the most important thing that they were kind of bringing up. can you give us your view? >> well, as you may know, the federal reserve is about to issue guidance for comment on executive compensation, which will apply not only to the top, you know, five or ten executives but way down into the organization, to trader or

anybody whose activities can affect the risk profile of the company. we view this as a safety and soundness issue. that's what we've heard. in fact, even from the institutions themselves. they believe the incentive structures affect safety and soundness. there's two principles. one is that the structure executive compensation should not be such to incentivize risk taking and secondly there be a reasonable connection between actual performance and pay. american people don't care if star baseball player gets paid a lot of money as long as heern es the money. they are upset if he earns a lot of money and their company fails. so from a safety and soundness perspective it is important to be those appropriate links between performance and pay. and the federal reserve is following some international standards that have been set forth by the financial stability board, which is a group of more than 20 countries that looks at these issues. and again, we're looking at the structure of pay, not so much

absolute amounts but how the pay is structured and how pay and performance are related. so that's our approach. we also, there are issues related to trade transparency. i don't know whether congress wants to do additional things, but we are address that question. >> the gentleman from minnesota. >> mr. chairman, thank you. i just wanted to note for the record at the beginning of this hearing a chairman had said not once but twice that president obama had inheriteded the current financial mess that we're dealing with now and while that's true, that's true also of every other president that has ever been here, but also it's true that in the case of senator obama, he supported all of the spending initiatives, all of the bailouts and all of the stimulus plans while he was senator as well. so this is an ongoing effort that i hope this committee can, again, look at and try and turn around for the better of our country in the future. so on with my question to mr.

bernanke, on monday the president of the world bank, robert zolick said, and i quote, the united states would be mistaken to take for granted the dollar's place as the world's predominant world currency. looking forward there will increasingly be other options to the dollar. i found this statement astounding when i heard him make this on monday. a statement of this magnitude should concern everyone, i think, because replacing the dollar's favored role in the global marketplace with another country's currency or with a new international currency of some sort, i think would be devastating to the soundness of our dollar ando our nation's currency and our economy. mr. zoellick asked, quote, will the united states resolve its debt problems without a resort to inflation? can america establish long-term displen over spending and budget deficit? i would note that mr. bernanke,

i heard you say before that you are very concerned about inflation. you are not willing to inflation, i drive great comfort from your statement saying that. but i do think his comments are very serious questions that he's asking. and i think that congress just needs to act or address our nation's long-term budget deficit. that's why i joined with my colleague paul holtz, a democrat, i was one of 7 joining with 21 democrats, a letter that stressed our concern about the lack of t.a.r.p. transparency and the billions of tax dollars that will remain at risk under the program because we believe that no more funds should be used for the bank bailouts. i want -- i'd like to get your comments on mr. zoellick's commence and the fact that this isn't the first time. i think last week the u.n. came out calling for a new international currency replacing the dollar. china has, brazil has, south

america has. it's a new refrain. it's almost every day a new ashl. i think at this point now in light of the comments made on monday, we should take this very seriously. i'd like you to respond to that. also, another question i have for you, mr. bernanke, under the chairman's proposal the consumer protection authority will be transferred from other regulatory agencies to the cfpa, including authority from the ctf, section 4 and 5, of the act provides 5 of the act provides the commission with partnerships and corporations organized to carry on business, which means the fdc can't curranly regulate non-profit for unfair practices. would the c fta have brought authority to provide all entities regardless of their tax status. here's my concern. for example, it's my

understanding that a.c.o.r.n. provides financial advice to consumers, so would they then be regulated? they're a national, non-profit housing organization that's opened a hud certified counciling offices across the united states. here's a quote from their website. a.c.o.r.n. provides first time home buyer classes and helps clients -- we look at your history to see if you qualify for a mortgage. when you qualify, we can help arrange a mortgage with lower interest rates, down payments and settlement costs. it seems to me, mr. bernanke, that they would come under the cfpa and i'm wondering if you

would comment on that. so if you would first comment on mr. zoellick's comments, what your feelings are about replacing the currency, then on whether or not in your opinion, a.c.o.r.n. would be covered. >> there's only three seconds. >> if i could have my time reclaimed. would this come from my time, mr. chairman? >> no, your time -- no. i will finish. only three seconds left in your time when you got there. i can let him go on for a little while, but i don't think he can give full answers to both questions. taking another minute of two is unfair. give mr. bernanke to answer as much as he can. mr. bernanke for 30 seconds.

>> yes, i agree with two things mr. zoellick said. there's no immediate risk to the dollar. it's relatively a long-term issue. i also agree with him though that if we don't get our macro house in order, that will put the dollar in danger. and long-term fiscal stability. i can't answer your second question. i don't know the legal status of that. >> the gentleman from kansas. >> mr. -- >> gentleman from kansas is recognized. >> mr. chairman, too big to fail. i don't know if you had a chance to review the proposal offered by tom handy and his colleagues, but i'd like your views on it as soon as possible. their proposal lays out more

explicit rules and how lehman brothers or aig could be revolved so the debt holders, shareholders and management would be held accountable. as we think of ending too big to fail would ending -- create the right mix of incentives to put pressure on the firms to behave responsibly and what about the question of making public the tier one list. some argue it would create disadvantages, but doesn't the marketplace already know who these large firms are? >> there are two elements of the propos proposal. i can reply in writing in more detail. there are two i agree with. one is that there should be a strong presumption that a failing firm, the creditors will

lose money, should be known in advance. that will be a very important way of reducing the problem. the other is that the taxpayers should not bear this cost. they should be borne by the industry. if you do these thing, the dangers of naming a firm a tier one firm, which would be unacceptable, then i think that the tier one designation is not as worrisome. >> and mr. chairman, what steps could be taken to ensure regulators do their job? sheila bair proposed they could intervene case by case if they saw a lack of enforcement by bank regulators. another idea, a use it or lose it authority requiring regulators to enforce consumer protection laws or lose that authority. after being graded, a bank

regulator fails to inforce protection laws, should they lose that authority to cfpa? would this insure regulators do a better job? >> i'm not sure the use it or lose it approach makes sense. what check would it be on the agency making that determination. one would be back up authority, i guess. if they were unsatisfied with specific -- resolution that it could do that. but i would require them to have the resources information to do that. >> thank you, sir. i yield back my time, mr. chairman. >> the gentleman yielded to me, i wanted to make a couple of points. first, you talked about banning some pruks, but i think we overexpa overexpanded. my own view is we do not ban things totally primarily for

consumer protection. i'm in favor of letting people be stupid in a number areas. the problem is that in some of these areas, it's a spillover into the system. those cumulate into a systemic decision. i think as we talk about whether or not you prohibit certain practices, the argument gets stronger when -- is that an accurate assessment? >> yes. that's why you would want this as part of the systemic risk coun council. >> the gentleman said they hoped no banning of otcs. there is zero chances of that happening. the chairman was correct. you try to get as much as possible. no one is talking about banning the over the counter efforts. i wanted to respond to the

gentleman from california, said that congress led to fannie and freddie being 50% in all day. that was a bush administration who did that in 2004. as was noted by the gentleman from texas, the bush administration in 2004 ordered fannie and freddie to go to 54%. from 42%. and specifically, to give loans to people below mortgage, the median. i objected. the gentleman from florida. >> thank you, mr. chairman. mr. bernanke, i just fol who up a little bit on the line that congress played from minnesota was discussing. i had read the same comment by the imf president and i hope that you and i can both agree that the ultimate consumer