have a strong dollar and then americans would have faith in their currency and their purchasing power would not be eroded by the stealth tax known as inflation. can we agree to that? okay. question number one would be what you think the impact on americans. i mean the average guy in the streets, average family, retiree. what the impact would be on a dollar if it were to lose its currency at choices. other world leaders are calling it it now. the russian president is calling for a new super currency. if china and south america went along with that, what do you think the impact would be on our country? >> well, it would weaken the dollar, clearly. and we would have to watch for

inflationary consequences. i don't see this as a near-term risk so long as we, as a country, take the appropriate steps to manage our fiscal position and keep inflation low. >> well, i hope we will. i mean, we know that secretary geithner had to go to china to give them some reassurance and i think they're also calling for this alternative currency. it's not just russia and south america. but china is also very interested in it. of course, you know the role they play in buying our paper. >> welcome to "the call." i'm melissa francis. you are listening to the question and answer portion of ben bernanke's hearing on financial regulation. stocks are lower due to disappointing economic news. let's go back to the hearing. >> there's two key issues i think. one is inflation.

federal reserve is responsible for inflation. we are confident that we can manage our policies to support the economy. without inducing inflation in the median term. so we are committed to low inflation and fully believe we have the tools and political will necessary to achieve that. the second issue is about the current account and trade deficit. as someone earlier mentioned, we need to have a better balance where by the u.s. saves more, imports less and other countries, including china, rely more on their domestic demand. that's a mutual process where both sides have to accommodate that. but from our perspective, the best way we have to raise our national saving rate over the median term is to manage our

fiscal position because the government deficit is a subtraction from our saving. so that you know, again, i think this year and next year, given the state of the economy and the things that have happened, i don't think a budget balance makes it all feasible. but certainly over the median term, we need to have a credible plan. >> and the next question was going to be what is the plan. >> well, obviously, that's congress's responsibility fortunately for me, but certainly i would say that as you look at those very important issues relating to health care, that you as part of that, that you take a close look at health care costs which are a very big part of the expected expansion of the deficit, particularly a decade from now. >> very good.

thank you very much. >> gentleman from california. >> thank you, mr. chairman. is it thinking on wall street that $700 billion was necessary and maybe needed in some future emergency as well that we put 700 billion or some much larger amount at significant risk. and there's the thinks that congress cannot be trusted to grant extraordinary powers in some future kris and so we need to modify the statutes now so that the executive branch can deploy 700 billion or whatever it is at significant risk. section 13-3 has been discussed here. in your testimony, you indicate that if there was proper resolution authority, that could replace section 13-3. do i understand correctly that if we get resolution authority right, you don't need 13.3 or

should there be two separate avenues? >> if the resolution authority is passed and is workable plan, then i don't think the fed would need to have the authority for the purpose of rescuing failed firms. i think there might be other contacts where it might be useful, but in the context of bailing out firms, no. >> what stat tor restriction would you want? >> should not yut the authority to prevent the failure of a financial firm. >> but to perhaps prevent a system k problem for the economy, it might put hundreds of billions of dollars at risk. >> we have other program, for example, when we stepped in to stabilize the commercial paper

market. >> looking at 13.3, we've d discussed the idea of limiting the dollar amount. 12 trillion. as you know, section 13.3 basically allows you to loan money to anyone so long as they are unusual circumstances and the key phrase in 13.3 is that you be secured to the satisfaction of the federal reserve bank. you've testified secured to the federal reserve bank is not a requirement, but instead is the equivalance of aaa investment. who knows who will be holding your position or his in the years to come. from your general council's testimony, i would gather that some future administration might

well extend hundreds of billions of dollars. >> we're going to switch over to rick santelli. what's the dollar doing? >> you've listened to a lot of these hearings and lately, not a lot of new information. somebody says something and it moves the market quick. the dollar index reflected a lot of the conversations of people in congress asking ben bernanke about questions about the dollar. how everybody seems to be bashing it from china to russia. even some politicians in this country wondering if reserve status is essential. it was a rapid response, but i think that volatility needs to be brought up in the testimony held right now. >> what did mr. bernanke say? how did he answer that? >> i listened. i don't know the answer is going to make a nervous dollar trader feel better, but he reiterated that there is no reason in his

mind, that the reserve status will be challenged, but it doesn't stop a lot of talk in articles and assumptions, whether correct or not, we know how the microphone can flekt the markets. >> we're going to keep rick santelli on reserve status. let's return to the hearing. >> we've seen that aggressive approach at the treasury department and we'd better modify the statutes unless we can assure all of your successors will be as conservative in their stat torre interpretation as you've been. the provision for that involves and assessment on institutions as low as $10 billion to repay the costs of bailing out a firm. i would think that would mean the medium sized bank are hit two ways.

first, competitors get some guarantee of some help to their creditors and if it comes to pass, they're the ones that pay for it. i'll ask you to respond for the record. >> we can go to mr. paulson. we will come back and those members who are here will be recognized for a while -- finish up and no new members. on the democratic side, those members here will get to ask questions. i'll yield to my republican colleague and who he wants to recognize and gentleman from minnesota is now recognized. >> chairman bernanke, yesterday, we heard from bankers and members of the financial services industry in general and they have indicated that the current problems with consumer financial protection was due to a lack of focus was mentioned, i think, by regulators like the

federal reserve. apart from the reason credit card regulations, what is the federal reserve doing right now to sort of refocus, if you will, its effort and -- duties on consumer protection efforts more specifically? >> well, first of all, we've had in the last three or four years, we just had a huge number of rule makings that we've put out in the mortgage area, the credit card area. we have one coming out on overdraft protection. we've been extremely active and have really elevated our focus on this area and we have strengthed the leadership of the division to make this very effective part of our activities. i made some suggestions in the past. if the congress want toded to

strengthen the focus, there would be various ways to do that. for example, the chairman should be allowed to testify on matters. we currently have a consumer advisory council which by law, consists both of the industry folks and the consumer advocates. advocates feel this is unfair because the bankers have other foru forums, but we can't change that. one possibility would be to create a stronger advisory council that would evaluate what we're doing. there are other ways to do it such as remember program of hearings. we are interested and willing to make institutional changes that would strengthen our commitment if that's the direction congress wants to go. >> so if the federal reserve is refocussing its efforts in this manner and you're looking at the council potentially, from your perspective, is the cfpa really

necessary to have that organization? >> you know, the issue which congress has to make a judgment about, the motivation is the concern that the federal reserve has not be sufficiently focused on this issue and i certainly concede that we have not done what we should done in this area. i think that's congress's judgment about whether the federal reserve could be sufficiently focused and i think we are very competent. we have the skills and mix of talent and experience to do a good job. the issue is the confidence that congress has in our focus going forward. i think that we can do that and we would be willing to strengthen the factors that affect our focus but i understand the concerns. >> you had mentioned, and congress does not look at things

until brought to our attention. but you said it would be valuable if someone came to testify regularly to us on consumer protections. >> yes, by sta chut. >> the federal reserve's approach to managing monetary policy seems to be a little bit unstable. in other words, by waiting for an asset bubble to build up and then rescuing the economy after that bubble bursts, it appears that you can create other problems. just maybe give some comments, why can't the federal reserve show a little more restrain in the monetary policy in advance when we're faced with what looks like a bubble is coming down. would it ultimately be better to protection job loss or inflation down the road if we're able to -- it's not often popular, but is that going to make more sense that given the recent

experience, to look more advance on that? >> in principle, it would be great. but there are two problems. one is identifying the bubble and when the policies are in question are taking place in 2003, 2004, there was substantial agreement if there was a bubble and how big it was. the other problem is that by using monetary policy to try to pop bubbles, you may have a side effect of having bad effects on the rest of the economy because you can't just target one sector. that's why i'm open minded about the role of monetary policy in bubbles in affecting bubbles. i do think the first line of defense needs to be a stronger regulatory system that would prevent strong build-ups and if they do pop, make the system strong enough to prevent an enormous crisis.

>> gentleman from texas. >> we're going jump in here and take a quick commercial break. i want to point out the market really trading lower here now. down 140 points as i look at the dow. more news on the manufacturing front, rise in jobless claims. pending home sales are on the rise as is personal spending, but traders selling off this morning. we'll take a quick break then be back with more of this hearing. s

we were listening to the testimony question and answer question with ben bernanke. they are in recess right now. we're going to go to bob pisani at the new york stock exchange with more on what is going on with the market now. >> the interesting thing is mr. ben bernanke doesn't always move the markets. take a look at the s&p 500. maybe five points just prior to 11:00. mr. bernanke said the dollar could be at risk if we don't start controlling the budget gap. on that, the dollar weakened a bit and the stock market weakened. we're about 10.38 on the s&p 500. a few days of weakness here starting to move some of the big

movers up there. the stocks at high are a little bit weaker here. let's go back to mr. bernanke on capitol hill. >> bob, that's okay. i'll take it from here. thank you for that. joining us now to discuss more on ben bernanke and what he said is kay fuentes, also, steve liesman. steve, your reaction to what you heard. >> i'm going to steal rick's thunder. all the while here, the 30-year note has dipped below 4% and was at least on my screen, rick, is now 399. rick makes a very important point that the fact that the congressmen are now asking about the dollar means dollar policy is now sort of in the political spectrum. that's important to watch. what i hear the fed chairman saying about the dollar is stick to your knitting here.

keep inflation low. get the economy back on track, the dollar will take care of itself. the challenge to the dollar is out there if we do not control our deficit, but also down the road -- >> wait a minute. poked him on budget and fiscal policy. that was a slam right there. it was good. the dollar's trading higher on that slam. >> and as a 3 -year, dropped like a rock this morning. it's very interesting. the fed has said it's getting out of treasuries, eventually out of mortgage-backed securities and all these things have rallied. >> anybody who is awake is seeing, they just don't connect. i think larry and steve and bob all hit on it when fiscal house in order was associated with the medicine for the dollar, that's when stocks went down.

that's when the dollar went down. what do you guys think the market thinks? >> let's bring mary kay back in. were you satisfied with what ben bernanke said on the dollar or do you think this is more talk and not enough action. needing to see the feds organize a strategy or we will be dealing with this for years to come. >> well, let's be careful not to lose the bigger message about bernanke's talk, which is about rethinking our regulation, the financial institutions which is pshlly what got us into this trouble. i welcome his systemic thinking. i wish our health care policymakers had the same thinking. he's raising the right points about macro policy. it's really tricky right now.

going to happen before the nation's ready for that adjustment. if both adjustments come before the economy picks up its momentum, we could be in big trouble. >> can i ask you, i want rick to weigh in, too. the decline on the ten-year and the drop in 30-year rate. what does this mean? bill gross of pimco says it's a deflati deflati deflationary growth. do you agree with that? is that what the treasury bond market is telling us? >> i believe that we're going to very slow upturn in the economy. there's even still a risk of a new downturn when you look at the plus side, which is the minus side. i also think that with the extra capacity that exists in so many markets and taugs about the fact that both housing prices will

stay flat and wages will go down, i think there's less fear of inflation. i think the fed's also trying to address the liquidity issue. >> rick santelli, you buy into that? i guess there's a lot -- i'm not a bear. i think the economy's got a lot of strength. i even thought today's numbers showed a lot of strength. but what is the message of the falling 10-year rate and the falling 30-year rate? >> i think there's a boat load of liquidity out there that isn't being use nd how it infiltrates the system, but it's getting redirected and recycled back into the credit markets and i just cant believe that is the good sign. and just the discussions we're having underscore the inability, the visors on the equity market, to truly tell me that today's pricing knows something about

the future when i listen to our leaders and i just don't get that impression. >> steve, what do you say to that? >> it's kind of hard to comment. what i wanted to comment, it's wrong to take what's happening with the 10 and 30. the curve is flattening, so maybe the rebound suggested, perhaps movements by federal authorities that might have been expected, are less rapid. if you go back and kevin works last week talking about stronger, faster, sooner than fred kohn talking about the issue of low for an extended period. maybe the market is redirecting itself back towards that and that's why the steep curve is maybe flattening a bit. >> we're going to take a quick break here. sorry. hold on to that thought.

we'll be back with a entire panel and talk more about the market sell-off. back in two minutes.

the house financial services taking the question and answer

portion of ben bernanke's testimony. as soon as everybody comes back, we'll go back to that live. in the meantime, we have our panel with us. kay, we were talking during the break about what we think this data we got today means for the fourth quarter. what do you think is going to happen with the unemployment number tomorrow is this. >> i think it's going to go up and may go up after that as well. i'm curious larry, as to why you're so positive on the economy. i just see so many signs of continued negatives that look a lot stronger than the short-term positives. >> can i answer that question because he can't help himself. >> go ahead. there is some good news out there today. >> i'm like a reserve currency. i'm on hold. it's okay. >> but did you see the personal spending is now at a high. >> but that was august, trish, that's what bothered by about

it. >> okay, you're right. the cash for clunkers is a one time. you'll see very strong clothing and other nondurables. very strong. furniture stores, very strong. the ism report today, okay, it did rise, but has held the high ground. it is way above q1 and 2 averages. the jobs number today r if you look at the four-week average, don't get the weekly jumps. it's grinding lower. i agree with you. tomorrow's numbers are not going to be great, but the losses are shrinking. the claims are grinding lower. the pending home sales look very strong. there's a 3% gdp in the third quarter is baked in the cake and i think it's going to be 4 and 5% in the fourth quarter. >> first of all, i think this

recovery is like an insecure teenager. it needs affirmation every day. >> that's what we have larry for. >> unfortunately, larry only goes so far. i want to see these jobless claims number come down. i don't like the fact that we're balancing between the 535 and 50. i'd like to see it come down below 400. i'm on told. a bull into july and august and beginning in the spring, but i'd like affirmation that this thing is still going to keep going. >> is there anyone on this panel that believes we are in store for another recession? that we could see a double dip scenario? kay, are you in that camp? >> i think there's a risk of that, in particular if the federal reserve acts really fast in terms of how much liquidity is put out into the marketplace. i sold stocks monday morning in my daughter's college fund because i was looking at the numbers and i don't think it

looks good. >> can i just say that even though the long-term rates have come down, that curve is so wide and upward sloping historically, a zero interest rate at the bottom, monetary policy is so loose, that is driving the economy forward. i don't care about kenzian moments. >> they're buying more treasuries. >> the fed -- >> they're not going up the risk curve. you guys are saying they're not going up the risk curve, but corporate bonds have had a fabulous rally. the equity market is just come off a phenomenal third quarter, rick santelli. >> a blue pill. it's been five months, call your broker. >> if stocks are going up. if bonds are going up. if spreads are narrowing, if the

yield is the widest, put the currency back to gold. in the roman empire. we have so much monetary -- >> because i'm not wearing blinders. it's all around us. the more job loss, the more foreclosures. not one rig on the book ins a year. i rest my case. >> and larry does it all with such a smile. >> okay, thanks, guys. coming up next, stock market reaction to bernanke's testimony and we're going to resume live coverage. plus, the ken lewis exit strategy. you're watching cnbc, first in business worldwide. can't wait for the market to heat up. (woman) need to sell? re/max agents have the experience to get the job done. nobody sells more real estate than re/max. where do you want to be?

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welcome back to "the call." for customers of td bank, the bank says it has having computer problems and that has delayed postings of transactions from late yesterday. that may mean that customer bank balances are not up to date. they say they are working to solve is problem and will reverse charges that have occurred as a result. >> thank you so much. joining me right here on the floor of the new york stock exchange to decipher what's going on, alan valdes and peter.

how much of this is related to bernanke's comments regarding the dollar. how much is just you know, people feeling kind of skiddish as we head to october and this fourth quarter? >> i think you saw the jobs numbers this morning scare people and bernanke's comments sent the market down. i think it's a little of both today. >> peter? >> my comments yesterday, me turning bearish for the first time in seven months. actually, like al said, probably a combination of both. everyone has this thing about october. you know -- >> but it's really september, if you look back historically, september's had the hardest time, yet there's a lot of sooub superstition around october. >> that went down a little today, but more importantly, we ended the quarter, the best we

had since 1998. that's the most important thing. >> it's very possible, yes. this is the level i think that the market feels very secure at 9500 on the dow. about 1030 on the s&p. you know, i think we'll end the year here. you and i can have this conversation, you won't be here at the end of the year. >> that's true, i won't be. the big day. here we are 9559, the dow 10,000 has been pulled out. people are looking forward to that. but you're saying no. i actually missed your bearish call yesterday, but i know you've been very much a bull and now, you're shifting. >> i'm shifting because seeing the market move to the level i thought the market should be at by the end of the year. we're there three months early. i'm cautious, by next year, i won't be cautious. next year, the fed's going to

have to start getting active again. next week, we're going to see earnings. i think they'll have a big imp douse for the next three or four weeks of this market. >> i still think we're going to trend higher. i don't put too much on a one-day down movement. i think the market's poised to go a little higher. it's anyone's guess. >> and you're right. i won't be here at the very end of the year. we've got two little babies on the way. >> that's great. >> thanks so much, guys. back to the studio. we're going to take you back to the house hearing with chairman ben bernanke once it resumes. in the meantime, the ken lewis exit strategy. we'll talk to whose in line next to lead the big bank.

stocks are getting clobbered across the board. market expectations very d disappointed today. the dow is off -- people are disappointed at something out

there. >> bank of america says there are contenders to replace ken lewis. kn news of the departure came yesterday. let's talk about what's next and who is next to lead the big bank. thanks for joining us. we also have steve liesman with us as well. michael, who are you nominating for this job? >> i may nominate kudlow. i really think he's been overlooked and with a new necktie today, i'm thinking he could have an advance. >> i thought you were my pal. senator from connecticut, federal reserve chairman, added to the list of things he's been nominated. >> how do you go serious after this? >> bank of america, let's not forget, is essentially government-owned.

that's a little harsh. but it is. so you're going to need a political guy. i haven't seen a political name, so i'm going to nominate bob steele. but they're going to need somebody who can deal with the fed, the treasury and congress because this is a very political position, just not a banking position. >> no question about it. for all of the excellent candidates we're hearing about inside bank of america, i think you're probably going to see some of the stronger names come from outside. some will have some of the exact political contacts that -- and probably some regulatory experience i would think as well. >> can you think of any names along that line? that was one thing people looking at this list were saying. why are we now talking about an external candidate. >> there's only one who come to mind and i just had a

conversation with him and i swore i wouldn't mention it. i think someone with regulatory experience and banking experien experience. >> is it a washington person? >> it's a new york person. >> interesting. steve, what's your take? >> i don't agree that they're going to be able to go outside. it's such a complicated organization. also, a very delicate balance. bringing somebody from outside will make it more complicated. larry's right. now need somebody more political. i think it's interesting that ken lewis's departure has been kind of a catalyst for thinking about what went wrong during the

whole panic days of september and october and november. and we had an interesting debate. a patriot or pir. all the things sort of really paeled in comparison. >> i thought he made a critical mistake. he went along with the government, particularly on that countrywide acquisition. he said, i had to go along with the government or i would have been out of a job. he sort of chose government over shareholder and i don't think that the ceo of a public company can do that. >> i'm not sure i buy that. he also appear to like every deal he saw. i'm not sure he went through

with this was he felt compelled by the government. in retrospect, merrill looks like it was a decent deal. >> he's making good money. after he's gone, the profits in the next couple of years are going to be huge. i mean huge. he's going to -- nobody may ever give this guy credit, but the fact is, he got those deals done. >> he got the deals done. may have paid too much and i was also told by again, a government official, regulatory official, that they deny have anything to do with the price setting. i think over time, these acquisitions can make sense. i think it can take longer for

those numbers to turn to earnings. >> do we really -- >> i think they're making sense now though. countrywide and merrill are both contributing to profits now. quite substantially, and yeah, you could have gotten a better price next week, but remember where we were. we're in a financial panic. he stepped up to do something hae had wanted to do previously, but did so at the urging of the government. then they discovered more losses than were there. the government gave him a deal he couldn't refuse and he took it. >> you can come back at $16 a share and take the same deal. >> maybe barclays takes it. >> with lehman and bear stearns, with all of the portfolio problems we knew were going on, there was no reason there was more due diligence. at market price, that didn't

make any sense to anybody. >> one of the primary complaints out there is from the shareholders who say he destroyed wealth. you're saying he gave too much for merrill lynch. >> do we believe the story that he wasn't forced out as a result of this investigation? >> you know, i listened to squak. you stuck with it and were very polite. ultimately, this was ken's decision, which doesn't really answer the question as you know whether he was really sort of presented with an ul ta may tum. >> between the s.e.c. and cuomo, the potential for indictment or civil cases, that's what tossed him over.

i don't think it was the price of merrill or the disclosure. we've got to get out of here. >> michael, thanks for joining us. >> thanks for making the suggestion about larry as the new ceo of bank of america. the live shot there, they're still in recess. we are going to take you back to the bernanke financial regulation hearing once it resumes. back in two minutes. (announcer) this is nine generations of the world's most revered luxury sedan. this is a history of over 50,000 crash-tested cars... this is the world record for longevity and endurance. and one of the most technologically advanced automobiles on the planet.

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you can see the live shot of where bernanke has been testifying. they're in a brief recess and as soon as they resume, we're going to go back there for you. here is congressman ed royce, who stepped out of the hearing to discuss some of these issues bernanke was addressing today, with us. good to see you, congressman. let's talk first about financial regulation. what is your sense of what really needs to be done. do you think the fed is sort of making the right move in terms of bernanke stepping back or away from what would be the administration's plan? >> his perception is to do it sort of with a council, but at the same time, he's still talking about having that authority to determine which particular firms are systemically significant. our concern with that is that once you have the federal

government give that kind of a designation, it creates a kind of moral hazard. because then the company has a lower cost of capital. it can out compete its competition. there's a lot of criticism, shall we say, there's critique from a number of economists from what bernanke has said on that subject and it came up again today. there's concern about the issue where bernanke seems to be at odds with barney frank. is this attempt to create a consumer protection financial agency that would compete with safety and soudness regulators. all oppose that so far because of the costs and concerns that if you bifurcate regulation, we could end up with something like

we had with hud, fannie and freddie, with a collapse of the segment. >> i was very interested in questions you asked mr. bernanke. the first of which about the fha and rash of loans backed by government insurance. you said you were concerned that we were creating another bubble. how did you feel about his answer? >> i thought his answer was not specific enough because if you recognize that we're now leveraging those institutions 50-1, the fed last protested when it was 100-1 with fannie mae and freddie mac. he partially acknowledged the problem, but said congress has to decide in terms of how to weigh these options. basically implying between risk and social policy. that's what got uz into trouble

with hud. saying we're going to have zero down payments. that we were going to have 50% mortgage portfolio of subprime and loans with respect to the portfolios of fannie and freddie. that's lost a trillion dollars in the system. so yes, i think he sort of punted that back to congress and then we went on to the second question. >> that's right. you asked another question that i love, is loose money how we got here in the first place. how did you feel about that answer? >> i thought we had it, you're right. i mentioned the noble prize went to hike in the past. from 2002 to 2006, interest rates were negative. so you would anticipate that would cause the very balloon that now, we're trying to deal with. so my forthright question is how

much of a role did fed policy have in this. he acknowledges some role, but acknowledges there are other factors. >> a big question going forward is how do you prooecht that from ever happening again. >> you have the fed focus on its principle goal, which is a stable, monetary unit and not for the long haul laying the groundwork for inflation by running negative interest rates. >> i don't think at the time, that's what they felt they were doing. this is sort of 20/20 hindsight. >> in the fed, they didn't, but outside of the fed, free market economists felt that's exactly what they were doing. certainly, "the wall street journal" editorial board. you had many financial institutions and free market economists that pointed this out at the time, including the london economists. i remember reading the

editorials back then of what the likely consequences would be. my hope is that the fed learns from this mistake and in the future, won't replicate. >> can you give us an update on this legislation? as we hear this hearing and go through the weeds of financial reform here, is there actual legislation that you feel is on track here to become law sometime in the near future? >> we haven't seen the chairman's mark on it yet. but as you can tell, there's still a great deal of acrimony and dissension. >> doesn't seem like we're getting any closer here. the legislation submitted a bill and now, it's been in congress. it doesn't feel like it's coming together. >> and there are real differences of opinion. to go back for a moment on the one issue i discussed, which is the question of naming these particular institutions as systemically -- >> a great and important question. is there going to be a list or

n not? >> well, if you listen to bernanke's testimony today, he again referenced designating particular firm ins this way. and so that's the whole debate. what we would like to see on the republican side by the way, is a alternative to resolution authority which is more like the traditional system where you've got a bankruptcy judge and go into a prepackaged bankruptcy and the government isn't involved except to the extent there's an arbitration there where shareholders, bondholders, creditors take their losses. that's the alternative to having a government have this authority. which we don't like. >> thank you so much. that is it for "the call." i'm melissa francis. >> i'm larry kudlow. see you tonight in the "kudlow report." "power lunch" is up next.