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tv   Squawk on the Street  CNBC  July 17, 2012 9:00am-12:00pm EDT

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i looked at some of the other for profit stuff, we'll be watching today. always something to talk about. >> by the way, i forgot. it's the 110th birthday of air-conditioning. yay. >> make sure you join us tomorrow. "squawk on the street" begins right now. good morning, welcome to "squawk on the street." i'm melissa lee along with carl, jim cramer and david faber live from the new york stock exchange and looks like we could be on our way to some gains today. we were down seven out of past eight sessions, but right now, looking at the 35. we're on the rise in anticipation of what ben bernanke may say on the hill today. let's look at the picture in europe. spanish borrowing costs lower this morning, but a little of the wait and see about ben
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bernanke. a mixed bag across the board. >> our road map today does start on capitol hill. does bernanke give a wink on qe3 or is this all about scolding congress on the fiscal cliff? we will have more in the next hour. >> and coca-cola delivers a solid quarter, but feels the head winds from fx and j&j delivers yet another disappointment. >> the stock hit 100 this morning for the first time since may, but blankfein says conditions are deteriorating. >> and marissa mayer takes the top spot. google and facebook continue to grab online display ad and search share. >> in about an hour, ben bernanke will kick off two days of testimony on the state of the economy. this morning, he'll appear before the senate banking committee. wall street will be watching if
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he's signal another round of easing. we'll bring you live coverage followed by the q and a session, but in the meantime, we're going to talk about how he uses this testimony. he tends to use jackson hole. >> not only since those notes, things aren't so good. i wish he had a better inflation story to tell. one of the great untold stories is so serious that i think everyone who thinks corn is done going up, soy, you do not have this optimistic and inflation situation. you could say it's temporary, but i wanted to say inflation's way down. business in the country is not that good, so we've got to do something. >> squlus put up the child support that's --
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>> what is this saying? is it saying deflation? what do you think, a lot of people start to come up with deflation. actually, people who are -- >> away from food. >> yes, but that it's telling us something and i'd be curious to know what the fed chairman thinks it's telling us. beyond the obvious. >> there is a school of thought that if there is one silver bullet in the magazine, jim, he doesn't want to spend it right now. it would be more powerful being reactive and reactive. dance around. talk about the weather and if the fiscal cliff is is serious later in the year, pull it back. >> good idea. we need china to do something remarkable. i saw european and spanish deal with yields. yesterday, david, we talked about the idea that we could ever come in and something positive would happen about europe. bernanke needs to buy time if something positive does happen in europe. i'm not ruling out the idea year
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end that we could get something positive. i'm not going to write off europe entirely because this euro's going down so much that it's got to help. >> today's not the day, or is today the day? >> i'll let you know. >> we'll know. >> we'll know it when we see it. >> we'll have a rally on our hands. >> yesterday what we saw, retail sales, a number of downgrades today. where are we? i think everybody's trying to figure out especially on the consumer, kind of where are we. business may be pulling. maybe it's true they're pulling back. >> look at the downgrade of home depot and lowe's today. >> yesterday was telling us that one, right? >> i come back and say look at comeri comerica. really a classy bank, doing so, so well. let's not forget again, the wells fargo story was great. i think u.s. bank corp. is going to be terrific. i am struggling between the
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banks who are telling me things are a little better and all these downgrades in retail. >> if banks aren't back lending and making money off of lending but have done that by tightening standards, is that a true tell on the u.s. economy? we have the other stories, retail, which is a much broader swath of the consumer. that maybe are showing signs of slowing. of problems. >> i think the analysts are betting that the stocks have moved too far too fast. i think wells would disagree with your take on banking. maybe just wells is an outlier, but jpmorgan expanding banking. if there is lending, that's a positive. at the same time, you look at target, walmart. these moves are incredible. if i were an analyst, i'd say i'm gone. i think that's also part of these downgrades, that the stocks have moved amazingly.
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>> meantime, we should talk about two dow components. coca-cola, 1.22 a share. worldwide case growth, the coke experience, a larger than expected decline in europe. johnson & johnson beat the street. j&j's guidance below wall street forecast and they are blaming it largely on fx. coca-cola did see slowdowns in terms of the european metrics specifically. they did see head winds when it comes to operating income because of fx. it's not all a bed of roses, although it was a strong quarter. >> something from brick. brazil. okay. up 6%. china up 7. russia, up 9. india, up 20%. india's kind of on fire. did you know that mountain dew and diet mountain dew are
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billion dollar brands in india? they've turned on the the billion dollar bets. >> their economy is not on the jets. >> well, they're drinking a lot of soda. >> india's not -- >> i ain't talking capital goods here. no, but at the same time, coca-cola, incredibly well run. this is a remarkable number. they did the worries about currency. you know, we don't talk enough about great brands. this is an unbelievable brand. we don't talk enough about executive leadership. kent is doing a great job. this stock is going higher, not lower. we heard from schwab and td ameritrade. there's no retail. >> you mentioned commodity costs earlier in the drought. people were thinking the back tax of the year would see easing. i think coke is still calling
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for that. at what point does corn up 40% in a month have an effect on the price of soda? >> these guys hedge very well. they hedge currency, too. the john deere downgrade today, i found very threatening. yes, prices are up. these guys corn harvest is so bad, but mosaic came out with a doubling of the dividend. so j.p. mopmorgan is correct in downgrade of deere. this mosaic is on fire. >> indianapolis has had 900 of an inch of rain. basically a sprinkle. just unbelievable what's happening in the middle of the country. >> i was checking in at the inn i own on sunday from indianapolis and they were, you know, saying to me, it's bone dry. do you guys even talk about that in the east? do you know what it's like? >> you were checking them in? >> i check them in, take their
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bags up. i serve bagels. hey, listen, it's tough times. it's not like the old days, david. >> do you wear a little bell cap? >> just an apron. >> that's got to be pretty funny. jim cramer's checking you in. they're on reality tv. >> merck the other day, he came in, i carried his bags up. >> did he tip you? >> i was telling him you know what, one thing we do have wi-fi. always taking the handout. we've got good restaurants and the guy said -- >> you were fishing for a tip. >> a couple of smackers, i would have been happy. nothing. he said hey, i'm getting very tired. i thought that was my cue to leave. i have checked in so many people. you know what? this job harder than i thought. >> you're the 99%, jim. i'll tell you that. >> definitely. >> speaking of the 1%, shares of goldman sachs rising in free
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market. wall street firm reporting second quarter earnings well above the 116 we were expecting. goldman's ceo says market conditions deteriorated during the quarter amid growth concerns and european debt crisis. we talked about comp in the first half of the year, down 14% along with revenue, the worst first half revenue since 2005. >> yeah, listen, numbers came down. goldman sachs' stock prices came down. it's beat the adjusted numbers and the stock is going up today. good for them. when you look at the quarter crawl, investment banks was pretty slow other than underwriting. advi advisory, 26% over the year. when you look at the services, fixed income commodities, this is where goldman made the -- '06, '07, '08.
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4% on equity, 5.4%. this is the new model, focusing on that, is a reflection of goldman's ability to shift when it needs to to deal with the new world. >> and there is a new world. >> lloyd did, these first names we use for bankers is a bad idea, but what i find did buy back 14.3 million shares. i don't want to hold the bottom, i know where the stocks should be. >> a billion and a half dollars. that was a big buyback.
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>> the spending relations -- give away toasters or credit cards. >> you're not going to find a goldman sachs branch on your corner. they already do, but in a more significant way with direct lending and the private bank. it's not the most profitable of areas and that's why it is a reflection of goldman's saying this is the world we operate in. >> i've been offered loans by bank of america, jpmorgan, goldman has been, it isn't like -- but they are no longer a hedge fund that is a brokerage house. david, they're not a hedge fund at all. >> trading is not as big a part and by the way, the the story is well expense is coming down. operating expenses were down 8% from a year ago.
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that's the story of investment banks and banks in general in this country. got to bring expenses down. >> we've got to talk about yahoo! this morning. shares are rising. naming long time google exec marissa mayer as its ceo effective today. sources tell cnbc levinson is expected to leave the company. they say choosing mayer will drive user experience and advertising revenue at the company. the move comes as yahoo! is set to report earnings after the bell today. cnbc and yahoo! have a business alliance to share and coproduce editorial content. i would have thought the stock move would have been much greater. >> this is a hitter. you know what's incredible about a company like google, here's a person, number 20, look and feel of google, incredibly powerful. i wasn't aware of what join the walmart word of all the
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accomplishments that she's brung to the table. at 37. this is one of those things where the yahoo! look and feel experience has like many other sites, been deminnished by being able to make a lot of money. i thought levinson was doing a terrific job. >> you've got a number of new board members at yahoo! and it would seem to me they're saying all right, let's go out there and be bold. she's 37 years old. had a lot of experience at google, but that being said, she's never been a ceo. she doesn't have some of the, what would seem to be relevant experience, so i kind of understand why the market would be saying let's see how it goes. they are going to be revolving the situation, money will be coming in. it's a real opportunity, but i can see why people would say let's wait and see. >> the other dynamic, too, is when a new ceo comes in, what do
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they do? they lower the bar. >> i like the interview, there's a piece in "usa today," an analyst who says it's the first thing in a decade that yahoo! has done that you cannot snicker at. >> interesting piece in financial times today about what tim armstrong has done in terms of cutting the number of brands, doing things right. yahoo! is the sprawling company with a sprawling number of brands. pick your ten best brands. run with it. >> let's get to santelli. breaking news on production. >> june industrial production expected to be up, last month, original release down 110. double down and now down. but here's the fly in the ointment. vast yutly sags expected to be well above 79 came in under 78.9 and last month, revised to 78.7.
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now, the yut ly sags rate can b afgted by a lot of things and maybe there's seasonality, but it disappointed. we still have national association of homebuilders and we just recently had the may read for treasury international capital flows and it was very solid. up over 101 billion total net and net long-term up 55 billion. better than expected. carl, back to you. >> okay, talk to you in a little bit. coming up, live coverage of ben bernanke's testimony on the economy. will he hint at another round of stimulus and on the heels of the collapse, gary gensler heads to the hill. he'll talk to cnbc first. that interview is next. take one more look at futures this tuesday as we await the fed chairman. back in a moment.
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ben bernanke is going to have company on capitol hill today. gary gensler set to testify on the dodd frank financial reform law. the collapse of perrigrin on the front bunner. eamon javers has more. >> he's going to testify on capitol hill this morning and chairman gensler, a wide range of topics this morning.
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let's get right to it starting with libor. you're going to testify later this morning that you first became aware of problems in libor back in 2008. so, why did it take so long for the public to know there was a problem with libor from the u.s. government? >> well, enforcement cases like this take a long time. our really dedicated staff starting looking at this in april of 2008, but we had to build the case. we had to reach out internationally and dmesically. this was a case of manipulating, attempting to manipulate a late, false reporting to a rate that means so much to the american public. >> since you've gone through that audiotape and looked at the document, what other banks are on the hook here? >> i thought you might ask that, but i can't really compromise enforcement matters. found in the barclays case is they were aiding and abetting
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banks a, b, c and d. >> what's the total liability? do people put this number maybe in the tens of billions of dollars? >> libor and other rates like it are really the mother of all benchmarks. $350 billion of derivatives and $10 trillion of borrowing are based on it, so we all lose if this rate is not honest. >> let's move on to perrigrin. how come you didn't catch the fraud? >> i think it was 2007 and '08. we are not the self-regulatory agency. there is regulatory agencies called the nfa that goes in front and is front line, but we do do limited reviews and we did in '07 and '08 i believe to look at some bookings of repurchase agreements, but we're going to take a deep dive. we're going to look at what we
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looked at then and see what we can improve. >> can you ensure investors that are no other perrigrin type problems? >> working along with this chicago mercantile exchange, we're going to see how we can improve the system. we've done a lot, but we can do better. this system failed the investors. >> appreciate it. back to you guys. >> thank you very much. coming up next, cramer with some advice you can run with. get ready for his mad dash and let's take a look at futures as we head towards the opening bell. we are looking to add to gains. much more "squawk on the street" straight ahead. tween listening e numbers... ...and listening to your instinct duff & phelps finds the sweet spot that powers sound decisions. duff & phelps financial advisory and investment banking services.
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about five minutes before the bell. let's get cramer's mad dash. a lot of calling out today, jim. things like this call on sprint. >> this stock has been on the move by pennies, look at this bottom. can you believe this? now, credit suisse says this network vision transition, this gigantic transition dan hessye has been running, i sometimes like to watch the preferred. there's a piece of paper that is now at par. the health of this company and the fact that they're selling a lot of apple iphones tells me sprint is back. a lot of people are saying it's takeover. it's possible the fundamentals
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are getting better. i like this stock very much. >> somewhere here, we were talking about liquidity, right? we were worried about viability long-term. >> right and that's -- about this piece of paper, this preferrprefer ed, going all the way up. at the height, this paper was on the floor. i know it's hard to find stories right now, i mean, coca-cola's good. you can sink your teeth into the situation because if sprint comes back, look at at&t, look at verizon, 52-week high yesterday. the business is alive and well and sprint is back and i like they're apple. >> does that mean second half stories will still involve telecom, utilities? >> yes, as long as we hear about the slow growth environment and they're making their numbers by cutting back. you're going to want to focus on companies that have steady cash flow. this guy, sprint, dan hessey,
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congratulations, i think you're turn i turning this company around. >> thank you so much. we'll be back after the break and get the open. don't go away. ♪
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take a look at the cnbc realtime exchange where all 500 members are opening at once. travelers and the nyse hosting this small business, big opportunity. that takes place today. encore wire corporation, maker of electrical building wires celebrating its 20th building anniversary. we have some nice gains in the banking sector including goldman sachs. will this last? we saw what happened with citi yesterday. >> i think that the group is underowned. i think people didn't like this group coming in. i personal felt there has got to be something with this yield curve that wouldn't be that great, so i think the underowned
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nature, but the fact that the headline numbers are so good tracking people and jpmorgan set the tone. a lot of times, we've had someone good out of the box then everybody else has been dispoint appointed. >> we mentioned earlier companies making the quarter by cutting costs. mattel is the biggest earner today. 9.4%. year over year includes cars 2, "brave" and bat man still struggling to keep up. >> the one quarter is not a bad way to describe a lot of what we've seen so far. this has not been a quarter that has been demonstrated by cummings. remember, cummings report eed tt bad number. we're seeing companies like wow, hey, that was good. sintosh being another outlier because uniform's not that strong. i like the ratio of good to bad
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so far. >> even with the echo of things like a gm saying europe is going to be tough according to the journal today. >> that was hideous. there are pockets of just terrible, very disappointing -- >> if you're a ceo, you might as well say that europe's going to be tough. hone honestly, why not just take it and run with it? if you surprise to the upside, then that's fantastic later on. be cautious. >> look at citigroup. useded to be a very european based bank and they said listen, we're much smaller than europe. not everyone sees it coming, but a lot of companies did and have pulled back. technology's going to be interesting. >> intel tonight, we have seen some analysts bring their number down. i wonder whether or not you see risk for tech this week. >> got ebay and google coming
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up. you wonder what role that will play for many of these businesses that derive profits from overseas, particularly europe. >> intel's more of a china play. they have a product toll. anyone's ever been to an intel fab, i was in intel hall for a long time. couldn't swear it off. the first few months of a new factory, they throw away a lot of the production. so be careful, they have a lot of plants coming online right now. that could crimp first quarter, but first and second, that's what we've seen so far. but we may hear a good story. >> that i cmosaic doubling its . the average selling price for phosphates as well as potash, higher for the quarter and will be higher for the year, so we're seeing the affect on potash, the whole part is higher in today's session. >> lot of the traders love to make bets on the fertilizers.
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of course in 2008 when we were at the absolute top, the only group that was really a market led by agrim and mosaic. i'm calling that narrow. >> and potash. should have sold out when it could have, but canadians decided it was a national -- >> guano ratio has always intrigued me, that being -- >> yeah. nicely put. as usual. >> trying, yeah. >> i know we're going to go to bob. i do continue to watch that ten year also. 145, 146. i don't know if you guys saw this yesterday, calpers, 1% was the gain. it brings me back to our stock market. when you have a ten year at 149, it's up today in terms of the yield and people are reaching for yield and you have pes that are fairly low. you wonder why there isn't more
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to the stock market. 7.5% boeg gis. talk about a crisis awaiting us. >> wow. terrible. >> yahoo! will be one to watch. up 1 1/3% and whether or not we'll hear from marissa mayer. did you see the story on delta airlines where they found some sewing needles. >> i didn't know they provided sandwich sandwiches. >> you had to pay for those. >> one more reason they should cut back on the food that they offer. >> fbi's investigating that, by the way. let's get to bob pisani. >> good morning and forget about stocks. the street is completely obsessed with ben bernanke and the idea that mr. bernanke must, must tip his hand to what he's going to do on qe3 and i ask,
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why? because, bob, he's got to do it at the july 31st meeting because if he waits until the september meeting, that's going to be too close to the election. i ask everyone, where is this written that the fed not do anything so close to the election. i think this theory is wrong. i think mr. bernanke needs to buy more time. i don't think he's under any particular come pulse to act. clearly, it's deteriorated. he may want to look r for more evidence of it getting worse and finally, they extended operation twist last month. i think this whole idea that this morning mr. bernanke is do or die is wrong. i think he'll give a nod to qe3, but i don't think he's going to come out with any aggressive statement. on goldman sachs, at least good enough and generally better than expected. a couple of things. expectations were very, very low here.
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the stock went from 125 to 100 last year and where everybody was expecting these disasters, investment banking fees, the ficc numbers, they were all better than expected and how about the buy back? much higher than anticipated. overall, it was a good quarter and now, i think i have to increase 2012 earnings estimates for goldman given the win here. remember, all this stuff is loaded towards the fourth quarter. you've got a 1.78, but go to the fourth quarter, it's almost $3 they're looking for from goldman. i think that's why a lot of analysts want 65 cent beat and say could we now confidently raise the numbers. that's going to be a bet on how confident they are in the fourth quarter numbers. so it's going to be a lot of debate among the analysts. the global commodities slowdown is very much in evidence. did you see rio out this morning?
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they lowered their demand for copper, which is what i really care about. particularly on copper and did you see what neighbors were doing? they're going to miss earnings investments. still issues about commodity supply out there. jim, back to you. >> here we also, bhp talking about raising iron productions. that's in cross currents there. i found that surprising. traders in the bond pits bracing for persbernanke's testimony. let's go to rick santelli in chicago. >> thank you, jim and we're also looking forward to eamon javers interview. we could see yesterday, we flirted with that 145 level. if we would have closed below it, that would have been a new yield. but as you open the chart up to mid may, you'll see that june
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extreme. first day of june, it was an employment report. a 69,000 job report that day. but here we are on 149 and yesterday, we settled around 148, so it wasn't meant to be. but it's still a very low yield and of course, it will pay attention to everything today. what a shock that equities are up on a day ben bernanke speaks. hope returns eternal in the s&p and dow futures pits because whether or not you could connect a higher equity price to a better economy, they're certainly looking for a little good will from the federal reserve in the form of accommodation and the dollar index is back to unchanged today. jim, back to you. >> thank you. let's check out the latest news in energy and metals. sharon epperson at the nymex. >> we are looking at higher prices for the wti market as well as brent crude on hopes that we will see some kind of stimulus coming from the u.s. as
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well as china and that is something driving brent crude prices here close to $105 a barrel, the highs of the session. we're watching that market. that's where the momentum seems to have been. particularly after some of the political tensions raised yestday with that firing of us navy vessel off of the coast of the united arab emirates. t keep in mind as well as we talk about the tensions in the middle east, we have seen oil prices pick up here as geo politics has come to the front burner. as that has happened, a new report out by ets securities points out we have seen more inflows into oil etfs and we are looking at about $515 million coming into the oil market for the month of june. we're continuing to watch what happens with the fed here because that could have a big direction in terms of the oil price, but also with the gold market.
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back to you. >> thanks very much. also keeping a close eye on shares of goldman sachs. one of the number of financial institutions that's reported earnings over the past few days. goldman has been up a bit more, but still kind of inching towards, if you will, that $100 mark that it had not seen since early may or may 1st. let call it april time period. when we were above that. not a great quarter though. really, when you look through it, at the same time, expectations had been drawn down enough. i think glenn shore said it best perhaps this morning. gs can't thrive on 6.6 billion in revenues. period, end of sentence. tl a look at the numbers. we also can give you a segment net revenues as you can see in investment banking, equities, investment and lending. that does put in some perspective as well in terms of where we are right now.
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they did okay in underwriting, not as much, but there it is, down 17%. commodities up year over year, but down versus a strong first quarter and with within that, they're just not doing the proprietary trading. they have to hold a lot more capital. business has changed and probably will continue to. when you look at the likes of the libor scandal or you name it, one would expect things would get more stringent. you have bozzle 3 coming up in the not too distant future. a billion and a half stock buyback. expenses have come down. that's the new world we're living in. it is 13 times levered. that is on total assets. there's a look at the repurchase as well. you know, jim, it just makes you wonder when you look at the book values and i think i have that, for jpmorgan, goldman sachs and citi, take a look at where they
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are versus where the stocks are. that's the question. goldman's book is 137. citi's is 62 and jpmorgan is 48. that's the story. >> that's the disbelief story. i remember the only other time i've ever seen is right before the savings and loan crisis in this period that was 1988, where you saw the california savings an loans and their book value was gigantic versus their stock price us. turned out the book value was wrong and i think a lot of people feel that this is the same. >> or they're not willing to pay at all. of course, it's hard to make acquisitions with stock that's not at book. you know, it inhibits a number of different things that you can do. and it is a reflection of investor confidence. >> if you stop doing any business at all, they make money. >> or to bethany mcclain's point, if you were to wind down goldman, you'd return a lot more to shareholders than they're getting in the stock price.
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>> it's also confusing when you look at that "new york times" story, when you've got the guy that cuts the hair, the restaurants, the massage. looks like you get a lot of perks, but you're making less money. coming up, ben bernanke's semiannual testimony on the committee is up. is more stimulus in the cards? we'll go live to capitol hill when he begins. fred thompson on earnings, the retail investor and what he's like to hear today and as we head to break, take a look at this morning's early movers this morning. i look at her, and i just want to give her everything. yeah, you -- you know, everything can cost upwards of...[ whistles ] i did not want to think about that. relax, relax, relax. look at me, look at me. three words, dad -- e-trade financial consultants. so i can just go talk to 'em?
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call it love and basketball the sequel. in washington, d.c., the president and first lady were shown on the verizon center's kiss cam while attending the exhibition game against brazil. when shown during the first half, the president just put his arm around his wife, but in the fout quarter, he got a second chance and actually kissed the first lady to the delight of the
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crowd. oh, that doesn't look planned. or forced. >> biden's look of delight is nice, too. >> his daughter's the one who told him to do it. kiss her. >> meanwhile, td ameritrade reporting earnings, beating expectations, revenue declined to $667 million. shares trading high er by about 1.5%. joining us this morning, the president and ceo. good to see you. we've been talking about all these companies making a quarter because of discipline on costs. was that the driving dynamic in the quarter? >> for us, it was three things. continue strong asset gathering, good expense discipline and our net margins were relatively stable and it was largely caused by an increase in balances during the quarter.
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>> we'll see what bernanke says about the economy in a little bit here. where are they headed? rates? >> well, i mean, it's hard to call right now. none of us can predict, but there's no reason for them to rise. borrowing an event whether on europe or the economy. something has to give here for the market to move. >> fred, did you mention increase margin accounts? >> in margin loans incr >> what do you think is driving that because before in the good times, you would look at margin loans and say, oh, they're increasing, people are more willing to take a bet on trading, but the trading activity has been very weak. >> this really happened, you have to look at the end of last quarter versus where we are today and as we went into march and april, the market was pretty positive, so margin loans rose and they were higher through april and the first part of may and then started to come back down. when you look at the average over the quarter, they were quite good. >> we have another ooecht that i think has disillusioned retail
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investors. this time, facebook. fa facebook stock is still going down here on worries that perhaps the quarter's weaker. did you find a cessation or retail pulling back out of disgust? >> you would think that, but we did not see that. in fact, we just did our investor's survey on 60% of them told us basically that the facebook ipo had no impact on their investing or trading behavio behaviors. we had a pick up when it went out into the market at the ipo, then a lot of people pulled in. it's not changing the psyche of the retail investor. >> and we get libor scandal, again, retail may be the people who are left are hard core? >> i think the average investor really is not paying as much attention to that as us in the industry. the average investor today is worried about the u.s. economy, jobs and the housing market, the
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federal deficit, the election in the united states and they're worried about europe and that's what's at the top of their mind. macro economic and geo political issues. >> average investor doesn't seem to be enamored with stocks and continue to pour into bond funds. duration risks not seeming they're familiar with. when are they going to get the memo that the search for yield might end up -- >> last time we were here, jim and i talked about this as well. it's one of those things you worry about, do they really understand what happened when interest rates rise, particularly in a long dated bond fund. yes, we've seen this movie before where the retail investor tends to go into things based on recent performance and then basically, you have a correction of the market moves the other way, so you watch that very, very carefully. there's only so much you can do as a self-directed broker. people want comfort and that's
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basically what they're going to do. >> what does that mean for your business? >> you have to make available what they want to buy when you're in an investment firm, you have to go with that flow. we've had good success with a options, teaching people to write cover calls, generate income. 37% of our trading volume is now derivatives. >> that's extraordinary. you wouldn't think that. and retail investor and we've been probably the most successful at that. >> thanks for coming in. congratulations on the quarter. >> much more "squawk on the street" straight ahead. coming up, we love numbers and so does cramer. his six stops in 60 seconds is next. count down to all about fun. we'll be right back. s here. and so too is the summer event.
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six stocks in 60 seconds with jamie cramer. >> this has been a monster stock. we're getting a citigroup upgrade.
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>> news on facebook. >> this capstone outfit is saying be careful, there's a real challenge to new users. we were talking about this mobile transition has been difficult. this stock does not have it. >> back to low 30. duncan. >> this is the kind of downgrade that bothers me. the stock's been up a lot. moving to california. >> lot of downgrades for retailers. what about coles? >> maybe we've reached a bottom. home prices on home stocks have moved too much, so let's downgrade them. the momentum is good in houses. >> disney. >> wow, disney now, we know from cedar fare, theme parks are very strong. i like disney. is this the right level to come in, lower would have been --
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>> speaking about cedar fare tonight. >> great yield. theme parks doing te riskly. >> gasoline. we'll see you tonight, "mad money." when we come back, the fed chairman on the hill. we'll bring you coverage live in just a moment. don't go away. ening to the numbers... ...and listening to your instinct. duff & phelps finds the sweet spot that powers sound decisions. duff & phelps financial advisory and investment banking services. looking for a better place to put your cash? here's one you may not have thought of -- fidelity. now you don't have to go to a bank to get the things you want from a bank, like no-fee atms, all over the world. free checkwriting and mobile deposits. now depositing a check is as easy as taking a picture. free online bill payments. a highly acclaimed credit card with 2% cash back into your fidelity account.
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let's get to hampton pearson. >> ben bernanke is preparing to tell lawmakers the european debt crisis and the fiscal cliff here in the u.s. at the end of the year have caused in his words, monetary policymakers to quote see a higher degree of uncertainty about the forecast than normal and that the risk to economic growth has increased, europe's financial markets under significant stress says bernanke would spill over worldwide, including here in the u.s. on the impact of the fiscal cliff and u.s. economy, bernanke cease citing estimates from the congressal budget office says quote if the full range of tax
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increases and spending cuts were allowed to take effect, a shallow recession would occur early next year and one and a quarter fewer jobs would be created in 2013. however, as far as hints at future fed action, beyond the last meeting statement, the chairman doesn't go any further, citing the message there, quote, it is the fed the fomc is prepared to take further action as appropriate to promote a stronger economic recovery and improve the labor market conditions. fed benchmarks on the economy. 1.9 to 2.4% gdp growth through this year. that's lower than back in january and again, concerns about the reduction in unemployment likely be quote frustratingly slow. the lone bright spot relatively speaking, housing. existing home sales gradually trending upward and even some signs of higher prices in some areas, so the bottom line as far as the fed chairman is
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concerned, europe and the fiscal cliff and what is congress prepared to do about it. carl? >> hampton pearson in washington. thanks so much. >> some reaction to these comments from senior exhibition reporter, steve liesman, who's at headquarters. >> hey, melissa, what i hear the fed chairman doing here is laying the groundwork for additional policy action and the one headline that jumped out was the comment he expected growth to be below 2% in the second half of the year. you remember that the fed has a 2.1% average gdp forecast for the year. it's below that, so they'd have to do better than 2%, so it looks like they're going to be downgrading as a committee. the fed chairman, also, i'm looking for this phrase he used last time in june where he said
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that he expected moderate growth to continue. the headlines i saw, i need to check that phrase is in the actual testimony, but the phrase is that i saw were that he sees economic growth essentially weakening. the logical conclusion, hey, if things are weakening, gdp is coming in lower than expected, it kind of begs for a response from the federal reserve and i think that's the preconditions he's setting up here. however, given that bernanke is different from alan greenspan, he prefers to give the committee a chance. simon? >> steve, it's interesting he highlights housing as being a bright spot because that's what warren buffett said on the show just a couple of days ago. let's bring in diana olick with more breaking news on that sector. >> homebuilder sentiment jumped
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six points in july to 35 on the national association of homebuilders index. the largest monthly gain in over a decade and puts it at its highest point since march of 2007. the builder's chief economist notes this is an encouraging sign at a time when other parts of the economy have begun to show softness. current sales rose six points each. sales expectations over the next six months rose 11 points. regionally, the the northwest saw a gain, the south up five and the west gains 12 points and it is out west where we had seen the big competition from properties, but that has dropped off sharply in the last six months. david? >> all right. thanks very much. >> it sounds substantial, doesn't it? that sounds, steve, are you still with us? that sounds substantial on housing. >> that's a big number.
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there's no doubt about it. and it's a bit contradictory. couple of contradictory threads in the economy. housing being one of them. you also saw today when we reported the inflation numbers that average weekly earnings are up 0.5%. we've had a rebound in retail sales in early july compared with a year ago after those dismal june numbers. the weekly numbers have been more robust in the early part of this month. certainly consumers have more money in their pocket, but the big question are consumers inclined to spend that extra money and i am seeing more comments, beginning to read the texts here. bernanke saying that the economy appears to have deaccelerated somewhat and again, i'm not sure i'm seeing that expectation for modest recovery. i don't think he can act, if i can use a couple of negatives here, simon. if he doesn't see the economy on track for a moderate recovery. >> i don't think he cannot act. >> he has to act. >> he has to move and again, i
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need to look more closely and find that phrase if it's in there. there was one comment, u.s. economy has continued to cover, but that doesn't speak to the outlook. i think if he doesn't see a modest recovery in train, that kind of forces the fed's ends here, but the question we've had, the debate you guys have been having is what is that action? is it a trillion dollars of qe? does the fed, does bernanke have enough votes for that kind of big move? we have to go back to carl? did i just hear something? >> sure. we'll do it, thank you for that. good insight coming off of the comments. back to bernanke. let's actually go to chicago and check in with rick santelli. it was said this morning that bernanke might end up being the dollar's best friend today and the dollar is higher. >> yes, we could debate what is the trigger, what's going on in ben's brain, but the markets are disappointed. you saw equities and dollars up about 35 to 40.
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it's now down 20. we saw the s&p was up 3.5, four points. it's now down 2. now, interest rates have hardly moved a wink. if you just look at that, here's what it's telling you. the markets were looking for something and maybe the equity result guys should talk to steve. indeed, accommodation isn't a dollar friendly. the lack of keblgt the dots is moving logical. the market debated immediately what it was looking for and didn't get what it wanted. >> thank you very much. rick santelli in chicago. want to bring in michelle meier and robert heller, a cnbc contributor. of course, we'll bring you the chairman when he finishes after some of these opening statements are over. robert, let me start with you. you heard steve just say that
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the fed has to act at some point, but it doesn't sound like he has layed the ground work for more policy today. >> i wouldn't hope so. i think the fed should hold steady. they have a track right now. they have corporation twists going on. the money supply is growing at 9% per year, which is a lot of new money being pumped into the economy. i think they should keep on their track and not even do more. >> michelle, a lot of downgrades of the economy after that miserable retail sales number yesterday. were you in that camp and what do you make of the fed's forecast now for the year? >> we were in that camp, carl, so after retail sales, we took our q2 gdp tracking down to 1.2%, which is really soft growth. i think that the fed's forecast for q4 growth this year is likely to be optimistic. if we're right on q2, it would
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imply we need to see a strong 2% print, which i think at this point is pretty optimistic, so i would expect the fed is going to be revising down forecasts even further when they release their new forecast in september. >> robert, you know, i think that all of these comments with the chairman's making happen in the context, that is the expressed concern that with another round of stimulus if they are to enter the treasury market again, they will have an impact on the market in and of it. do you think that the fed has hemmed itself in by making that statement, that the next round of stimulus won't be as big? because there is that concern there are going to be operators and impacters in the market. >> yeah, i think the federal reserve should not be entering the market anymore. they can't be the ultimate buyer of all u.s. treasury debt. they have already bought trillions of u.s. debt. they and the chinese.
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who else is there? the fed has to sit on the sidelines and it's congress, the administration that have to act, that have to get the fiscal house in order and that's the decisive policy action that has to be taken. >> michelle, there does seem to be a change of heart of the fed and esther george summed it up overnight when she wasn't sure that monetary policy could fix employment. people are much more realistic about what qe can do and can't do, not lease the effect it would have on commodity prices and boosting gasoline of course, which would be a take away for this economy. >> of course and i think that's the right debate to have, which is there's diminishing returning to additional accommodation. the balance sheet is very large, so there's not as much the fed can do. the challenge is that yes, it is up to the fiscal leaders to make some bold action and that's why
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bernanke is continuing to stress the importance of dealing with the fiscal cliff at the end of the year because of implications on the economy. the problem is there's no certainly we're going to see much action from washington. in fact, i would argue the opposite that given the election, given how partisan politics has become, it's likely to be a difficult, it's likely to be quite a challenge to get some really concrete action, which is why it comes back to the fed. they're faced with missing their mandate and unemployment is too high, so what's left to do? additional accommodation. >> and steve, you know, some have said that today's testimony in a way is is not about monetary policy. it's going to be about this debate over the cliff and it will be interesting to see what kind of response he gets if the likes of schumer on the left and demint and toomey on the right. steve? >> going to say, he said that he was going to tell bernanke that
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bernanke needs to act because congress can't, but i want to go back to this issue of what the market might have expected. most observers do not expect bernanke to lay out specific stimulus. the issue was laying the ground work for it, so i would not be disappointed here by bernanke not talking about stimulus. when you read the remarks, they create a predicate for additional stimulus. >> so, steve, you seem to be really intent on pushing this idea that the fed will act. is that, does that pivot around or depend upon july data being as bad as june data because some have said that july data was better. >> july data has been a little better. we did have claims come down to the 350 area. especially in the back to school time period, but when you have a chairman, i love to hear
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michelle roberts speak about this, who does not see a maryland rat recovery continuing, again, i keep looking for that language. i have not seen it yet. he's welcome like his hand is forced here. >> rick, you agree? >> no, i'll tell you what. we had 50 point swing on what is a tight day. if you look at the net changes in the last couple of sessions, this is bigger than that. so i think it's very difficult to say that the market isn't disappoi disappointed. >> what rates to which -- >> rates -- >> exactly. >> because rates see through the fed. rates are concentrating on the notes probably going into recession and that ben bernanke can't change that. >> that's a different story. >> guys that don't care about the economy, they care about their trading accounts and those guys were clearly disappointed. foreign exchange doesn't like accommodation. they were clearly trading this as well. so it's very difficult. >> i disgagree.
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>> show a chart of the dow jones and s&p. we had a strong housing number. this is not congruent with that. it's ben bernanke's testimony. >> i think the bond market has baked in additional easing. you're 148 on the ten year, you may put up the -- >> guys, guys, hold on. time out here. let's go straight to ben bernanke. >> in 2006. before that, bernanke was chairman of the counsel of economic advisers and served as a member of the board of governors of the federal reserve system. chairman bernanke, please begin your testimony. >> thank you. chairman johnson, senator crea pau and other members of the committee, i'm pleased to present the federal reserve's semiannual monetary policy report to the congress. i'll begin with the discussion of current economic conditions and the outlook before turning
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to monetary policy. the u.s. economy has continued to recover, but economic activity appears to have decelerated during the first half of this year. after rising at an annual rate of 2.5% in the second half of 2011, real gdp increased at a 2% rate in the first quarter of 2012 and available indicators point to a still smaller gain in the second quarter. conditions in the labor market improved during the latter part of 2011 and early this year. with the unemployment rate falling about a percentage point over this period. however, after running a nearly 200,000 per month during the fourth and first quarters, the average increase in payroll employment shrank to 75,000 a month during the second quarter. issues related to seasonal adjustment and warm weather this past winter can account for a part of loss of momentum in job creation. at the same time, the jobless
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rate has recently levelled out at just over 8%. household spending has continued to advance, but recent data indicate a somewhat slower rate of growth. although declines are providing some support, households remain concerned about their employment and income prospects and their overall level of confidence remains relatively low. we've seen modest signs of improvement in housing. in part because of low mortgage rates, both new and existing home sales have been trending upward since last summer and some measures of house prices have turned up in recent months. construction has increased, especially in the multifamily sector. on the demand side, many would be buyers are deterred by worries of their own finances or the economy generally. other buyers cannot obtain mortgages due to standards or
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because their current mortgages are under water. that is they owe more than their homes are worth. on the supply side, vacant homes continues to divert demand from new construction. after posting strong gains over the second half of 2011 and into the first quarter of 2012, manufacturing production has also slowed in recent months. similarly, the rise in real business spending on equipment in software appears to have a more moderate rate of growth. forward looking indicators of investment demands such as surveys of business conditions suggest further weakness ahead. in part, slowing growth in production and capital investment appears to reflect economic stresses in europe, which together with some cooling in the economies of other trading partners, is restraining demand for u.s. exports.
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at the time of the june meeting of the federal marketing committee, my colleagues and i projected that under the asumts of appropriate monetary policy, economic growth will likely to continue, then pick up very gradually. specifically, our projections for growth and real gdp prepared for the meeting at a central tendency of 1.9 to 2.4% this year and 2.2 to 2.8% for 2013. these forecasts are lower than those made in january, reflecting the disappointing tone of incoming data. in addition, financial strains associated with the crisis in europe have increased since earlier this year, which are weighing on global and domestic economic activity. the recovery in the united states continues to be held back by a number other head winds, including still tight borrowing conditions and restraining effects of fiscal policy and fiscal uncertainty.
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more over, although the housing market has shown improvement, it's less than typical than previous recoveries. these head winds should fade over time, allowing the economy to grow more rapidly and the unemployment rate to decline toward the more normal level. however, given that growth is project projecteded, the reduction in the unemployment rate seems likely to be slow. indeed, the central tendency of participants' forecast now has the unemployment rate at 7% or higher at the end of 2014. the committee made small changes in june to its projections for inflation. over the first three months of 2012, the price rose about 20% boosted by a large increase in retail energy prices which reflected the higher cost of
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crude oil. however, the sharp drop in crude oil prices has brought inflation down. in all, the price index rose at 1.5% over the first five months of this year compared with a 2.5 rise over 2011 as a whole. the central tendency of the committee's projeks is that it will be between 1.2 and 7% this year and at or below the 2% level that judges to be consistent with its statutory mandate in 2013 and 2014. par tis pabts of the june meeting see a higher forecast than normal and that the risks to economic growth have increased. i would like to highlight two main sources of risk. the first is the euro area of fiscal and banking crisis and the second is the u.s. fiscal situation. earlier this year, financial strains in the euro area moderated in response to a number of steps by european authorities, including the provision of three year banking.
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however, tensions in euro area, reflecting political uncertainties in greece and news of losses at spanish banks, which in turn raised questions about spain's fiscal position and the resilience of the banking system. euro area authorities have responded by announcing a number of meshes including funding, including funding for the recapitalization of spain's troubled banks, greater flexibility in the use of financial backstops, chincludin the flexibility to -- banks directly rather than through loans and unified supervision of euro area banks. even with these announcements, europe's financial markets and economy remain under significant stress with spillover effects in the rest of the world including the united states. more over, the possibility that the situation in europe will worsen further remains a significant risk to the outlook.
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the federal reserve remains in close communication with our european counterparts. although the politics are complex, we believe that the european authorities have both strong incentives and sufficient resources to revolve the crisis. at the same time, we've been focusing on improving the resilience of our financial system including those that might emanate from europe. the capital and liquidity positions of u.s. banking institutions have improved in recent years and we've been working with u.s. firms to ensure they're taking steps to manage the risks. that said, european developments that resulted in a significant disruption in global financial markets would pose significant challenges for our financial system and our economy. the second important risk to our recovery is the fiscal situation. u.s. fiscal policies are on an unsustainable path and the plan
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for controlling deficits should be a high priority. at the same time, fiscal decisions should take into account the fragility of the recovery. that recovery could be in danger by the con flu ens of reductions that will take effect next year if no action is taken. if the full range of tax increases and spending cuts were allowed to take effect, a scenario widely referred to as the fiscal cliff, a shallow recession would occur early next year and about one and a quarter fewer jobs would be created in 2013. these estimates do not incorporate the additional negative effects likely to result from public uncertainty about these matters. as you recall, market volatility spiked and confidence fell last summer in part as a result the protracted debate. similar effects could ensue as other fiscal issues come into
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view toward the end of the year. the most effective way that the congress could help to support the economy now would be to work to address the nation's fiscal challenges in a way that takes into account both the need for long run sustainability and the fragility of the recovery. doing so earlier rather than later would help boost uncertainty. in view of the weaker economic outlook, subdued projected path for inflation and significant downside risk to economic growth, the fomc decided to ease economic policy by continuing its maturity extension program through the end of the year. the mep combined sales of shorm term treasury securities with purchases of longer term securities. as a result, it decreasing the simply available to the public putting upward pressure on the prices of the securities and downward pressure on their yields without affecting the
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size of the baambulance sheet. by removing securities from the market, the fed's purchases also induced private investors to acquire other assets such as corporate bonds and mortgage-backed securities helping to raise securities and yields and making broader financial conditions more accommodative. economic growth is also being supported by the low level of the target range for the federal funds rate. 0 to 1/4% and the guidance regarding the anticipated path of the fund's rate. the fomc extended its forward guidance in february noting it expects utilization and subdued out look for inflation are like lib to warrant low levels for the federal funds rate through late 2014. the committee has maintained this condition of forward guidance at subsequent meetings. reflecting its concerns about the slow pace of progress and reducing unemployment and the
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downside risk to outlook, the committee made clear at its june meeting that it is prepare ed te further action to promote sustained improvement in labor market conditions in a context of price stability. thank you. i'd be pleased to take your questions. >> thank you for your testimony. we will now begin with questioning of our witness. will the clerk please put five minutes on the clock for each member? chairman bernanke, i'm going to lead off with a question about the libor scandal. last week, you released documents showing that the fed provided early warnings on manipulation in the libor market. the new york fed president timothy geithner raised concerns with the president's working group and offered
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recommendations to the british authorities. can you tell the american people what did you know, when did you know it and what did you do about it? what can we do to restore confidence in this system? >> thank you, mr. chairman. as you know, libor is a critical benchmark to many financial contracts. so the actions of traders and banks that have been disclosed are not only very troubling in themselves, but they have effect of under mining markets. the federal bank of new york takes the lead in gathering market intelligence to the federal reserve system. it was in the process of gathering market intelligence when it received information about libor submissions, notably a phone call on april 11th, 2008, in which a trader in barclays new york told an employee of the federal reserve
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that he thought that barclay was under reporting its rate. about that same time, stories began to appear in the media as well. there was an april 16th story in the "wall street journal" and the financial times had a number of stories. i'd like to make two points before talking about the federal reserve's response to that information. first, the information the fed received was about the banks possibility submitting low rates in order to appear to avoid appearing weak during the period of the crisis. the transcripts of the phone calls have no reference to the manipulation of rates for profit by derivatives traders as alleged by the recent decision. the second point i'd like to make is that this issue was complicated during the crisis by the fact that there were few transactions occurring other
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than over night, so banks were asked to report what they would pay if they were borrowing at a certain term. it may have been in many cases that transactions were not taking place in that term. we'll get more information on that as the investigations continue, but it's clear that beyond these disclosures that the libor system is structurally flawed and part of the response was to address those flaws. the federal reserve bank of new york after receiving this information from its market inquiries responded qu eed quic. it set up a group to address the issue. it informed all the relevant authorities in the u.k. and the united states. on may 1st, then president geithner briefed the president's working group among other participants. the new york fed briefed the
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treasury separately on may 6th. the meeting was followed up with interagency staff briefings to provide more information to the staff and various agencies and the new york fed also communicated with the bank and the united kingdom. so there was active effort to report to all the relevant policymakers and enforcement agencies. the information that had been received cht. the second step that the federal reserve bank of new york took was to develop recommendations to address the structural problems with libor that i mentioned before. the new york fed released a memorandum, a list of suggested changes that they submitted to the bank of england on june 1st and following earlier discussions with the bank of england. there were also communications with the british bankers communication, the private group that constructed libor prior to june 1st.
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so, the federal reserve bank of new york took the lead here. they released a good bit of information. they are looking for additional information. they will release it if they find it. on the board side, we were in supporting mode. we provided analytic support, notably about the issues related to the construction of libor. our staff were in contact with the cftc in april and may to provide analytical support and governor crossner on the board at that time was in contact with the british authorities and the bba during may and june. i think it's important to note that following the federal reserve bank of new york's disclosures to the appropriate authorities, that there was rapid follow up. the cftc was making inquiries as early as april 2008. it sent requests for information to u.s. banks in the fall of 2008.
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the s.e.c. initiated inquiry in 2009 and the doj in 2010. currently, the european commission and range of other regulators, including british regulators, are also investigating and we know about the june 27th settlement with barcla barclays. so there was in informing the authorities that information led to investigations. the federal reserve bank of new york also contributed substantially to thinking about how to better structure the libor panel and the libor information collection to avoid some of the weaknesses in the system that became evident during the crisis. >> chairman bernanke, what are the factors that led you to support the extension of the so-called operation twist program and what changes in economic conditions might lead
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to consider a stronger policy response in the future? if further extensions of operation twist are not possible in the future, what other policy tools are available that the fed decided to provide additional monetary support? >> well, as you know, mr. chairman, the federal reserve in december 2008 brought rates down close to zero and since then, we've had to rely on a number of less conventional policy tools in order to achieve additional accommodation. those included quantitative easing programs and the operation twist, which as i discussed in my remarks, also provides extra financial accommodation, support for the recovery. the other type of tools that we have include communication tools, notably, our forward guidance, which gives the markets some sense of where we
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think or how long we think rates will be kept at the current low levels. so those are the principle types of tools that we have. we are looking very carefully at the economy, trying to judge whether or not the loss of momentum we've seen recently is enduring and whether or not the economy is likely to continue to make progress towards lower unemployment and more astatus factory labor market conditions. if that does not occur, we have to consider additional steps. we've looked at a range of possible tools. mostly again involving the balance sheet and communication. the committee meets in a couple of weeks and we'll be discussing those tools. we haven't really come to a specific choice at this point, but we are looking for ways to address the weakness in the economy should more action be needed to promote a sustained recovery in the labor market.
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>> senator. >> thank you, mr. chairman. chairman bernanke, ever since the dodd frank conference, there's been a debate about whether non financial end users were exempt from margin requirements. then chairman dodd and lincoln acknowledged that the language for end users was not perfect and tried to clarify in a joint letter. they stated the regulation does not authorize users to -- that use swaps to mitigate commercial risk. in april 2011, regulators issued a joint proposal that will require non financial end users to post margin to their bank counterparties. according to the proposed rule, the proposal stems directly from what they view to be a legal obligation under title 7. recently, i offered an amendment to fulfill content by providing
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an explicit exception that quality. the amendment is identical to the house bill, which passed the house while a vote of 370 to 24. is it accurate in your opinion that regardless of congressional intent, the banking regulators view the plain language of the statute as requiring them to impose some kind of margin requirement on financial end users unless congress changes the statute? >> we believe that the statute does require us to impose some type of margin requirement. we tried to mitigate the effect as much possible by allowing for exemss when it was viewed adds being sufficiently small, so many small end users would be exempt in practice. >> do you agree that hedging does not -- that the economic
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benefits from their risk management activity, excuse me, that the economy benefits from their hedging activity and that it's appropriate for congress to provide an explicit exception for requirements for end users that quality? >> i agree that non financial end users benefit and that the economy benefits from the use of derivatives. it seems to be the sense of a large portion of the congress that exceptions should be made explicit and we're very comfortable with that proposal. >> thank you, mr. chairman. i want to shift gears back to a question the chairman asked. you indicated in your response to his question about what tools you still have and how you may approach them. that you still have some possible tools to deal with. there's a lot of speculation and concern about whether you are considering another round of
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quantitative easing. there are a lot of questions about how effective it has been to date and what more can be done. could you contemplate, could you discuss for us a moment how you feel, how effective you feel that the quantitative easing has been so far and whether you feel it is one of those tools that you should consider going forward? >> so as i mentioned to the chairman, we ran out of space to lower short-term rates in the normal way and had to look for other tools like a number of other major central banks, we've used asset purchases as a way of providing additional support to the economy. economists differ on terms of how effective the tools have been. my own assessment has been that the quantitative easing and operation twist tools have been effective in easing financial conditions and in promoting strength in the economy.
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as most evident in march 2009 which was followed a few months later by the beginning of the recovery and by a few days, by the trough in the stock market. qe2 was certainly effective add addressing a worrisome amount of deflation in the fall of 2010. that issue was addresseded. my view and the view of our ablists at the fed is that it contributed to economic growth. it's hard to judge because it depends on what you think would have happened in the absence of those actions. there's a range of views about the efficacy of those programs. there's also questions about side effects, risks that might be associated with their use and therefore, i think they shouldn't be used lightly. never the less, my own eview is
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that these tools and others still have some capacity to support the economy and what we'll be looking at this is really two things. the first is whether or not there is in fact a sustained recovery going on in the labor market or are we stuck in the mud so to speak in terms of ploilt. and then the other issue would be price stability and we would want to react against any increase in deflation risk. >> thank you. >> senator. >> thank you very much, mr. chairman and chairman bernanke. let me return to the issue of libor. can you give us and the millions of americans who depend upon libor -- >> that is the fed chairman with a rather sour view of the economy, saying the fed is still looking at ways to address the weak job recovery, saying he
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believes qe2 and 1 were effective and the tools still have the capacity to help. also saying the new york fed did all it could, although didn't really answer why the fed didn't make more public the findings on something that was struckically flawed. we'll take a break, get more of the chairman's testimony on the hill after this. announcer ] this is our beach. ♪ this is our pool. ♪ our fireworks. ♪ and our slip and slide. you have your idea of summer fun, and we have ours. now during the summer event get an exceptionally engineered mercedes-benz for an exceptional price. but hurry, this offer ends july 31st. why? i thought jill was your soul mate. no, no it's her dad. the general's your soul mate? dude what? no, no, no. he's, he's on my back about providing for his little girl.
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let's go back to the chairman's testimony here on capitol hill. >> if we are going to reduce unemployment, which is one of your mandates, and that if we reach a solution that is heavy on cuts to spending, that is heavy perhaps on cuts to entitlements, that would not provide stimulus in my view. and it could further impact unemployment in the country. is that an accurate assessment?
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>> well, the position we've taken is i would say a first cut is do no harm. what we need is a strategy which addresses the long run sustainability issues. we can't forget about that. at the same time, if the fiscal cliff is allowed to happen, it will have major effects on the recovery. the cbo, the imf and many other observers have made similar recommendations and we feel that's a reasonable balance between the short and long-term. >> some of the specific issues that we face at the end of the year are filling a gap in the 2013 in terms of spending, in terms of revenues. if that 2013, if we avoid the cliff by taking another route, that route is significantly decreases spending, decreases
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other effects, would your view be that we could have avoided a cliff, but still find ourselves in a perilous situation because employment will continue to decline? >> it's a question of the time frame. in the near term, we have a lot of fiscal drag coming from state and local governments, for example, as you know and some coming from the federal side. so, in no way am i saying that we shouldn't be making strong efforts to achieve long-term sustainability and make a credible plan as soon as possible for doing that. but it would be better to make that plan soon but to have the effects come in more gradually to allow the recovery the air it needs in the short-term. >> thank you, mr. chairman. >> senator corker. >> thank you, mr. chairman and thank you, mr. chairman for being here. i was listening to the last
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dialogue there and i know in your statement, you talked about the fiscal cliff that's coming up and to be clear about the spending reductions, it's $1.2 billion over the next ten years, we're going to spend about 45 to $47 trillion of taxpayer money over the next ten years and while i agree we should come up with a much better solution that deals with entitlements and revenues and hopefully something that's much larger, are you seriously concerned that you know, we're talking about $108 billion next year in reductions, half between defense and half in other mandatory spending. you're seriously concerned that small amount of spending reductions is something that's going to damage the economy? i'm talking about just the spending piece. it's hard for me to believe -- >> a smaller contraction will have a smaller effect, but you
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know, i don't want to make a judgment about, i realize it's very contention, taxes versus spending, but clearly, a smaller reduction in the fiscal position would have less effect in the economy than a larger one. >> yeah. but as we look at the can economy, i mean, would you not also say that the best thing we could do to stimulate the economy including any actions the fed might take is for us to have real fiscal, real balanced fiscal reform? is that not the thing that could cause our economy to take off more than anything else and alleviate the concern we have? >> fiscal is very important not only controlling deficits over the long period, but also the quality of qufiscal quality. but i think the way the the current law is written, we have the maximum impact right in the very short run on january 1st,
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2013 and much less happening over the next decade or the next two decades. so i'm not advocating an overall increase in fiscal spending or anything like that. i'm just saying that the timing should be adjusted to allow the recovery a little bit more space to continue, but to make a serious effort to improve our policy over the next decade. >> i agree that we should have a better policy than we now have and i think most of the people are trying to seek that and it's unbelievable to me that we haven't r already done that, but i think on the other hand r for us to potentially kick the can down the road on sequestration creates even more if we don't come up with another solution, which i hope we will, but to say that you are recommending in some ways, that we kick the can down the road and not do sequestration and make us look more irresponsible to me is
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worse than the $108 billion out of the the spending. do you understand what i'm saying? >> yes, sir, and i think just delaying everything, saying we're not going to do it, i think that would be a bad outcome. >> i think a very bad outcome. >> i think the actions you're taking at the fed and i understand you have a dual mandate. i think we should have a single mandate. i know we talked about that. i know it creates bipolar activity because you tries to juggle the two and we created that, not you, but i think the actions that you're taking or potentially considering, i know qe 2 was in response to potential deflation, i think further actions actually take the impetus off us to act responsibly and i candidly wish we had a chairman of the fed that sometimes would say, look, we're not doing anything else, we're pushing rope, and it is up to you to act responsibly to deal with these fiscal issues, fit looking to us. are you tempted ever to say that to congress?
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would you not say that now? >> i don't think that's my responsibility. i have been assigned to focus on maximum employment and crisis stability and not to hold threats over congress' head. congress is in charge here, not the federal reserve. >> very politic answer. i would say that you have members that are concerned about the policies that you're putting in place being disruptive. you do have members who are concerned about that, is that correct? >> we have a range of views on the committee, yes. >> let me ask it a different way. if we were to act responsibly and to do something in a balanced way that dealt with not only the next ten years but the 20 and 30 which most of the plans that have been in the mainstream do that, would that alleviate the need possibly for the fed to consider additional quantitative easing? >> possibly. as i said, the fiscal issues are a major concern, a major downside risk and if congress
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addressed those issues, if the economy was the outlook was better, then certainly very possible that that would ab rogate any need to take further action. >> you have been vague on what additional tools you have and i understand that and i know the whole world watches when you speak. it does appear that most of the tool kit is utilized at this moment. if you were to consider additional tools at the fed in the next meeting, what would not range of options that might exist with rates being where they are today and operation twist being in effect? what else is there that the fed can responsibly do since the fed is the biggest lender to the federal government already, far more than china and japan? >> well, there are a range of possibilities, and i don't want to give any signal that we're choosing on other the other. >> what is it. >> the logical range is different types of purchase programs, treasury, or it can
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include treasuries and mortgage-backed securities. those are the two things we're allowed to buy. we could also use our discount window for lending purposes, but that's another possibility. we could use communication to talk about our future plans regarding rates or our balance sheet, and a possibility that we have discussed in the past, this cutting the interest rate we pay in excess reserves, it is a range of things we could do. each one of them has cost benefits and that's an important part of the calculation. >> thank you for your service in being here. >> senator schumer. >> i too thank you for your service. i think you have done a superb job in one of the most difficult periods to be chairman of the fed. now, i don't quite agree with my good friend mr. corker. i think you have told congress what you want us to do in your fed speak way of doing it. just last month you said, quote, you would be more comfortable if congress took off some of the burden in terms of helping the
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fed in our economic recovery. what he meant there is not deficit reduction. he meant stimulus. he meant some kind of stimulus which is the opposite side of the fed. i agree with you. under current conditions fiscal policy should be our first choice. it would be more effective. unfortunately, we can talk all we want. everyone give speeches how fiscal policy should be the way to go and we don't do anything. we have had a hard time getting the cooperation necessary to get anything done on the fiscal side. we have tried tax cuts which supposedly our colleagues on the other side of the aisle like. we tried increased investments in infrastructure, a traditional way of priming the pump. we tried support for state and local governments where jobs are declining and we have run into opposition on all fronts. just last week on two things our colleagues have often supported, a tax credit for job creation and accelerated depreciation for
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capital purchases, we got no support. so the bottom line is very simple. we're not going to get the fiscal relief we want, at least over the next short while. maybe after november we will. so given the political realities and the president has been calling for this repeatedly, when the president last fall proposed short-term fiscal support combined with long-term deficit reduction which to me is the right way to go, a ten year plan that reduces our deficit and a one or two-year plan that pumps the economy up a little bit, didn't get a single vote, single republican vote. we know the reality. can't do it if it is not bipartisan. given the political realities, mr. chairman, particularly in this election year, i am afraid the fed is the only game in town and i would urge you to take whatever actions you think would be most helpful in supporting a stronger economic recovery. you received some harsh criticism for past efforts to help the economy.
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republican leadership in the house and senate even as they were block blocking jobs bills sent you a letter opposing mormon tear support as well. i would urge you now more than ever to take whatever actions are warranted by the economic conditions regardless of the political pressure. to that end the minutes of the last fomc meeting notes the forecast was revised down and the unemployment rate remained elevated, and consumer price inflation declined. more over, the economy showed that not a single member of the committee thought employment be would back to normal levels by the end of 2014, not a single member forecast inflation even modestly above your 2% target in the same time frame. the recession is deeper, more prolong and had stickier than anyone thought. remember, the fed has a dual mandate, first and foremost to guard against inflation and to keep employment up and
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unemployment down. so to me these conditions would certainly motivate the fed to seriously consider taking further action to bolster the economy. what's your opinion about that. >> we take the dual mandate very seriously. we will act in a political nonpartisan manner manner and do what's necessary for the economy. we said we're prepared to take further action. the complication of course is we're dealing with less conventional tools and have to make assessments about thisser efficacy and costs and risks that may be associated with them. it is very spornt we see sustained progress in the labor market and avoid deflation risks and that's what we're looking at as the committee meets later this month and later this summer. >> you still use qe 1 and qe 2 and you still have other tools in the tool kit. >> i believe we do, yes.
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>> do you agree at least for the next few years the danger of inflation is quite low? >> well, our projection of inflation is it will be close to or below our 2% target and, yes, i think inflation risk is relatively low now. not everyone agrees with that. my personal opinion is that risk is reasonably low right now and indeed as i mentioned, a modest risk, not a large risk but a modest risk of going the other direction towards the deflationary side. >> and you certainly agree unemployment is too high and sticky and despite false, two false starts, we're having a much rougher time than we ever imagined getting unemployment down. >> yes, that's true. >> so get to work, mr. chairman. >> senator dumit.
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>> thank you, mr. chairman for being here. it is interesting to hear my colleagues talk and they seem puzzled why our short-term temporary stimulus gimmicks don't seem to work and by any analysis the cliff that's at the end of this year was created by all of these temporary policies that expired. >> stunning exchange between the fed chairman and chuck schumer of new york in which schumer basically said congress is not going to get anything done regarding the fiscal cliff, get to work, mr. chairman, after leading bernanke to admit that the fed still has tools that are available and the inflation outlook is low. i think we to want bring in rick santelli and get his reaction to what is a pretty entertaining q&a, rick. >> i guess it is entertaining. on the floor what most people found very interesting is that there is many different moeanins to the word minneapolis. the fed chairman and the e-mails partially in the journal today all talked about discussions that were known to the chairman
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right here, he said, that the manipulation of rates was a little bit low by certain banks but they just wanted to show they were healthy during the crisis. manipulation is manipulation. people on the trading floor heard that. they thought basically that's the smoking gun, whether it is geithner, gensler, and chairman bernanke, they knew submissions were low. what's your definition of manipulation? if you murder your neighbor and it was an accident, is there not still a hearing? is there not still a trial? this is a bigging issue and the trading floor really found the none which atlanta manner that it was discussed and took this great action and incongruent with the law. >> i assume there is still dissatisfaction with his answer even though he laid out what the fed did at the time. he didn't really explain why there was no public disclosure of the problems they found in libor. >> even more than public disclosure, the issue would be why have regulators -- if
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regulators see things that aren't right, manipulation is manipulation. even if there is a good reason. and totally ignore it, why do we have regulators? pretty much from madoff to the pergrin financial group there are times during their life everything seems okay and if that's the point you bury the bone woe be to you we have regulators at all. >> making waves in chicago and new york and all around the world and we'll be back with more of the chairman's testimony after the break. don't go away. now get an incredible offer on the powerful c250 sport sedan. but hurry before this opportunity...disappears. the mercedes-benz summer event ends july 31st.
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if you're just joining us the markets not terribly happy or enthused about the chairman of the fed's testimony on the hill. either the fed's forecast for the rest of the year regarding the u.s. economy or the lack of specifics regarding policy and steve is here with more reaction to some of the comments and especially the things we've gotten in q & a. >> i am interested in the way we occupy different realities and dimensions. every economist i have read so far seize it as opening the door further to additional easing. you do see that just a little bit in the bond market where rates have come off or come down a little bit with higher prices
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in the bond market. the stock market seems to be disappointed perhaps because the stock market was looking for immediate gratification but that was not really what was expected by most people who follow the fed. the idea was that the chairman would talk the way he did about the economy which was somewhat more down beat than he had back in june that creates a predicate for additional ease field goal he can bring the committee with him and if things do deteriorate further. i think there will be a debate whether or not it happens in august or september. most people i am reading see it happening in september. i have not seen anybody say anything relative to what rick said about libor, the idea being the fed conducted itself in an okay manner relative to a market it doesn't necessarily regulate. that's the thing at this point. nobody heard a smoking gun that i have read so far in terms of analysis. >> thank you very much. back to q & a on the hill. >> to the integrity of our financial system and the lack of
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faith, i think, increasingly is that the american public and for that fact many of us are having in a system. i look at the internal e-mails during 2005 and 2007 in barclays derivative traders asking other employees to submit false survey responses in order to benefit their trading positions, changing them, preferring certain libor outcomes on certain days, sometimes for it to be higher, sometimes for it to be lower depending upon how it would benefit their position. now, i look at this and i say to myself this is about trying to manipulate a key economic indicator for the purposes of profit. am i brong on that? >> no. i agree absolutely. this is unacceptable behavior. >> let me ask you, clearly then
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banks like barclay were trying to profit from the libor manipulation but that profit came not at -- actually it came at the expense of the public in general. >> some of the public. it is an interesting question. you mentioned borrowers, borrowers may have benefitted because libor was under reported, we'll probably find out via a number of lawsuits filed and investigations how much -- >> if you got caught in that period of time in which the traders wanted the higher libor and that was the time the adjustment was going on, you had a detriment to yourself. investors obviously had a detriment in not knowing the integrity of the institutions, not knowing libor, if it is lowered means things are working pretty well. when it goes higher it is like a warning sign, is it not? >> i am not defending it. i think it is a major problem for our financial system and for the confidence in the financial system and we need to address it. >> so how do we address it?
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for example, i know that some of my colleagues here bristle as regulation but seems this is an industry that on its own won't work with the integrity that the public deserves. we're talking about pension fund investments, mutual fund investments, investments by regular investors, as well as the consequences to consumers. i am sure that we're talking about billions in effect if not trillions in effect. so, for example, do you think that we need additional internal controls or firewalls between reporting personnel and trading employees at these banks so that we don't have this work to manipulate as one example of -- i would like to hear what is it that we are going to do now that we know all of this and may have known it before? what are we going to do to ensure the integrity of this banking system? >> well, first, it is going be to have to be an international
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effort. this is a british libor is constructed by the u.k. organization and of course libor is constructed for about ten different currencies as well. it has to be an international effort. i think there is broadly two approaches. one would be to fix libor, to make changes to it, to increase the visibility, to reduce the ability of individual banks or traders to affect the overall libor and increase monitoring of the reporting process that is done. that would be one strategy. the other strategy which many people are thinking about is going from what is essentially a reported rate to an observable market rate as the index and there are a number of possible candidates that have been advanced that might ultimately replace libor. as you point out, libor is very deepli deeplien engrained in many contracts so it won't be a simple one to make.
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i agree we need to address this problem. >> i look forward to the fed's leadership in this regard and suggestions of how in fact we make a system that cannot be manipulated, that has consequences to millions of consumers, investors, pension funds, mansion palts, counties, governments, all affected by libor. it may be an international response we need. we need to understand what we can do here in the united states to ensure for these investors and these consumers. >> senator. >> on the libor issue from everything i have read from reports and documents seems like in 2008 when the new york fed learned this this potential scandal, potential miss reporting, it reacted on the policy side with various discussions, recommendations
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with their british counterparts. i haven't seen anything about it -- >> you're witnessing the evolution of libor now as a political football as robert menendez of new jersey uses it to argue about more regulation and markets down 42, off the lows and clearly disappointed by what bernanke said so far. we'll be back after a short break. is frowned upon in this establishment! luckily though, ya know, i conceal this bad boy underneath my blanket just so i can get on e-trade. check my investment portfolio, research stocks... wait, why are you taking... oh, i see...solitary. just a man and his thoughts. and a smartphone... with an e-trade app. ♪ nobody knows... [ male announcer ] e-trade. investing unleashed. i don't have to use gas. i am probably going to the gas station about once a month. drive around town all the time doing errands
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welcome back. the fed chairman testifying in
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front of the senate banking committee on capitol hill. you can see the markets today, the doul falling off the highs early on as the chairman basically gave a rather sour forecast for the u.s. economy later on this year, did not layout any real platform for additional policy going forward although said the fed is still contemplating what kinds of tools it could use if in fact it needed to make the job recovery more sustainable down the road. you see the nasdaq is down about 12. we'll take you back to capitol hill and the chairman testifying in front of the senate. >> i know about it because it was a prior amendment and it is very specific and uses an 85% test and seems to me the rule of the fed is in the process of adopting ignores that specific metric. how can the fed adopt a rule that ignores specific statutory language? >> we wouldn't want to do that. i will check on that question for you. >> okay. if you can check on that.
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again, it is 102a6, and i believe the fed rule published for comment ignores a specific metric in the law which i would short-term call the 85% rule which was a viter prior amendment which isn't final law. >> thank you for that. >> thank you very much. finally, capital standards for the largest banks. as i read your comments in the past, it seems to me that you support somewhat larger callal requirements for mega banks but that you seem to think where we're headed about 9.5% under basel 3 which is 2.5% more for the mega banks is roughly appropriate. is that a fair summary or not? >> there is an international standard that has a grade ated, not the same for every big bank. it starts virtually zero for
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medium-sized banks and increases to the largest banks. it is based on some formulas and calculations that try to establish parody with banks around the world. >> what i am asking is is that to the extent that imposes higher capital standards on the largest u.s. banks, do you think those higher standards are good enough to ensure stability in the future and protection in the future? >> i think they're very useful, very important. basel 3 in general will increase everybody's capital and increase the quality of capital and it will mean the largest banks have additional capital but it is not just capital. it is also going to be the market discipline that comes from orderly liquidation authority, stronger supervision, liquidity requirements, and so on. i think it is extremely important that we address too big to fail and this is one way to make banks take into account
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that their own size does impose a cost on the rest of society and make them respond to that. >> about r beyond the path we're on do you think we should be looking at higher capital requirements for the biggest banks? >> well, we'll continue to have international discussions. it has been our approach to try to have capital requirement that is are broadly consistent with the international standards, but these numbers were based on calculations that drew from the crisis but we're always open to further discussions and we'll see how effects of the higher capital work through the credit system as we go forward. we're facing this relatively slowly as you know so we'll get a chance to see what the impact is on banks and credit costs. >> my time is up. i would encourage you to look at that and encourage you to place safety and stability ahead of i understand the desire for uniform at this across the globe
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but i don't think it should trump what is best for -- >> you're looking for higher capital requirements. >> yes. >> senator konica. >> thank you very much, mr. chairman. welcome to chairman bernanke to the committee and to thank you so much for your tireless leadership in these challenging times. recent economic events in europe and china show us -- >> q&a continues with ben bernanke on the hill. we'll get you more of that testimony in a moment with the dow down 46. don't go away. what ? customers didn't like it. so why do banks do it ? hello ? hello ?! if your bank doesn't let you talk to a real person 24/7,
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the chairman of the federal reserve asking questions from the senate banking committee. we'll take you back to capitol hill. >> individual americans improve during this recovery and what
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more needs to be done, do you think? >> well, there is two sides to improving decision making. on the one hand, there is education, and that effort has continued. the federal reserve is continuing its effort towards promoting financial literacy and economic education. i have upcoming meeting with teachers across the country and i will be talking about financial literacy and asking their questions and talking about how to introduce students to these topics. some of the activities that we had moved over to the cfpb which has some personnel and some functions went over there and they are also engaged in those activities, so education is one side. the other side, it is important that disclosures and the types of products that are offered are such that people have a reasonable chance of understanding what it is that
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they're buying or investing in. the federal reserve pioneered a few years ago, it pioneered the use of consumer testing to improve disclosures for credit card statements and a variety of other types of disclosures and we hope to see that type of activity continue. i think in general the experience of the crisis made many people more aware of the need to be financially literate, schools more aware and more cautious as well, but it is an on going battle. it is not something that we can declare -- we can't declare victory. we have to continue to work to try to make sure both kids in school and also adults making financial decisions have access to good advice and good education. >> thank you very much for your responses, mr. chairman. >> senator. >> mr. chairman, good to see you
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again. the forecast that you have testified about to today, i am assuming do not factor in the results of the fiscal cliff that is headed our way between now and the end of the year. is that a safe assumption? >> that's correct. >> so because of the fact that all of the various items that are included in the so-called fiscal cliff would take affirmative action by congress to pull us back which typically means 60 votes in the senate, majority in the house, presidential signature, my assumption is that if that doesn't happen, that we get caught in a situation where those forecasts would be revised yet again. >> interesting discussion between the senators and bernanke. on one hand discussing monetary policy. on the other libor.
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they keep flip-flopping between the two. steve least man is back looking and the question of how many bullets are left in the fed's chamber. >> he says he has three of them. he says the fed can buy more treasuries or mortgages, use additional communications, essentially for example extending the forecast for remaining lows through 2013 into the next year and lowering interest rates on reserve and the fed chairman says i think these things can be effective but he also said i found interesting that it may be if congress acted on the fiscal cliff then the fed may not have to. i thought that was an interesting comment. he is holding that out sort of saying he is going to act but maybe forced to act but congress can stave it off if he wants. >> and you have schumer saying we're not going to do it, help a brother out. i wonder if you ever heard a senator talk to a chairman like that. >> i thought that was an interesting choice of words there. i don't think it is the kind of words that will make a decision
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for bernanke, but i think bernanke has to look at his mandate which is among other things maximizing employment and say, look, if congress is going to let this go down the tubes, essentially schumer may be right and the fed may be forced to act. >> before we go to break, do you think the questioning is more persistent on the libor front than anything regarding fed policy? >> yes, it most sdenl has. what's interesting is i feel like the senators are groping for a line here, some form of attack. they tried to say that maybe the fed dropped the ball. i think that question remains open. it doesn't seem to come like they're necessarily landing too many blows on the fed. i think the geithner memo and the new york fed's actions so far have insulated the fed with the outstanding question being what the two banks did with regard to submission of libor in 2008. that remains an important open question and i will point out what bernanke said is they referred the information to the
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investigating bodies and that was not the federal reserve. >> all right. steve, thanks for some of that color there. we'll get back to the chairman's testimony after a short break. "squawk on the street" is back in a moment. p... we take it on ours. this summer put your family in an exceptionally engineered mercedes-benz now for an exceptional price during the summer event. but hurry, this offer ends july 31st. i'm making my money do more. ♪ i'm consolidating my assets. i'm not paying hidden fees or high commissions. i'm making the most of my money. and seven-dollar trades are just the start. i'm with scottrade. i'm with scottrade. i'm with scottrade. and i'm loving every minute of it. [ rodger riney ] at scottrade, we give you commission-free etfs, no-fee iras and more. come see why more investors are saying... i'm with scottrade.
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bernanke gets to do two two times this week. le talk to the house tomorrow. for now it is the senate. we take you back to capitol hill. >> as a result of dodd-frank the federal reserve gained a great deal of authority to oversee u.s. banks.
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regulators, we know, all of us agree bipartisanly have a responsibility to make sure rules are being followed and bad actors are being punished. as we all know and read day after day since 2008 we have seen too many examples of wall street again breaking rules and laws and common standards of ethical behavior. i follow up on some issues that senator vitter talked about and i want to run through it for the sake of repetition because it is so important to continue to recognize what these problems are. investor lawsuits, s.e.c. enforcement actions over mortgage backed securities, municipality sold over price credit derivatives, bankrupting some of them. five of the nation ae largest servicers found to have forged foreclosure documents and mortgage security legal documents. the nation's largest bank in january halted all consumer debt collection lawsuits over concerns about poorly maintained and inaccurate paperwork and the largest bank lost $5.8 billion
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to date on large complex derivative trades. the regulators either didn't know about or looked the other way. it appears their employees miss reported losses. 16 global banks suspected of manipulating libor used as a bench mark for mortgages and credit cards and student loans and even derivatives. in june one publication reported on a criminal bid trial exposing illegal practices by many wall street banks and arranging bids so banks could under pay for municipal bonds. two weeks ago former employees of the nation's largest bank told the "new york times" the company urged them to steer clients to their own mutual funds because they were more profitable for the bank even though they paid investors lower returns than other funds. the federal energy regulatory commission is investigating whether the biggest u.s. bank manipulated prices in the energy market. this goes on and on and on and not to mention wrongdoing and institutions over which the fed has no jurisdiction and mf
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global, the problematic facebook ipo, recent reports and the analysts at wall street's biggest banks are sharing secret information. no wonder the public doesn't trust you or us or any of the bank, the banks on wall street, the bank regulatory system, so i don't know any other answer, mr. chairman, other than to put out there and again say i think so many of our biggest banks are too big to manage and too big to regulate and i think this behavior shows they're too big to manage and too big to regulate. true? >> many bad practices, i agree. many of them are tied to the crisis period, period of excess. i think that's bad business. i think it is important for us to address those issues through enforcement and of course part of the reason i am not over claiming here but part of the reason you could make a long list is so many of these things have been turned ut by various
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enforcement. >> and perhaps many haven't. >> perhaps many haven't, that's true. >> mr. chairman, a apologize for interrupting. it is not really fair. you said this is bad business. for a lot of them it has been kind of good business. it has been a way for -- it has been embarrassing to some but also meant bigger and bigger profits and bigger and bigger bonuses and to say it is bad business from an academic view point but it is not good for our economy but it has been far too many rewards for some of the bad actors. >> it is very short sided. it is not the way you build a long-term relationship with customers and not the way you have long-term profits. on the size of banks, i think the real issue is too big to fail. if you conquer too big to fail, there will be strong market pressures for banks that are too big to manage, too big to operate, to break up. there was a story about that in the media this morning about the benefits of providing shareholders with additional value by breaking up in situations where you don't have
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good controls and you don't have good synergies between different parts of the bank. what dodd-frank does is provides a blueprint for attacking too big to fail and that includes the liquidation authority. it includes the living wills which by the way do provide a blueprint. if you wanted to break up banks, the living wills provide some information about how you would do that in a sensible way. i think it is very important to attract too big to fail and we're addressing that through capital, through supervision, through orderly liquidation authorities and through living wills, and i think if banks are really exposed to the discipline of the market that we'll see some breakups occur. >> living wills seem to take effect at least in the non-financial world only on somebody's close to somebody's death bed, and i don't think that -- i don't think these living wills address the issue nor does this other regulation
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seem other kinds of regulation seem to address the issues of all of this litany of problems i mentioned. in the end if these banks can be regulated, then it seems clear to me at the fed and other regulators that includes the far too often captured by the regulator's occ, that they're either not up to the job or come police it in wall street's activities. i beg of you to figure out how we're going to restore confidence in the american people in the financial markets because we certainly haven't yet. >> it is a high priority, i agree. >> senator toobin. >> i just want to touch briefly on monetary policy before moving onto the libor scandal and mr. chairman, you acknowledge there is a range of views about the efficacy of the policy that you have been pursuing. i am sure you would acknowledge there is a range of views about the risks associated with the policies you have been pursuing and i will acknowledge that i am sympathetic to the fact that we have given you a dual mandate
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which i think intris i cannily creates a risk you will be put in a position where you have to deal with a conflict over two conflicting goals. i want to stress and i know you and i disagree on this and we've had this conversation but i feel strongly the problems facing our economy are not monetary in nature. they result from this on going deleveraging process that we are suffering through, a regulatory avalanche, completely unsustainable fiscal policy which you acknowledged and the threat of huge tax increases and so to address this with ever easier monetary policy, i worry very much about the unintended consequences including the fact that it has the effect of masking the true cost of these deficits and making it easier for us to continue this very and prudent fiscal policy, so i just want to reiterate that point. what i would like to ask you about if i could is this libor scandal and i will tell you i am very disturbed about this. i am disturbed about the destruction of what little
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confidence might remain in our financial system. i am very concerned about the direct impact to american citizens including my constituents among many i think of the city of bethlehem that engaged in interest rate swaps where they were taking a fixed rate, receiving floats rates based on libor and i wonder whether they were systematically receiving payments that were lower than what they should have gotten because of this. you mentioned many your testimony or in an answer to a question that fed officials became of barclays manipulating this index in april of 2008. the wall street journal has an editorial in which they recount an e-mail exchange that occurred in august of 2007 between or perhaps it was a phone conversation between a barclays employee and a fed official. i am wondering when did you become aware there was some lack of sbek rid i in the reporting of libor rates? >> first, on your first point, let me just say not as much disagreement as you imply.
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it is not a panacea. it is not the ideal tool in many cases and we look forward to having partnerships with other parts of economic policy. on the telephone contacts just note that these were phone calls and these were calls made by junior employees whose job was to mark in color and what was happening in the markets and i think in one of those calls it was clear the person calling that the fed employee, not an official, did not know what libor was or how it was constructed. there were issues about how that was communicated. in any case, i learned about it to my recollection in the time when it became covered in the media which i guess would have been in april 2008. >> here is what i don't understand. i know you fully appreciate the
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importance of this index, how widely used it is for all kinds of transactions and how the american financial system, i don't want to say it is dependent on it but it is totally integrated in this and you and many of the regulators understood there were serious questions about the integrity of this, perhaps even systemic problems with the integrity of this and yet everybody allowed these transactions to continue. did it not occur to somebody to bring the financial institutions together and say, hey, you probably ought to consider a different way of establishing your floating right resets because there is this integrity problem. did that conversation happen with any financial institutions or the public. >> financial institutions don't -- aren't the only participants in the libor based market. >> how about making it more broad? >> i think the best way to address the problem and given
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all the issues occurring during the crisis at that point in time, the best way to address the problem at least in the near term would be to reform the way the numbers were collected so that the libor rate that was set would be in fact -- >> i agree. my question though, and as you mentioned observable market transactions would be like a better way of doing it than a survey of bajss. the question is why have we allowed it to go on the old way when we know it was flawed for the last four years? >> because the federal reserve has no ability to change it. >> you have enormous influence, though, and the institutions engaging this. >> they made changes but not as much as we would like. it is not that market participants don't understand how it is collected. it is a freely chosen rate. we're uncomfortable with it. we talked to the bank of
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england. >> i am not sure market participants were aware and there are other ways you could establish a perfectly viable floating right that wouldn't have these problems. i am very surprised this was allowed to continue for so long when the problem with the integrity was known. >> again, senator, to lead in making some very good suggestions about how to clean up the libor process. >> thank you. >> senator cole. >> thank you bernanke, last july with we discussed how the united states is experiencing a jobless recovery. >> senator pat toomey who understands how kite markets work more than most because of some of his previous lives and trying to told the chairman's feet to the fire asking why they didn't at least use influence in trying to fix libor earlier. they continue to say that we could what we could. [ man ] ever year, sophia and i
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goldman sachs is positive beating 1.78 and coke which you could argue may have put together the most impressive quarter of the big companies reporting today is up more than 1.25%, back to 77.44. we'll keep an eye on all of those. back to capitol hill and the fed chairman in front of the senate. >> as you know, there is no appetite here or anywhere else to do another bailout for the banks given the increasing amount of money at stake and i would urge you to work when the time comes closely with the justice department on this and i think you would agree that you will. >> if we can contribute to a global settlement as we did in the case of the servicers, we would, of course. >> thank you, mr. chairman. >> chairman bernanke, thank you for your testimony. in advance of the crisis, the financial crisis of 2008, at
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least to many observers of our country's economy it came out of the blue, it came as a surprise. what is it that you're ordinary worried about now? what's out there now we ought to be paying attention to that has the potential of being the next crisis to the economy of the united states? i often read about the credit card debt, student loan debt. what are the things that you're most worried about and what are we doing to re mediate the problem? >> i think the two items and i mentioned these in my testimony would first not european sovereign and banking situation which remains unresolved. still a lot of financial stress associated with that and i think still some distance before we get to a solution.
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that poses an on going drag on your economy and although i have every hope and expectation that the european leaders will find solutions, there is the risk of a more serious financial blow up and we have been -- i don't want to take all of your time but we have been taking appropriate steps here in the united states to try to strengthen our banks and to provide to prepare for whatever events might occur. the other just briefly is the domestic fiscal situation we have been talking about and i think it is important in the short-term that congress work effectively to address the debt limit and the fiscal cliff and those issues and in the medium term establish a strong credible plan for fiscal sustainability. >> at what point in time do we have a sense of whether the european crisis is going to have huge consequences to the u.s. economy? what time frame are we on that
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we know that europe appropriately responded to resolve their own problem? >> well, we appear to be in a muddling through type of environment which is costly to everybody. europe even more so than us, they're already in a recession or at least many countries in europe are already in a recession. i think based on all i can observe it could take a very long time because the structural institutional changes that europe is trying to make are not ones that take place quickly. for example, they have recently agreed in principle to create a single bank regulator forev for eurozone banks and to do that, i don't have inside information but it could go into next year before we have a single bank regulator. likewise they're trying to establish a set of fiscal rules and fiscal agreements and they made some progress there but
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given there are 17 governments that have to agree to every major change, it could be some time before they have come to a fully satisfactory fiscal arrangement. it appears to be something that could go on for quite a while unfortunately. >> let me ask a more specific, more narrow question. the koffman foundation is a foundation in kansas city that considers entrepreneurship. its facts and studies demonstrate between 1980 and 2005 companies that are less than five years old accounted for nearly all of the net new jobs created in the u.s. economy. in fact, new businesses create an average of 3 million jobs each other. unfortunately our own census bureau now indicates the start-up engine is slowing down. in 2010 there were about 394,000 new businesses started in the united states. this is the lowest level of new startups since 1977.
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i would like to hear your perspective on the importance of start-ups and what policies congress and the administration should pursue to return to the days in which the united states is at the forefront of innovation and entrepreneurship. >> well, those facts i believe are correct. young companies, so-called ga zels are a big contributor to job creation because if they're successful they grow quickly and add a lot of employees. i don't know the data you cited. i don't know how accurate they are. it is obvious very difficult to measure start-ups. many of them are very small enterprises, but i think it is clear that both because of the weak economic conditions and also because of problems relating for example to the availability of credit, venture capital and the fact that many
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entrepreneurs use equity in their home as a form of start-up capital which is not as available now as it was before the crisis, it is very plausible those companies are not starting up at the rate they have in the past. i don't have a really good program here to suggest other than to try to create as favorable a tax environment, as favorable a credit environment as possible for start-up firms to write regulations in a way that serves their purpose and allows small firms to flourished. according to international agencies who calculate these things, the u.s. has a pretty small business friendly environment here in terms of costs and time required to start up a small business, so it is not like we're in very bad shape
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on that. any kind of improvement that would make it easier for small businesses to get the necessary capital to meet the regulatory and other requirements and to avoid early tax burdens, all of those things are approaches that can help these companies start up and provide employment. >> mr. chairman, thank you. one would think we would have significant start-ups particularly in light of the unemployment numbers which creates the opportunity or the necessity for someone to start a business on their own. >> sure. >> chairman, thank you. >> senator warner. >> thank you, mr. chairman, and the end is near. thank you. >> we'll get to more q&a with the fed chairman and the senate banking committee after this short break. "squawk on the street" continues in a moment. i don't have to use gas. i am probably going to the gas station about once a month. drive around town all the time doing errands and never ever have to fill up gas in the city. i very rarely put gas in my chevy volt.
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around the world. one of the things that i know we have had policy debate this morning on, additional actions you may take to stimulate the economy, i guess one question i would say for those who have questioned taking these actions, if we look at the european central bank's recent actions in terms of if we look at the bank of england and the chinese financial institutions, what effect of their stimulus activities and/or loosening activities does that have on world economy and in terms of your decision making? >> well, there has been a global slowdown and it is emanating, a lot of it is emanating from europe which through export demand is affecting asia and other parts of the world, united states as well. there has been some slowing in asia as well. the chinese gdp statistics have been weaker this year than previous years. partly that was intentional as
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they sought to cool their housing market and address inflation concerns. there is a slowing in the local economy to the extent that actions taken by our trading partners strengthen those economies and it will help us on the margin because it will increase our markets and provide an overall better economic environment, but i would say at this point that compared to what we saw during the aftermath of the crisis, nothing is happening globally of that kind of scale. i mean, relatively modest steps being taken in both of those jurisdictions to try to offset some of the slowing. >> those actions are similar to what you may take up in the fed and i guess the point i would simply make is this is -- there seems to be a consensus opinion around major economies around the world to take these type of
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stimulus actions. >> in terms of specific actions, the u.k. for example has been adding to its quantitative easing program and doing other things as well, so the u.s. should be very clear that the united states, the federal reserve is not the only cenal bank that has been using these unconventional policies as a tool for trying to strengthen their economies. >> thank you, mr. chairman. >> senator worker. >> thank you so much for being here. i have been back in my office listening to most of this on television. i appreciate the fact that you have talked about fiscal policy as well as monetary policy and the overall economy. you note that your forecast is lower than it was back in january, and you say that you now forecast that we'll have over 7% unemployment on through
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the end of 2014. i think we will all agree this is not the kind of economic growth we need and that americans have had in the past. if taxes are raised on individuals making over $250,000, many of whom are small business people, many of whom are job creators, what effect will that have on the projection that you have in your written testimony? >> well, i haven't done that specific exercise. i have been focusing on the overall size of the fiscal shock that includes the expiration of all the 2001/2003 tax cuts as well as the end of the payroll tax cuts, ui payments and the sequestration. you put all of those together and you get a shockch

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