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i'm carl quintanilla live at the new york stock exchange and cramer and faber are at the hotel in new york city where you heard secretary jack lew saying he will speed up implementation of dodd/frank and hoping to have key elements in place this year, and meanwhile, the fed chairman about to testify on the capitol hill about the economy and saying that the bond tapering will begin this year, but not on the preset course. news from bernanke sending the 10-year to two-week lows and the futures are not moving a whole lot in ooeither direction, and m and david, the markets had to absorb a lot of information in a short period of time, and couple in the bank of america earnings and yahoo! last night and a lot to talk about today. >> tremendous amount, and one of the things that i want to point out here definitely is that i don't think that bernanke was trying to make any news. i literally think that he is saying to stay the course, and the 10-year did not do anything, and the futures ticked up, but it is going to revert to earnings, and i think that bank

of america, and because i care so much about the net interest margin is the best of the banks at love the bankses came down because of goldman sachs, but i liked what i heard and it is going to be focused this morning. >> and david, talk tact banks and the last time that bernanke was hawkish last month, it was not in response to a question, and we have a lot of q&a to get through. >> yes, and one never knows, cart carl, as we know that the markets may interpret the answer to a particular question that is unexpected. that said, jim, i'm curious anything from jack lew this morning that -- the treasury secretary -- that is at least worth exploring? >> well, i care about dodd/frank and regulation in part, because when you look at some of the banks, the banks are not earning what we would like them to do if you are a bull in the banks, because of perhaps dodd/frank, but jamie dimon said that i know what the treasury secretary

wants to do when he reported the quarter forejpmorgan and does not scare me anymore and there is an underlying theme that we won't talk about the federal reserve or the treasury anymore, and we are doing fine and i don't know if i have such low confidence listening to jack lew, because he is clearly focused. >> yes, as you pointed out bank of america seems to have been fine and there was a lower provision that drove what was a better than expected number, and the expenses were well contained. >> totally. commercial loans and actual growth and you didn't see that with many people. and also, by the way, they have taken advantage of the weakness in europe, and done some global lend i lending which is not what i expected to hear from the bank of america, merrill, and i will tell you that cleaning the balance sheet rapidly and i don't know whether we are ta talking about countrywide or lawyers next year. >> well, if we are not talk about the litigation, carl. >> lower litigation expense, and $7.1 million and a year ago $1.2

billion and you mentioned the commercial up year over year, and david mentions the expenses down with 18,000 fewer employ employees. >> i heard the chatter wise, and there is some worry that the income is not that good, but i'm not going over it of every bank, because that is a kennard. when i see the net interest up, and the commercial growth up, i'm saying that james stumf and jamie dimon are saying, hey, bank of america is back, and maybe we have to worry about them taking share. >> when all of that is said and you mentioned wells, jpm and goldman, and better tax rate, and good quarter -- >> yes. >> but is the market responding to what would seem to be taken as a whole, a rather positive and i don't want to spin it too positive, but rather positive earnings. >> well, one quarter yesterday that was not good, comerica, and

we extrapolate comerica to the regional banks? >> yes. >> because the loan growths reduced dramatically, and i have to tell you that i listened to the bank of america, and they had preferred and high cost debt coming down dramatically, and this is the kind of quarter that i did not expect from bank of america. a lot of the people were saying, jim, be careful, because when the bank of reports, you will have a group sell off, but they gave you no reason to do so. >> interesting, because that feeds into what the treasury secretary said a few moments ago where you are and what the financial reform has done for banking and the country. >> butting out tputting out thet enough. we had to strengthen the financial position, and monetize the regulatory framework and we had to make sure that the taxpayers would never again be on the hook in a financial

company failed. >> well, he basically said that those who were afraid of additional reforms and regs are the same kinds of people that were afraid of what the creation of the s.e.c. would do years and years ago. >> look. point blank, other than the hidden derivative problems and our bank and i wish that jack lew were the world banking treasury secretary, and everybody else is much worse and the capital ratios that i'm sighing from the major banks, david, they are terrific. when do the regulators say, hey, you know what, mission accomplished. >> well we are close even though we have seen the new numbers of the ratio that might impact the levy, but many of them got into the basal three of the world. and when you refer to the other three banks -- >> yes. >> and there is an emerging story there and interesting because i will talk to josh

fried of canyon later who focuses on the credit and even those banks are feeling more comfortable in europe with the cash positions enough to sell some assets at a discount. >> well, that is good and wells fargo, and remember we saw wells fargo buy the irish assets and brian moynihan going over there to take some share, and this could be be good news for everybody, and david, some canyon partners believe they i may be bottoming there. >> and the same thing with blackstone, because they are aggressively looking at the real estate portfolio of the european banks, but it is going to go back to are they healthy enough to take the loss or the hit because the capital is bet ter. >> i'm not hearing anything negative. >> pivot over the bernanke, because that is the next big chapter, and published remarks are out, and that is new, 8:30 a.m., and some are saying that perhaps gives members of the congress more time to ask better questions and more informed

questions, but one big question, david, whether or not he tries to remove september from market expectations, and does not seem like it judging from the remarks. >> no, no. it doesn't. i don't know. >> no. >> in terms of the taper, no. >> right. >> and by the way, it is warm here and i have gone jacketless, and i hope that is okay with you, we are not at the nyse. >> i have another show where i can go jacket-less, but this is one i can use. >> well, i am starting to sweat here so i am at that level. >> well, you could have use tad level last night. >> and now bernanke is like he could have watched the briefcase, because it is carbon copy and i want to know how thick the briefcase is and a la the days of the unpredicted forecasted hurricanes and things were more dire.

>> and yes, the fed chairman was allowed to cross the street alone, and now he is secreted through the various tunnels unfortunately. >> and the interesting point of the mkm coming out what they are calling the asymmetric sensit e sensitivity to bernanke, and that is when he was hawkish in may and june, the 10-year yield popped on that day, and when he was in july dubbish, it fell. so is the market trying to push him in one direction? >> well, the market may be trying to push him, but when we got to 2.7, i don't think that we had enough economic activity to justify that, and sure the fed game and the fed buying game, but when the rates went to 2.7, we saw pretty much of a slowdown and i was not happy with what bernanke said about the mortgage markets and 4.5%, and if bank of america says the 4.5%, and john stumpf says it is

declining, and i know it is a good call, but apollo is selling the stock, and i would say rates went too high and hurt the housing market, so don't expect the bond vigilantes to play the kind of role you can at 2.7. >> and i don't know if you have seen it, but the housing starts were a big miss today, david. we will talk about that with john paulson who is in general long housing in a number of ways. >> yes, and it is going to be interesting to hear that interview that you are conducting later today, carl, with mr. paulson. >> and $10 million and the hedge funds --? all of the jawboning whether it is dudley or bernanke eventually at the end of the june and early july, wasn't that a result of the move up in mortgage rates, and weren't they going, okay. whoa. >> and one area of the economy good, and so kill that because of the vigilante, and look, we could take the whole other side and say it is a phony thing, but no, people who watch the show and invest in stocks, stocks

were killed because the rates went up, and possible for the recovery to take a hit, and we have been playing in that world since, and i don't blame them, because jamie dimon came on the air and said mortgages are slowed and stumpf said it did, and they cooled the housing market. >> but did they cool it to allow customers to take advantage of the refinancing where they have amazingly taken ek with whichqu the homes? >> well, the analysts are ahead of the combination of the gasoline up, and the re-fis down, we are not going out as much. and laurie all report and high end is not that much, and by the end, north america is weak, and we bid up tiffany, because we thought the rich were richer, but this is the anti-gatsby complex. >> well, you are in montauk.

>> the catcher and the rye index. >> yes. >> and jack lew and a lot of the heavy hitters at the conference today, and later cramer and david will talk to preet bharara, and he will be running a panel including leon cooperman about their best and most actionable ideas of where to put the money in this market, and then lately interview john paulson who is giving the luncheon keynote and great day shaping over at the delivering alpha at the pierre. meanwhile, guys, a number of stocks in the spotlight, including the earnings from yahoo! and hear what cramer has to say about those, and now that the fed chairman's pretear paired testimony is out, he is preparing for the capitol hill hot seat. and we will bring you live coverage of that when it begins in 45 minutes' time. one more look at the futures getting the traction here, slowly, but surely on a

wednesday morning. more on "squawk on the street" on this delivering alpha day when we return. wi drive a ford fusion. who is healthier, you or your car? i would say my car. probably the car. cause as you get older you start breaking down. i love my car. i want to take care of it. i have a bad wheel - i must say. my car is running quite well. keep your car healthy with the works. $29.95 or less after $10 mail-in rebate at your participating ford dealer. so you gotta take care of yourself? yes you do. you gotta take care of your baby? oh yeah!

so maintaining discipline or -- >> that is a live shot of the delivering alpha conference in

midtown manhattan and michelle caruso-cabrera there interviewing richard perry known for his stance against fannie mae and freddie mac, and also a big day on the hill with ben bernanke facing the financial committee at 10:00 eastern time when the q&a begins. jim and david. >> hyahoo! beating the nickels, but the marissa mayers beating it. >> this is a good thing except for programmatic, which means we will suck the margins out of display ads and not make as much money -- and remember, it is and a advertising business and remember that programmatic is the algorithms to place the ads at the cheapest place and shows inventory to use against and companies don't have the good gross margins when it comes to

programmatic, because it does not say that we will pick up the sales people, and have a tangeray and tonic, but it is coming up in the cue, and when it comes up, it is going to come up, and it is difficult for marisa to make money quarter over quarter. >> well, it is because alibaba is incredibly strong and got some insight there, and that is the ipo that every bank is waiting for and licking the chops over and desperately trying to get the lead und underwriter on if they do in fact, and who knows where they will list, because they have not decided yet, but that could be a year-h end event. but -- >> alibaba. >> what is the plan, and use the alibaba in japan with the stock pressure there, and not collapse the margins and hire more people and reinvent, because i have a time aftforded to me because of the strength of the alibaba. >> well, she turned around a terrible company, and infamous

for losing people, and 59% decline in attrition, and then 29% boomerangs who come back. and they had a dozen of engineers for mobile, and she had doubled that in year one, and then in year two, they can find the ways to monetize themselves better, but google and facebook are moving faster. >> yes, with the revenue numbers going to other way. >> i agree, but she does have the money. >> and the display ad revenue down 12, and the search revenue down 9, and the earnings call, guys, where she and the cfo staged what is nightly news and talked about how mobile is key to the company's future. >> we are excited to try this live broadcast and in launchfing new products in the quest towards long term growth at yahoo.com to check the application. >> and the earning presentation is a lot of fun to be experimenting with a new format,

and alibaba has slid -- >> if that is the future, we are all out of money. >> i am not worried, carl. >> well, it does not matter if you have video, because if you say "challenged" people will sell the stock. the air went out of the balloon. >> yes, but this morning, looking up. >> they have a lot of capital and i would buy it on the weakness, i would, because this is a company, and they are e well ahead of where i thought they would be one year ahead, but well ahead, but i also didn't realize how bad they were. >> and jim, what is the bx stripping out the beat not sa g saying it is as good, and coal again with the intermodal, and what do you think? >> well, we were used to king coal, and went to the pawn coal and this is like bishop coal, and this is not nearly as bad as i thought and this is why

michael werd can be happy about it, and they have a slap happy oligopoly and it continues. >> i wanted to make a chess joke, but go ahead. >> mcdonald's cut by janny to neutral, jim. survey of the franchisees taking in the june analysts to comps -- >> well, yeah, but a lot of the commentary away from it and they will have and upside surprise in the sales, and they are doing the better than any of the restaurants. carl, would you bet against the new menu and the new hours? they are making changes that are substantive to the earnings? >> well, truth is that i'm eating there more often than i used to which is saying something. >> and i love the new egg mcmuffin. >> we have arrival of preet bharara, and now we know that your interview with him is

shortly, and there he is coming through the hall, and what is the energy like down there? it must be incredible. >> i find it actually electric, because you don't know who you will bump into. >> i bumped into one of jack lew's secret service guys, and he shoved me out of the way. i looked threaten iing. >> well, the hedge fund guys are here, and they are giving. the panel is going to be amazing and i have been blown away by off of the record here is what i am thinking of doing, and people have to be listening, because a lot of money to be made today. >> last year on the best of ideas panel, lee cooperman will be with us, and why pick ten when you can have all of them. >> and i want to know about lin energy, and my investment trust owns it, but he has talked about it. >> well 14eshgs a big holder. >> yes. >> and speaking of which, guys, when we come back, we will get a delivering alpha edition of

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and responsive dedicated support meets your needs, and eases your mind. centurylink. your link to what's next. all right. we are how many minutes? six. okay. a live shot of where bernanke is going to be. >> wow. >> i mean, there is so much news today and half of it here and half of it there or maybe 3/4 here and 1/4 there. >> well, there is an empty chair, and can we get to the "mad dash" and ahead of when the markets opens in about six minutes. >> i want to say that the dow jones industrial stocks are reporting and people are not

liking them, and not liking them because of the valuation. this morning deutsche bank downgrades j&j, and one of the common things since the year began is that the stocks are high, and the analysts therefore downgrade them. my question to you, david, too cute by the half? is j&j going to go down from $90 to $86 and worth it to downgrade on the valuation basis? well, maybe it is a one-hit wonder, but j&j reported a good number, so own it. >> you liked the quarter and the stock responded appropriately to the number yesterday. >> right. what i want to get a wai way frr the people at home, don't trade the bond market using j&j, and if you want to sell bonds, sell the bond fund for heaven sake and not j&j, because that is where the pain is. >> and stelling the bond fund with the depletion of the capital loss is painful. >> i think you thought it was fdic backed. people made mistakes there. you won't make a mistake if you

own j&j for the next three to five years. remember that time period? >> yes, a nice period of time. >> thanks, guys. it is the time for the market to rea react to the chairman's remarks released ahead of the testimony. just a few minutes away from the opening bell. "squawk on the street" will be right back.

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you are watching cnbc "squawk on the street" live from the financial capital of world where the opening bell is set to ring in a minute's time. a split show today, i'm at the new york stock exchange and k m cramer and faber at delivering alpha, which by the guys is now trending on twitter in new york. david is on the phone, but jim, delivering alpha is trending and jack lew and mariano rivera. >> well, we can't speak for the last one, but obviously a great man. the trend and the focus of the market is right here. this is a day where the cnbc basically controls the market, and anybody who wants to disagree with that? i don't know. anybody with ideas is going to be here and i will create some of the ideas on "mad money" because too much fire power in the room to dismiss. >> not only is there delivering

alpha and bernanke speaking in half an hour, but the earnings alone would be a huge story today, jim. american express tonight, and ibm, and intel, and ebay and it is going to be a rock'em sock'em kind of day. >> and intel is not that great, but i have to know about the stocks. >> there is the opening bell, and a look at the top of the screen of the big board this morning the nyse, and euro works tea teachers workshop program and in the 26th year, and congratulations, and at the nasdaq experion is celebrating its recent ipo. jim, we have to talk about a little dell on the day that you are to interview preet bharara. david, what do you think about the feeling that michael dell is tr truly behind the eight-ball now? >> well, carl, it is difficult to ascertain with the vote coming, and it is difficult as i have been reporting that the

likelihood if you hold the vote, they would lose, and the question continues to be is there some way that michael dell can shore up the bid either to get the support he needs in order to get the yes votes and approve the deal. at this point, my guess, and it is a guess is that they probably adjourn the meeting and then come back to michael dell, and that being the special committee, and say, all right, either say it is best and final 1365 and/or do something, and it is a short interrecord date between the meeting which is june 3rd, but this is is the period now where there is a lot of the back and forth and the the things on the wires and things, but don't believe a lot of it. we will see. icahn wants to -- >> and let me ask you a question -- >> i listened to chanos today and i don't want to be long on this company at all, because it is a dangerous company. >> would michael dell let it all

go away and engage in a proxy fight with carl icahn. >> he can start all over again. >> yes, but if it were to happen and the vote were voted down and the recap plan as you look at lee cooperman walking in from omega and carl icahn has arrived and you will tack to cooperman in a little bit, a man with a several big winners announced at conferences like this including alpha and not to mention, david, not a man who is afraid to speak his mind on policy. >> that is right. remember the letter to the president. yeah, lee's a colorful character and a great track record over the last couple of years as well. back to final thought on dell, and i will be reporting on it, but you will hear more of it, but if the deal is voted down, and they did in fact go to adopt the recap plan that icahn is proposing, and michael dell did not tender his shares into the recap, he would end up with control of the company, and so

the deal goes down, he can buy more stock, and so icahn and he at a standstill, so a lot of the moving parts. >> well, no ego? >> well, of course, there is ego and not happy to say things like i won't deal with the terrorists and things of that nature. but silver lake, i don't know if they have more in them, but the thing is if dell has more in a cosmetic bump to get this thing to the finish line. i don't know. >> right. jim, you have to start heading to the stage, and give us a preview of what you want out of bharara and where are you leaving the questioning? >> well, when you interview the u.s. attorney for the 7th district of new york, you want to talk about the insider trading and maybe not as pointedly as pending cases, but hypothetically pending cases, but in tonight's show, when i hear about cooperman, and peltz,

and being interviewed by andrew sor k sorkin ross and paulson. >> right. >> i am grading ideas tonight. don't forget if you listen to cooperman, you are a lot richer to d today than a year ago. >> you got that right. jim, we will see you later on, and if in a few minutes in fact, as he goes the interview preet bharara. bob pisani is on the floor. >> yes, on the upside and material stocks up, and telecom stocks ru s are up, and a few o financials are lagging, and i don't know why, and i will try to get more information on that. everybody's hopes on bernanke's testimony, and it is the fact that it was the prepared testimony was released an hour and a half early and at lot of the comments on, that and he did not say anything astonishingly

in the testimony, and bond tapering could begin this year and knot nothing on the preset course, and nothing but the traders seemed that the house wanted more time to form more pointed questions for mr. bernanke, and maybe more fireworks than usual. remember, this is likely to be the last testimony in front of the house, and maybe he is more blunt than the criticism of the government, that branch of the government than in the past saying that we need more action on the fiscal front. so that the traders believe maybe more room for the fireworks than some people were anticipating here, and obviously, he wants the 10-year yield below 2.6%. moving on, the june housing starts were, my heavens 100,000 below estimates and that is a miss. look tat the screen lighting up. and higher rates are hurting things, kaup down. this is the reason i'm not worried about it. look at the numbers, most of the decline in the multifamily area, and we know it is a volatile

space. calm down. number point one. and point two, single-family permits and look at them rising to the highest level since 2008, and that what i care about, the single-family numbers and not showing declines at all. and the sentiment numbers, did you see them from the nahb? the highest in seven years, and the builders were optimistic, and look at realty, and look at this over $50 and they came out to preannounce earn inings that were dramatically above expecttations, and the numbers are looking good. on top of that, the biggest owner apollo will sell all of the shares that are outstanding that they own to the public in a secondary offering and they would not do that if they were concerned about a down market, so i'm not concerned about the higher rates, but let me talk about the bank rates and decent long growth, and comerica yesterday and hurt all of the regional banks, because the long growth was below expectations,

and today, good numbers from pnc and u.s. bancorp. and that is twice the industry standards and 3% is the average right now. usb had 5% long growth and decent numbers right now and leaving concerns. bank of america, numbers okay, and all right, and 1% loan growth. what i am saying here is that it looks like to me, guys, the regional banks appear to be taking some growth in the loan industry away from some of the bigger money center banks underreporting on the long growth area. remember, one of the reasons that you want to own them is one, rising interest rates and two potential for more loan growth in the second half of the year, and the regionals looking like better than the big money center banks, and back to you. >> quite a move, bob. talk to you soon. now to the bond pits with rick santelli in the cme in chicago. i know what you will be watching in 20 minutes, rick. >> what is that?

listen, do you think that ben -- we well, we can always hope that somebody ate the wheaties and will ask a bold question, but you don't have to be bold to ask a question about the housing starts down 9.9, and the permits down 7.5%. that happened in the exact moment that ben's testimony hit. i am sure that a goodly amount of people will vacillate towards the idea that ben moveded the market markets. nobody knows for sure, but seems that weak housing made a play in the dropping the rates and the preopening stocks were down 25 and in the dow, they moved unchanged, but i don't know where the equity is on that move. looking at the intraday and the two-day chart of the 10-year note yields, they have dropped down, but look at the key. may 1st chart when the rates moved. you see the flat area through the chart. zoom in on that, and the next

chart, june 20th, and that one reprieve after over 100 basis point run in yields was 246 and 247 and exactly where we are resting right now, and this is a hugely significant area, and dollar index which has been wounded given the fed issues going on, because it figures prominent prominently in all of the relevant areas of the currencies in the developed economies and you see the one and two-day charts and open it up to may 1st, it is a substantial correction. now, if you look at the big news overnight, it is portugal and the ongoing political issues and how it figures into the bailout. they are getting close to 8% in the 10-year and interest day, and higher on the year than when they began. >> and i know for the passion of charts, rick. that is a good explanation of the 10-year. see you in a few minutes. still to come, the law enforcer who gets ooh wall --

who gets wall street's attention, preet bharara, and you will want to hear his answers to jim's questions in a moment. and also, ben bernanke's essential testimony on the capit capitol hill, and we will have live coverage of his remarks and the q&a when "squawk on the street" continues. there is a pursuit we all share. a better life for your family, a better opportunity for your business, a better legacy to leave the world. we have always believed in this pursuit, striving to bring insight to every investment, and integrity to every plan. we are morgan stanley. and we're ready to work for you. [ whirring ] [ dog barks ]

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>> there are not one, but two hot seats in the world of american business today, the delivering alpha corn frens which you are of course looking at in midtown manhattan sponsored by cnbc and institutional investor, and the house committee will then host the fed chairman and we expect the q&a to begin with the publi published remarks already out, and a lot of news surrounding the stocks and yahoo! at fi five-year high, and bank of america above 14 for the first time in two years and we start with sharon epperson of the nymex. >> well, the commodity traders

are watching the two hot spot as well, and awaiting the inventory data coming from the energy department in washington at 10:30 a.m. which is driving oil prices and likely to continue to drive the oil prices this morning. we are continuing to watch what is happening not only with the crude oil prices here, but what is happening with the gasoline. as you know, if you have filled up any time recently, we have seen a tremendous run-up in the gasoline prices, and the futures are up 14% so far this month which is something that the trad traders will be watching carefully to see what the energy department has to say about the gasoline supplies over the past week. and then keep your eye on the gold market, because as fed chairman ben bernanke testifies and answers the questions that he will receive is what the traders are going to be watching to see what he has to say, of course, carl, about tapering and that could drive gold. back to you. >> all right. sharon, thank you very much for that. when we come back, u.s. attorney preet bharara with jim cramer.

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all right a. look at the house financial services committee hearing room where the fed chairman will take the microphone in a few minutes and after having published his remarks regarding bond tapering and suggesting that the bond tapering will begin this year,

but nothing is on a pre-set course he said, and at delivering alpha in manhattan jim cramer introducing attorney preet bharara. >> you should start by making a joke saying, hey, kayne, and what is the best way to make it seem like he should not be indicted? >> i am glad that you always begin slowly, jim. first of all, i don't make that call. i have people make that call. and depending on what you have done, and depending upon given the track record that we have, and if your ceo is contacted by the office, you might want to figure out whether or not that is a good time to check of an extra pair of underwear because of the seriousness of which we take our work. obviously, i am kidding. >> well, i don't know, i have read the stories, and you need smelling salt if you knock ton the door. >> well, we don't bring the regulators, but generally, it is

prosecutors speaking out with criminal action and by the time we have made contact and decide the go overt with respect to individual or institution, it is probably bad news and we do that only in serious circumstances and it is not a laughing matter or joking matter and people who run whether it is a hedge fund or bank or some financial institution or a company that makes any product, needs to take it seriously, and the most important thing that you can think about doing at that moment is thinking about how forthcoming you should be and to co-operate because the history s that those who come forward and voluntary with the information, and volunteer the information do better than those who don't, and more importantly for the people in the audience today, and people watching on television is to think to yourself, what are the things that you should have been doing, and asking yourself and thinking about in the years leading up to the phone call, because you want to avoid getting that phone call in the first place. >> okay. we can't directly talk about the s.a.c. capital, but talk about the phone calls and are the

phone calls too late? my understanding from the conventional press is that if you are going to bring some of the cases, the statute of limitations is up, and if you do it this afternoon or, it is over? >> well, i won't talk about any particular case and not about the institution that you mentioned or any institution that people are thinking about, but the thing to keep in mind is that a lot of people think that they know what we are investigating and what is up our sleeve and they don't. a lot of the times the institutions that we are looking at, and people don't know about it, because as a general matter we don't talk about the cases or the investigations, because it is not appropriate, but as a general matter, and it is entertaining, there are a lot of the armchair lawyers and prosecutors who think that they know what the legal theories that we can pursue and the statute of limitations are, and what the strictures are and often they are wrong. an example, people talking about statute of limitations to five years, but the bank fraud is a

statute of limitations for ten years, and mail fraud, it is five years, but fit affects a financial institution, it is ten years and ongoing activity and ongoing misconduct on the conspiracy theory, that will elongate the statute of limitations, and what people have not appreciated as i can tell from reading the press dodd/frank which was enacted expanded from one year to six years, and we have a lot of legal theories we can review, and for armchair attorneys who think they know what we are going to do, they are often wrong. >> well, there are cases in the press, and we are told that you are almost done and out of time, but it is not the case. you can bring cases from multiple years from now? >> all i'm saying is that depends upon the circumstances of the case and the facts and the legal theories that stark statements by armchair prosecutors in the press are often incorrect.

>> all right. fair enough, because i believe that is exactly the opposite of the perception of what most people in the room feel. don't rest if you did something five years ago. >> well, people shouldn't rest, and they should not be waiting for time to run out. that is not a good way to behave. and when -- right? >> right. >> so -- >> all right. fair enough. >> i don't wear a watch for the record. >> timeless. timeless indictments. and three senators last month introduced a newer version of glass-steagall, because they believe that the bank ceos are too big to jail. did arthur anderson's shutdown indict you to close down the banks and those who have done in multiple instances of violations? >> well, nobody is too big to indict, and too big the jao jai. i have been saying for years there is enough moral hazard in

the industry, and if you tell people they have a get out of jail free card because of the size or the interconnectiveness to the economy, that is a dangerous thing. we don't do that and i try to say as often as i can, that is not the case. that said, you have to be made of the collateral consequences and maybe a case if you have gigantic institution, and whether you make toys or a financial institution, and you have 100 innocent employees and make a product and one bad guy, we have the basis to indict the company, but if that is an institution that will go out of business and you employ 100,000 people, and shareholders will lose billions of dollars and you have to take it into account. >> and even if they are guilty as hell? >> well, you have to take it into account. one individual at a 100,000-person company is one thing, but the analysis of the factors that we take into

account whether it is pervasive, whether they have learned lessons from the past, and whether or not they have cooperated fully or measures to improve themselves, and all of those things in account, and you will see, and we are thinking about and i hope people appreciate that we are thinking about bringing, you know, holding institutions accountable and not just individuals, because it sends the message of deterrence. on the one hand, it is perfectly appropriate to say that the bad guys guilty of the crimes at the institution should be held accountable, but people should be made to understand that there are appropriate times when the institutions should be held as well because they looked the other way and didn't stop malfeasance or allowed it to happen time and time again and get a slap on the wrist, and pay a penalty and they don't have to plead guilty, so that is not always correct. >> well, you could look at the s.e.c., and say, that it is,

i've had it, three strikes, you are out. i'm going in. >> all i'm saying if you are an institution that has on multiple occasions committed misconduct, and the first time a fine and the second time a fine and the third time a fine, at some point you have to be held responsible in a more serious way, otherwise, you won't get the message, and when the institutions are making unheard of profits from before, and in order to have a deterrent effect and for people to understand that there is pain involved in committing crime and allowing the crime to be committed and you don't learn from the lessons, there has to be some extraction of the penalty there. that is often going forward with a criminal report. >> and jamie diamond said individual bankers who were bad actors and he was surprised they were not punished and you gave us the statutes that what

occurred in 2007 is fair game. and should some of the execs fear what you are doing right now in your office? >> yes. >> they should? >> well, no -- look. people should be fearful of bad conduct that they have committed catching up with them. people should have a healthy respect and fear of the law. that is what causes deterrence and if you have done bad things and looking at the clock to see if you are safe and going to have repose at the stroke of midnight on a particular day, that's not a good way to conduct yourself. yeah, people should be afraid that the bad acts committed in the past will catch up with t m them. >> you talk about the office calling in people, and not necessarily you, but people in the room would be shocked of some of the people getting in the back door lately from the big banks that did things four or five years ago where everybody thinks they are scot-free because the statute of limitations would make them?

>> well, first of all everybody comes through the front door and not the back door. i don't know how many people are reading. >> well, you had a suitcase of subpoenas, and you know -- >> well, i had a lot of subpoenas on the way over here and on the way, i ran into corrupt politicians, so i ran out. >> well, okay. seems to me there are fewer tips or perhaps people are using better technology, and my daughter and i snap chat and disappears in three seconds and can you buy leap wireless at 3:45 on friday and get away with it, because you don't have the technology to stop it? >> i don't know what you are talking about. have your daughter call me. >> it is a technology that allow allows the message to disappear in three seconds and post is untrackable. >> okay. look -- i always learn when i come on the show. >> okay. do you snap chat? >> look, technology, and to answer it in a different way,

technology is a big deal. you know, interactive trading is a crime of communication, and other crimes are often facilitated by communication, and law enforcement is always trying to take the lead and always trying to stay a step ahead of the bad guys and to the extent that people can find ways to communicate by im or snap chat, law enforcement needs to think of that and one of the reasons that i engage and the predecessors decided and we defended the wiretaps for the insider trading case is because of that, because it is easy for people to get away with the crimes, but nobody should feel safe because of a particular method of communication, because aside from that, i am not sure if you would flip on your daughter, but if there were wiretaps involved human beings are human beings, and if we get evidence against a certain person, you have to be worried that the government is listening in real time but that the

counter party, the partner in crime will reveal all of the communication you have engaged in, and prosecute for that, so nobody should feel comfortable regardless of the method of communication. >> and let's talk about the wiretaps and i decide to go back into the hedge fund business and i set up a compensation system where they make fortunes if they get the ideas right. so i tell them not if get illegal tips and frozen, and don't seek them. i say, i never want to hear about it, you have been warned. you tell compliance to warn these people, and yet these these same people whom you do not know trade on the inside information and tell you that they had a good fundamental reason to buy. and if i set up the hedge fund like that, would i be indicted and should i be indicted and will i be convicted? >> well, can we go back to the snap chat? well, everything depends upon

the circumstances. there are lots of situation where is the compliance programs are lip service and on paper and nobody cares and everybody understands that they are not to be follow and used in a conference room with pros ecutos when you say, don't indict us, because we are have a thick compliance program and people understand what that means. in particular circumstances, there are cases where people are blameworthy and culpable, because they have allowed it to happen or knowledge of things that were happening and because they used the code words when they wanted inside information or for other reasons, and it depends, depends upon the facts and the circumstances and it is not always the case that you will be able to charge everybody that you think is responsible for something, because people are smart about how they insulate themselves, and that is true in the mob, and true in government when you have public corruption, and true at hedge funds and true at financial institutions. people are smart. >> and the hedge fund you described is classic rico act, and conspiracy going on and

multiple people indicted at the hedge fund. they do not flip on the guy at t the top, but it is a criminal enterprise and at what point is it not a criminal enterprise that people are indicted. >> total hypothetical? >> yes, it is total hypothetical, and i will start after the contract is done? >> well, it depends upon the institutions, and there wruns that you have not read about or and we are thinking of bringing the action against. and we hear from the companies whether they manufacture products or whether or not they trade in stocks to figure out whether it is appropriate to bring a case against the entire company. it is a rare use of the power. we have a lot of power to bring the cases like that, and we don't do it a lot because of the lesson of arthur anderson and we care about the interest of justice requires and collateral ko consequences, but there are circumstances in which it is appropriate to do particularly with continued malfeasance over a long period of time with a

large number of people and it is appropriate to bring an action again against the institution, itself, and not just the people, so people learn from that. >> it has not happened. yet. >> the day is young. >> fair enough. subpoena power, and you talked about it last year. and there is a guy going to be elected and have all of the subpoenas he wants eliot spitzer, and when he brings a case on behalf of the city that he believes is insider city, but a the city has a position with that name, you sit down with him, or do what he wanted which is what he did with the fcc the last time. >> he is your roommate? >> well, he was across the hall with me, but maybe not that relevant. >> we work with public officials all of the time, and the state i.g.s and the moreland commissioner appointed by governor cuomo, and district attorneys and people doing good work and want to work was, and capable of unearthing bad things that we have the responsibility for policing, and we do cases together all of the time.

>> so you don't worry about a hijacking situation? >> i don't worry about hijacking, no. >> fair enough. >> should i be worried about the hijacking? i don't think that i should. >> well, i did a lot of work with elliott for the first time around when he was running for state u.s. attorney and he didn't care, because he had an agenda, different agenda. >> well, you know, we do what we do, and we keep the heads down and do our work and that is what we are going to do no matter who is in office, and whatever position, because people have come and gone in the time i have been u.s. attorney, and we will work with anybody who is prepare paired to work with us. >> you talked about in the beginning that the press is not that great and playing the parlor game and figure ott when and who, and what should the press be doing, and for instance jim stuart wrote an article saying, how many times does somebody have to do wrong before

the u.s. attorney acts? and looking at eamon javers who made a report. >> well, i think that we will snap chat. this is incredibly important. the press helps democracy, and america, and i have said it in the public corruption context and the fraud context, reporters who can do investigative work and shine light on activities is very important. we have brought cases and regulators have brought cases, because sometimes it is the press that hits upon bad conduct. it is the press that pointed out that members and staff of congress may not be susceptible to the same insider laws like others, and that passed to law like hot knife through butter. and my worry is that the press is not as it should be, but we are prosecutors and we have a

lot of power and with that power is responsibility. same is true with the press. the sprpress is the only institution mentioned in the constitution, because it is fraught with responsibility. most people in the press do a great job, but what i am worried about in the financial press is people who believe that the best scoop to get and report on is that 8:00 before it is happening so and so is indicted or charged or so and so is not subject to a particular statute of limitations which is interesting an fun reading. but a, it is not right, and b, destroys the reputations when they should not be destroyed and mistakes are made, and the reason that we are careful about what we say publicly is precisely that reason. better way to expend energy would be with a great reporting like this is to show that where there is bad conduct and fraught happening and people are not paying attention to things and whether it is the pharmaceutical

industry or the hedge fund industry or something else that we can bring our efforts to bear on that, and simply being a day ahead of who is going to be arrested and what place and having the cameras outside, i am not sure if that accomplishes a lot for the public. >> how do the stories appear? i can't tell you how many times i have read the story and the elephant in the room, and steve cohen, and that you have made a deal and the deal has made it so that it is not a prosecution, do you laugh when you read the articles and say, this is unbelievable from thin air and i can't believe i am reading this? >> i cannot refer to any case. and i laugh a lot. i like to laugh. laughing is good for the soul. i am somewhat inquisitive about it, because i will write to folks and say, where did you get this, because i am confident that i have not made a decision on this, and i'm not sure why it

is reported this word, and there are weasel words in the story, and somebody writes the headline like a decision has been made or a thing has happened and you read in the body of the article, you know, eight or nine or ten paragraphs down, it is likely or unlikely that something is going to happen, and that tells me that it is not somebody from my office, but people engage ingin the speculation, and people know about the case, and sometimes it is the other side, and people want to get ahead of the story which is is not to say that anybody is leaking, but it is n unfortunate that these things happen in the press, and most importantly, i don't know who the reporters are here, but you know who you are who have reported that particular people were going to be arrested and there is not enough evidence, and they bear responsibility for ruining reputations when they report that. >> and say somebody said -- that is a conversation with jim cramer and u.s. attorney preet bharara, and a couple of

laughs about the snap chat, and discussing the limitations, and how it can be changed. a comment being watched closely given the things on the u.s. attorney's docket. meanwhile in washington, you will see jeff pencerling addressing ben bernanke who we will hear from in a moment, and there were glowing words in the introduction saying that he has been bold and creative of rescuing the economy from the crisis. >> is there a "but" yet? >> well, this is the thing that this is the last point he is going to be before the committee, because if he leaves office in january, this is the last time, and people are mindful of the historic moment. >> we have the comments that he will make 90 minutes early whether to help the questions be more pointed and to the substance of bernanke's speech, but carl, from last week, the q&a where bernanke is speaking for himself and not the committee could have more surprises. >> well, last time he was hawkish, and not in the prepared

testimony. there is maxine waters. i want to get a look at the prepared text. we are joined by marty who is a professor at harvard. we are keeping in mind the op-ed that you wrote to for the journal, and seems like you and esther george are compadres of some sort, and do you believe that the article will carry the day? >> well, in the article, i said that tapering should not be made to depend upon the state of the economy. the bernanke position that it is data dependent is in a tough spot. because you can look at the data and say it is getting better, but not better fast enough. the real point is that the large volume of quantitative easing has created very low long-term

interest rates which create real risks for the financial system, and that is why it is important for tapering to begin. >> do you believe that september is what the market is baking in, marty, and do you believe that the chairman will do anything to change that? >> well, i believe he will put a large margin of error around september especially after the housing numbers that came out today. you know, in the prepared testimony he begins by saying that housing has been doing very well. well, that was true until the june numbers came out this morning showing that housing is actual actually off significant and housing starts and multifamily are off sharply 10% in june. so i think that it's going to be very hard for them to say that the economy is strong and therefore tapering is called for. but at some point, before he

leaves office, chairman bernanke would like to see the process start so he can say, i put this new form of policy in place, and we are beginning to unwind it before i leave washington. >> marty, if you read the statement, he is desperate, absolutely desperate to separate tapering from what would remain a very easy monetary policy even if they backdown and they would still be buying bonds and negative interest rates and extraordinarily a complimentary monetary policy even with the tapering, but the question is, can he convince the markets that it is sufficient to support the bond market and the equity market, because it is fixated by the beginning of tapering and the possibility of a major sell-off. >> well, he tried hard this back in may, and again later and in the talk of the nbbr last wednesday to emphasize the fact

that tapering is about the quantitative easing and very different of when they would adjust the federal funds rate. the fed funds number is likely to stay at the current almost zero level until well into 2015. so i am sure that he will try to re-emphasize that into the testimony now. but once he has put the idea of tapering on the table, i think that triggered the market participant s participants to say that we know the long term rates are too low, and they have to go up at some point, and he has told us that the process is going to start soon and i don't want to be the last man holding the long-term bonds. >> marty, in a client note today, he takes both sides of the debate of qe to task. he says that krugman and the people who share his point of view are not honest about the risks associated with the policy, but johnny and the hawks which he says is a '70s rock

band with you and others, and can you say that monetizing the ta tapering easing have had benefits? >> yes, there have been benefits in the housing area. until the beginning of this year, the stock market was moving in parallel to the price earnings ratio which had not gone up. sorry? did you say something? >> no, sorry. marty, go ahead. >> the price earnings ratio had not increased until the beginning of this year, and now it has gone up very substantially in the last six months, and so, yes, the quantitative easing has helped housing and at the same time creating significant risks, and that is the reason that they ought to be changing their policy sooner rather than later.

>> we leave it there. marty feldstein, thank you for joining us this morning. we pivot back to testimony from ben bernanke. >> well, we will take a braeak. if you are just joining us, we are waiting for the fed chairman ben bernanke to start his opening statements in front of the house financial committee, and we will bring it to you live in a few moments on cnbc. ♪ norfolk southern what's your function? ♪ hooking up the country helping business run ♪ ♪ build! we're investing big to keep our country in the lead. ♪ load! we keep moving to deliver what you need. and that means growth, lots of cargo going all around the globe. cars and parts, fuel and steel, peas and rice, hey that's nice! ♪ norfolk southern what's your function? ♪ ♪ helping this big country move ahead as one ♪ ♪ norfolk southern how's that function? ♪

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all right. 16 minute past the hour, and the chairman has not taken the mike at the house financial services committee, and they are working through some audio issues apparently out of the pool feed. when he begins speak, you can guarantee we will bring it to you live. >> carl, before we get to bernanke, cross over the david faber who is of course live at cnbc's delivering alpha conference with a special guest. good morning, david. >> yes, simon. i'm joined by canyon founders john freedman who will be discussing the great rotation. canyon is one of the larger investment or asset manager terms out there in l.a. you are huge in credit, let's call it, but a lot of different derivatives of credit and start

out with the high yield, josh, and if we can, and i look forward to hearing from you later as well. and the yield, in the last month, and of course, watching bernanke, but is it more attractive? is sdwlel w it -- >> well sh, it is more attracti than it was before. the index has gone from 498 which is all-time low to the low 6s today, but that is before you adjust for the losses. so if you adjust for the expected credit losses, you are in the 4s. this is my view and we don't make bets on the directional al ti is that you have a lot of negative optionality built in. and the bonds trading above par and if anything happens, they will get take anne away from you. >> and the call. >> and the rates go up, you have negative optionality, and so it is not a place we are choosing to put our money. >> and now with perhaps commensurate risk, and you have had strong returns over the last

few years, where is that taking you then? >> the portfolio, and the average portfolio is 50 cents on the dollar and nothing like the high index yield now. and we have found that we have to look globally for the opportunities, and we are trying to find the idiosyncratic niches around the world so we are continuing the find the opportunities in certain areas of the aftermath of '08 and the mortgage market and distressed -- >> really? i have heard this many times over the years of the funds like yours that focus in this area, and rbs, and there is still an opportunity in the residential backed mortgage securities? >> well, in june, we had a chance to make substantial amount of purchase, but it is securities there that have twice the yield of the yield index on a risk adjusted basis, and these securities were adjusted in 2006 and before, and there is no more e defaulted mortgages in the pools which today may have 35%

defaulted mortgages in them. once they move through the system at modifications or through a few remaining defaults, you will have a clean portfolio trading today at yields maturing at twice the level of the yield index. >> how much longer does that tra trade have? >> i would say less than a year. there is a desire for the year. and when that tightening takes place, you will get a depreciation in principle. that is one area, and another area that is extremely attractive finally after not much excitement or much opportunity is in the european bank debt. >> why is that? i know you will be discussing this later on in the panel, and i don't want to take away, but tease it and give me a sense of why that is becoming important?

>> well, the banks which are e for the husly important to the local economies that they could not afford to sell the problems without a discount to further impair the capital. today, between the repair of their own balance sheets through good bank/bad bank solutions and equitization of their balance sheets and recovery of prices and plus a little new regulatory regime to divest of some of the pr problems, we are finding a willingness to sell quality bank debt at significant discounts, and face it, the banks are not foolish. they are bright people and they know they are not selling at a high price, but they can do it now and get rid of some of the opportunities, and that is a opportunity for people like us. >> and the crowd is starting to go and i believe that jim cramer

has concluded his interview with preet bharara. i believe that we should talk about credit, because it is such an important area, and thank you for stopping by. >> thank you for the interview. as we wait for chairman ben bernanke to speak, let's bring in our own steve liesman. i understand that caroline maloney said that she wanted maloney to have a third term, but now everybody wants the microphone to work. >> it is a problem and the chairman has started at 10:25 or o1 10:30 and we have the remarks out. and what is he going to say for september? this remark came in, september taper on track, but the fed will reconsider if the data is soft, and where is that saying that

the fed is willing to reconsider? he says that the asset purchases depend on financial and economic go developments and no means a isolated course. and so now can the fed be caused not the taper in september? one other issue out there called the fiscal fight, and i want to take you to the testimony that the chairman uses, the fiscal tight refiscal responsibility and the growth over the next few quarters by more than we expect, and the next one is that the debate concerning other fiscal policy issues such as the status of the debt ceiling could hamper the recovery, and kelly, you do what i do. we look at the chairman's words and try to see what he wants to do. so is he going to loathe or change policy taper in the face of the debate over the debt creeling? >> well sh, steve, we have seen

in the past with people talking about the timing with the relative fiscal cliffs of last year, so maybe a little redou here. >> i talked to jack lew this morning and he says we won't go through it again, so take whatever forecast you want. >> okay. steve liesman joining us to talk about the chairman on the hill, and as we said, he is set to testify live at any moment, and we are set to bring it to you live. don't go away. we've completely integrated every step of the process, making it easier to try filters and strategies... to get a list of equity options... evaluate them with our p&l calculator... and execute faster with our more intuitive trade ticket. i'm greg stevens, and i helped create fidelity's options platform. it's one more innovative reason serious investors are choosing fidelity. now get 200 free trades when you open an account.

♪ [ male announcer ] some things are designed to draw crowds. ♪ ♪ others are designed to leave them behind. ♪ the all-new 2014 lexus is. it's your move. all right. the chairman has taken the mike. we go to washington, d.c. >> chairman, this is a lot more serious than the members not being able to speak.

>> i would hate to be the audio video guy kneeling before the chairman of the fed to fix the microphone. these audio issues have plagued this hearing since the top of the hour, and normally when bernanke takes his chair, he begins right away. and we will see if they have fixed it at this point. we are not sure whether or not that is actual congressional boilerplate, simon, or they are killing time. >> yes, and they are release of 8:30 of the testimony, and the most broadcaster of the event is c-span and we are taking a live full speed there and it is not a cnbc microphone that has gone do down. >> and it is not necessarily the broadcast as much as the what is happening in the room that is

the issue there. >> and we had a 9-0 vote for the bank of england for further qe, and so it has been killed off by another central bank before the fed, and so it is not the first to exit completely as the discussion continues about tapering. >> they gave more support for the guidance which the bank of england has recently adopted and bernanke has em phasized in the remarks that along with qe, and forward guidance, it is with the accommodation of forward policy and whether when those two things end, it will amount to a tightening remains one of the questions that people are debating. >> can i point out that the data book is going to be released this afternoon, and at 2:00, and so that will assume that the tape sr is still in place. >> and now we are joined by midtown manhattan steve liesman who -- oh, at headquarters, and this is not how you want to go

out if this is the last appearance. >> well, it is memorable, and the one where the microphone did not work and the testimony is not delivery, and bernanke would be fine to have his testimony stand and not answer the questions. i want to know how much of the questions get into the finaler points of the qe that the market wants to hear, and the guys in the house are interested in promoting the political purposes, but simon hit on a question there that i believe that the next set of data, the july set of data is decisive for september. i think that the fed is willing to write off the qe2 weakness with regard to whether the acceleration if it happens the fed is on tap for a september tapering, but however, with the june weakness going over to july, we will be recalibrating. >> and steve, what about the possibility to move the goalpost on unemployment further down and twice hinted that they would

perhaps want to target a lower rate of unemployment, and can that be signaled later today? >> that is something under consideration, and the minneapolis fed chair mma maman made that, and now with qe and forward guidance is a separate tool which is a development that has happened in the last couple of years in the monetary policy. >> we should point out that the cables appear to have been changed, carl. >> well, as a musician, simon, this happens all of the time, and you have to change the cables. >> who among us have not tried to fix the cables under the television. here is the fed chairman. >> i will discuss the current economic conditions and the outlook and then finish with a short summary of the ongoing work on regulatory reform. the economic recovery has continued at a moderate pace in recent quarters despite the

headwinds created by modern fiscal policy, and housing has contributed to the recent gains and activity. home sales, home prices and residential construction have moved up over the past years, and followed by lower mortgage rates and improved confidence in the housing market and economy. rising construction, and home growth are contributing, and household consumer spending while inkreescreasing the numbe homeowners underwater on the mortgage. this is not the withstand the recent increase in mortgage rates, but it is important to monitor this sector carefully. conditions in the labor market are continuing gradually, and unemployment at 7.6% in june and about a 0.5 lower than when they initiated the program in september.

non-farm payroll has increased to 2,000 jobs per month this year. despite that, this is unsatisfactory as the unemployment rate is below the long term level, and rates of long term unemployment are much too high. and meanwhile, consumer inflation has been running lower. and the expenditures rose 1% over the year ending in may. this softness remains in part f factors that are likely to be transitory, and moreover, measures of expectations have remained stable to help move inflation back to 2%. however, the committee is certainly aware that the low inflation poses problems to economic performance and for example raising the cost to capital investment, and increases the risk to out track

inflation. and that should feature into our objective at the time. at the june meeting my colleagues and i projected that economic growth would pick up resulting in gradual level of lowering unemployment consistent with the federal reserve statutorynificant significantly, most people saw it improve to 2016, and they projected the unem moment rates to decline from 6.8% to 2.6% by the final quarter of 2015 and saw the ininflation decreasing. the pickup of economic growth projected by committee participants partly goes to the review of less drag over time with effects of the increases.

and the committee believes that the risk to the economy have diminished since the fall reflecting easing of financial systems in europe, and the gains in the housing and the labor markets that i mentioned earlier and better budgetary position of state and local governments and stronger household balance sheets. that being said, the tight fiscal policy and the restrained economic growth over the next few quarters by more than we expect p or the debate concerning other fiscal policy issues concerning the status of the debt ceiling could hamper the recovery. with the recovery improving at a slow pace, growth may be slower than currently anticipated. with unemployment still high and declining only gradually and with the inflation running below

the committee's objective, a hi higher monetary policy is foreseen in the future. the committee's tool for providing accommodation is the target range for the funds rate, however that rate has been close to zero since 2008 and cannot be reduced meaningful further. instead, we want to provide policy accommodation through two tools. the first tool is expanding the federal reserve's portfolio of the longer term treasury securities and the mortgage-h backed securities and we are currently purchasing $40 billion a month in abs, and $45 billion in treasuries. and that is the plans of setting a target over the median term. over the of all policy framework, we think of the tools as having different roles. we are using the asset purchase and the expansion of the federal reserve balance sheet to increase the near term momentum of the economy with a specific

goal of achieving a substantial improvement in the outcome of the labor market in the context of price stability. we have made progress towards this goal, and with the inflation subdued, we intend to continue the services until the substantial labor market has been realized. when the purchase end, the federal reserve will be holding the treasuries off of the market, and reinvesting the proceeds from the maturing maturities to put the pressure down into longer term interest rates and support the mortgage markets and make the broader financial markets more accommodati accommodative. and we have the forward guidance that the rates will be xhepgs-- exceptionally low -- this is the second tool -- and for the accommodation after the extended period of the asset period ends as the assets strengthen and the more appropriate levels. these two tools can provide the

high level of policy accommodation needed to promote a stronger economic recovery with price stability. in the interest of transparency committee participants ingagreet would be helpful to lay out more details for the purchase program and to provide more information on the progress to date, and the trajectory of the program if it evolves as projected. this additional information did not reflect a change in policy. the committee's decisions regarding the asset provisions program, and the asset policy depended on the asset accumulation program and thus new information as it arrives is thus provisional. as i noted that the income outcomes that the committee saw as most likely in the june projections continuing gains in the markets supported by moderate growth picking upover

quarters as it will decline. if the income data is broadly with these projections, we have said that it is approapriate to prorate the purchases this year, and if the pattern of ongoing pattern of improvement and normalization of improvement we will continue the pace of the first steps of next year and ending mid year. therefore if the economy evolved like we anticipated there would be momentum and unemployment in 7% and inflation near the 2% objective. such outcomes would be fully consistent with the goals of the asset program that we establish ed in september. i emphasize that, because the asset purchases depend on economic and financial developments and by no means on

a pre-set course. on the one hand, you have economic conditions to improve faster than expected and the inflation appeared to be rising decisively back to the objective the pace of asset purchases could be reduced more quickly. on the other hand if the outlook of employment were to be relatively less favorable and inflation moving back to 2% or the financial conditions which have tightened recently were judged to be insufficiently accommodative to maintain the objectives the current pace of purchases could be maintained for longer. and indeed, the committee would be prepared employ all of the tools including a increase in the pace of purchases for a time to return to maximum em plimt in -- employment in a price stability. and the aol second tool that the committee is using forward guidance regarding the path of the federal funds rate. the committee says it intends to maintain a high degree of monetary accommodation for a considerable time after the

asset program ends and the economic recovery strengthens. in particular, the committee participates that it is current exceptionally low target range for the funds rate will be appropriate for as long as the unemployment rate remains above 6.5%, and the inflation and inflation expectations remain well described in the fc1 statement. as i have observed on several occasions the phrase at least as long as is a key component of the policy guidance. this indicates that the numbers of the inflation and the guidance are thresholds and not triggers. reaching one of the thresholds would not automatically result in an increase in the federal funds rate target, but rather lead the committee to consider whether the market and the inflation justified such an increase. and for example, a substantial part of the reductions and unemployment have been cyclical declines and rather than gains

in employment. committee would be unlikely to view decline in unemployment to 6.5% as a sufficient reason to raise the target for the federal funds rate. like wise, the committee would be unlikely to raise the funds rate if they remained persistently on the long objective. moreover, as long as it was short of maximum employment, it remains long objective and well anchored and the target of the federal funds rate once they began are likely to be gradual. i will finish with a brief update on the progress of reforms to reduce the systemic risk to the largest firms. as senator turillo said, they will have final rules on the capital reforms. it will increase the regulatory capitol by establishing a tier 1 ratio, and implementing a

conservation buffer, and the rule contains a supplementary monetary ratio, and buffer that apply to larger interactive banking organizations systemic with the importance and in addition the federal reserve will impose surcharges to the firms with greatest systemic risk and propose the basal three liquidity requirements. and the federal reserve is considering further measures to large international banks including the proposed rule last week to have required leverage for such fifrms. the fed is also working to enhance the provincial standards of the frank/dodd act, and these stress testing and earnings are in place, and we have been actively engaged in the stress

test tests and interviewing the first wave stress plans, and in coordination with other agencies we have made progress on the key issues under the volcker rule. and finally, to prepare and stimulate non-banking firms. last week, the oversight council designated two non-bank firms, and they have a proposal for a third firm that is requesting a hearing before the council. we are supervising the regulatory framework to have business risk, profiles and con sis tent with the requirements of the dodd/frank act. thank you, mr. chairman. i would be pleased to take question questions. >> thank you, mr. chairman. the chair will recognize himself for five minutes for questions. mr. chairman, the first question is in respects the most obvious question. you are aware better than most that as you testified by the joint economic committee on may

22nd, as the "wall street journal" reports the stock market moved up when mr. bernanke's congressional testimony was released in the morning and then went triple gains and then went negative when the minutes were released. on june 19th, at the mere hint of tapering the dow jones dropped almost 600 points in two days, and then recently your comments of july 10th, have seen the s&p hit record highs. a couple of questions result from this. well, a couple of quotes. warren buffett has described our stock markets as a hair trigger waiting on the fed, and dallas president says the stock market is hooked on the drug of easy money. you have described your thresholds as providing guidance

to the market, but you have also qualified that the thresholds provide no guidance as to when or how the polle si will change once those thresholds have been reached. the resent survey of 55 economists by the "wall street journal" gives the fed a d-minus for its guidance. so can you comment on your guidance, and can you comment on mr. buffett and president fisher's comments? >> certainly, mr. chairman. we are in a difficult environment. economically, financially and of course, dealing with the unprecedented monetary policy developments. i continue to believe that we should do everything that we can to apprise the markets and the public about our plans and how we expect to move forward with the monetary policy, but not speaking about these issues would have risked a dislocation, a moving of the market expectations away from the expectations away from the

committee and increased build-up of risky positions in the market which i believe is the unwinding of that is part of the reason for the volatility that we have seen. and so it has been very important that we communicate as best we can what the plans and the thinking is. i think that the markets are beginning to understand our message, and that volatility has moderated. >> i hope you are right. let me change subjects. this committee tomorrow will have a hearing on a bill designed to reform fannie and freddie. the fha put us on a path of sustainable housing policy in america, and the fed a number of years ago released a city study that estimated that fannie and freddie passed on a mere seven basis points subsidy in their interest rates and that is by economist mccasland and moreland

and burgess. >> it was a good study, yes. >> you have been quoted in the past with respect to the gse saying that privatization would solve several problems associated with the current gse program and eliminate the conflict between private shareholders and likely diminish the systemic risk as well, and other private entities would presumably be more innovative than a government agency and they could operate with less interference from the political interests. do you stand by that statement? >> i stand by the view that the gses as constituted before the crisis had serious flaws and in terms of the implicit guarantee from the government that was not compensate and the lack of capital and torn between the public and the private purposes, so i agreed that the gses were a significant problem -- >> let me read another statement. in 2008 you observed that the

gse-type organizations are not successful for mortgage financing and indeed many other countries without thom have achieved home yoownership rates comparable to one in the united states. one of the widely used means is by bonds. do you stand by that statement? >> yes. >> as i understand it, you do believe it is advisable to retain some type of government backstop in times of great turmoil as we saw in 2008. the fed, i believe has put forth its own plan, is that correct? >> no, the fed has not put forth a plan. >> maybe it is federal reserve, hancock and -- >> well, that is a piece of research that is now endorsed by the board of governors. >> regrettably, i see that my time has come to an end. the chair recognizes the ranking member for five minutes.

>> thank you very much. mr. chairman, i'm interested in the survey done by the imf where they reported that the u.s. could be spared more by a more balanced and graduate pace of fiscal consolidation especially at a time when the monetary policy has limited room to support the recovery further, and specifically that imf recommended that congress repeal the sequester, raise the debt creeling to avo ing ceiling and adopt backloaded measures to support long run fiscal sustainability. would you agree with the imf's conclusion that the austerity policies currently in place have depressed growth in the united states, and to what extent can the monetary policy offset the

adverse consequences of the current contractory fiscal policy? >> well, as i have said that the fiscal policy is focusing too much on the short run and not the long term. it includes the sequester, and the tax increases and other measures and according to cbo cutting 1.5% points from growth in 2013. that would mean instead of 2.5% growth maybe we will be enjoying 3.0% growth. at the same time congress has not allowed the long run issue where is the sustainability remains unachieved. so yes, my suggestion to congress is to consider possibilities that involve somewhat less restraint in the near term and more action to make sure that we are on a sustainable path in the long run. that is broadly consistent with the imf's perspective.

you are watching the live testimony of fed chair ben bernanke on capitol hill. no hawkish surprises yet. we will take a quick break and we will return with more from the house financial services committee.

maxine waters leads the q & a with the fed chairman. let's go to the hill. >> -- are able to repay them. >> was there a question? i'm sorry. i can't hear very well. >> he can't hear. >> the time of the gentle lady has expired. >> thank you very much. >> chair now recognizes the gentleman from michigan, mr. huizenga, for five minutes. >> thank you, mr. chairman and mr. chairman. i want to quickly cover three areas. one talk about interest rates. two, talk about too big to fail. and, three, talk about the taylor rule briefly. now, i would be reticent if i didn't pass along a question one of my friends had. should he refinance right now? that's a question a lot of people have. i know i did not that long ago,

but you may answer if you would like. >> i'm not a qualified financial adviser. i wouldn't want to -- >> that might be part of the problem with dodd/frank. if you don't qualify, then nobody qualifies. you know, but i think there is that fear out there with the increase in mortgage interest rates, a lot of us, me coming out of the real estate background, a lot of us finally said maybe we should have been watching what your comments were going to be and maybe they clued in, but what i'm really concerned about is that, and this is at some risk to myself of maybe not having a very warm welcome next time i'm up in new york city visiting some of my friends up there, but i'm concerned that wall street is too dependent on the fed and sort of the signals that you are having while main street is really getting buffeted about whether it's interest rates, tax policy, certainly regulatory policy as well, and we need to make sure that we're moving

beyond that. i'm sure, who knows, maybe the market just took an uptick based on my comments or maybe they took a down tick, who knows. we know they will be following your comments much more closely but we have to make sure this is about main street, not about wall street, and how ths going to be affecting people back home. on too big to fail, we had a hearing last week regarding too big to fail, and president lacquer from the federal reserve in richmond testified about the new restrictions in dodd/frank imposed on section 13-3, an emergency provision the fed used to bail aig out at the time and he said, quote, i think it's an open question as to how constraining it is. it says it has to be a program of market based abscess but it doesn't say that more than one firm has to show up to use it. it certainly seems conceivable to me that a program could be designed that essentially is only availed of by one firm. do you agree with president lacquer and the new restrictions added in 13-3 will not be

effective in limiting the fed's freedom to carry out future bailouts or even if it did, would you have the authority to enforce those limitations? >> so on your first point i want to emphasize we're very focused on main street. we're trying to create jobs. we're trying to make housing affordable. our low interest rates have created a lot of ability to buy automobiles. >> is it fair to say though that wall street has benefited more than main street has? >> i don't think so. i mean, we're working through the mechanisms we have which, of course, are financial interest rates and financial asset prices, but our goals are main street, our goals are jobs, our goals are low inflation, and i think we've had not all the success we'd like but we've had some success. i would like to respond to your second one from president lacqulac lacker. i don't think 13-3 could be used

to bail out an individual firm. according to dodd/frank, 13-3 has been to a broadly based program, it has to be open to a wide variety of firms within a category. it cannot be used to lend to an insolvent firm. it requires both the approval of the board and of the secretary of the treasury to be used, and it must be immediately communicated to the congress. i do not think that 13-3 could be used in that way. >> well, obviously there's maybe some disagreement within your organization, but love to work with you on trying to tighten that up. the other very quickly on our last minute on the taylor. a recent survey give the federal reserve a grade of "d" minus for its guidance. i would hate to see what it had been previously ten years ago let's say, but do you believe that these facts indicate a monetary policy guidance function that needs more work? >> i don't know what the grade refers to. it could be the fact there are many different voices at the

fed. there's a lot of different views, and i think there's a benefit to having a lot of different views. people can hear the debate. on the other hand, if people are looking for a single signal, it can be a little confusing. i think we're doing a reasonable job of communicating our intentions and our plans in the context of a complex monetary policy strategy. >> sorry, i have ten seconds and so i'll make it more of a statement but love to follow up written. there's i think many of us are concerned that when you rolled the threshold guidance out, you described it as a taylor rule like, but many of us are afraid that it may not have as much similarity to a rules-based approach and look forward to working with you on that. thank you, mr. chairman. >> chair now recognizes the gentleman from missouri, mr. clay. the ranking member of the monetary policy -- >> we're keeping a close eye on gold and on the dollar. did you hear what in particular seems to have spurred this latest move, steve? >> no, i didn't hear anything particularly. he was answering questions about -- that he's answered in

the past about the sequester and saying congress is focusing too much on short term and not enough on long term. he answered some questions about housing. it looked to me like i believe it was the euro that began to weaken against the dollar around 10:30. i think he was in the middle of his testimony. you know how this works, kelly. sometimes the market pays attention something that's been out in this case since 8:30 this morning. so i don't know that they're hearing anything particularly hawkish. i think the fed is on track here from listening to bernanke for a september taper, but with questions as to whether or not the economic weakness continues and takes them off of that track. >> sure. it does seem to be those comments, steve, about fiscal policy. is there a sense what he said about expectations out of congress were new information? >> i don't hear it. if anything he was more concerned about fiscal policy than he has been in the past saying he believes it could end up being worse than we've already expected and he's concerned about a debt ceiling fight in the fall. so all of those were sort of

more dovish to my ear, but sometimes, as you know, i hear things differently. >> let's get back to the chairman. thank you, steve. >> again this year the best estimate i have is the cbo's statement of 1.5 percentage points on growth this year. we are not -- i can't say we're concern about how long those effects will last, but our anticipation is that later this year and into next year as those effects become less restrictive that the economy will begin to pick up and we'll see some benefits from that. but, of course, that hasn't happened yet, and we have to keep monitoring that. >> shifting to the housing market, which has been a drag on the economy for the last couple of years, has recently begun to show signs of turning around. do you believe the increase in housing prices provide evidence that the fed's monetary policy is working, and is there a casual or kor lay tiff relationship between the two? >> yes, i think so.

historically the two areas of the economy, which have been most impacted by monetary policy are housing and autos, and those are two of the areas right now which are leading our recovery, and evidently low mortgage rates have contributed. household formation and other factors have contributed, but the housing sector is certainly an important component of the recovery at this point and housing prices going up are not only beneficial in terms of stimulating more construction but they also improve the balance sheets of households and make them more confident, more willing to spend on other goods and services. >> so you are not concerned that recent increases in mortgage rates could jeopardize the fragile housing recovery. >> well, the mortgage rates remain relatively low but they are higher than they were and we have to monitor that. >> and they are inching up. >> well, we'll see how they evolve but we have to mon tefer that and we'll see how housing

and house prices go from here. >> do you believe the labor market in which the unemployment rate hovers just below 8% reflects a new normal as some have suggested? what is a sustainable rate of unemployment in your view over the medium and long term, and what in your view can be done to strengthen aspects of the labor force beyond the rate of employment, including wages, hours worked, and labor force participation? >> no, i think we're still far above the longer run normal unemployment rate. to give you one illustration, the bro jexs of the participants of the fomc suggest that the long run normal unemployment rate might be somewhere closer to 5.2% to 6%, but even beyond that, that amount of unemployment reflects the fact that there are people who don't

have the right skills for the available jobs, who are located in the wrong parts of the country. so training, education, improving the functioning of the labor market, improving matching, there are things that can be done through labor policy, labor force policy, that could even lower unemployment further than the fed can through just increasing demand. >> so say, for instance, in the african-american community where male unemployment hovers around 13% or 14%, you think the labor department and community colleges and others need to do a better job of connecting job training to targeted growth industries? >> i have seen some very good programs where employers, community colleges, and state governments work together to make -- to try to link up people

with jobs and the community college provides the right training. >> my time is up. i thank you. >> time of the gentleman is expired. the chair now recognizes the gentleman from alabama, the chairman emeritus of our committee, mr. bachus. jive not seen a lot of discussion with the treasury issuance with the deficit coming down. it seems like that would give you more latitude to reduce your purchases of treasuries. would you like to comment on that? >> well, the fed still owns a relatively small share of all the treasuries outstanding. it's true that as the new issuance comes down, that our purchases become a larger share of the new flow of treasuries coming into the market, but we

have not seen that our purchases are disrupting the treasury market in any way, and we believe that they have been effective in keeping interest rates low. that being said, as i have described, depending on how the economy evolves, you know, we are considering changing the mix of tools that we use to maintain the high level of accommodation. >> but the fact that they are -- will be probably issuing less is, i think, a factor that you're considering i guess. >> we would consider that, but, you know, again, our view of it, which, you know, people disagree, but our view is that what matters is the share of the total that we own, not the share of the new issuance. >> all right. chairman bernanke, you mentioned last year in jackson hole that you viewed unemployment as cyclical. do you still believe it's cyclical and not structural. >> like my answer a moment ago,

i think that probably about 2 percentage points or so say the difference between 7.6% and 5.6% is cyclical and the rest of it is what smeconomists would call frictional or structural. >> okay. so the your studies you think maybe 5% structural and 2% cyclical? >> most important ly, so far we don't see much evidence that the structural component of unemployment has increased very much during this period. it's something we've been worried about because with people unemployed for a year or two years or three years, they lose their skills, they lose their attachment to the labor market and the concern is they'll become unemployable. so far it still appears to us that we can attain an unemployment rate, we the country, can attain an unemployment rate somewhere in the fives. >> the most recent fomc minutes didn't specifically address the 7% unemployment target, but you

mentioned it in your press conference after. was that 7% target discussed and agreed on in the meeting? >> yes, it was. 7% is not a target. it was intended to be indicative of the amount of improvement we want to see in the labor market. so i described a series of conditions that would need to be met for us to proceed with our moderation of purchases. we have -- we have a go-around where everybody in the committee, including those who are not voting, get to express their general views, and there was good support for both the broad plan, which i described, and for the use of 7% as indicative of the kind of improvement we're trying to get. >> okay. thank you. the fom kc, their assessment of

the longer run normal level of the fed funds rate has been lowered. do you agree with that? >> well, a rough rule of thumb is that long-term interest rates are roughly equal to the inflation rate plus the growth rate of the economy. the inflation rate we're looking to get to 2%. to the extent that in the aftermath of the crisis and from other reasons that the economy has a somewhat lower real growth rate going forward, that would imply a lower equilibrium interest rate as well. >> you mention gdp, also estimates continue to come into. they were too optimistic. >> yeah. >> i think earlier you said you believe one factor is the policy decisions made by congress to a certain extent, sequester and failing to address the long-term structural changes in the entitlement programs. >> that's right. although i should say that we

all should keep in mind that these are very rough estimates and they get revised. for example, you get somewhat different numbers when you look at gross domestic income instead of gross domestic product, but, yes, as i have said a couple times already, i think that congress would be well-advised to focus more on the longer term. >> thank you. >> time of the gentleman is expired. the chair recognizes the gentle lady from new york, miss maloney. >> it's my understanding that we are going to people that did not have the opportunity to ask questions at the last one, so the next person would be mr. perlmutter. >> mr. perlmutter was next on the list, not miss maloney. >> happy to do it. it's just the list that we received from you, but we are very happy to recognize the gentleman from colorado for five minutes. >> i thank the chair and i think

the gentle lady from new york. mr. chairman, it's good to see you. as always, i think i just want to compliment you on being a steady hand through all of this. i mean, in terms of fiscal policy, we had a very expansionary policy to now we've had a very contractionary policy, and to sort of piggyback a little bit on mr. bachus' question and mr. clay's, and i'm looking at page 11 of your report where it says that the congressional budget office estimated that the deficit reduction policies in current law generate 2.25 percentage point narrowing in the structural deficit will also restrain the pace of real gdp growth by 1.5 percentage points this calendar year relative to what it would have been otherwise. what is 1.5% of real gdp mean in terms of jobs and wealth and -- i mean, 1.5% is just a number.

what is that? >> it's very significant. the cbo also estimated that 1.5 percentage points was something on the order of 750,000 full-time equivalent jobs. i think with another 1.5 percentage point of growth, we would see probably unemployment down another 0.7% or 0.8%. it's very substantial. we're hoping as the economy moves through this period that we'll begin to see more rapid growth later this year and into next year. >> okay. so let's talk about you have a graph, and i don't know if you have your report in front of you, but the graph on the preceding page ten, graph "a," totally and structural budget deficit 1980 to 2018.

do you see that? >> yes. >> can you explain that graph? it looks to me at some point you project or there is a projection here of no structural deficit in about 2017-'18. what does that mean? >> that means that taking away the effects of the business cycle, the business cycle causes extra deficit because with the economy weak, you get less tax revenue, you have more spending on social programs of various kinds. what that's saying is that if we were at full employment, that in 2015 i believe it is the structural deficit would be close to zero. that's a cbo estimate. >> okay. i now kind of want to turn to some other questions, if i could, and mr. huizenga and mr. clay were also asking you about interest rates, and you said we're at historically low

interest rates, and i would recommend to you and you probably know an app that you guys have that i can get on my ipad is called the economy and it shows -- this one shows how we've been doing over the last 40 years, and we are -- it was way up here in like 1980 at about 18%. and then way down here at about 3.3% about two months ago, and so we have come way down except that in the last two months, see what's good about this app, you can also do it on a one-year basis, and on a one-year basis it shows that from april 2013 to the end of june, we went about straight up, about 33% increase in trf rates, which was from 3.3% to about 4.5%. >> you're talking about mortgages now? >> mortgage rates, yes, sir. so how does that come about? >> well, there have been three

reasons for it. the first is that the economic news has been a little better. for example, there was a pretty strong labor market report that caused the yields to go up as investors became more optimistic. a second factor is probably that some excessively risky or leveraged positions unwound in the last month or two as the federal reserve communicated about policy plans. the tightening associated with that is unwelcome, but on the other hand at least there is the benefit of perhaps reducing some of those positions in the market. >> the concern i have, and i think was expressed by both mr. huizenga and mr. clay, is that one of the underpinnings of this recovery you have said is now housing is beginning to really get much stronger. it was historically so weak. but this kind of increase, if it continues, is going to slow that down, wouldn't you agree? >> i agree we need accommodative monetary policy for the

foreseeable future and i said that. >> thank you and thank the chair. i yield back. >> chair now recognizes the gentleman from california, mr. miller, for five minutes. >> mr. bernanke, welcome. i want to thank you for listening us. on a recent ruling in basel three, you ak acknowledged insurance companies are very different from banks and you postponed any decision about that. you're aware the committee is about to consider the reform bill. you had a hybrid situation where the private sector made all the profits and the taxpayers took all the risk, which was problematic from the beginning. you can go back to a time when you could say they performed their function very well. but they created major problems in recent years. they didn't adhere to underwriting standards. they were buying predatory loans rather than conforming loans. they were chasing the market rather than playing a counter

cyclical role and that's been very problematic. but now we look at a situation and say what do we do and where do we go? and if the u.s. were to end the function of the gses as it applies to conforming loans, would the private market be able to provide liquidity to the market and, second part of that, what about the time ever crisis? would investor be there to purchase mortgage-backed securities and would interest rates tend to rise in that type of situation? >> let me first say i agree with your analysis of gses and the fed for many years was warning about lack of capital, the implicit guarantee, the conflict between public and private motives and so we agree that something needs to be fixed. there are a number of plans out there for reform. i think one of the key questions i think everyone agrees one of the key questions is what role, if any, the government should play. it seems pretty clear that the private sector should be playing more of a role than it is now. right now we have basically is

government-run mortgage securitization market, but in order to protect the taxpayer and to increase efficiency, to allow for more fro duct innovation and so on, we'd like to have more market participation. the question is what role should the government play. i don't know the answer to that, but i would say that, first, that if the government does play a role, that it should be fairly compensated. that is, instead of having an implicit guarantee it ended up having to make good on like the fdic or similar institution, it should receive some kind of insurance premium. >> on that i think it's important because i have argued for a position where if you're going to have a conduit, a facility to replace the gses, then -- >> a quick commercial break now. we will pick up with the chairman when we return. ♪ norfolk southern what's your function? ♪ hooking up the country helping business run ♪

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welcome back to our live coverage of fed chairman ben bernanke before the house financial services committee. our senior economics reporter steve liesman has been with us throughout his appearance. the first appearance, of course, of two this week. steve, what stands out to you? >> right now just so you know during the break they were talking more about fannie mae, freddie mac. there's a lot of concern in congress, a bill coming through the senate and now one in the house on reforming fannie mae and freddie mac. a couple quick things.

congressman bachus asked an interesting thing. whether the declining issuance of treasuries from the government would change the quantity of purchases from the federal reserve and bernanke saying it didn't sound like it was going to be a factor. his concern was not with how much of new issuance it was taking but with the percentage of the total treasuries out there. so that was a factor that could have affected qe but bernanke dismissing it. modest concern by bernanke on mortgage rates, suggesting they were higher because of economic reasons, better economic outlook but saying it is something they need to monitor and later talking about higher interest rates and that the tightening was unwelcome. back to you guys. >> thank you very much. beyond na the major takeaway, his belief that the markets are beginning to understand, he sats, the message he's delive deliveri delivering. let's return you to capitol hill. >> -- of government support. you know, that's really what has

created opportunities for middle income potential homeowners from getting into the market, and as we're grappling with this gse reform, i'm concerned about what happens to rates. i agree with mr. miller, there seems to be some requirement of a backstop at some point, and obviously you want the taxpayer to be as far back as possible and that the initial cushion or the initial loss if necessary be absorbed by the private sector, and we're trying to figure out a way of preserving an affordable 30-year fixed mortgage, keep that market going without having the taxpayer take all that risk up front. that's what we're trying to grapple with. i'm wondering if you can help us with that. >> well, earlier the chairman

asked me about passing on subsidies to the consumer. i don't think that government backstops are very effective in lowering rates unless they have a control, unless they have a price control on the interest rate -- >> isn't that a function of risk though? if the private sector knows that certain -- at a certain point like with the terrorist risk insurance that we debated here, because the industry knew there was a backstop beyond which they would not be responsible, it did, in fact, result in a lower rate. >> right. to some extent but a lot of it doesn't get passed through. what i was going to add though was the argument for thinking about government participation is exactly the situation like we faced the last few years where there's a big housing problem, and private sector mortgage providers or security advertisers are for whatever reason not willing to act counter cyclically, then is

there a role for the government to sposh thsupport this process. the question we were discussing, if that's going to happen anyway, is there a case for setting up the rules in advance in some sense and figuring out what the government ought to charge for whatever protection it is prepared to provide. >> okay. well, sir, i want to thank you for your service. you know, i have heard stories this might be your last appearance before this committee for this purpose, and, you know, i think you have served us very well under very, very difficult circumstances. >> thank you. >> and i appreciate your service to your country. >> thank you. >> i yield back. >> the gentleman yields back. the chair recognizes the gentleman from california, mr. royce. >> thank you, mr. chairman. chairman bernanke, i think the risk weighting at the end of the day is only as good as the metrics that we develop. i'm thinking back to basel one and now we're looking at the

final basel three. the basel three includes a risk weighting of 20% for debt issued by fannie mae and freddie mac and the rule includes a risk weighting of zero for unconditional debt issued by ireland, by portugal, by spain, by other oecd countries with no country risk classification. both of these risk weightings are in my memory identical to the risk weightings under the original basel one. so my concern is that we should have learned a few things about those metrics given the consequences of the clear failure, and yet here we have the accord of 1988 looking an awful lot like this particular accord. given what we have experienced,

the failure of the gses, the propping up of many european economies, do you think these weightings accurately reflect the actual risk posed by these exposures? >> so basel three and all basel agreements are international agreements, and each country can take that floor and do whatever it wants, you know, above that floor. we would not allow a u.s. bank to hold greek debt at zero weight, i assure you. in terms of gses, the gse mortgage-backed securities have not created any loss whatsoever. they have to the taxpayer, but not to the holders of those securities. that i don't think has been a problem. it's not just the risk weights though, but basel three has significantly increased the amount of high quality capital the banks have to hold for a given set of risky assets. >> but it still seems to me that

at the end of the day in which -- with respect to what you are working out as a calculation, you have got a situation where high risk countries like spain or portugal, should they receive the same risk weight as exposures to the u.s., and that's the way that would be handled i think in europe, but it just seems that that should have been addressed in the calculus. >> well, one way to address it is through stress testing where you create a scenario which assumes that certain sovereign debt bears losses and calculate capital into those scenarios. that's a bit of a backstop. >> let me ask you another question, and that goes to this issue of the counter cyclical role in the housing market that the government should play, and

such a role obviously would be far better than the role government played during the last crisis which was extraordinarily procyclical if we look back over the greatly ballooned bubble and subsequent bust that was developed as a result of housing policy and a lot of the actions taken. title two of the path act has several provisions meant to allow fha to play that countercyclical role. the goal obviously is to greatly expand eligibility, right, during the path -- if the path act were enacted, and that would get us to the point of that borrower eligibility in such a circumstance. would you agree enabled fha to play an expanded role in times of crisis as suggested under the act will help ensure continued access to the mortgage market

for a great majority of borrowers regardless of the market conditions we might face? >> so i'm not advocating a specific plan. i'm just pointing out we need to think about the situation where there's a lot of stress in the market, and we need some kind of backstop. i obviously haven't studied this proposal, but it seems to me that fha could be structured to provide such a backstop. it would depend on the details, but that would be one way to have the government provide a backstop. >> well, i thank you very much, chairman, for attending the hearing here today and for your answers, and we'll probably be in consultation later with some additional questions. >> certainly. >> thank you, sir. >> gentleman yields back. the chair recognizes the gentleman from texas, mr. green. >> thank you, mr. chairman. and thank you, mr. bernanke, for appearing again, and i trust that this will not be your last visit. i believe that our country has

benefited greatly from your service, and not just the service itself, but the way you have conducted yourself in a time of great turmoil. so i'm hopeful that you'll be back. i would like to for just a moment ask you to visit with us about the issue of certainty and uncertainty, confidence, optimism, because while you may do a lot of things, if consumer confidence or the producers don't have confidence, that can have a significant impact on long-term growth. confidence is important to growth, and i read through your paper, by the way, and i'm very, very excited about some of the things you have said, but i didn't get quite enough on the question of confidence. would you please elaborate a bit? >> well, i think it's quite true

that business confidence, home builder confidence, consumer confidence are very important, and good policies promote confidence. the fed policy, congressional policy, we want to try to create a framework where people understand what's happening and they believe, they have confidence that the basics of mark r macroeconomic stability will be preserved. it is a difficult thing. to some extent it's a political talent to be able to create confidence in your constituents, so nobody has a magic formula for that, but clearly the more we can demonstrate we're working together to try to solve these important problems, the more likely we're going to instill confidence in the public and that in turn will pay off in economic terms. >> well, i compliment you, and i'd like to focus on one aspect of what you said about working

together. i contend that this is an important element in instilling confidence, and i believe that the american economy is quite resilient. it's strong notwithstanding some of the weaknesses that have been exposed, and the reason i know it's strong is because it has survived congress. if the economy can survive congress, i'm confident that it will thrive eventually, but things that we do, repealing continually or attempting to repeal some of the significant aspects of bills that have passed that will impact american people, i'm not sure how much confidence these things engen r engender, more than 30, 40

attempt to repeal the affordable care act, attempt to repeal dodd frank without replacement, attempt to replace the cfpb without a good sense of what the replacement would be. it seems to me that at some point we in congress have to do more to engender the confidence that will cause the american people to want to buy, to want to invest, to want to produce. and i think that congress has a significant role it can play, and unfortunately, we have not, we have not been able to work together to the extent that the american people are confident that we will do things to help create jobs, to help build a broader economy. you have been very focused on jobs, very focused. we have not been as focused on jobs. the legislation that can produce jobs, much of it has lingered and has not had an opportunity

to move forward. i just believe that in the final analysis, your good work, while it's going to be lauded and appla applauded, still needs some help from the policymakers in terms of working together to instill confidence. confidence is needed. i think this economy is ready to blossom, but when i talk to business people, they say to me, we need confidence. we need to know the rules are going to be static and not dynamic. consumers say to me, i need confidence. i'll buy a house when i'm confident that the system is going to remain static and not die naynami dynamic. i thank you for your service and i trust we'll be able to help instill the -- >> full coverage of ben beren n bernanke's conversation on capitol hill after this short break.

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you're watching live coverage of ben bernanke on capitol hill. let's now return to the house services committee. >> -- a variety of things they were concerned about which we responded to, and it's part of our broader attempt through outreach, through meeting with advisory councils and so on to understand the needs of community banks and to make sure that we do everything we can to protect them.

is just goi i was just going to say basel three is aimed at the largest internationally active firms, and mofest of the rule was not relative to small firms. >> you tried to make some accommodation for community banks and i recognize that. i guess my question is, is there a reason that you all -- if you could talk a little bit about why you all concluded you could not exempt them entirely and i guess the second question is -- that i have is do you think, do you think based on your studies or anybody else's studies, do you think that these rules will have a disproportionate effect on community banks? obviously that's the heart of the concern is that the smaller banks have a much more difficult time complying with regulations than obviously the largest banks. >> well, again, i don't think that basel three is primarily aimed at community banks.

the amount of bureaucracy and rules is not significantly different from what they're doing now. in terms of capital, the community banks are already typically held more capital as a ratio than larger banks do, and our calculations are that community banks are already pretty much compliant with the basel three rules. we don't expect them to have to raise substantial amounts of new capital. >> you don't believe there will be a disproportionate effect on the smaller banks in comply with these -- >> smaller banks are disproportionately affected by the entire collection of rules that they face ranging from bank secrecy to variety of consumer rules, et cetera, et cetera. >> you are watching "squawk on the street" with full coverage of ben bernanke's testimony on capitol hill. we also want to alert you to what's happening at our delivering alpha conference in new york city today. we're approaching the moment when we will hear top picks from

big name investors leon cooperman, chris hone, and mark kingdom. cooperman is up first. stay tuned to that. we'll keep an eye on that and bring you all the headlines as they happen. let's take a quick look at how markets have reacted so far to the chairman speaking on capitol hill. it has been a roller coaster day if you could describe that when it's only been about a 20-point range on the dow. we've been up 20, up 3, back up 20, now we're back to just up 3. the question, simon, is whether we stay in positive territory. keep in mind futures were negative this morning before the release of bernanke's testimony in which he did say a few things that caught people as surprisingly dovish. we saw the ten-year fall. >> it's a balanced testimony. there are no hawkish surprises in there for many people and, of course, actually the bond market did well today, partly on that statement at 8:30 eastern but also because of the housing data we had. in fact, we were up 48 points on the dow about an hour ago. now as kelli said we're flat. >> we should mention as well,

we're watching the dollar, watching commodities. it appears to be as much a weaker euro, weaker yen story as a stronger dollar one but we have seen precious metals take it down a little bit. bernanke has made a few comments about fiscal policy. they've touched on issues ranging from monetary policy to the chairman's tenure. they've struggled with microphone issues, talked about housing policy, and, of course, the panel will go to about 1:00 p.m. eastern. >> so far so good given the sort of moves we made may 22nd. let's get back into the bernanke testimony. >> the fed stimulus is roundly criticized by many. can you in a short period of time express what you believe would be the consequences of easing quantitative easing

prematurely? >> again, it's important to talk about our overall monetary policy stance. our intention is to keep monetary policy highly accommodative for the foreseeable future, and the reason that's necessary is because inflation is below our target and unemployment is still quite high. in terms of asset purchases though, i have been very clear that we're going to be responding to the data, and if the data are stronger than we expect, we'll move more quickly. at the same time maintaining the accommodation through rate policy. if the data are less strong, if they don't meet the kinds of expectations we have about where the economy is going, then we would delay that process or even potentially increase purchases for a time. so we intend to be very responsive to incoming data both in terms of our asset purchase program but it's also very important to understand that our

overall policy, including our rate policy, is going to remain highly accommodative. >> thank you. one of your former colleagues, tom hunting from my hometown, has repeatedly warned in papers that he's written that too big to fail is still a major threat to the u.s. economy. he suggests that in the many instances many of the huge financial institutions have gotten even larger. do you think that if we went through again what we went through a few years ago that we would be in a situation where we would almost be required to save the u.s. economy and perhaps even the world economy from a

depression because we'd -- or we'd have to step in again to bail out these major corporations, aig -- >> well, i think there's more work to be done before we feel completely comfortable about systemic firms. the dodd/frank act and basel three and other international agreements provide a framework for working towards the day, which is not here yet, where we can declare too big to fail a thing of the past. but we do have some tools now that we didn't have in 2008-2009, very importantly we have the orderly liquidation authority of the fdic. the federal reserve supports the fdic in that, which would allow us to do a more orderly resolution of a failing firm that would take into account the impact on financial market stability, unlike 2008-2009 when

we had no such tools and we were looking for ad hoc ways to try to prevent these firms from failing. in addition, these firms are now much better capitalized than they were, and we're making other reforms that will make it much less likely this situation will arise. but i wouldn't be saying the truth if i said the problem is gone. it's not gone. we need to keep doing -- need to keep following through on the various programs here, and i think we need to keep doing what's necessary to make sure that this problem is solved for good. >> but the question is -- and i was here as we went through all of this. you know, we didn't have the time, we were told and actually i believe, to, you know, rationally and thoughtfully consider all the options, and my fear is that if something happened, even i agree with you -- in dodd/frank we have

tried to reduce the likelihood this is going to happen -- but i mean what assurance would we have that we would have time for action by the fed, by congress? >> we have the framework now. we have the orderly liquidation authority. >> time of the gentleman is expired. the chair recognizes the gentleman from ohio, mr. stivers. >> thank you, mr. chairman, and thank you for being here today. i really appreciate your willingness to come and answer all our questions. i'm going to try to get through basel three as well as some qe questions and we'll see how my time goes. the first thing i want to talk about is following up on the questions mr. hurt asked, and i'll try to quote you. you said that basel three was not primarily aimed at community banks, and it's clear it's aimed at larger financial instug that is helped create the financial

crisis. i agree it won't result in many community banks having to raise capital but for a few community banks that don't have capital right now where they are -- they have not as much access to the capital markets, it actually could harm them, and none of these banks are going to be too big to fail. nobody is going to come in and bail them out. >> let's bring in steve liesman with the view. so far, steve, on what we have heard this morning. what jumps out at you? >> i think if bernanke had an intention of keeping -- let me lower the tv here -- of keeping the market's status quo opinion of the fed, the one that's been arrived at through the may 22nd policy press conference and through the various speeches, including the nbr last week, that he's succeeded in not changing that. the question becomes, this is what i maintain, had a little argument with simon yesterday about this, does the market now understand the difference between tapering and tightening? bernanke suggested that yes, indeed, the market hass some

sense of that distinction. if he could walk away with that understanding in place without any change, then i think he's succeeded. >> i just don't see how he will know whether that's true. the reason that the market is doing so well is because the data has been actually quite weak recently, and he walked back from the idea that tapering was perhaps that imnebt when last he spoke. so maybe the market is more relaxed, but that may be because it isn't as immediate as people feared. >> yeah. simon, i don't think there's any right answer as to what the market knows or what it understands about fed policy. >> agreed. >> we would probably get an answer when and if the fed made clear a date for tapering and seeing how the market reacted to that. i will concede that there is a little bit maybe more wiggle room in the september taper than there was before he began speaking in that the data has been weak and he did suggest that tapering is not -- or the course of qe is not on a preset course. most of the economists who i read who commented said they still believe september taper is

on track which is why i said i believe july data will be decisive. >> also a question about how they're executing the hearing. the testimony we got 90 minutes ahead of time apparently to allow for better questions, how seeing that? are the questions better? does that appear to have made any difference? >> there's a lot -- no, i don't think it makes a difference. i think congress is going to ask about things that are on its agenda, on its docket. i think fannie mae is in the docket, banking reform. what i think is curious is where is the gop critique of fed policy and qe? i'm not hearing it. i don't see -- it seems like the tea party lost its sort of anti-fed mojo in this regard. i'm not hearing that in the questioning that's out there. i don't know if that -- you should confuse that with believing there's a consensus in congress around qe. i'm just not hearing the kind of pointed questions we heard in the past. >> steve, do you think it's at all because this is more or less one of the last times the chairman is going to be there?

does it have something to do with just the generally better economic backdrop that has taken some of the sting out of those remarks? >> maybe the latter. i'm not sure why you would ask less pointed questions if the chairman is leaving, and i will point out when he was thanked for his service by one of the congressmen and said he had been informed this could be his last -- bernanke's last appearance there, bernanke just said thank you. didn't take that up at all or give us any hint at all about whether or not it is indeed his last appearance there. >> perhaps we haven't heard yet from some of the congressmen who will have more pointed comments or represent the tea party view on this? >> it could happen. it could happen. there's a couple guys and women who i know have stronger views here and we'll see it. look, i'm just trying to find what the story is here and whether or not there's any actually pressure on the fed coming from congress. you know the senate will be less than the house tends to be. >> sometimes there is no story, steve. it is what it is. however, let's get over to josh

lipton for what is happening at the delivering alpha conference today. josh? >> hey there, simon. you have big names making big calls at our delivering alpha conference. leon cooperman just speaking now, omega advisers, giving you ten picks. some of them he divided in three baskets. he called his growth basket. he had express scrips, qualcomm. he said too much pessimism. they got $31 billion of cash on the balance sheet, no debt. they can grow 11% or 12% a year. thermo fisher in that basket. his second basket he called phoenix from the ashes. these are basically turnaround plays. he had quality corp which is a brazilian health care company. he had sandridge energy. said it has proven assets. the market in his opinion not giving the company enough credit. he liked financials. at tlas resource.

guys, back to you. >> let's -- where do you want to go now? let's go back to ben bernanke on capitol hill. >> it could make our trade deficit even worse. i'm quoting you saying right now our concern is that the chinese currency policy is blocking what might be a more normal recovery process in the global economy and it is to an extent hurting our recovery. would you please discuss kind of your views on japan's currency policy and its impact on the economy and do you believe their currency pom licy is hurting th economic recovery in the globe right now. >> there's some fundamental differses between china's policy and japan's policy. china has managed its exchange rate and kept it for many years below the equilibrium level. what they gain we lose

basically. japanese approach is different. they're not manipulating their exchange rate, not directly trying to set their exchange rate at a given level. they're engaging in strong domestic monetary policy measures trying to break the deflaths they've had for 15 years and a side effect of that is that the yen has weakened. the g-20 and the g-7 have discussed these matters, and the international consensus is that as long as a country is using domestic policy tools for domestic purposes, that that would be an acceptable approach. now, i recognize that movements in exchange rates do affect competition. you said you're from michigan, right? so i can see where your concern would come from. i think it's in our interest to see japan strengthen, to see the economy grow faster. it will increase our market there as well as the competitive

supply, and over time if they do, in fact, achieve positive inflation, that increase in prices there will partially offset the exchange rate movement. so i recognize the concern. i don't know how big an effect it has so far. i have talked to a couple people at the auto industry at some of the companies to try to get their sense. but, again, there is a difference which is that japan is trying to expand its overall economy and, therefore, there's a benefit as well as a cost and that benefit is a stronger japanese economy and a stronger asian market. >> well, to pick up from that point, so if you could kind of give me some sense, as you wind down your quantitative easing activities while japan maintains this current policy which is drying down the yen, do you believe it's going to have an impact on american manufacturing and exports as you wind down as they continue that policy? >> it could to some extent, but, of course, as you know, for example, many japanese producers

produce in the united states, and there's a sense that for a number of reasons, including productivity and others, that u.s. manufacturing is actually generally becoming more competitive globally than it has been in some time. so i don't think that would -- that it change in the value of the yen would offset that underlying trend. >> if i could switch briefly, this is another big topic, but if you could touch on it. there has been some recent reports, a recent imf report came out talking about monetary policy and its impact on inequality in the united states and as you know inequality has expanded dramatically, particularly in the last 20, 30 years. in the report they talk about monetary policies having a much more significant role in driving historical inequality patterns in the u.s. than has been anticipated and certainly written about in a lot of the economics literature. do you believe that monitor policy has a significant impact

on inequality as we are seeing it? >> no, i don't think so. i mean, the purpose of monetary policy is, first of all, to keep inflation low and everybody is affected by inflation. and to maintain employment at the highest level the economy can sustain. of course, jobs are critical to the welfare of the broad middle class of americans. so i really don't understand that. it is true that in the short run that some of the tools that we have involve changing asset prices, so higher stock prices and things of that sort. but we can't affect those things in the long run. it's only a short run transmission mechanism that's involved there. >> thank you. >> time of the gentleman has expired. the chair recognizes the gentleman from tennessee, mr. fincher. >> thank you, mr. chairman, and mr. chairman, thank you for your service and for being here today. i'm going to read a paragraph for my benefit probably more than yours to get started and a couple questions. the federal reserve was intended to be a fully independent

central bank and monetary authority. the authors of the original federal reserve act did not want to subject the institution to the whims of politicians but rather set clear objectives for the institution in the interests of fostering macroeconomics stability. that independence has eroded significantly since the 2008 crisis when the federal reserve and the treasury department initially took coordinated steps to stabilize the economy. one perist ebt concern, that is central bankses' independence is infringed upon by the government, fiscal authorities can compel the fed to monetize sovereign debt. a couple questions. with what has happened with quantitative easing i was looking at the dow a few minutes ago, to the chairman hensarling's comments earlier, i think the private sector is addicted to the government money, and anytime you talk about cutting the money off, there's a panic.

because we have our own currency and we can manipulate that currency, unemployment where it is, inflation where it is, with the entitlements in this country where they are, i'm saying a lot here, but will we ever get back to that place of unemployment to 5%? i live in a part of the country in a rural part of the country. a lot of farmers, a lot of ag, real estate. we've seen land prices go through the roof, and one reason i think we have is trf ratinter rates are so low that people that can borrow money, it's there, but that causes problems also because if this thing ever does turn around, how do you stop it? and interest rates are how you stop it, but the country also is in debt up to their eyeballs which creates another problem, high interest rates breaks the back of the country. so i said a lot but are you concerned that pumping the money into the economy when we stop

that, can the country take it, can the private sector react? and how do we do that? >> well, the reason for the low interest rates is because the economy is weak and inflation is low. and even if the fed wasn't engaging in asset purchases, interest rates would still be quite low as they are in other countries for example. one reason that asset markets react to what the fed says is that they're trying to determine whether the fed will provide sufficient support for the economy to get back to full employment. that's our job. that's our mandate is to try -- when the economy is away from full employment, is to try to provide the financial support that will move the economy in that direction. >> do you not think the politics over the past four or five or six years are playing more of a role than they did six, seven years ago. >> no, i don't. your earlier point about collaborating with the treasury and the financial crisis, that had nothing to do with monetary policy. that had to do with the two main

financial institutions in the government working together to prevent a big financial collapse. i think the collaboration was needed there, but at no time during the crisis or at any point did the administration, the congress, or -- >> -- equally now as important as we move through the day. let's get to the "halftime report" and scott wapner. >> thanks so much. welcome to a special halftime show live today from the pierre hotel in new york city at the biggest investor event of the year, delivering alpha. we will continue to monitor the fed chairman's testimony and, of course, the q & a session which can always bring interesting headlines. we'll bring them to you if there's anything we think you need to know about. we have an all-star line up with ready to go with one goal in line. to help you deliver more alpha in your own portfolios. within the next hour we'll be joined by steve cune, head of fixed income for pine river. we'll also have live and exclusive coverag