let's get back to our guest host for the last word. >> taper news actually is priced in the market and stocks will go up because the closet indexes continue to dramatically, dramatically underperform. the first day of every month has represented a third in dow gains this year. i know we got to go. >> thanks, gary. >> right now it's time for "squawk on the street." see you tomorrow. ♪ good thursday morning. welcome to "squawk on the street." i'm carl quintanilla with jim cramer and david faber at the new york stock exchange. futures are steady here, despite an odd combination of mostly negative corporate news. walmart, kohl's, cisco, lockheed. we also wait for janet yellen's confirmation hearing to begin in about an hour. the q & a could get interesting, still right around 2.71.

europe meantime seeing relief after that tough session on yesterday. we begin with fed chair nominee janet yellen's confirmation hearings today. >> cisco reports first quarter sales fall about 300 million short of consensus and warns week emerging market demand could suppress second quarter revenues as well. >> and jpmorgan cancels a twitter q & a with a top banker after being flooded with insulting questions. >> first up, when janet yellen appears before the senate banking committee, she's expected to defend the easing strategy. she says a strong recovery will ultimately enable the fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases. yellen add, "i believe that supporting the recovery today is

the surest path to returning to a more normal approach to monetary policy." we'll bring you live coverage of the yellen confirmation hearing on capitol hill once the fed chair nominee begins her remarks. jim, i see you reading the story right now. things to watch. people say she doesn't do this a lot but she has been a fed governor for 20 years. this is not her first rodeo. >> no. and i think she has real gain and i think the idea that this is something really new for her, she's probably one of the oldest hands in the world in terms of being schooled for a central banker. she comes from the school of thought which says the rest of the government is tightening. i am sure she's reading the lockheed martin story right now. 4,000 people fired, why cut back in government spending? she's recognizing the central back has to continue to put the fuel on the fire. by the way, europe and china slowing. i've been a big believer in europe. >> you have. and china to a certain extent.

>> and china is so symbiotic with europe. >> japan, it was 1.8% gdp growth after a great first half. >> we're the leader in the world. >> doesn't that scare you? >> well, ask john chambers about who's leading the rest of the world. we'll get to that in a minute. >> we did win world war ii. we did become a great manufacturing power. it can happen again in our lifetime. >> world war ii? >> we got that going for us. >> world war ii? >> look, you know what, it's veterans day, it's veterans week. >> i got you. >> i think she's in keeping with the incredible slow growth we have. when these people say it's not right we have the slow growth, they're looking at the history of our country and says we need to provide fuel. >> and kelly knows more than most. on a morning with kohl's and

cisco and walmart is warning about the global economy, some say she's on to thing. >> probably the more interesting thing to watch is what does she say about unemployment here. if you specifically interpret the fed's mandate until we reach full employment, keeping long-term rates steady, keepingin flags steady, 7 pshs -- and thpsh7% steady, it's putting policy makers in a bit of a difficult position. does she spell out the need to look at a broader set of labor market indicators, which she has in the past and bernanke has emphasized as well or does she say as we drift toward 7%, that's going to be the target. we might have been real close to 7% last month. >> the way i like, i'm a little more gloomy about it because i had felt that once you started getting this world locomotive going, you could retreat a

little bit. but everything seems so temporal. walmart, 100 million people shot there. it's not a good number. it's a good indicator. macy's is kind of small compared to them. u.k. is an outlier, kelly. i want to defer to you on this but when you look at the continent, when i look at france, when i look at the unemployment in these other countries, i think the u.k. is doing far, far better. i think the mandate stays the same. >> what do we make of yesterday and the prepared testimony? the bond market zoomed seemed t on it at least briefly. was she saying something unexpected? >> no, but if she had come out a little more hawkish, it might have moved the needle. >> some are asking if you're going to nullify her republican critics, we'll see how the likes of corker respond to her, is it

the nixing go to china this evening? >> that's why you have this morning people are saying her meetings have gone well. she's a pragmatist at the end of the day. this is a data-dependent fed. so whatever happens with the data, that's why the important thing i think to watch is how they articulate which data they're watching and what the levels are that are going to indicate how they exit. this fed has been itching to exit for years. she understands, of course, how weak the economy is. but what i mean is that they would love to be the ones to begin as soon as possible winding down the unusual perhaps but the data keeps confounding that desire. >> i want to go back to a comment that carl made. the chinese were really horrible enemy communist country before kissinger went over there with a

little ping-pong and nixon made it. yellen is the only adult. she's going there and talking to both sides. think about how revolutionary that is. >> she wants to get confirmed. >> that's okay. i still think she's talking to both sides. the last time we had this level of partisanship, which i believe was 1861, no one was there talking to the other side, they weren't going over there to the confederates. but i'm just saying the gulf is so big, how about this adult going down there and confirmation or not trying to find some common ground. again, the federal reserve has been the adult in the room this whole period. this whole period the federal reserve has said we got to save this country's economy. i don't hear anyone else down there trying to think about the economy. >> the difference is the rhetoric we hear all the time but the fed's been the one acting. congress has largely been rendered impotent by this. this is probably the most important economic agency in the world right now. >> she's the most powerful

woman. >> yellen versus merckel, exactly. >> walmart down better than expected 3q numbers. same-store sales decline slightly. they're calling the current retail environment competitive heading into the holiday season. and kohl's miss, comp sales down and a rough fourth quarter last year. >> there had been down swell that this was kohl's breakout quarter. i think walmart is less vulnerable. it started going up yesterday like everything was going up but kohl's is just this kind of -- are you kidding me? you're doing this badly? we thought you were doing well. >> was their last quarter an outlier? was macy's yesterday an outlier?

>> macy's may be execution. they may have executed better. we may be more of a good managemen management/bad management moment. you're seeing walmart being squeezed by costco. costco had plus 5 comps. they reported first. people said only plus 5? now you realize walmart would kill for what gelinas is putting up at costco. >> without a doubt. >> his documentary was better than your documentary. >> as of today. >> i had two. >> you're right. >> i don't even remember what we call that one either. >> i think that we in honor of the thanksgiving because people have to work now on thursday night we shall should run to costco and later run to walmart. >> here's the question some are asking is jcp squeezing some of

kohl's? >> they raised a lot of money, jcp, to basically spend to a certain extent on marketing and -- >> on the backs of a press release saying they're doing better than expected. i'm not forgiving of that. >> no, neither or investors, they sold the stock. >> what, is this like the ride of the -- i'm trying to do some work! >> i hope we get this wireless camera here because we do have some opera singers walking the floor. >> i told them when i saw them, i say do you know how bad your defense is? they say, no, we're here to sing. i said the vikings are singing on their field. >> they're warming up. it's very distracting as we're trying to talk business. we got to get to cisco before we run out of time. >> oh, oh! >> taking a hit in the

premarket. first quarter revenue miss, lowering guidance in the current quarter. >> i'm going to be here in that window but it's probably not going to be in the next year to 24 monies, it would probably be in the two to three window from here is the most likely scenario. that's the request of the board and also it's right for the business. >> they're looking at q2 revenue down 8 to 10. jim? >> i was not able to restrain myself from the squawk hit. i want to be a little more constrained. this was the worst quarter of any dow stock this year. >> this ar? >> this year. i'll give you some stats. i'm going to let the stats do the talking. brazil down 25%, mexico down 18%, india down 18%, china down

18%, russia down 30%. this man has lost control of the company. open rebellion is beginning. open rebellion is beginning on that conference call. he may say he's going to stay there for two or throw years and that's terrific. this stock is going lower. my charitable trust owned this, blowing it out, disaster. made a huge mistake believe persian gulf when they talk about china in particular -- that's lovely. and they talk about slowing sales as a result of worries about spying -- >> that was ridiculous. it was another excuse. apropos of the singers, it's god or dammero for cisco. "lord of the rings." >> i like the german opera.

can i just say that the cisco -- the guidance, they should have preannounced -- >> a day after the ice deal closes, they've taken marketing in a new direction, can you tell already. remember when sea world went public, we had some penguins and stuff. this is new. >> this is lovely. i particularly like her shield. >> i'd like to go back to cisco. they should have preannounced. they should have preannounced. this was not the ride of the valkories call. >> it was down sharply after hours. we'll be watching shares of cisco. another thing we're going to be watching is bruce berkowitz. offering to buy the

mortgage-backed insurance business of fannie may and freddie mac and freeing them from government control. we have an interview later on "squawk on the street." a lot of question, as you might have noticed here, but he's always an interesting interview. >> you'd have to get all the shareholders to agree to it and the shareholders to agree to it. >> they used scepticm, not skepticism. >> we'll see what mr. berkowitz has to say. >> when we come back, a twitter headache for jpmorgan. if you haven't heard about this one, you should. also what lawmakers will ask janet yellen about stimulus.

we'll have live coverage. and one more look at futures and we'll get these vikings, these opera singers to warm up. >> it's not adrian peterson, is it? >> "squawk on the street" will be right back. we route your order to up to 75 market centers to look for the best possible price -- maybe even better than you expected. it's all part of our goal to execute your trade in one second. i'm derrick chan of fidelity investments. our one-second trade execution is one more innovative reason serious investors are choosing fidelity. now get 200 free trades when you open an account. i'm bethand i'm michelle. and we own the paper cottage. it's a stationery and gifts store. anything we purchase for the paper cottage goes on our ink card. so you can manage your business expenses and access them online instantly with the game changing app from ink. we didn't get into business to spend time managing receipts, that's why we have ink.

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in the legendary jackson family. janet reno, janet innepalitano,f course janet leigh and maybe the best janet of all from "three's company," janet wood made famous by actress joyce dewitt. >> meantime, a dearth of good tweets for jpmorgan. they cancelled their twitter q & a session. the company started soliciting questions last week but didn't get many until yesterday afternoon. that's when a number of users submitted a bunch of insulting questions afters onslaught of comments, jpmorgan tweeted

"tomorrow's q & a is cancelled, bad idea, back to the drawing board. here's a question -- what's the best way to get bloodstains out of a clown suit? why did you think this would be a good idea? i have mortgage fraud, market manipulati manipulation, lor rigging and predatory lending, am i diversified? >> that's one of our own. >> if you could back in time what would be the one thing you would tell -- >> going over them, this experience on democracy, i'm calling it a gaffe. >> they were one of the underwriters for the ipo. they're pitching hard to get ali baba. that might be part of it. >> they ought to stick to snap chat. >> wow. by the way, no thank you, $3

billion. >> let's make it $4 billion, do i have 5, do i have 6, do i have 7? you have this double talk. maybe the children have taken over the adults. >> there's a lot of lords, very few flies. there's kind of a moment here where social media has overrun, i think, all banks, whether it be costolo sit hearing and tabita taking over the world, snapshot saying no to 3 billion, jamie dimon saying no to -- >> that's what snap kmchat. having admitted they have a

problem with teens now, it's a way to bring in a new demographic. >> people may think i'm being facetious here. i'm not. if you don't know what these people are thinking or doing, i had open table on last night on "mad money." these people are mobile social cloud. they stand that this cell phone -- i had to put it away because it's too compelling. they stand that the cell phone rules, social media rules and the older people are like, oh, what is that? they're just gomer pyle. they don't get it at all. they don't get it. >> jpmorgan is learning the hard way. someone said it was akin to putting a "kick me" sticker on their own back. the times points out today no one is going to lose their job over it, it's a thinking out of the box strategy and they'll try something else. >> remember a senator -- congressman to sebelius, how do you get fired in america? how do you get fired in america? this thing was such a fiasco but

at the same time i come back and say they didn't understand the power of it. you get fired for stealing money. that's what you get fired for. >> it's not like a completely inept launch of a nationwide web site to have people sign up for health care. >> and who is going to be next to throw themselves on the social media sword? >> don't know. >> you get a 17-year-old in p.r., go to stiefrson, they have a lot of small fellas, you put one of those people on and say we deputize you. you're now ou super future cfo. you have to do something. >> we've had evan speegel from snap chat. here what's he said. >> our focus is creating a great

product that people love to use and monetize that down the road. >> i don't think he's old enough to shave. >> he's 23. >> okay. >> are they being foolish? ala let's say groupon? >> no. >> even groupo oon exceeds what google was ready to pay then for them. instagr instagram ended up being a great deal for google. nonetheless, their founders may look back and say sold cheap. >> it's a gold rush. if you're amazon, you never have to show any earnings and you're dominant. they all want to be amazon. they doesn't want to be ibm. they certainly don't want to be cisco. cisco! cisco! cisco!

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all right, we're moving fast toward an opening bell. let's go to "mad dash." >> lockheed martin is laying off 4,000 people and they're putting it right at the heart of the government. they're doing this because of government spending. this is the beginning of the anant antanti-sequester, this is what you're doing to us. >> the pentagon spending is going to come down regardless, whether it's sequester one or sequester two. >> this is the beginning of the employee impact. >> all right.

bruce berkowitz joining us in about 15 minutes or so. opening bell coming up next.

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[ opening bell ringing ] made it back in time just for the opening bell. jgwpt public opening and cliff notes celebrating its ipo. thank god for cliff notes, jim. >> it was a great name from the old days. >> on the one hand at the open here, we're going to have a slew of mostly negative, high-profile corporate news. will any kind of yellen dovish talk in 30 minutes offset some of that? >> it has. tack a look at europe. europe was up on really bad news today because they got a bernanke thing going over there

now, too. draghi is not going to let that economy go down. japan, economics, they're not going to let that go down. they got the yen back to a hundred. >> they did? >> central bankers are really trying to keep it all together. i think yellen, the s&p futures can offset the companies that did badly because you get other stocks that get floated up on this, mcdonald's, pfizer. >> a lot of things get floated up. i've talked about complacency, concern about earning growth, cisco, i know it's an outlier. i don't know. without qe, without continued belief that it will be there for quite some time, don't you want to pull back a little bit from the equity market? >> yes. because now we're really at this moment where there's a lot of companies that just keep going up on the same number. then you take a look at a walmart. why isn't it down more? is that qe?

is it because people say it's not that expensive. >> you can actually borrow and it becomes accretive. this is a bizarre world we've been living in. they return capital to shareholders as well. >> i'll believe until the day i hear opera on the floor. ♪ ♪ >> can you guys hear that? >> do they have a quarterback? >> by the way, i'd like that every day. why not, you know? >> you sing to yourself in the mirror? >> no, i don't actually. i wouldn't mind hearing some opera every day. carl's tie, look at that, he might rock out at any moment. >> if it was any thinner, it would be a shoe lace. >> look at the market yesterday. we were down and then we flew up. that was alsos mon-- also the my

management business. >> you have to go back to 2000 jim to find a day that was bad as yesterday on cisco. >> i was very upset about cisco. i don't know how you not be upset about it because if you own the stock, my charitable trust owned it, you were just slack jawed. it was -- look, mr. chambers has been around for a long time. they've got a lot of great employees, i know a lot of people who work there but it was staggering. the orders were staggering. i don't know. it's just not coming together at all. >> i want to mention shares of viacom, which are down, even though it does appear to have been a fairly strong quarter across the board really. cable network, u.s. advertising increases up 10%, above estimates, fastest growth since the third quarter of 2011. and yet the stock is down. now of course the stock has had incredible performance this year. we've talked so often about rush of capital being such a key part

of the business for so many of these big media companies pup have a negative cost to capital. remember, can you still write off your interest payments. they're tax deductible. when you can do that, borrow money, buy back stock, generate all this free cash flow to begin with, why not. that's been the key story. >> maybe they're going to be in there buying as soon as they can again because they support the stock en stock endlessly. i don't want to ever say it's illegitimate. this is not done with no volume, all right? but a lot of the purists are saying enough is enough but the purists are not in charge. they're just not in charge. the growth guys who believe are in charge. >> that hasn't stopped some viewers on twitter suggesting that those opera singers, that was the fat lady singing. >> oh, i like that. i like that reference, man. >> i wish i'd come up with that one. >> the bell does go off, the fat

lady does sing. hey, hey, good-bye. >> they rang a bell and they had a fat lady. >> bob pisani's on the floor. >> good morning, guys. most of the time market rumors that try to move the mark, most of the time they're wrong. yesterday in the middle of the day as europe closed, the markets began to lift, put up the dow and a lot of people started saying yellen's testimony might be more dovish than people think. most of the times these kinds of attempt to move the markets, these rumors and things look that, they're all wrong. this time the rumor was actually right and here's the problem with today. the yellen rally happened yesterday. the dow moved about 130 points from the time roughly around noon when i started hearing these comments, wishes what they really were, that yellen would be more dovish, turns out she does and today we're flat on a day if this testimony would have come out i think in the morning, i think we probably would have been up or there wouldn't have

been so many rumors in the afternoon yesterday. that's my point. let's move on and talk about retail earnings. the bottom line is macy's was an outlier so far. retailers moving to down side today, kohl's lowered guidance. i want to point out same-store sales were basically a miss right across the board. walmart down 0.3%. that was below expectations. we were expecting flat to up. kohl's was a big miss, down 1.6%. we were talking about gains of about 1%. it was most of the numbers that i saw. dillard's want at that bad, you see dillard's trading to the up side. i think the lesson of all of this is macy's had a big emphasis on marketing that seems to have done very well for them butch they're the outlier. let me sum up what seems to be

going on. and macy's did a great job. the lower end, middle end consumer is still more stressed and the upper end consumer. and finally it looks like e-commerce is continuing to make a big dent in traditional shopping. put up some of the tech companies, cisco here, networking equipment companies, cisco to the down side and companies around that space also looking weak today. carl, back to you. >> thank you so much. when we come back, an exclusive with fairholme's berkowitz, and we'll take you to janet yellen once she's begins her testimony and gets to the q & a with the senate banking committee. we'll be right back. tdd#: 1-800-345-2550 trading inspires your life.

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freddie mac. bruce berkowitz joins us. >> hello, david. >> people say it's a non-starter, treasury is not going to buy in, congress is not going to buy in. why are you even bothering? >> we've helped before with aig and still have a few billion dollars invested. we think it can work. we're not wall street, we're not washington, we're not greedy. we have no interest in federal support, we don't have any interest in advantages at the cost of others. in fact, we don't need it. we're quite respectful of the current owners. we're unbelievably differential to the political process and

we're flexible to a variety of participants. we want to invest in the future. housing finance is most critical to the american dream and the government wants private capital to invest. we and other owners, we want to invest so we're ready. you know. americans want progress now. so do owners. and we're ready. so let's move forward, let's do it. >> you say you're not greedy, a fair point, though you would under your proposal reequityize the preferred. i think you have $3.5 billion of that preferred. >> yes. >> a lot of other hedge fund owners as well. that's $52 billion there and then you go out and raise another 17, right? >> that's absolutely right, yes. we are quite respectful to the owners and to the past. we understand that the government wants to change the future relationship of the

enterprises with government sponsorship and i understand that and government has every right to do that. but we need to respect the past, we need to respect current owners. current owners can help give everybody what they want. this can be a win for everybody. i really don't understand why we're just standing still. we're ready to do it. i think we can do it and we can, let's do it. >> well, you might say let's do it. i don't know where the treasury stands on this. you haven't spoken to them, have you, bruce? >> well, we're talking with everyone. we'd love to talk with the treasury on it, getting to it. we shall see. with the treasury, with the help of the fhfa, we can get this done, get it done fairly quickly, we can move on, get it done and help jobs. >> you'd create a new company,

newly capitalized that would split off and then the legacy assets from fannie and freddie would continue to run off, that would be done by the government, this would not have a government guarantee. i'm curious, though, the $17 billion you would need to raise under your plan, bruce, have you circled that money? have you approached other investors? do you really feel confident you could raise that much? >> yes. >> and from who? >> i mean, the housing industry is essential. the assets within the companies that have tremendous scale, expertise, people, there are no other -- there are no other group of assets that can perform the job necessary for american housing. so we have the infrastructure, could have the money, we can make a reasonable return. we don't have to be greedy. we don't need federal support. we can give the president what he wants, we can give congress what they want, we can give the american taxpayers what they want.

it seems pretty obvious we can get this done. this is not the first time we've tried. >> at the very least perhaps you'll get somebody to engage here because there has been a lack offin gajment it would see. the holder of preferred would have to roll into your plan. it seems they're uninterested in doing that. how do you convince them? >> the other owners we've talked to are very excited about the plan. our plan is a start. it's a beginning. i'm sure there are others out there with good ideas. we're trying to move the ball forward. enough with the gridlock. let's just move the ball forward and see where we go. we have a lot of people willing to do that. >> meanwhile, we do have a legal case under that i think it's the third amendment. perry led the way on that. your case has been consolidated

as well. that continues also, does it not, bruce? >> the legal cases are about the past. it's about past agreements, past property purchases. it's about the past. this proposal is about the future moving forward. the legal -- the litigation addresses past, the idea about ownership in america, about contracts, about a deal is a deal, you stick to your deals, you stick to your agreements, you can't take property away from someone in the united states. that's what the litigation is about. this proposal is about moving forward the way the president wants to move forward, the way the treasury wants to move forward, the way everybody wants to move forward. we are apolitical, we'll do it any way government wants. we don't have a right to tell government how to change the future relationship. it's all up to them. we're willing to help. let's do it. >> i would just add, though, that it's completely unclear

that they have any interesting in engaging with you on this plan and i likely, i would argues are that itargu argue, that it's not going to go anywhere. >> that would deny common sense. >> it's washington, bruce. it's washington, d.c. defying common sense is what they do for a living. >> when push comes to shove, we get it right. we're going to get it right. we want to help get it right and there are a lot of others out there who want to get it right. let's just do it already. >> what is taking so long to begin with and when do you expect to see any plan from the treasury? regardless of anything you're proposing, when do you think that we'll hear something from the treasury that gets us out of the conservatorship we've been in in a long time?

>> we'll see. i promise i'll keep you posted. >> what do you think about the stock market right here? >> i'm agnostic about the stock market. we're fairholme, we have a portfolio, mostly in financials hurt by the residence property bubble. we're still with our aig position after helping the u.s. treasury restructure that institution. we're still in our position in bank of america, where we've helped in the restructuring of that institution. there are companies still tainted by five, six years ago. they are still incredibly cheap and we stay with them. they're essential franchises, hence their significance, and they have an awful lot to give. over time people are going to

focus more and more on their assets as opposed to their diminishing liabilities. we've had very little movement in the portfolios. our last significant investment has been fannie and freddie because now is the time. >> you've bought even more since we last spoke, haven't you? >> yes weeks have. we have $3.5, $4 billion of its preferred par value and we own the common shares of both. it's clear to us that there's value in all structures. >> what happens, bruce, if the congress decide, you know what, we're just going to wipe that out? >> well, in all honesty, i would have to think about what it means to be an american. >> right, but at the same time,

the government -- they have a fifth amendment right to take that. they can do whatever they want frankly. >> well, in times of crisis, i understand the need to make decisions and our government made some tremendously great decisions in 2008. the decision we disagreed with occurred in 2012 when both companies were making a considerable amount of money. there was no reason to change the deal that took place in 2008. it was a great deal for the treasury, great deal for the taxpayers of this country, going to make a lot of money on it. 2012 the sun is shining, companies are making money again, it's clear that the plans worked. to chang it e it at that junctu makes no sense. i can't think of an example in the history of our country where assets have been taken away from

people in good times. >> johnsgeneral motor. the government and securities took away the gm bonds from the people. >> were they good times at the time? >> no. >> i'm not agreeing with that decision but they were tough times. i'm talking about 2012 when we were recovering. it's unclear to me why that third amendment took place. maybe it was a typo. i don't know. we'll find out. >> bruce, listen, we appreciate your continued involvement in this story. it's an incredibly important one that i think probably does not get the attention it deserves and always appreciate your willingness to come on. bruce berkowitz joining us from fairholme funds. >> trying to get that done is like hitting an 0-2 slider from verlander. >> we reached out to the housing finance agency. they had no comment. >> wow. what a show. >> the president is going to speak on the aca at 11:35. there's a live shot of janet

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let's get "six in 60." >> more on lulu today.

>> it's going buy to sell. >> they say the client's been alienated. >> the regional banks do better as rates go higher. >> morgan stanley. >> endorsing george clean's view saying sony is a buy here. i'm a little worried about that snp. >> johnson & johnson. >> this is a revolutionary blood cancer blood. huge amount per pill. it's a breakthrough pill. it should go higher. >> deutsche on andadarko. >> and when you you see a guy go from hate to love, it usually means something is going on. >> we go to eamon javers. >> we've just been given word

the president is going to step into the brady briefing room at 11:30 to talk about the affordable care act. the white house is not telling us what the president is going to say here. it's been wide by expected the president is going to make some kind of proposal to fix the issue for people who have lost their heath coverage, that's been a tricky issue. the white house has been taking a lot of political heat over it. the question is what is the question going to say at 11:30 that will address this and give democrats on capitol hill, carl, some political cover, which they feel they desperately need. >> it's a lot of news coming out of washington. what's on "mad" tonight? >> pop eyes, as we continue with our hunger games series. and then as eamon javers said, i have to find out what the president is saying, susan is

incredible with that. >> and janet yellen will face questioning and we'll get her testimony live when "squawk on the street" comes back. [ male announcer ] this is brad.

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welcome back to "squawk on the street." you are looking at a live shot of capitol hill whe. miss yellen will begin her testimony. we'll bring it live when it happens. in the moeantime, hampton piersn is live with what we can expect this morning. >> president obama's nominee to head the federal reserve says the economy has gained much of the ground lost since basically the greatest depression since the 1930s but at 7.3%, janet yellen says unemployment remains still too high. in a wonderfully short and well crafted prepared state, by the way, here are a couple of key phrases from her statement. "a strong recovery will

ultimately enable the fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases." . no hints as to when they might begin tapering. first of all, maybe the senators might press ms. yellen on exactly what might be the key data points to begin and we've had stronger numbers in gdp and there was that 204,000 increase in jobs in october payrolls. republicans also may want to know so how long does tapering last and what is the risk going forward of inflation? and i think you could almost have kind of a jump ball between democrats and republicans over this whole notion of the fed's role as regulator post

dodd-frank and this whole notion of regulating so-called too big to fail banks going forward. overall the big challenge for janet yellen is frankly going to be one of communication. can she do a better job of sending signals to both wall street and main street than some of these, shall we say, miscommunication steps in recent months. back to you guys. >> hampton, we look forward to talking it you over the next couple of hours. a lot of discuss about her statement last night, kelly. she appears at first blush to be backing the policy that's already in place. >> if you just parse the way fed speakers are acting this week, we have anything from lockhart's comment saying it could be a december taper because it was strong enough and him typically not one of the more hawkish

members of the fed and you have others continuing to reiterate that the macro conditions aren't strong enough. so she lands in the middle of that. even if you look at yellen as being sympathetic to the way bernanke led the fed, it becomes to as wide a spread as to whether the fed should move now or wait until several months until the transition takes place. >> and discussion about some of the papers offer at the fed that would take that threshold even lower, maybe to 5.5 instead of 6.5. >> a lot of government bond traders surveyed saying what do you think is going to be the unemployment rate. in this case they were saying to raise rates it may have been a normalization. at any case, 5.8%. the 7% targets that initially charlie evans was talking about, the question becomes to those fed papers is it 6.5, is it 6,

is it lower? >> we're still doing 85 billion a month. the fed balance sheet is where now? approaching 4 trillion? >> no, i want to say in the range of 3. >> well above 3. >> just checking in from my seat over here. >> with that in mind, let's bring in former richmond federal reserve chairman joins us this morning. good morning. >> great to be here. >> we talked about janet, the day the president announced his pick. what's important for her today m. >> i think a lot of things are important. in particular, you know, you were just discussing this, we're in i -- i think the fed is in a state of evolution about the two tools they're using now, quantitative easing on one hand and forward guidance on the other. there's a sense they would like to move away from quantitative easing toward forward guidance,

they might reduce the threshold. i think it's going to be important for janet, even though this gets a little bit into the weeds to bring some clarity to that and in particular where she stand on it and how she might direct the federal going forward. >> a corker, a vitter a twomey will take the mic. >> she's a very straight forward person. she has a reputation for being more on the side of accommodation, in the context of a dual mandate, at least at the moment more concerned about labor market conditions than price stability. in some sense that's understandable given the current variable level of inflation.

i expect she will be conformirm and she may be in office for six, seven years. they may be trying to get her some comfort that if inflation becomes a problem later on, it's not one now, that if it becomes a problem, she will act aggressively and promptly to deal with it. i think that's going to be one of her main burdens in this hearing. >> randi, david and i were just going back and forth about the size of the fed's balance sheet. it is quickly approaching 4 trillion. does that matter? >> it's all about the expectations. in principle there's no limit to the size of the fed's balance sheet. if you look at the bank of japan, their balance sheet is much larger as a percentage of gdp thanes u.s. is. it's about confidence going

forward. that's why confidence in the fed chairman and what they're going to do is so important for the marke markets. >> does the size and skrop and what to do with the existing balance sheet matter as what they do now around that, in other words, how much they keep buying -- in other words, can they leave the size what it is in order to keep pursuing their monetary policy objectives? >> the key is the expectation about how they'll be able to manage it. can they maintain a large balance sheet and not cause inflation or loss of confidence? we've seen the balance sheet move from $800 billion when i was there to $4 trillion now. inflation and inflation expectations have stayed low. that's the key job for the fed and chair of the fed, a clear understanding about how the fed

will manage that to make sure they're providing support to the economy without providing inflation. >> at the same time she's inheriting an fomc that's moving more hawkish. she'll be up against the fishers, the lockharts, the williams. will she be up against them? >> she needs to lead. i served with her for a period briefly in the mid 1990s. and she's a strong person and i think she will be a strong leader. there is a lot of discussion and some debate within the committee, that's natural. at times that leads, i think, in public to some confusion and i think janet, who has been in the for front of the fed's efforts to enhance its communication and its transparency, i think she's going to try to -- i don't think she's going to try to stop dissent and debate, but i think

she may act to try to bring more coherence to make sure when there are disagreements, you still have a clear position for the fed and something that can help you maintain credibility, as randy was just suggesting. >> understood. al, randy, thank you so much for your insight as we get ready for the hearing. in the meantime, senator david vitter, republican from louisiana, joins us from the hill. senator, good morning to you. >> good morning, carl. >> how hard are you going to be on her? >> i'm going to ask several questions, particularly about ending too big to fail and also about her free money policy. a lot of conservatives, including me, think that there are diminishing returns on that that are now at about zero with significant increasing risks for the future. >> it's been said that her confirmation is really not in doubt here. do you agree with that? >> look, everybody guesses that she'll get the 60 votes. we won't know until we have a vote. but i don't disagree with that

guess. i still this this discussion is very, very important, particularly about key issues like ending too big to fail. it's not ended. i it's institution aalizeinstitut. there's a report coming out to that i think confirms this and also this unprecedented premoney policy. >> senator, i'll let you go in the room. janet yellen about to take the mic. some have pointed out we've not heard her speak in her new york accent. here's janet yellen. >> -- in different times and in different roles. and am honored to be nominated by the president to lead the fed as chair of the board of governors. i approach this task with the clear understanding that the congress has entrusted the

federal reserve with great responsibilities. its decisions affect the well being of every american and the strength and prosperity of our nation. that prosperity depends most, of course, on the productiveness and enterprise of the american people. but the federal reserve plays a role, too, promoting conditions that foster maximum employment, low and stable inflation and a safe and sound financial system. the past six years have been challenging for our nation and difficult for many americans. we endured the worst financial crisis in deepest recessions since the great depression. the effects were severe, but they could have been far worse. working together government leaders confronted these challenges and successfully

contained the crisis. under the wise and skilled leadership of chairman bernanke, the fed helped stabilize the financial system, arrest the steep fall in the economy and restart growth. today the economy is significantly stronger and continues to improve. the private sector has created 7.8 million jobs since the post-crisis low for employment in 2010. housing, which was at the center of the crisis, seems to have turned a corner. construction, home prices and sales are up significantly. the auto industry has made an impressive comeback with domestic production and sales back to near their pre-crisis levels. we've made good progress, but we have further to go to regain the

ground lost in the crisis and the recession. unemployment is down from a peak of 10%, but it's 7.3% in october, it is still too high, reflecting a labor market and economy performing far short of their potential. at the same time, inflation is running below the federal reserve's goal of 2% and is expected to do so for some time. for these reasons, the federal reserve is using its monetary policy tools to promote a more robust recovery. a strong recovery will ultimately enable the fed toy dues its monetary accommodation and its reliance on unconventional policy tools such as asset purchases. i believe that supporting the recovery today is the surest

path to returning to a more normal approach to monetary policy. in the past two decades and especially under chairman bernanke, the federal reserve has provided more and clearer information about its goals. like the chairman, i strongly believe that monetary policy is most effective when the public understands what the fed is trying to do and how it plans to do it. at the request of chairman bernanke, i adopt the statement of the federal committee's longer run objectives, including a 2% goal for inflation. i believe the statement has isn't a clear and powerful message about the fomc's commitment to its goals and has helped anchor the public's expectations that inflation will remain low and stable in the

future. in this and many other ways the federal reserve has become a more open and transparent institution. i've strongly supported this commitment to openness and transparency, and i will continue to do so if i'm confirmed and serve as chair. the crisis revealed weaknesses in our financial system. i believe that finance institutions, the federal reserve and our fellow regulators have made considerable progress in addressing those weaknesses. banks are stronger today. regulatory gaps are being closed, and the financial system is more stable and more resilient. safeguarding the united states in the global financial system requires higher standards both

here and abroad. so the federal reserve and other regulators have worked with our counterparts around the globe to secure improved capital requirements and other reforms internationally. today banks hold more and higher quality capital and liquid assets that leave them much better prepared to withstand financial turmoil. large banks are now subject to annual stress tests designed to ensure that they will have enough capital to continue the vital role they play in the economy, even under highly adverse circumstances. we have made progress in promoting a strong and stable financial system, but here, too, important work lies ahead. i'm committed to using the fed's supervisory and regulatory role to reduce the thread of another

financial crisis. i believe the capital and liquidity rules and strong supervision are important tools for addressing the problem of financial institutions that are regarded as too big to fail. in writing new rules, however, the fed should continue to limit the regulatory burden for community banks and smaller institutions, taking into account their distinct role and contributions. overall, the federal reserve has sharpened its focus on financial stability and is taking that goal into consideration when carrying out its responsibilities for monetary policy. i support these developments and pledge, if confirmed, to continue them. our country has come a long way since the dark days of the financial crisis, but we have farther to go.

i believe the federal reserve has made significant progress toward its goals, but has more work to do. thank you for the opportunity to appear before you today. i would be happy to respond to your questions. >> thank you for your testimony. will the clerk please put five minutes on the clock for each member. dr. yellen, you know, as i do, that unemployment is not just numbers. we're real men and women. we're ready to work if given the chance. how will you lead the fed to continue to reduce unemployment aggressively and improve the prospects of young americans and others who are unemployed? >> thank you, senator. i would be strongly committed to working with the fomc to

continue promoting robust economic recovery. as you noted, unemployment remains high. a disproportionate share of that takes long spells of unemployment and we know those long spells of unemployment are particularly painful for households, impose great costs on those without work, on the marriages of those who suffer these long unemployment spells on their families. so i consider it imperative that

we do what we can to promote a very strong recovery. we're doing that by continuing our asset purchase program, which we intend -- we put in place with the goal of assuring a substantial improvement in the outlook for the labor market. we're taking account of the costs and efficacy of that program as we go along. at this point i believe the costs exceed -- the benefits exceed the costs. as that program gradually winds down, we've indicated that we expect to maintain a highly accommodative monetary policy for some time to come thereafter. and the message that we want to send is that we will do what is in our power to assure a robust

recovery in the context of price stability. >> what are the dangers of tapering asset purchases too early? if confirmed, how should the fomc move forward on an exit strategy? >> so, senator, i think that there are dangers, frankly, on both sides of ending a program or ending accommodation too early. there are also dangers that we have to keep in mind with continuing the program too long or more generally keeping monetary policy accommodation in place too long. so the objective here is to assure a strong and robust recovery so that we get back to full employment and that we do so while keeping inflation under

control. it's important not to remove support, especially when the recovery is fragile and the tools available to monetary policy should the economy falter are limited given that the short-term interest rates are at zero. i believe it could be costly to withdraw accommodation or to fail to provide adequate accommodation. on the other hand, it will be important for us also as the recovery proceeds to make sure that we do withdraw accommodation when the time has come. my colleagues and i are committed to our longer run inflation goal of 2%, and we will need to ensure that as the recovery takes hold and

progresses, that we will also exit or bring monetary policy back to normal in a timely fashion. i believe we have the tools absolutely to do so. we've been very careful to make sure that we have the tools available at our disposal. and we also have the will and commitment and i look forward to leading when the time is appropriate the normalization of monetary policy. >> thank you. senator. >> thank you, mr. chairman. i'd like to follow up on the chairman's question with you, ms. yellen, with regard to quantitative easing. you've indicated that you feel as long as the economy remains -- i don't want to put words in your mouth, that as

long as the economy remains fragile, we need to continue. the fed's balance sheet will reach almost 24% of gdp in the first quarter of 2014. i'm concerned about the size of the fed's balance sheet and the impact on the economy. it seems there's a disconnect between what the fed intended to accomplish and the results. a pimco executive stated the $4 trillion in quantitative easing may have contributed as little as one quarter of 1% of gdp growth and qe 2 added only about 1.3% to growth and another has indicated that contributes to publ-like markets. how do you respond to the concerns that quantitative easing has limited impact on

economic growth and creating very serious risk in our financial markets? >> so a number of different studies have been done attempting to assess what the contribution of our asset purchases have been, and of course this is something we can only estimate and can't know with certainty. but my personal assessment would be based on all of that work that these purchases have made a meaningful contribution to economic growth and to improving the outlook. certainly long-term interest rates, the purpose of these purchases was to push down longer term interest rates. we have seen interest rates fall very substantially. lower interest rates, lower

mortgage rates particularly i think have been instrumental -- it's not the on factor but it has been a positive factor in generating the recovery of the housing sector. house prices after having fallen very substantially are moving up and i think that's helping substantially many households, including the large fraction of american households who found themselves underwater on their mortgages. it's improving their household finances. i think we've seen a very meaningful recovery in automobile sales spurred in part, again, other factors play a role, but also by low interest rates. >> but how long can we artificially hold -- operate monetary policy given what i consider to be such extreme levels of the quantitative easing? >> so, senator, when we initiated this program, the unemployment rate was 8.1%.

and the committee was somewhat pessimistic about its expectations for what we would see in the labor market over the enusing year. in fact, the committee expected little or no meaningful progress in bringing down unemployment. when we began the program, we indicated that our goal was to see a substantial improvement in the outlook for the labor market. so the progress of this program, it's not on a set course, it is data dependent but we have seen improvement in the labor market. >> but can it just continue indefinitely? i mean, if the labor market doesn't improve to the point that you reach your target, how long can this continue? do you agree that there has to be some point at which we return to normal monetary policy sp. >> i would agree that this,

we're monitoring though very carefully. you noted potential risks to financial stability and those are risks we take very seriously. the committee is focused on a variety of risks and recognizes that the longer this program continues, the more we will need to worry about those risks. so i do not see the program as continuing indefinitely. >> do you have any estimate right now as to when there may be a beginning of the tapering? >> well, we -- at each meeting we are attempting to assess whether or not we're seeing -- we have seen meaningful progress in the labor market, and what the committee is looking for is signs that we will have growth that's strong enough to promote continued progress. is the fomc indicated in its most recent statement, we do see

strength in the economy and we're expecting continued progress going forward. so while there's no set time that we will decide to reduce the pace of our purchases, at each meeting we are attempting to assess whether or not the outlook is meeting the criterion that we've set out to begin to reduce the pace of purchases. >> my time has expired. thank you. >> senator menendez. >> that's mike crapo, republican out of idaho. we will take a quick break. a lot more of janet yellen's testimony on capitol hill in just a moment. [ male announcer ] how can power consumption in china,

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let's get right back to janet yellen's confirmation hearing, being questioned by senator menendez. >> do you think it's a feasible job and something that the fed should be doing? and if so, how would you go about it? >> well, senator, i think it's important for the fed, hard as it is, to attempt to detect asset bubbles when they're forming. we devote a good deal of time and attention to monitoring asset prices in different

sectors, whether it's house prices or equity prices or farmland prices, to try to see if there is evidence of price miss alignments that are developing. by and large, i would say that i don't see evidence at this point in major sectors of asset price misalignments, at least of a level that would threaten financial stability. but if we were to detect some misalignments or other threats to financial stability, in my view i would like as a first line of defense we have a variety of supervisory tools, microand macro prudential that we can use to attempt to limit the behavior that is giving rise to those asset price

misalignments. i would not rule out using monetary policy as a tool to address asset price misalignments, but because it's a blunt tool and because congress has asked us to use those tools to achieve the goals of maximum employment and price stability, which are very important goals in their own right, i would like to see monetary policy first and foremost directed toward achieving those goals congress has given us and to use other fools in the first instance to try to address potential financial stability threats. but an environment of low interest rates can induce risky behavior and i would not rule out monetary policy conceivably having to play a role. >> thank you. >> senator shelby, thank you. welcome, governor.

would you describe the portfolio of the federal reserve as unprecedented, the size of it today? >> yes, senator. >> have you -- you're an economist and you've been on the fed and you also are the chairman of the economic advi advisers to president clinton. have you looking back in recent history, the last 30, 40 years, have you noticed any portfolio of the fed approaching what it is today? >> not at the federal reserve. >> that's what i mean. >> but other central banks. >> i'm asking about the federal reserve of the united states of america. >> no, i have not, senator. >> okay. would you describe what you're doing here by -- you call it quantitative easing, a term you make up, i guess, we all make up terms, but is that a stimulus

for the economy, tool? you used the term "monetary tool", is that what you would call it to help augment, stimulate the economy? >> it is a tool that is intended to push down longer term interest rates. >> yes, ma'am. i understand that. >> and to stimulate demand and spending in the economy, yes. >> is this in the area of economics something that canes and tobins and others have espoused over time, to use monetary tools is to -- >> well --

>> keynes, too. >> i don't know about keynes. a number have written about the balance effect that it's basically about supply and demand, that by buying up a class of assets, that it may be possible to push up their prices and push down their yields and thereby affect financial conditions in the economy. >> it was said several years ago that china was buying our bonds, in other words, we were totally dependent on china to buy our paper, finance our deficits and so forth. but isn't it true that the federal reserve in the last -- since we've had quantitative easing the buyer of our bonds, our paper -- >> well, senator -- >> for the most part. >> we are purchasing a

substantial quantity of bonds and mortgage-backed securities. >> richard shelby questioning janet yellen. we want to interrupt as we get breaking news on the affordable care act. eamon javers is here with that. >> reporter: we're expecting to hear from the president at 11:35 eastern. according to nbc news, a senior democratic source is telling nbc news the president will announce that those people being cancelled because they do not meet obama care standards will be allowed to renew those programs but the companies will be required to tell them about reenrolling and the benefits they will lose. they will be able to keep those plans that up until now have been cancelled but the insurance company will be required to tell

them about other options they have under obama care. this is a late fix to a logistical problem. it's going to be very tricky for the insurance companies, how they implement this in the little time they have left before the beginning of the year. >> this is not indefinite. it's for an additional year, correct? >> i have very limited information. we're going on of what information nbc news has been told by a senior source. we'll get a more full description from the president at 11:35. >> we are also going to fit in a quick break here. when we come back, we'll pick up with plenty more of janet yellen's testimony on capitol hill. tdd#: 1-800-345-2550 ...you see opportunities. tdd#: 1-800-345-2550 at schwab, we're here to help tdd#: 1-800-345-2550 turn inspiration into action. tdd#: 1-800-345-2550 we have intuitive platforms tdd#: 1-800-345-2550 to help you discover what's trending.

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that's...wifi friendly. ♪ let's take you back to janet yellen in front of the senate banking committee in washington, d.c. >> you have spoken compellingly about the real economy. i hope that means a real

emphasis on manufacturing really because its impact is rippling through the entire community. one of my concerns is the fed's monetary policy doesn't do enough to help all americans. a journalist described it as a trickle-down economics, it boosts assets and stocks and can enrich the wealthy and wall street. but it's not clear to me and it's not clear to many americans who have not seen a raise in a number of years that this policy increases wages and incomes for workers on main street. during your time as chair, tell us how you'll ensure that the policy directly benefits places on main street in places like cleveland, ohio. >> our policy is meant to

benefit all americans, especially those seeing harm come to them and their families from high unemployment in a recovery that's taken a long time and been, frankly, disappointing. it's true that in the first instance the policies that the fed conducts when we implement monetary policy drive down interest rates, affect asset prices and you used the term trickle down. we tend to effect interest-sensitive spending, automobile, housing, but the ripple effects go through the economy and bring benefit, i would say, to all americans, both those who are unemployed and find it easier to get jobs as the recovery is stronger, and also to those who have jobs. you mentioned that wage growth

has been weak or nonexistent in real terms over the last several years. as the economy recovers, my hope and expectation is that that would change and, if we can generate a more robust recovery in the context of price stability, that all americans will see more meaningful increases in their well being. >> thank you. i -- as my role on this committee, i spend a lot of time talking to bankers, community bankers, to the regionals like bankers at key and huntington and pnc and fifth third and some of the largest six or seven or eight banks, and i hear a concern from so many of these bankers across the board that too big to fail is -- still hasn't been solved. in march chairman bernanke said

too big to fail is not solved and gone, it's still here. last friday i'm sure you saw the comments of the president of the new york fed, bill dudley, not a populist fire brand hereby said there are deep seeded ethical failures the many large institutions, they have an apparent lack for law, regulation and public trust. he said our current regulatory may not solve this problem and said the doj has eight separate investigations open against the largest u.s. banks alone. do you agree with what i assume you're hearing from bankers, too, and from others and from -- do you agree with chairman bernanke and mr. dudley that a system where too big to fail institutions have, in dudley's words, haven't solved the

problem and what do do you as fed chair to address too big to fail? >> senator, i would agree that addressing too big to fail has to be among the most important goals of the post-crisis period. it must be the goal we achieve. it's damaging, it creates moral hazard, it promotes market discipline and it does unfairly, in my view, advantage large banking firms over small ones. my assessment would be that we are making progress, that dodd-frank put into place an agenda that as we complete it should make a very meaningful difference in terms of too big to fail. we've raised capital standards, we will raise capital standards further for the largest

institutions that pose the greatest risk by proposing so-called sify capital surcharges. we have on the drawing board the possibility of requiring the largest banking organizations hold additional unsecured debt at the holding company level to make sure that they are capable of resolution. right now the fdic has the capacity and the legal authority to resolve possibly using orderly liquidation authority, a systematically important firm that finds itself in trouble. and they've designed an architecture that i think is very promising in terms of being able to accomplish that. so we are working to -- working

with foreign regulators to agree the odds of a successful resolution and continuing to put in place higher prudential standards, capital and liquidity requirements. we've put out a proposal for a supplemental leverage requirement for the largest banks. so i think that this agenda will make a meaningful difference and we're hoping to complete this in the months ahead. >> you said you looked for something potentially something maybe to do further. how will you assess the regs put out, the higher capital standards by the fed, fdic, how will you assess as they go into effect how you need higher capital requirements? certainly the surcharges but how will you assess the

effectiveness of those? >> there are, as you know, studies that attempt to estimate what the too big to fail subsidy is in the market. and while there are a lot of question marks around those studies, we can look to see what's happening there. >> do there is a subsidy -- >> would the senator wrap it up? >> oh, okay. that's my last question. do you believe there's a subsidy, as bloomberg and so many others have pointed out, of the tens of billions dollars a year for the largest banks? >> so i think the -- there are different methodologies that are used in different studies, and it's hard to be definitive. but, yes, most -- i would say most studies point to some subsidy that may reflect too big to fail, although other factors also may account for part of the reason that larger firms tend to face lower borrowing costs. >> thank you. i'm sorry, mr. chairman. >> senator? >> thank you, mr. chairman. thank you, dr. yellen.

i want to pick up where my colleague left off, because as you know, i share his and many others' concerns about too big to fail being alive and well. as both of you noted, there are many studies that document, even try to measure too big to fail, and the market subsidy or advantage that the megabanks have. another is coming out today, g.a.o. is releasing the first study that senator brown and i asked for, and again confirms this in general, it focuses on the huge discount that the federal reserve offered the mega banks during the financial crisis. and the huge market advantage that they got. and specifically, this gao report coming out today said, quote, it recommended, quote, the federal reserve board finalize policies and procedures related to its emergency lending

authority, and establish internal timeliens -- time lines to developing the procedures to ensure timely compliance with dodd-frank act requirements. closed quote. what that means, dodd-frank gives you the ability to wind down the emergency lending authority. the board has not acted on that or even established as far as i know internal timelines to do that. so one obvious question related to this study coming out today -- will you do that as chairman? and when will you do it? >> well, senator, i think that that guidance is in the works, and we will try to get it out soon. >> do you have a general timeframe in mind? >> i'm not certain just what the timeframe is, but i will -- i will try to make sure that that happens. >> if i could just ask you to supplement the record following the hearing with more specifics

about the fed's plan to act on dodd-frank with regard to that. thank you. >> you also mention increased leverage ratios for the biggest banks. i agree that the action you supported in july in terms of supplementary leverage ratio for larger banks was very positive. i do not agree that it's enough, and i think even when you consider the sifi surcharge and other things, more needs to be done. would you support going further in terms of leveraged ratios for the largest banks, or not? >> so i think we will have a a very meaningful improvement in capital standards by going the approach that dodd-frank has recommended, which is higher

risk-based capital standards. it will be a sifi surcharge. we're contemplating a countercyclical capital surcharge that would add to that. we are contemplating additional ways of dealing with problems of reliance on short-term wholesale funding that could take the form of the capital charge that's related to reliance on that kind of funding, or it could take the role of margin requirements. i think a built-in suspenders kind of approach in which we have a leverage requirement that serves as a backup, because there are potential issues with risk-based capital requirements. remember that we also have stress tests which are yet another approach to assessing

whether or not the largest systemically important institutions have the wherewithal to be able to lend -- >> and if i -- i don't mean to cut you off, if i can follow up before my time is up? i understand the other categories, including the sifi surcharge, but considering all of those, including the sifi sur charge, i personally, and others, think you should go further with the supplementary leverage ratio. would you support that as we speak today, or not? >> well, i would want to see where we are when we're -- when we've implemented all of the dodd-frank requirements that we need to put in place. >> okay. a final question. you've said in the past, quote, like chairman bernanke, i strongly believe that monetary policy is most effective when the public understands what the fed is trying to do and how it plans to do it, closed quote.

a lot of us would agree with that. and many of us think the best way to get there is through true openness and transparency at the fed. not just a better sort of managed p.r. campaign, but real openness and transparency. would you publicly support s-209 -- i'm sure you're familiar with that. and if not, what specific changes to that would be required to earn your public support? >> so i strongly, as i've indicated, support transparency and openness on the part of the fed, and i think with respect to monetary policy, in terms of the range of information and the timeliness of that information, we are one of the most transparent central banks in the world. what i would not support is a requirement that we -- a

requirement that would diminish the independence of the federal reserve, and deciding and implementing a monetary policy. for 50 years, congress has recognized that there should be an exception to gao ability to audit the fed, to avoid any political interference in monetary policy. i believe it's critically important to the economic performance of this country, and we've seen this around the world that allowing a central bank to be independent in formulating monetary policy is critical to assuring markets and the public that we will achieve price stability. and i would be very concerned about legislation that would subject the federal reserve to short-term political pressures

that could interfere with that independence. >> thank you, mr. chairman. >> senator? >> thank you, mr. chairman. i want to thank you for being here, vice-chair yellen. >> and we'll take a break. when we come back, we'll pick right back up with janet yellen's testimony on capitol hill. stay with us. [ male announcer ] 1.21 gigawatts. today, that's easy. ge is revolutionizing power. supercharging turbines with advanced hardware and innovative software. using data predictively to help power entire cities. so the turbines of today... will power us all... into the future. ♪

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11:00 a.m. on the east coast. janet yellen's testimony before the senate banking committee continues. if you're continuing, the dow is up 26, a moderate range. gold is up about 21 bucks. let's go back to capitol hill. >> if you are confirmed as chairman of the fed and a member of the fsoc, will you ensure that that the council lives up to its commitment of transparency, and will the fed support efforts to make any potential evaluation metrics and studies on which they may be based available for public comment? >> so, senator, i have not participated in an fsoc, but if i do so, i will try to take the concerns seriously. >> if you're confirmed, you will be participating in fsoc. >> i will. >> and the question is about transparency, and it's the transparency of metrics people will use, that people have the ability to comment on before they're applied. and i guess my question to you is --

will you be willing to make that commitment to transparency, as it applies to the fsoc? >> i will need to study this more closely in terms of what the procedures are. but i feel it should -- it should be clear why a particular firm has been designated, if that occurs. >> and the metrics that they're using for that designation? okay. in closing, i want to say thank you for your willingness to work on the end-user issue last week. i very much appreciate it. thank you, mr. charl. >> senator kirk? >> technical question on large insurance employers in illinois, to extract a commitment from you to do a cost benefit analysis if we are to require them to switch from s.a.p. to gap accounting, which they have -- it could cause a couple hundred million dollars.

>> so, senator, i'm aware that there is an issue around different accounting standards and insurance companies. i haven't had a chance to study that myself. but i would certainly agree that this is something that we need to look into and to consider very carefully and pledge to do so. >> thank you, dr. yellen. mr. chairman, thank you. >> senator? senator warner. >> thank you, mr. chairman. thank you, dr. yellen, for being here. i want to -- i have a series of quick questions. one, i guess i'd like to make a comment. i understand some of our colleagues' concerns about, you know, some of the extraordinary measures the fed has had to take on, quantitative easing. i guess i would simply make a comment and ask for a short response on this, that part of our political dysfunction in

this town, in terms of the ability to actually grapple with getting our country's balance sheet right in terms of a so-called grand bargain or even an actual budget in place, if we were able to actually perform our functions, wouldn't that allow you to move out of the extraordinary measures in a quicker manner? >> well, senator, it certainly is the case that the economy has suffered over the last year substantial drag from fiscal policy. the cbo estimates that the drag amounts to something like 1.5% on growth. and as we commented in our fomc statement most recently, taking account of the large amount of fiscal drag, the economy, even though it's only been growing around 2%, is showing greater momentum. so i think it's fair to say -- and i would expect -- that if

there were less fiscal drag, and i hope there will be less going forward, that the economy's growth rate is going to pick up. so certainly that's been a headwind on the economy and something that we've tried to offset. but obviously our tools to do so, it's not -- not perfect, not -- >> yeah, and obviously, government shutdowns, which cost the latest estimate $24 billion, or potential default threats, which result in spikes of interest rates, sure as heck don't provide that predictability. >> yes. >> i want to follow up, as well, with where senator tester left off, i have to say as someone -- along with the friends -- involved in title i, title ii, i've been personally disappointed in the fsoc's ability to be the interagency arbiter around regulatory conflicts. i've also been somewhat disappointed with the actions so

far of the ofr and i simply would say, i think it is a -- i hope as you move into this role on the fsoc, there will be financial institutions, non-bank financial institutions, sifis, asset management firms, it did seem to me that the ofr's report didn't have a lot of collaboration, didn't have a lot of clarity. i would hope in your hole on the fsoc, and again, i think one of the reasons why we would have ended up with an independent chair on the fsoc, but you will have an outside role as the fed representative, that we try to give some clarity, that we don't think we're going to view everything but a bank-centric regulatory prism, that we realize as we look at non-bank institutions, that maybe require the sifi designation, we give some clarity about how to

evaluate the non-bank institutions. >> i think that's very claire, and very reasonable and logical objective for fsoc to have. our staff have been working very closely with fsoc and the ofr in trying to, you know, participate constructively and facilitate the works of those groups. >> i would just add my voice to senator tester's that we -- you know, we'd like to see that transparency, as we start to evaluate non-bank institutions for sifi designation, so we all know the rules going forward. i think that would be helpful. you know, one of the things, as we think about balance sheets and stimulation, or getting more private capital lent, one of the things that i know that the fed pays interest on excess reserves of the banks, but i believe now you're holding about $2.4 trillion of those banking assets

reserves, and i think we pay 25 basis points. we've seen other central banks -- i think denmark and others -- start to lower those payments. would you consider that possibility incentivizing the banks not on your balance sheet but back out in the marketplace to stimulate more private capital in the market in. >> so, senator, that is something that the fomc has discussed and the board has considered on past occasions, and it is something we could consider going forward. i think our assessment, we've worried, that if we were to lower that rate too close to zero, we would begin to impair money market function, and that's been a consideration on the other side. but it certainly is a possibility, senator. >> i just say i'd ask you to

look at this, as well. because it's one of the ways, without necessarily growing your balance sheet, as some of my colleagues have ekxpressed a concern with. thank you. >> thank you. >> senator heller. >> dr. yellen, thank you for being here, and thank your family for showing their support. that makes a real difference. the question -- do you follow gold prices? >> to some extent. >> do you believe there's any economic indicator behind the rise and fall of gold prices? >> well, i don't think anybody has a very good model of what makes gold prices go up or down. but certainly it is an asset that people want to hold when they're very fearful about potential financial market catastrophe or economic troubles and tail risks, and when there

is financial market turbulence, often we see gold prices rise as people flee into them. >> well, that was a better answer than i got from chairman bernanke last july. i asked him the same question, and he said that nobody really understands gold prices. and he went on to say, and i don't pretend to -- to really understand them, either. and do you share that view? or clearly with a few extra tidbits that you just shared with us -- >> i think beyond -- beyond what i shared, i don't have strong views on what drives them. i haven't seen a lot of models that have been successful in predicting them. >> thank you. you talked in your general statement at the beginning about the role of the federal reserve, promoting conditions that foster maximum employment, stable -- low and stable inflation, safe-and-sound financial system. do you believe we have a safe and sound financial system today? >> i think we have a much safer

and sounder financial system than we had precrisis. but as i indicated, i think we need to do more. we're not at the end of the road in terms of putting in place regulations and enhance supervision that will make the system safe and sound, as it needs to be to contain systemic risks. >> the reason i raise the question is we had this discussion when you were in my office about community banks, and sitting as chairwoman of the san francisco federal board, you have a pretty good understanding of what's going on out west -- california, nevada. and as you're aware of, and as i shared with you, we've lost half of the community banks and credit unions in our communities, making it very, very difficult for choices, making it very difficult for housing recovery, getting loans for small businesses. i guess the question is, what

steps will you take to avert a culture of consolidation of these major banks and the loss of the small community banks? >> well, senator, in the first place, to the extent that the large banks have an advantage, because they benefit from a too big to fail subsidy, i think our objective in regulation should be to put in place tough enough regulations and capital and liquidity standards that we level the playing field and make it costly, since those firms do pose systemic risks to the financial system. we should be making it tougher for them to compete and encouraging them to be smaller and less systemic. >> okay. >> and with respect to the community banks, we need a model for supervision of them that's different and much less onerous and has much less regulatory

burden and is appropriate to their business model. we're obviously imposing on the largest systemic institutions much higher and more onerous prudential standards. >> and i appreciate your comments, because i do believe the "one size fits all" is what's really at a disadvantage for the community banks and the smaller banks. a quick question about quantitative easing. do you see it causing an equity bubble in today's stock market? >> i mean, stock prices have risen pretty robustly, but i think -- >> correct. >> -- if you look at traditional valuation measures, the kind of things that we monitor, akin to price equity ratios, you would not see stock prices in territory that suggests bubble-like conditions. when we look at a measure of what's called the "equity risk

premium," which is the differential between the expected return on stocks and safe assets like bonds, that premium is not -- is somewhat elevated historically, which, again, suggests valuations that are not in bubble territory. >> do you believe there's a federal role to support the stock market? >> a federal role to support the stock market? no. >> thank you. thank you, mr. chairman. >> senator berkley? >> thank you, mr. chair. thank you, dr. yellen. i don't believe any nominee -- >> janet yellen there answering just as many questions about banking regulation as she is monetary policy out of the senate banking committee. we should mention gold is still ripping about 20 bucks here, $21, and the 10-year yield down to 2.7, as some of the believers in the fed policy continue to take solace from what yellen is saying. >> even though she wouldn't say she had a view, necessarily, on gold in response to that -- >> right. nor did she say there was a bubble in asset prices, but

that's a different story. in about 20 minute, we'll hear from the president on the affordable care act and what we might expect, we'll turn to john harwood who joins us from washington. john? >> reporter: we'll hear from the president 11:45. i've been talking to insurance industry sources who have been watching over the next several days, and the verdict is very harsh so far. just got a message from one who said that the plan that obama is going to announce at 11:45, in the words of this source, is a joke. it doesn't change anything but allows the white house to blame insurance companies. now, the source's understanding of what the president is going to say, is they're going to ask states and insurance companies to extend cancelled policies. but, of course, states and insurance companies already have the discretion to do that in the transition to the new law. in fact, some have been doing that. some of the people getting these cancellation letters have been able to extend their plans.

so it is not clear whether or not what the president's going to announce at 11:45 is going to compel any different action than what's already taking place, or is simply a public relations approach to this problem and the backlash that they're facing, which might buy the white house some time while they try to get the website working. but, carl, insurance industry officials are not happy about this at all, and they think this puts them in the cross hairs, trying to relieve some of the pressure on obama care. >> is it mandatory, john? we know it's -- i think the report suggests it's for a year here. is it mandatory, or is it optional among the insurers? >> won't know until the president comes out and says exactly what the details are at 11:45. but this insurance industry source believes it's not going to be mandatory, which, by the way, the source says that's a good thing, because we can't do it. the reason is they have a rate structure built in 2014 around the needs of the exchanges which are going to be required to

accept all comers, including older, sicker people. so they've had to change the rates for younger, healthier people to compensate for that. secondly, with all of the cancellation notices having gone out, there's a big logistical problem in trying to reach back and go to people and say, all of the letters you got, never mind. so again, we'll see whether or not there's anything to compel this to happen, and make it easier for insurance companies and insurance commissioners to do what they've already had the right to do. but that is not clear at this point, and the industry is not expecting that. >> one more reason to hear exactly what the president says, john. we'll talk to you in a few moments. john harwood in washington. we'll take a short break now. when we come back, we'll pick back up with janet yellen, continuing her testimony in her nomination hearing on capitol hill.

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when you open an account. potentially some of the most important q&a of the session. here's bob corker with janet yellen.

>> -- we discussed was my concern. and i think yours, too. in many ways, easy money is an elitist policy. i mean, it's the ultimate trickle-down in that, you know, it's based on the premise that you're going to have this wealth creation. and what we've seen, obviously, is the largest wall street institutions have done the best and that fund managers have made a lot of money. but it really hasn't trickled down to the economy. and as you were mentioning earlier, it's a blunt object. would you agree that while it has been an attempt to stimulate the economy, the more well-off have benefited much better than those at the lower end of the spectrum? >> well, to the extent that low interest rates do have an impact on asset prices, these policies have probably to some extent boosted the stock market, which may be an example of what you're

talking about. but it's also had a -- played an important role, i think, in helping the housing sector. >> right. >> and boosting housing prices. and i think this is something that has been broadly beneficial to all those americans who own homes and is improved their sense of financial well-being, and that's broadbased. >> we talked a little bit about the fed in the early summer, began to talk about moderating the pace at which it was going to be making purchases. and the market had a pretty stringent reaction. it was like -- the federal reserve appeared it had touched a hot stove, and that this policy was going to greatly affect, if you will, the wealth effect that you were trying to create the policy of moderating. and so, the fed jumped back, and it seemed to me -- and i think you discussed this a little bit

in the office -- the fed had become a prisoner to its own policy. that to really try to step away from qe 3 was really going to shatter possibly the markets and, therefore, take away from the wealth effect. and i wonder if you could talk a little bit about the discussions that were taking place during that time? >> well, senator, i don't think that the fed ever can be or should be a prisoner of the markets. our job -- >> but to a degree, in this case, it did affect the fed, did it not? >> well, we do have to take account of what's happening in the markets, what impact market conditions are likely to have on spending and the economic outlook. so it is the case, and we highlighted this in our statement, when we saw a big jump in rates -- a jump that was greater than we would have anticipated from the statements that we made in may and june,

and particularly saw mortgage -- mortgage interest rates rise in the space of a few months by over 100 basis points -- we had to ask ourselves whether or not the tightening of conditions in a sector where we were seeing a recovery and a recovery that could really -- recovery in housing that could drive a broader recovery in the economy, we did have to ask ourselves whether or not that could potentially threaten what we were trying to achieve. but overall, we're not a prisoner of the markets. i continue to feel that we're seeing an improvement in the labor market, which was the goal of the program, and we'll continue to evaluate incoming data and to make decisions on the program in that light going forward. >> thank you. i just have a little bit of a prisoner, maybe not fully, i understand.

i would just -- my last question, you talked a little bit about monitoring sort of the financial markets, and i know that, again, monetary policy is a blunt instrument. i know you have been credited with back in 2005 signaling that the housing market was bubbling, if you will, in that part of the country. i guess my question is, do you believe that under your leadership, the fed would have the courage to -- when it saw asset bubbles, even though you only have blunt instruments, and i realize that -- would it have the courage to actually prick those bubbles and ensure that we didn't create another crisis? >> no one -- senator, no one who lived through that financial crisis would ever want to risk another one that could subject the economy to what we're painfully going through when

recovering from. we have a variety of different tools that we could use if we saw something like that occur. they include tools of supervision. >> right. >> and monetary policy -- >> and you would have the courage to do that? >> i -- i believe that i would, and i believe that this is the most important lesson learned from the financial crisis, senator. >> mr. chairman, thank you for having this hearing, and, dr. yellen, i do want to tell you, i very much appreciate your candor and transparency. and i really do. i appreciate the conversation both in the office and i want to thank you for giving the same answers to questioners here today that you gave in the office. so thank you very much. >> okay, thank you very much, senator. appreciate that. >> senator hagan? >> thank you, mr. chairman. thank you, ranking member -- >> appreciating that she gave the same answers, and interesting comment there from

senator corker. her testimony will continue. we'll take a quick break, and it'll pick right back up with it.

as janet yellen continues to testify in front of the banking committee, the dow close to the session high, up 50, now 41. what might be interesting is the yield on the 10-year, dipping to

2.694. janet yellen has said the benefits of asset purchases continue to exceed the costs, and most importantly, does not see a major misalignment in asset prices, at least in most sectors, kel. >> and that's the phrase. repeatedly asked about a bubble, repeatedly she has dismissed that whether in stocks or across financial assets more broadly. you can see the reaction in the market. let's get back to the hearing, janet yellen on capitol hill. >> -- about monetary policies, both our goals and intentions in terms of how we carry out programs. now this is challenging. we're in unprecedented circumstances. we're using policies that have never really been tried before and multiple policies. and we're trying to explain to the public how we intend to conduct these policies. so it is a work-in-progress, and sometimes miscommunication is possible.

but i think my own view would be we certainly want to diminish any unnecessary volatility. sometimes there's volatility, because we all learn news about the economy that changes our views about the course of the economy and the course of policy. and there, it's natural to see a response. but to diminish unnecessary volatility, i think we have to redouble our efforts to communicate as clearly as we possibly can. and that'll be my emphasis. >> thank you, mr. chairman. >> senator toomey? >> thank you, mr. chairman, and, dr. yellen, thank you for being here. thanks for the chat earlier this week, i appreciate that. i want to get back to where some of the issues that senator corker was raising regarding monetary policy. but first, i just think it's important to stress -- and i know you're very well aware of these -- but the adverse

consequences that we're already experiencing from directly as a result of the extraordinary monetary policy is really problematic, i think. we are -- we continue to have this artificially expressed -- suppressed cost of funding, and it contributes to, i would argue, fiscal imbalances. we are punishing middle-class savers for years now. people who spent an entire working lifetime choosing to forego consumption, because they decided they would save, and they would have a little some -- a little income in their retirement, and now they have no income, because they earn nothing on their savings. they do watch as it gets eroded, even by a low level of inflation, when they have no income from it. we have exacerbated the problems of underfunded pension plans, and we've got distortions in financial markets. these are all of the things that have been occurring, i would argue, and continue to occur. and yet what worries me perhaps even more is the point that

senator corker was getting to -- i think -- which is what happens when this morphine drip starts to end? at some point, some time, this is going to be -- we're going to move away from this, i assume. i think everybody believes that. and the assumption seems to me that the markets will behave very benignly when that occurs. and yet, we've seen some -- i think some worry, some glimpses that maybe that that's not a safe assumption. back in june, the mere suggestion that some of the members of the fed might be contemplating stepping back a little earlier, and 10-year trashry backs up 100 basis points. yesterday, the release of your testimony and the equity markets rally. doesn't this feel like there's something a little artificial here? and isn't it possible that while you have many tools available to begin an unwind, to retreat from this, that the markets may not respond very well, and we could end up creating a real problem as we try to exit from this? >> so, senator, you made a

number of different points. and i think the first point you mentioned is that low rates in a way give rise to fiscal responsibility to take the pressure off -- >> makes it easy. >> you know, we've established low rates in order to get the economy moving, which is congress' mandate to us. i think it's important for congress to recognize that as the economy recovers, and both short and long-term rates move up, a situation in which the government's funding costs remain as low as they are -- if we're successful in achieving our goal of getting the economy back on track, this is a very temporary situation. and so, i believe members of congress should be looking out a few years to a time when rates are going to be higher.

low interest rates harm savers. it's absolutely true. and this is a burden on people who were trying to survive on the income from a cd. there's not much that they can get. but, you know, if you think about how can we get rates back up to normal, i guess i would argue that we can't have normal rates unless the economy is normal. at the moment, we have a lot of saving and not very much investment. and there are fundamental reasons here why rates are low. so i think pursuing a policy of low rates to get the economy moving will best enable us to normalize policy and to get rates back to normal levels over time. in terms of jumps in rates, we will, as the economy recovers, need to withdraw the monetary

accommodation we've put in pl e place. and we will make every effort to do so at an -- at a pace that's appropriate to continue the recovery and to maintain price stability, and to communicate that plan to markets. but as we have seen -- and as you indicated -- it is possible for rates to jump. it was not just true now, but in previous tightening cycles, like the one we had from '94 and 1995, where long rates moved up over the span of six months over 100 basis points. we do need -- we've tried to make sure the financial system is more resilient in our stress tests. we have tested and continue to do so in this round to make sure

that banks are appropriately managing interest rate risk, and that is a risk that, you know, we will try to mitigate. but it is inherent in a tightening cycle. >> mr. chairman, i know i just -- i'm running out of time two. quick points i'd like to make. one is i'd like to express my concern, which is the exact opposite of the concern that was raised by senator markley, which is, i think, the danger of the implementation of the volka rule, and i think the decision by congress to exempt u.s. treasurys was an implicit acknowledgement that when you ban proprietary trading in those instruments, you make them less liquid and more expensive for issuers. i'm told the next rule might also very well exempt other sovereign issuers, which is another implicit acknowledgement of this problem. this is a problem for corporate issuers in america, and i'm very concerned that we not unnecessarily raise their cost

of borrowing. and the last point i would make, i'm deeply concerned about the consolidation that's happening in small banks, the lack of new small banks. as you know, we used to routinely launch sometimes hundreds of new community banks. i'm told by the fdic, there's not a single new community bank launched since 2010. the regulatory compliance for institutions with no systemic risk to the economy is way overboard, and i hope you will make an effort to diminish that burden. >> i promise to do so, senator. >> thank you. >> senator warren. >> thank you, mr. chairman. thank you, dr. yellen. you know, there's been a lot of talk today about the fed's use of quantitative easing to try to help the economy get back on its feet. but the truth is if the regulators had done their jobs and reined in the banks, we wouldn't need to be talking about quantitative easing, because we could have avoided the 2008 crisis altogether. so i want to focus on the fed's

regulatory and supervisory responsibilities to keep the big banks in check. now, i'm concerned that those responsibilities just aren't a top priority for the board of governors. earlier this year, the fed and the occ reached a settlement with 13 mortgage servicers that had engaged in a long list of illegal foreclosure activities. and the settlement was for over $9 billion. it directly affected more than 4 million families. but the fed's board of governors never voted on whether to accept the settlement. instead, this decision was just left to the staff. now, the fed has smart, hard-working staff, but the board of governors would never delegate critical monetary policy to them. and yet, even now, after the biggest financial crisis in generations, the board seems all too willing to delegate critical

regulatory and supervisory decisions. so i think we need to make reining in the banks a top priority for the board. so i know the board meets regularly to discuss monetary policy. do you think the board should have regular meetings on supervisory and regulatory issues, as well, making it clear that both of those are important to the fed? >> well, senator, i absolutely believe that our supervisory responsibilities are critical, and they're just as important as monetary policy, and we need to take them just as seriously and devote just as much time and attention to them as we do to monetary policy. the board operates under a variety of restrictions. you may know about the government and the sunshine

rule. and so, when you suggest that the board meet to discuss regulatory -- regulatory matters, our ability to do so outside of open meetings is very limited. and so, we tend to handle those by meeting individually with staff, or meeting in small groups. we have a committee system where committees are put in charge of managing particular areas and making recommendations to the board. i remember in the 1990s that the board did regularly meet to discuss supervisory issues, because, you know, there, there's confidential supervisory information, and it's easier for us to have a meeting. and i did consider those very valuable. and so, i think that's a very worthwhile idea. when there -- i should just say,

when there are delegations to staff and the board of governors doesn't vote, that doesn't mean that board members aren't consulted, and maybe those with expertise may have played a critical role and had very important input even when there is no formal vote by the board of governors. >> fair enough. but i think it is an important signal here, and i'm glad to hear that you're thinking about this. and thinking about the question of the appropriate delegation to staff, and when it's appropriate to delegate to staff. could i ask you just to say something briefly about that, about when it is appropriate to delegate to staff and when you have to retain for the board itself? just very briefly, if you could, because i want to get on to one other question. >> yeah, so i believe there are certain matters that under law the board must vote on -- supervisory findings, mergers, and so forth, or rule changes.

typically, we delegate enforcement -- enforcement matters to the staff in the area of supervision. >> and i'm glad to hear, though, you want to continue to think about that, particularly when we're talking about something this important. >> of course, yes. >> i want to ask you one other fundamental question here, and that is, do you think that the fed's lack of attention to regulatory and supervisory responsibilities helped lead to the crash of 2008? >> you know, i think -- i think in the aftermath of the crisis, we've gone back and tried to look carefully at what we should have been done -- what we should have done differently, and there have been important lessons learned. we have massively revamped our supervision, particularly of the largest institutions, which we now organize through process called the lisk, where we're

simultaneously reviewing all of the largest institutions, simultaneously. and the federal reserve system works jointly on these reviews. we no longer delegate to individual reserve banks the supervision of, say, one or two of the large institutions. it's also become an intradisciplinarian matter, where economists and lawyers are involved in, so we've learned -- we've learned a lot there about supervision. i would say one of our top priorities now is ramping up our monitoring of the financial system as a whole, to detect financial stability risks. i think that's something we weren't doing in an adequate basis before the crisis. and so, we missed some of the

important linkages whereby problems in mortgages would rebound through the financial system. >> well, thank you very much. thank you, mr. chairman. i just want to say, dr. yellen, when you're confirmed -- and i very much hope you are confirmed -- that i'm very glad to hear you will make it a top priority for the federal reserve to engage in the supervisory and regulatory responsibilities that help keep our financial system safe, and that cannot be something that is merely an afterthought, but has to be a primary effort on your part. >> thank you, senator. i completely agree with that. >> good, thank you. thank you very much. >> senator? >> well, thank you very much, mr. chairman. >> janet yellen responding to senator warren, a yellen backer there on the senate banking committee. any moment now, we'll be hearing from the president, speaking on the affordable care act. interesting, the collision between that statement and the hearing that's going on regarding janet yellen right now, sort of highlighting the big decisions the country faces

in the coming months. >> he often likes to talk around this time, but why not wait? >> that's a good question. and maybe he will. he's not on time every time. our john harwood's in washington with a preview of what we might be hearing here. john? >> carl, what we're going to hear is the president explaining how he intends to adjust the administration and regulation of obama care in order to let some people keep policies that are no longer compliant with the new standards under the law. he's going to come out in a political hailstorm. the industry has already said -- as you and i discuss add fed a moments ago -- this is simply a joke, that highlights what the industry already has, the discretion to do, that state insurance commissioners already have discretion to do, and the industry views this as an attempt not to really change anything, but to shift blame from the administration and obama care for the cancellations to the insurance industry. meantime, john boehner's been having a press conference at the white house. he says you can't trust the

white house on this issue, doesn't think you can fix obama care, although he is pushing a piece of legislation that will be on the floor tomorrow that would purport to change the law, although it would severely undercut the viability of the law going forward, which is why democrats are going to oppose it. so the president, you know, has a huge mess on his hands. he's trying to figure out a way to diminish some of the political resistance to that with the announcement today. we'll have to see all of the details from the administration to know whether, in fact, it will change anything. in a significant way. or whether it's just cosmetic. but the president has some flexibility under the law, we just don't know how much. >> you mentioned boehner's statement, as well, john. and we do have that piece on tape. let's take a listen to what the speaker said about the president's move earlier this morning. >> -- promise after promise from this administration has turned out to be not true. so when it comes to this health

care law, the white house doesn't have much credibility. and let's be clear, the only way to fully protect the american people is to scrap this law once and for all. >> with that in mind, john, have the odds of that happening just gone up, or do you think this is going to be a brief tactical retreat on behalf of the president, and they'll move on? >> reporter: i suspect it will be the latter, a tactical retreat and a stall for time, while the administration tries to get the website working. i think from the standpoint of democrats on capitol hill and the administration, the key thing is to get the website working. why? because right now, the only people who know about the effects on the individual market are the people who've lost something and are upset. the people who might be coming out ahead in most numbers are not becoming aware of that, because the website's not telling them. if the website was working, it would say, here's the new policy you can get compared to your old one, and here's the subsidies you can get from the government that will allow you to afford

the new policy. that's what i think is going to happen. everybody has to acknowledge that if the website can't work effectively, if they cannot get over the technical problems that they've gotten, as well as the political resistance, that the administration will have to go to plan b. i think that will be the absolute last resort, wouldn't expect it. but you can't rule out that possibility. >> sure. john, stand by, if you would. we want to bring bertha coombs in here, who, of course, has been parsing all of this. bertha, my head's spinning just trying to follow the developments. can you boil it down for people who are confused for what this means as far as access to insurance in. >> it mines the insurers now, the onus is on them, as to whether they continue to offer the plans they've already cancelled. in some states like california, they've split the difference and said, listen, extend the plans through the enrollment period, until the end of march, and then offer a new plan. one industry insider, a consultant to a lot of the insurance companies, says this puts them now in a very big mess, because effectively, if

someone wants to have their insurance start on january 1st, they have to get their payment in by december 15th. so that now gives insurers, as of today, 32 days to get out the new plan proposal, we calculate what it will mean for them to offer that plan again, and then get the proposals out, and get a payment all in 32 days. that's a very, very tall order for a lot of the insurers, that now, though, will make them look like the bad guy if they don't renew the policy. >> interesting, the battle of -- the political battle between insurers and the white house on the aca front and the yellen front, as we see some senators today tell yellen to try to protect the non-bank entities, a lot of the crosswinds happening politically, at least, this morning. bertha, john, thank you for that. hopefully, when we come back, the president will be about to speak. back in a minute. get paid to do something you really love, what would you do?" ♪ [ woman ] i'd be a writer. [ man ] i'd be a baker. [ woman ] i wanna be a pie maker. [ man ] i wanna be a pilot.

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and see them through, we say: let's get to work. because now more than ever, the future belongs to those who challenge the present. let's go back to the testimony of janet yellen live on capitol hill, as we continue to wait for the president. >> -- i think i could go on and on with some other items, and i must admit, what am i missing here? ics had bubbles. and i think if you were to announce today that over the next 24 months you're going to bring that balance sheet down from 4 trillion to zero, or 1 trillion, i think if you even said over the next four years, we're going to bring it down from 4 trillion to zero, i think we would see how big those asset

bubbles are, wouldn't you agree with me on that? >> so i think with respect to real estate, you mentioned real estate markets, and we certainly are seeing, as you mentioned, private investors come in to invest, and often all cash in certain markets in the country. is that an asset -- is that evidence of an asset bubble? so if you look at the markets where that's occurring, it's some of the hardest-hit markets where prices went up the most, like las vegas or phoenix. in my part of the country that had the biggest crashes, where you have the largest number of foreclosures with houses being put on the market and borrowers

whose -- many of them -- many of these housing markets where these investments are taking place are ones where you have a substantial fraction of underwater borrowers and individuals who have lost houses, whose credit is impaired, who are not in a position to be buying houses. and these investors are purchasing these houses often at very low prices for cash and appear to be in the business of renting them out over a reasonably long period of time. i'd say, you know, we have to watch this very carefully. but i don't see that as an asset bubble. i see that as a very logical response of the market to generate a recovery in very hard-hit areas. >> dr. yellen, i don't want to be rude and interrupt you, but i'm also running out of time.

>> sure. >> and here's what i would offer -- and i think you would agree with me, although you probably won't want to agree with me in a public hearing setting, but i think if i were to say to you, why don't you announce today that you're going to draw this down over the next 24 months from $4 trillion to zero, i think you would see the impact of your policies on the value of real estate all across the united states, not just in the hardest-hit areas. i think the real estate that i own and others own would go down in value. i also think that the stock market would have the same sort of reaction that it has had when chairman bernanke just suggested that there might be a phase-down here. here's what i'm saying, because now i am out of time, i think

the economy has gotten used to the sugar you've put out there, and i just worry that we're on a sugar high. and that is a very, very dangerous thing for the little person out there who is just trying to pay the bills and maybe put a buck away for retirement. the last thing i'll say, the flip side of your policies that you're advocating for are very, very hard on certain segments of our society. you know, explain to the senior citizen who is just hoping that cd will earn some money so they don't have to dig into the principipl principle, for as far as the eye can see, for the foreseeable future, to keep interest rates low, they are hurt by that policy. >> senator, i agree, and i understand that savers are hurt

by this policy. but, you know, if we want to get back to business as usual in a normal monetary policy, and normal interest rates, i would say we need to do that by getting the economy back to normal, and that's what this policy, i hope, will succeed in doing. the other thing, i think it's important to recognize that savers wear a lot of different hats. they play many different roles in the economy. they may be retirees who are hoping to get part-time work in order to supplement their income. they may be people who have children who were out of work and who were suffering because of that, or grandchildren who were going to college and coming out of college, and hoped to be able to put their skills to work, finding good jobs and entering the job market when it's strong. and i think when those people

who worry about our policies, thinking about themselves as savers, take into account the broader array of interests they have in a strong economy, they would see that these policies, even though they may harm them in one respect, are broadly beneficial to them as i believe they are to all americans. >> my time is expired. thank you, mr. chairman. >> thank you. senator heitkamp? >> thank you, mr. chairman, and thank you, dr. yellen, for hanging in with us, for those at the end of the desk, who would love to ask you some questions, as well. i want to get back to the fed goal of full unemployment, and i want to ask some quick questions. give me a number on what you consider full unemployment -- or employment. >> so don't have a precise estimate, but every three months all of the participants in the

fomc fill out a survey and indicate what they think the normal longer-run level of unemployment is. and in our most recent survey in september, the range of opinion was 5% to 6%. >> okay. and tell me, what do you believe the real unemployment rate is today. >> well, the measured unemployment rate is 7. -- >> i know the measured unemployment rate. >> but as we've -- >> -- not the question. >> -- discussed previously, we have very high incidence of involuntary part-time employment. we have all too many people who appear to have dropped out of the labor force. >> would you -- >> -- discouraged -- >> i don't want to belabor this committee hearing any longer than what i have to. would you agree that it is at least close to or probably over 10%? >> well, certainly by broader measures, it is that high. >> okay. and would u