>> my response to that would be, that is in comparison to no @@@r babies and cared for about 1500 of those babies. there was no difference in terms -- you know, was there occasionally somebody had a high deductible plan but no difference in terms of screening

for the kids or -- >> there's not a mandate. >> there's not a mandate followed in medicaid unless you present the child to the doctor. that's the only mandate. if the child isn't presented, there's no mandate. >> they're going to get -- >> the point is, you need to look at what one of those screening exams is. there is no difference between that and what i do and am trained as caring for an infant or toddler. there's no difference in what the screening is. so i don't disagree that the epstd system is good but that is in comparison to them not having anything. not as compared to getting private coverage. let me go back. i recalculated the numbers. let's just look at the numbers. 20 million people, if you took the subsidy from the 66,000, which is 300% of poverty, and stopped it right there, and moved that money to these kids, per person, 20 million people, you get $9,750 per person.

now, i don't know about you, in oklahoma, we can insure a child for $3,000. in new jersey, it costs about $6,000. if you take a family of four with two kids, that's $38,500, which is triple what we're spending on ourselves up here, i would tell you there's something wrong with the numbers, guys. something wrong with the numbers. now, the difference is, let's go back and talk about what cbo really said, there's only $500 billion worth of costs, for six and a half years under the assumption the federal government, the first three years, will pay 100% of the costs for the states. then it's tapered off after that. but that doesn't mean there's not a cost. that just means after that, we transfer the cost to the states. and the reason we did that is so we wouldn't have as big a number, correct?

i mean, that's why we did it. we tapered off but there's still going to be a cost. we will just transfer it to pennsylvania and oklahoma. that's with no increase in payments in terms of the rates, so by the time you make medicaid rate eligible to eliminate this disparity of choice of doctor, you're at about $1.4 trillion, just on this portion of it. just on this portion of it. so we can play with the numbers all we want but when you take almost $200 billion and divide it into these 20 million, you get more than enough, twice as much. matter of fact, we could probably go to 350%. i don't know what those numbers are, david. we could probably go to 350% with the subsidy. but we could put that under. i would ask senator bingaman, we will vote this amendment, but would you have your people run

those numbers? that 350 down, and see what the savings between 350 and 400 is, and what we would get? >> well, i don't have any people who can run numbers but i'm glad to have the committee staff try to run it down. >> if i might, can i call on counsel, if you had some information on these numbers? >> i think i may have given a misimpression. when you do the math of 27%, if you were asking about the fraction of the overall exchange subsidies or gateway subsidies that are in the 250% plus range, and it was mentioned that was 27% so that's 27% of 723 which is indeed $195 billion which translates, if you divide that by 20 million people, as senator coburn said, to $9,760 but i just wanted to make sure that i had mentioned that was of course a ten-year cost. so if you annualize that, assuming an even distribution, that's $976 per year.

>> big difference. so my numbers are in error. >> mr. chairman? >> yes, senator. >> on this point, with the medicaid versus private insurance, and we brought up the children's health insurance plan, wyoming insures their kids under a private plan and it saves money over medicaid. and the real advantage of doing that is the kids are covered all year. they're just not covered while their parent doesn't have a job. they're covered the whole year, one year at a time. they don't go to the hospital one day and be covered and go to the hospital the next day and because there's been a change in family circumstance, they're not covered anymore. so that's a cost shifting point, too. that's one of the things the hospitals in wyoming have raised to me. they said yes, a lot of these people are medicaid eligible at one point but they aren't often

when they come to the hospital, they aren't. so we have to pick up the cost on that and of course, hospitals shift the cost off a number of different ways. so the senator has a real valid point here about talking about seeing what the difference would be of having the thing done through private insurance and since we do do the kids already, one of the waivers that wyoming has asked for is to be able to utilize the amount of money that's available for the kids as part of family, because you get family coverage cheaper than you get individual coverage so there would be some advantages then of having kind of a subsidy to the family, if that s-chip money counted toward getting a family policy, which would cover all of them for the whole year without the stigma of medicaid. and there is a little bit of a stigma to medicaid, which we would just as soon people didn't have to have and in my opinion,

there's a lot of privacy violation just by having them say that they are. >> mr. chairman? >> briefly. >> senator sanders? >> while senator coburn's numbers ended up being wrong, he made a couple of important points. i hope that as a committee and as a congress, we don't want a two-tier health care system, a poor people's health care system and a system for everybody else. i think the solution is not to privatize our health care system but i would hope at the very least, senator alexander, i think, made the same point yesterday, that if we're going to add 20 million more people to a stressed system right now -- now in vermont, we think 90% of the physicians take medicaid. in other states, the numbers are lower. that depends on state efforts. but it's a problem. but i would hope that if we are going to add 20 more million people to the medicaid program,

we take a hard look at the problems of medicaid and we address those problems, and we make sure that we raise reimbursement rates and that medicaid can be a program, in fact, the people say you know what, this is a pretty good program, i do have a choice of doctor. will it cost us more money to do that? it will. but i think at the end of the day, what you will find is that medicaid will provide health care more cost effectively than the private sector, but what we have to do is provide the funding that we need so that doctors do participate in that program. >> well, i think if nothing else, this discussion has shown that medicaid is a complicated program. it's been a great discussion. i'm almost wanting to get involved in it myself. but it's not even in our jurisdiction and we have got a lot of amendments that really are in our jurisdiction that legitimately are, i'm not saying this is illegitimate but this is

really in the finance committee's jurisdiction, not ours. so i could hope that we might move ahead. it's been a good discussion. >> let me add two more points, then i will quit, mr. chairman. in this bill, as soon as you're above 150%, you lose all that screening. epstd. you're forced out. also, in this bill, there's an opt-out provision to schip for medicaid. why do we allow the kids to opt out of medicaid into schip? and what are we telling the kids that don't opt out? it aps two-tier system because we put more money into schip than we do medicaid, right? we do. so we're allowing them to opt out but if you're at 150%, as soon as you go over that, you're forced out of medicaid and you

may end up with a system that's much worse in terms of kids. according to senator casey, or a system that has a higher deductible because they will go to a subsidy program. the one thing that isn't in here, the one mandate that isn't in here that should be is that no matter what insurance program you have, screenings, exams come with no deductible and no co-pay. that's what needs to be there. >> we do have that in our prevention section. i was going to add that one of the reasons the outcomes are so bad is because these are low wage people, they work, they're low wage, they don't have insurance, then they get out of a job and go on to medicaid. before that, they're not quite eligible. they have terrible outcomes. i hope the finance committee, tom, will put in there that whatever a & b from the preventive services task force, that that will be funded with no co-pays and no deductibles so

that will begin to hopefully get more prevention and wellness to that for people. i didn't mean to get involved in this. i said i wasn't going to get involved in it. listen, we will go for a roll call vote on the coburn number 205. >> mr. chairman, could i just ask one last question on this? before you go to a vote? i know you want to get there. it will just be a short question to senator coburn. as i understand it, as i understand it, the way this bill would operate is that this would become in effect until 2013? so it would be in effect for seven years and as i understand it, under this bill, they want the federal government to pay the difference over what it is now for the states, right? but only for a limited period of time. then who's going to inherit the costs in six years? >> the states. >> who? the states are going to inherit the costs? if they do that, what state can

do that? i was looking at just the "new york times" i think it was a short while ago, it said in hawaii, state employees are bracing for furloughs at three days a month over the next two years. the equivalent of a 14% pay cut in idaho. lawmakers reduced aid to public schools for the first time in recent memory, forcing pay cuts for teachers and in kashgs where a $24 billion deficit for the coming fiscal year is the nation's worst, governor arnold schwarzenegger is releasing thousands of prisoners early and closing 200 state parks. meanwhile, maine is adding a tax on candy, wisconsin on oil companies and kentucky on alcohol and cell phone ring tones with state revenues in a freefall and the economy shut by the worst recession in 60 years, governors and legislators are approving program cuts, layoffs and to a smaller degree, tax increases that were previously unthinkable. you can go on and on. my point is who's going to

inherit all these costs in the future? we can't pay for them now. am i missing something here or is that right? >> what you're missing is i have the data for several states. maryland, $13.1 billion. new mexico, $3.9 billion. washington, $8.8 billion. rhode island, $2 billion. vermont, half a billion. ohio, $16.8 billion. pennsylvania, $15.4 billion. >> what does that mean? >> that's their share of what won't be paid for -- >> by the federal government. >> by the federal government. >> we have a medicaid system that isn't working well right now so this is just going to get worse if we -- the only purpose for this is to pick up $500 billion so they can say that this bill doesn't cost well over $1 trillion. is that right? >> this title. >> just this title in the bill. well, there's something wrong here. according to governor barber,

medicaid expansion to 150% of the federal poverty level would cost mississippi an additional $333 million per year and it would add at least 300,000 people to their medicaid rolls. medicaid analyzed the numbers and confirmed but also stated these numbers do not take in consideration the crowd-out associated with expansion. what is crowd-out. employees -- employers and/or individuals dropping private insurance to obtain cheaper government sponsored insurance. then it goes on to say just in mississippi, in addition it's possible that a large expansion in the medicaid program could require states to increase their current reimbursement rates to ensure sufficient physician participation. are those accurate assessments? well, i think the senator brings up a very important amendment. i would hope that we can all support it. there are a lot of other states i have information on, too. but i said i'd be short. i apologize for taking that long. >> is there any further debate?

>> i'm ready to finish. >> are you ready to vote? >> if the distinguished senator is. >> all those in favor? you asked for a roll call. the clerk will call the roll. >> senator dodd? >> no. no by proxy. >> senator harkin? >> no by proxy. >> senator mikulski? >> no. >> senator bingaman? >> no. >> senator murray?@@@@r@ @ @ @ 0

>> senator murkowski? >> aye by proxy. >> senator coburn? >> aye. >> senator roberts? >> aye by proxy. >> chairman kennedy? >> no by proxy. >> the vote is ten ayes, 13 nays. >> the vote is -- the amendment is defeated. i also know that our staffs have been working to clear some amendments and i understand that we can accept by unanimous consent enzi 243 and enzi 261. is that agreed to by unanimous consent? very good. is there any senator who has an amendment?

>> i do, madam chairman, if it's in order, i would be happy to call up mine. >> senator, why don't you offer your amendment and then after you, i have an amendment also. >> i will wait for you if you want to offer yours first. because we had ours over here. >> i'm going to try to get while senator harkin's gone, you want to offer an amendment, i'm going to offer one on women's health. are there other senators on our side who are going to offer amendments later on this afternoon? senator bingaman? anybody else? okay. why don't i do mine. you'll do yours and we'll go back to bingaman. does that sound like a good way to go? >> thank you. >> i'm going to go now and offer my women's health. mr. chairman, i would like to call up mikulski 201.

and i ask unanimous consent that senator dodd be added as a co-sponsor. without objection. let me, as the amendment's being distributed, i'll go on and give a very brief description of my amendment and then can further amplify it. this amendment is being offered on behalf of myself, senator harkin, murray, brown and dodd, and it does two important things. first, it ensures essential community providers such as women's health clinics, community health clinics, hiv/aids clinics such as chase brexson who serve low income populations, are included as providers that individuals can go to in any federal qualified health plan. second, this amendment provides

coverage for women's preventive health care and screenings with no or limited cost sharing. therefore, this amendment would accomplish two of our major goals in health reform. it would make sure that individuals and particularly women have access to the providers they need and the communities that they come from, and access to the services they need to remain healthy throughout their life span. this amendment meets a compelling human need. in my own state of maryland, we have women who use both women's health clinics and also the unique clinics that offer assistance for hiv patients. the very well-known and very distinguished chase brexton clinic does an outstanding job. these clinics are really the primary care providers for both women in the sense of women's health clinics and for aids patients.

so if you're going to chase brexton, you don't simply come for your aids cocktail or treatment for aids. chase brexton is treating the whole person. second, what this amendment also does is eliminate or minimize cost sharing for preventive health services. we have found in studies like from the commonwealth foundation that co-payments have been a real deterrent for low income women seeking preventive services, be it mammogram screening and even other very important screenings. this is really, so it's very important. i would hope that we could adopt my amendment. and would move for its adoption after other senators might wish to comment. >> madam chairman, i just had a question.

do you have any -- do we have any idea what kind of cost is being added on this? i think it's an important cost but i was just curious as to where we're trying to cut costs, i would like to know how much we're adding in with a new requirement. >> well, first of all, the answer is no, this amendment has not been scored. >> okay. that's fine. >> the amendment has not been scored. >> how can we vote without knowing how much it costs? >> well, i can tell you how much it will cost in terms of human life without doing it. in terms of the rise in cervical cancer, the spread of sexually transmitted disease and an increased burden on an already stretched thin primary care system. >> well, i can tell you the costs that we are placing on future generations of americans by expending their dollars and increasing the deficit in the multi trillions of dollars that they're going to have to pay

for. i think this committee has every right to know what the cost of an amendment is if we're going to give it the kind of judgment the taxpayers of america deserve, no matter how worthy the cause. i think the men and women in the military deserve the best equipment, the best training and the best care but i don't propose amendments to help them unless i have a cost associated with it. >> senator, i appreciate those comments and you have said them at other times. we did send it to cbo so i have not been a laggard in that area but we have not yet gotten their score. we approved other amendments yesterday with no scoring and we have approved some other republican amendments without scoring. so i'm trying to get a score but with 300 amendments pending and a time line, we thought we would

move the amendment. when we get the score, if it is astronomical, believe me, i would be one of the first to take a look. >> well, if i might say in response, with all due respect, maybe we ought to slow down and find out what the cost of all this is before we move forward with it. i would say. and i understand that we've had hundreds of hours of hearings and debate and discussion, but senator dodd told us that we would know the cost of this bill as we go through it. and that was the statement made by the acting chairman. i kind of expected that to be the case and if we have adopted other amendments without estimating the cost of it, then i'm not sure that that justifies further approval of amendments that we don't know what the costs would be. and i want to express my admiration and appreciation to the senator from maryland for her advocacy and compassion for those who most of all need our

help but the cost is something that at least the taxpayers ought to know who send us here. >> we do have -- i'm sorry, senator. >> go ahead with that discussion. i have a different question. >> we do have the score on the underlying bill. we have pushed back the markup schedule in order to make sure we could get as much of an official cbo score as we could. and we had -- i felt that ensuring we had cbo scores prior to marking up the titles in the bill was urgent enough to originally delay the filing of the deadline for the issues on these things. senator dodd has done everything in terms of delaying the bill to get as much information as we could from cbo. cbo has done i think a yeoman job trying to serve the committee. as we offer each and every

amendment, they might not be able to do that. but right now, we do know that the cost of delay and the cost of doing nothing will only already add to the cost of both health care and other essential federal programs by not doing it. so one is the scoring, know that we have asked for the score. i pledge to the senators as soon as i get it, i will be the first to tell you about it but i would like us to at least see if we agree on the policy and then can go to the numbers. i think senator merkley, i think senator enzi wanted to comment. then i will turn to you. >> if that's on the same line, i would defer. >> senator merkley, did you want to comment on the policy or did you want to comment on the scoring? >> well -- >> or the cost? >> i want to comment on your amendment 201. >> then perhaps i could ask my

question first, because i was just wondering if there's any limitation in the language on what would be determined to be preventive service as opposed to other kinds of services. >> what would be the preventive services? >> is there a definition of what would be preventive as opposed to other kinds of care? the reason i ask that is because i have been making a point with everything that everybody, regardless of whether they're man or woman, ought to have some skin in the game on their regular care and that gets them to be a little more careful on what they buy, and to be involved in their own care rather than just saying well, it's for free -- >> yes, preventive services are defined by hersa guidelines. i believe that they are uniform and consistent. also, there is a public health service task force on preventive services that provides core

definitions that tend to be universally accepted. they usually relate to early detection and screening. >> i knew you would be very thorough on it and i appreciate that. i always like to voice at this point that among people that have insurance, only 5% of the people take advantage of what they have in their policy. somehow, we have got to get people to use what they have been given. somehow, we've got to get that number up because that would save lives. that's an uncontested point. so i hope we can get a lot of groups involved in getting people above that 5% total use. this would probably help do that. >> i would agree with that. one of the things that you and i can really feel proud of that we did, about a preventive service that was not covered by health insurance is our senior fall prevention program. i'm really pleased that we worked on that. the two major reasons seniors

are admitted to hospitals are one, dehydration, often living alone and often forgetful about some things, and the other is falls. when you fall, you usually break a bone, break a hip, and it's an enormously costly one. we have worked on a whole set of prevention in that area and it passed and i'm very proud of it. senator merkley, did you want to comment? >> thank you very much, senator. i just wanted to state my understanding that in most cases, this sort of early screening and preventive care greatly reduces the chance of disease getting well under way and causing great complications later that become very expensive to treat. and aren't in general this sort of prevention and early detection screenings not only better for the quality of life for the individual but have great returns in terms of the cost of the health care system?

>> yes. and for anyone who would like to learn more about it, i commend them to the jacobs institute of women's health at g.w. university on women's health and health care reform. one of their major emphasis is on early detection and screening. if there's no further debate -- >> madam chair? >> senator hatch? >> i just have a question for you. i fully appreciate what you're trying to do. i have a lot of empathy towards helping women in distress and am the author of the violence against women act along with senator biden. i feel deeply about these things. i want to ask you on page two, it says, on page 59 between lines six and seven, insert the following, d, include within health insurance plan networks, which you're doing here, those essential community providers where available to serve

predominantly low income medically underserved individuals such as health care providers, et cetera. >> sorry. could you repeat the lines that you're looking at? >> yeah. >> page two? >> it's your language, page two, paragraph d. just read down to the first five lines. >> yes. >> would that include abortion providers? it looks to me like you're expanding it to where -- well, say for instance like planned parenthood, would that put them into this system? >> it would include women's health clinics that provide comprehensive services and under the definition of a woman's health clinic, it would include -- >> abortion? >> it would include planned parenthood clinics.@@@úrrg

your work on this. you and i had a discussion about it. the way it's written, i don't believe this is the intent, the way it's written, i believe it's too broad and the way it could be interpreted down the road might include something like abortion. i'm concerned about that. the breadth of that and the scope of it. and for that reason, i will oppose it. i think you know my record, i have been voting consistently

for title ten funding and other family planning, but -- and you and i have had a good discussion about this, and i'm grateful for the time you took to talk to me about it, but i have to oppose the amendment. >> i appreciate that. i say to you, senator casey, if you have -- i would hope we could resolve the policy today. as we move forward on the bill, just as we said to senator mccain, we'll be as we look at the scoring, and if you have a way of sharpening this in a way that we could mutually agree upon, i would look forward to working with you. we thank both you and senator hatch, really, for the advocacy for women, violence against women, many of the things we have worked on together and certainly, your advocacy as well. so this isn't are you for or not women's health. you have a legitimate issue of a

personal philosophy which i think we all respect. we need to respect it. >> madam chairman, would you be willing to put some language in that say not including abortion services? then i think you would have more support. >> what we're doing here, before we get into picking which service or not service, what i would prefer to do is keep this defined to keep it as the women's health clinics that provide title ten services, which are already providing title ten services. so no, i would not be willing to do that at this time. >> all right. >> i think we would have to have a recorded vote. >> okay. >> that does change it. >> if there is no further debate, then the clerk will call the roll. this is on the mikulski amendment with several co-sponsors. >> senator dodd? >> aye by proxy. >> senator harkin? >> aye by proxy.

>> senator mikulski? >> aye. >> senator bingaman? >> aye. >> senator murray? >> aye by proxy. >> senator reed? >> aye by proxy. >> senator -- >> aye by proxy. >> senator brown? >> >> no. >> senator hagan. >> aye by proxy. >> senator whitehouse. >> aye. >> senator enzi? >> no. >> senator alexander. >> no, by proxy. >> senator burr. >> no. >> senator isaacson? >> no, by proxy. >> senator mccain. >> no. >> senator hatch? >> no. >> senator murkowski. >> no, by proxy. >> senator coburn. >> no, by proxy. >> chairman kennedy? >> aye by proxy. >> the vote is 12 ayes and 11

nos. >> the amendment is agreed to. >> madam chairman, thank you so much. and i appreciate the great courtesy that you showed to all of us. you do a very good job. i call up amendment number six, and what this amendment is all about is to improve access to health care services and provide improved medical care by reducing the excessive burden, the liability system places on the delivery of services by primary care physicians in rural and medically underserved communities. what this amendment does basically, is improves access to health care services and provides improved medical care in underserved communities, rural communities and especially among primary care physicians. now what this amendment does, is

it takes on the medical liability issue directly. and let's just be honest about it. someone who actually used to defend those cases, doctors, hospitals, nurses, health care providers, i have to admit that once they change the law from the standard of practice in the community, if the doctor met the standard of practice in the community, then that doctor was absolved from liability. and they changed that law mainly through personal injury lawyers to where it became the doctrine of informed consent. and from that point on, every case with the slightest evidence goes to a jury. even if the evidence is faulty. and in the process, we've had an upswing in medical liability cases throughout the country

that have been devastating to the health care industry and especially to obstetricians and gynecologists. and especially in rural areas. every case goes to the jury. if there's a bad result, even though there was absolutely no negligence or fault on the part of a doctor or health care provider, whatever that provider may be, you could have runaway jury verdicts that basically run up the cost for everybody. consequently, a lot of obstetricians and gynecologists, and i'm centering on that since we've just passed the distinguished senator from maryland. the amendment trying to take care of women's problems. we've had a lot of obstetrician/gynecologists quit the practice who do gynecology, but they'll not do obstetrical services again. in some areas of the country, they are not only woefully deficient. most areas are deficient, but

some are so woefully deficient that women have to travel for miles and miles and miles to get any health care treatment when they are in the process of delivering a baby or having other difficulties during pregnancy. what this amendment will do is help alleviate some of those problems because this amendment is aimed at eliminating needless litigation costs in our health care system. now let me go into that just a wee bit. when the doctrine of informed consent became the rule, that meant there was no way any doctor could fully inform the patient of all the problems that could possibly happen. you'd have to go to medical school to be able to do that, and even then, there would be doctors that say you haven't met that standard. we had a doctor in pittsburgh where i practiced law who would testify against any doctor no

matter what. and he would make a case against these doctors and the cases would go to the jury even though they were in my opinion frivolous and sometimes even fraudulent. and that's been replicated throughout the country, and in the process, what we told doctors is you're going to have to make sure you have done everything you possibly can to have every possible procedure in your history of that patient so that if you do get sued, however frivolously it may be, that you can then say, look. i went way beyond the standard of care in the community. i've done everything i possibly could. i've used every procedure, every medical device, et cetera, et cetera. every drug, bing oh, bingo, bingo. and in the process, even that would not fully protect you doctors, but at least you would

have a very good argument in court that you did everything that a great doctor would do under the circumstances and hopefully the juries will recognize it. there are cases that, yes, with bad results because we're all different. but where there wasn't any negligence and there should not be a jury verdict in those cases. i have to say that this is what we call unnecessary defense of medicine. now having said that, i think all of us would like to have necessary defense of medicine. in other words, doctors do the necessary procedures, the necessary approaches that are minimum -- at minimum to make sure that they've ruled out certain possibilities that could hurt you. but today they go way beyond that. secondly, we all know there's an overutilization of c.a.t. scans,

mris. these are important devices. we can't do without them but they're overutilized for many reasons. one of which is medical liability. potential medical liability. there are other reasons, too. they can make a lot more money. they can pay for the machines. they can do a lot of things. but the fact of the matter is most of these doctors are trying to build that history, that record so they can show that if somebody has an unpleasant or bad result, they can at least argue that it wasn't because they failed to do something that should have been done. now in the process, i said 30 years ago that i believe that unnecessary -- unnecessary defense of medicine was in the neighborhood of $30 billion a year. that was 30 years ago. now the ama at that time, if i recall it correctly, admitted to at least $60 billion. you can imagine what it would really be when the american medical association actually acknowledged that there was probably at least $60 billion. it was many times that.

and they know it, and i know it. and anybody who has ever tried these cases knows it. today it's far more than that. and we've become so dependent upon unnecessary defensive medicine that the costs have just skyrocketed. and what this particular amendment would do is it would impose limits on noneconomic damages that can be awarded in suits against primary care physicians in rural and underserved areas. they would limit this -- this amendment would limit plaintiffs ability to collect from multiple defendants for the same occurrence. finally, they would raise the standard for the award of punitive damages in suits against these doctors and facilities that are particularly vulnerable to the cost associated wits malpractice litigation. now i'm the first to say that there is negligence from time to time in the medical field. and there are legitimate cases that are brought. i mentioned the wrong leg, wrong

eye, wrong kidney. we only have two of those. frankly, those cases had to be settled for significant amounts of money. and they were mistakes made by some of the best doctors in the country. so there are legitimate medical liability cases. but the vast majority of them are brought to get the defense costs of somewhere between 50,000 to $250,000 on average. and if the attorneys can get the defense costs, they're going to make, you know, one-third to 40% in the contingent fee approach they have. i don't begrudge them that if the cases are legitimate. and that amounts to an awful lot of cost of the whole society. now i'm very concerned about it. now this amendment may not be everything i would do. for instance, i would if i had my way, establish health courts to resolve these problems in a fair and reasonable manner. if we could do it, which would be nonjury health courts. i'm not sure that can be done

constitutionally, but if it can, we would move in that direction. secondly, there might be some other pressure points where you could determine whether doctors really were negligent or not without -- without having to endure runaway jury verdicts. and there may be a whole bunch of other things. what this does do is it basically puts limits on noneconomic damages, which is very, very important. and it would limit total noneconomic damages to $750,000. if you have punitive damages, it would be the greater of $250,000 or two times the economic damages. but it would have unlimited economic damages. in other words, no matter what the cost, you'd be able to recover them. plus the noneconomic damages up to those limits that i've said. now i prefer maybe even for all of us to work on something maybe even better than this, but this

is where we are right now. and i believe it's the right thing to do if we want to get health care costs under control. wherever they've done this type of legislation, they have had much greater success in getting health care costs under control. and in limiting the explosion of litigation that's occurred in our country. and the states that have done this have benefited. frankly, i think it would resuscitate the ability of communities, especially rural communities, to get more obstetrician/gynecologists to help with the problems that women go through and the problems of children and childbirth and otherwise. personally, i think it's something we really need to do. i'd be open to even better ideas if somebody had them. and -- but i think we need to set an example here since we've got to try and bring costs under

control. and i contend that unnecessary defense of medicine is eating our country alive. and, frankly, i don't blame the doctors for trying to build up their histories, their medical histories of a patient so they can at least try to protect themselves if they ever do get to court. and that's really what's happening. i don't think anybody can rebut that who really understands the situation. a lot of -- compared to when i was practicing law, i have to admit there were a lot of insurance companies who would ensure for medical liability. there are very few today. and it's getting more and more difficult to find companies that will insure doctors for medical liability purposes in states where they have unlimited noneconomic damages. in addition to the unlimited

economic damages that this amendment would provide. i know it's an unpleasant subject. i know that those who are devoted to the american travel lawyers, and i'm devoted to them when they're right. i'm just not devoted to them on this issue, might feel otherwise. but the fact of the matter is it's time we start getting this excessive litigation under control and this amendment would help us do that. >> madam chair? >> before the senator from rhode island responds, i just want to respond on two process points. and then i know the senator will probably want to -- the content issue is that correct? >> that is correct. >> on the process. first of all, it's my understanding -- the senator has a right to offer his amendment. but it's my understanding that we are considering amendments to title 1, which is to coverage, and that that was going to be

the scope of what we were going to do today to either expand coverage, limit coverage, modify coverage. and i'm not sure which title the hatch amendment is amending, but i don't it affects coverage. i'm certainly not going to prevent you from offering this amendment. but he did ask me through senator harkin who chaired before us that we try to keep to the coverage section because it's the heart of what we're trying to do. we've had so many good debates and votes on medical malpractice earlier this month that i think we prefer that this wasn't in discussion now and that we would stick to coverage. and also as we said in earlier debates, this amendment is not

germane to this committee. it really belongs in the judiciary committee. there is no foggy area. in health care there say foeg area between us and finance. but i just want to put those two process points down. >> sure. and i understand that. when we wrote the amendment, we didn't have the bill, or at least didn't have any idea what -- about the bill. so we did put appropriate legislative language in because it does say at the appropriate place insert the following. so it can be easily inserted in title 1. secondly -- secondly, i agree with the senator. that should not prevent -- if i can get this passed it should not prevent us from passing and putting it in here. if they want a referral of this bill on this issue, i don't have any problem with that. but we're talking about a comprehensive health care bill, which is called health care reform, and i can't believe that we would have a comprehensive

one without solving this problem that is eating us alive economically without any real justificati justification. look, i practice law. i was a trial lawyer. i'm proud of that. most trial lawyers are very honest, decent people. without them we vunta a lot of justice in this country. i'm the first to stand up to them but this is a messy area that's gone way overboard and i don't care who you are. if you think it through, you're going to say, yes, something need to be done. this is an attempt to try and do something. we're talking about well over a trillion dollars here by the time you do the right thing. people are starting to catch on to this and they're starting to get mad. at least the ones who are talking to me are. and this is one of the areas we

really have to face as attorneys, as legislators, as people who really want to have things work right. as people who are interested in getting the best care for our women in our society. and i just center on the one thing. obstetrician, obstetrics and gynecology. there are people who just won't go into it anymore because they know the insurance is too expensive. it's tough to start out and then when they get into it, they can be sued at the drop of a hat for what really isn't negligence. these are the types of things we've just got to wake up to and say, yeah, it's hard to do. we don't want to antagonize our trial lawyers who are large funders of people in the senate and the house. but it's one of those things we really need to face. and i know that this -- >> well, senator, i just want to make the point about the

germaneness. >> you did. but it's still valid to put it in. >> senator whitehouse. >> thank you, madam chair. first, let me express my very great respect and admiration for the distinguished senator from utah -- >> vice versa. >> who has been, obviously, extremely distinguished member of this body and before that was not just a leader of the legal community in utah but a nationally recognized lawyer of very great stature. and so it is with some reservation that i regretfully must disagree with him on this amendment. and it concerns me that the insurance industry will so willingly turn its guns on the most severely injured victims of catastrophic medical error.

the cost of liability insurance in the medical arena is comprised of administrative expense, it's comprised of investment income, either as a positive or negative. it's comprised of claims experience and it's comprised of the cost of the individual claims. and in deal with all of this, the one place the insurance company chooses to turn its guns is on high claims. high claims, which are experienced by the people who suffer the most devastating injuries. the couple who have to come home with a damaged infant, which has completely changed their lives. for the rest of their lives, they'll be carrying a burden of care. their dreams for that child are completely changed. their whole lives are turned upside down by it. it's on them that this places the burden.

the person who comes home so severely disfigured and disabled by a medical error that their damages exceed 500,000. that is the person that has to bear the burden under this theory of insurance reform. if you look at the experience -- let's just set aside the investment income. many people have observed that investment income correlates more with profits than claims. but look at the experience part of it. it's now admitted, established by the institute of medicine, the national institute of health that health americans are killed every year by avoidable medical errors. and that lethal tip of the iceberg is part of a much larger iceberg of medical error that isn't lethal.

if it's 100,000 killed by medical errors, god knows what the number is of those sorely injured, severely injured in the hospital, come home with the wrong leg because the wrong leg got taken off and they have to go back and get the other one. for all of that injury, i think this bill, and particularly the effort led by the senator from maryland, our chairman, barbara mikulski, on quality reform, will actually do a great deal to turn around and to reduce the body count, to reduce the butcher's bill from error in american medicine. and i hope that we focus on that because i think that is the humane and intelligent way to deal with this problem of a cost of medical error. it's to have less medical error. not to take away the rights of the people who are the most injured by that medical error. and i think we find some support in this from cbo.

just yesterday i believe it was yesterday, it's been kind of a blur of health care for a while. i sat next to not david but doug elmendorf from cbo and he was asked by a distinguished member of the committee where the savings would be from tort reform, insurance reform, in an amendment like this. and he said, no, it's very small. negligible savings. and you can't really pick out defensive medicine because there's so many reasons for there to be defensive medicine. the learned senator from utah, distinguished between unnecessary versus necessariary. and cbo said that distinction can't be drawn. everything from good ones like wanting to be careful with a patient to bad ones like having a friend with an ownership interest in an imaging clinic where you want to keep sending people. there is a lot of defensive

medicine practice. and not all of it is a bad thing. some of it is what keeps america healthy. and this type of legislation simply can't be documented to save any significant funds through that. at least according to cbo who we custom early rely on. the last point i'd like to make is they always try to hit the jury system. and we all know that the jury system can be disruptive and uncomfortable. but under our constitution, it is supposed to be. it is often the last refuge of an individual when they are badly injured, when the forces of society are arrayed against them, when moneyed interest control the legislature or the executive. the founding fathers were keenly aware of the vulnerability of governors and legislative assemblies to both corruption and passing passion. and what they trusted to remedy

that was that we could get before a jury of our peers to have our problems heard. and to have the massive insurance industry now coming forward, seeking to disable piece by piece that fundamental constitutional prerogative of americans found three different times in the constitution and applied through the 14th amendment a fourth time, i think it's just wrong. it's something we need to guard against. so i would very strongly urge my colleagues to vote against this amendment. >> senator from georgia? >> i'll be short. >> may i turn to senator isaakson. >> senator, you'll be called upon. i know you'll also want to wrap up. senator isaakson. >> i apologize. i had to be out for a minute with a meeting with the secretary of the army. is this the cap on noneconomic and rural primary care and ob-gyn? >> that's what it is. >> i want to just -- i

appreciate what senator whitehouse said. but i'm not a lawyer. and i had a child terribly injured in an automobile accident as a passenger in a car. went through a windshield. double compound, fractured lower leg. had irrigation system in the hospital for six weeks in his leg to try to keep the bone marrow from getting infected. four operations. so i know a little bit about what you're talking about, and i appreciate the right of redress, and i appreciate the jury system. i appreciate the other side, too. i ran a company. and here's what i have always thought we ought to do, and i don't think your amendment does this. but i just felt like i was moved to say this. a judge can reduce a verdict that a judge feels like is a bad verdict. is that correct? i think what we ought to do is have a noneconomic cap and have the power of the judge to lift the cap if the evidence proven in court justifies lifting the cap.

because here's the thing you're not mentioning, and i have no dog in the insurance company fight. i ain't talking about them. but let me tell you what happens in the real world. there are those in the legal profession, not a lot of them, but it doesn't take a lot, who will file cases strictly hoping to settle them and get some money with the thing never going to court. if you had a cap that could only be lifted if the case proved in court gross negligence or you all come up with the terms. i don't know what the terms need to be. then you would take away the attractive make sure that you had the facts on your side to win the case and win the verdict. as one who had a child terribly injured, i don't want anybody to go through that. and if they do go through it, i want them to be able to be compensated. i'm talking about the child and i negotiated a structured settlement for my son because of the potential problems he might have. and he it worked out fine and we never went to court and we never

filed a suit. but i want people to be able to get that. but the part in the middle on this thing which contributes a tremendous amount to cost are those who will take a situation -- and we did tort reform in the georgia legislature just by having corroborating affidavit by another physician just to couldn't the claims. some kind of discipline to keep this unbridled filing of lawsuits in hopes of a settlement is one thing we need to work on. and it would help accomplish what the president wants to do which is reduce the cost of healthcare without jeopardizing an injured individual or a parent who has a deformed child or anybody that's a victim of negligence by a physician, the judge would have the ability to lift that cap if the evidence proved in court. so i just wanted to put that in because there are two -- there's actually three sides to this tort reform story and that's the third one and i wanted to be able to inject it, so thank you, madam chairman. >> did you want to wrap up? >> yeah, i'll wrap it up. thank you, senator.

i agree with what much of what you said, iff9 not all of it. i don't think this is an insurance industry driven thing to be honest with you. i tried cases on both sides. not on medical liability. i was a defense lawyer on medical liability and became a plaintiff's lawyer when we moved to utah. and i did both plaintiffs and defense work in pittsburgh where i was a partner in a law firm -- supposedly the oldest law firm in pittsburgh. all i can say is this, is that we have to do something here. wherever we've had a system like i'm talking about, the system works a lot better even though it appears there could be some injustices. i don't want any injustices either and i don't disagree with the distinguished senator from georgia that there are cases that are worth more than the $750,000 but hardly any of them are and the ones that are, we

could probably write some language that would -- between now and the floor that would accommodate those who clearly deserve more, whether a judge alone can decide that is a big question. but i'd certainly be willing to look into it. but we do provide for unlimited economic damages here. and that includes a lot of things. and that includes a lot of money in some cases where there has been clear, clear negligence. but the noneconomic damages we've limited in this amendment. wherever they've done that, they have been able to resuscitate obstetricians and gynecologists for women. they've been able to get doctors to come back and do a lot of things that were deficient. until they made that type of a determination. i really do respect my distinguished friend from rhode island and look forward maybe to working with him on how we can solve this problem. but in the meantime, i think this is a step in the right

direction to get us there. and i would hope that my friends on the other side will consider voting for it on that basis with the understanding -- and i'll work with my friend from rhode island and see if we can come up with some way really would work that people are treated well both ways. now, with regard to mr. elemendorf, he readily admits he doesn't know a lot about this and, frankly, in making this determination i can tell they don't know a lot about this but somebody who has been in the trenches and seen it year after year, i can tell you right now that anybody with brains will come to the conclusion, yeah, these doctors are going to order a lot of tests that they really don't need. part of that will be to pay off their equipment and so forth. part of it is not right on that basis. but they're going to do it because they want as sure as heck to make sure that historical record, their record on those patients, has every possible thought they can think of so that if they do happen to

get sued, they'll at least be able to go to court and said i did everything i possibly could to help this person and the result was not bad because of negligence. and they'll come up, i'm sure, some reasons why it wasn't negligence and go from there. unless we're willing to face this problem, i don't see any real control of unwarranted runaway expenses in healthcare. more importantly, even if it's just a perception, which it's not -- but let's say it is, it's a big perception in object stet ricks and gynecology and people aren't choosing that areas anymore and some areas they will not practice. they can't afford the 80 to $200,000 for insurance to take care of the liabilities that come. you know, in that regard i pay a

lot of tribute to our distinguished senator from oklahoma who has been doing this for years and helping women for years and years and years. and had the cuts and the ability to do so but there are a lot of people who aren't going to do it, aren't going to put up with it and pay those high costs and then also don't want to face frivolous suits in the end just so attorneys can get the defense costs of, you know, usually i think between 50 and $200,000. and when a insurance company won't somewhere within the neighborhood of their defense costs rather than take a chance at going to a run-away jury on a case that even though they know it's frivolous, even though they know there isn't no reason to bring the case, they just can't take the chance. and that's -- these are driving costs sky high and, frankly, mr. elemendorf, as good as he is, is wrong. and i have to say i have high regard for him.

he's been honest. he's been straightforward. he has done a very good job in my eyes under the circumstances. we can all agree or disagree on certain issues. but i got to say, i think he approached these things as honestly as he can. all i can say i've had some experience in this area and i think what i'm saying here is true. but i'm prepared to vote on this. [inaudible] >> i just wanted to make a couple of points on this issue of whether or not the savings are illusory or true. we do have some fairly strong evidence that there are very significant savings here. 246 states have enacted limits on noneconomic damage. texas enacted limits and saw a 31% decrease in their rates. nevada enacted limits and they saw their rates go down significantly. ohio, same situation. mississippi, the same situation. california, of course, is the best example. they enacted a $250,000 limit

and their rates rose less than -- rose at a rate of one-third the rest of the country and, of course, they are a huge experienced pool to look at and cbo prior to mr. elemendorf taking over this position did look at this issue and actually included in their december, 2008, budget option volumes an estimate that language almost identical to what senator hatch has proposed would save $5.6 billion over a 10-year period, which is a lot of money even though we're talking trillions here. 5.6 billion is not small. and we know that defensive medicine in medicare alone is costing somewhere 17 to $31 billion a year. so the potential here is huge. the experience of states is pretty determinative that there are significant savings. and that it does have an impact

on rates for lawyers -- for -- the rates for doctors and as a result, you get more doctors participating in underserved areas which is what this amendment is directed at. >> madam chair? >> first, i want to thank senator gregg for his comments and his brevity. senator casey? >> i want the senator know we're in the lightning round. i know that california using the example -- one feature of that -- of that story doesn't often get mentioned and that's a california-head insurance reform that went along with other changes to their system of justice, so that has to be factored into what happened in that big state.

i know senator hatch took a lead, gosh, more than a decade on children's health insurance and for purposes on this bill it's good to emphasize one-third of rural kids receive either chip or medicaid. i know how concerned you are about families in rural areas. i think there are a lot of ways in this bill that we're going to help them. i don't think this is the way. you know we have a basic disagreement on this. i think it is basically a difference of philosophy because where you come down on this issue really is determined by what you believe should be happen in the case of negligent conduct. i don't think a cap of $250 is fair or just. >> $250,000.

>> it is fair and justified. and i think -- in anliesing this against certain groups of people. if you happen to be someone who has a limited income for a variety of reasons or if you have -- if you happen to be someone who is injured at a certain point in your life and you have no earning capacity or a limited earning capacity, you're not a doctor, you're not a lawyer, you're not a high incomed earner, your earning capacity by definition is limited, that noneconomic question comes in to play for you. it limits the kind of recovery you can get. children, of course -- if a child is injured catastrophically and they have their whole life ahead of them, i just believe we have to provide for a system where juries can make that determination. sometimes limited by what a

judge would do in a post-trial situation. some of the recent data -- i'm pointing to an op-ed published in june of this year -- and i'm almost done, the patient safety authority in pennsylvania documented 8,645 so-called serious events causing injury or death in hospitals across the state, a 19% increase, actually, from 2007. at the same time, had about 1,600 lawsuits filed, which is actually a 40% decrease from 2002 to 2007. so in our state you actually have the number of events or potential suits going up or actions that lead to suits and you have the number of lawsuits going down. and i believe if you're injured in this way, you should be

awarded compensation for pain and suffering and that's just a basic disagreement we have. thank you very much. >> are we ready for a vote? >> if i could just answer that to a degree. i practice law in your state. and i can tell you that i saw case after case brought that was frivolous but still cost a lot of money. i saw some cases that were not frivolous. where very good judgments should have occurred, and they were almost always settled. and that was the way it was. just so -- to correct the record, the term "economic damages" means objectively -- this is the language of my amendment. means objectively verifiable monetary losses occurred in the provision of, use of or payment for or failure to provide use or pay for healthcare services or medical products such as past and future medical expenses,

lost of past and future earnings, cost of obtaining domestic services, loss of employment and loss of business or employment opportunities. so the cases you were talking about would provide that the jury can give huge awards for those. if you, for instance, were -- had a bad result in a hospital or something, those non -- those economic damages would be fairly huge. and this would all be put together, it would be for anybody. look, we're going to have to face this problem. i understand -- and look, and i have to admit i'm uncomfortable with limits -- lids myself. i'd like to work with you, brothers and sisters, to see if

we can -- see if we can find some way of getting rid of the frivolous cases. and resolve those that they're not frivolous. and if we don't, i guarantee you unnecessary defensive medicine is eating us alive. and anybody who really looks at it, i think has to come to that conclusion unless they're just looking at economic numbers and aren't looking at the facts. but all of the things you've talked about, except -- it isn't $250,000. it's $500,000 and $250,000 for limit on punitive damages because some of those have gone way off the charts. and it's a respectable way of trying to bring these matters under control and save billions and billions of dollars every year throughout our society in healthcare and help get some of these healthcare costs where they're at least manageable.

well, i think we debated enough. i know where the votes are. but i think it has to be debated. and i'm very interested in finding some way that we can come together as democrats and republicans irrespective of the legal community. they know i support them when they're right. i fought to keep diversity jurisdiction going when it was going to be killed by a few people around here because i think it's right. and the whole list of other things i've stood with them on, but i know this is an abused area of the law. and anybody who's been there has got to know it's an abused area of the lay, even though there are legitimate cases as well. and we've together try and find some way of doing justice in this area and bringing down these costs. and again, i'll go right back to obstetrics and gynecological work. some communities are totally bereft and it's frankly because of this. and i think -- and i'm just mentioning one area. i mean, there are a lot of areas

as well. i just mentioned that because it came on the heels of your amendment. >> and it was appropriate. right. we had an excellent discussion on this. i think we're ready to vote. does the senator from utah want a roll call? >> you can do it. >> all in favor -- >> wait wait i guess i do want a roll call vote. i've been told by staff we need a roll call vote. >> the senator wants a roll call. the clerk will call the roll on the hatch amendment. roll on the hatch amendment number 6. >> [roll call vote]

[roll call vote] >> hatch number 6 is defeated. we'll turn to senator bingaman for his amendment. i want to note for the committee we have now been in session since 10:00 this morning this we've completed six amendments. we have 350 amendments pending since tuesday. 200 that are still outstanding. we have a total of 550

amendments pending and we have a lot to do. so i would hope that before we break at 5:30, if we can even get two amendments done, it would be terrific, but if we can get one done, we'll be satisfied. senator bingaman? >> thank you very much, madam chairman. the amendment i'm calling up is 202, bingaman amendment 202. currently, the legislation requires all individuals to consent to irs disclosure of tax information for the purpose of being screened, if they wish to receive a subsidy in the gateway. the amount i'm offering would clarify that individuals would not have to consent to such disclosure. but instead could provide documentation that was specified by the secretary. for example, a prior year tax

filing or pay stubs from their employer. in addition, the secretary could utilize the same system as the medicaid program to verify such information. that's the income and eligibility verification system or ievs system. the amendment i'm proposing, i think, is important to ensure that taxpayers have flexibility about the information that's utilized to determine their eligibility for subsidies, and i urge my colleagues to support it. >> madam chairman? >> senator enzi. >> it appears that this makes the bill ripe for fraud if we eliminate the need to verify income for giving subsidies, won't we increase the cost of the bill which, of course,

already exceeds 600 billion and a major part of health reform is eliminating fraud and abuse. i don't see the protections built in there. i do think that flexibility is a good idea but there still has to be a verification and if it's just from pay stubs, people get revenue other ways, too. and that should count. >> well, let me just respond. i think what is intended here is that we would go to the same verification that is used in medicaid when people apply for medicaid. now i know there's been a lot of talk here about fraud in the medicaid system but i was attorney general in my state and i can tell you that the fraud that we prosecuted in the medicaid system -- we had a unit in my office that did nothing but prosecute fraud in the medicaid system and it was fraud

perpetrated by providers. there was not substantial fraud by people applying for medicaid. and the secretary has the ability under current law to verify any information provided by medicaid applicants through this income and eligibility verification system. and all we're saying is that same capability should be available to the secretary to verify information or the eligibility of people for these subsidies. so i don't think this is opening anything up. let me ask david if he could clarify his understanding of the safeguards that would still be in the system to ensure that nobody was obtaining subsidies

who was not eligible. >> well, currently, the bill does have this requirement to authorize verification based on the tax information for individuals who are claiming subsidies. as i understand it, the amendment would allow the secretary to use other methods including the methods used under the medicare program -- i'm not as familiar with that methodology since that's a finance program, but my understanding is from finance staff that it's obviously in effect. but i don't claim to have expertise from the bingaman amendment. >> madam chair? >> the senator from georgia. >> i'm sympathetic with what the senator from new mexico is trying to do but i want to raise a couple of points. number one, i would think on line 11 on the second page, you

would be using the federal income tax return from the previous year to be the justification for the eligibility rather than by putting may -- by putting may -- >> which line again was that? >> line 11 where it says provides satisfactory documentation of income is determined by the secretary which shall include a prior year federal income tax return. let me tell you where i'm coming from. i like the idea of the individual who pays taxes showing their income tax return rather than the idea of irs and the navigators and everybody sharing information personally. i think the senator is on a good track there. but let me remind everybody, our navigators are going to be compensated; is that not correct, by the gateway? >> that is correct. >> okay. think about this. the disaster of the mortgage industry 2007/2008 came about what was called stated income

loans where freddie mac and fannie mae were buying affordable housing loans made to people who stated what their income was with no verification. it was a loan where you could say what do you make. i make 50,000 and they make them a loan based on that when the guy was lying. when you have loose language like this where it says may include a federal tax return but it can be satisfactory documentation, then you have navigators who are compensated by the gateway for the insurance choice that's made or coverage choice that's made by the individual. i was in the sales business for -- anytime you let a salesman have wide and broad parameters on documentation of something like that you're opening yourself up for what happened in the mortgage industry in 2007/2008. so i would just -- i'm not trying to defeat the gentleman's amendment because i understand completely where he's coming from. but i'm really concerned about that loose of verification

system opening the door for people getting subsidies that shouldn't be getting them. >> well, i guess, my response would be we're not authorizing the salesman for the insurance plans to do anything here. we're saying that the secretary has the option of requiring satisfactory documentation of income and the secretary may include -- may as part of that require them to provide their federal income tax return. >> may. >> may. it doesn't have to in every case, if it's clear that the documentation already provided has been adequate. so i think having some flexibility there still makes sense.

i don't think the threat of someone getting a subsidy who's not entitled to it is substantial under the language we've got. >> the national institutes of health held a conference on swine flu yesterday. the president while in italy for the g8 summit called into the h1n1 conference. >> mr. president? >> hello? >> mr. president? >> hi. >> hello. [laughter] >> is napolitano there? >> secretary napolitano, secretary duncan and i and 500 eager state and local leaders, education leaders, health leaders are here. we're delighted you could join us. >> well, first of all, let me tell you that everybody is

asking about janet, including president napolitano here. [laughter] >> i'm very appreciative that all of you are there. and my remarks are going to be very brief. i think it's clear that although we were fortunate not to see a more serious situation in the spring when we first got news of this outbreak that the potential for a significant outbreak in the fall is looming. and kathleen, janet, john brennan, arne duncan and our

entire team have tried to engage in the most rigorous planning exercise to make sure that anything that may occur in the fall we're prepared for. and so i won't go through the details of this. i'm sure that kathleen and janet and others have laid out what the potential consequences are of a new outbreak of h1n1. we want to make sure that we are not promoting panic but we are promoting vigilance and preparation. and the most important thing for us to do in this process is to make sure that state and local officials prepare now to implement a vaccination program

in the fall but also that they are working on an overall public communications campaign with the white house and the possibilities that we may need to be dealing with schools that are seeing significant outbreaks of h1n1. and we've looked at past cases of this being properly handled in situations like this being improperly handled. and one of the most important differences is where it's well-handled state and local officials have complete ownership over this issue. they are providing good ideas to the federal government. they are critical links to inform us what's working and what's not. and so i'm just very grateful that all of you are taking this

seriously. we may end up averting a crisis. that's our hope. but i think if we're all working together in a thoughtful systematic way, and that we can protect our neighbors and friends and coworkers. so again my main message to you is to say thank you. you know, you are working with an outstanding team in kathleen, janet, arne and john. and if there are any issues at all that you think we have not raised, any t's we have not crossed or i's that we have not dotted that affect either our general approach or your

specific community, please let us know. we don't want to find out after the fact that there's some things that we could have done better. we want to find out now and make sure that we're planning ahead. so, kathleen, good job as always. and i want you to know that in conversations with world leaders about this issue, what's clear is that we are way ahead in terms of planning. and we may need to provide some guidance and direction to other public health officials in other countries. who may not have done such an excellent preparation as you've done. >> well, thank you, mr. president. travel safely. we'll see you back here soon and now i'd like to -- >> sounds good. thank you very much, everybody. >> great to have you with us. [applause]

>> how is c-span funded? >> the u.s. government. >> private benefactors. >> i don't know. i think some of it is government-raised. >> it's not public funding. >> probably donations. >> i want to say from me, my tax dollars. >> how is c-span funded? 30 years ago, america's cable companies created c-span as a public service, a private business initiative. no government mandate, no government money. >> next, a hearing on the independence of the federal reserve in setting monetary policy. on thursday, a house financial services subcommittee heard from donald kohn, vice chairman of the federal reserve board of governors and from other economists about the obama administration's proposal to expand the fed's power to regulate systemic risk in the

financial markets. subcommittee chairman mel watt chaired the 2-hour meeting. >> the technology to order without objection all members' opening statements will be made a part of the record. and i will recognize myself for an opening statement, which i will try to get in before we get called for votes. and maybe we can get the opening statements in before we get the call to the floor. this hearing is entitled regulatory restructuring, balancing the independence of the federal reserve and monetary policy with systemic risk regulation. our current regulatory system created largely as a response

to -- to the great depression in the 1930s was proven ineffective and outdated at preventing and addressing the financial crisis we are currently experiencing. recognizing this, the president recently put forth a proposal for comprehensive financial regulatory reform. this hearing will examine one aspect of that proposal, the part that proposes to delegate to the federal reserve board new powers including the power to serve as the systemic risk regulator for all large interconnected financial firms. as the systemic risk regulator, the federal reserve would be empowered to implement a more robust supervisory regime for firms with a combination of size, leverage and interconnectedness that could pose a threat to financial stability.

this hearing will examine whether and how the fed could perform and balance the proposed new authority as systemic risk regulator with its current critical role as the independent authority on monetary policy. while recent events have caused many to reevaluate and question the role and the extent of independence accorded to the federal reserve, the feds' independence from political influence by the legislative and executive branches of government has long been viewed as necessary to allow the fed to meet the long-term monetary policy goals of low inflation, price stability, maximum sustainable employment and economic growth. most central banks around the world, including the federal reserve, bank of england, bank of japan and the european central bank have had a strong

tradition of independence in executing monetary policy. many scholars and commentators agree that an independent central bank that is free from short-term political influence and exhibits the indicia of independence such as staggered terms for board members, exemption from the appropriations process and no requirement to directly underwrite government debt can better execute the long-term goals of monetary policy. the important question in our hearing today is focused upon is whether the fed can maintain its current role as the independent authority on monetary policy and take on a new role, a significantly new role as the systemic risk regulator. some scholars and commentators argue that the fed is uniquely positioned to become this

systemic regulator because it already supervises bank-holding companies and through its monetary policy function helps manage microeconomic policy. others argue that the fed is already stretched too thin and has strayed from its core monetary policy function, particularly, by using its powers under section 13-3 to purchase securities in distressed industries under existing emergency circumstances. as congress and the president work to enact financial regulatory reform, it is critical for us to examine carefully the extent to which proposed new rules may conflict with existing roles and whether the fed can effectively juggle all of those -- these roles while performing its vital function on the nation's independent authority on monetary policy. for our economy to function

effectively, the fed's monetary opportunities such as operating markets, discount lender lending and setting bank reserve requirements must be independent and free from political influence. we need to get a clear handle on the extent to which the administration's proposals could compromise or interfere with what the fed already is charged to do. i look forward to learning more about how and whether the fed can effectively carry out additional regulatory responsibilities while maintaining its current role as the independent authority on monetary policy. and i now recognize the ranking member of the subcommittee, representative ron paul for 5 minutes. [inaudible] >> i'll be happy to recognize the ranking member of the full

committee first for 4 minutes. mr. bachus from alabama. >> i thank the chairman. chairman, i don't think there's anything that is in such charp contrast as the administration's proposal for the fed's role and that of the republicans in the house. we particularly object to what we see is allowing the fed to become a permanent bailout agency and we believe that is most troubling and we believe if that's allowed to happen, that they will sacrifice their independence, and it's absolutely impossible to make them an independent agency and allow them to function as they are and yet give them the opportunity to guarantee or loan billions of dollars without substantially increasing their accountability and transparency. but i do thank you for holding this hearing.

whether regulatory power and sweeping new powers, really, should be centralized and given to the federal reserve in a time when our country is facing unprecedented fiscal economic and policy challenges, we believe it is very problematic. we have some foremost experts, governor kohn and our second panels so we look forward to your testimony. during the past two years, we've watched as the federal reserve has responded to dislocations in the financial markets with far-reaching interventions in virtually every corner of our economy. to confront the crisis, the feds used its emergency authority to bail out failing institutions. we believe particularly with aig and others -- particularly with aig and some of the auto companies, this was unwise to provide loans and loan

guarantees to revive the credit markets, which i think have had some success, and lowering the target fed fund's rate to zero and more than doubling its balance sheet. regardless of how one views these extraordinary fed actions, i think we all agree as we go forward we do need a more transparent action with a more clearly defined role. republicans believe that the fed's core mission -- and i stress is to conduct monetary policy. and that that will be seriously undermined if its supervisory responsibilities are dramatically responded in the obama administration's white paper. and the fed represents as i said the critical difference between the administration's proposal, which would statutorily bless

what we'd consider an unwise cycle of bailouts, picking winners and losers and obligating the taxpayers from our plan which does none of those. the administration would reward past regulatory and monetary policy mistakes by giving the fed the preeminent role in regulating the financial system and determining which financial institutions are too big to fail. this stretches the fed's resources, i think we all agree on that. it complicates its ability to carry out monetary policy function. at a time when our country faces crippling -- well, we say this. i believe if we continue to do these things, continue to have stimulus packages and deficits, we're going to have crippling inflation. and i think the fed will have its hands full dealing with

inflationary pressures without being distracted and overextended by these new powers. the republican plan would, therefore, relieve the fed of some of its current regulatory responsibilities. and allow it to focus on monetary policy missions. so thank you very much. but most importantly, let me close by saying we need to end the bailouts that the fed has been instrumental, i think, in carrying out over the last 18 months. and i mean the ad hoc bailouts of individual institutions. thank you. >> the gentleman from texas, mr. paul, is recognized for 4 minutes. >> thank you, mr. chairman. and welcome, chairman kohn. i'm delighted you're holding these hearings today because it deals with the subject that i've talked about for many years and we've had earlier discussions. and the fed's position, of course, is that they do reveal a

lot of information. and even in the testimony that we'll hear today, they still argue their case for exceptions. and the argument being that they don't want the independence of the fed threatened and they don't want it to be politicized. well, a lot of us think of independence -- we put another word in there automatically. that it's secret and clandestined and serving special interests so it's a nice word of independence, but politicize, there's no goal -- i don't have a goal of making it political other than the fact that the whole system deserves political attention. and yet it gets so little attention. it has not had much attention over these -- over these many, many years. but there's good evidence that it's been politicized already. there's been journal articles written and books written about how the fed has been influenced by the presidents over time and when a reappointment time was

coming up, policies were designed to serve certain administrations and so i would say that to argue the case that it should never be politicized is, you know, an argument against what we have because it has been known to be politicized. one other point i want to strongly make is the bill that i have offered, the 1207 has been challenged at times and i think it's justified to at least question, and that is how much would my bill affect monetary policy? and it doesn't. it doesn't affect it in any way, whatsoever. we are not looking for the congress to run monetary policy. we just want to know what's going on and why in the discussions. why wait five years to hear the debate? there's a strong argument made that the sooner the markets know what you're thinking and what you're doing and what the plans are, the better off. when i first came to congress, we weren't even allowed to know what the targets were going to be. the markets immediately after

the meeting say -- agitated, what are they doing and they figured it out and all of a sudden they started announcing it wasn't the end of the world and yet they argued, well, no, you're not allowed to know and there's a strong argument that the more we know about what has been going on in this last year, the more it would have helped the markets. it's the unknown and that is why we need a much more open fed. and the people are demanding it. they want transparency. transparency is a good word, but to say that a little bit of transparency is good but we can't have a lot of it -- there's certain things we don't want you to know what we're doing when we're talking to foreign central banks, foreign governments, international organization -- what kind of agreements do we have with the imf? we have an obligation, a moral obligation, here in the congress to know exactly what the agreements are. and we're not doing this to preempt anything. this is the reason why the support for this bill that i have is now up to 255 -- and

it's across-the-board, liberals, conservatives, progressives, populists, libertarians -- they're supporting this because -- and there's no agreement among those groups of what a monetary policy ought to be. they don't want to make it a political football. they're not asking for congress to participate in the meetings but to know what the strategy is and what the plans are -- that is legitimate information and we shouldn't be afraid of it. we shouldn't be afraid of the truth. there's been arguments over the years made about transparency. and i can give quotes and may later -- quotes from alan greenspan and when you look at those quotes generically, they're very, very good but at the bottom line, thesay we want you to know what's going on the unimportant things but when it comes to the unimportant things, we want secrecy.

>> i thank the gentleman for his opening statement. the gentleman from delaware, mr. castle is recognized for 1 minute. >> well, thank you, mr. chairman. i sort of enjoyed these opening statements since i happen to agree with all sides and all positions are being taken by everybody. and let me just say that i agree with you. you've asked the basic right question that a lot of us are concerned about and that is can the federal reserve maintain its role in shaping monetary policy at the same time that it's expanding itself to cover systemic risk in this country. i think that's a very serious question that needs to be answered. and i'm not -- i certainly couldn't answer it now. i don't know if we can get that answer today. we need to continue to work on that. i'd add another element to that and that is all the bailouts or whatever you want to call them, whatever has been going on beyond just the monetary policy issue. there's a lot of money that the fed without any coninstructiost

that have been helping the various entities and i'm very concerned about the role of fed and how it's expanded. i happen to agree with mr. paul. mr. paul and i don't always agree but i happen to agree with him with respect to his legislation and with the idea that we do need more transparency from the fed. i think that would help a lot of us in terms of understanding and perhaps embracing this. i think his legislation is actually very positive legislation. i think it's interesting to see the number of cosponsors that he has. i think a lot of other people feel that perhaps the time has come for the federal reserve to be more transparent in terms of what it is doing. but i -- i think we need a clear coherent vision of exactly why the federal reserve would be the right choice if we -- if we're going to have a systemic risk regulator, which i happen to believe in conceptually but i'm not 100% sure that the president and others who advocate this have targeted the right source to do it and to hopefully we can start to work that out today. thank you, mr. chairman. i yield back.

>> i thank the gentleman for his opening statement. the rules provide for 10 minutes per side for opening statements. and the republican side has one more minute so i'm going to yield it to mr. paul. >> thank you, mr. chairman. i probably won't use the entire minute but it gives me my opportunity to quote alan greenspan. in a speech in 1996, alan greenspan was addressing this subject. if we are to maintain the confidence of the american people it is vitally important that the fed must be as transparent as any agency of government. it cannot be acceptable in a democratic society that a group of unelected individuals are vested with important responsibilities without being open to full, public scrutiny and accountability. and i know those terms are general and he probably might disagree with a little bit of my bill, but those are good words. and i'm just carrying through on that because i think it is so important for the american people to know. i mean, the protectors of the

value of our currency are all powerful and we need to know everything conceivable about how that policy is designed. we don't want to set the policy but what we want to know how it's being done and whose interests are being serve. >> i thank the gentleman for his opening statement. i thank all the partners for the opening statements. i haven't recognized him for an opening statement, but we're going to proceed without recognizing him for an opening statement. [laughter] >> we're delighted to have on the first panel the only witness, mr. donald kohn, the vice chairman of the board of governors of the federal reserve. without objection, vice chairman kohn, your written statement will be made a part of the record. and you'll be recognized for 5

minutes to summarize your testimony. and i now recognize you for your statement. >> thank you, chairman watt and ranking member paul, other members of the subcommittee. i do appreciate this opportunity to discuss with you the important public policy issues associated with the congress' grant to the federal reserve of a substantial degree of independence and the conduct of monetary policy and the interaction of this degree of independence with the possible enhancement of our responsibilities for financial stability. a well-designed framework for monetary policy callous a careful balance between independence and accountability. in 1977, the congress amended the federal reserve act by establishing maximum employment and price stability as our monetary policy objectives.

at the same time, the congress has correctly, in my view, given the federal reserve considerable scope to design and implement the best approaches to achieving those statutory objectives subject to a well calibrated system of checks and balances in the form of transparency and accountability to the public and the congress. considerable experience shows that this approach tends to yield a monetary policy that best promotes economic growth and price stability. operational independence, that is independence to pursue legislative goals reduces the odds on two types of policy errors that result in inflation and economic instability. first it, promotes governments to use the central bank to fund budget deficits. and second it, enables policymakers to look beyond the

short term as they weigh the affects of their monetary policy actions on price stability and employment. the current financial crisis has clearly demonstrated the need for the united states to have a comprehensive and multifaceted approach for systemic risk. the administration recently released a proposal for strengthening the financial system that would provide new or enhanced responsibilities to a number of federal agencies assigning to the federal reserve certain new responsibilities for overseeing systemically important financial institutions and payment clearing and settlement arrangements. these incremental new responsibilities are a natural outgrowth of the federal reserve's existing supervisory and regulatory responsibilities. the federal reserve already regulates bank holding companies which now include large investment banks and we have been moving to incorporate a

more macro-prudential approach to our supervision and regulatory programs as evidenced by the recently completed supervisory capital assessment program. the federal reserve has also long been a leader in the development of strong, international risk management standards for payment clearing and settlement systems and we have implemented these standards for the systems we supervise. in our supervision of bank holding companies and our oversight of some payment systems, we already work closely with other federal and state agencies. these responsibilities and close working relationships have not impinged on our monetary policy independence and we do not believe that the enhancements to our existing supervisory and regulatory authority proposed by the administration would undermine our ability to pursue our monetary policy objectives effectively and independently.

our independence in the conduct of monetary policy is accompanied by substantial accountability and transparency. for instance, the federal reserve reports on its efforts to achieve its statutory objectives in the semi annual monetary reports and associated testimony. the federal open market committee release as statement immediately after each regularly scheduled meeting and detailed minutes of the meeting on a timely basis. we present it four times a year and federal reserve officials frequently testify before the congress. in addition, the federal reserve provides the public and the congress with detailed annual reports on the consolidated financial activities on the system. these reports are audited by an individual public accounting firm. we publish a detailed balance sheet on a weekly basis. this year we expanded our

website to include considerable background information on our financial condition and our policy programs. we recently initiated a monthly report to congress on federal reserve liquidity programs that provides even more information on our lending, associated collateral and other facets of the programs established for congress. ..

>> this would have adverse consequences. an additional concern is up remitting gao audits of the broad facilities the federal reserve uses to affect credit conditions could reduce the effectiveness of these facilities in helping promote financial stability, maximum employment and price stability. thank you, mr. chairman for inviting me to present the boards of use and i look forward to answering your questions. >> i thank the gentleman for his

testimony. the bad news is that we just got the call for at least five votes on the floor of the house. the good news is that, once we get through this series of votes, we will probably be able to proceed uninterrupted through the balance of this witness and the next panel, we hope. although it's a little dicey on the floor today. so i would at this point declare the committee, subcommittee in recess subject to the recall of the chair, and encourage the members to please return promptly after the last vote on the floor in this series of votes. i hate to inconvenience all of the witnesses, but i guess you all have been through this

before. so you know how, kind of how it works. the committee stands in recess. [inaudible conversations] >> if i could get somebody to pull the door shut back there, we will reconvene here.

i will recognize myself for five minutes to ask mr. cohen questions. i'm interested in getting a better understanding of what your view is of what specific things a systemic risk regulator does. so let me start there. >> or would do, i guess, to make it a theoretical question as opposed. >> chairman bernanke has made a useful distinction between micro- provincial regulation and macro prudential regulation. microbrewed joke regulation is looking at each individual institution and making sure

their robust and resilient and safe and a macro prudential context, you want to look at not only the institutions but how they can relate to each other and how they relate to the system as a whole. and it's sometimes it's not so much of the size of the institution, but its interconnectedness, whether it's at the center of a web of relationships which is disrupted, not have a domino effect. so i think the job of a systemic risk regulator would be to take account of those in relationships. the market and how they are developing, and the institutions and how they fit into the markets. and look at the overall risk to the system as well as the risk of the individual institution, how that fits in. i think the federal reserve is well-positioned to play a role in that. we have not only our supervisory

authority over bank holding companies, which now include all the major investment banks, but we have people who are familiar with markets, the macro economy. and we have acted, we have responsibility for financial stability in the system throughout our lenders last resort facilities. so i think it requires a little bit of a different perspective than we are used to exercising, and i think the feds are in good position to do that. >> not unexpectedly, you focused on the synergies that exist between the two responsibiliti responsibilities. let me ask you if you could candidly focus on the prospects or possibilities of complex, what are the areas in which those possibilities of conflicts might arise?

>> i think there are minimal possibilities. i think some people have talked about whether, if we see a systemic risk from an individual institution whether that would affect our monetary policy deliberations. but in my view, i think there really is a congruence between the stability of the financial system and monetary policy. we can achieve our objectives of the maximum employment and stable prices much more readily in a stable financial system. so i just don't see important instances in which there would be complex. >> what kind of staff would you anticipate would be necessary, additional staff would be necessary to perform the

systemic risk regulatory function versus what you already are doing? >> recalling that in our view of the systemic risk regulatory function that the treasury has suggested for us, is an incremental change to what we are doing now. it's not a big change because we already have the systemically important institutions under our authority. i think it would require some more staffing, both on the side of the economists and the side of the supervisors to evaluate the systemic risk in a more systematic way. but i don't see, i don't think that this is a major change in our responsibilities that would require a substantial increase in what we are doing. now we have had to staff up over the last year because we have several large investment banks,

for example, that are now bank holding companies here and we have had to change and adapt to our new responsibilities. and we are doing that. >> my time is about to expire. actually, it just did. let me just squeeze him, because one comment you just made raised somewhat of an interesting question. because i had understood that a lot of the jurisdiction that you would be assuming for systemic risk regulation is not an existing entities that you already regulate. you said that you have all of the systemic risk regulator is already under your supervision. is that in fact a case? >> i don't know that we have all of them, mr. chairman. i think i would be something

that in consultation with this council, remember that the treasury is setting up a council of regulators to look at the systemic implications of the markets and the institutions. we would consult with them as to whether they saw some institutions that weren't currently under our purview that were systemic, at this point i think i would be very, very few institutions. >> i think you. my time has expired and i will recognize the gentleman from texas for five minutes. >> thank you, mr. chairman. sometimes definitions of words are pretty important and i alluded to that in my opening statement about what independent might mean to others. for me, independent usually is a code word for secret so we can get the information. one of your arguments for the indie pendant, the secrecy of the fed, is that those central

banks do have independence and they are less monitored in public. they tend to have lower and more stable rates of interest. but how can you compare that to what we have noticed under the federal reserve, you know. i remember when i first started looking at the federal reserve was doing, we had to anyone%. that sort of got my attention. and today we have interest rates of less than 1%. so that is hardly stable. and to me the real mischief comes not only because they are unstable and they fluctuate radically, but also the mischief it causes because these are artificial. i'm a believer that interest rates like prices should be set by the marketplace. you controllecontrol prices and wages is the most serious abuse

you can put onto an economy, and yet this fixing of prices seem to give us this trouble. and even the secretary of treasury now, mr. geithner, just a few months ago recognized that during the time he was in the fed, the fed kept the interest rates at way too long, too low too long. so how can you defend the fed maintaining independence or secrecy in order to maintain stable rates and to even try to achieve a stable economy, which obviously nobody argues we have a stable economy. >> i do not equate independent to secrecy. in fact, i agree with the underlying premise i think was your question which independence and secrecy in a democratic society are antithetical. and i think the federal reserve has been quite transparent and has become much more transparent

under chairman bernanke about what we are doing and why we are doing it. and i think we can retain our independence and your ability to trust what we are doing only by explaining to you what we are doing and why we are doing it. we have not only the statements which you mentioned in your opening statement after every meeting explaining what we did and why we did it. we have minutes. you have hearings. there are monetary policy report. there are other hearings that you hold. so i think there are many, many opportunities for us to explain why we are doing what we are doing. and those opportunities and that transparency is absolutely essential for retaining our independence. >> but i still think we can do better. like i mentioned earlier on there was a time when the fed did not review a medially what their targets were. why can't we consider releasing the details instead of in five years, why not in five weeks?

what's the big deal that you have to have this information? and the other argument you use it in the public's interest and that what really baffles me. the public is served by you having more information that we don't have access to unless it's maybe five years. it seems like there are other interests. it allows the suspicion to build, whose interest are you really protecting, because you say it's the publics interest. i don't think reassures a lot of people. because all of a sudden we think what are you doing? are you protecting the bankers interests? are you protecting some international, another government, another central bank, or what? so i don't see how you can protect the publics interest. it seems like we in the congress should have the responsibility for protecting the public interest by knowing more about what you are doing. >> within three weeks, congressman, we released minutes of our being which gives a detailed explanations of why we

did what we did, including the arguments back and forth the minority opinions, if people disagree. >> i think you are talking about transcript. released after five years. i would be very concerned that releasing those transcriptranscript earlier would inhibit debate. i think it's in the public interest that we have an unfettereunfettered debate within the open market committee that we are able to speculate among ourselves, what if we did this, what if we did that, where are things going. that there be no inhibition on the back and forth in the open market committee. frankly, at i have been at the federal reserve for several decades now, and in my view publishing the transcript themselves have had a somewhat inhibiting effect on the way the debate is carried out. there are many more prepared statement read at open market committee is now banned was

before the transcripts were published. i would be very hesitant, people would be very worried if their remarks were going to be made public very, very quickly. they would be very worried about what they would say and they would be much more careful about what they are saying. and that is not in the public interest. provided we are willing to its going to you, as we are, why we did what we did and what the minority views are. and we do do that. >> of course, you know, without an audit we never know. it just seems that it would be the benefit to us to know what the detailed discussion, why is there any value? i just don't quite agree with that because it's really the discussion we have. like i made my point in the opening statement. this is after the fact. this is after you had your meeting. this is after you have done something, and also the more information the market gets, the better the market operate.

and if they know what you are thinking about and what you are planning, you know, five years for the minutes is really way too long. >> pajamas time has expired. the witness may at your. >> i think we do ask when will we are doing and why we are thinking what we are thinking within three weeks. and you have ample opportunity to question chairman bernanke when he comes up for hearings about why he is doing what he is doing. we would be glad to work with you on how your ideas about how we could be more transparent and more helpful. i agree with you that for the most part transparency, where it doesn't inhibit debate and exchange of ideas, is better for the public. and we have moved, taken huge steps in that direction over the past three years. >> the gentleman from, the other gem is from texas is recognized for five minutes. >> when you say the job from texas and don't say which, many microphones are opened up.

thank you, mr. chairman. and i think the witness for his testimony and i apologize for not being here to hear you're entirely interlinear testimony. there are those who would like to have an independent fed, obviously that has worked well. the autonomy of the fed is to our benefit. there are those who contend that if the fed requires of these new powers and remain as independent as it has been, then the fed becomes this awesome giant that would be beyond the control of congress, the executives, legislative. how do you respond to those who conclude that this is risky to give the fed this much power? >> i think there are two types of responses, or two avenues for response, congressman. one is the additional authority we are getting is incremental to

what we already have. and the second, so it's not a huge increase in our authority. and the second part of the response is for the authority we already have, we are held accountable. we work closely with other agencies, with the ffi ac, with the other regulatory agencies on the president working group with the treasury, the general accounting office, government accounting office, accountability office, excuse me, does audit our activities in the supervision and regulation area and they perform many odds like that. and we have been able to do that and be held accountable, work with other agencies without sacrificing the independence that we need to exercise for monetary policy. so i think we are already doing it. and this wouldn't be that big of a change. >> how would the hr 12 oh seven

audit differ from the g. o. a audit? i'm not sure the hr 1207 would do what? >> that's the audit bill. >> as i understand it, and i don't understand it perfectly but i think we would make everything we do subject to gao audit. right now, since 1978 the gao has been able to audit most of our activities, except where they touch monetary policy and our interactions with foreign central banks and foreign authorities. and i think mr. paul's bill would remove that exemption so the gao would be auditing our monetary policy as well as all the other things we would do. our concern is that that would be perceived as intended to some extent on our independence to meet the objectives that you

have given us for price stability and full employment. >> and as a final question. how can congress, if you have an opinion, be of assistance in making this transition, if the transition is to take place, is there something more we need to do to help you transition to the regulatory reform side? >> no, i think the hearings that you hold and a mutual understanding of what's involved in this with us and the treasury and others who are, the one to make this transition. you have every right and you ought to be asking us as the chairman did what additional resources we would need in order to do this, how we would carry this out. so i think a dialogue between the congress and the federal reserve is not only appropriate that very useful to divine what this is about. >> thank you.

thank you, mr. chairman. i will yield back the. >> the gentleman yield back the balance of his time. mr. adler, the gentleman from new jersey is recognized for five minutes. >> thank you, mr. chairman. mr. vice chairman, you a moment ago articulated congress as a mandate to federal reserve with respect to maximum employment and to price stability. to what extent, if any, do you think additional responsibility has a systemic risk regulator would in any way distract the federal reserve from its 1977 congressional mission? >> congressman, i don't think it would distract us at all. i see the two missions, the macroeconomic goals of price stability and maximum employment, and systemic stability as being completely complement. i think the more stable financial system is, the more easy it will be for us to pursue successfully the goals of

maximum employment and stable prices. certainly we have seen a demonstration of that in the last two years. the instability in the financial system has resulted in very high unemployment, and has made it very difficult for the federal reserve to reach our objectives. so i don't see a conflict between those types of object is. >> you were the gentleman him a legal ask questions about sort of the potential lack for accountability in the federal reserve, a sort of a semi private entity, not completely under government control. others have been concerned there is too much political interference with the federal reserve. i wonder if you can comment about what additional political interference you think the federal reserve might encounter, if it undertakes this responsibility as a systemic risk regulator. >> i think we can separate our

accountability as a systemic risk regulator from our independence as a monetary policy carrying out your goals as a monetary policy, your goals for monetary policy. so i think, i don't see additional political interference with the objectives that you gave us. we will be accountable as a systemic risk regulator. we will be accountable to the government accountability office. we will be accountable to the congress. we will be working with the other regulators in the financial system, working closely with those other regulators in the financial system. and we have been successfully doing that for years. and this would sort of increase our interactions, but i don't see it -- i don't think -- there should be a risky giving us this additional authority would impede our monetary policy.

>> mr. vice chairman, i think you. mr. chairman, i yield back about my times connect the gentleman yield back about a decided we welcome mr. garlock from pennsylvania and would recognize him for question, if he has any imacs that we welcome joe mental california and invite him to ask questions if he has any. [inaudible] >> the gentleman is recognized for five minutes. >> mr. vice chairman, i think you are aware of 13-three of the federal reserve act. it is breathtaking in its scope. but even more breathtaking in the amounts i have. talk to your jim blair i asked almost facetiously whether it will treenode limit on the total exposure under 13-3 would be acceptable to him, and believe it or not he said yes.

chairman bernanke has interpreted before this committee 13-3 as allowing the fed only to take risks that are the equivalent of aaa. that is to say, only to extend the credit of the federal reserve under that section where there was the lowest risk that a credit rating agency would evaluate. do you agree with that constrained view of 13-3, or not? >> under section 13-3, the reserve bank making the load needs to be secured to its satisfaction. we have insisted on security in every loan that we have made. we have become -- we have a releasing more and more information about those loans. i think for the most part we

have -- those loans are safe. the credit risk is very, very small. >> i'm asking not from your prior practice but from your legal interpretation. let's say that the secretary of the treasury called you in the middle of the night and said, by god, we need another $700 million to shore up institutions on wall street. we need to do it right now or the entire world comes to an end. and those damn idiots in congress, they won't vote for another tarp. so the only thing we are going to save civilization as we know it is for the fed to take some substantial risks and become a general creditor of the banks that would otherwise become insolvent, and other financial institutions. do you view either you or your successors have the legal right to say yes, mr. secretary, couldn't agree with you more. we will have a vote on it and we will extend the credit. >> i think we need a new

resolution authority through -- the. >> i'm not asking you what the law, what new laws should be passed. i'm not asking you what your practice has been in the past. i'm asking you what are the legal authorities you have under present law right now. >> we need to be secured. i think one of the issues based. >> so you can't take a double a risk. you can all take a aaa risk? >> we need to have enough security that we feel that the loan has good prospect of being repaid, that we are not taking fiscal risk. >> letzig you are buying paper, that if you work for a credit rating agency you would rate it single-a. is that the kind of risk you are allowed to take under 13-3? >> only if it is discounted to an extent so that collateral value would be less than the par value. that's what we do. we take paper at the discount window. that isn't aaa but we don't give

it full par value. we give it, we discount it. and i think we protect the public person that way. >> it sound like you have the power to do another tarp, almost but not quite. shifting to another direction. in a democracy it's supposed to be one person, one vote. every institution of the government is supposed to reflect the results of elections held in polling booths. yet, you have at least a regional board of governors are selected on the basis of i will call it one day, one vote, to oversimplify. does it make any sense to invest with the image of governmental power, and everybody, i mean, you could say there's a difference between the fed and the branches of the fed. although throughout business, branch means in effect another office, not even a separate incorporated subsidiary. so most of the world your

branches as part of your tree. do you think it's appropriate to have privately elected governors serve in what appears to everyone to be a governmental capacity? >> the boards of directors of the reserve bank i think above the reserve banks have served a valuable function in the federal reserve. >> yes, sir. , in germany and before world war i they had what many people thought was either a good government. but your voting power, your control over government, any agency is dependent upon how rich you were. you could argue was a very good government that it made very good decisions right up until sarajevo. i'm not asking you whether it's good government. whether you have made good decisions. what i am asking is isn't consistent with what we celebrated on the fourth of july to have such governmental power in the hands of those elected on the basis of one thing, one

vote? >> i think congress from 1913 on has considered it consistent with its authorities and how it wish to carry them out. . . system

isn't sound. it makes it very, very difficult for us. and i don't see us using our -- on the other hand, i don't see us using our monetary policy authority in any way to -- in any way that wouldn't be consistent with the objectives you gave us for macroeconomic stability and price stability. so i really think the two are congruent, not conflicting. >> i mean, i interpret from your opening statement which i heard -- i missed some of the questions here and what you've been saying is the board of governors of the fed welcome

this responsibility, at least you seem to. is there any conflict at all among the board or discussion should we be doing this or is it better left to an independent agency or some other agency? >> i think members of the board have had different views about a broad grant of authority, but i believe -- i haven't polled all the members of the board -- >> i'm not asking -- >> see this as an incremental change from where we are right now. and, therefore, i am not aware of any dissent on the board about the particular proposal that the treasury has made before the treasury made the proposal, there was a lot of discussion of some systemic risk regulator with kind of unspecified authorities and unspecified responsibilities. i think there was concern on the board, which i shared, that we

not be given responsibilities for which it was impossible to carry them out because we didn't have the authorities and because the expectations were way too high in terms of what was possible in a market economy that naturally has ups and downs but i see the proposal on the table as a more modest proposal, which is taking what we currently do but giving a little more macro-prudential shape to it. thinking about the implications and being sure that the core institutions, the ones that have caused the problems, that have given rise to what you call the bailouts are safe and are not subject to the kinds of risks and the kinds of knock-on effects to the rest of the market that have caused us to intervene this time. >> how would you interact with other regulatory bodies that have jurisdiction over some of these entities, it an sec or

whatever it may be? how do you think that would fundamentally work. >> we would work closely with them. we already do work with the other banking regulators on the ffiec. we would be part of this council that the treasury has, looking at systemic risk and identifying systemic activities, systemic problems. we have close working relationships with the sec, and i see that continuing. we basically rely on them for supervision of the individual institutions, but i think this would give us some authority to make sure not only that the individual institution is safe but that the system is safe, too. >> what would be your responsibility with large insurers, hedge funds, and even private equity-type funds, as you view it, if under this legislation -- >> it would depend whether those

entities were considered systemically important and given the fact that they were not systemically important, we would have authority under them and the council which would have the -- which would have the responsibility for identifying these issues -- i think if we saw there was a gap in regulation that threatened the stability of the financial system, it would be up to us to try to fill that gap. >> i don't know this. but i would assume because insurance is generally regulated at the state level, you get the state/federal. i don't know if you discussed that or not in your preparations? >> i think our proposal is to create a federal entity, isn't it? >> well, it's discussed at least. >> right, right. i think the problem perhaps isn't so much as the insurance company at least thinking back to our very bad experience with aig, it wasn't the insurance companies. it was the stuff that was going on next to the insurance companies. and i would hope if we saw something like that happening,

we would find a way of containing that risk and limiting that risk to the system. >> the gentleman's time has expired. the gentleman from nebraska, mr. ellison, is recognized for 5 minutes. >> thank you, mr. chairman. also let me thank vice chairman kohn for his work. vice chairman, do you believe that it's important for the fed to relinquish its consumer protection responsibility particularly in light of its expanded power in the area of systemic risk? >> i don't think the fact that our power might be expanded to a degree in the area of systemic risk is by itself a reason to relinquish the consumer authority. my personal view is that the federal reserve is well based to do a good job in the public interest on consumer regulation. i think the fact that we have various disciplines within the

system -- we have a view of the macroeconomy, the markets, our supervision system -- these are congruent with good, consumer regulation give us a way of balancing issues having to do with consumer regulation. i think in the last couple of years, we have stepped up to the plate on mortgage -- on high cost mortgages on consumer credit. we'll have a truth and lending coming out at the end of this month. i would hope that the congress might think about whether there are ways of strengthening the federal reserve's commitment to consumer regulation as an alternative to creating a new regulator. >> would you allow, vice chairman, that the fed was slow to the game in addressing some of these consumer issues you just pointed out?

particularly, in mortgages, credit cards -- i mean, some of the issues that the more recent legislation addressed have been long-standing? >> i agree that we did not see the abuses as widespread as they were. and we were slow to react to them. and i think if you kept consumer regulation in the federal reserve, if you ever decide to do that, you need to strengthen our commitment to that regulation, i agree. >> do other industries have consumer protection as part of their mandate? >> i don't know. >> is the fed currently working on consumer concerns right now with regard to the overdraft fees and things like that? >> i'm not sure, congressman. >> has the fed addressed issues

like -- among bank staff that sort of like sales practices that would push products, push selling accounts, having quotas for selling accounts in a given day or week without with regard to the best interest. so, for example, if a bank were to say to a personal banker staffer, you must produce ten new saving accounts that day, and that staffer were to try to get two or three accounts for the same person in a day, is that something that the fed has focused its intention on now? >> i think our focus in thatmñ regard has been transparency. making sure that people knew what they were getting, the terms and what they were getting and what the alternatives are. i know that we have focused on that in the mortgage area. >> has the fed focused on that issue particularly now -- i mean, overdraft fees are a

significant part of bank profit. >> we have focused to some extent in the past. i don't know whether we still are focused on that. >> and if i may be allowed a final question. i agree -- i think some of the work the fed has done has been very laudable and i want to let you know i feel that way. some of the findings you made regard credit cards and other things are just great. but i will say that given the fed's mandate of monetary -- focus on monetary policy, i wonder -- and i wonder if you wouldn't mind commenting that there are not some occasions on which consumer protection takes a backseat to some of the other issues that the fed is required to focus on? >> i think that's happened in the past. i don't think it's happened over the last three or four years. >> i'll agree with that. >> and i agree with that. >> and i think there could be changes in our law making

consumer protection explicitly part of our mandate that would help to prevent that from happening in the future. but it has happened in the past. >> thank you, mr. vice president -- vice chairman. >> the gentleman yields back the balance of his time. the gentleman from new jersey, we welcome, mr. lance, if the gentleman has questions, we'll recognize him for five minutes. >> thank you, mr. chairman. good afternoon. regarding the powers of the fed at the moment and there's this huge debate regarding a systemic regulator and many of us on our side are concerned with whether or not this should exist and if it does exist, whether it should exist in the federal reserve part given your core mission. it's established i gather under woodrow wilson, 1913, perhaps.%s and perhaps you've answered this before i entered the room and i apologize if you have.

but if you could elaborate on your views personally, sir, regarding whether you believe a systemic regulator should be housed in the fed. >> i think the federal reserve is well positioned to carry that mission out in the public interest. i think we bring a variety of perspectives that are important to that. we have everyday contact with the markets so we know what's going on there. we have supervision so we have a view of what's happening within individual institutions. our responsibilities for the macroeconomy give us a perspective on the intersection of financial markets in the macroeconomy. so i do think the federal reserve is well positioned to exercise some oversight of the systemic risk area. >> do you believe that there might be an inherent conflict given your responsibilities in managing the macroeconomy? >> no, i don't.

several of your colleagues have asked that question. i just don't see the conflict. i see this as one of them supporting the other. i think macroeconomic stability will support financial stability and financial stability will support macroeconomics stability. the federal reserve is involved in financial stability because we have the lender of last resort and because we have the responsibilities that you gave us for macroeconomic stability so it doesn't matter who the regulator will be in the evidence and the federal regulator will have to be involved and i think there's synergies giving the federal reserve a little extra power to do that given our current authorities. >> thank you. in a completely unrelated area, i am personally concerned with the purchase by the fed recently in an increasing amount of long-term t-bills. i'm not sure the american public is fully aware of this

situation. it's obviously arcane and something that may not be on the front pages of newspapers. could you update us on your recent purchases and where they are in relationship to where they might have been a year ago, sir? >> so we have in march, the federal open market committee decided to purchase up to 300 billion of treasury intermediate and long-term treasury securities. we did that because we thought it would be helpful not for the treasury per se but because we thought it would push down interest rates for businesses and households at a time when the economy was falling very rapidly, very weak, and we needed to free up the credit markets so businesses and households would face lower charges, lower cost of capital and induce more spending. i'm not exactly where we are in that process.

i think we're about halfway through. we said, i think, it would be done by september. and at our last -- at the end of september. at our last meeting, we didn't make any change in that -- in that plan. >> and so if i just might follow-up, mr. vice chairman, it is your expectation that you will not continue this beyond the september date at least to the extent that you are currently involved in that area? >> we've made no decision on that. that would be a decision the open market committee would have to make. >> thank you. obviously, we on this committee would like to be apprised of that and that's certainly an area of grave concern to me. thank you very much, mr. vice chairman. i yield back the balance of my time, mr. chairman. >> the gentleman yields back the balance of his time. we welcome the member of our full committee, mr. garrett, who is not a member of the subcommittee, but i would ask unanimous consent that he be given 3 minutes to ask questions. i would give -- actually ask for

longer but we already displaced a meeting that was scheduled to start in this room at 4:00. there's another meeting that's scheduled to start in this room at 5:00. and we have another panel. but i would happily grant the gentleman 3 minutes unless one of your members has an objection. >> i appreciate that. and who knows? they might. is there anything -- is there anything more important than this meeting and the chairman that you're leading right now. but thank you, mr. chairman. i thank the witness. just a couple of questions. you know, you're familiar with a proposal that the administration has laid out and i assume that you at least had the opportunity to know that the minority party -- the republicans have thrown out a proposal as well to deal with the situation. i don't know whether you've gotten into the weeds at all. >> i haven't gotten into the weeds of the republican alternative. >> we'll be sure to send you an annotated version.

one of the provisions in it, in our plan, says with regard to section 13-3 stop me if someone else threw out this question. it says 13-3 should be reined in to some extent and one of the aspects of it would -- to limit the ability for the fed to actually pick, as it has in the past instance, a particular institutions and bail them out as opposed to -- prohibit that but instead still allow them to use section 13-3 in a larger institutional-wide basis if that's clear. >> yes. >> a comment? >> so i think that's consistent with -- if i understand it correctly, congressman, with our own position, which is with respect to the resolution of systemically important institutions, we don't want to be involved in making those loans. we think there ought to be some

way of -- there needs to be some way of doing that. we need to have orderly resolution of these institutions but that's not the job of the federal reserve. we would be consulting. we would be part of the process. but it ought to be a treasury department-led process. >> okay. but there would be a distinction, though, to simply say that we should set up this wind-down authority as the administration proposes. >> right. >> and not putting a limitation on the fed, federal reserve or as we're suggesting it, if it goes through that you actually have a wind-down authority as you suggest over in the treasury so you can wind things down but then clearly in statute saying going forward the federal reserve shall not have the authority to do so. is that what you concur with? >> i'd have to see the exact wording. >> but you understand -- >> certainly, the idea i agree with. >> okay. and i know the whole discussion with regard to moral hazard and what's occurred in the past has already been laid out here. one of the things -- another issue that's totally unrelated

to this in the news is with regard to the fed chairman and the allegations or the -- with regard to pressure that has been put on certain institutions, wh what have you and the certain institutions named in the allegations. we are sending a letter to the white house just to try to get some more information on that. and so i will just throw the question to you right now, are you familiar with any other institutions at the fed -- or any officials at the fed have exerted any pressure on in any way, shape or form or whether the the treasury has excerpted any influence of those allegations are suggested? >> the gentleman's time has expired. and since that's really a subject that's not within the parameter of this hearing, i wish the gentleman would ask the question in writing if he wouldn't mind since we're under some time pressure. >> can you give me just a yes or no? >> i would have to see the

question in -- we supervise lots of institutions and in the process of supervising those institutions, we make lots of requests to them to change their practices. so i'm not sure exactly what you're getting at so perhaps the chairman's suggestion of a written question would be best. >> the gentleman's time has expired. >> thank you. >> the gentleman from alabama, the ranking member of the full committee is recognized for 5 minutes. >> do we have an exit strategy from these ad hoc bailouts of failing institutions? >> we have an exit strategy from the provision of reserves that we have made, the very high level of reserves that we now have in the system. we believe we have the tools to absorb those reserves to raise interest rates when the time comes to do so.

with respect to the individual institutions, i think each institution like aig, for example, has is putting in place a business strategy to sell pieces of itself, repay the federal loans and repay the u.s. taxpayer so there are strategies being put in place for the individual institutions. >> you know to me, the obama administration proposal actually puts in place a permanent bailout agency, and that's the federal reserve, it empowers you to bail out through loans or guarantees failing institutions, does it not? >> that's not my understanding, congressman. >> okay. >> i think in our -- in our -- we are in agreement with the administration that a separate

resolution authority for failing systemic institutions needs to be established under the oversight of the treasury, not the federal reserve. >> all right. would that include -- would that be an enhanced bankruptcies proceeding? >> it would be a substitute for bankruptcies procedure just as we have today for banks and depository institutions under the fdic. >> so the federal reserve as a systemic regulator would have no right to guarantee or loan money to an individual institution? >> that wasn't in the process of failing. that would be the resolution of that institution like bear stearns, aig would be the province of the treasury department. >> okay. but the fed over the past year has guaranteed some of the obligations and made loans, has it not? >> we have guaranteed -- we have been in a second and third

guaranteed position for some obligations of citigroup. is that what -- >> and aig also. >> and aig. >> and what is the total obligation to aig? >> well, i think we have about $45 billion of loans outstanding to aig plus some -- some special purpose vehicles that have assets that they've taken over from aig probably total 40 or $45 billion. >> do you anticipate or would you be opposed to a provision in any law that we pass or to prohibit the fed or the treasury from loaning billions of dollars of taxpayer money to these institutions or to guaranteeing their obligations? >> i think somebody in the

government, not the federal reserve, needs to have the authority to resolve systemically important institutions in an orderly way so they don't threaten the jobs of americans. >> you know, i would agree with you that there needs to be an orderly resolution. >> that's right. >> i would not agree with you that would include taxpayer funding or, you know, either guarantees or loans in the case -- as you say citi and aig it was in the tens of billions of dollars -- actually, hundreds of billions of dollars. >> right. >> do you believe that too big to fail -- do you believe in that doctrine, do you believe in the fairness of that doctrine? >> i think too big to fail is a very difficult, troublesome issue. i agree with the thrust of your question that we need to deal with.

i think there's a terrible moral hazard involved in that. and my thinking is that the administration proposal -- something like the administration proposal is very helpful in that regard. it has two things. one is that the largest institutions that might be too big to fail face much tougher scrutiny, higher capital, greater liquidity, more robust risk management systems so that they won't fail and secondly, that there be a resolution authority and a resolution authority that would enable the government to resolve these in an orderly way that might impose costs on the creditors but in an orderly way outside of bankruptcy. >> the gentleman's time has expired. the chair notes that some members may have additional questions for this witness, which they may wish to submit in writing. without objection the hearing

record will remain open for 30 days for members to submit written questions to this witness. and to place their responses in the record. we thank vice chairman kohn for his patience and for his responses and we will excuse this witness and call up the second panel. >> thank you. [inaudible conversations] >> while the second panel is coming forward, i ask unanimous consent -- >> the school of business, carnegie mellon university, we welcome each one of you and we will recognize each of you. your full statements will, of course, be made a part of the record. and each of you will be recognized for five minutes to

summarize your statement, and i will start with dr. mishkin. >> it's a great pleasure to be here to discuss what is a very important issue. >> pull your mic just a little bit closer. >> to discuss what's a very important issue, which is what role the federal reserve should have as a systemic risk regulator. i want to boil this down to three questions even though i was asked four but i think three that are quite relevant to these issues. and the first question is the essential one, should the fed be the systemic risk regulator? and i'm going to answer yes to that question. and there are four reasons that i take that view. the first is that the federal reserve is involved in daily interactions with the financial markets. and in terms of being a systemic risk regulator, that kind of information, that contact is extremely useful. the second is that there's a synergy between thinking about macroeconomic stability and financial stability.

and that's, i think, extremely important in terms of performing the appropriate analysis to do systemic risk regulation in the best way possible. third, is that there's a synergy between the actions that are required in terms of promoting macroeconomic stability and financial stability. and so we've seen this, of course, in very major ways during this recent crisis. this involves the role of the federal reserve as a so-called lender of last resort providing liquidity to the financial system to, in fact, make sure that macroeconomic stability is preserved. the federal reserve is one of the most independent of government agencies. in order to be effective risk regulator the kind of independence the fed has had in the past and has used in the past would be also very helpful in this regard. so when i look at this issue of the fed being a systemic risk regulator i think from my viewpoint it really is the appropriate logical choice when

we think about the nature of this role. the second issue is should the fed relinquish some of its other roles if it became the systemic risk regulator and i think the answer here is yes. in particular, the treasury plan has suggested that the federal reserve no longer be a consumer protection regulator and i concur with this view. there are three reasons why i think that the fed should no longer be involved in this different if, in fact, it's handed the additional responsibility. the first is being a consumer risk regulator is not at the core mission of what the federal reserve does. where i actually do see macroeconomic stability and financial stability as part of that core mission. the second is it uses a very different skill set and so in the context of thinking about the synergies, i do not see them to be nearly as relevant. and the third is really the most important which is that consumer protection regulation is very political. everybod