couple of slides i will give you samples of what biological equient do we mean. so the technology been for the use of that equipment is actually, but this technology that i'm talking about is different from the other technology that refers to the production and the production and development of micrrganisms. this refers toechnology for biological equipment. so some of the equipment that are controlled, they will fall under, let's say, complete piii or pit for facilities which translate to bls three n. bls for flaps. and they can be fermenters that are on the list. there are centrifugal separato

separators, freeze drying equipment, aerosol challenge chambers, protected and containmeft equipment your navvy piii or p. for level, this refers to the containment level that are classified in the w.h.o. laboratory by a safety manual. if it meets those guidelines, and the control them. so in other words, we do not control less than a dsl to four facility. that does not require any license at all. in the casof cross and filtration equipment, this would have to be this specification. ift needs any -- everything that is written on the sly, that means they will require license.

if it does not, then you do not require license. so the total filtration area would haveo be the equ or greater of one sque meter. in other words, if it is a small cross filtration equipment, or a module that is used on a laboratory scale, that does not require license. however, this is mainly used for manufacturing facilities to make vaccine or to make protein, and so o this would require aicense. anthe difference beeen that is it does not controlled reverse osmosis equipment, which is normally used for purification of water for tracking purposes, or you know, sterilizing water and so on. so in other words, reverse osmosis equipment may be used in the food manufacturing facility.

so that is not controlled. this cross filtration is only meant for when you are separate things, letzig, viruses or cell cultures in the facility. we also have controls for protected and containment equipment which means that there could be personal proten, but it has to be those requirements. it has to have an extra supply and so on. and as i say, the cross cabinetsthere are seral names associated with this. so they could be lockboxes and so on but it has to meet the class three safety specifications. so in other words, if its a block box. if it is a block box that has positive pressure, that is not controlled. would remain lockboxes we an

it has got to have negative air pressure for. that will be controlled. in the case of the flu virus, now the h1n1 virus that we are currently dealing with, this does not need an export license at this point. and the reason is simply becae it's not on the ccl. it is a new emerging virus. who knows, maybe five years down the line we may have a control for that. but at this point, this is not control. so in other words, if researchers need to exchange virustrains from one country to the next, you can send it without a license, and is perfectly legal. and you will not getnto any problem. in the case of the reconstructive 1918 virus, not if it contains any portion of the coding regions of the eight

gene segmentst has got to meet the specifications, then it would require license. and the eecn is considered. but this is a new rule or regulation that was added a few years ago, maybe two, two years ago. with discussion with the australian group members. answer every single member of greed that they should be controlled, this particular reconstructed virus. and so that's why it falls onto our ccl. but i do not believe this is on select agent -- i'm sorry. it would be on the select agent by now. select agent list of the cdc. in the case of a higher weight photogenic avian influenza virus. we do have a control for this particular virus, but however, it has to need this rigid

criteria. if it is a low pathogenic avian influenza virus you do not require license to export that virus for whatever purposes for making vaccines, and so on. so in this case, it has to meet this criteria. and if it does not than it falls out of the control. so what about vaccines than? what about vaccines to -- to the hp h. i virus. if it is a human vaccine is not require a license meaning that it is classified whach is very broad classification which means that the moche country that does not require a license. but if you were to export to, let's say, north korea, then you

would need a license becau we have unilateral controls with a sanctioned country. so in addition, the vaccine has to be made from strains that are approved by the w.h.o. of the vaccine is made from a wildype virus, then it would require a license. in the case o poultry vaccines, that means these are vaccines to the hphi virus this is classified as one c. 991, but that doesn't necessarily mean you requi licee to most countries. just as i said to countries on the anti-terrorism list and is a delight to cuba, iran,udan, north korea and syria. so in conclusion i would like to

thank my colleague at the division of chemical and biological controls unit, within bis. and also to the organizers for inviting me to be on thi panel thank you. [applause] >> and if you have any questions, that is my contact infoation. >> we may have a few minutes for questions at the end of the session also. postponed all of those until the third speaker has spoken. and it is door douglas powell, antigenxpress inc., and he is going to be dalking about his workn h1n1 and h5n1 viruses.

thank you. pplause] >> i would like to thank everybody for hanging in there, and i want to talk about vaccines. and we have heard the first speaker and also you have been hearing over the last couple of days in reading in the media the response that we've been using to make a-based vaccine for the last 50 years has been more or less sufficient but is not going to be sufficient for this pandemic or futu pandemics. and you may hear words being, you kw number things done around like we're going to make 4 billion doses and this kind of thing. the reality as it will be very difficult to achieve that in any kind of reasonable timeframe. so i would like to talk about is

h1n1 swine origin influence of vaccines that we are working on, or synthetic peptides, similar to what we heard about earlier. and what they do, we focus on helper cells that are critical and unity. they are helper subsets that are involved in cellular injury, which is a production of antibodies. this is what people have always relied on as gold standard for the efficacy of influenza vaccine. and there are also activation as well as regulatory t cells were charred component of the indian system. so at antigen express which is t. helper cell stimulation using i i t. hybrid and the idea he is the immune system has wh are known as mac class one and class two appetites that are

present on the surface of immune cells that present antien. and that is what make the immune responseo bacterial or viral, any kind of infection. so what happens is we use a technology. thissn example of an antigenic at the tote that is on the class to molecule. we make what we call lychee mock u. i looks way more about that in just a moment. the important thing again this is completely the unprimmed synthetic cookies are being made by chemical synthesis that you can make hundreds of kilograms or tons of doses so you can literally make billions of doses in a very short amount of time. i think like a month or so. so what happens is the ii-key hybrids come along that display if it is prese, and the end result is the stimulation.

so we have like a lot of other companies in aition to working on infectious diseases, we work on cancer vaccines are we are both phase one and phase two clinical trial's is for many of you who are familiar with treatment of breast cancer, you know that it is an antibody molecule that targets the peptide. what we are doing is using a pepdide protn to immunize people to stimulate the immune response to that receptor. and so we have done this and showed very good results in two clinical trial so far, and have additional clinical trials going on now. we have the new breast cancer and prostate cancer could also combo vaccine thatas both a class one d class two appetites. we also have a melanoma vaccine for influenza. we have aged five and one and h1n1, and also hiv and then w ca also use thi diagnostically toiagnose diabetes in its early stes as was allergies,

and they also use another technique called suppression which i'm not going to talk about today. so why is h1n1 more lethal than the seasonal h1n1? has been sort of a lot of debate in se countries, much more lethal forms that were in mico than the united states. it could be due to a number of different factors particularly as more lethal than the standard seasonal strength, both in animals they both in humans and animals are their iues and the mouse are used commonly for animal models. seasonal flu infection is limited to resratory track and causes -- but this one origin causes vomiting and diarrhea and about 40% of people that is not confined to the respiratory tract and also low white blood cell count that is unlike what is seen with the seasonal flu. the low white blood cell count also happened with translator

could mae part of his pathogenesis. we don't know. there is still a lot of to learn about h5n1. the swine origin h1n1 causes more severe disease in ferrets. as i mentioned, fares are very reliable model, includes mild to moderate, tricky,ronchitis, basically causes more lung damage than the standard flu. andeath in animals or people accrues the progressive pulmonary failure. so our pandemic program go is to develop the non-synthetic next-generation vaccine that is not dependent upon eggs or self-hatre.like i sahd we've hag technology around for 50 years to grow a virus in chicken eggs and it is a crude process, biological process. it has worked, but the fdand

other countries they keep going back to it because it works for they said we have the egg-based and it worked great so now you know a lot of additional technoloes including dna vaccine, proteins are made in bacteria, but these all have limitations. and really the fastest way to generate a new vaccine for like a pandemic that is going on now, is through synthetic peptides. soap that's our idea is to develop a next-generation synthetic vaccine uganda's vaccine will be designed to prevent infection and/or limit the severity of h1n1 infection in humans. most of you probly know that 1918 we had a similar sum there where there was a mild h1n1 flulike illness that came around the springtime. but something changed during the year. and when it came back in the fall and killed sewhere between 20 and 40 million people. hopefully that will not happen with this virus but nobody can tell. influenza viruses most highly mutable form of vus that we

have any kind of express dealing with. it can mutate at all the experts can say in the fall, it can just expect to be surprised. might be a milder virus or it might be more severe virus. as y know, h1n1, the swine orig virus is not countries like indonesia where h5n1 is also present. and one of the things that could happen with the influence of irish is they can recombining units only get a newirus. source of having a virus tt kills 1% or less than 1% of people, as the h1n1, you might have a hhly transmissible virus that kills 50 or 60% of people. in the worst-case and narrow. but in order to prepare for that we have to be able to develop new wa to respond more rapidly. so the importance of t cells in influenza virus, the flu specific t cells are essential in the development of strong neutralizing antibodies that protect against infection, and they're responsive memy

response there to whatever you get infected with the flu orou get a flu shot, you have and any response but you also have what i call memory cells so if you are exposed to the flu or you get another vaccine in the future it won't ever find that reaction. memory cells become through both old mechani in animal models. so the objectives were to itially i willo over this quickly, screen, and class to present seaforth appetites. again, peptidecome the swine origin virus and try to identify frequently promiscuous @eptide used for vaccine candidates. we had some of his screaming in him is that humans have either received the h5n1 axing. were also looking at people with documented infection with swine,

h1n1. but methods have become available rently where you can in vitro screen hundreds of peptidesgainst seven or eight of the most common and try to identify peptides$ we hope with real for, that will give a broad population-based broad protection to a broad population that once again, these are some synttic. there isn't no kind of contaminating material in their, except for that kind. and they can be dried. they can be freeze dried. like coffee. reconstituted in other places, other areas inhe world, africa, south africa, south america, some places where they don't have access to health care. the idea is to identify active hybrid of h1n1 confirmed infected individuals that have the dr genotyp that is done and we've select from hybrid that could be used in genetically

diverse populations as in this population here or anywhere else around the world. so this just a little bit of work we did in the mouse, and the v@ccine, the standard ccine is given without adjutant. out of my much beloved talking about that but they stimulate the immune system and they will be used in this country is and other countries with the swine flu. there are vaccine trials that are planned at this poin but typically the flu virus is, as you heard earlier, iis just grown in chicken eggs. it is chemically activated and that is what is used as a vaccine. there is no stimulating, nothg added to it. what i shall here is how it if i give one does. and this is a mouse. give one doesf the protein ly to the mouse, this is looking at the t cell response here, you get a very low t-cell response that but i get a mh

stronger response. so these peptides can be used on their own or they can be used as modulators to greatly stimulate the response to a norma seasonal vaccine. also, if i give one does that we were using, it is a longer available and one dose of common protein, i get it around 40000 divided by prime with the epitope hybrid and then boost with protein it increases the tota in point i was about tee full, which isprobably very significant from a cpan point. and then this is some data that was sent out to sri, private company that does h5n1 work. the typicaltandard for a flu vaccine is one that induces a neutral of 40 or more. so 40 is sort a cut off for

seasal flu or for pandemic flu. you can see her that if we just use the adjutant by itself there is no antibodies being made. if you use one does not protein you get a 10, but if you use this as a protein you getng very tired, 501 dose of protein, one peptide, you again get tighter acceptable and should be protected in humans. so we also did an analysis from the sub vaccine for the h5n1 immunized volunteers. this study was done at the university of rochester school of medicine. we drew blood from 35 volunteers who participat in the vaccine triaa couple years ago. note blood cells were preserved and the t cell responses

indicates the mean response to flu and it is either reported as% of vaccine responding or for over backroom. so quickly to go through here, what this is showing as we use a number of peptides in a pool that overlapped the ente protein. we identified individual peptides that a recognized by people. you can see here that a typical response, 10 or 20 spots per million cells. an so we are seeing fairly decent response here to overlapping peptides, but also that these are class to peptides that were predicted by a computer algorithm, and those work also very well. and then this is kind of a busy table by the what is showing us to these peptides, what we're looking for is peptides that are recognized by large number of different people. and so the donors, or the numbers across the top for the different donors, and in the numbers going down the side of

the peptide vers. you see that this pet died, 1008 and 1004 for a recognized by numb individual. so we think this wld make those good vaccine candidates. and we have done and for a child in lebanon. and this was using, but you can see here just quickly looking at is one individual was primed and boosted, and then after 50 days and 80 days you can see a real increase in the amount of response to thepitope. so these things are immunogenic in people and they may be protected. protected. so distorted, complete one child in lebanon could also hope to do additional studies in europe and also we have filed with the fda for doing conducting a child in the ited states. so they vanish over the

egg-based cl-based vaccine cubbies biologic methods and production are finitely scalable and the production of will be very challenging. and operating heard some reports coming out from vaccine manufacturers that are saying they're not making as much backing as they thought they were, only three of -- 33% is being made in the united states. most of made outside in other countries. they have admitted they are not meeting their deadlines. they've already stated their not going to get a vaccine until they have enough vaccine for france. and other contracts are so there are going to be supply issues. there is going to be a scarcity of vaccine. even the rich guppies comat united states, it's goi to be a problem. and as i said before and as our first speaker mentioned, large-scale capacity exists to produce billions of at. these viruses can mutate. we don't have six month or nine

months to prepare for the new virus, as we have used any other method that we did something that irapid and flexible and can be, you can make billions o doses and it's all part of the. and like i said, more pidnd flexible to pandemic strains that are hhly likely to occur as this virus did, and as future viruses will happen. so i would like to thank the organizers. i would like to thank you for your attention, and i just want to, you know, make them a point that we really need to start thinking about novel vaccine for addressing things like pandemic flu and other viruses that are emerging. thank you. [applause] >> thank you very much. ve a hand to our speakers once again. [applause] >> we are running a tad off the schedule so we want to make sur we go to lunch, and will have the rest of our presenters will

be presenting at lunchtime. so we will see you over in the buncis right behind us here. while i'm at iges was asked for a couple of people that we need to meet with them at the end is daniel barnett, which please stay with us. gary, would you stay wh us please james hagan, martha sailors. letzig, lieutenant sandoz, michae stever's. james bender and dogcart. would you please stay, please. >> congressional town hall meetings continue across the country as capol hill continues its summer break. this evening c-span will bring you live coverage as a virginia democrat james moran talk to constituents in e washington, d.c., suburb of rest and. he is joined by former democratic national committee

chairman, howard dean. that is at seven eastern. at about 9:30 agent a town hall like alaska senator lisa murkowski to discuss proposed health care legislation. she talk to constituents at an anchorage high school. >> go inside the springboard to see the public places and those rarely seen spaces. hear directly from the justices as they provide their insigs about the court and the buildi. the supreme court, hope to

america's highest court. the first sund in october on c-span. >> how is c-spanunded? >> pvate donations. >> taxpayer? >> federal grants and stuff li that. >> public television. >> donations. >> i don't know where the money comes from. >> federally. >> contributions from donors. >> how is c-span funded? america's cable companies created c-span as a public service. a private business initiative. no government mandate. no government money.

>> why did president obama say he wanted to keep the fed chairman in his place? >> that's interesting. bernanke entered the fed asuch as a free marketeer. he came out more on the side of the obama administration things like recommendinganks modify mortges, even going so far as to say they should perhaps take a hit on the principal because

it would be better to keep people in their homes. after some prodding, he strengthened consumer lending rules. i don't think there's any reason for him to be displeased on that score, in terms of public policy favoring consumers. >> what about mr. bernanke? what d he say about his aptment? is this something he wants? well, it was an interesting statement. the first thing he did, there was three hallmarks. one, he called out to the fed staff. that's a sign that the chairman is much more democratic. he believes in the strength of the staff, the fed staff is very strong. we're talking about hundreds and hundreds of economist who toil without much recogniti. the second thing he mentioned was independent. as your listeners mht now there' a challenge to congress right now. and i think bernanke has a lot of work to do i sending that

off. >> well, the congress has been holding a number of oversight hearings. what are they concerned about? >> here's the dynamic? the fed in the crisis started to unfold did some extraordinary things. thereas a law that allowed them to lend to anybody. and so they did. they financed a bunch of assets that once held bear stearns to facilitate. they stepped in and paid off the creditors, including gold goldman goldman sachs and they used the same statutes to support the housingarket by buying bonds orinancing purchases withhose bonds. so on the footnote here, even some fed officials have said wait a second. this isn't monetary policy. you're extending credit. you're entering into our domain

and saying what industry should get what break and special treatment. i think rightfully, cgress is saying where ishe line? it's something, it's a discussion and a debate that's goin on. >> the administration has also proposed changes to the role of the federal reserve. what would they like to do and why? >> so one thing they would do would be to strip the fed of the broad rule writing of consumer financial products. they were pretty disappointed on how slow t feds were. the feds ar opposed and would like to keep it inside. the second thing they would do it make the soul regulator the largest financial institution. those might number awhere from 10 to 30. and the fed would have consult with a systemic risk council. but then it wouldave pretty much wide discussion in wedding standards for the this city. at's supposed to prevent the

accepted risk taking and bubbles in the future. it's sort of a wiseman model. you know the wiseman will prevent this from happening in th future. a opped to competing model for people like sheila which is more world base. >> ben bernanke's appointment will need approval. the senate is in recession. the new regulations it's proposing for financial institutions. fed bad vice chairman leads the list. this portion is about a half an hour. >> let me call this hearing of the subcommittee on domestic monetary policy and technology to order without objection all members opening statements will be made a part of record and i will recognize myself for an

opening statement which i will try to get in before we get call for votes. and maybe we can get the opening statements in before we get the call to the floor. this hear is enlighted regulatory restructurind balancin the monetary policy systemic risk regulation. our current regulatory system created largely as a response to to the great depression in the 1930 was proven ineffective and outdate the as preventing and addressing the financial crisis we are currently experiencing. recognizing this, the president recently put forth aroposal for comprehensive financi regulatory reform. this hearing will examine one

aspect o that proposal. the part that proposed to delegate to the federal reserve board new powers, including the power to serve as the systemic risk regulator for all large interconnected financial fir. as the systemic risk regulator. the federal reserve would be empowed to structure and implement a more robust super super super -- supervise reregime. that hearing will examine whethernd how the fed can perform and balance the proposed new authority as systemic risk regulator with its current crital role as the independent authority on monetary policy. while recent events have caused many to reevaluate and question

the roll and extent according to e federal reserve, the feds independence, independence fro political influenc by the legislative and executive branches of government has long before viewed as necessary to allow the fed to meet the long-term monetary poly goals of l inflation, price stability, maximum sustaable employment, and economic growth. st central banks around the world including the federal reserve, bank of england, bank of japan, and european central bank he had a strong tradition ofndependence and executing monetary policy. many scholars and commentators agree that the independence such as straggered terms for board members, exemptions from the

propriates process and no requirement to directly ujderwri government debt can better execute the long-term gels of monito policy. the important question in our hearing today is focused opinion is whether the fed can maintain this current role as he independent authority on motary polic and take on a new roll, aignificantly new roll as the systemic risk regular. so scharsnd commentators argue that the fed is uniquely posion to become thi systemic regulator because it alrdy supervises bank holding companies and through the monetary policy function helps mage microeconomic policy. others argue that the fed is more stretched too thin and has strayed particularly by using its power under session 13.3 to

purchase securities in distressed industries under circumstances. as congress and the president work to enact financial regulatory reform, it is critical for us to exami carefully the extent to which proposed new rules may conflict with existing roles and whether thfed can effectively juggle all of these rolls while performing is vital function as the nation's independent authority on monetary policy. for our economy to function effectively, the feds monetary acvities such as open market operations, discount lender 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 proposals cou compromise or interfere with what the fed already is charged

to do. i look forward to learn more about h and whether the fed can effectively carry out additial regulatory responsibilities while maintaining i current role as the independent authority on monetary policy. and i now recognize the ranking member of the subcommittee, representative ron paul for four minutes. >> i'd be happy to recognize the ranking member of the forcommittee for four minutes, mr. bachus. >> thank you, chaman. chairman, i don't think there's anything that is in such sharp contrast as the administration's proposalor the feds roll and this a of the republicans i the house. we particularly object to what we see is allowing the fed to

become a permanent bailout agency. and we believe that that is most troubling. that's allowed, they will sacrifice their independence. and there'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 billions of dollars without substantially increasing their accountability and transpabency. but i do thank you for holding this hearing. ether regulatory power and sweeping new powers really should be centralized and given to the federal reserve at a time when our country isaising unprecedented fisca enomic, and monetary policy challenges, we believe is very problematic. we have some fmost experts

governor collin and our second panel. we look fward to your testimony. during the last two years, we watched at the federal reserve has responded to the financial marketing with far reaching interventions in virtually every corner of our economy. to confront the crisis, the feds used its emergency authority to baiout failingnstitutions. we believe particularly with aig and others at was particularly with aig and some of the auto companies that was just unwise to provide loans and loan guarantees to revive the credit maets. which i think have had success. and lowering the target fed funds rate almost to 0. and more than doubling its balance sheet. regardless of how one views these extraordinar fed actions, i think we all agree that as we

go forward, we d need a more transparent institution with a more clearly defined roll. republicans believe that the feds core mission, and i stress this,s to conduct monetary policy. and that will b seriously undermined if it's supervisory responsibilities are dramatic expanded as opposed on the obama administration's white paper. in deed the proper roll represents the proper difference between the feds proposals which would statutorily bless when we consider an unwise sick of bailouts and picking winners and losers and obligating the taxpayers. from our plan which does none of those things. the administration would rewar past monetary regulatory policy mistake by giving the fed in regulating the financial system and determining which financial

institutions are too big to fail. this stretches the feds resources. i think we all agree on that. it complicates its ability to carry out monetary policy functions, at a time when our country faces crippling -- well, let me 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 the new powers. the republicanlan would transfer relieve the fed of some of its current regulatory reonsibilities. and allow it to focus on monetary policy missions. so thank you very much, mr. chairman. but most iortant i'm goingo

close by saying we ed to end the pail -- bailouts. the fed -- mean the ad hoc bailouts of individual institutions. thank you. >> the gentlan from texas, mr. joule, four minutes. >> thank you, mr. chairman. welcome chairman kohn. i'm delighted that you are holding the hearings today. we've had earlier discussions. and the feds position of course that the do reveal a lot of information. and ev in the testimony tt we'll hear today, they still argue the case for exceptions. and the argument being that the they don't want the iependence of the fed thrten, and they don't want it be prettyize sized. we put secret and clandestine

an serving federal interest. it's a nice word. bu there's no goal, i don't have a goal of making it political other than the fact that the whole systemeserves political attention. and yet it gets so little attention and has not had much attention over these many, many years. but there's good evidence that it's been politicized already. thers been journal articles and books written about how the fed has been influenced by the president's over time. and that when a reappointment time was coming up, policies were designs to serve certain administration i would say to argue the case that it should never be politicized is an argument against whate have because it has been known to be politicized.

the 207 has been challenged. i think it's justified to at least question and that is how much would my bill affect monetary policy? it doesn't. it doesn't affect it in any way whatsoever. we are not looking for t congress to run monetary policy. we just want to know what's doing on and why. there's a discussion. why wait five years to hear the debate? there' a strong argument made that the sooner the markets now what you're thinkin what you are doing, d what the plans are, you are better off. when i first came to congress, we weren't even allowed to know what the targets were. the targets immediately after agitated. all the sudden they starting announcingt. yet they argued you're not allowed to know. the more we know about what has been goi on in the last year, the more it would have helped the market. it's the unknown. and that is why we need a much more open fed. and the people are demanding.

they want transparency. tranarency 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. international, uhat kind of aagreements do we have? we have a moral obligation here in the congress to know exactly what the agreements are. ande are not doing this to preempt anything. this is the reason why the support for this bill that i have is now up to 255 a that's across the board liberals, conservatives, progressives, populous, libertarians. they are supporting this because and there's no agreement among those groups of what monetary policy aught to be. they don't want to me a political football. they are not asking for congress to participate in meetings.

but to know what the strategy is and what the plans are. that is legitimate information. and we shouldn't be afraid of theruth. there's been arguments over the years made about transparency and i can give quotes. i can give quotes from alan greenspan. how important. when you look at those quotes generically. they are good. wh it comes down to the bottom line, we want you to know what's going on in the unimportant thing, but in the important things we want secrecy. thank you. >> thank y gentleman for his opening statement. the gentleman from delaware, mr. castle. >> thank you. i enjoyed the opening statements. i happen to agree with all sides of the position. let me jus say that i agree with you. i think you're asked the basic rate question.

that is can the federal reserve matain its roll in shaping monetary policy at the same time it's expanding. i think that's a very serious question. i certainly couldn't answer it now. i don't know if wean get that answer today. we need to continue to work on that. but i'll add another element to that. that iall the bailouts that have been going on beyond the monetary policy issue. there's loot -- a lot of money that the feds without any restrictions from the congress has been putting forth to help the entities. i'm not being ctical of that. but i am concerned about the role of fed a how it's panded. i happe to agree to mr kohn with his legislation and the idea that we do need more transparency to the fed. i think that would help in understanding and embracing this.

i think the legislation is actually very positive legislation. i think a lot of other people feel that perhaps the time has come for the federal reserve to be more transparent. but i think we need a clear coherent vision of exactly why the federal reserve would be the right choice if we're going to have a systemic risk regulator. which i happen to believe in concept chewablely, but i'm not sure that the president and others have targeted the right source. and hopefully we can start to work that out today. thank you, i yield back. >> thank you for the opening statement. the republicans side has one more minute for opening statement. i'm going to yield it to mr. ul. >> thank you. i probably won't use the entire minute. but it gives m the opportunity to quote alan greenspan.

in a speech in 1996, he says 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 can be be acceptable in a democratic society that group of unelected individuals are vested with important responsibilities without being open to full publiccrutiny and accountability. and i know those terms are general. he might disagree with my bill. those are bill words. i'm carrying through on that. because i think it is important for the american people to know. the protectors of the value of our currency are powerful. we need to know how the policy is designed. we don't want to set the policy. but what we want to do is how it's been done and who's interest are being served. >> thank you, gentlem for its open statement. i think all parties for the opening staments.

mr. peril is not a member of the committee. i haven't recognized himor an open statement. but he is a member of the panel. we're going to proceed without recognizing him. we're delighted today as to have on the first panel the only witness mr. donald kohn, the vice chairman of the board of governorrers of the federal reserve. without objection, vice chairman kohn, your written statement will be made a part of record. and you will be rug noised for five minutes to summarize your testimony. and i now recognizeou for your statement. >> tnk you, cirman watt and ranking member paul and other members. i do appreciate this opportunity to discuss with you the important public policy issues associatedith the congress'

grant to the federal reserve of a substantial degree of independence in the conduct of monetary policy. and the interaction of this degree of independence. with a posble enhancement of our responsibilities for financial stability. a well designed frame work for monetary policy nclude a reful balance between independence and accountability. in 1977, the congress amendmented the federal reserve act by establishing maximum employment and price stability as our monetary policy objective. at the same time theongress has correctly in my view given the feder reserve considerable scoop to design and implement the best approhes to achieving those statutory objectives subject to a well calibrated system of checks a balances in the form of transparency and

accountability to the public and the congress. considerablexperience shows that this approach tends to yield a monetary policy that best protes economic growth and price stability. operational independence, that is independence to pursue legislative goals reduces the odds on two types of policy errs that resultn inflation and economic instability. first it prevents government from suck succuing to the temptation and secondt enables policymakers to look beyond the short term as they weigh the everythings of their monetary policy actions on price stability and employment. theurrent financial dry sis has clear ridep stated the need for the unitestates to have a comprehensive and multifaceted approach to containing systemic risk. the administration recently released a proposal for

strengthing the financial system that would provide new or enhanced responsibility to a number of feral agencies assiing to the federal reserve certain new responsibilies for overseeing systemically important financial instition and payment cleing and settle arrangements. theseew resnsibilities are a natural outgrowth of the federal reserve existing supervisory a responsibility. the federal reserve already gulates large investment banks and we have been moving to incorporate a more prudential approach to the supervision and regulatory programs as evidented by the recently completed 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 the standards

for the systems we supervise. in ourupervision of bank holdg companies and our oversight of some payment systems, welready work closely with other federal and state agencies. these responsibilities and close working relationships have not interfered and we do not believe that enhancements to our existing regulatory authority proposed by the administration would undermine our ability to pursue our monetary policy obctives effectively and independently. our independence in the conduct of monastery -- monetary account account. for instance, the federal reserve reports on its efforts in the semiannual monetary reports and associated testimony. the federal open market committee releases a statement.

and details minutes of the meeting on timely basis. we public summaries of the economic forecast of participates four times a year. and federal reserve officials frequently testified before the congress. addition, the federal reserve provides the public and congress with details annl reports on the consolidated financial activity of the systems. these reports are audited by an independent public accounting firm. we plish a detailed sheet on a weekly basis. this year we expanded our web site to include considerable information on our financial condition and our policy programs. we recently initialuated a monthly report to congress on federal reserve liquidity ogms that provides even more information on our lending, associated collateral, and other facets of the programs to address the financial crisis.

the congress also recently clarified the loan facility, joint treasury initialive to conduct audits of the credit to single and specific companies under the authority provided by section 13 of the rerve a. as this committee is aware, t federal reserve is already subjecto frequent audits on a broad range of our functioni including for example the supervision and regulatory functis. the congress, however, has purposely and for good reason excluded monetary policy deliberations and operations from the scope of potential g.o.a. audits. the federal reserve strongly believes that removing the statutory limits on a monetary policy matters would be contrary to the public interest. financial markets likely would

see the grant of sh authority as tending to undermine monetary independence and this would have adverse consequences for interest rates and economic stability. and an additional concern is permitting aid audits would reduce the effectiveness of these facilities and helping promote financial stability, maximum employment, and price stability. thank you mr. chairman for inviting me to prevent the boards views. i look forwa to answering your questions. >> i tnk you the gentleman f its testimony. the bad news that we just got th call for at least five votes on the floor of the house. the good news is that oncee get through this series of votes we will probably be able to proceed uninterrupted through thbalance 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 subcommittee in recess subject to the call of the chair and encoage the members to please return promptly after the last vote on th floor in this series of votes i hate to inconvenience all of the witnesses. but i guess y'all have been through this before so you know how it works. the committee stands in recess. >> when the committee returns federal reserve board donald kohn answers questions and other

issues regarding the fed. eouse financial services subcommittee on monetary policy continues its heari now on the federal reserve and financi regulations its proposing. federal reserve board advice chairman, donald kohn has given his opening statement. this portion is just under a hour. >> if i cld get the -- somebody to pull that door shut back there we'll reconvene here and -- i will recognize myself for five minutes to ask mr. kohn questions. i'm interested in getting a better understanding of what

your view is of what specific things a systemic risk regulator doeso let me start there. or would do i guess to make it a theoretical question as opposed to a -- >> sorry. okay. chairman bernanke has made a useful distinction between macro and micro. macro is looking at each institution and making sure they are robust and safe. in a macro context you want to look at not only the individual institutions but how the interrate to each other and how they relate to the system as a hole. and it's the- sometes it's not so much the size of the

institution but it's interconnectedness. whheit's at the center of a one of relationships which has disrupted which have dominoes effect i think the job of the systemic risk regulator would b to take account of those interrelationships. the markets and how ty are developing and the institutions and how they fit into the markets. an 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 superviso thority other bank holding companies whichow include all theajor investment banks, but we have people who are familiar with markets, the macro economy, and we have acted as a -- we have responsibility for

financial stability of the system through our lender of last resort facilities. so they think it requires a little bit of a different perspective than you're usedo exercising. and i think the feds aren good position to do tt. >> notnexpectedly you focused on the synergies that exist between the two responsibilities. let me ask you if u could candidly focus on the prospects or possibilities of conflicts. what are the areas in which those possibilit of conflicts might arise >> i tnk there are minimal responsibilities. -- possibilities. i think se people have talked about in -- if we see a systemic risk from the individual

institution whether that would affect our monetary policy, deliberations, but in my view i think there really is a con grew answer between the financial system and monetary policy. we can achieve our objective of maximize employment and stable prices much more theoretically in a financial institution. i don't see important instances in which there could be conflicts. >> what kind of staff would you anticipate would be necessary to perform the systemic risk regulatory function versus what you already are doing? >> host: recalling that in our view is an incremental change to

what we're doing. it's not a big change. we already have the systemically important institutions. i think it would require some more staffing. both on the side of the economt and on the se of the supervisors to evaluate systemic risk in a me systemic way. but i don't see a major. i don't think that this is major change in our responsibilities that would require a substantial increase in what we're doing. now we have had to staff up over the last year because w have several large invectment banks that are now bank holding companies. and we have had to change and adap to our new responsibilities. and we're doing that. >> my time is about to expire. actually it just did. but let me just squeeze in

because one comment you just made raised the -- somewhat of an intesting question. because i'd understood tt a lot of t jurisdiction that you would be assuming for systemic risk rulation has not in existing entities that you already regulate. you said that you have all of these systemi risk regulators already under your servision. is that in fact the case? >> i don't know a that we have all of them, mr. chairman. i think that would be something that in consultation with the council, reason that the treasurys 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

whetr they saw some institutions that weren't currently under our view that were systemic. but at this point, i think that would be very, very few institutions. >> i -- thank you. my time hasxpired. i will recognize the gentleman from texas. >> thank you. sometimes definitions of words are important. i eluded to that what independent might mean to otherr. to me, it's a code word for secrets that we can't get the information. but one of your arguments that -- for the independence of the fed or secrecy of the fed that those central banks that do have incidence -- independence, they have lower and more stae rates of interest.

how can you compare that to what we have noticed under the federal reserve. i remember when i first started looking at the federal reserve, we had 21%. that sort of got my attention. 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 flex wait radically, but also the mischief it causes because these are artificial. i'm a believer that interest rate, like prices, should be set by the marketplace. the control of wages is the most serious you can put on to an economy. and yet this fixes of prices seemed 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 way too long, too low too long. how can you defend the fed maintaining indendence 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 enomy. >> so i do not equate independence and secrecy. in order i agree with the underlying recommendation. i think of your question which is indendence and secrecy in a democratic society are antithetical. i thinkt haq 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're doing only by explaning to you what we're doing and why we are doing it.

we have not only the statements which you mentioned in your opening stament after every meing explaning what we did and why we did it. we have minutes, you have hearings, there are monetary policy reports, there are other hearings that you hold. i think there areany, many opportunities for us toxplain why we're doing what we're doing. and those opportunities and that transparency is absolutely essential for remaining our independence. >> okay. but i still think we can do better. like i mentioned early on. there was a time when the fed did not reveal immediately what the targets were. why can't we consider releasing the details. instead of five years, why not five weeks? and the other argument is in the public interest. that one really baffles me. the public has served by you having more information that we don't have access to unless it's

maybe phi years. it seems like there's other interest. who's interest are you really protecting? because you say it's the public i don't resay sures a lot of people. all of the sudden we think what are doing? are you protecting the bankers interest? are you protecting some international, another government, another central bank orhat? so i don't see how you can protect the public's interest. it seems like we in the congress should have the responsibility for protecting the public interest by knowing more about what you're doing. >> within three weeks, congressman, we released minute of our mting. which give details explanationing of whye did what we did,ncluding the arguments back and forth. the minority opinions if people disagree. i think you're talking about transcripts. release after five years.

i would be very concerns that releasing those transcripts earlier would inhibit debate. i think it's in the public interest that we have a debate within the open market committee that we are able to speculate among ourselves what if we did that, where are things going, that there will be no inhibition on the back and forth on the open market committee. frankly i've been at the federal reserve for several decades now. and in m view publishing the transcripts themselves have had a somehow inhibiting efftn the way the debate is carried out. there are many more prepared statemefts read at committees meetings than was the transcript. i would be very hesitant, people would be very worried if they remarks were going toe made public very, very quickly. they would be very worried about what they would say and they would be much more careful.

and that is not in the public interest provided we are willing to explain why we did what we did. and we do do that. >> of course, you know, without an audit weever knw. itust seems that is it would be the benefit to us to know what the details discussion why is there -- why is there any value? i just don't quite agree with that. because it's really t discussion that we had. we're not -- like i made my point in the opening statement. this is after the fact. this is after you've had your meeting. this is after you've done something. and also the more information the market gets the better the market operates. and i they know what you are thinking about and planning, five years forheinute is really way too long. gentleman, your time as expired. but the widness may answer. >> i think we do explain what

we're doing and what we are anything within three weeks. and ample opportunity to question chairman bernanke wn he comes out for hearings about why he's doing what he's doing. we would be glad to work if you on how we could be more transparent and more helpful. i agree with you, that for the most part transmore thanty 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, the other gentlen from texas, mr. green. >> when you say the gentleman from tex and don't say which, many microphones are opened up. thank you, mr. chairman. and i thank the witness for his testimony. i apologize for not being here to here you in your entirety in terms of your testimony. there are those who would like to have an independent fed,

obviously, that's has worked well. the economy of the fed is in your -- to our benefit. and there are thoseho contend that if the fed acquires these new powers and remains as independent as it has been, then the fed becomes this awesome giant that would be beyond the control of congress, executive, legislative, howo 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 avenue for response, congressman. one is the additional authority we are getting is incremental. 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 ffiec with the

other regulatory agencies on the president's working group with the treasury, the general accoting office or government accountability office, excuse me, does audit our activities in the supervision and regulion area. and they perform many audits like that. so i think they are, and we have been able to do that and be held accountable, work with oth encies without sack feeding the independence that we need to exercise for monetary policy. so i think we're alrdy doin it. and this wouldn't be thatig of a change. >> how would the hr1207 audit differ from the goa. >> i'm not sure. it would do what? >> that's the audit bill that mr. paul. >> as i understand it. i don't understand it perfectly.

but i think it would make everything we do subject to goa audit. right now the goa has been able to audit most of our activitie accept where they touch monetary policy. and our interaction with foreign banks and authorities. i think mr. paul's bl would rem that exemption that they would be monotouring our policy as wells all e other things we would do. our concern i that would be peeived as toom extent on our independence to meet the objectives that you have given us. >> and as ainal 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 that we need to do to help you transition to the regulatory reform side? >> no, i think the hearings that you hold and mutual understanding of what's involved in this with us and the treasury and others who are who want to make this transition, you have every right and you aught to be asking us as the chairman d what additional resoues we would need, how we would carry this out. so i think a dialogue between the congress and federal reserve is not only appropriate but would be very useful to define what this is about. >> thank you. gentleman yields back the balance of his time. mr. alder mr. new jersey. >> thank you. i moment ago articulated the

mandate with maximum employment and price stability. to what extent, if any, do y anydditional responsibility 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 macro economic goals of price stability and maximum employment as being completely congruent. i think the more stable the financial system is, the more easy it would be for us to pursue successfully e goals of maximum employment and stable prices. certainly we've seen a demonstration of that in the last two years. the instability of the financial system hasesulted in ver high

unability and has made it fficult. so i think i don't see a conflict between those typesf objectives. >> well, you heard the gentleman a ment ago ask questions about sort of the potential lack o accountability of the federal rerve as the sort of semiprivate, not completely under government control. others has been concerned there's too much interference in the coming out of its mission. i was wondering ii could comment abouthat additional interference you think the federal serve might encounter if it undertakes the responsibility as a systemic risk regulor. >> i think we can separate our accountability as a systemic risk regulator from our independence as a monetary policy carrying out the goals as a monetary policy. you're goals for monetary policy. i think, i don't see adtional political

interference with the oectives that you gave us. we will be accountable as a systemic risk regulator. we will be accountable through the government accountability office within we will be countable tohe congres 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 ofncrease our interactions. but i don't see it, i don't think there's -- there should be a risk that giving us the additional authority would impede our monetar policy and independence. >> mr. vice chairman, thank you. i yield back to balance my time. >> gentleman yields back the balance of his time. we welcome mr. gerlach from pennsylvania. we rognizeim for questions if he has any.

and we welcome the gentleman from california, mr. sherman and recognize him for questions. if he has any. the gentleman is recognized for five minutes. >> oh, mr. vice chairman, i think you are aware of 13-3 of the federal reserve act. >> i am. >> it is breathtaking in its scope. but even re breathtaking in the amounts i've talked to your chairman almost facetiously i asked himhe $12 milli limit uld be acceptable to him. believe it or n, he said yes. the -- chairman bernanke has interpreted before this committee 13-3 as allowing the fed only to take risks that the equivalent of triple a. that is to say only to extent

the credit of the federal reserve under that section where there was the lowest risk of the agency would evaluate. to you agree with that constrained view of 13-3 or not? >> under section 13-3, the reserve bank making the loan needs to be secured to its satisfaction. we have insisted on security and every loan that we have made. we have become -- we have releasing more and more information about those loans. i think for the most part, we have -- those loans are safe. the credit risk -- >> i'm asking you more not from prior practice but for your legal interpretation. let's say secretary of the treasurialed you and say we need another $700 billion to shore up

institutions on wall street. we need to do it right now or the entire wld comes to an end. and those damn idiots in congress they won't vot for another tarp. so the only way we're doing to save civilization as we know it is f the fed to take some substaial ris and become a general creditor of banks that would otherwise become insolvent. to you believe that you or your successor have the legal right to say, y, we'll have society and expent the credi i think we need a new resolution authority through -- >> i'm not the asking you what new law 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 is -- >> so you can't take a double a risk. you cannly take triple a. we need to have enough security that we feel the loan hasood prospect of being reid. we are not taking fiscal risk. >> i mean let's say you were buying paper that if you worked for a credit rating agency you would rate it single a. can you take that risk? >> only if it's discounted to an extent so that the collateral value would be less the hole value. we take paper that isn't triple a. but we don't ge it full value. we discount it. and i think we protect the public person in that way. >> sounds like you have the power to do another tarp almost but not quite.

shifting to another direction, in a democcy, it's supposed to one person, one vote. every institution of the government is supposed to show elections. you have the regional boar of governors selected on the basis of i'll call it one bank one vote. and does it make any sense to invest with the image of governmental power. everybody, i mean you can 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 separately incorporated subsidiar most of the world is going t view your branches as part of your tree. do you think it's appropriate to have privately elected governors serve in what appeared to everyone to be a governmental pacity? >> the boards of directors of

the reserve bank i think of the reserves banks have served a valuable function in the federal -- >> well, sir, in germany in before world war world war i they had what manyeople thought was a good government. but your voting power and control depending on how rich you were. you could argue that was aood government that made good decision. i'm not asking if it's good government. what'm asking is it consistent with what we celebrated on the fourth of july to have such governmental power in t hands of those elected on the basis of one bank one vote? >> i think congress from 1913 on has considered it consistent with it's authorities and how it wied to carry them out. >> that's before we gave you the

additional power. >> while i'd be a lot more generous, we have a little bit of time that we are operating in. the gentleman from delaware, mr. castle >> thank you, mr. chairman. >> you are recognized for five minutes. >> thank you, sir. i'm concerned about conflicts. as you deal with the 13-3 bailouts, whatever you want to call them and as you deal with monetary picy and in view of the fed would get into the system i believe risk regulator issue, do you at least see the poteial for and if you do would you articulate what it would be for the conflicts of interest in terms of the difference of responsibility? :

i interpret from your opening statement which i heard i missed so of the questions but what you've bee saying the board of governors of the fed will come this responsibility at least you seem to. is there anyonflict at all on the border 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 lieve i haven't pulled all the mbers of the board that the members of the word -- >> i'm not asking you to speak for them -- >> see this as incremental change fromhere we are right now andherefore i am n aware of any dissent on the board out the particular proposal that the treasury has made before the treasury made the proposalnd there was a lot of discussion of some systemhc risk regulator with kind of unspecified authorities and uns@ecified 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 i a market economy than nurally

his ups and downs but i see the proposal on the table as more modest prosal which is takg what we currently do but given a little more macroprovcial shapen thinking about the implications and being sure the court 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 kind of risks and kind of knock on effect is tohe rest of the market that have caused uso intervene this time. >> how would you interact with other regulatory bodies that have jurisdiction over some of these entities the sec or whatever it may be, how do you think that what -- >> we work closely with them. we all ready to work with oer banking regulators on feic. we would be part of this council

looking at systemic risk and identifying system activities, systemic problems. have close working relationships with spc and i see that continuing. we basically rely on them for supervision of the individual institutions, but i think this would give some authority to make sur not only the individual instatution as a safe but that the system safe, too. >> would be your responsibility with of the large insurers, hedge funds and even private equity type of funds as you view it if he were to be in this legislation given that responsibility? >> it would depend on whether those entities were systemically important and to the extent they were not we would have no particular authority over them. the extent they were after consulting with the council which would have the responsibility for identifying

there issues i think if we saw there was a gn a regulation that threatened the stability of the financial system it would be up to us to fill the gap. >> i don't know this but i would assume because insurance is generally regulate the state level you get into that issue of state and federal. i don't knowf you have discussed thate not. >> part of the proposal is to create a federal entity -- >> it is discussed at least. >> getting the problem is and perhaps the insurance companies thinking back to our bad experience with aig. it was in the insurance companies, it was the stuff going on next to the insurance companies and i would hopef we saw something like that happening we would find a way containi that risk and limiting the risk to the system. >> thank you. >> gentlemen's time is expired. the gentleman from minnesota is recognized forive minutes.

>> thank you, mr. chairman and let me thank vice chairman kohn for his work. vice chairman, do you believe that it is appropriate for the fed to really went its consumer protection responsibility particularly in light of its expanded power in the area of systemic risk? >> i don't think the fact of power might be expanded to 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 placed to do a good job in the public interest on consumer regulation. i think the fact that we hav various disciplines within the system we have a few of the macroeconomythe markets, supervisio systems, thesere conquer went with a good consumer regulation gave a way of balancing issues having to do with consumer regulation.

i think within the last couple years we have stepped up tohe plate on high-cost mortgages, consumer credit. we will have theruth in lending coming out at the end of this quarter. 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 consumeregulation as an alternative to creatina nes regulator. >> would you ll, vice chairman, that the fed was slow to the game in addressing some of the consumerssues you just poied out particularly mortgages, credit cards? some of the issues that the more recent legislation address have been longstanding? >> i agree that we didn't see the abuses as widespread as they

were and we were slow to react to themnd i think if you kept consumer regulation and the federal reserve you were decided to do that you need to strengthen our commitment to that regulation i agree. >> to other central banks around the world have consumer prottion 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 imam bank staff that sort of like a sales practices that would push products, push selling accounts having quotas for sling certain number of accounts that a given day or given a week without regard to

the conser's best interest so for example if a bank were to y no to a personal banker, stafford you must produce to new savings accounts today and then that stafford were to try to get two or three accounts for the same person in a day is that something the fed has focused its atntion on now? >> i think our focus on that regard as the transparency people knew the terms they were getting and what the alternatives are. we have focused on that in the mortgage area. >> has the fed focused on that issue particularly now overaft fees are a significant part of bank profits. >> we focused to some extent in the past but i don know whether we are still focused on that. >> may be a final questn, i agree some of the work the fed has done recently has been very

laudable and i want to let you know i feel that way. some of the findings he made regarding credit car and other things great. but i would say that given the fed's mandate of monetary policy i wonder and i wondeif he would mind commenting there were not some occasions when consumer protection takes a back seat to some of the other issues the fed is required to focus on. >> i think that's happened in the past, i don't think it's happen over the past three or four years. >> i would agree with that. >> i think there could be changes in law newmar protection explicitly part of our mandate that would help to prevent it from happening in the future but it has happened in the past and i agre >> thank you, 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 hasuestions we will recognize him for five minutes. >> thank you, mr. chairman. good afternoon. regarding the power of the fed at the moment and this hug debate regarding a systemic regulator and many of loss on our side are concerned, mr. vice chairman, with wheer or not this should exist andf it does exist whether it should exist in the federal reser given the core mission is established i gather under woodrow wilson in 1913 perhaps and perhaps you've answered this before i entered the room and i apologize but if you could elaborate on his or her views personally regarding whether you believe a systemic regulate the should be housed in the fed. >> i think the federal reserve is positioned to carry that mission out in the public

interest. i think we bring a variety of perspectives important to that. we have everyday contact with the markets, so we know what is going on now. we have supervision so weave a view of what is happening within individual institution. our responsibilits for the macroeconomy give 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 inhe systemic risk area. >> do you believe there might be inherent conflict given your responsibilities and managing the macroeconomy? >6 no, i don't. several of your colleagues have asked that question. i just don't see the conflict. i seehis as one of them supporting the other. i think macroeconomics stability will support financial stability and financial stability will support macroeconomics

stability. the federal reserve is inevitably involved inhe financial stability because we have the lender of last rort and because we have the responsibilities that you gave for macroeconomic stability so it doe't matter in some sense when the financial sbility regulator will be in regulator will have to be involved and i think there are synergies makg the federal reserve a little extra power to do that given our current authorities. >> thank you completely unrelated area i am pdrsonally concerned with the purchase by the fed recently and an increasing amount of long-term bills and i am not sure the american public is fully aware of this situation. it is obviously arcane and something that may not be on the front pages ofewapers. could you update us on a word recent purchases and where they are in relationship to where they might have been a year or

so ago? so we have in march the federal open market committee decided to pubchase up to 300 billion of the treasury intermediate and long-term treasury securities. we did that because we thought it would be helpful not for the treasury perce but because we thought it would put this down terest rates for businesses and households at a time when the economy wasalling very rapidly very weak and we needed to free of the credit markets so businessesnd households th a slower the charges and lower cost of capital and induce more spending. i am not exactly sure where we are in that process. i think we are about halfway through. we said it would be done by september and our last at the end of september at the last meeting we didn't make any change int plan.

>> so if i just might follow up, mr. fi stranded is your pectation that you will not continue this bend the september date at least to t exnt that you are currently involved in that area? >> we've made no decision in the open market committee would -- >> thank you. obviously we on this committee would like to be apprised of that andhat is certainly i yield back the balance of my time. >> gentleman yields back he balance of his time. we welcome the member of the full committee mr. garate who isn't a membeof the subcommittee but i wouldsk unanimous consent he be given three minutes to ask questions. i would give actually i ask for longer, but we already displaced the meeting that wascheduled to start in this room at 4 o'clock there is another meeting scheduled to start in this room at 5:00 and we have

another panel but i would happily brandt three minutes unless one of your mentors has an objection. spirit is their anything more important. it just a couple questions you are familiar with the proposal the administration laid out and assume you have the opportunity to know the minority party have thrown out a proposal as well to deal with this situation i don't know whether you've got into t wee at all. >> i haven't gten into the weeds of the republican. >>e will share you an annotated version. one ofhe provisis in thi and our plan says with regard to section 133 stop me of someone else through thisuestion because i came out after the economic group i the proposal that says that 133 should be ined in to some extent the

powers under 133 and one of the aspects would be to limit the ability for the fed to pick a it has been passed instance in particular institutiols d preferably all the amount as opposed to prohibit that but stead allow them tose section 133 in a larger institutional wide basis if that is clear. yes. >> comment? >> consistent 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. there ought to be some way -- there needs to be some way of doing that. we need orderly resolution of these institutions, but that is not the job of the federal resee. we would be consulting. would be part of the process but itll to be a treasury

departmentçó lead process. spinnaker be a distinction to say we would set this authority as the administration proposes and not putting a limitation on the fed federal reserve as we are suggesting if it goes throh you actually have a wind down authority as you suggest in the treasury so you wind things down but it clearly saying going forward federal reserve sll not have the authoty to do so is that what you concur with -- >> i have to see the exact words. >> you understand what we are suggesting? >> the idea i agree with. >> i know the discuion with regard to moral hazard has already been laid out here one issue in the nets is with regard to the fed chairman and allegations with regard to pressure that has been put on institutions in the past when they name specific institutions and those allegations.

we are sending a letter to the white house just to try to get some more information on that and i will throw the question to you right now. are you familiar with any otheb institutions that the fed or ofcials at the fed had exerted any pressure in any way, shape or form and whether the treasury has exerted any influence as those allegations are suggested. >>he gentleman's time is expired and since thats a subject at is not within the perimeter of this hearing. i wish the gentleman would ask the question in writing if he wouldn't mind since we are under some time pressure. >> can you give me just a yes or no? >> i would have to see the question in writing -- 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 am not sure why you are

getting at so perhaps the chairman's suggestion of a written question would be best. >> gentleman's time is expired the gentleman from alabama their ranking member of the full committee. >> governor, we have a suggested out of a bailout for these financial restitions? >> we have an exit strategy from the provision gf reserves that we have made the very high level of reserves we haven the system. we believee have the tools to absorber those reserves to make interest rates when the time comes too so with respect to the individual institutions i think each institution like aig for example has put in place a

business strategy to sell pieces of itself, repay the federal loans and repaid the u.s. taxpayer. so there are strategies being put in place for the individual institution. >> to me the obama administtion proposal actually put in place a bailout. it empowers you to bailout through loans or guarantees. failing institutions. >> that's not my understanding, congressman. we are in agreement with the administration a separate resolution authority for a phalanx stomach institution needs to be established under the oversight of the treasury not the federal reserve. >> would that include -- would that be enhanced bankruptcy proceeding?

>> it would be a substitute for bankruptcy procedure just we have today for banks and depository institutionsnder the fdic. >> sohe federal reserve is a systemic regulator would have no right to guarantee or loaned money to an individual institution. >> that wasn't the process of failing. that would be the resolution of that institution like there stearns, aig would be the province of the treasury department. >> about the fed over the past year has guaranteed some of the obligations and has made loans, has it not? you for dissipated -- >> we have been in a second and third guarantee position for some obligations of citigroup. is that what you - >> and aig also. and what is the total obligation to aig? >> i think we have about 45 billionoans outstanding

plus some special purpose vehicles that have assets that they have taken over from aig, it probably totaled 40 or 45 billion. do you anticipate or would you be opposed to a provision in any mall that we pas to prohibit the fed or the treasury from one in billions of dollars of tax payer money to these institutions or guarantee their obligations? >> i would be -- i think sobody in the government in 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.

>> i would agree with you that there needs to be an orderly resolution. >> that's right. >> i wouldot agree with you that wouldnclude a tax payer funding, either guarantees or loans in the case of the citigroup and aig was in the tens of billions -- actually hundreds of billions of dollars. do youelieve that the too big to fail -- do youelieve in that doctrine, do you believe in the fairness of that doctrine? >> i think that too big to fail is a difficult and a troublesome issue. i agree with of the thrust of the question we need to deal with i think there is a terrible moral hazard involved in that and my thinking is that the administration proposal something like the administration proposal is helpful in that regard has two

things. one is the largest institutions that might be too big to fail face muchougher scrutiny, higher capital, greater liquidity, mor robust risk management system that they won't feel and second there be a resolution authority and resolution authority that would enable the gernment to resolve these in an orderly way that might impose cost on the creditors but in an orderly way outside of bankruptcy. >> the gentleman's time is expired. the chair know 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 please their responses in the record. we thankice chaman kohn for

his patients and responses and we will excuse this witness and call of the econd panel. [inaudible conversations] >> when the hearing continues for federal reserve board members and officials from the financial sector offer their thoughts about new regulations that it is proposing. >> -- dr. alan meler we welcome each of you and we will recognize each of you false statements will o course be made a part o the record and each of you will be recognized for five minutes to summarize

your statement and i will start th dr. mishkin >> it is a pleasure to be here -- >> pull the microphone closer. >> to discuss the important issue which is what role the federal reserve should have asked systemic risk regulator. i want to boil this down to three questions even though i think three that are quite relevant to these issues. the first question is essential, should the fed b the systemic risk regulator, and i am going answer yes to that question and ther are four reasons that i take that view. the first is 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 of that contact is extremely useful. the second is there is a synergy between thinking about macroenomics stality and financia stality. and that is i think extremely

important inerms of performing the appropriate analysis to do systemic risk regulation in the best way possible. fervor is there is a synergy between the actions required in terms of promoting macroeconomics stability and financial stability and so we see this ofourse inery major ways during this recent crisis this involves the role of the federal reserve as t so-called lender of last resort providing liquidity to the financial system to in fact make sure macroecomic stability is preserved. and finally, the federal reserve is one of the most independent of government agencies in ord to be effebtive systemic risk regulator the independence the fed has had in the past and has used in the past wou be very lpful 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 choe when w think

about the nature of this role. >> the second issue is should the fed relinquish some of its other role as if it became the systemic risk regulator and i think the answer here is yes. in particular, the treasury plan has suggested the federal reserve no longer be a consumer protection regulator and all i concur with this view. there are three reasons i tnk the fed should no longer be involved in this activity than fact it is handed additional responsibility. the first is consumer protection regulator is not at the core mission with the feder reser does. where i actually do see macroeconomics stability as part of the core mission. the second is it uses a skill set and in the context of thinking about the synergies i do not see them to be nearly as relevant and the fear i think is the most important which is consumer protection regulations very political. everybody cares about it.

in the past i testified in credit cards. everybody has issues in terms of the credit card companies in that context that the possibility of there being more pressure, political essure put on the federal reserve system is in fac greater and so again i think this is anothe reason why not having something that isn't in the core mission which in fact is something that tends to give more to political but acally be harmful to the independence of the fed, somethg i am going to turn to later. of systemic risk regulator and i think the answer is yes there are three dangers that particularly concern me. i will argue however even though these dangers exist the federal reserve still should be the risk -- systemic risk regulator and there are steps, chris can take to make sure the federal reserve can do its job adequately both in terms of monetary policy and

in prince of promoting financial stability. the first danger is the federal reserve mifht lose its focus on price stability. clearly there are concerns in the marketplace about this issue and credibity of the fed as an anti-inflation steps it needs to take in terms of making sure inflation is not too high, and in this context i have argued elsewhere both when i was governor of federal reserve and afterwards at op-eds what we of dealg with that this would be to have an explicinumerical objectives in terms of inflation, something it does not have that theurre time. the second issue is could systemic risk regulation interfere with independence of the fed and i think there is some danger here and the danger of course is tt systemirisk regulation particularly in the context having to deal with an institution that has to be reined in could actually mean there is pressure put on the federal reserve system in that context and so i think that there is some danger here but again, i think thessue here is

that the congress has to be aware that the independence of the federal reserve is very much in the national interest indeed this is a very major concern i have right now we're concerns about the federal reserve independence and people who have been talking about the federal reserve needs to be reined in i think it actually is something that can damage the federal reserve abilityo keep price stability and also macroeconomic stability t furthermore, i think that there is also an issue that in that context that we could have problems even currently with conceabout the fed credibility whi is something that could raise interest rates, something i think has indeed happened. ..

>> the fed needs the suppo of the congress to require the resources that it needs. agn that is something quite important. so the bottom line here for me is one of the important lessons is tt we absolutely desperately need a systemic risk regulator. then i look at who can do it the best? and my view is the federal reserve is in fact the best position to do that. on the other hand, there are so dangers here. this is why the congress nee to support the federal reserve and i independence in terms of the resources that it needs to do this job. and as a result, i think that we uld be better served having the fed pursue the roll. i thank yofor the you testimony, and dr. meyer, you

recognized >> thank you very much. thank you for giving me the opportity to testify for you. the independence of central banks is absolutely essential. policies that focused on substantial state on the other hand require a more cperative approach includes in the u.s., the central bank, functional regulators of bank and nonbank subsidri, and the clear roll for the treasury. but there needs to be a bright ne betweenhe approach for financial stabity a the independence of the fed with respect to monetary policy. t supervising systemically important financial institution is across a central part of finaial stability policy. i don't believe there's a conflict bween the current or newly proposed role for the fed as systemic risk and traditional roll as indepdent authority on policy. but then again i do not see the

treasury proposal as concurring on the fed vast majority as systemic risk regulator. the fed is already bank holding company or consolidated supervisor for all constitution -- ititutions that have a bank. most of them are bank holding companies. other instituti that might be designates could be a couple of insurance companies, the few other large financial firms that are not supervised today. and in principal but not like in practice itially, very large and highly leveled hedge funds. it all should be recognizes that there are functional supervisors of the bank and the investmt banking and insurance subsidiaries at bank holding companies. and they do much of the heavy lifting in overseeing the risk in their representative parts of the bank holding company. now there's always been a rebate about when the feds roll in bank

and bank holding companies supervision, complements or conflicts in the monetary policy. one of the cases is feds responsibili is hands on supervisor of someanks and all bank holdingpanies provides first-hand information about the state of the banking sector which, valuable into the assessment of the economic output in especially in periods of extreme stress like today. the couerargument that the feds concern derived from its roll as bank and bank holding company can encourage the fed at times to sacrifice its objectives in order to help the banks system when it's aing. now when i was on the board, i never witnessed any conflict in practice between these two rolls. i don't see the debate should change as a result of t rginal increase in supervie

rereach. now a basic premise for my view is that a central bank should always have a hands on roll. first banks always have a inrmal responsible durg the systemic risk and the banking system is major source. second, the central bank is always a source of liquidity and lending to banks. and must therefore have first-hand knowledge of the credit worthiness. this is especially true at times of stress. finally, the central bank will always be called upon to cooperate with treasury at times of interventionsnd particular institutions where the fed will sometimes provide liquidity and treasury should take all the credit risk. given the feds rl already as consolidated supervisor as most of the institutions, the choice maybe whether to remove the fed from its rol in banking supervision altogether or expend its roll to cover all

systemically impornt financial institutions. this seems like an obvious choice for me. i als don't see the need to isolate these two funks from each other within the federal reserve. at least more than they are today. now if the fed were getting substantially new powers and systemic regulator and how to devote considerable new resources then iteems reasonable that it should give up some of its current responsibilities. if something ito be given up, the most obvious choice is consumer protection and community affairs. these are not seen around the world as core responsibilities of central banks. in addition, the caseor giving uponsumer protection and community affairs is strengthened by the pressure reproposal to unify these responsibilities this a single agency. the bottom line is that the fed is the best choice for

consolidated supervision of systemically important financial institutions. and in addition to its roll as independent authority on monetary policy. and these joint rolls are much more cpliment trithan they are conflicting. in deed, there is a very natural fit between these two rolls. thank you. >> thank you, dr. meyer, dr. calvin. you are recognized. >> thank you veryuch. it's a pressure and privilege to be here. want to begin with a comment on this question of independence which has been touched on. vice chairman collin said and i think the carefully chosen words that the congress granted a substantial degree of independence to theederal reserve. that independenc is of course independence from the executive branch. it is not and cannot be independence from the congress itself. th federal reserve maybe

delegated certain funks by the congress, but the congress can always choose to hold it accountable. and this commit of course has the oversight for tt reason. i think we should be very clear than when speaking of the independelce of the federal reserve it's inlegal independence of a kind that other regulatory institutions have had other the course of our history. it's not an independence which is specific to monetary policy pere. the question before us is whether the federal reserve is thees agency to take on the responsibility for rulating systemic risk. and i have some reservations abou that. and i would -- i would classify them in three broad categories. the first one i call institutional. and i would pick up the point that was already made this afternoon by congressman sherman, concerned the fact if the federal reserve is

constituted in the part of the regional federal reserve district banks who have boreds ofirector who are -- boards of directors who are formed from the member banks themselves. and it's of course true that the district banks are represented on the federal open market committee with a voting power who's constitutionality was challenged in court by the chairman when i was serving on the staff. the issue was never resolved on the legal merit. it's also the case as i understand it that the examiners under a systemi risk supervision regime would reside in the district banks rather than at the federal reserve board. and it seems to me that does raise a question at least of perception. that is to say whether it is approprie to have systemic risk regulators who were part of institutions that report in part and accountable to part in boards of directors

consistenting in part. for two reasons, one there maybe a systemic conflict between the interest of the member banks and the interest of systems stability. and secondly, there maybe conflicts between the interest of member banks and the interest of other tier one holding companies who are not member banks. it seems to be me that is at least a question that is worth considerin as you thi about the architecture. the second question is institutional. it was whether the macroeconomic agency if one wou ever have a commment to the systemic ris regulation to the supervisory responsibilities of the that function. it seems to b worth points out that there is in the treasury proposal basically a two-stage process. one of which is analytical, and the other one is more as more of a enforcement character.

the analytical question is to determine what is systemically dangerous institution. to be classified as a tier one financial holding company. that it seems to be would be an appropriate function to vest in the board where an office that the incremental in the sense that stipulated could decide amongst the relately small numbers of large institutions who is and who isot in the category. and the regulatio of behavior of the institution seems to me naturally would be more appropriately placed in an agency for whom that was the primary priority. an agey such as thedic. the third concern that i have is a questioof the leadership of the federal reserve. storicically the -- this is e chairmanship of the board of governors of the federal reserve is an extremely high profile appointment.

it's an individual who's close to the financial marke. and there is a real question as to whether this is any record of the federal reserve of effective response to systemic risk in advance of crisis. this was not the case in the 1920s. benjamin strong in 20s and alan greenspan in the latest crisis. we have a doctrine which died that systemic risk could in fact bring wn the system. that doctrine was articulated at the peak of the reserve. it seems to me we had a test. it does seem to me that there are reasons to be worried about vesting the authority for systemic risk in the federal reserve. thank you very much. >> all right thank you for your testimony and dr. burner,ou are recognized for 5 minutes. >> thank you, thanks for inviting me to this hearing to addrs this important questio the roll of the federal reserve and systemic risk regulation.

i think the broader question here is h should we address the significant weaknesses and the financial regulatory structure that the current financial crisis has exposed. among market participates, and i talked to many of tm, i think there are changes that are well recognized. adopt the regulation to migate those systemic system wide risks. instrument, markets, and institutions. in addition, i believe policy should lean against acid and credit booms. in my view the federal reserve is best equipped to take the lead on systemic risk regulation and oversight. like overs i think this function is essential and natural essential of the monetary policy roll of its responsibilities. three reasons or three factors that support that claim.

first the fed is the ultimate guardian of our finanal markets. and so it should be the agency that ensures the safety and soundness of the most iortant financial institutions operating. second the process of intermediation through traditional lenders has become increasily complex. supervision of the institutions will enhance the feds ability to make the right metary policy decisions. and finally the financial maets and institution makes it the natural choice for this roll. the feds leadership demonstrated that expertise. in short good monetary policy and financial stability in my view are complement r a great cost as well as systemic regulation and oversight and a policy pool is required for each overlap substantially.

that may elain why the other countries that separate such responsibilities from the traditional roll of the central bank have faired no better than we did in this rye sis. the you think is a good example. the uk is a good example. the separation of powers did not help manage the current crisis more successfully. however naming the fed to this roll won'tolve all of our problems. see why, anterest of my time outlines some remedies. i'll conclude by answerings four questions you raised. iny view it'three shortcoming, supervise institutions rather than activities. our focus on systemic risk is one remedy for that problem. designating the feds to take the lead of the risky activities and important market information ipping through the cracks.

always about managing expectations. when the fans hear, my guy is gs coming back and then you findin out that, no, he's not really ck coming back that soon, there is a setback, that's what leads toa disappointment. so i think that's where theo problem really lies. >> and when players don't trust. their own team medical staff, that's an issue, as carlosthatn beltran did and went to seek private counsel. >> communication again is what makes relationships work. >> so true, stephania bell, but that is for another conversation. tru thanks so much for your insight. >> thank you for having me. >> well, the layoff has been very long for michael vick. he'll play thursday. our nfl live crew weigh in on their expectations. and williamsport was rocking. one of the biggest 13-year-olds you'll ever see. plus it came down to the final at-bat in one game. it's back to being hit with all the stresses of work.

how was your weekend? it's day one of that 3 o'clock lull. and that guy who always asks, mind if i jump in? but monday night football is returning to espn, where adrian's moves will be making the guys in the booth say lean back! re-donk-ulous! play on playa! so relax and run steady. because on monday nights you roll with us- three deep in the booth.

>> number one roger federer comes to new york searching for a unprecedented sixth consecutive u.s. open title. but rafael nadal is back from injury and andy roddick seeks revenge. on the women's side, serena williams looks to continue her dominance in the slam, but she must go through big sister and a strong field to capture another title. coverage of the u.s. open begins august 31st on espn2, all four slams all in one place. >> and remember, espn s.e.c.

your home for the u.s. open draw. federer and safina are your number-one seeds. thursday, august 27, 12:00 noon eastern. patrick mcenroe and mary jo fernandez break it all down. plus interviews with roger federer and the defending women's champ serena williams. espnews, your home for the u.s. open draw. >> linda, it's been 32 months since michael vick played in the football game. on thursday vick will make his preseason debut at the eagles against the jags. first team offense expected to play most of the game. trey wingo, matt millen, herm .dwards offer their thoughts.ts >> this is really going to be tse grand experiment so far for tse last few weeks of the ts.season some herm and matt, .hat are you guys looking forts from vick, and perhaps more importantly, what are you looking for from the eagles to. ts.w you what they may do with michael vick? >> first of , they're notll going to show you a whole lot. they're not going to fool around tsth the wildcat too much. i think sal said it right, the speed of the game.ts ts.s missed football the last two years.

.ow will he react? is he going to react with an.xiety, or is he going to have .oise? vickts thing michael possesses is the ability when h. gets the ball in the hand to tske people miss. what is he going to do? no one knows that right now.. tsat's the great unknown because he's been away. from football. but i.f i'm betting, i think hes going to be okay. ts that's because it's intuitive and it's instinctive and that's what he does best. i think what you're going to see ts.n he gets into the game just . learning process on both sides of the ball bec . ause andy reid doesn't know exactly what he tss. he's been. p racticing, runningt. .round at practice speed. he's going to throw him in and i think what sal said was interesting because andy said, if it's not going the way he tslieves it should gosh, he'll yank him or get him out of there. that's good. i think the more telling thing is to see exactly what the eagles do with him. because that will tell you whats they believe where he's at. tsd, you know, maybe he's .urther along than they believe and they'll let h ts. im loose a little bit. ts i think the most telling thing ts when his instincts take over, what exactly happens?

s the third preseason. game. very important. speed of the game will be similar to what he's going to look like in opening day, but is think it's like anything else, it's kind of like christmas.ts tsu have all those gifts under ree and you're a little kid walking around, feeling the gifts and you kind of know, but .our parents are smarter than you because they put a gift over in the closet that you don't see, that's michael vick right tsw. he's in the closet.ts tsen we put him out, we're going to. find out thursday night. ts.the interesting thing too, sometimes you can't make this stuff up. vick's last game in the nfl in 2006 was in philadelphia as ats. .ember of the falcons. .e went 8-14 in limited action ts.the eagles beat the falcons that year to close out the 2006 season. >> little league world series. williamsport. al 6-2, 233 pounds, cameron durley. we got venezuela against saudi arabia.

cameron durley knocking in two runs and saudi arabia taking a two-run lead. next batter, one of two young ladies playing in this year's little league world series, laying down the bunt. the error brings in a run and saudi arabia wins 5-3. >> canada and germany. canada has a 4-1 lead. bags full. the hit goes off the glove ofth the outfielder.be 6-1 canada. top of the fifth now. canada now beating germany 9-2,> bags full for katie reyes, the other girl in the tournament. and katie will add to canada's y lead with that single, bringing in the run. 10-2 now canada. 10-7 now. bases loaded for germany. grand slam. germany grabs the lead now, 11-10. top six, canada down 13-10.>> sn one on for anthony cassati.

and wow. 13-12 germany now.s later in the inning, canada down 13-12. same score. balls full. t katie reyes contributing once again with her bloop single.t. two runs come in. canada now up 14-13. bottom six now. germany down same score, 14-13. two out, one on. family two out for tyler daubert. great play wins the game. canada wins it 14-13. second most runs ever scored in a little league world seriesont game. >> russellville, kentucky, taking on peabody, mass. both teams looking for their first win in the little league world series. a wild pitch. matt goenig coming in. massachusetts up 5-1 in the third. later in the inning, matt get i hoffman with two on going down the right field line.y: tha great effort here by the right h fielder, but he cannot hold on.

peabody, massachusetts, goes on to win, the final 12-3. they crank out 13 hits for the w. in hopes of keeping the team in arizona, the nhl has filed a bid in u.s. bankruptcy court to purchase the phoenix coyote. in a press release, the league did not say how much they're offering to buy the team. an action is scheduled on september 10th. if the purchase goes through for the nhl, they plan on selling the team to a third party outside the process. >> the american league leader in home run, carlos pena, just added to that lead. he went deep for the 36th time this year. he's got five homers in his last five games. so carlos pena is on a roll, and the rays have a 2-1 lead in toronto. let's help you stay current here on espnews. kentucky derby winner mine that bird still needs medical clearance on wednesday before he runs in saturday's travelers

stakes. the horse had minor hoof surgery last week. a little less noise please. [laughter] the chicago cubs activated carlos zambrano from the 15-day d.l. he'll make the start tonight against washington at wrigley. and the broncos acquired patriots' offensive tackle russ hoc hstein for late-round pick in 2010. >> ahead, the mets losing their ace for the list of the season. find out what will keep johan sidelined.

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úú÷÷ it's the middle game of a three-game series. orioles look to bounce back after last night's tough lott loss. coming up tonight on "o's xtra", tillman pitched well enough to keep his team in the game. we'll look back as hit game and hear from matt wieters about his progress. brian matusz goes for the orioles looking to even the series for the birds. all that and much more coming up in the secretaries -- in the next half hour right here on "o's xtra". welcome to an evening of orioles baseball. it's the orioles-minnesota twins in game two of the three- game series. minnesota beat the birds last night 2-1 for their first win in three tries against the orioles. "orioles xtra" pregame being

brought to you by at&t, your world delivered. orioles send brian matusz to the mound tonight. he's 2-2 with 6.75 earned run average. right-hander armando gabino makes his major league debut for the minnesota twins. welcome to our masn studios. tom davis with rick dempsey. tillman pitched 5 2/3 last night. ' a-- allowed a couple of runs. when you see somebody improving, what do you look for out of pitchers improving? >> i think one of the biggest hurdle any young pitcher has to get across once you gets to the major league level is throw his breaking ball over the plate when he is behind in the count. that seems to be the little iffy area with most of them. like they did in the minor leagues u-they got behind in the cowfnlt they threw theirfastballs whether it be inside or outside. most of the time they could overpower pitchers. that's why these guys are at the major league level because they could do that at the minor league level. once you get up here, you can't throw as many fastballs by the big boys. you got to learn to change speeds. you've got to learn to throw things in counts where you're

in fastball counts so the breaking ball in breaking ball counts throw the fastball. you kind of switch things up. one you get over the hump, once you get a pitcher who feels comfortable shaking his head yes when you call for the slider or fastball when they're down 3-1 in the count and men in scoring position, then they get over thehump. they get that confidence about them that you can call anything in any situation and it really helps them win a lot of ballgames. >> keep them guessing. >> keep them guessing. you've got t. >> the orioles pitching staff obviously having growing pains with a lot of young starters. we're going out to the metrodome right now and he be joined by wjz mark vif yawno. how you doing, mark? >> it's about charght the progress of the young orioles players, in particular, the young pitchers. brian matusz makes his fifth major league start and hopes to produce a positive start towards the building of his big league career. it was here last night we saw chris tillman, another rooky, fall victim to his own inexperience. he had the swins shut yow for five innings. gave up two runs in the

sixth and quickly found himself on the bench. now he felt a little dazed and frustrate that had it all happened to quickly that the game got out of control for him. that's what tillman told me after the game. i spoke with brian matusz and chris tillman about first time through in the major leagues how you can be doing well and suddenly a game can feel like an of a flanch you can't stop. >> i just need my own learning curve getting experience being out there and pitching through those situations. you know, getting the experience out there with runners on first and second or second and third just comes with being able to do that more and more. up to point in, i felt good. i think you kind of hit me when runner at second, first, second and third and morneau came up and in my head i'm kind of it's an intense moment. >> i have one bad inning where a guy is on base and i try to do too much. the game starts moving real

quick like you said. it's important to take a step back, focus, pitch my pitch and not try to get three outs on just one pitch. really pick it apart and go after each hitter one batter at a time. >> now, matusz would be pleased to hold this twins lineup to just two runs as chris tillman and the orioles bullpen did here last night. the two runs were too many as the orioles produced one run of their own. manager dave trembley said before the game it's about scoring runs tonight. without adam jones who is again out of the lineup with back pain. told me he is feeling better but still not able to go with lingering soreness from the injury he suffered in chicago while swinging at a mark buehrle changeup. the orioles will face a rookies pitcher as armando gabino makes his major league debut. that's the story here from the metrodome in minneapolis. now back to tom and rick. >> we appreciate it, mark. mark on sports radio 105 the family looking forward to his return tonight in a couple days. when you look back at it, chris

tillman, is he really getting better now? >> i think he is. i think he showed a lot in his last couple of ballgames. i think it comes right down to him being able to use his off- speed stuff. he made excellent pitches all night long with his curve ball. that's the one pitch for me. he comes to the big leagues with a reputation of that being his best pitch. i think he really knows how to use that and he's getting better in certain situations because he's getting to know these hitters a little better. you can see right there the off- speed pitch that got way from the catcher. matt wieters right there, that really was a turning point forminnesota in this game. ended up coming after that and he ends up out of the ballgame only giving up two runs, but a pretty good job because i like the way he orchestrated his -- orchestrated his game not only in toronto, but last night was a pretty good game. it was just the situation. the manager decides he wants someone else. there's not much you can do about that chris tillman 5, 1/3, six hits, three walks. last four starts 1,-2. very

respectable 3.65 e.r.a., 24 plus innings, 24 hits, 10 walks and 11 strikeouts. for more on chris tillman, mark viviano caught up with the orioles catchers matt wieters. >> tell me about tillman. he got help from complai double plays and worked his way through. what did you think of him? eye thought he did a great job. anytime he's getting ground balls which means he's down in the zone locating well which is what he needs to do. he was able to work all three pitches today. he got some tough guys out in tough situations and anytime you can get double plays and limit his pitch count, it's going to help him in the long run. >> after the triple, that ball in the dirt, was that a slider he just threw a little short? is that what happened? >> it was just a changeup. it should have been blocked for -- he pitched a heck of a game and the bullpen did a good job keeping them there. we couldn't score enough runs. >> that's the position you want to be in. >> yeah, you dream of it. just made a pretty nasty pitch there but came back and saw

that one and try to get him next time. >> you hit a ball real hard with a runner on. you slapped your hands there. were you just mad you couldn't get that run home or maybe you thought you could have driven it over the fence? >> you hit it hard. anytime you hit a ball hard, you'll be happy. it would be nice to get that up a little bit and get tillman off the hook because he threw a heck of a game today. >> orioles had not only four base hits, lost to the twins 2- 1. brian roberts with an rbi double. orioles are 2-1 against twins. 3-4 on the road trip. now, melvin mora dominated the game last night defensively. rick, it seemed like he was putting on a cline iek he really was. he put on quite a show. melvin mora is one of the best at going to his right in all of major league baseball. you can see whenever he has to go that way, he has nice rhythm, nice timing a good 360 move he has right here. watch this play right here. good, strong throw. he uses the astroturf to his benefit. he knows not to try to make the long throw in the air for fear of throwing over to the first

baseman's head so he bounce it is to first base. he takes advantage of that very spongy turf right there. he was exceptional. again, melvin mora with three big defensive plays that certainly helped that pitching staff and saved a lost extra pitches. >> a lot of agility for melvin mora. >> he did. >> no doubt about that. when we come back, we'll take a look at the orioles and minnesota twins starting lineup. that comes up next when "o's xtra" brought to you by at&tcontinues in a -- "o's xtra" continues in a moment.

"o's xtra" pregame being brought to you by corona and corona light official sponsors of the time-out. relax response believe. here is a look at the orioles starting lineup. brian roberts leads off. felix pie moves up to second and plays center field as adam jones still has a store back. nolan reimold the dh. nick markakis luke scott a rare start in left field and matt wieters. how about brian roberts? >> brian has a lot of different

weapons he can use. not only is he an excellent hitter, 155 hitters hits on the season so far. he's got 54 walks. he has one of the best eyes and it kind of proves my point about him being an excellent two-strike hitter is he can take very close pitches. he has no fear whatsoever that it's going to be called a ball. he usually gets himself in hitters counts right here. he's a little man with a big man swing. he can power the ball through the gaps overt outfielders' heads because they like to play him a little schall yoa. they don't expect he has the kind of power he really shows. he has 14 home runs on the season. they better start respecting something that. little guy can flat out hit. >> roberts is exactly halfway to killing the team of 52 consecutive games reaching base. you look at the catchers. matt wieters, joe mauer, compare the two. >> it's very hard to compare them. remember back to when joe mauer started there was a lot of similarities. neither of -- neither one of them kind of showed a power swing. joe mauer did not hit very many

home runs at all. this year he seems to be coming into his own. he's a lot bigger and stronger than he's been in quite a while. i think now he is starting to look for pitches and try to pull the ball. this is something he's never done. just like matt wieters, you don't see matt wieters hit very many of his. in fact, none of his home runs as he he tried to pull at all. he's hit them all the opposite way. on a defensive standpoint, both guys are starting out basic lead same. they've each got excellent arms. they receive the ball very well. they just have to work on a few of the nuances. very tough for big guys to get comfortable back behind home plate not only with catching and receiving and doing the things and blocking the ball behind home plate, but it's very uncomfortable sometimes the distance they have to stand from home plate, too, as a hitter. >> it's kind of interesting also in minnesota, kent herbbeck big with the twins over the course of time. take a look at the minnesota twins starting lineup. joe mauer, hitting third the american league leading hitter.

justin morneau tops the american league in rbi's. how about this, rick, morneau since 2006 is second in the majors with rbi's topped only by ryan howard. >> you know, justin morneau is just one of the most dangerous hitters in whole game. he hits so well with men on base. one of the reasons why he's so dangerous is he hits left- handers better than he does right-handers. he hits to a .314 clip against left-handers. he has nine home runs on the season which isn't going to surprise anybody, but the 41 rbi's is almost half of his total amount is against left- handed pitchers. this is what should be the toughest on him. he has an excellent eye. he doesn't try to pull the ball too much. go the opposite way against left-handers especially. right-handers you're in real trouble if you come up with men on base. he hits .285 against right- handers and rest of the rbi's, 50 some odd against all reasoned pitch ears one of the things the twins have done well over the course of the last 15-

0 years is get a lost good, young players also good, young players that have produced for them. >> they do. they have a great minor league system. it's always been great. it's always been one of the most productive minor league systems in awful baseball. they produce them. they come to the major leagues. they don't want to sign them to big contracts. that's why you see so many young minnesota twin players, torii hunter is one of those playing center field for the los angeles dodgers is one of those who came up through the system and they don't want to spend the money in minnesota to keep them there, but they can produce some very, very good players. >> with that new ballpark opening next year, i guarantee they'll spend big bucks to keep mauer for a long time. no doubt about that. he's already won two battintitles. look at the upcoming masn schedule. orioles have one more game in minnesota after tonight. they conclude their nine-game road trip tomorrow night. back too baltimore, friday, saturday, sunday. the orioles haven't played cleveland all season and it's the end of august. three night games and one on sunday afternoon. our coverage begins 6:30 for

the three night games and 1:00 on sunday afternoon. just a reminder if you can't watch the games on masn, tune in to radio. when we come back, you'll be right in the dugout with the orioles manager dave trembley. that story comes up next on "o's xtra" brought to you by at&t. ♪

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like our big mouth bites -- the mini burgers with giant layers of flavor. or a half-rack of our triple-basted baby back ribs. then save some room to share a decadent dessert. a lot of bold flavors, for a limited time only. chili's -- it's the orioles-minnesota twins getting ready for game two of a three-game series. brian matusz starts for the orioles. orioles losing last night 3-1 to even the roard record on this road trip. a few hours ago, dave trembley met with the media in the orioles dugout. >> do you think manager is looking forward to facing a lineup that has lefties in it>> they don't have kubel in there tonight dorks they? kubel is not there. he'll have to -- he'll have to locate. surprising you don't see too many 2-1, 3-2, 4-3 games in

this ballpark here especially with the amount of left-handed hitters that are in the lineup. i think for matusz, it's going to be pitch ahead, stay way from the walk and it would probably to be his advantage if the big guys don't come up with men on base. there's not too many times you'll get mauer to take an to- for. morneau probably last night was just getting back into it after missing a few days. i would expect today he would be a ball of fire. a guy -- cuddyer, they have a bunch of guys in their lineup that coming in the series the last five or six games a lot of them all had multiple hit games three, four days in a row. for us, it's matusz pitched good and us do a little bit more offensively. i think for us the key thing would be to get the key hit in the key situations. we've lacked that. you know a-breakout hit.

two-out rbi hit. an extra-base hit with two guys on. a three-run homer would be nice. i liked -- you have to like the way we played defense last night. you need do that in this ballpark. at least pitching gave us a chance. that's the plus especially when you have young guys, but you can't just be content with playing good. the name of the game is still to win. , so you've got to do what you can to try to win the game. >> along those lines, dave, chris and matt last night. both are angry. there's probably a healthy dose of that that might be needed especially from these young guys experiencing that it's not acceptable. as hard as you play, that's just what you said, it's about winning the game. is it good to see they're angry about that? >> i think what you should learn from losing is you don't

like it. you don't learn from lose that go it's ok. you don't learn from losing it's ok just to play all right. i think from losing, you should learn what you do wrong and what you need to do in order to win. i'm sure wieters is upset with himself. he didn't like the wild pitch. tillman is probably a little upset with himself he walked a number nine guy or gave up a hit to casilla. you can't be satisfied you got yourself out of position. that don't neighboring. you've got to have young guys that are ee eager and aren't satisfied and have a desire to compete and to win and beat other team. beat them. they're just out there to

compete. beat them. >> most of them are focused on the young kids and the rookies. how much is kind of the reemeyer genuine intelligence of chris ray meant to the team especially going forward? i know you have a reliable option late in the game eye think the back end of the bullpen has the opportunity and the potential for a power- packed bullpen. i think we've said that about chris ray. this is kind of a mulligan year for him. i thought towards the end of the year he'd be rounded into the shape we all knew he was. i thought real confidence boost for him the other day in the ninth inning pitching in the ninth inning, closing a game out even though it wasn't a save situation. last night his numbers have notbeen good against left- handed hitters facing the middle of the lineup getting a 1-2-3 inning. looking more comfortable, yet looking more confident. >> that's masn total access to

the orioles manager dave trembley in the orioles dugout. it's brian matusz pitching for the orioles. rick dempsey scouting report on tonight's pitchers comes up next on masn.

masn presents maximum access fantasy baseball. log on to masnsports.com and play masn's maximum an says fantasy baseball for chance at weekly prize and an opportunity to have lunch with the orioles manager dave trembley. log on to masnsports.com. register for free and use a virtual $100 million salary cap to select your fantasy baseball roster. fans can play on their own or organize their own leagues and invite friends. play masnsports.com today. time for rick dempsey pitching scout report. >> brian matusz working on a no hitter with the left-handers he's been facing so far. they're 0-806 him in his first four games with five strikeouts. he's work on the whiff right

now. 20 strikeouts in four games ranks him fourth all-time in oriole history for a rookie. jimmy haynes was the last in the mid-'90s to be able to strikeout that many giles in his first four games. brian matusz off to a petro i didn't good start when you look at a k standpoint. >> how about the stwins starters -- starter armando gabino? >> this is his major league debut. everybody knows that. he was 5-3 at triple-a with a pretty good e.r.a. at 2.93 e.r.a. the record doesn't really matter. that e.r.a. says everything. i think he could be a finesser because i don't know him personally. i haven't seen him pitch. 86 innings. he's only given up 65 hits which is great. that amount of hits and that amount of innings is fabulous, but he's only got 55 strikeouts in 86 innings. that kind of tells me something about how i move the ball -- he moves the ball. probably has a pretty good changeup, good curve, uses a lot of ball speed stuff, that's the reason why he's not a big strikeout guy. >> how about rick dempsey's key to the game?

>> just for fun, let them run because matt wieters has come on behind the plate. he's thrown out 5-9 last would- be base stealers. he has 11-29 on the season. that's 38%. that's one of the tops in the american league right now. he started the season off terrible only throwing out 3- 23. he has really been changing things around for himself behind plate. >> show would not be complete without rick dempsey player to watch. >> my player tonight is going to be nick markakis. .303 lifetime average against minnesota, eight home runs, 17 rbi's in only 24 games. usually it takes about 65 games against like the new york yankees and boston red sox and teams like that for nick to put up those kind of numbers, but he's done a great job -- doing a great job against minnesota. i'm going to make call tonight gets noan another one of those long flies a-home run for nick markakis. >> did you like playing in dome facilities when you ?raid eye thought it was new and different. when you go to minnesota especially early in the season, you don't want to have to

playoutdoors. i tried playing outdoors in minnesota. that was the first team i came up with 2 1/2 years ago outside the stadium. it was like 15 degrees. that is no fun to get jammed when you are trying to hit a major league fastball in on your hands. i like that dome especially when you're in places that don't have good in weather all the time and it's fun. you get the ball on the ground and it scoots through the infield a lot quicker. you get a lot mauer base hits that way. it's good. i'd rather play like if baltimore. that's my favorite place, nice and hot here. i love hot. >> twins will be outdoors next season. maybe it will get warm in the summer in the land of 10,000 lakes. just a reminder before the orioles play the minnesota twins tonight, andy macphail will chat with buck martinez. that's right before the game start. that will wrap up "orioles xtra". brian matusz pitching for the orioles. armando gabino for the minnesota twins. orioles ii-1 against the twins this season. we'll be back with our posts-

game show after the orioles play the twins next on masn. why? i don't know she's wandering around the lobby, yammering about fios tv, internet and phone all for $79.99 a month. she seems crazy. actually, fios customers get that price for six months. it's like getting three services for the price of two. so am i the one that's crazy? no? (announcer) get fios tv, internet and phone for just $79.99 a month, plus a free dvr for 3 months. call the verizon center for customers with disabilities at 800.974.6006 tty/v