numbers. we're working together on a six-month basis. we'll be back here again i'm sure in the next couple three years. and we'll have a chance to talk about this. >> sounds good. >> but again, we want to work with you. this is not to put you on the spot. it's just to work together. >> no, i look forward to it. >> good. >> could i have a last point. i just want to come back to that point. we have a lot of federal property that we don't use in our inventory. senator baucus knows we're trying to confirm an administrator for gsa, general services administration, which manages thousands of federal properties across the country. but we have a lot of them that are vacant or not used or underutilized. we pay the utilities, we pay the security and all kinds of other cost that is relate to the facilities. when agencies want to -- even if they want to sell them, they might need to spruce them up and fix them up and getting ready to market them.

and then the property sold. the agency doesn't get any money back. they aren't getting any money to pay their costs, their fix-up costs. they don't get any money to underwrite some of their programs and we're carrying on our books not just hundreds but thousands of properties which are really a drain on our treasury. at least one agency has figured out how to use and have been given permission -- how to use market forces we incentivize the veterans administration. we allow them to take 20% of the properties. they use that money to also go into their programs. to help supplement the appropriated funds. that's the kind of thing that i think we need to be doing more of. i think i learned all that in new governors school and you probably did too. >> entrepreneurial spirit. >> there you will. -- there you go. >> break it out in major categories and departments so it's not just a gross number.

the tyranny of averages sometimes prevents effectiveness. so don't go across all your departments and all your stuff. i don't want you to overdo it but figure out some reasonable way to segment each -- how much -- which departments x, fraud and which departments have x waste and y waste. and just break it down a little bit. some level. >> that sounds reasonable. thank you, sir. >> i deeply appreciate you taking the time. we've got a lot of things to do. >> absolutely. >> thank you very much. >> the meeting is adjourned. [inaudible conversations]

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>> and a live look for you now here of the winter meeting of the democratic national committee. a leadership breakfast underway here in washington, d.c. where we will hear from democratic national committee chairman tim kaine, california congressman mike honda. and speaker of the house, nancy pelosi. she's expected to talk about healthcare, jobs and the democratic agenda. we expect this to start shortly. and we will be bringing it to you live here on c-span2. [inaudible conversations]

>> i went to the -- i'm playing the part of button gannett who was one of the signers of the american revolution from georgia. there were two from georgia. and so i represent him. >> and i take it you're from georgia? >> i'm from brunswick? >> are you active in your local tea party. >> i'm the vice president. >> why come here? why come to this meeting? >> well, because we are here to unite the tea party nation, the tea party patriots and to discourage big federal government and a return to the constitutional principles which this nation was founded on. >> when this weekend is done, what do you hope is the result of all these meetings? >> a focus on the targets for the 2010 and 2012 election. we're going to make sure we're all united. we're going to all give sarah palin a kiss for her stance and support of the tea parties on

saturday night. and then we're going to get out with your local individual groups and target all of those part of the political class that still thinks that they are necessary. and we're going to get them all kicked out regardless whether they're republican, democrat or independent and replace them with new people who understand the constitution. >> when you hear of some of these tea party groups that have criticized this convention, what are your thoughts on that? >> that is what happens when you have large groups where several different groups want to be center -- front and center of everything. but this is -- this is a good thing. this is unig nighnight -- unit tea party nation. i would prefer that we had this out in the field in the rain if necessary. but we'll have it here. so let's rejoice. have a good time. encourage the disillusion of this tyrannical government. and kick them all in the butt come 2010. >> well, thank you for your time.

>> and now we take you live to the democratic national committee winter meeting leadership breakfast. dnc chairman tim kaine speaking now. he began just a moment ago. this is live coverage on c-span2. >> asked me to do the state of the union response in 2006. and i don't know what i did right but i kind of feel like she's always kind of watched out for me in a very special way. and i really appreciate that, madam speaker. but to really give her the california introduction, how about this? let's give her a dnc a big round of applause for speaker pelosi to coming and speaking with us today. [applause] [applause]

>> and i want you to stand once more. she has to do that when the president -- when the president of the united states. everybody stands and then she says the president of the united states and everybody stands again. so in a minute we'll do that but now let me bring up one of my vice chairs who i've gotten to be great friends who helped me in my campaign for governor and helped so many virginia candidates and candidates all over this country. works very significantly on voter outreach. congressman jim honda. give him a big round of applause. [applause] >> good morning. >> good morning. >> all right. that's the way we start. thank you, governor. okay. i think it's safe to say that nobody -- no other job in congress has a difficult job as the speaker. speaker pelosi. no one shoulders more responsibility in shaping debate and policy.

no one -- you can say that, anyone else so devotedly listens to and weaves together the needs and demands by words, verse and opinionated and often boisterous house of democratic caucus and, therefore, so strongly advocates for all of us with the administration and the senate. nobody does that better. nobody. no one spends more hours negotiating. no one stays up late deliberating and no one spends more air miles campaigning than speaker pelosi. i know that because when i was campaigning, every time she calls me on the cell phone, hello, mike, i'm going down the stairs of the plane and i got you some money. [laughter] >> then it is no surprise that historians, pundits, friends and colleagues and opponents

consider nancy pelosi the most powerful speaker in history. [applause] >> it's because the speaker's tireless leadership and dedication to getting things done for the mainstream, the legislative accomplishments of the 111th congress are really extraordinary. think about it. president obama's economic recovery actually will create millions of jobs and cut taxes for the middle class. historic children's healthcare to provide coverage for 11 million children from working families. [applause] >> the waxman-markey bill to limit greenhouse gas emissions and create millions of clean energy jobs in america. [applause] >> and on so many other challenges from bringing reforms to wall street and acting to

create jobs on main street. speaker pelosi never stops fighting for california and for all americans. when the speaker said after the house passed our historic jobs bill and just before winter recess, she said that she was willing and about to hit the campaign trail. and when she said that, i breathed a great breath -- a sigh of relief 'cause we needed somebody with her brilliance and her legislative know-how in the strategies to be out there on the field in the campaign. because i don't know of any other better campaign, a campaigner than nancy pelosi. nancy's vision and tenacity, resilience, patience and poise lead us to the next november elections. i watch her every day. and i don't think i ever seen a look of anger in her eyes. it's always determination.

and asking what is it that you -- what is your problem? [laughter] >> i know because she asked me once that. [laughter] >> that was my first month. [laughter] >> i learned quickly. so my fellow democrats, it is my distinct pleasure to introduce a fellow california democrat, my speaker, your speaker, nancy -- how do you say that? pugacious, the fighter, pelosi. [applause] [applause] >> thank you all very much.

thank you all very much. good morning. >> good morning. >> and a good morning it is as was indicated by the jobs figures this morning. thank you, mike honda, for your very generous and insightful introduction. [laughter] >> let's hear it again for mike honda. a great champion for the middle class as he is vice chair of the dnc. thank you to our great dnc chair tim kaine, governor tim kaine, a lifelong fighter for fairness in our country. a great leader. aren't we proud of our chair. [applause] >> alistar, we go back 30 years. don't say that. lonnie, same thing. we have some history. donna came along later. her years are serious years. but thank you to all of you who are here. and i particularly want to

acknowledge something i'm very proud of. the california delegation. [applause] >> especially our dean roz wiman. my newest participants, isabella, my granddaughter with her mother. i want to say a member of our delegation of the dnc delegation is now going to be the speaker of the california assembly, john perez. aren't we proud of that. [applause] >> i especially want to acknowledge some of the my colleagues of congress from california and beyond. debbie wasserman schultz our vice chair and the leader of the congress, we're so proud of debbie wasserman schultz. congresswoman barbara lee, an

unyielding advocate of justice. i don't know if maxine is here. she's also a fighter for economic justice. and together and other members as well and the cbc, working together with our democratic whip, mr. clyburn, congresswoman lee and congresswomen lee and waters are leaders to the u.s. response to the earthquake in haiti. [applause] >> our president said it best -- our president said it best to the people of haiti. you will not be forgotten. you will not be forsaken. barbara lee is making sure that that is the truth. thank you, barbara. [applause] >> and so it's wonderful to be here. i feel like as if i'm coming home. some of us have been friends for decades. some of us for days. all of us concerned about a better future for the american people. and so i'm very honored to have spent 20 years on the democratic national committee. christine is now on there. my father was on. we're three generations of dnc

so i know full well the important work that the -- members of the democratic national committee, our state chairs and vice chairs and others -- i know how important you are to our electoral success. and for advancing causes to improve the lives of america's working families. and so i'm very honored to come to you today as speaker of the house. and on behalf of our great majorities in the congress, including our majority leader, steny hoyer -- any marylanders here? [applause] >> i thought so. well, i'm here to say thank you. thank you for helping to elect strong democratic majorities to the congress that enabled us to make a difference in the lives of the american people. i know that senator reid's travel -- snow, the this and the that prevented him from being here this morning but might i say what an honor it is to work with him on behalf of a better future. he is a great leader in the united states senate, senator harry reid. [applause]

>> and as i proceed, i want to point out one area of special pride that is in the three years since democrats have won the majority in congress. we are very proud that we have provided greater support for our veterans that in any time in american history. [applause] >> as they say in the military, on the battlefield, we will leave no soldier behind. so to we say and when they come home, we will leave no veteran behind. [applause] >> let us recognize their service and the service and sacrifice of our courageous men and women in uniform and their families. and their patriotism to our country. thank you to our men and women in uniform. [applause]

>> with your help to end discrimination, we passed the lily ledbetter equal pay legislation. the federal crimes law. and last week happily received the news that president obama will repeal don't ask, don't tell. [applause] >> i know when you're out there you got a question that i get frequently and had been getting for decades. what is the difference between the democratic party and the republican party? during his acceptance speech the democratic national convention in 1948, president truman, a man very succinct words, he said this. the democratic party is the people's party. and the republican party is the party of special interest. it has always been and always will. that's what he said. it was true then. and it is true today. [applause] >> democrats are the party of the people.

and keeping in mind what president truman said about the republicans being the party of special interest, doesn't that combined with the latest supreme court decision insist that we pass public financing of campaigns. isn't that long overdue? [applause] >> democrats are the defenders of the middle class and all who aspire to it. democrats are fighting for fairness and justice. democrats are leading the fight for main street. never again will wall street's recklessness undermine main street's progress. never again will wall street be allowed to jeopardize the jobs, the pensions, the homes and the life savings of the american people. [applause] >> and democrats are for healthcare for all americans as a right, not a privilege. [applause] >> fairness and opportunity,

that is the fire that burns within us. thank you for helping to elect a great president of the united states, president barack obama. [applause] >> in his inspirational inaugural address, president obama called for action bold and swift. not only to create new jobs but to lay a new foundation for growth. with your help, it's all about you. with your help, one week and one day later, the house passed the american recovery and reinvestment act. the recovery act will mark its one-year anniversary on february 17th. and it has helped advance the education of our children by hiring more teachers and keeping teachers in our classrooms. the recovery act provided for the safety of our neighborhoods by putting more police and firefighters in our communities. the transformation of our

economy through middle class tax cuts is an important principle of that recovery act. we began our investments also to create clean energy jobs and we'll continue as mike honda said to build on the waxman-markey climate change bill to have new clean energy jobs for the future. it's not just about putting people back to work. it's about having more jobs and better jobs for the american people. [applause] >> there's a few things that i want you to remember to take home. according to major economic indicators, we have already seen signs of recovery that have sprung from this recovery act. here's what i want you to remember. number one, jobs. january of last year, before we enacted the recovery act, americans lost in just the month of january, 741,000 jobs. 741,000 jobs.

in that month as we -- at the end of the month i nothing -- inaugurated our president. and in january, 2010, the job loss is 22,000 jobs. 741, 22. 22,000 job loss is too much. we know we have to do better. but it's a big difference. it's 720,000 jobs fewer than january of last year. [applause] >> number two, the gross domestic product. in december, 2008, america's g.d.p. decreased, decreased, by 6.2%. just one year later, december, 2009, our g.d.p. grew by 5.7%. a remarkable 12-point swing. and the fastest that our economy

has grown in years. 12 points from december to december. number three, the stock market. although yesterday wasn't a great day, it still closed over 10,000. just a year ago, around this time, the stock market closed at 7,000. an increase of 3,000 points. in the stock market. and fourth, america's manufacturing base grew for the sixth straight month. let me repeat that. america's manufacturing base grew for the sixth straight month. and now it is at its highest level in five years. its highest level in five years. we talk about jobs, g.d.p., stock market and manufacturing base increase -- the recovery act was an important part of making that change. and we we must recognize that in

all of our communities across the country. but the biggest indicator for us and the president says it so well -- the biggest indicator for us is the progress that is made by america's families. we know that far too many americans are still looking for work. democrats will continue to focus again not only on putting americans back to work but creating new, more and better jobs for the 21st century. we will measure our success in the progress made by america's working families. central to our fight to create jobs and strengthen our economy is our fight to reform health insurance for the american people. [applause] >> this is about the economic security of america's families. let us recall the course that was set by the president and the congress last january. with your help as was mentioned earlier by mike -- with your help, one of the first bills we

sent to the president provides healthcare for 11 million children in america. [applause] >> we're off to a good start. [applause] >> and the recovery act invested billions, billions of dollars in health i.t., health information technology. electronic medical records and the rest. so that when we go down the path of healthcare, we're off to a running start. and billions of dollars additional for investments in basic biomedical research. research with the power to cure. research paid for by the taxpayer, the benefits of which should be available to every person in america. our idea is predicated on the idea that the most privileged person in america has better healthcare if everyone in america has healthcare. [applause] >> it's a healthy america. [applause] >> and there's more. in a letter to president obama, senator ted kennedy wrote about

the need for healthcare reform. he said, what we say is above all a moral issue. at stake are not just the fundamental -- the principles, the details of the policy but the fundamental principles of social justice and the character of our country. senator kennedy is our inspiration with leadership of president barack obama and with your help we will pass health insurance reform this year. [applause] >> while the forces against us spread misrepresentations, here's what i want you to remember about health insurance reform. the bill is about jobs. creating 4 million good-paying jobs in the life of the bill. this bill is about innovation. it's about using the health i.t., et cetera, and biomedical research. it's about innovation on how we

deliver healthcare to everyone in america. and to everyone to have personalized, customized care in getting the right care. this is very important. and it's about the future. this bill is about prevention and wellness. it's about diet, not diabetes. it's about how we can make america healthier. not just about healthcare. but a healthier america. and this bill is about fairness. that fairness. that fire that burns within us. in the spirit of fairness, under the legislation, you will not be denied coverage because of preexisting conditions. [applause] >> and by the way, to the women, being a woman is practically a preexisting condition in most insurance companies. and also in the legislation,

domestic violence is not considered a preexisting condition. [applause] >> you will not lose coverage because you become sick. imagine you bought your insurance. you pay your premiums. you get sick. they cancel your policy. that's not insurance. that's not insurance. it may be the version the insurance companies accept but it's not what we accept for the american people. no longer will families -- most of them who are declaring bankruptcy do so because of medical bills. a diagnosis of an illness should not be a reason to declare bankruptcy in our country. ...

>> the bill will increase competition, increase consumer choice, and lower cost for the american people. must be done, long overdue. as president obama said during his state of union address, don't walk away from reform. not now. not when we are so close. let me just tell you this. on the campaign trail, going to go out there just on official visits across the country, i have seen grown men cry about

this health care issue. people who are on the verge of bankruptcy because of medical bills, who have a sick spouse, who don't want to tell their children they can no longer afford to buy prescription drugs or the care that their mother or their spouse may need. they don't want to declare bankruptcy. they may have to lose their homes. they are desperate. the problem will not go away. we must pass this reform. it's the status quo is totally unsustainable. is unsustainable for individuals, for those people who work their whole lives, live by -- played by the rules, done everything right. and come before me in tears saying, i can't -- i can't make it. my health care bills are taking our family down. i'm embarrassed to tell our children. they have their own economic challenges.

i can call upon them for help. imagine, that this is happening in the greatest country of the world because we don't have health care as a right, not a privilege, but we will before too long. standing together and working together, we will pass health care reform for the american people. i will say it again. [applause] >> but recognize -- recognize your role in this. we can do all the inside maneuvering and legislating and the rest, but without the outside mobilization, without your participation, nothing really great or good can happen. so i think you for what you have done, and in advance for what you will do. we talked earlier about the difference between democrats and republicans. anybody who wants to see the difference between democrats and republicans need only look at their budgets. president obama, this week that you are here, sent his budget to

the congress. president obama's budget is a true statement of our national values. what we believe in is how we allocate our resources. both of them, leaders there. and mike condit as well. i was an appropriate her, too. we all understand that. this budget provides a new foundation. once again, the new foundation for economic growth creates jobs, strengthens the middle-class, preserves of social security and medicare, and it does it in a fiscally sound way to reduce the deficit. by contrast, the republican budget provides tax breaks for the wealthy, instant medicare as we know it, and privatizes social security. here they go again. rehashing the same failed bush

policies. so i want you to take that home. the republican budget that they presented to the house earlier this week, privatizes social security, turns and medicare into a voucher program, is it as we know it today. it's important that the word get out. and we need you to spread the word. imagine what would have happened if we had let, put americans retirement security when they want to privatize social security the last time, at the risk of the regulus mess of wall street. because of you, and i think you, for helping in the effort to save social security in 2006, not only save social security, it elected a democratic majority to the congress of the united states. [applause] >> urged on by president truman

and his definition, very simply presented, strongly led by president obama, and are we proud of our great president of the united states? [applause] >> and then just hearkening back to the president who brought us social security, president franklin roosevelt. some of the new -- [applause] >> i don't think -- well, some of you may have heard a speech by franklin roosevelt. most of us have read about it. most of us have read about it in the history books. i happen to of been born in his administration. but let me just say this. many things, this is who we are. this great president identified with the aspirations of america's people. he knew that they needed jobs, that they needed a safety net. so one of my favorite stories that some of you have heard me tell before, is that when

president -- important to note who we are as democrats, when president roosevelt died, in georgia, he was taken by train to washington, d.c., to lie in state at the white house, and then to hyde park to be buried. and along the way, hundreds of thousands of people lined the tracks. they were in their oshkosh's and there were farmers, black americans, whatever the name was those days, large number of african-americans, poor people, middle-class people, everyone. they lined attractive pay their respects. and when the train came into union station here in washington, a reporter went up to a mortar who was there with tears in his eyes, he was a mortar, and the reporter said to him, why are you here? did you know franklin roosevelt? he said, no, i didn't know president roosevelt. but he knew me.

but he knew me. [applause] >> that has always been what our purpose is in the democratic party, to know the aspirations, the challenges, the hopes, the dreams, the fears of the american people. today we know that people need jobs. they always do. and that is our commitment to ensure their economic security, whether it's the creation of jobs, that making health care available, education of their children, the pension security, we know them. you, again, our our messengers to ensure that the american people know that the democratic party knows them. we couldn't have a better messenger than barack obama, the president of the united states, to convey that message. and the congress of the united states, that's what we do

everyday, to pass legislation, to demonstrate that we know the american people. we just have to convince them of that. and you are a very much a part of making that happen. so i thank you, my friends, for your support and encouragement, for your work and getting out the vote, and promoting causes and candidates for the democratic party. i want you to know, it really does make a difference. we have two different value systems here. and on behalf of the democrats in the house of representatives, i am here again to say thank you to you for what you have done, and look forward to working with you to accomplish the goals that we set forward for this next session of congress, and to say god has been truly blessed by the successes -- god has truly blessed america, i think, by the successes we've had helping america's working families. we could not have done it without you. god bless you.

god bless america. thank you all very much. [applause] >> for me to pelosi, another round of applause. [applause] >> we want to do a couple of logistics announcements because i hear they're making some challenging weather ahead. so i'm going to bring up the secretary to give us some announcements for today. give alice a round of applause. [applause] >> and we will leave us now to take you to another live event. this morning the bureau of labor statistics reported that the unemployment rate dropped in january 2 9.7%. that is down from a high of 10%.

and the number of employed americans rose by 541,000. we learn more about this now as the joint economic committee is meeting. to hear from the bureau of labor statistics chief, we have live coverage for you now hear on c-span2. >> i want to thank the senator for his comments, particularly on creating new jobs. we passed a jobs bill in the house earlier, so it's encouraging to hear the senate is now taking up a focus on creating new jobs. president obama was the main focus of his speech last night, and recently. congressman cummings. >> thank you very much, madam chairman. i would like to associate myself with the words of -- the words that you say, the statement of senator casey.

you know, after staggering job losses in 2008, 2000, the national unemployment rate has lower for four months now reaching 9.7% today. and i've got to tell you, that i'm glad that it did not go up. because if it had gone up we would have some naysayers on the other side talking about how bad things are. that's not to say we don't have problems. as i've said many, many times, one job loss is one too many. and there are so many people who are suffering. and i just want to take a few moments that i have, madam chair, to urge our republican colleagues to join in as we attempt to address this problem. you know, people are unemployed in every district of our 435 congressional districts.

last week, the president was in baltimore, and he did two things. one, he went to a company that manufactures all kinds of steel casings for things like water purification apparatus, and just did a lot of wonderful things. but one of the things we found out there was that they have been getting some government contracts, looks like things, and other contracts, from the private sector. and they may very well be on the verge of hiring a few more people. it's not an immensely large company, but when the president talked about a tax credit that you and senator casey talked about, chair, for people, for employers to hire folks, and to incentivize them to do that, you

could tell that the owner of the company was simply delighted. there are so many businesses that are right on the verge of hiring people. it's just a hard decision. and i don't think that it's -- it's the solution that's going to necessarily be the one silver bullet, but it is a part of a whole group of efforts that have been put forth on the part of the house, and i know will be put forth on the floor of the senate. but the thing that we have to do now is do what the president has said. folks have got to put their partisanship aside, madam chairman. as i say to my constituents, i tell them that we will get through the storm. this is the united states of america, and we have been through storms before. but the question is not whether we get through the storm, the question is after the storm is over, who will be living in your

house? who will have your job? would you have your health? would you have your health insurance? will your children, when given a golden opportunity go to school after they have worked hard and done everything they were supposed to do, from kindergarten through 12th grade and they bang on the door of college, will they have been able to go to college at that critical moment? those are the questions. and so i do believe that the things that we have been doing have been working, but in the words of the president, we can do better. we can do better. and i just take this moment to urge all of those people that may be listening to this, to urge their senators, be they republican or democrat, their congressman, republican or democrat, to stand up for them. it's time the american people have standing up for them, putting partisanship aside, so

that they can live the best lives that they can. finally, madam chairman, we have one life to live. this is no dress reversal. this is it. some people act like they have a live next-door and they they have a life over there. no, no, no. this is it right here. and so i think it is our duty, when people go to the polls, and they pull that lever, they're not pulling it so that we can win the next election in a few years. they pull this so that we can win the election that they are voting in, and so that we can immediately act. and they expect that of us, and nothing less. and so on behalf of my constituents, i urge all of our colleagues to join together to address this issue, and i look forward to hearing from the witnesses. and with that, i yield back. >> thank you very much. before we begin, i would like to ask unanimous consent to accept into the record and written statements from any member of

this committee. and now, i would like to introduce commissioner hall. dr. keith hall is the commission of labor statistics for the u.s. department of labor. prior to that, he served as chief economist for the white house council of economic advisers. and prior to that, he was chief economist for the u.s. department of commerce. dr. hall also spent 10 years at the u.s. international trade commission. welcome, and we hope to hear some good news. >> thank you. madam chairman, members of the committee, thank you for the opportunity to discuss the unemployment data we released this morning. the unemployment rate declined from 10.0, the 9.7 percent in january. nonfarm payroll was essentially unchanged. and on that has shown little movement over the last three months. in january, job losses continued and construction and transportation and warehousing,

while employment increase in temporary help services and retail trade. with revisions released today, job losses since the start of the recession in the summer 2007, totaled 8.4 million. substantially more than previously reported. instruction employment and fell by 75,000 in january not in line with the average monthly job loss in 2009. nonresidential specially trade contracting accounted for much of the over the month decline. the nonresidential couplers of construction have accounted for the majority of the industries job losses since early 2009. employment and transportation and warehousing decrease by 19,000 in january, the entire declined occurred in messenger service which laid off more workers than usual a month. employment in temporary help services grew by 52000 over the month. this industry which provides workers to other businesses has added nearly a quarter of a million jobs since it low point since last september.

following two months of little change, real to trade employment increased by 42000 in january, with gains in several components. health care employment continued to rise in january. overall, manufacturing employment was little change, although vehicles and parts added 22000 jobs. since june the manufacturing workweek for all employees has increased by 1.2 hours. federal government employment rose in january partly due to higher. employment in state and local governments as good an education continue to trend down over the month. turning now to the measures from our household survey, both the number of unemployed persons in the unappointed rate declined in january. however, the share of those jobless for 27 weeks and over continued to rise. the ratio increased to 58.4 percent over the month. the number of persons working part-time that would've preferred full-time employment

dropped from 9.2, to 8.3 million. the lowest level in a year. before closing i would note that several changes were introduced today to the employment situation news release. three new household survey tables provide information on employment status of veterans, persons with a disability, and the foreign-born population. in january, the unemployment rate of veterans for growth board was 12.6% compared with 10.4 percent for nonveterans. persons with a disability had a higher jobless rate than persons with no disability, 15.2 percent versus 10.4%. in addition, 21-point a percent of persons with a disability were in the labor force, compared with 70 percent of persons without a disability. the unemployment rate for the foreign-born was 11-point percent for the native-born was 10.3%. the establishment survey tables have been redesigned to include the addition of data on ours are and for all private sector

employees as well as employment information for women. women go to make up 49.9 percent of total nonfarm payroll employed, compared with 48.8% when the recession began in the summer 2007. additional information about the new and redesigned tables is available in the bls website. i would also note that there are annual adjustments from our two surveys. establishment surveys released today reflect the incorporation of annual benchmark revisions. each year we anchor our sample-based survey estimates to a full universe account employment primers derived from administrative records in the unemployment insurance tax system. icon for revisions going to benchmark and post-benchmark period, the previous link publish 40 center was revised downward by 1.4 million. household survey data for january reflect updated population estimates from the u.s. census bureau. further information on the impact of these adjustments is in our news release and on our

website. returning now to the labor market data we released this more, the jobless rate declined to 9.7 percent in january and employment payroll was essentially the same. my colleagues and i would not be glad to answer your question. >> thank you very much. what a difference a year makes. can you point to any legally encouraging bright spots in this months labor report? >> i would say there are several things worth mentioning. first of course is the unemployment rate went from 10.0, to 9.7%. also in a related vein, part-time, people are part-time for economic reasons declined. so what that means is our broadest measure of labor under utilization, it is those that are unemployed plus those that are discouraged plus those that are part-time, who want to be full-time, that declined from 17.3, a 16.5%.

that is a drop of .8 percentage points. that was a nice sign. temporary help has added as you know, temporary help has added now almost a quarter million jobs over the past four months. that's quite often a leading indicator of strengthening in the labor market. manufacturing workweek now increased 23, .3 hours this month and 1.2 hours since june. that also is a leading indicator, it is an indicator of strengthening in the labor market. and then, of course, there are a number of other -- there some other data, non-labor market data that indicate there may be some signs of strengthening in the labor market. >> could you comment on any are there indicators that overall job losses will continue to slow? and turn positive in the coming months? >> well, without speculating too much, obviously the temporary

help and the manufacturing work are both considered leading indicators, but strengthening labor market. i think some of the other data, the gdp number that just came out, although most of that growth in gdp was from inventories, a good portion of it was actually put in software investment. which if you look at that, that tracks a nicer with payroll jobs. in other words, when firms bring back investment, they tend to bring back employees. i think the industrial production numbers are also signaling potentially a strengthening labor. >> some economists have estimated that we need to grow our jobs just to meet the new payroll jobs, that they estimate is between 100, to one and 50,000 new payroll jobs. and i would like you to comment on that. and what rate is needed to lower the unemployment rate to what it

was in 2007 before the recession began at 4.7%? >> the number of 100 to 150,000, that is about acted for the payroll job growth. it would keep up with the growth in the labor force. going forward, if the labor market continues to improve, we expect people to reenter the labor force. so actually we might hope to get stronger payroll job growth than 100 to 150. we probably need stronger than that of the unemployment rate drop in the next few much. >> as you said, some workers are likely to reenter the labor force because they see greater promise of finding a job now with these numbers. that's good and in encouraging. but is it true that those workers reentry into the labor market will bump the unemployment rate of poured? >> it often does, yes.

if the labor market continues to strengthen, and the pass was what has happened is an increase in the labor force has caused the unemployment rate to bump up temporary. >> how big a factor is it in public of the unemployment? >> it has survey done that in the past. this particular time is probably -- we've got a particularly high potential for that because so many people are unemployed and would love some of the people out of the labor force. it's one of those things i would say as we go forward, if we start to see real improvement we shouldn't get too concerned if the unemployment rate hit a bit of a speed bump and goes up for a couple of months. >> my time has expired. senator casey? >> thank you very much. i wanted to just preliminarily make a comment about where we are and where we have been. and i know commissioner, you are not allowed to make the kind of comments that i will make, but i think it's important to put in

the record. we've had a lot of folks in washington denigrating the american recovery and reinvestment act, the so-called stimulus bill. but i think the facts are pretty clear right now, that prior to the recovery bill, we were losing between december and march every single month for four months at least 600,000 jobs, and in january 2009, 741,000 jobs. here we are a little more than a year later from january, and we lost, i want to make sure the number is right, this month, is a 20,000? >> yes. >> twenty thousand jobs. last month was what? >> one hundred fifty thousand. >> one hundred fifty. so at least we're moving in the right direction. i think a strong case can be made that the recovery bill is having and has had a positive impact, and as at least, at

least, any fair-minded person would say is beginning to work. so that's i think important to put on the record. but i did want to note in terms of the individual groups or demographic groups that we look at here. i wanted to highlight one segment, one part of our population where the number actually went up. african-americans, the unemployment rate went up to 16.5, is that right? >> that's correct. >> and that was up .3%? >> that's right to expect the only group, if you look at in terms of just groups, whether it is adult women, adult men, teenagers, white americans, the hispanic unemployment rate was 12 points six? >> yes. >> so the only, one of the only groups, if not the only group

are the ones that would've are for african-americans, is a quick? >> i think that's correct i'm not sure that number was particular significant though. >> not mr. a trend? >> yes, crack. i think it certainty of that number is relatively large. >> why is that? because it's, sometimes with the group, it's harder to get an accurate read, just from -- >> our sample size is a little bit smaller. we oversample the group relative to the population, but it is still not a large sample. the overall number of. >> we hope you are wrong about this, the number stabilize for african-americans are going down. the other point that i wanted to highlight was the new data. i think it's pretty significant that you are now tracking veterans and persons with disabilities. the better number, i want to make sure i had right. and this would be veterans for,

let me just had you say. veterans since the gulf war? >> yes, the goldwater era too, so that since september 11. >> okay. and that number is what? >> that was 12 points 6 percent of. >> do you know what that works out to be and a total number of? >> in terms of the number of unemployed? >> unemployed veterans. >> it is about 213,000. >> big number. and i guess, i'll have a minute left, but if you're able to speak with great speed. i should say, are their data points here that indicate that there are sectors that are growing that we should be encouraged by? >> yet, the short answer is yes.

i think one notable one is that we actually gained 11,000 jobs in manufacturing. >> a net gain in manufacturing? >> a net gain. so this is the first 19 we've had in three years in manufacturing. so that actually was notable. >> first time in three years and a monthly never? >> yes, that's correct. so that is encouraging. professional business services seems to be back. especially with the temper help. and then of coarse the health and education are continuing to grow. most of the job loss right now is centered in construction but we lost 75,000 jobs in construction, which is in fact, more than the overall loss of 20,000. so we had net gains over all in outside of construction. >> thank you. >> congressmen coming? >> let's go to the african-american numbers. you said that -- it's possible

the numbers might not be, might not be as bad as they appear, is that right? >> just because it's a relatively, a smaller sample so there might be some fluctuation that's due to our measurement, rather than actual changes in the unemployed great. >> if i were to guess, if i were to guess, i believe they would probably be higher. because i think you have a lot, when i go to my district, if i want the right now, 40 miles away from here, you would see a lot of african-american men just riding through my neighborhood, who are unemployed, and i don't know if those numbers even register here. i would venture to guess that there are parts of my district where the african-american unemployment is 45 to 50%. so i just don't know how we, you know, how we -- i know you look at stats. as you were talking i was

thinking about the census, and how people get left out of the census. not necessarily because of government, governments fault, but they just, they never get counted. do you want to comment on what i just said? >> well, sure. one thing we know for sure is the unemployment rate is very high. it is very high relative to other groups. when i talked about that points to increase, i think i was talking about the monthly change. but it is absolutely true this is a high number. and it is well more than doubled since the recession started. and perhaps a lot a bit of what you're seeing it as well is the discouraged workers who dropped out of the labor force, and that what not be reflected in his 16.5 number. >> if the president were to call u.s. that you got out of this hearing and asked you for a 30, second explanation, bottom line on what you've said, what you,

you do, summary of what we've got here today. and he said, doesn't look like, where does it look like we're going? and i know you have limited with your opinions even with the president, but would you share what you can with us? >> i will tell you right where i see where we have come to. >> all right, mr. president, go ahead. >> the past three months, we've had essentially no change in the payroll jobs. which is a dramatic improvement over earlier in the year. and there's lots of indications in this data that with temporary help and how it works, that the labor market may be tightening up, which is that continues, would be encouraging for job growth going forward. >> now has there been any discernible trend of jobs moving from unskilled labor to skilled labor scum or vice versa, in past recessions, that we expect any sort of shift like that?

and how about this one? >> yes, this recession was notable because the job loss was significant across all groups, skills, unskilled. so is a very, very brought job loss. other recessions have been a little bit more centered, in particular industries. particular occupations than this particular recession. and of course, then this recession has been so deep. we've had so much job loss or that one of the very interesting things will be when we come to recovery, how quickly recovery comes at how broad brought it will be. but in terms of this recession, there's no at this point. >> the labored department reported yesterday that worker productivity increased 16.4 percent in the fourth quarter as companies did more for less.

are these productivity gains centered in certain sectors or is that across the board? would you have an opinion on that? >> it's pretty across the board. we don't have a lot of breakout on industries on that monthly data, but it is across the board. and that actually is a very good sign. strong productivity growth in the past have been associate with early stages of an economic recovery. and i think one thing that was notable about that particular release, we've had about three months of strong productivity growth that this is the first month or we have strong productivity of growth and increase in hours worked. >> so what does that mean? >> well, in the prior month, we have strong productivity but it was because output dropped by less than ours dropped. so it was sort of strong productivity and sort of a negative way. this last release was productivity as a positive pixel americans are working hard. >> yes. >> if they can do jobs be my

guest. >> that you. >> that is a strong statement, congressman. very true. commissioner hall, several months ago the bls released its employment projections over the years 2008 to 2018. and what does the bls project the largest growth in employment over the coming years? where do you see the job growth? and is this different from past projections? >> i will mention some of the broad numbers. our projections are the service providing sector will have something like 96 percent of the job growth. when i say service providing sector, i don't mean service occupations, but i mean service industries. and that is consistent with the past. we expect the largest employment growth in professional business services and health care and social assistance in particular.

and it's also fairly consistent i think with our past forecasts. and inside, inside a more detailed industries were talking about industry like management, scientific and consultant, computer system design, employment services, some industries like that. >> and how do these projections differ from the private sector projections that you read about every now and then? >> well, one of the things that we're doing here is, and jack and maybe talk about this all of it as well, one of the things we're doing here is we are projecting from inside of a recession right now. so one of the big reasons our numbers now change from the last projection is we are looking past the recession so a lot of these numbers are looking at recovery out of the recession in addition to sort of normal economic growth afterwards. you want to add anything to that? >> i was a our projections don't differ from private sector projections. in fact, they typically use the

same methodology that we use for hours. >> great. i'm concerned about the duration of unemployment. and is the duration of employment, it has been longer in this recession and is the relationship between this long period of unemployment and compensation and degree of probability of being employed, could you comment on this the duration of unemployment that has increased in this recession? >> sure. unfortunate, it does seem to be -- there does seem to be pretty strong evidence that the longer the duration of unemployment, the lower the probability of being rehired. >> is this different from prior recessions? in prior recessions have we had this long periods of unemployment? >> no. this is by far the worst recession with respect to duration of unemployment.

the long-term unemployed for six months irmo start at a higher level at the beginning of this recession, and it's been at record levels now for several months. unfortunately, in past recessions, the long-term unemployed typically grows well into the recovery. >> could you tell us anything about the demographic characteristics of the long-term unemployed? are their characteristics in terms of educational attainment? in terms of, in terms of any category. >> we may have to get back to you on the details. okay no, we do have something. i'm sorry. the duration is particularly high, of the long-term unemployed, certain demographic groups are overrepresented. for example, those without a high school diploma are

overrepresented long-term unemployed. african-americans are overrepresented in long-term unemployed. even those with a high school diploma but no college are overrepresented in the long-term unemployed. >> okay, mike time is expired. congressman cummings? >> thank you, madam chair. one of the features often cited about this recession has been the fall in consumer spending. which is itself linked to consumer confidence. how does the fall in overall consumer demand show up in your data? >> i would say consumer spending is really the driver behind gdp. additionally the driver behind employment. during the normal expansion, the growth of consumer spending is roughly in line with the growth of gdp. and so without a strong recovery in consumer spending and hopefully consumer confidence and in consumer spending, which

is are going to see a strong recovery. so it's critical. >> now when we got the information a few days ago, when we got the very good numbers on gdp, how -- do you see, do you see a correlation between those numbers and what you found in your report and? >> actually, a lot of the gdp, let me just say, a lot of the gdp was from inventory. so the 5.7, while he was a good number, a good portion of that was from inventory buildup which actually may be an indication of future growth, but it's not an indication of current demand. that curcumin has a fully recovered yet. but outside of inventories, gdp did go about 2.2%, which is reasonable growth. and that is consistent, if that

continues to grow at 2.2%, or more, that is consistent with payroll job growth. >> no, we saw with ford, going to carso, we we saw with ford that we had the has significant rise in cars sold. we also saw that with gm. and one of the things we're concerned about was that after the cash for clunkers, sales were over. that there might be just a slight bump up in manufacturing of automobiles, but a lot of us were concerned that that would not last very long. can you tell from your research how we, you know, do we see a

trend there? in other words, are people generally, seems like they are buying cars and decided that, you know what, although i may not have bought one during cash for clunkers, i'm going to get a car and feel a little bit better about my situation? what are you finding there? >> actually, this month motor vehicles and parts, the jobs grew, i have 23,000, which accounted for all, more than all of the manufacturing job growth. >> so that is very significant? >> it is, it is only one month, but it was a nice bump up in employment. >> let me ask you this. just on a general question. in january, the month of january from year to you have certain unique, unique characteristics. for example, it's coming after the christmas season. it is the first month of the year, and maybe people are getting often you start with certain types of things.

do you find, when you look at those numbers now going back to cars, when you look at those numbers, is that surprising to you at all, considering what we've seen in the past for january's. and i know we're in a recession, i understand that. >> that gain in 22000 jobs is, in fact, taking into account the normal seasonal patterns in motor vehicles. so when we say 23,000, we mean relative to what we expect or before january this year. so i would say the answer is yes. >> so in other words, if we were not in a recession you would expect 20,000 new jobs, is that which was think? >> to be honest i think the expectation, i'm not sure what the expectation was for motor vehicles particularly, but the way we take out late these lovers, we have 20,000 more jobs than we normally would have expected. >> i see. so you're saying the opposite of

what i just said. >> yes. >> okay. so we should feel, i take it that, and i know you're limited to your opinions and everything, but i'm sure that makes you, i mean, if someone were to ask you, outside of your position and said how do you feel about that? i guess you'd say you feel pretty good? >> yes, although i would caution as i did, it is only one month. but it was, it was growth in jobs in motor vehicles. >> thank you, madam chairman. >> commissioner hall, temporary help is often an indicator employers will hired more employees or can you comment on the temporary help numbers and any trends that you see over the past several months the? sure. the temporary help industry has been and continues to be a leading indicator. for example, before we went into the recession, temporary help services job growth started to

decline, you, nine or 10 months ahead of the recession. so it did signal early on that we are coming into an economic slow down. and in past recessions, a pickup in temporary help services has preceded a pickup in payroll job growth. so the fact that temporary help services added 52000 jobs this month and a quarter million over the past four months or so, i would consider to be an indicator of potential payroll job growth. in the future. >> could you comment on how women have fared in this recession? you testified earlier that women employees are up from 48.8, the 48.9, and could you comment on this trend? do you see that more women may be employed in this recession than men, and what industries are they employed? in what industries are they losing ordaining job?

>> yes. men have lost jobs relative to women, something like two or three to one. and you're right, and women now make up about 49.9 percent of the payroll jobs in the economy. and it is possible, we are within probably 350,000, give or take, the number of women employed are within 350,000 of them in employed right now. so actually it is still potentially possible the number of women in the payroll jobs could exceed the number of men in the payroll jobs at some point. but women have also participated in the job loss though in this recession. not to say they haven't lost jobs. women have lost literally 2.6 million jobs out of the 8.4 million during this recession. so far, they have lost particularly, particularly

notable in, say, professional and business services. actually, education and health services, and financial activities. forget the education. financial activities, more women have lost job in a financial activities than men have. which is kind of interesting. >> thank you for tracking that information. i'd like to ask a few questions about my home state of new york. and in new york city, unemployment rose to 2.6 percent in the center. this is a jump of 3.6 points from last december. is this into an with other states and the overall national average? are these changes similar to the changes taking place on national unemployment?

>> historically, the state of new york has had a very similar pattern during recession as the united states as a whole i think because it's a very diverse economy. and i think that's roughly what we've seen during this recession with new york, the numbers have been fairly similar to the overall numbers for the united states. >> what about manhattan, which is very dependent on financial service jobs, given the economy? hasn't had a particularly hard blow, or is it into and with the national average? >> i don't have manhattan with me. i can tell you with new york, broadly, that will include a lot of that. they have lost, new york has lost about 50,000 jobs in the financial activities since the start of the recession. so new york has been particularly hit by the financial activity.

>> my time has expired. congressman cummings. >> yesterday, a "new york times" reporter had asked me, mr. hall, about the whole idea of african-american unemployment being, being such a gap between overall employment and african-american unemployment. and whether there are special things ought to be done. i'm not going to ask your opinion on that. i just want you to know, it appears that there is an increase in the gap between overall unemployment and african-american unemployment. is that accurate? >> that is. and it has grown during the recession, and unfortunate, it actually grows during every recession. >> is that right? >> yes. >> do we have an explanation for that?

>> i don't. you know, there's probably some research on that, but i'm not the money with it. >> now, what changes in the makeup of the labor force can you identify in terms of gender, race or age? and tommy, who is entering the labor force and who is leaving. and what is the significance of those changes? can you answer those points? changeup in the makeup of the labor force. we have people who are leaving. the labor force, and there are people who are entering. for example, you have god, i assume, while all the all the reports are saying that more and more people are staying in school because they can't, many of them feel they can't find jobs. but i just wonder, do we have any stats on who is in in and what rates and who is leaving? are you following me? how are you?

>> okay, fine. thank you. the first thing i would say is that the most important trend in terms of, in terms of the labor force is that older workers, actually, older workers, labor force participation has been going up and started going up well before the recession and has continued to go up. and that's at the same time that labor force participation has gone down for pretty much every other group. now a lot of that is, again, part of a long-term trend, part of it is also because of course, a lot of people lost much of their assets through the stock market fall as well as the housing market fall. so there's some structural things going on there, as well as some things related to the downturn. we have not seen, as you discussed before, we have not seen a lot of people coming back

into the labor force, which you might see as people start getting more confident. at some point you would expect to see that, as it goes hand-in-hand with job creation as the job show up, people hear that someone is hiring, they start looking for work. and that the labor force grows, but we are not really there yet. >> now, based on what you have observed, commissioner, and all of your tranny, do you anticipate any net job effect on the government, and government hiring a trivial to the sense of? >> we should. in fact, this month we added about 10,000 federal government jobs from the senses. and in coming months, gosh, i think the total is -- we should get at least about half a

million added to the government jobs. when the senses hires out. >> a half a million? >> yes. and that might have a measurable effect on the unemployment rate it might go down. >> and so is that, is that a usual trend, mr. hall? that is, that there is some slight impact on the unemployment rate because of the census? that's not unusual is what you're saying? >> no, that is normal. >> now, do we see any geographic changes with regard to job losses? in other words, certain parts of the nation that seem to be suffering more job losses disproportionately than others'? >> you know, the job losses have been very spread out, what is certain is true that certain, certain states have higher unemployment rates and they had higher increases in

unemployment. is a little hard to talk about because it's not so much regional as it is with specific states. >> all right. thank you very much. >> many of my colleagues have left, because washington is getting ready for a huge snowstorm. we are very grateful, commissioner hall, that you have weathered the storm to be here today and give us the jobs report. weather aside, it appears that we are tending in the right direction. we no longer are facing an avalanche of job losses. we tha you for your hard work and for being here today. this meeting is adjourned. [inaudible conversations] [inaudible conversations]

[inaudible conversations]

>> or c-span cameras have been at the convention in nashville. here's a look. >> thank you. >> thank y'all for coming. nice to meet you all >> sir, can you show me what's in one of those gift bags. >> we got stuff in the gift bag. i don't know what it's for 'cause it's got a hole in the bottom of it. it doesn't hold coke or nothing. won't hold much tea. >> tea party nation t-shirt. >> will you hold that up for me? >> yes i will. so that's nice. do you want me to keep looking? >> yes. >> okay. and we got a fannie pack.

a tea party nation fannie pack on it. that's nice. >> it's like various advertisements. >> and this i can talk to you with. mega phone. >> it ain't no teacup. >> and other paper -- of how to order t-shirts. >> do you have tickets? >> yes, they're right here. >> it's what comes with you when you get your pass. so there's not an actual ticket for different events? >> no. so we need to keep these with us at all times. >> okay. >> in depth welcome back british historian and former advisor to margaret thatcher, paul johnson, author of over 40 books. his latest on winston churchill join our three-hour conversation with your phone calls for paul johnson live from london sunday at noon eastern on book tv's in depth on c-span2. >> now, for educators, c-span

offers the new c-spanclassroom.org. we've redesigned the website to make it even more useful for teachers with the most current and timely c-span videos for use in your classroom. you can find the most watched video clips organized by subjects and topics. the latest in education news, plus the chance to connect with other c-span classroom teachers. and it's all free. sign up at the new c-span classroom.org. >> for more about the economic stimulus go online to c-span.org/stimulus. you'll find events like president obama's town hall meeting this week in nashua, new

hampshire, where he announced his plan to use $30 billion repaid by wall street banks to help local banks provide more small business loans. plus, links to government and watchdog groups tracking stimulus spending. again, that's all at c-span.org/stimulus. >> limits on the banking industry. the plan announced by president obama would prevent commercial banks from behaving like hedge funds and other private financial firms. mr. volcker is chairman of the president's economic recovery advisory board. he's joined by deputy treasury secretary neil -- >> the committee will come to order. >> this is about two and a half hours. >> the audience was here and my

colleagues and i'm sure there will be more coming in. this is a little out of the ordinary. normally hearings like this we conduct in the morning. but i know chairman volcker had conflicts and schedules so we're very grateful to you. mr. chairmans, thanks for accommodating and neal wolin does a great job here. we're going to have a hearing on thursday as well to follow up and hear from industry and other people talk about these ideas. that have been proposed by the administration particularly by chairman volcker. so we're grateful to you for being with us this afternoon. and what i'll do is make a few brief opening comments myself. i'll turn to senator shelby for any open comments he may have. and then following what i now affectionally call the corker rule we'll go to our witnesses. unless somebody is compelled they want to be heard before they're heard and we'll accept any and all supporting documents

and information you think will be worthwhile for the committee to have and we'll begin a line of questioning. and depending upon the number of people here we'll try to make enough time so we'll have a discussion of the ideas. today's hearing is entitled prohibiting high risk investment activities by banks and bank-holding companies. and again, chairman paul volcker and neal wolin are here and i thank you for joining. we meet here in the past number of months in the shadow of financing crisis that nearly topples the american economy. it's -- retirement plans of millions of americans have been dashed dollars. trillions of dollars of household wealth and g.d.p. is gone regardless of what your political party is or affiliation we cannot allow this to happen again. the obama administration has proposed bold steps to make the

financial system less risky and we rum those ideas. -- welcome those ideas. the first would prohibit banks or financial institutions that contain banks from owning investing a hedge fund a private equity fund. this is called the volcker rule and today chairman paul volcker himself will make the case for it. i strongly support this proposal. i think it has great merit. the second would be a cap on the market share of liabilities for the largest financial firms which would supplement the current caps on the market share of their deposits. i think the administration is headed in the right direction with these two proposals. i know the timing of them and how they've been proposed at a critical time when we've been deeply engaged on this committee. i'm proposing ideas to reform the financial services sector has raised the eyebrows and other considerations by people

but i think we need to get past that if -- and how we could get through these issues. these proposals deserve our serious consideration. and so today we'll hear from the chairman and the deputy secretary of the treasury, neal wolin and on thursday we'll hold another hearing with business and academic experts. these are bourne out of a fear that a failure to act would leave us vulnerable to another crisis. and a rufuel of. -- refusal of these firms -- >> while they're using deposits. and today i look forward to hearing how these proposals may

be most effectively applied to protect consumers and our economy and also as a devil's advocate why these ideas may not work. and what risks they may propose if adopted. some have objected to the volcker rules on the grounds that it might not have the prevented the crisis or these particular limits are unwise. i think those objections are worth discussing. and i'm interested in giving our witnesses and our colleagues here a chance to raise these items and a chance to have the kind of vibrant, robust debate and discussion about them. but we must take steps, i believe, to change the culture of risk taking in our financial sector including the management and compensation incentives that drove so much of the bad decision-making. i applaud the administration's commitment to scaling back risky behavior on wall street. and i thank chairman volcker and deputy secretary wolin to join us today to share their thoughts and ideas on these proposals. and i look forward working with them and, of course, my colleagues on this committee, democrats and republicans as we

have been working over these past many weeks and months to fashion a reform package that would allow us is step forward on a bipartisan basis. hear a consensus bill that we can bring to our other 87 colleagues in the senate for their consideration. ultimately, a conference for the other body. and ultimately, of course, for the signature of the president of the united states. we have a lot of work left to be done so this debate is an important one and we welcome you today to share your thoughts and ideas on these proposals. senator? >> chairman volcker, welcome again to this hearing. i think one of my first few weeks on this committee was -- you testifying when you were chairman of the federal reserve. that was a few moons ago as we both know. but we welcome you back. the financial crisis has had a devastating effect on our economy. millions of people have lost their jobs. trillions of dollars of household wealth have evaporated. and the american taxpayers on the hook for nearly all of it.

we cannot allow such a calamity to occur again. for this reason and others, i'm willing to consider any proposal that will strengthen our regulatory framework and help our economy including the president's latest recommendations. that is why i join with my republican colleagues and ask for this hearing. today we hope we can gain a better understanding of the specific activities that would be ban under the president's proposal and the risk of those activities. we also need to understand the costs and benefits of the proposed changes. finally, we need to determine whether we should incorporate the president's latest ideas into the current regulatory reform debate on whether they could be considered at a later date. i believe our main goal today is regulatory -- in regulatory reform must be to eliminate

taxpayer exposure to private risk while establishing the strongest, most competitive and economically efficient regulatory structure possible. achieving this goal will involve ending bailouts, addressing too big to fail, reorganizing our financial regulators, strengthening consumer protection and modernizing derivative regulation among others. putting this together in a legislative package is a very difficult task. yet, as difficult as our tasks may be, i remain committed to considering any concept that may help us achieve our overarching goal. with that said, however, i'm quite disturbed by the manner in which the administration has gone about introducing introducing their latest proposals for consideration. we're more than a year into our deliberation on regulatory reform. the house already has completed action. regrettably the administration waited until a little over a

week ago to bring this very significant concept to the table. seven months after the administration first introduced broad recommendations that the president characterized, quote, a sweeping reform not seen since the great depression. this concept that we have before us today was air dropped into the debate. i applaud chairman dodd for giving us the opportunity for giving us the thought if the process for regulatory reform. i hope, however, this is not an education that the administration intends to substitute thoughtful analysis with whatever polls well on a given day. this is too important. it's too complex. -- subject to the vagaries of the political litmus testing. i know chairman volcker knows this and i hope he will continue to work with us. mr. chairman, last fall you offered a regulatory reform discussion graph. and while i supported your

policy aims, i question the means at that time. in response, you rightly slowed the process to consider more carefully how to accomplish our mutual objectives. i believe we've made tremendous progress in that regard. whether we ultimately reach a contest remains to be seen but we're working on it. as i've said many times we must get it right and this is a goal that i know we both chair. -- share. thank you. >> thank you, senator shelby. any other members who want to be heard on this matter, i made that offer before. [inaudible] >> any comments at all in the record by the way. obviously, we'll include i presume members have opening statements and they'll be included in the record. chairman volcker, again, i think most people know you but just for the sake of the record here, paul volcker currently serves as chair of the president's economic recovery advisory board. he also heads up the group of 30 which has been engaged internationally on financial regulations and last year released a very influential report i might add on financial reform.

and prior to this time, as i think all on this committee and else know, working in the investment banking world chairman volcker served as chairman of the federal reserve from 1979 to 1987 under presidents carter and reagan. neal wolin serves as the deputy secretary of the treasury. and having been confirmed by the senate in may of this past year, prior to assuming this position he served in the administration's deputy assistant to the president and deputy counsel to the president for economic policy. prior to that, deputy secretary wolin was the chief operating officer of the hartford financial services group and also served in various positions for the clinton administration. very impressive records by both both of you. chairman volcker, again, welcome once again. you've been before this committee on countless occasions over the many years over the past 30 years. and we welcome you here once again. [inaudible] >> you got to turn that microphone on. >> it's a good idea to put it on.

it's a familiar location but i forgot to push the buttons. let me say i do appreciate this unusual scheduling of the hearing. i did have a conflict this morning coincidentally with the british parliamentary committee considering financial reform in britain. so i'm able to touch both sides of the atlantic today with your rescheduling and i appreciate that. let me say a very simple statement because i think there is some confusion. a lot of this issue we're talking about today revolves around proprietary trading and some people say is it a big risk or a small risk. it's a risk. everything the banks do is a risk. this is not a question in my mind of what is the greater risk. it's the question of what risks are going to be protected by the federal government through the safety net. through department insurance through the federal reserve and other arrangements. and my view is that commercial banks have an essential function

in the economy. and that is why they are protected. but we don't have to protect more speculative activities that are not an inherent function of commercial banking and we shouldn't extend the safety net, extend taxpayer protection to proprietary activities. so that's a very short summary of at least one of the issues here as you know, the proposal that the president set out -- if it was enacted would restrict commercial banking organizations from certain proprietary and prospective activities the proposed activities soob understood as part of the broader effort to deal with structural reform. it is particularly designed to help deal with the problem of too big to fail at that senator selby just emphasized too big to fail and the related moral that

rooms so raj, bank and phenomenon bank alike if the midst of crises for you i attach to this statement a short essay that appeared on friday to try to point out that spec. -- perspective if particular, for trillions fought similar rash fall for taxpayer funds protecting and supporting essentially proprietary speculative activities hedge funds and activities unrelated to customer needs, unrelated to continuing banking relationships should stand on their own. without the subsidies -- those

market activities have become a part -- a natural part of investment banks. and a most prominent of those firms each heavily engaged in trading and other proprietary activity failed or forced into publicly assisted mergers under the pressure of the crisis. it also became necessary to provide public support via the federal reserve, the federal deposit reserve to the largest remaining investment banks. both of which assume the cloak of a banking license to facilitate the assistance. the world's largest insurance company caught up in a huge portfolio of credit default swaps quite apart from its basic business was rescued only by the injection of many tens of billions of dollars of public loans and equity capital. not so incidentally the huge financial affiliate of one of

our largest industrial companies was also extended the privilege of a banking license and granted large assistance contrary to long-standing public policy against combinations of banking and commerce. now, what we plainly need are the authority and methods to minimize the occurrence of those failures that threaten the basic fabric of financial markets. the first line of defense along the lines of the administration proposals and the provisions in the bill passed by the house last year must be authority to regulate certain characteristics of systematically important nonbank financial institutions.v the essential need to guard against essential leverage and insist on appropriate capital and liquidity. it's critically important that those institutions, its managers and its creditors do not assume -- do not assume a public rescue will be forthcoming in time of pressure. to make that credible, there's a

clear need for a new resolution authority. an approach recommended by the administration last year and included in the house bill. the concept is widely supported internationally. the idea is that with procedural safeguards, a designated agency be provided authority to intervene and take control of a major financial institution on the brink of failure. the mandate is to arrange an orderly liquidation or merger. in other words, euthanasia, not a rescue. a part from the very limited number of such systemically significant nonbank institutions, there are literally thousands of hedge funds, private equity funds and other private financial institutions actively competing in the capital markets. they are typically financed with substantial equity provided by their partners or by other sophisticated investors.

they are and should be free to trade, free to innovate, free to invest and free to fail. management, stockholders or partners should be at risk. able to profit hansomly or to fail entirely as appropriate in a competitive free enterprise system. so now i want to deal as specifically as i can with questions that have arisen about the president's recent proposal. first, surely a strong international consensus on the proposed approach would be appropriate. particularly, of course, across those few nations hosting large multinational banks and active financial markets. that needed consensus remains to be tested. however, judging from what we know and read about the attitude of a number of responsible officials and commentators, i believe there are substantial grounds, very substantial grounds to anticipate success as the approach is fully understood.

second, the functional definition of hedge funds and private equity funds that commercial banks would be forbidden to own or sponsor is not difficult. as with any new regulatory approach, authority provided in the appropriate supervisory agency should be carefully specified. it also needs to be broad enough to encompass efforts. efforts should come to circumvent the intent of the law. we do not need or want a new breed of bank-based funds that all but name would function as hedge or equity firms. many know very well what proprietary trading means or implies. my understanding is that only a handful of large commercial banks. maybe for our five in the united states and perhaps a couple of a dozen worldwide are now engaged in this activity and volume. in the past, they have sometimes

explicitly labeled a trade affiliate or division as proprietary. but the connotation is that it should be insulated from customer relations. most of those institutions and many others are engaged in meeting customer needs to buy or sell securities, stocks or bonds, derivatives, various commodities or investments. those activities may involve taking temporary positions. in the process, there will be temptations to speculate by aggressive, highly reenumerated traders. however, given strong legislative direction, bank supervisors should be able to appraise the nature of those trading activities and contain excesses. an analysis of volume relative to customer relationships and particularly of the relative volatility of gains and losses would itself go a long way to start informing such judgments. for instance, patterns of

exceptionally large gains and losses over a period of time in the so-called trading book should raise and examine his eyebrows. persisting over time, the results should be not just raised eyebrows but substantially raised capital requirements. third, i want to note the strong conflict of interest inherent in the commercial banks organizations and proprietary or private investment activity. that's especially evident for banks conducting substantial investment management activities. in which they are acting explicitly or implicitly in a fiduciary capacity. when the bank itself is a customer, that is when it's trading for its own account, there will almost inevitably find itself consciously or inadvertently across purposes for an interest of an unrelated commercial customer, the bank. inside hedge funds and equity funds with outside partners may

generate generous fees for the bank without the test of market pricing. and those same inside funds may be favored over outside competition in placing funds for clients. more generally proprietary trading activity should not be able to profit from knowledge of customer trades. now, i'm not so naive to think that all potential conflicts can and should be expunged from banking or other businesses. but neither am i so naive to think that even with the best efforts of boards and managements so-called chinese walls can remain impermeable to seek profit and possible remuneration in conclusion i've added a list of the wide range of potentially profitable activities that within the province of commercial banks without reading that list, the point is there's plenty of banks to do beyond any concept of a

narrow banking institution. it is quite a list. and i submit to you to provide the base for a strong, competitive and profitable commercial banking organizations able to stand on their own feet, domestically and internationally in fair times and foul. what we can do and what we should do is to recognize cushing the proprietary interest of commercial banks is in the interest of fair and open competition as well as protecting the provision of essential financial services. current pressures, volatility and uncertainties are inherent in our market-oriented profit-seeking financial system. by appropriately defining the business of commercial banks and by providing for the complementary resolution authority to deal with an impending failure of large capital market institutions we can go a long way toward promoting the combination of

competition, innovation and underlying stability that we seek. thank you. >> secretary wolin? >> members of this committee, thank you for the opportunity to testify before this committee today about financial reform. and in particular about the administration's recent proposals to probate certain risky financial activities at banking firms and to prevent excessive concentration in the financial sector. the recent proposals complement the much broader set of reforms proposed by the administration in june passed by the house in december and currently under active consideration by this committee. we have worked closely with you and with your staffs over the past year and we look forward to working with you to incorporate these additional proposals into comprehensive legislation. the goals of financial reform are simple. to make the markets for consumers and investors fair and efficient. to lay the foundation for a safer, more stable financial system less prone to panic and crisis.

to safeguard american taxpayers from bearing the risks that ought to be bourne by shareholders and creditors and to end once and for all the dangerous perception that any institution is too big to fail. from the start of the reform process we have constrain the growth of large complex financial firms. through tougher supervision, higher capital and liquidity requirements, the requirement that larger firms develop and maintain rapid resolution chances and the financial recovery fee which the president proposed at the beginning of january. in addition both the administration's proposal and the bill passed by the house would give regulators explicit authority to require banking firms to cease activities or divest businesses that might threaten the safety of the firm or the broader financial system. the two additional reforms proposed by the president a few weeks ago complement those reforms and go further. rather than merely authorize regulators to take action, we proposed to prohibit certain

activities at banking firms, proprietary trading and the ownership or sponsorship of hedge funds and private equity funds as well as to place limits on the size of the largest firms. commercial banks enjoy a federal government safety net in the form of access to federal deposit insurance, the federal reserve discount window and the federal reserve payment systems. these protections in place for generations are justified by their critical role in the banking -- that the banking system plays in serving the credit, payment, and investment needs of consumers and businesses. to prevent the expansion of that safety net and to protect taxpayers from the risk of loss, commercial banking firms have long been subject to statutory activity restrictions. our scope proposals represent a natural evolution in this framework. the activities targeted by our proposal tend to be volatile and high risk. the conduct of such activities also make it more difficult for the market, investors and

regulators to understand risks in major financial firms. and for their managers to mitigate such risks. exposing the taxpayer to the potential risk from these activities is ill-advised. in addition proprietary trading by definition is not done for the benefit of customers or clients. rather, it is conducted solely for the benefit of the bank itself. accordingly, we have concluded that proprietary trading and the ownership of hedge funds and private equity funds should be separated from the business of banking and from the safety net that benefits the business of banking. this proposal forces firms to choose between owning and insured depository institution and engaging in proprietary trading, hedge fund or private equity activities. but -- and this is very important to emphasize. it does not allow any major firm to escape strict government oversight. under our regulatory reform proposals, all major financial firms, whether or not they own a

depository institution must be subject to robust, consolidated supervision and regulation including strong capital and liquidity requirements by a fully accountable and fully empowered federal regulator. the second of the president's recent proposals is to place a cap on the relative size of the largest financial firms. since 1994, the u.s. has had a 10% concentration limit on bank deposits. this deposit cap has helped constrain the concentration of the u.s. banking sector and it has served the company well but it's narrow focuses on deposit liabilities has limited its usefulness. with the increasing reliance on nonbank financial intermediaries and nondeposit funding sources, it is important to supplement the deposit cap with a broader restriction. before closing i would like to emphasize the importance of putting these new proposals in the broader context of financial reform. the proposals i have outlined do not represent an alternative approach to reform.

rather they complement the set of comprehensive set of reforms put forward by the administration last summer. added to the core elements of effective financial reform previously proposed, the activity restrictions and concentration caps that are the focus of today's hearing will play an important role in making the system safer and more stable. but like each of the other core elements of financial reform, the scale and scope proposals are not designed to stand-alone. we look forward to working with you to bring comprehensive financial reform across the finish line. thank you, mr. chairman. and senator shelby. >> thank you very much. and we have a good participation by the members so i'll ask the clerk -- why don't you put up 7 minutes on the clock for each of us and i again won't rigidly hold anybody to that but keep in mind with that time frame and we'll ask both of our witnesses, if you can, to try and not filibuster although it's a habit

here but not with the witness anyway. at the outset again i think the proposals you're making makes sense to me. the question we have as a committee in the coming days is crafting a bill. and any good idea including this one can have unintended consequences. what are the effects of this thing? how does it work? how do you put it in place. i want to emphasize for my line of questioning while i'm supportive of this idea i want to raise questions of the practicalities how this would function and work. so i begin with that in mind. let me begin if i can 'cause observers and others -- and i'm sure we'll hear on thursday some of these issues and maybe some of the members here themselves they raised questions about how this prohibition on proprietary trading should be interpreted. how should congress, for instance, set the boundaries of proprietary trading? presumably a separate trading unit designed to produce trading profits would be prohibited. that's the presumption. but can we cleanly separate bank hedging behavior, which i

presume is something we'd insist upon from profit-meeting trades. how do you separate those trades? would regulators have a difficult time enforcing this prohibition when you have that dual conflict it seems to me occurring? why don't you begin -- paul, if you want to start with that. >> well, i addressed that question to some extent in my testimony, mr. chairman. it does put a burden, i think, inevitably on the supervisor. and the legislative intent ought to be very clear. essentially trading for one's own account unrelated to customer trading would be prohibited. trading incidental to a customer relationship would be permitted. now, how do you make that distinction? i think you can do it clearly over a period of time with sufficient accuracy to make the policy appropriate.

one thing as you said, you just look at sheer volume compared to the volume of customer business. you look at the pattern of gains and losses, which have a strong suggestion of proprietary trading because you're just quickly accommodating a customer, you're not likely to be big gains or losses. you don't have to have a cliff prohibition. it's clear that you want prohibition of purely proprietary trading but if the other volume gets big enough to raise suspicion, you have the tool of capital requirements which i think should be available. and is available to the supervisor to suggest in a particular circumstance there ought to be a very heavy capital charge for this activity. and that would automatically limit it. >> secretary wolin? >> thank you, senator dodd -- chairman dodd. i agree with chairman volcker.

i think that there are important questions here, obviously. i think we would basically want to embed in statute the basic principle that if it's not customer-related, that it's proscribed. but that if it is related to customer activity and hedging customer activity or making markets with respect to customer services, that that's on the other side of the line. >> well, how does -- if you're hedging, isn't that the advantage of the customer of the bank as well so that the bank doesn't end up in financial trouble? >> that's right. and mr. chairman, i think to the extent they're doing proper hedging activity -- and right now regulators and accountants and so forth look at hedging activity and make judgments about whether it's true hedging activity or not all the time, i think that, you know, a big burden is to be placed on regulators in implementing the basic principle that i've just articulated and that chairman volcker has articulated. and i think they do it in a range of ways including to

respect to hedging currently and whether it's legitimate hedging activity or something else with the basic principle being whether it's customer-related or whether it's for the firm's own balance sheet. >> but you acknowledge this is an area where it poses some challenges for the regulator? >> >> it's an area you got to work on and establish policies and procedures. i point out that accountants already face this problem in developing accounting standards as to which transactions of a bank are hedging and which are not hedging in accounting reporting. take the case of aig. they were heavily in the credit default swaps. credit default swap is presumably a hajjing instrument. -- hedging instrument. but nobody would say oh, this is a hedging operation. it's not a trading operation. it was obviously a trading operation. it had nothing to do with protecting aig. in fact, it was wounding aig. it wasn't protecting it.

and they were engaging in credit default swaps with people who were perhaps speculating on the other side. >> i thought one of the problems there is they didn't hedge enough. >> they didn't hedge. >> they didn't do what bookies do. they didn't lay off their bets. >> that's right. >> your testimony on page 3, chairman volcker -- 'cause this is an important point, i think, and you make it in your statement. you say and turning to your first point here on page 3, you say first surely a strong international consensus on the proposed approach would be appropriate particularly across those few nations hosting large multinational banks. and you pointed out 12 or so in the world that would follow in this activity in active financial markets. further down and i'll just read the last clause. i believe there are substantial grounds to anticipate success as the approach is fully understood. again, being the devil's advocate to some extent because

obviously the question is raised here for us to impose this kind of a rule. and not to have a complementary set of rules adopted internationally makes this basically unworkable to a large extent. to what extent -- i'd agree with you. i'd like to see the international community adopt what we would adopt here. but you've got a heightened degree of anticipation of this occurring maybe more so than we could anticipate. do we make ourselves vulnerable by insisting upon a certain standard here that we have to hope the international community might adopt. and if they don't, then we've left our institutions exposed to a vulnerability. >> well, i don't think it's impossible for us to do it alone. if we had to, that's obviously not the desired outcome. but i wouldn't want to make the challenge too great. the really important financial center, of course, is london. and if we can have some agreement basically and basic outline with the british you've gone a long ways. the head of the governor of the bank of new england has already called amongst the identical approach.

the opposition party at least in the u.k. has indicated strong approach for a development along this line. i cannot speak for -- >> not in government yet. the opposition party -- >> i understand. but the parliamentary committee which has people that are in office will issue a report. the government will decide not the parliamentary committee -- >> how did the committee go? was -- >> pardon me? >> you just said you had a hearing with the parliamentary committee. was this issue raised? >> yes, it definitely was raised. >> what was the reaction of it? >> they pressed as to high wide this international order should be and we discussed it's particularly important between the british and the united states. >> uh-huh. >> you may notice president sarkozy made some welcoming comments about president obama's initiative. the minister of france did as well.

there's some quelling of the banks there's no doubt about it. but i think the prospects of achieving what i think and many other people think is a very sensible approach is good. >> neal do you want to comment on this? >> yes, mr. chairman i would add the proposals the president put forward with respect to a week ago with scale and scope are consistent with the principles that are articulated in the g20 leaders in london last year and again in pittsburgh. a lot of the implementation work in that process is being carried out by the financial stability board. and last week the chairman of that board put out a statement consistent, i think, with some of the statements that chairman volcker was talking about welcoming these proposals as a constructive part of this whole dialog with respect to financial reform. so i think we're moving forward in terms of creating agreement amongst the g20. obviously we'll need to keep at it. but i think there's reason to believe that this is consistent with a lot of the discussion that is happening in those fora. >> let me just say and i'll

conclude to this and turn to senator shelby. i think it's also important for the united states to lead. we are the leading country in financial services. and i think if we don't act then we lose ourselves and others are apt not to follow. while i lead others for cooperation i think it's an important moment that the united states gets this and does what it needs to be done. by doing this and setting something like this in place, i think you raise significantly the possibility others will follow. if we don't act, i think you can almost make a similar prediction. senator shelby? >> thank you, mr. chairman. banks did engage in activities considered to be investment banking prior to the rebuild including some proprietary trading. but there does not seem to be evidence that i've seen that proprietary trading created the losses that resulted in the need for bailouts. some argue the question how curtailment of how proprietary trading will protect the

financial system from future instabilities is what we're, you know, going after. in addition, there are notable examples of failed institutions such as bear stearns, lehman brothers, among others, that were at the root of the recent crisis but did not engage in commercial banking. and were more dangerous by being interconnected than by being large. and while aig did have a small thrift, a very small thrift, the systemic threat from aig did not emerge from that thrift. would you just share with us what you believe were the top three institutions that were -- that were engaged in proprietary trading and discuss what it was about these institutions that contributed to the financial crisis that we're confronting now? >> well, in following the development of the financial crisis, which was the mother of all financial crisis, it was

quite clear particularly in the american perspectives that the sense of crisis, the panic, the defaults were proceeding through proprietary trading-oriented institutions beginning with bear stearns and losses in hedge funds. and there were trading institutions -- lehman was very much a trading institution. merrill lynch, so forth. some of them got saved by the -- >> but none of these -- none of these firms were commercial banks at that time, were they not? >> well, the commercial banks got in trouble, too. >> but in these firms you just listed -- >> they were not commercial banks until they were giving a commercial bank holding company in the midst of crisis. what i was saying it was a demonstration of proprietary trading can be risky. now, how can we bring that to heel so to speak? and what this program suggests is two things.

they will have the oversight body -- you'll recall the oversight body who will intervene with any capital market institution that is both large or very interconnected and presenting your risk to the whole system and limit the leverage which had not been limited prior to the crisis. and the capital liquidity had not been overseen. they ran free. and very important we want to set up a system -- and this is the whole philosophy that those institutions will not again be rescued. >> that's right. >> if they get in trouble, they're going to fail. and that will make their own financing more difficult or less easy. and presumably in itself tend to contain their leverage. so between the oversight and their natural self-protective instincts hopefully knowing that they are not going to be saved, we reduce the chance of crisis.

>> dr. volcker, one of the president's recent proposals is a limit on consolidation in the financial sector. in particular, the president propose -- to quote from the white house press release, quote, place limits on the excessive growth of the market share of liabilities at the largest financial firms to supplement existing caps on the market share of deposits. along those lines, i have three questions. first, could you elaborate on what constitutes excessive growth and on what particular liabilities restrictions will be imposed there? in other words, what would excessive growth be? >> the only answer i can give there is like pornography. you know it when you see it. >> you might see it. but would the regulators see it? [laughter] >> well, the regulators won't see it unless you give them some instruction.

let me give you a little bit of history at this point. i haven't been engaged in these discussions and neal ought to say something to the point. i have been been around for a while. and i proposed to this committee at one point and maybe it was in the house committee in the 1980s when there wasn't any interstate banking that we should have nationwide banking. but we didn't want it dominated by just a few institutions. and we modestly suggested perhaps a 5% limit ought to be appropriate for any one bank in terms of deposits. well, when the congress finally got around to acting they made the limit 10%. now, i don't know exactly what limit you're going to talk about now but i'm sure it's more than 10% in assets relative to the country. and so let me say -- you know, it's a matter of judgment but if you're talking 15% or so, that's a pretty good institution in the united states. >> that's a huge institution. >> a huge institution.

>> dr. volcker, my second question along those lines would -- could you tell me or tell the committee actually what limits will be on a firm's share of similar liabilities in the u.s. banking system in the global market or in a market in each country in which a u.s. firm operates? or let's say it's a foreign firm operates in this country. we have a lot of banks domiciled overseas that operate here. >> that's correct. >> how would that work? >> well, i would hope that those banks that are really major, domiciled overseas but operating over here but owned overseas would be in countries that adopt a similar approach. the big banks are in the u.k. there's one in paris. there's one in germany. the japanese don't do this anyway.

when you take care of europe and u.k., there may be a dozen banks there. maybe 20 if you -- a few canadian banks, and they provide competition here which i think is good, but the competition ideally ought to be on similar grounds. and they follow the same general proscriptions. >> dr. volcker, it's my understanding with counsel that under existing laws in regulatory authorities existing laws banks in holding companies can be limited with respect to trading companies including proprietary trading under the safety and soundness considerations. could you explain why you believe current authority is not adequate if you do.g4 and why you believe regulator discretion should be eliminated by statutory proscription? >> well, this is another area

where i have -- >> you have concerns we do with a lot of the regulations or the regulators? >> i've been around a long while. >> i know. >> partly as a regulator. sometimes contesting with the regulators. and i'll tell you, if you just have a general commission for regulator to put on adequate controls, the regulator ends up with an impossible position during fair weather because all the banks will say what are you talking about? nothing is happening. my trading is perfect. we haven't had any big losses. you can't restrict us. i'm going to go down to the banking committee and tell them you're going to be unfair and unreasonable. and that tends to be a bit persuasive for the regulators. i think you need a hard legislative proscription rather than a kind of loose -- the house bill has a voluntary kind of revision.

and if you just take away the word "voluntary" in the house bill you have a better bill and not -- >> secretary wolin -- >> i want to raise something to the questions you had with respect to the size constraints. we believe an important piece to put an end to too big to fail is something as i suggested earlier that's already well embedded in law. the problem with the deposit cap which, of course, is such a device is that it only applies to the sense to the safety kinds of of the liabilities a financial firm can have. and at least implicitly causes firms that want to grow beyond the funding or liability base that deposits represent into other sorts of funding which are riskier still. and so we believe that in order to update in effect and make useful in a world in which deposits are no longer really the only -- or .gy the core source of funding for these

biggest firms, that you need to have a definition of size that is more broadly engaged. >> quickly, mr. chairman, consensus on these proposals, mr. wolin, part of the uncertainty created by recent proposals from the administration regarding banks stems from uncertainty about cohesion among members of the administration and among regulators. following the announcement of the volcker rule and size limits, for example, reuters reported that treasury secretary geithner may have expressed doubts about the utility of size limits. reports from july of last year identified possible disagreement between fdic chairman sheila bair and secretary geithner concerning bans on proprietary trading by banks. according to chairman bernanke of the federal reserve, ben own proprietary trading for commercial banks may not be constructive. dr. summers, chief economic advisor in the current

administration in the past has been a vocal proponent removing glass-steagall restraints. is there something in this obama administration and among the regulators concerning the volcker rule and restricting size and if so, what process -- what was expressed there? >> thank you, senator shelby. that's obviously a very important question. the proposals that the president articulated with respect to size and scope two weeks ago were ones that were based on a consensus recommendation of all of his economic team. so -- and i think you've heard secretary geithner and director summers speak to that quite directly. i think with respect to the regulators they are, of course, independent and i feel slightly less comfortable expressing their views. but i do think that in the main they are also supportive of this and we will work with them and obviously with this committee to

try to move these ideas forward as an important part we think of making sure that firms are not overly risky. and that the system itself is not overly risky. >> mr. chairman are you being generous. i want to make one statement quick. i don't believe myself that being big is necessary bad. but i do believe that being big and think the government is going to bail you out is bad, bad. thank you. >> thank you very much. >> thank you very much, mr. chairman. thank you very much for your testimony. i want to start by going to this distinction between trading in a fashion that is related to your customers and trading on your own account. one person summarized this by saying it's like a grocery store that puts peanut butter on its shelves for its commerce instead of a whole warehouse because it wants to be speculate how much peanut butter will be worth next week.

i think that in your testimony and, mr. volcker, you referred to a volume rule. and i believe that goes to the heart of how you distinguish between peanut butter on the shelf to service customers and a warehouse to speculate on the price. and can you give us any more details on how that might work? and how much needs to be done by this body and how much needs to be, if you will, delegated so the fine print can be worked out by experts in the field? >> it will have to be worked out by the regulators andt2t supervisors but i think what's important is you give them very firm directions as to what the object is.fh÷ that proprietary trading is out. trading incidental to a customer relationship is okay. you be careful about how you define that or you're going to have to delegate it. >> mr. wolin, do you wish to add anything to that? >> no, i think that's our view. >> in addition to such trading on your own account creating risk, there's also to a reference to creating a conflict

of interest when you're also managing funds, asset management and so forth. do we have -- do we have examples of -- is that a theoretical problem? >> no -- >> have we seen real evidence of that in the field? >> i don't think it's at all theoretical. i don't know what else to say. it is very real. and, you know, there's been quite a lot of discussion in the press and elsewhere. and in particular institutions or particular agencies. it's bound to be real because you're bound to run into a conflict between dealing for your own account and a customer who may in your dealings, you may directly contrary to one of your customer's interest. it's inevitable.d[ and it's inevitable maybe not quite so inevitable but it's very real if you're doing a big customer business, that may help you kind of have a feeling about

which direction the market is going in. it might help your proprietary trading. it's just human nature, i'm afraid, when you put these things together. >> and so when firms respond by saying -- and i think you referred to it in your testimony. they can create a chinese wall within the firm, which i assume means the great wall of china, broad, large, distinction, separation, your belief is we can't create -- it's impossible due to human nature to create such a wall that would be effective? >> well, i'll tell you -- i hate to tell you this story. when i was a young officer of a bank and there was considerable controversy in the congress about whether banks should be in the trust business and whether there were a lot of conflicts of interest. and i was asked in this bank to go examine this situation so to take a report to the congress. i was just a young fellow. and they said, look at the chinese wall. i thought they said chinese wall

because they thought it was so permeable. i thought the chinese wall hadn't kept out the huns but that was not the meaning it was meant to convey. but i never -- that initial impression of mine has never left me. as i examine the chinese wall and that particular institution. >> i want to turn then -- thank you. i want to turn to another piece of this which is depository institutions have access to low cost credit through the fed. and one of my concerns is that our banks -- our commercial banks do an effective job in fueling businesses in our economy. getting loans out the door. is it a significant concern? is it a legitimate concern that if you have proprietary trading, trading on your own account, that funds that might otherwise loans to fuel our economy might end up buying the inventory, if

you will, the financial inventory? >> well, i don't know if that's a big problem. neal may want to speak to it. i don't believe the other is valid. sometimes you'll hear the argument that they have to do proprietary trading to make a lot of money to support the lending business. i mean, i don't believe that the banks think that to make a lot of money in proprietary trading so i'll go out and make more loans than i would otherwise make. you'll make the loans as they think the loans are profitable. quite regardless of whether they're making or losing money in the proprietary trading. in my view. >> senator, i think it's an incredibly important question. to the extent that firms are tying up capital through proprietary trading or in hedge fund businesses and so forth the kinds of things we think should not be allowable by banking firms, they do not have that capital to be used for things like commercial lending activity and so forth.

and so we think that, among other things, is a reason why this is a good set of proposals. >> could i ask you, mr. volcker, to expand a little bit on what the -- or mr. wolin, what the actual proposal would be for the 10% limit on other liabilities? what other liabilities might be included in that analysis? >> so the answer, senator, we do not have the details of that fully nailed down. we want to make sure that we get it right. we want to work with the regulators. with this committee in coming forward with a proposal. we don't think it ought to be a limit that's currently binding. we've said that. but with respect to what exactly is the percentage and what is the, if you will, the denominator of this fraction, we have not yet landed it. we're still working on that and

would want to work with this committee on that. >> okay. finally in 30 seconds, basil2 approaches which unlimited limits in investment banks, do we need to think more on that and have a more concrete limit? >> if you want my response, i haven't been involved in those very complex discussions. but i think we need to do some rethinking of basel 2 with some more explicit overall leverage i think is a good thing. but a lot of the basel ii has to be classified and made, i believe, more binding. it rested very heavily on banks' internal risk management procedures. ...

we also have said in the context of our white paper and in the g-20 discussions that we think there ought to be leverage constraints as well, and so we feel like there is an appropriate role for that in terms of again, answering this basic question about port credential standards and making sure that we deal with the too big to fail set of issues, at

least in part through other things as well, but in part through a tough standards on the front and. >> thank you both very much, very helpful. >> senator corker. >> thank you mr. chairman and thank you both for being here. chairman fallgren i thank you both for your time in the yorkin for your time here. they are very few people who could announce a policy and have a hearing this quickly and it shows the respect we have for you as an inflation fighter. secretary wolin thank you for the many conversations. just to put this in perspective, i know we have talked a lot about banks, but your proposal actually says a financial holding company or a bank holding company, a conglomerate that is a financial institution, that has a commercial bank as a component of it could not engage in these activities that you talk about. >> let me be perfectly clear on that part. when i say the basic

organization i mean the whole thing. >> i say that for the listening audience. you are not just talking about the bank but talking about the entire bank holding company, the affiliate's that offer it all around the world and none of those could be involved in this, and i just want to point out and while senator shelby did a great job in this line of questioning i know this crisis is causing us to focus on reform and certainly we don't want to focus on the past always, but it is true that not a single organization that was a bank holding company or a financial holding company that had a commercial bank had any material problems at all with proprietary trading. that is a fact. lsu refute that i assume that is true. >> now wait a minute. i don't know how far back in history want to go. >> i am talking about this last crisis.

the last crisis. >> the less crisis, not going very far back in history i recall at the beginning of the crisis there was a very large loss of transparency from a single lone trading. there was one trader that one out and cost hundreds of millions of dollars. >> there hasn't been a single institution. i just want to point that out in we can move on but it is a fact. >> banking institution or non-bank? >> there is not a single bank holding company in this last crisis that had a commercial bank that had issues that were material to fill your relating to proprietary trading, not one. >> i would have to look of the proprietary trading but there certainly american banks-- >> let me get back on that. so let me just go step further. i am going to say that that is a fact unless somebody tells me. >> i think obviously, the causes of distress in these very big firms are multifactorial but i

think there were plenty of bank holding companies that suffered losses in hedge funds that they owned or sponsored or in their proprietary trading activities that were part of the capital-- >> i'm talking about material. >> the material that were part of why taxpayer money was committed, and so you know to pinpoint a single reason why this or that firm, but i would say this is clearly one of the reasons. >> let me move on. my point stands and we can talk about that. i take your point. let me also make another point that the capital of a bank, a commercial bank within a bank holding company or financial holding company cannot leave and go to any other part of that affiliate's without reducing the capital of that commercial bank, which reduces their ability to make loans into that sort of thing. you all of knowledge that. >> there are fire walls senator absolutely between the activities or the relationships

between-- >> i am talking about the bank's capital and i believe the commercial banking go to the other parts of the bank holding company without taking a reduction in capital at that commercial institution. that is a fact. >> right, but center of course to the extent that capital is fungible in some sense. >> they limit that. >> i understand that at all senator. i used to regulate banking companies-- >> i am talking about leaving the commercial banking operation. it cannot leave it without reducing the capital of that commercial bank. >> it may be that there is a restriction that a particular point in time, taking a lump of capital out of the bank into another part of the holding company. over time they will reallocate the capital they want to. >> and they have to take reduction in the bank's capital, the commercial banks' capital so

let me just ask a couple of questions. i am just making the point to say that there are firewalls that exist, and that no bank holding company failed the commercial bank due to proprietary trading or had funds or any of the activity we are talking about and that is just in recent times in the united states, so let me ask the question. for clint could could one of these institutions or their affiliates make a market for a client? i think the answer is yes. is that under your proposal? >> in response to a clan. >> if they wanted to sponsor a hedge fund so that a client would know that the volcker bank was trading hedge funds and was going to seek capital, could they do that just to know that, no the bank had an investment there and it was a good enough investment for their client to be involved in? would that be illegal under this

proposal? >> it would not be illegal if i understand the question for the fact is sponsoring the hedge fund. >> even if they were just putting see it to show good faith? >> yes, sir. >> coday community bank trade bonds or mortgage-backed securities within their portfolio to balance it out? >> yes. >> but that is proprietary trading, right? >> it balances out. if there is an occasion where they had too much of this into little of that. >> so let me ask this question. if we have a bill that's, as you used the word and is the company, creates euthanasia and i think we might end up having a bill like that, if we have a bill that stipulates capital requirements that says if you are going to be in these risky areas of activity, that higher capital is going to be required

in they have an idea we might end up with a bill like that. with a proposal like this through that lens, if those two areas where dealt with, with a bill like this or this type of legislation even be necessary? >> well, i think it would certainly be very useful and that is what the administration has proposed if i understand the question. i wouldn't think the congress is going to specify precisely what the capital requirement is but they are going to give-- regulators the authority direction that yes they can change the capital requirement depending upon their riskiness. >> but if you have a resolution mechanism that said that if an institution failed, there weren't going to be bailouts, they were going to resolve that business and if you have a piece of legislation that stipulated that if a bank holding company engaged in risky operations, capital had to be increased, would there be a need for an

arbitrary restriction of the type that has been laid out? >> i think so for the reason i testified earlier, that without the congress being very clear about the laws and what kind of activities are restricted or eliminated or not, over time in fair weather, the restrictions will erode away because it is very hard to maintain very tough restrictions when nothing is happening. and a think you need a clear legislative direction, beyond a general statement that you are able to change-- supervises kennard sea change the capital requirements. they don't need legislation to do that. what they need is a clear legislative intent as to the acceptability of proprietary activities in my view. >> mr. chairman i know my time

is up an first of all i again want to thank both witnesses for being here. i think there has been a misnomer put upon the american people by many commentators to talk about the fact that we give money to these banks and they use them in casino operations when in essence there already are firewalls that exist, capital cannot leave a commercial bank to other parts without a charge against capital, reducing the capital. that is just a fact. and the fact is that foreign affiliate's, i assume we would just be having these operations taking place in dubai and other places. it just seems to me that i appreciate very much the policy being put forth, but it seems to me that it is being put forth without taking into account some of the other things that may be a part of this legislative process, which would render it the necessary. >> senator, i just wanted,

although the firewalls are obviously important, insofar as these banking firms get a lower cost of capital, lower-cost the funding because of their access to the safety net, the entire bank holding company gets the benefit of some of that, some of that benefit, meaning capital is fungible and the overall funding costs on a system wide consolidated basis is lower, so what we are saying is that advantage should not be put towards these high-risk, more volatile kinds of activities. we agreed that higher capital standard is very important. we agree the resolution authority of which you speak absolutely critically important but we also think in order to make sure that taxpayers aren't exposed to extra risk in these banking's perms, that these three kinds of activities which are on customer related got to be prescribed. >> thank you senator and let me question senator wonder.

one of the things i want to make a point very briefly on, clearly we are looking back where the gaps to fill land in this crisis but one of the things we have talked about, at least i have over many months, is looking forward as well, so not only is it a question of trying to plug the gaps but also what is the architecture were creating for the 21st century that allows us to leave in financial services worldwide, secondly protect against potential problems that can emerge, so i don't want is the argument of fixing a problem that created the issues we are grappling with today but also what we need to be thinking about as a committee and a congress going forward? >> thank you mr. chairman. thank you and senator shelby for having us here. i am at going senator corker and i appreciate the chances i have had to visit with you mr. volcker on these issues and i do think there are challenges around some of the definitions

but i want to come back to that moment. if we go back to, i think your accurate recitation of how we kind of got here and acknowledging what some of my colleagues have said that most of the initial focus a go to is into that demers piru were not the commercial banks but investment banks. and that, in the throes of the crisis, that the fed and others decided to allow these investment banks to convert into a bank holding company status. if we were to adopt the volcker rule, which ends, in effect, those, the first action would be of a morgan and goldman would lose that bank holding status. with that be the first action would take? >> it would be their choice. >> recognizing how much of their book is based on proprietary trading? >> we are going to-- if they are going to maintain, i think those

two institutions are quite different but if they want to maintain every emphasis on propriety credit-mcatee want to retain a banking license that would have to live within the rules of the bank. >> the concept being that that, the ability to have that access to the lower capital, that was the trade-off? >> right. >> we talked about three, talk about three different areas, proprietary trading, a private equity and hedge funds. i mean, i know you have talked a little bit about definition on the proprietary trading, but i do wonder at least to be in a private equity business, there are private equity subordinated debt, a different type of instruments that kind of all along that continuum of what we now broadly defined as private equity. some of those traditionally have been traditional banking

functions. >> well, i think that is true, but i was concerned about the opposite side of that. the fact you can forgive but something called an equity fund in a bank that can develop something that looks like an equity fund but they didn't call it an equity same thing is to bd about hedge funds. >> the same thing is to be said about hedge funds or proprietary trading operations. that is why the legislative language the think has to be pretty clear to tell the supervisors that if somebody is getting around the obvious intent of the rule, the supervisor can do something about it. >> would you care to rank, i mean if the legislative process is a little bit of give and take care. is the primary, you want to try to prohibit the proprietary trading activities, and proprietary trading activities being premarked orbium asked as

a hedge fund or a private equity investment or would you say no, we want to take the first thing to get rid of the private equity and then hedge funds and less proprietary trading. is very rank order of these three? >> not to me because i think to some degree this of septuple. someone at the bank pointed out to me the other day my language is too limited. i should say something about real estate funds which are really important to some banks and the kind of think of that is part of a private equity fund. but you could explicitly say real estate funds. but i think there's enough substitution, ilc any reason to do you know per met one and not permit the other. >> secretary wolin-- >> decore distinction senator warner was customer and not customer. obviously the regulators will have to deal with some definition issues as they implement the basic principle if it were to be lodged in statute.

what we have said is there are a whole lot of activities that traditionally have been in sort of the investment banking scare with respect to underwriting and asset management and so forth which are okay but as respect to the three things we think are not customer facing and fundamentally more risky, riskier, i think i would avoid the opportunity to rank within those. >> i would concur with secretary volcker that having been pitch by some of those firms along my career, those chinese walls disappear oftentimes when you are being pitched as a potential client, the value of being comingling and crossman khaldun these different functions. one of the things about, and i know everybody else raises this as well, i mean, i kind of struggle with this size cap approach. clearly the deposit cap

approach, as you have seen the ability to kind of lever up outside depository institutions, has not, has not created the kind of dimunition of accumulation of capital in systemic risk in a few top institutions. i know where you are headed and i am saying, i am completely disagree with that although again. if at that challenge comes, how do you ride it out and from both the standpoint of putting american firms at a competitive disadvantage, i think the chairman raised that, if we do this and the rest of the world doesn't follow suit and even if we are able to get some of our european friends to go along could dca migration to chartering some of these institutions in a kind of one off company-- country that could avoid these kinds of restrictions even from the industrial world, but then created next generation of

caymen islands based funds, and then-- firm centi we also have a problem that's come a we don't want to give and undue competitive advantage, which they do have at this point in terms of cost of capital to these large firms but at some point, did the best people leave these firms when they start bumping against this size cap? >> well, i would say senator and i think those are all extremely important questions. i agree with senator shelby that size by itself is not the only thing, but we do believe that it is an important element of risk, and that there is a meaningful correlation in general between size and risk and it is part of what we are trying to constrained. not the only thing to be sure. i think on competitiveness, u.s. banks are already relatively smaller than an awful lot of financial and cetaceans in

europe and elsewhere in the world and i think they compete awfully well as it stands, and so i don't think that is liable to be a competitive problem. as i think chairman dodd said at the end of the day the most important thing for the competitiveness of our financial system is that it is safe and sound and people will see it as safe and sound and that will i think the an awfully important thing going forward to make sure that we do maintain the strong, competitive position of the u.s. financial services industry, so i think those are all considerations. >> but, i think capital requirements levers restrictions, convertible debt requirements, funeral plans may also be other tools we could use that wouldn't go at this plane, straight out size. >> no question. there are important other tools but we believe in the same way that the deposit cap is an

important tool but insufficient tool that we ought to also pay attention at some level, not any way that pines currently so we are not talking about dismantling these firms but that some level size really does become an important element of systemic risk, and to be defined obviously together with t-wall and with the regulators. >> thank you mr. chairman. >> thank you very much. senator johanns. >> thank you mr. chairman. there are many things as i think about where we are headed with financial reform that i think there is consensus on. i think resolution authority, gosh, i think most of us if not all of us, systemic risk and how we approach that. there may be some difference of opinion about how we approach it but again, i think we are there.

this one though i must admit, i have sat through this hearing and i get more confused as you testify. you are not really clearing up for me what we are doing, so let me just ask a pretty state for word-- straightforward may be a bit of a basic question to start out with. tell me that evil that you are trying to wrestle lot of this system by this rule, if we were just to say great, we are with you, we pass it the way you want it passed, what evil disappears? >> i don't know what you want to call evil but i feel that i got you more confused in the report. what i want to get out of the system is tax players-- if you don't borrow that is going to become bigger and bigger and as to what is already a risky business, and i don't want my

taxpayer money going to support somebody's proprietary trading. i will make it as simple as that. >> but here's the problem mr. chairman, and here is where i am struggling to folly urologic. and let me just give you some concrete examples. aig, how would this have prevented all the taxpayer money going to aig? if this rule had been in place, what would have been different? anything? >> first of all i think aig is a big insurance company that should've been better supervised in the first place than it was and if they had an effective supervisor and it hadn't been an affiliate of what? somehow it was a bank because it had a small thrift appendix, somebody should have been there saying, what are you doing over there in london with trillions of dollars in credit default swaps?

you are jeopardize in the business. >> bussie we can stipulate to that. i've said many times i have never seen so many people paid so much money to do so many stupid things. >> i would not want to shut off one area of stupid things. >> let's say the volcker rule had been in effect. >> if it was in effect for insurance companies that certainly would have stock that. >> you are saying of the volcker rule would have been in place aig would not happen? >> you are assuming the volcker rule is in effect for an insurance company which is not immediately initio here. if it had been in effect-- >> we can kind of set that went to the side. >> you have particularly effective capital requirements alongside the complementary approach. i believe that we would not have had trouble with aig. >> well, see i think you are losing me again. >> i am puzzled why i am losing

you. >> here is what you are losing me. i don't think the volcker rule would have stopped the behavior of aig. >> why not? >> because we are talking about banking institutions. they didn't take deposits, right? >> yes, i guess the fact the insurance company and was not covered is a different problem. if you have got the time i would suggest you and that the federal supervisory agency for insurance companies too but that is not right on the docket. >> but that is not what we are doing here today. >> today we have a limit. [laughter] thanks german bokor for another issue. [laughter] >> what i'm trying to figure out mr. chairman is this. how we are going to even deal with preventing what happened by doing what you are asking us to do and i don't see how we are getting there. and, so aig, i think your answer is saying we would even have to go further than what you are

asking. now let me go to lehman. would we have solve the problems with lehman had avoca rule been in place? on they yet another institution that wasn't taking deposits but were doing some-- >> the volcker rule, much as i'd like to say it's all the problems did not solve all problems. it is part of i think coherent reform of the financial system. lehman, under the-- they are not a bank so the rule would not have applied but under the general regulatory approach that has been proposed by the administration, he would have had presumably a leverage restriction in the capital restriction on lehman and you would that had a resolution authority like you favor. i hope and believe that combination would have produced a very good chance that lehman would not have failed. >> here is where i think we are getting to go.

based upon what you are saying to me and i think it is now clear. you are saying i think mr. chairman that this is a great opportunity since we are doing financial reform anyway, to put this rule in place. but it really would not have solved the problem with aig. it really but not have solve the problem with lehman. >> it's certainly but not solve the problem with aig or lemon alone. it was not designed to solve those particular problems. >> exactly, that is the point and i think this kind of reminds me of what the chief of staff said, never let a good crisis go to waste and what we are doing here is we are taking this financial reform and we are expanding it beyond where we should be, and i just question the wisdom of that, unless somebody can make the case to me that had this been in place the world would have been different. >> the chairman made the point that i would emphasize, that the

problem today is a look ahead and try to anticipate the problems that may rise that will give rise to the next crisis, and i tell you sure as i am sitting here, that if banking institutions are protected by the taxpayer and they are given free rein to speculate, i may not live long enough to see the crisis but my soul was going to come back and haunt you. [laughter] >> well, maybe. that may be. probably a lot of people, he would have to stand in line may be. [laughter] >> if i could just that, i think your questions obviously are critically important. this is, the volcker rule war two have been in place i think would not solve all the problems and nor is it the only piece of what we think is a comprehensive package of proposals but there were plenty of bank holding companies that did suffer losses