>> okay, who is -- who else? there's another lady right -- okay, good. >> thank you. [inaudible] newspaper. i wanted just to clarify some of the points you made about guantanamo bay. are you saying the possibility would be to strengthen yemen's capabilities to try those who are being held in guantanamo of yemeni origin? if you could clarify on that a bit, thank you. >> and gentleman right here. >> thanks. tom with human rights watch. two quick questions. first, can you say with confidence today that no u.s. assistance is being diverted by yemen for the fight against the southern secessionists? and second, on guantanamo what

would you say -- setting the politics aside, setting the congressional restrictions aside what would you say from a strictly counterterrorism point of view hurts us more right now? what would hurt us more, an effort to begin repatriating yemeni detainees with some sort of rehabilitation program with the knowledge that it wouldn't be perfect and that a handful of people probably would be seen going back to the right or maintaining guantanamo indefinitely as a camp for mostly yes, ma'am think detainees -- yemeni detainees and retaining it as the symbol that you and the president have -- >> thanks, tom. >> okay. first question regarding -- i'm not going to address any specifics that might have been in the press be about the contents of reported cables. you know, al-qaeda and other terrorists will use whatever

they can to try to recruit individuals and additional adherents to their twisted ideology. so they might point to certain developments, certain things that come out in the public and the press, but as i said, they're going to seize upon whatever they can. they are, as i said, a bunch of murderous thugs. they are individuals that are just determined to destroy and kill, and i think more and more individuals in yemen as well as other parts of the world are seeing that, you know, al-qaeda's supposed sort of religious banner is a facade for this murderous agenda. on guantanamo in terms of trying individuals, i did include the potential for prosecution because as we repatriated detainees to various countries, those countries may also have reason to prosecute individuals for whatever types of violations

of their laws they might want to consider. that has happened in a thurm of cases -- in a number of cases. we're not saying they need to be tried, and during this administration we repatriated eight guantanamo detainees to yemen since this administration's come in the. there were many more that were released in the previous administration. but this is something that we're continuing to look at and to work on which is related to the question, the last question about, first of all, the issue related to u.s. assistance going to the hueties and secessionists. we have put in place, i think, some mechanisms that we have made part of our program insistence that this not be used or diverted. this is something that the ambassador worked on very, very diligently with the yemenis to insure our support was going to be used for counterterrorism.

broad security assistance to them for legitimate purposes whether that be for counterterrorism, antipiracy, maritime security and it would not be used for use against domestic oppositionists. on the issue of, you know, what's the balance or the tipping point in terms of sending people back to yemen or keeping guantanamo open indefinitely. clearly, there has been a, i think, determined effort by this administration to reduce the population of began tan hoe. guantanamo. there are some folks in the congress who have their own views about what should and shouldn't happen with that guantanamo population we're having to grapple and deal with. we're looking at all the individual cases. the president said we're not going to release people that might pose a security threat. this is why we had a dialogue and we've had a dialogue just this week with the yemenis about what measures can be put in place that will end sure that -- insure there will be the successful repatriation of these individuals. and to degenerative date the int

have been repatriated, thankfully, there's no indication they've returned in any way to terrorist or extremist activities. >> the gentleman here. >> larry shaughnessy from cnn. mr. brennan, you mentioned a couple times the christmas bombing attempt last year and then earlier this christmas season there was the attempted bombing of the portland christmas tree lighting ceremony. can you give us any specifics about your concerns about a possible terrorist attack or attempted terrorist attack during this christmas season? >> okay. there were a couple of other hands right here. right back -- go ahead. >> lieutenant commander joe, legislative fellow. where do you see the navy and fifth fleets role in this, in this an already strained and stressful region? >> and there was a gentleman right here.

>> hi. ken delainey from the l.a. times. i'm wondering if you think the yemeni government knows where anwar al-awlaki is and could capture him if it so chose? >> okay. related to concerns about possible christmas threats, i remember, you know, very well i was starting to make dinner last christmas when i got a call from the white house situation room that there was somebody on a plane that was landing in detroit with a bit of an issue. one of the things that we always do within the counterterrorism/intelligence community is be particularly vigilant during the holiday season because of the increased travel that is taking place both within countries as well as transnationally. and, you know, i think what we feel that we need to do in light of concerns about the possible threats this europe and other places, we always have to stay

on our guard. that's one of the things about the counterterrorism division, if anything, we step it up during the holiday season because of the heightened volume of travel. but at this point i'm tealing good that we have -- feeling good that we have the appropriate resources the place, but as i said before, al-qaeda is determined to carry out attacks and, also, you pointed out the portland attempt. that was not something that was associated with al-qaeda per se. may have been inspired by it, but we're also looking at those smaller-scale sort of low-level types of terrorist attacks that are sometimes more difficult than some of those more strategic ones. in terms of the navy and the fifth fleet's role, i mean, clearly, the terrorist challenge presents many different sort of requirements, ask so when i -- and so when i say we're using

all instruments of american power and as i mentioned before, the military presents one of the, you know, most important and powerful arrows in the quiver. what is being done in afghanistan is in pursuit of, you know, insuring that that part of the world is not going to be used by terrorists. so the fifth fleet in the gulf region and in other areas where the u.s. military is present, it is something that we continue to take into consideration as we think about how we're going to help our partner countries to the capacity building -- do the capacity building. and, as necessary, leverage those capabilities at a time when we believe it is necessary. on the issue of anwar al-awlaki, one of the things about yemen and people who have been -- and most of this room, i think, has -- and the last time i was there i was up on the flight deck of a plane that was

going in for sort of 45 minutes or so before we landed in sana'a, and, you know, the topography of that country is really breathtaking. and one of the things that strikes one is just how desolate a number of the areas are of yemen. and i think people know that the central government of yemen, you know, has had sort of, you know, sort of tenuous control or oversight over many parts of the country and that the tribes that are out there really are the ones that sort of rule those areas. you know, the location of any one individual at any one time is, maybe known by others. what we're trying to do is make sure that the individuals that we are interested in finding and detaining, that we are working very closely with our yemeni partners as well as with others who might have knowledge about that. so i'm hoping that if people know, you know, where certain individuals are, they're going to come forward and assist the yemeni government in tracking down these individuals that are

trying to kill innocent people. >> this yes e man right here. then we'll go to here. yes. this is going to be the last round, so make them good. >> joseph from freedom house. you mentioned that when, in your private conversations with the president that often you do push on reforms, specifically political reform. and they complain that they can't expect those kinds of things overnight. how would you characterize the pace of political reform in yemen, and what can you point to specifically that they can do on political reform, civil liberties and what should they be doing right now? >> thanks. right here. >> hi, mike levine with fox news. two quick questions. first, you had mentioned with with regards to wikileaks you had referenced, quote, despicable criminal activity. i was wondering if you would include julian assange in that. also in terms of aqap, you

talked about next generations of people in yemen. how do you think groups like aqap might start using the internet and cyber attacks and things like that to further their cause? >> thank you. and the gentleman right here. >> thank you. independent journalist and originally from yemen. two days ago a yemeni journalist in sana'a who was a correspondent of the arab daily met with one of the uss cole bomber. he interviewed him, took photos in the tribal area of the province. do you think this journalist can meet with the yemeni government cannot find him? and if al-qaeda, the al-qaeda bring the president's $300 million a year, why should he go after them? this is a common sense that we, as a yemeni-american, ask

myself. thanks. >> thank you. >> okay. as far as, you know, what is happening on political reform and on the civil liberties front, i think reform takes many different dimensions and steps. the fact that the yemeni government engaged directly with some of the southern oppositionists, i think, is a good step. but it needs to be followed up. there needs to be a lot more done along those lines. it is something that we continue to emphasize in our discussions with them on a regular basis. i know the embassy does that. the political system in yemen is one that has evolved over the years. one of the things that, as i said, that our staff had met with some of the individuals involved in sort of anticorruption and rule of law and governance, and there needs to be continued engagement with that. that's where, i think, our political assistance is going to

be important. but the political reform has to go hand in hand with some of the economic reform as well, and we want to make sure we're able to push it as quickly, as far as we can but also recognizing that there is a fragility within the yemeni system. and so we want to make sure that we're able to do things without destabilizing the country. but that should not also be an excuse for yemen not to move forward on the political reform funds. and i think in the past it has. as far as my reference to despicable criminal activity, any classified information that finds its way out of the appropriate channels is manager that is done -- something that is done in an unauthorized way and that violates u.s. law. and individuals who are responsible for that are subject to prosecution, criminal charges. the wikileaks investigation is ongoing, and i'm not going to comment on any individual's

potential sort of culpability or involvement in that, but i just want to say that in the first instance the unauthorized disclosure of classified information is a criminal violation. as far as aqap and cyber activity and cyber attacks, you know, a number of the terrorist organizations including al-qaeda and aqap have shown a deftness and and a skill in using the internet for various propaganda purposes, other purposes, and it's one of the things that we're being vigilant about, about how they are using it and how they might use different mechanisms to not just communicate or to propagandize, but also to create problems and cause harm. so it's something that we are watching carefully. as far as the question of the reported interview, yes, i saw the reports about this interview that was conducted.

i don't know any additional information on it. there, clearly, are individuals within yemen who are able to have access to terrorists and to al-qaeda types. they find their way to them. and i would just hope that more and more yemenis of whatever stripe are going to see the al-qaeda types in the country as inimical to yemeni interests. and that they should not be facilitating al-qaeda's ability to get its message out and to recruit and to market itself. i do think that the yemeni government is looking to the yemeni people to provide them the support, provide them the assistance, to provide them the information about where these terrorists are hiding. and that's what they're doing, they're hiding within the population so that they protect

themselves. and i always find it disturbing that these individuals who have this profile send others o their death -- others to their death. they don't send themselves to their death, they send others. these poor, young, unfortunate individuals who are given suicide packs or other things while these individuals, you know, the ilk of al-awlaki hide in caves and places of yemen because they're trying to protect themselves and put others at harm. it's just a matter of time before we and the yemenis are able to find them, uproot them and to bring them to justice. and certainly, i am determined to do that, and i have found a resolve in yemen, and that's why i continue to go back there talking with president sala. but as i said, a number of yemenis have given their lives to try to protect their fellow citizens, and i think more and

more yemenis are going to rally to the cause against al-qaeda and see it for the cancer it is. thank you. >> i think, i want to apologize to the many people i couldn't call on. judging from the number of hands, we could spend the better part of the afternoon together. i think it's a testament to mr. brennan's talk and to his answer to the questions the amount of questions out there. you've been incredibly candid and knowledgeable, tank -- frank and generous with your knowledge, and for that i hope all of you will join me in thanking you very much for a great -- [applause] [inaudible conversations]

>> our live coverage today includes a forum on small business lending. speakers include fed chair ben bernanke, the head of the fdic, sheila bair, senator mark warner and u.s. chamber of commerce chairman thomas bell. that's at 1 eastern here on c-span2. also at 1, former minnesota governor tim pawlenty speaks at the national press club. he's just released his memoir titled, "courage to stand." that's at 1 p.m. eastern over on c-span. >> this weekend on c-span3's american history tv, historians discuss the importance of their work on pop culture at the american historical association conference in boston. an oral history with washington,

d.c.'s first delegate to congress and a founding member of the congressional black caucus. a visit to the bureau of engraving and printing to learn about creating currency, and as part of our continuing series on the civil war, a discussion about the first state to secede from the union, south carolina. experience american history tv all weekend, every weekend on c-span3. see the complete weekend schedule online at c-span.org/history, or you can also press the c-span alert button and have our schedules e-mailed to you. >> lawmakers gathered on the house floor to pay tribute to representative gabrielle giffords and the other victims of the shooting in tucson. see what members said online with c-span's congressional chronicle. follow the comments of your congressmen, track daily timelines and read transcripts of every house and senate session. congressional chronicle, it's washington your way. >> china's president, hu jintao, visits washington next week.

yesterday treasury secretary tim geithner said that china's unwillingness to allow it currency to rise this value is hurting u.s. competitiveness this global marketplace. this is an hour. >> good morning. mr. secretary, welcome to your alma mater. good morning, you all. we have a special event today. secretary geithner, head of the visit by president hu jintao to this country, will speak to us t on u.s./china economic relations, the subject as all of you know that is of greatnomi importance to both countries and to the world.ou in the absence of the dean of our school, jessica einhorn, who is watching this event from italy and the head of our chinar studies department, david lampton, who's also watching from korea -- we are truly an international school -- [laughter]s i've been asked to introduce th secretary and to serve as

moderator during the question and answer session. i am peter bottelier, and imode teach course on china's economyq at this school. since tim geithner's well knownh to all of you, i can keep myner introductory comments very a short. tim has played a very prominent role in national and international economics and finance for many years. he has always had a special interest in east asia. he was sworn in as 75th u.s.t secretary of the treasury on 26, january, 2009, in the middle of a deep recession as i don't have to remind grow, to remind you. very few challenges that havedo' not been thrown at him since that time. he worked in the treasury department earlier from '88-2001 under two secretaries, robert reuben and lawrence summers, thw

last two years as undersecretare for international affairs. after that he became directer oi the policy department and review, policy and review department at the imf and wasto appointedr to the new york fedn 2003 as its ninth president and ceo. tim got his ba in government in asian studies from dartmouth and his ma in international economics and east asian studies from this school. he lived in china and japan and has studied both languages. finally, before i invite secretary geithner to the podium, may i remind you to put your cell phones on silent. secretary geithner. [applause] >> nice to see you all. thanks for coming. it's a pleasure to be back at sais. i spent two years of my life

here a long time ago studying a bit of chinese and japanese, a bit of economics.g didn't enjoy the economics that much. [laughter]an i played quite a lot of pool in the basement.cs [laughter] i don't know if there's a pool table there anymore, but sais it a great place, and i admire what jessica and her colleagues have built. ask, of course, i'm biased, butc sais is one of the preeminent institutions in the unitedt. states engaged in the, i think,f one of the most importantnsti challenges in public policy and education. that is to help americans understand the world and the role we play in it. this is important because wehe can't effectively pursue our interests as a nation unless wet understand the objectives, the intentions, the capabilities of of other nations. next week president obama will host president hu jintao at the whiteth house. this state visit take place at a time of important transition for the world economy, for thethis chinese economy and, of course,

for the american economy. the global economy is emerging from the financial crisis, but e the crisis has left lasting scars that will take years to repair.ci and it has left a growing gapca between the growth trajectories ofai the large, developed economies and the rapidly-growing, emerging economies. while many of the majoro economies are still confronted with the challenge of rebuilding after crisis, many of thee emerging economies are at the early stage of what should be a very long period of very rapid economic growth with rising incomes creating growing demand for resources and for investment capital. now, the growth of the united states stands somewhere betweena these two divergent paths. we're likely to grow at about half the rate of the major emerging economies, but about twice the rate of europe and japan.g and these growth dynamics will fundamentally change the balance in the world economy.n. forcing changes in the architecture of the trade andld

financial systems. and in this new global contextde china's principle economic challenges are how to manage tho next stage this that transition from a state-dominated,ma developing economy dependent on external demand and external technology to a more market-oriented economy with growth powered by domestic demand and innovation.en i want to talk today about the implications of these changes for our economic relationshiphe with china and for u.s. economic policy. china, of course, presents enormous opportunities for the united states and for the worl, but its size, the speed of its ascent and it policies are a growing source of concern both here and in countries around the world.ourc but to put those concerns inand context, i want to begin by stating a few fundamental propositions about our economicm relationship.da first, the economic relationship between the united states and china provides tremendous benefits to both our nations.te even though we compete in many t

areas, our economic relationship, our economic strengths are largely complementary. second, china tastes a very complicated set of challenges a itfa transitions towards a mored market-oriented economy. but it is very much this ours mo interest, in the world's interest that china manage these challenges successfully. a w third proposition, our priorities in this economic relationship from the exchangeou rate to the protection be of intellectual property reflect changes that are fundamentally in china's interest.ct ultimately, china will need to make these changes in order to promote its long-term prosperity, and a fourth and final proposition, i want to emphasize that the prosperity oe americans depends overwhelmingly on the economic policies we pursue to strengthen american competitiveness. even as we work to encourage further reforms in china, wehene need to understand that our

strength as a nation will depenm not on choices made by china's leaders, but on the choices we l make here at home. now, over the last few decades china has emerged as a major c economic force. that growth was unleashed by china's economic reforms, aas t growing labor force and one of history's great migrations from farms to factories. but china's growth was also made possible by the access china enjoyed to the markets, to the m investments and to the technology of the united statese and the other major economies. the open, multilateral trading system with its balance of rules and responsibilities was builtte with the leadership of the unitedan states decades before china opened up to the rest of the world, and the opportunities created by that system were fundamental to china's economic ascent, and they remain vital tr china's ability to continue to grow. china needs the united states,iy but the united states also benefits very substantially from

our rapidly-growing economic relationship with china. the benefits of that relationship are hard to capture in any one statistic, but remember this: the united states is on track to export more thans $100 billion of goods and services to china this year. our exports to china are growing at twice the rate of growth of our exports to the rest of the world.f these exports support hundreds of thousands of jobs across ther nation in all sectors from high technology to soybeans, aircraft to automobiles, forklifts to financial serviceshi. we have a great deal invested ib each other's success. now, this our economica relationship with china -- in our economic relationship withes china we focused on two principle objectives. the first is to expand opportunities for u.s. companies to export and sell in the chinese market. this requires a more levelex playing field for u.s. companiei to compete with chinese companies, to compete with

chinese companies in china, in c the united states and around the world. in our second core objective is to promote reforms that'll reduce china's dependence on export growth and encourage a shift to domestic investment. as part of this, of course,ted china's exchange rate needs to strengthen in response to marke forces. now, i want to provide a quick review of some of our concerns, the extent of progress we've achieved as we see it in the each of these areas. first, on the broader, e competitive landscape in china and the opportunities we face in that market the commandingetit heights of the chinese economy and be its financial be system are still overwhelmingly dominated by the government. chinese companies and workers are able to take advantage of a range of preferences and subsidies and operate behindak trade barriers that give them a competitive advantage relative to u.s. and other foreign firms and workers. ..

foreign firms and workers. they get access to low-cost land and energy. they enjoy a preference in terms of access to government contracts. the electrical properties widespread in china across many industries and the chinese government has introduced a range of new policies to encourage innovation in china designed to favored chinese technology over foreign technology including the enormous government market. where these practices violate china's international commitments we are active in using and continue to use the remedies available under u s trade law to protect our interests. china has been gradually moving to address these concerns. the government rec to force chinese companies to pay for the intellectual property they use. the chinese leadership has committed to expand opportunities for u.s. firms and access to government

procurement contracts and the government committed not to discriminate against u.s. companies that operate in china and we welcome these commitments. they don't address all our concerns but there is something we can build on and we will continue to press the chinese to translate these commitments into further progress. doing so of course is in china's interest. government domination limits competitiveness of the chinese economy, prevents the private sector in china from contributing to growth at its full potential and you can't promote innovation if you don't protect intellectual property. now longstanding refirms i mentioned we want to encourage china to move definitely away from the export-driven growth model of the last few decades to a growth model driven more by domestic consumption. the chinese leadership recognizes china is too large relative to the world economy for it to continue to rely on foreign demand to grow and the government has adopted a commence sieve

program of reforms to rebalance the economy and shift growth to domestic demand. this requires reforms to increase public spending on health and education, to raise minimum wages, to remove barriers to investment and services, to expand access to financial products for individuals and companies and to remove subsidies for investment in sectors that drove the initial decades of growth. now this transition will take time but it is already having a major impact on the shape of chinese growth and already providing increased opportunities for american companies. domestic demand is contributing more to growth. and as a consequence u.s. exports in china are growing more rapidly and u.s. companies operating in china are seeing more opportunity. now as part of this of course, china still, it is important to recognize that china is still closely manages the level of its exchange rate and restricts the ability of capital to move in and out of the country.

as the said consistently these policies have the effect of keeping the chinese currencies substantially undervalued. they impose substantial costs on other emerging economies that run more flexible exchange rates and a substantial loss of competitive against china. this is not a tenable policy for china or the world economy. if china does not allow the currency to appreciate more rapidly it will run the risk of seeing domestic inflation accelerating a you're already seeing and a risk of damaging rise in assets prices both which will threaten future growth. sustaining undervalued currency will undermined china's efforts to rebalance growth and con shum con assumption. since june 2010 when the chinese authorities announced they would resume the reform of their exchange rate regime they allowed to currency to appreciate only by 3% against the dollar in nominal terms. this is a pace of about 6% a

year, again in normal terms. but of course the real rate of appreciation against the dollar is significantly faster because inflation in china is much higher than in the united states and it's the real rate of appreciation that matters for the incentive firms face for how they, what they purchase, what they invest. now we believe it is in china's interest to allow the currency to appreciate more rapidly in response to market forces and we believe china will do so because the alternative would be too costly both for china and for china's relations with the rest of the world. now these are our main priorities. let me tell you what china's are. china's objectives are focused in the economic area on the following core priorities. china wants more access to u.s. high technology products. china wants to see greater investment opportunities in the united states. china would like to be accorded the same terms of

access to our market that other major market economies enjoy. and we are willing to make progress on these issues but it is important to recognize our ability to do so will depend of course how much progress we see from china. as china reduces the role of the state in the economy reforms policies that discriminate against u.s. companies, removes subsidies and preferences for domestic firms and technology and allows exchange rate to reflect market forces, then we'll be able to make more progress on china's objectives. now in any discussion of china i think it is important for americans to understand that the solutions to our challenges in the united states rest first and foremost with policies in washington, not those of beijing. fundamentally the number of jobs we create, the pace of growth and income of americans depend on the results of choices we make in the united states, not the choices of other

countries. in our effort to rebuild and put more americans back to work, we have to make sure we're making investments and reforms that will be essential to our capacity to grow in the future. as countries like china, india, brazil, other emerging economies grow and expand, we want the american economy, american workers, american companies, to play a major role in that growth. we want to see a substantial part of that growing demand that is going to come outside the united states, met by goods and services that are created and produces in the united states and that are fueled by investment in the united states. if we were successful in doing that, then we will be much stronger as a nation, but to be successful meeting that challenge, there are things we have to do here. we have to invest more in research and development. we have to invest more in educational reforms. we have to invest more in public infrastructure. we have to create stronger incentives for investment in the united states, both by americans and by foreign

companies. we have to be more forceful and effective in promoting american exports and of course we have to restore fiscal responsibility. restoring fiscal responsibility is going to require the government to spend less and spend more wisely so that we can afford to make investments critical of future growth and it will require tax reform that produces a system that is more simple and more fair that encourages growth and investment and that will help restore fiscal sustainability. now these are our challenges, our american challenges. they're not just an economic imperative, of course. they're a national security imperative because our strength as a nation depends on the ability of our political system to move quickly enough to put in place solutions to our long-term problems. now our great strength as and economy as a country is openness to ideas and to talent. our capacity to innovate, excellence of higher education, willingness to invest public resources strategically, scientific research and discovery and

political will to confront challenges with speed and wisdom and force. if we preserve and build on those strengths, and if china successfully continues on its path to a more open, modern market economy, then both our countries and the world economy will be in a much stronger position. the president recently said, we should feel confident about our ability to compete but we're going to have to step up our game. china's rise offers us the opportunity of dramatic growth in demand for things that americans create and produce but it will also force us to raise our game. we should welcome both the opportunity and the challenge. thank you very much. i would with be happy to take your questions. [applause] >> thank you, mr. secretary. we now have about 20, maybe

25 minutes for questions and answers. and because the event is taking place in the school i would like to give priority, at least initially to sace students, alums and faculty members. who may i give the floor? would you please wait for the microphone, introduce yourself, your name and affiliation and keep your question, one question very brief. >> thank you very much. excellent speech. i'm from 21st business herald, leading journal in china. you mentioned in beijing, china is partner recently. do you think the inflation will make the currency issues less serious? >> well, excellent question and, i don't usually

compliment "the new york times", if you go to the "new york times" today you will see two very important stories that explain this better than i can do. when you think about the competitiveness and the effects of what you see in the exchange rate you really have to look at inflation and the move in the exchange rate. as you see, inflation trends are accelerating. running at much higher rates than in the united states. it is that rate of inflation and combined with the change in the exchange rate that reflects competitiveness. if you look at the amount of the exchange rate has moved and relative acceleration in china's last six months or so, inflation is appreciating now with a rate of about 10% a year. so if that appreciation was sustained over time, it would make a very substantial difference in correcting, what is a major distortion for the chinese economy and global economy. we're probably in, at the end of the first quarter, to use the sports, we're in the

end of the 2nd inning, if you want to use a sports comparison. but, it is changing. it will happen. it has to happen. because the fundamental forces that are pushing chinese productivity growth and are pushing inflation higher will bring about the necessary adjustment in exchange rates. >> this lady here. >> do you have any sace students would like to ask a >> good morning. i'm a graduate student. my question to you with regard to capital controls, even the large amount of liquidity in the international economy, emerging markets started to point the intention of using capital controls, especially brazil for example. appears to me there has been

a idea logical change in the after the crisis of 2008 and, the imf has published papers say they changed a little bit their approach to how they see it. i would like to know how the united states see the use of capital controls by emerging markets. >> it is worth noting what is fundamentally driving this surge in capital inflows to many emerging economies. there are two fundamental sources at work. one is that the world correctly perceives likely to be growing at a much more rapid rate in the future relative to the major economies. that is a fundamentally a good thing for those countries. it reflects a lot of confidence in their relative growth prospects. but the other force driving this of course is the consequence of china's exchange regime because china still run as relatively close capital account. still tightly manages the link of the currency to the dollar and what that does is divert a lot of forces of capital flows to countries that run more flexible, more

open regimes. that pushing their currencies up higher relative to the chinese currency and that complicates the challenge they mace in managing domestic inflation and other pressures that come from capital inflows. you're right to say there is sort of a new wave of experimentation going on how to limit the potential risk that come from those flows. there is sort of the challenge i think too much of a good thing but still they can be complicated to manage and you're seeing count experiment with whole different sets of measures. the most important thing to do if you're emerging economy open to capital flows is make sure those flows don't end up financing too much leverage in the financial system and financing a unsustainable rate of growth in credit. fueled by for ininvestment. that is a challenge, manageable challenge. a lot of countries have experience managing those challenges because of the asian crisis and emerging market crisis of the '90s.

i'm not troubled at all by what you're seeing in terms of that new experimentation. what we want to focus on of course is trying to, and i think china does too, is reduce the extent to which china's policies are contributing to that challenge. >> before i go to the next question, allow me to come back to one or two points you made. >> you want to correct my economics? you're welcome to correct my economics. >> no [laughing] >> can i say one thing in response to the first question? you know china is embarked on a very important set of reforms to not just soften the tie to the dollar and give itself a little more independence to run monetary policy for china but to loosen the controls that exist on capital flows in and out of china and make it easier for countries to use its currency. and those reforms of course are going to happen. they're going to accelerate the transition to more market-oriented exchange rate which is a good thing

too. if you look at china's intentions. china is undergoing difficult debate in china what the right pace of reform is. what the right pace ever appreciation is. when you look at chinese intentions to this you look at both what they're doing in terms of nominal pace of depreciation of currency and also what they're doing to relax the controls that exist on use of currency and capital moving in and out of china. >> you outlined very clearly some of the key dimensions in which china would have to change its economic policies in order to arrive at a more balanced and more harmonious international economic situation. you were also very forthright in making the same comments for the u.s. economy. question, how much of there is amongst the chinese leadership for the need for these changes and how much willingness do you see to actually embark upon these, on these policies? and certainly what is the quality of your dialogue with the chinese on these

subjects? >> i think there's a lot of support in china for those, the basic imperatives they face in this rebalancing of growth and there's a very active debate in china, a very active competition in china over what the right pace and path is for those reforms. of course as china goes through this political transition over the next year or so that's, in some ways having the effect of slowing the pace of reform because it is inducing a bit of caution among the leadership in what is a very contested policy debate. but, china, if you look what china has done over the last 30 years they have run a remarkably effective, incredibly ambitious, set of economic reforms with a very clear long-term strategy that has been enormously beneficial not just to the basic living of chinese but the global economy as a

whole. i think they recognize for them to continue on that path they have to change fundamentally. if you look what the chinese leadership has said over the last few years and look at the content of the policies they're pursuing i think there is a lot of awareness and support in china. i think we have a very good, a very good understanding of our interests on the economic side. very good understanding of the concerns we each have. i have a very good relationship and have a huge amount of admiration for the vice premier who leads these efforts in china and he has made an enormous difference on things that matter a lot to us but he faces a lot of opposition in china as you know, better than anybody, peter, in this case. but it will work itself out. i really think over time china has no choice but to move and of course countries will do what they believe to be in their interests and these fundamental economic challenges we highlight are things again china recognizes they need.

>> thank you. >> we have another student question over here. >> morning, mr. secretary. where are you? i can't see you. >> i'm sorry. first year student here focusing on finance and energy. of i have a question touching more on the rebalancing theme you mentioned. especially the point about encouraging or prodding china depending on your perspective toward shifting away from export-driven. i wanted to, kind of zooming out a little bit because i think that is similar perspective with other export-dependent economies like germany. i want to know how valid such points were and if there were anymore or less valid actually that they in turn encouraging the u.s. to shift away from credit consumerism? >> as you say, let's step back and look what drives this fundamental imperative. as we all know and we learned through incredibly

painful deep recession the u.s. growth has been driven too much by consumption, by investment in housing, financed by borrowing from the rest of the world, and it is forms in the united states that we put in place a way, growth strategy in the united states, more investment-driven, more export-driven and therefore more sustainable in the future. in the world we have to be saving more, investing more. that process is happening. if you look at the initial shape of recovery in the united states, private savings is much higher. our current account imbalance is much lower. private investment has been growing very, very rapidly. the underlying pace of productivity gains is very strong. manufacturing exports very strong. that's very encouraging. now, what that does for the rest of the world is force a fundamental change in growth strategy outside the united states because those other economies recognize that they're not going to be able

to look to the united states to be as strong a source of demand for their products as was true in the past. and, china of course recognizes that reality, as do many other countries. that is part of what is driven. that combined with the crisis and vulnerability they were exposed to being in so export dependent forced a fundamental reassessment how they want to grow. it is that fundamental economic interest that motivates the shift, the rebalancing, broader imperative. now these are things you can't force other countries to do. we have a world of, much more integrated world economy but it is a world of sovereign states. what we have to do is find a way to make it compelling for countries to make those broad changes together so that the changes that we're going through in the united states are complimented by other changes in growth around the world that allow the world economy to grow much closer to its potential rate of growth. again, i think that's a

overwhelmingly compelling fundamental imperative for the major economies. i think it is broadly recognized countries will have different paths to get there but there is no alternative. >> [inaudible]. >> we have more sais students or alums? >> thank you. assistant professor in international economic relations american university but i'm also an alum from sais and adjunct professor of economics. i have a question about the topic of the day which is emu's, european sovereign debt crisis. i read the japanese are buying euro bonds. but your present promise to double american exports in the next five years. so surely the eurozone i think much bigger than china and much be a major source for american products. the euro is at a four-month low again and doesn't seem like it will get any stronger anytime soon. so i'm just wondering, you

as treasury secretary, how involved are you with brussels, with european decision-making and how worried about are you about this? because surely if the euro weakens i don't think the chinese will be in any rush to strengthen their currency either because their demand will surely suffer from this too. thank you. >> you're absolutely right. i think one of the still most obviously remaining challenges to the process of recovery on the way around the world is the challenge europe is facing but i'll give you my personal view. i do spend a lot of time talking to my counterparts in europe about the choices they face and how to get ahead of this problem. i am, is my view, that they have made a decision, that they will do whatever is necessary to prevent this crisis from escalating beyond the countries that were initially the focus of so much pressure. there is no doubt that they have the ability to do that financially and economically,

and, i think they have chosen to do so. if you listen carefully to what the leaders of germany and france and others are saying they made it clear they're going to do it. what they're engaged in now complicated, politically complicated discussion how best to do that. what scale of financial support and support of what set of reforms to help the banking system through this, help the weaker sovereigns through this. but they have the no doubt the capacity to do it and i think they recognize that, if you get behind the fundamental forces driving this pressure it is much more difficult to solve, much more complicated to solve, much more costly and much more expensive to solve. so i think they're not eager to repeat that, the choice ever the last first six months of last year. that is my perception. you're right to say of course that the europe and japan together are still a very large share of global

growth and demand and the world economy as a whole is not going to be growing at sufficiently rapid rate unless you see the major economies in europe play a major role as part of that. now of course realistically the challenges that greece and ireland for example are going through are, they're unavoidable. they're necessary adjustments they have to go through. but for growth in europe as a whole what matters is how rapidly do the major economies, germany, france and spain and italy grow and how successfully are they going to be in restoring confidence in their capacity to manage these financial challenges. >> wait for the mike. >> charles durant. teacher here at sais. as you said in your speech correctly what is very important what we do here in

terms of our own economy. so my question to you is this. what can we do to accelerate foreign investment into the united states and our own investment into this economy as rapidly and as effectively as we can? >> well, in the short term of course, it is worth noting that the tax package passed by the congress has a very, very substantial short--term incentive for just that. because we provide for one year period for all american businesses 100% expensing of capital investments and equipment. that has the benefit of providing a pretty powerful spark and catalyst. useful reinforcement to recovery that is gathering momentum. but we have some ways to go to repair the damage, dig out of the holocausted by the crisis. longer term i think it is the obvious. you, we want to make sure we have a tax system that creates better incentives for investment in the united states. the president proposed last september to expand

designing a permanent tax credit for research and development in the united states but that is just one of the things we can do. we're examining whether we can find a political support for a comprehensive tax reform, revenue neutral but that would improve incentives for investing in the united states. what we do for education, not just higher education but the basic quality of public education across the country is fundamental. ourable to make this still a compelling case for talented people around the world to come, not just to go to school but stay and build a business is fundamental. the reforms we put in place to make sure we restore what has been the great steent strength of our economy, financial system really good, envy of the world and taking savings of americans, channeling them to support innovative companies, entrepreneurs, putting, making sure those reforms work, create not just a more stable system but one that encourages innovation, allocates capital efficiently is very, very

important. we have, i'm repeating what i said in my speech but we were very early, very, very good as a country in investing a substantial share of public resources in research and development and basic science. that is something we have to make sure we preserve the capacity to do. and if you look at the quality of public infrastructure in the united states, it's alarmingly poor and that operates like a tax on american businesses. raises costs for businesses and very good compelling economic case for, you know, a prudently-financed but substantial multiyear program of public investment in the united states. i think those, that is a good start. took those well won't solve our all our problems. if you don't do those things, nothing is possible. that is where i would focus our priorities.

>> good morning, professor pollelier. i studied with you for two semesters. my question is about the financial markets in china and deepening them and making them broader. what do you see and how do you see that developing in terms of a bond market or derivatives market? >> excellent question. the part of this broad reform period is that china undertaken financial reform is a key part of that. you're seeing china substantially expand opportunities for foreign firms so they have a little bit more competitive spark from the major global institutions in this area but they're gradually starting to introduce a more market set of, more market-driven financial system, reduce the role of the state, reduce the administrative controls on how capital is allocated. that process has a long way to go. but i think they recognize that part of this transition to a more domestic

demand-driven growth strategy requires financial reform. creates greater ability for individuals to borrow, for companies to borrow, and of course fundamental to china, they want to make sure that, you know, what financial systems do they allocate capital and what determines how fast you grow over time depends on how well they allocate capital. you know, we've had a great, long run in the united states but you saw what happened when our system misallocated capital substantially to housing investment. and for a state-dominated financial system that risk is much, much greater. the risk for them is much greater that there will be huge investments wasted over time in things that are not going to be very helpful to china's growth ambitions. so there is a very substantial imperative for china to move further towards a more market-based, more efficient finance system, of course more pru prudently managed, with a lots of capital and good

supervision. but you don't want, you can't grow if you rely on the state to decide who gets capital at what price. it doesn't work. there is no successful of example of a strategy that relies on the government to decide how to allocate and price capital. >> we have another student question in the center here. >> good morning, secretary geithner. i'm a ph.d student here at sais. my question we just went through a rather heated election campaign here in this country in which sentiment over china's rise and role in the global economy was maybe not the chief concern but was certainly a concern and was the potential to scapegoat the chinese and our economic problems was certainly leveraged by both parties to some extent. how, is that worrying to you as a policymaker? how discon terting -- concerts to you and disconcerting to your counterparts in beijing?

. . it should be a concern to anyone in the united states and something the chinese need to watch very carefully. if you look at the strength of concern in the united states across parties, it's not a republican or democratic concern. it's the bipartisan concern. you saw the strength of the vote on the current legislation in the house in the fall and i know it's something china is very attentive to and they need to be. what china needs more than anything is an external environment with access to not just our markets but if they're going to meet their broader growth ambitions. so they're very tied to it and i think we should all be very troubled by it. you know, what's happened in the united states today has happened in the past. when you're in a moment of crisis that's caused a huge damage to the basic economic security of americans, you know, we tend to look at the assent of others, the relative assent of others as a concern and a threat.

we look at them as sort of the prism with which we view our concerns. but as i said, put that in contest to recognize how well we do as a nation will depend fundamentally on what we do in the united states. china presents huge opportunities for us. and where things we admire in china's growth create a bit of a more spirited action in the united states, that would be a good thing. >> okay. now i guess we're going to turn it over. we've got a couple last questions from the media. so i'll go ahead and turn it over to them. >> thank you for taking our questions. it was said today chinese officials over in beijing ahead of this visit suggested in a news conference that it would be welcome if the united states provided more reassurance. during president hu's visit their holding of u.s. treasury, are you prepared right now to offer any sort of reassurance and will president obama offer

any concrete actions that the u.s. will take to put its fiscal house in order? >> okay, these are the kinds of things that you typically see foreign ministry people say in the run-up to these meetings. it's the typical pattern, nothing exceptional interesting in this. and, of course, no one cares more than i do and the president does that we make sure we're doing things for the united states to sustain the confidence of the americans and countries around the world in our capacity to manage our challenges here at home. and, of course, we're very focused on that. >> mr. secretary, i have a question regarding the chinese currency. regarding the letter of the chinese currency you used to judge the assessment by the imf. but i'd like to ask your judgment on the currency -- >> i agree with the imf.

[laughter] >> and secondly, does the pace of the appreciation -- you mentioned it's 6% annually. are you satisfied -- are you satisfied with this that's or do you have any idea of the ideal pace of the appreciation saying 10%, 20%? >> well, again what matters is the rate of the nominal change against the dollar but also the relative rates of the inflation in the hundreds because it's the real change that matters and the real terms the chinese currency is moving in a rate substantially faster of 6% a year. just for comparison the last time the chinese allowed the currency to move over time was a period between 2006 >> we will be the last two minutes of this event and take you over to a forum on small business lending that is being hosted by the federal deposit insurance corporation. speakers today will include

fetch your ben bernanke, the head of the fdic sheila bair, senator mark warner, the chairman of the u.s. timber of commerce thomasville. this first panel getting under way. live coverage here on c-span2. >> good afternoon, everyone and thank you all so much for coming. we've got an incredible group of people. i was looking over the list yesterday and i'm so pleased represent the very best in government as well as the private sector. we are all here today because we share the same concerned, what more can be done to kickstart the recovery in the weak job market. as its biggest imports of american workers, small businesses might hold the answer. some small businesses say they are now finding it easier to get loans and expand and hire new workers. recent surveys confirm the standards for small business loans have improved in recent months. many small businesses still compliant of tight credit conditions and inability to get loans indicating we're not quite

out of the woods yet. so what are the obstacles of small business lending and how do we overcome them? my expectation is by the end of the day not only will we have a list of the obstacles, but we'll also have some concrete solutions. fortunately, for all of us would've the right person in the right place at the right time to get the ball rolling. there is no greater friend or advocate for small business that our first speaker, jimmy spencer bachus. is been in "the guardian" of small business by the national federation of independent businesses and he received the spirit of free enterprise award of the u.s. chamber of commerce. we work closely with chairman bachus over the years on a number of legislative and migratory issues including important reforms to the deposit insurance system. and i know we will continue to work closely in the months ahead. he's a good friend, and in addition on the urgent need to head off the next potential financial crisis by restoring fiscal responsibility in

washington. both spending and debt our way out of control. as the new chairman of the house financial services committee, he will be in a unique position to tackle these issues as well as the credit problems facing small businesses. i'm certain all of us will be most interested in what the chairman has to say, but before we get started let me first hashed some very important question. which are you more happy about, wanting the chairmanship or your beloved auburn winning the national championship? thank you very much. please welcome spencer bachus. [applause] >> thank you, sheila, for that kind introduction, and particularly for the war eagle. we had to rehearse the war eagle. and i thank you for organizing this forum with important stakeholders on addressing the question of how we can promote

lending to small businesses. and as the chairman said, it's important to do that because small businesses create most of the jobs in america. and job creations i think it's the challenge that is facing our economy, as well as our financial institutions. i talked with a beggar from arizona the other day, and he said what is hurting our bank is people losing their jobs or not having jobs. as we address the issue, it is important to be clear about principles that should guide us. and reading recently i came together across the phrase american exceptionalism. this encapsulates what i believe about our country. our economic system and most importantly, our people. we do things our own way, and it works. as we craft policies to promote economic recovery and create jobs, we need to remember that free markets, the capitalist

system, and individual initiatives have made the u.s. economy the largest in the world. twice as large as that of china, japan, germany and great britain combined. government planning and government control is not how we got here. individual initiative and free markets have long been the recipe for our prosperity and dynamic economy. unfortunately, the new regulatory structure of dodd-frank will redefine the way our economic system and our financial services system operates in the future. constricting jobs and punishing mainstream -- main street businesses that did nothing to cause the crisis. during my conversation with employers i am constantly told that one of the biggest obstacles they face right down is up to any financing from banks. a search for sufficient capital

is a struggle, even for companies with good credit history, and long-established relationships with local banks. the majority of small businesses depend on their community banks for credit. this morning, chairman bair said that while failures peaked in 2010, the fdic his losses were down because small institutions were failing. the fact that smaller community banks are failing can be partially traced back to government policies. that gave are too big to fail institutions, in my opinion, a competitive acting advantage. the fact that banks are very disastrous impact on small businesses going forward. because the small banks are more likely to extend credit to small businesses than their big bank counterparts. as the federal reserve study said, the finding suggests an important role may remain for

community banks who have an advantage over large banks of extending loans to small businesses. their local roots and knowledge of the local community, and the entrepreneurs who run local businesses may be critical in providing the type of relationship driven loans that many small businesses need. we all know that inadequate underwriting and loose credit standards contributed to the financial crisis. but the pendulum swung too far towards regulatory micromanagement. we can't allow arbitrarily applied regulatory directives to stifle prudent lending. high upon the six regulatory agencies are represented here today, led by our host the fdic, who, back in february come issue joint guidance telling their exams to stop second-guessing banks loans. the guidance said quote,

prudence small business lending fund not be subject to supervisor criticism. sadly, that guidance is not always filtering back to the operational level. as indicated by the constant stream of comments i and my colleagues, both republicans and democrats, receive from community banks and their small business customers. that guidance is being offset by examiners and other regulators in the field who have not followed policy promulgated by their agencies in washington, but i've continue to be overly restrictive when evaluating the credit decision of those they regulate. this has become so commonplace that it has become known as the mixed messages problem. instead of focusing on patterns and practices that suggest poor underwriting or lax risk management, some examiners are micromanaging the daily activities at our community banks. all of us in washington, both in

congress and at the agencies represented at this forum, must continue to examine the mixed messages being sent to community banks which continue to create uncertainty and impede recovery. under my chairmanship, the financial services committee will focus this year on policies that encouraged not inhibit job creation, and facilitate a robust economic recovery. our focus will be to ensure that hundreds, over 300 new federal rules mandated by dodd-frank be written in a way that does not further impede job growth by burdening americans small businesses, in a sea of bureaucratic red tape. this time of economic and regulatory uncertainty requires all of us to work together, in a spirit of cooperation to avoid policies and regulations that prevent critical investment,

investments by our small businesses. we all recognize the importance of consumer protection and they need to avoid the kinds of mistakes and malfeasance that led to the financial crisis that culminated in 2008. nonetheless, we must take great care to ensure that we are adopting policies and regulations that grow our economy and create jobs. in order to do this, we need to look at the ways regulations are being implemented. especially now that the regulators are writing over 3000 -- 300 new rules. with prudence and careful attention to unintended consequences, rules can be written and achieved the consumer protection and safety and soundness needed by our society, but does not slow economic activity or prevent job creation. each of us understands that any robust job creation must come from the private sector. our small businesses will be key to that recovery, and washington

should do its best to set strong guidelines and let our small businesses flourish so that they can create jobs. as larry kudlow said in introduction to a recent book, taxing capital at prohibitive rates is akin to attempting to have capitalism without the very capital that makes it run. how does the average worker get a job when business can create jobs, because they are starved for capital? many economic thinkers understand -- do not understand that capital and labor worked together. what he said about overtaxation is also true of over regulation. it in a way is a form of taxation. thank you, chairman bair, for convening this important forum. and i look forward to working with you and chairman bernanke, and my senate colleagues, as well as other interest groups,

including the chamber. in promoting job creation, something that we all agree is so important for our country and its future. thank you. [applause] >> thank you, congressman bachus. to my pale, alyssa problems as long. the time is short so let's get right to it. recent survey by the, 33% said the number one problem is weak sales. i think that's sort of the elephant in the room here. before we dive into this issue of regulations and how to make lending easier, let's talk about the economy. mr. chairman, to my immediate left, what are the prospects that economy steps forward this year and saw some of these problems that we're talking about? >> first of all your you're absolutely right about failed issue. sales come, that will make his

business stronger, it circled. we see the economy strengtheni strengthening. it looks better in the last few months, and we think that three to 4% type of growth number 42011 seems reasonable. that's not going to reduce unopposed at the space as we would like to do, but certainly it would be good to see the economy growing and that means more sales, more business for companies of all sizes. >> does that become easier for small businesses to get loan? >> that's right. virtuous circle. more cash flow and also higher collateral values make business more creditworthy and gives them more credit demand, allows them to expand, and that is using virtual circle. >> chairman bair? >> i would agree with that, i think economic recovery is key here at as a sales pickup, and small businesses strengthen the demand for credit will increase. and the banks willingness to lend because the credit mandate, was and is, it will be a

virtuous cycle. i think the collateral value of question is still a key one. about one in four, about one for small businesses have financed themselves through home equity lines are using home equity as collateral. those evaluations have come down so much but it still question whether i would housing market and home prices so i'd say that would be a note of caution but i think the more we can get the economy going again, the more we have a small businesses and banks lending to small businesses. >> senator warner, with all due respect, would you comment on the danger here that the economy comes back, sal some of these problems but government remains proactive, perhaps to correct and does things the economy should be doing for itself. >> i do think we need that balance and there's one thing you know the economy is recovering, i don't think any of us are going to expect the american consumer to continue to kind of carry the whole burden on their backs. one of the hidden to think of this recession has been we have

been cutting back on personal debt levels, which longer-term is important to short term gives us some burden. one of the things i think we'll have to continue to grow this economy is look for export capabilities. and less we can continue to see not only domestic growth but export growth i don't think we'll see the kind of level of recovery we would like. certain things that we hadn't been doing our around the edges, particularly on small business creditors. the legislation that was passed last year that was incrementally helpful around the edges, whether increase at the sba, whether capital access program, banking community has been very supportive of, and certain other things we can do around the edges to help credit to small businesses. >> tom bell, i don't mean to put you on the spot but this one going to do. given your fellow panelist to the right there, on balance would you say government is making things easier or harder for small business to create jobs and help the economy? >> thus far i think over the last couple of years both the

legislative and and administration, it's been more difficult. uncertainty great and if i'm in the business community. it's hard to make decisions. when it's hard to make decisions it's hard to invest. underwriting, you can't invest. but i think things are getting better. since the election i think we've seen a change, certainly a sort of a mutual commitment figuring out how to get the job done, and the job is creating more jobs. and an environment where the small business can't invest, reinvest and succeed. and i agree with the other panelists. and by the way, chairman, i appreciate you inviting me to the panel to talk about where we are as opposed where we are going. the nextel talks about the solutions, right? we just talk about the problem? i was hoping that is the case. [laughter] spirit i have high expectations for the next year or so. >> chairman bair, you talked about this issue of collateral. something that i have a whole list of questions from the audience, a very key issue, just

describe what that is, people cannot get loans because the value of their collateral has declined. good viable businesses. is there a role the fdic can play. >> with the fed's leadership, the other banking regulators, one of the things we try to address in our guidance, at least refinancing or restructuring outstanding real estate commercial loans. we do not want examiners criticizing and otherwise creditworthy launches because the collateral was decline. if they are under water at that point, if they are paying the loan, we don't want to alone criticize. i think a supervisory policy that requires the criticism of additional capital be held. we want to avoid debts would have tried to address it already. that said, both small and it is generally collateralized. to the extent of home-equity has revived the collateral as well

as commercial real estate, which those are down significantly as well. this will be a continuing problem. >> hasn't helped? >> i think it has. you know, we get mixed input from banks, and i know there's some banks, some borrowers who feel it is not worked as well as it should. but i tell everybody and i'll say it again, if your situation we don't think that policy has been applied, i want to know about it because we are trying very hard not to articulate the policies. >> i want to jump in. i would agree with what chairman baucus said on this. we're sending mixed messages. on one level we want the bank's balance sheet to get better. on the other level we are told them to go and do more lending. whether you're a lending officer or you're a bank examiner that's yemen nature wise, bush is towards more conservatism. i think what we're seeing in this recession is we've gone way

past the normal washer of small businesses that normally get washed out in recession or we are cutting into this in a long-term track record, everyone has mentioned here. it's tough short of some of these incremental sba capital access programs that can help around the edges be one of the things i want to complement chairman bair on, something we talked about a couple months ago, she's taken off today, that is, i get this kind of calls or letters every day. i've got a bar were saying their community based bank is saying they can't make the loan because the regulator is saying no. and the fdic is set up a helpline, toll-free hotline you can call and if you're a bar were and if you feel like the regulator is overbearing, and this may put kind of an incentive back in place for the

regulars to back off a bit. i think it's one thing -- >> and do what bernanke -- >> first of all the federal reserve has has an ombudsman since 1995. it's on a website, reserve .co. if you have an issue come if you think you're not getting fair treatment in your war for some reason, complaint your examiner, then call washington and we will respond to that. >> and borrowers can call and we will take the issue spent if we get a call, we will make a referral as well. i think directly or indirectly we can reach all of the agenci agencies. >> to a certain extent we are trying, and we should, trying to regulate yemen nature because i'm the one hand if you're a bank you almost lost her franchise, right? and uri bar were and you almost lost her business because you overleveraged yourself and your

collateral collapse. your yemen nature is i'm going to be a little more careful. i'm going to be a more careful lender and i'm going to be a more careful bar were. we have to expect that we have to sort of work that system. it's just not about what happened here in washington. it's about mindset that exist out there in the business. >> one thing is clout to be a substitute for good underway. with collateral values down when you have a look at cash flow schedule look at prospects for business, then you got to do a lot more work. but that's what we want people to do. >> but i'm the guy at last report that you guys put out. a bit of the care that i lost, try to understand his inner agencies memos that say on the one hand led come on the other hand, conduct couldn't make it a i was want to pick up the bank -- the phone and say chairman bernanke, what do you mean by that? kenya helping out with a?

>> you've got to the balance. we got in trouble in first place by making too many bad loans so we have to make good loads. we have to have creditworthy borrowers, but we can do that if we put any effort. we talked about community banks. one of the advantage of community banks is that long-standing relationships. they understand the business better. they know the people. that's one reason why community banks have stepped into the breach to some extent what they do banks have pulled back. so there are substitutes for lazy lending which is just the hard work of understanding the business. >> i don't think they're inconsistent, i really don't. the bank with a strong balance sheet will do a better job of many. we have seen that, the lion share of the crisis we're discussing order, the large banks loan balances were down by about almost 11% during the crisis. the community banks went up by almost 4%. i think having a strong balance sheet helps your ability to land

but ignoring the, that's what japan did. they lost a decade doing that. they got to be worked out that if they can be worked out they need to be written off. having prudent, well underwritten loans, it's harder but this is a better way to do it. look at the credit worthiness of the basra. look at the cash flows. look at the ability pay, not just the underlying collateral. you will have good healthy linda going forward. they are not inconsistent. >> senator boehner, lorey carter rights and i have a government contract and i've been denied loans from six banks because i do not have collateral. what do you have to say to person like that? is there a role for the senate and congress? >> give them my number. >> i think, you get a little bit of blame passing. you get the blame passing from

the loan officer who's noticing the pressure from the manager that we need to be tighter on our lending standards. and a loan officer says let's blame it on the regulator. i think tom, you're right a little bit. we are trying to rebalance a little bit. yemen nature. everybody went way too far. the notion that simply that there is, i don't think any of us myself it was a just because you're not a government contract sum up we'll get to some level of guarantee that means you'll get alone. i think it still needs to be -- >> tom conti talked about this idea to market has to run its course. does this seem like a market that should be allowed to run its course? or in that instance is the role for government to get greece the wheels to make something happened? >> first of all the governments the towards a slow pace so i'm not sure i -- [laughter] >> i don't think it's an either or situation.

>> your advice is to get out of government work? >> i think it's some of both. i think, you know, it's hard to change this in hand feeling that the lending officer or his superior that we need to be awfully damn careful because look how close we came to falling over the edge. we survived, but were not going to make the same mistakes again. the biggest issue that i see when the government could have a very significant impact, and they've been slow to act come is to do something about this continuing, and i meet continuing well into the future real estate issue that we have. it's not been dealt with. if you look at a small business loans, real estate is the collateral. the underwriting was not done so the collateral is no longer good. it's not getting better. >> that's a great. let's ask the chairman of the federal reserve.

is there anything you can get about the real estate question in solving that collateral speakers we are working hard on lots of different fronts. we bought a few mortgages, for example,. [laughter] >> we are trying to get the economy going. [laughter] >> we are working with our colleagues in the agencies here to try to improve our work out, bank workouts, mortgages both residential and commercial. in fact, we did a survey of commercial real estate work out practices before we did the commercial real estate guidance. and we did sort of a before and after. we've seen improvement. we've seen increased workouts. so that's part of the process. it's not going to happen overnight. the economy has got to come back, confidence have to come back. we have to see higher utilization rates, more people can qualify for mortgages and so on. it's a slow process. certainly it's one of our key

goals. >> chairman bair and for chairman bernanke, there's been talk about whether or not both entities should do work in the secondary market. that there's no place to unseal these loans once they come out. is there a role for either the fdic or the federal reserve and helping restart or even start again the secondary market for loans? >> spirit as you know the federal reserve did have a program, so-called talf, which is really an attempt just to get secondary market going again. for commercial real estate. as well as other kinds of loans including small business loans. we have worked on that, and all the agencies are working with the dodd-frank provision to try to help restore the functioning of the secondary market. obviously, the biggest problem in some sense will be fannie and freddie reforms which had to

come at some point. which will be critical to reestablishing the soundness of the residential mortgage market. >> i would agree with that, and i think i think would've been worse if the fed hadn't stepped in. you are the only borrower work of the small business loans in the secondary market virtually. i think the small business loans, it is challenging. agencies are working together now try to come up with better standards to bring this back it away that will provide incentives and provide high quality and transparency for investors that by those maturities but i think i will take a while to do. >> senator warner, another issue that is raised time and again is dodd-frank. the regulators to your rights are busy every day creating new rules that are uncertain what those rules are going to be. to what extent do you feel like

dodd-frank has actually made banking more uncertain, and, therefore, inhibited the granting of loans to small businesses? >> i actually felt well and perfect, and as a big part of writing title i and title ii of the bill in terms of systemic risk and the revolution process eric i felt we stroked a pretty good balance. i could kill you that i got as much criticism from the left that the bill didn't go nearly far enough and let the banks off way too early as i did criticism from the right that it went to four. and a lot of the tough questions had been pushed to the regulators. i would add at the request of the financial industry, because i'm not sure you necessary wanted congress writing a specific regulations on derivatives and so forth. but i think again as we talk about this particular, particularly's smaller banks, a lot of the tougher parts of dodd-frank, you know, extent

those bags under $10 billion in assets. by having some of our larger banks in terms of contingent capital, in terms of plan come in terms of higher capital standards, we do any fact, if we do it right and the jury is out whether we can get right, can level the playing field a little bit so that those community-based banks, don't have the kind of inherited disadvantage that larger banks have. i think dodd-frank is a work in progress. and a lot of it, if you look our european and asian part of in terms of the response, they are glad america went first. i think you will see they will go as far if not further. i think at the end of the day if this is a properly implemented and tweaked what overreaches, that it's a pretty good framework going forward. the alternative, and you know again what the audience doesn't know my background, i spent 20 years in the capital markets, i've been a business guy longer than i've been a politician.

until i got to the belly of the guys on the banking committee and so how close we came, and i think history will treat chairman bair and chairman bernanke, and president bush for the courage of the t.a.r.p., with a lot of respect, the amount of access within the financial system, the notion that the status quo can't continue just i don't think would be acceptable. >> tom bell, practically fell off his chair. >> it's a bad bill and it will is never in the unintended consequences come in our view. [inaudible] >> status quo is fine? >> no, it wasn't obviously. and as you know for years in advance of that, put together a bipartisan group try to figure out what to do. we were suggesting do nothing. but 300 will making, maybe as big as 500 that will go on well into the future with unfunded mandates for my colleagues here.

if the three people to my right had been allowed to sit in a room and write a piece of legislation, i think we would have ended up in a good place. this is a smorgasbord. and i just think it's a big mistake. you talk to bankers and i've talked to serve and that of several bank boards before this baby come and they say we don't know. we don't know what impact it will have on a business. and we won't know for some time. that's got to make them somewhat reticent to invest in their future and to make decisions that are long-term because they don't know exactly what the environment is going to be. >> i think it's fair to point you are not responsible for the mandates ever given to you from congress. nevertheless, you have to fulfill them. what is your response to the criticism that all these rules that are coming out could right now be putting a damper on bank's? >> well, you know, i think it's important senator warner said it was important to address these problems. it had to be addressed.

that too big to fail issue is obviously one that create all kinds of moral hazard and lead to some really bad outcomes, as you know. so we had to fix it. maybe it was taking to fix income operate on the patient while he was still running around. a little difficult from that respect. there's no alternative but to increase capital, to apply some additional rules and so on. we're doing our best to be, first of all common sensible, to be balanced and to make rules that will work but will not impose successive -- excessive burden. i do agree that the thrust of the bill is at the largest too big to fail banks, it's mighty that we should do everything we can to minimize regular toward burden on the smaller banks which don't post any kind of systemic risk. the other thing, this address is tom bell's comment, it will take time to develop these regulations, put in place come implement them and so on. but the faster we can do it the more accurate, clearly can be

intercommunication. the better we will be off in terms of getting rid of the uncertainty he is concerned about. >> senator warner? >> we could have a long conversation. i just think again let's remember where we were. not just american economy, the worldwide economics. we had over half the financial sector totally unregulated every industry has a% of black magic in it, but the percent a financial that has been great over the last decade alone that even the financial leadership including the regulars were not aware of the current state of risk exposure. all that has to at some level -- should have been -- i wish we could do any more implement the way but when you, you get that kind of shock when the american taxpayer rights and $800 billion bailout, they want to make sure we try not to have been repeated again. and i think we have not had a major rewrite of our financial

world since the '30s but i hope again this will stand the test of time. there's going to be part of uncertainty. many of these parts of uncertainty where because even if the congress have tried to get more, for example, certainty about derivatives, i don't think we have the expertise. into certain degrees we need more expertise from the regulators which they had to set those rules in place. >> the other minor thing going on, basel iii, which has additional uncertainty? >> basel iii is primarily geared toward the larger institutions. and i would echo, almost all of this is geared towards the larger institutions. i mean, proprietary trading, securitization, senior activities, the lion's share is done by the very largest institutions. whether its intersection an intersection with committee banks, they're working hard to make sure there's no negative impact it small business loans

or piggyback accounts for about 40% made by insured depository institutions. they are extremely important area of support and credit for small businesses. we are very cognizant of that and want to make sure that, when the threats of dodd-frank it was trying to level the playing field, it removes some of the competitors to the small institutions have faced with too big to fail, the big -- the too big to fail doctrine. that paint the economy, including small businesses as a result of the financial crisis, is so much more dramatically profound than any kind of incremental uncertainty that might be as we look for regulations to write more stable financial system. at the end of the day to always have cycles but i never, ever want to see what we just went through in 2008 and 2009. that's why we're here today. if it hadn't been for that we wouldn't have to be having to talk about credit every about

and how much small businesses are hurting and how that has impeded job growth. so let's not lose sight of the long term, which is greater financial stability which will protect us on. >> chairman bernanke, the federal reserve, 40 me around the country trying to get at the bottom of the issue of small business lending. you wrote a 20 page report i recommend to anybody who's interested in this issue. it's readable. it has plenty of anecdotes about individual businesses -- >> we work it for you. >> leave it as it is. [laughter] >> i wish more the stuff you guys put out was readable. if there's one thing out of that report that you could change right now that you think would make small business lending take off, what would it be? >> exchange. the report was really about outrage. we had 40 meetings, more than 40 and we had a capstone last july in washington. we listened to small businesses, lenders, trade associations,

examiners, legislators, et cetera. we just try to understand the situation and look for recommendations and ideas. i think was very, very helpful. there were lots of recommendations like helping small businesses get more technical assistance so they can provide more complete and understandable application. so that was just communications, an idea of getting more information and making the process better. it was really a set of new proposals. it was just our listing. i think that's one of the most important things we're doing is listening through those meetings. we have a program where there's been called in by banks and bank supervisors, thousands have called in to listen and hear about our various guidance and programs. we've added a new council to small beggars that comes and meets with the federal reserve board directly three times a year. so listening is important, and that's what we've been trying to do. and then based on that we are

again going to the subject of getting the right balance which is on the one hand, we don't want banks to make bad loans. nobody wants that. but we do want businesses that are viable and have good business plans and plots of experience backing them up to get loans. that's the balance weird striving for. >> tom, you want to take a crack at that question? is the one thing you think they should concentrate on that would make it meaningful change to get at this issue? >> i think there are three things you can do anybody. one is passed the three pending trade agreements that are coming before the congress, you know. that number one market expansion for small business. so if we can get that done, i know senator warner is in the right place on this issue. i think you have more and more in the congress they're moving in that direction. i think that's one. the regulatory tsunami that we're facing i i think is very difficult. if you want to create certainty

independent entirety under environment, we have to limit that to the degree we can. and we've had to keep the tax rate as low as possible on, particularly on the small business community. >> senator warner -- >> i agreed on the trigger i actually agree at a macro level on the regulatory. i have a proposal out there called, headline is the regulatory path. a notion if you add regulation and area you have to take one away of a sailor size and shape. the u.k. have started exhibiting this. of all places the u.k. has passed american terms of international competitive rates. >> third we have guns things, this legislation i refer to, the sba today is different than your grandfather's sba. much more aggressive. $12 billion in loans since the

end of september. is a program that we work with chairman bair on, capital access program that's about 25 states have, one to the banking industry to create separate glossary circles for some of his more marginal loans. not a to the covert -- not administered to the governor. i don't have the answer but i would love to come back and have another session on. i say this is somebody's be in the venture capital business, as we move towards more and more financial engineering and italy within the banking sector to make money for financial engineering as opposed to lending to companies about you, who wants to take a tough job anymore? that's what i think it's been pushed down to a lot of our more committee-based banks, doing early stage lending. even in my own industry, venture capital said got so large that nobody is early stage capital

formation very well. when we cite the statistics are properly, and i cite them as well, growth of small business, disproportionate those comes from those firms, they grow very, very rapidly. and he'll we can think more creatively about our state capital formation i'm not sure we will see the kind of job growth recovery we need. >> i think it's a great point that there was an op-ed that pointed out it's not small business that reach the jobs. it's new businesses. and i wonder who of which take us, if the emphasis is misplaced. if it's about startup businesses, not necessarily about small businesses. >> i don't want to overclock your, but angel networks have disappeared. i large venture capitalist no longer to earn the stage rounds. that can be molded billion dollar fund. there are certain things were done on tax policy and terms of no capital gains, further 250 grand.

i think a more aggressively about early stage capital formation is an area that i would love the pale and anybody else in the audience spoke the number one venture fund or is the visa. >> credit card, truth. >> and mastercard. on new start up businesses. >> credit lines, we lost about 2.33 trillion used credit lines. about half of that was credit card. some of that will start coming back as the economy recovers. very, very small startups typically do use credit cards to get started. but hopefully again, where we are starting a conversatconversation with including economy, that will self correct. >> can you square the circle for me which is the federal reserve is flooded the system with excess reserves. there's a ton of money out there for banks to lend, and yet they are not many. how do you fix that problem? >> well first of all we have to make banks stronger at and they

are striking, getting more capital. capital is rising. deleveraging is beginning to slow down. lending is starting to improve. the second is the regulatory environment and the examiners and violent that we've been talking about which is again an appropriate balance between prudence and making those loans. i think it's been a tough situation, a tough couple of years at and small business lending has contracted quite significantly. interestingly, small business lending has contracted less at community banks as we talked about before, it's also contracted less than healthy banks. makes a healthy and have strong capital and their bid able to lead. my sense is we are at a position where we are starting to get some improvement. i think and 2011 will be a better year for small business lending. certainly the supervisors and monetary policymakers will do what we can to support that spirit when you look at the data anecdotally, and also the date that the fed survey, do you see

some fun going on in the markets of? >> yes. that's one of our primary, i would say in terms of small business lending, a survey of loan officers which is showing that is no more tightening at this point in some improvement, some easing including for small business. we have survey sunday nfip which is owned improvement, we are a lot of anecdotes we are getting back which suggests some improvement. we follow the data on smaller don't which are not exactly the same as loans a small businesses but do give us some sense. over all it's certainly a great tight situation but i think things have stopped getting worse and looking better and again as the economy improves you expect to see better lending going forward. >> chairman bair, same question, what are you doing? >> we think it is turning.

loan balances remained relatively stable for the first time. we haven't seen this decline. parsons is it is starting to turn. banks are profitable again. the credit quality, we have low rates of delayed what sees in charge asked, those are all things that improve banks balance sheet capacity to lead. so i think there's a lot beyond our control but as things continue, it is only getting better and i think you will see activities pick up. >> senator warner come it seems like things fun came together after the election. congress got a few things done that people were waiting to get done. are you hearing that the $30 billion program as well as what happened to be one of% depreciation is having a positive effect in the economy right now? >> i have not heard as much in terms of the small business lending about the $30 billion. i don't think -- i do think the sba, i think the $12 billion in

small business tax cuts their inability to place in september, and this capital access program, will be incrementally helpful. i don't want to discount what sheila has done with this helpline. i think, you know, as tom rightly pointed out we are fighting human nature with the pendulum going to much. what incentives are regular, no one ever wants to mention the word forbearance. we don't want to go there. appropriate we can point to japan and elsewhere. this mixed message of land but be healthy, there's not much pressure other than director some the top by having this find what borrowers if you like, if you tell by their banker at the regular is causing this problem, the fact the borrower can pick up and call the helpline might at least make that regulator

think twice about the chairman's instructions. >> i think sometimes our examiners had a very tough challenge and they try very hard to strike the right balance. sometimes our examiners accuse an excuse that they don't really want to make the bone hundred l. not likely want to help these bars but get information that would contracted consumer inquiries and particularly banks where we're seeing problems we can look at the more deeply. i think will be helpful to us. >> lending environment, we surveyed our members, talking to our members come is getting better. the activities of december will have a very positive effect i think. on the overall economic environment, but particularly with regard to small business, can from the tax rates even though it's only two years. that give you two years, and

that's about all the runway a small business can see anyway. hopefully we will make them permanent. but in the appreciation of the things that have been done over the last several months by both legislatively and administratively i think it has come it is improve the apartment and i would expect the lending will prove substantially through 2011, given the demand, the big issues to the band, and i think get demand wrapped up. out of the building environment will be the problem. >> has the chamber decide whether or not they will continue to impose dodd-frank now that there is a new sheriff in town? >> i think what we'll try to do is improve dodd-frank. through the legislative process, and the rulemaking process. you know, you have at least 300, some say five and rules that have to be made. i lived through sarbanes-oxley running a private county. this will be really something.

so i think through the rulemaking process and perhaps some adjustments, legislatively, you know, we can come up with a solution that works for everybody. and i think is embraced, or further embraced, by the business community. we don't like what we have right now. >> you have to other people in the room right here. do you want to do in memo form of? >> let me take him if it wasn't for these two people and organizations and people like senator warner who has the courage to vote for very difficult situations, we would have foster financial system. and i think more and more of the business community realizes today that this was a very close call. and so courageous people do some things that were not universally supported. we got a lot of criticism from our memberships, various parts of our membership supporting t.a.r.p. and supporting some of the other legislative initiatives. but it was the right thing to do. and so now we've got to come back. >> chairman bernanke, we have a

lot of questions here that ask the following. is it possible that was happening right now is regulators because of the mistakes they made in the past are over doing it right now? >> well, we are, again, trying to keep that psychological, you know, featured in mind. we make the rules, first of all, we have to follow the intent of congress. that's number one. we are not legislators. we are rulemakers to return to implement the laws as congress wrote it. but given that, within the constraints of the law we want to make them the rules as sensible as possible. the financial system is important. that's why we don't want to strangle it. we want to make sure that it's safe. we also want to make sure that it doesn't drop. we're trying to strike the right balance. you mentioned basel iii by the way before. that's another set of very complicated rules. although again aimed mostly at

the largest most complex institution. personally, i've you basel iii and dodd-frank is very contradictory. put them together the higher capital status of putting standards and so on, the rules are resolution and on activities and so on, that together i think they do quite a lot. but we understand again the burden. so we need to write rules in a way that is workable, not going to constrict activity. and secondly we do have to move as quickly as we can. we don't want to be hanging out there for a long time. we talked to the bankers and they said look, we deliver all different kinds of stuff, just tells what the rules are so we can get going back to the game. i think that's very important. >> how many deadlines do you have? >> we have an elaborate project management system with the federal reserve. try to keep track of the report,

consultations it's a big job, but, you know, but regulators that's what we're trying before we should too many tears, anytime we try to take anything away from the fed, that wasn't quite the same reaction. [laughter] >> chairman bair, would you comment on the issue of the potential for over doing it? >> listen, i think we all want transparency initiatives. we have an open policy. people want to meet with us. river timetable on the rulemaking. anybody who comes in outside, there is a publication process of comments, former rulemaking. if someone can be outside the process we disclose that. we don't discourage them. we want people to come and engage with us. we want everybody to know who we are talking to come and the kind of information we are getting.

we also scheduled roundtables. we bring experts in to talk about our role fix i think think we're doing everything we can to get input from the public. it's impacted financials as well as the industry. and i think we're trying to rebalance and fair and i welcome congressional oversight. i think that's a healthy thing. but i agree, we need to get on with it. they just need to know what the rules are and they can adapt to it. >> i was just going, i just had to smile a bit because i've had leaders of some of our major financial institutions come into me in the last few months since dodd-frank has passed and said, you know, mark, we've got to move the stuff along, move the stuff law. and i sometimes remind them it was your fault you were saying we had to do a two-year study before we could get the regulation in place.

so i do think the sooner we get it done, the better absolutely. but this is, you know, i spent 20 years around the financial sector before i got involved in politics. it moved so far beyond my knowledge level, and i think most of the legislators know, this is opaque, complex, and i hope more transparency. i think of it would be great if we had if you want real engineers. and we set up a system that allowed financial engineering to create pay for value rather than value when we actually create an intellectual capital and make things and do things. i would like to get back to more of that and part of this transparency i think underlies and tries to level the playing field with this enormously large institutions, long-term. >> to the market great this financial engineers or did the

government create them? >> you know, the market. i mean, the government had a role to play, a permissive role i would say. but the market -- when you have astrophysicists designing financial products being sold by bankers, that's probably a bad recipe for sustainability. and i think, you know, you talk about overreaction, and there's been overreaction, but i would have to say what would you expect? because the over abundance, oral however you want to discredit on the on the other side which create a problem in the first place, was at least as far to the right as this is to the left. u..

>> the policy had contributed to a stronger stock market. just like in march of '09 when we did the last of this, sp500 up about 70%, and russell 2,000 which is about small cap is up 32% plus.

stronger economy helps small businesses even more than it helps larger businesses. it is contributing to the stock market. interest rates are higher, but i think it's mostly because the news is better. it's responded to a stronger economy and better expectations. i think the policy has helped, and i think the small business which as we started off by saying responds to increased demand, increased market share, increased opportunity is beneficiary of that. again, i think one the best things we can do is to try to strengthen the overall economy. >> are you optimistic on that on the floor compared to the fall? have you gotten more optimistic about the economy? >> i am. we started taking action in august really if you wanted -- even though we announced this in november, the policy began august, august 10th when we began to reinvest securities and talk about this at jackson home when you come and join us.

since that time -- at that time, the economy was looking somewhat shaky, frankly. and we were quite concerned about the sustainability and the recovery, and about potential deflation and those kinds of risks. so we felt something needed to be done. i think we're seeing some improvement. as i said in the beginning were we're looking for a stronger recovery, seeing improvement. i think deflation has proceeded, we are moving in the right direction. >> just one more question, would you say the risks were more balanced now than they had been? >> certainly in the august they were on the downside. now i think they are more bounced. there are many uncertainties in the world in the financial markets. they are more balanced today. >> chairman bair, another question, we've sort of been over this. i like the way this person put it. it's from the fdic, not going to

give you their name. bankers say we are open for business, small businesses say we cannot get credit. please comment on this issue. >> i think the truth lies somewhere in the middle. i think regulators need to caution against reaction. some banks became more risk aversed than they should have been. on the same token, the band for credit has been down. again, the truth is somewhere in the middle. we are encouraging things, we want them to lend. you got to make safe and sound, i think getting the economy going is going to strengthen the ability of small business to start and make them more credit worthy and more confidence in the ability to repay with the improving economy. >> senator warner, could you walk us through the next several months. they seem like they are going to be relatively dramatic? >> not in virginia right now. >> things are relatively quiet.

but in terms of the debt ceiling and deficit reduction, i know they are not primary, but they are important when it comes to small business and what's going to happen there. >> well, a couple of things. i think one the messages that we heard from the regulators and chairman bernanke, he would not say it this impolitely. we need to walk and show at the same time. show we can do short-term stimulus, which $900 billion in december, and really what is going to be critical to keep this economy going is government has used it's tools. we have used monetary policy, government stimulus, we have to give part of that $2 trillion reinvested, i think some of the policies that we took in december will help move that. i think it's important between the administration and business community. but i think we also have to

longer term put in place a meaningful deficit reduction plan. and republican center from georgia and i are working on basically taking the president's commission, the simpson-bowles commission which got 11 out of 18 votes. even in the senate, that was north of 60%. it is not perfect. we're going to introduce that as legislation. it's put up or shut up time. i think we will have a broad base of senators, democrats and republicans alike that say the single largest threat, long-term threat to our national economy is not simply the short-term channels that we face, or the financial crisis, but getting the nation's balance sheet in order. that's going to take both sides. that's going to take dramatic cutback on spending, meaningful tax reform, and tax reform similar to simpson-bowles while lowering the rates broadens the rate and in certain cases ends

up creates the revenue stream. it doesn't take a rocket scientist that spend 24% of the gpd and revenue at 18% is not sustainable and not will self-correct. you'll hear a lot more of that. you got to be careful with the world economy. >> not to get too deep in the mechanics. linged to the debt consumeing? or are they separate term laws? >> well, i ruled that out. i trust you like a brother. but i'm not going to share all of the strategy right here. i think you are going to see -- >> nobody is saying that. >> i know. i think you are going to see broad bipartisan interest. in not letting deficit reduction. at the end of the day, it's harder to make hard choices that we have to make to put our nation back on the stable

balance. i had the opportunity, i think the country is ready to step up. the politicians need to step up. >> would you tell us what the community wants with regard to deficit reduction? >> first of all, i think i would say it's the number one issue. it's not way out there in the future. you know, it's present. and i think the last election cycle demonstrated there's a lot of people in the country, perhaps a significant majority that think we have too much government, more government than we can afford and probably more than we want. and we need to do something about it. first time in my 40 years of watching what's going on around here that i've seen the issue raise up to a top three issue in most of the opinion surveys, for instance. i think what the business community would like to see is a significant restructuring of the tax system and of the entitlement programs. i think, you know, the problem we have at the chamber with any

issue like this is that many of our members have their own specific tax respects that they love and want to hang on to. this is the first time that the chamber is taking the position as an organization and members are receptive of okay, we get it. we got to look at the longer term. we have to look at at a signifit restructuring of how we derive the revenues below 20%. i think it's been demonstrated, that's about all you are going to get out of tax revenues is 20% of gdp. there's got to be a balance. >> that's one the more interesting out there. as i look at lowering the corporate tax rate, you have to raise taxes on half of the corporations. so it's neither a republican nor democrat issue. it's really a bipartisan issue

if you are going to resolve the corporate taxes. senate warner, that's one the things that you are hearing? >> definitely. we want to get down to oecd levels. we're at 35. we need to bring it down. the effective rate is low 20. there's going to be winners and losers. i think the only way that you get there is with a bit of shared sacrifice from everybody. everybody has to feel like they are doing their part. because the concern that i have is while deficit reduction is top three right now, you then go out and say, simpson-bowles for example on social security was not very aggressive at all. the notion of raising the retirement age two years over a 40-year time frame. some of this is just path. eight workers, 50 years ago, two now. these things have to be laid on the table. overwhelmingly, the public doesn't want to touch that or medicare. we have to have a little bit more truth in everybody. and i'm so appreciative of what

tom is saying. we won't get this done unless the business community is saying we are in for our share of the hard choices as well. >> senator warner, i want to bring it back to the small business. my fault for going on the deficit change it there. chairman bernanke, the one issue that i've prepared for the panel that kept coming of was the issue of real estate as collateral. that in the environment of uncertainty surrounding real estate values, and i would like to leave here with a sense. there's something that can be done here on this issue that either replacing real estate has collateral as their role for the fed or other government agencies to come in and resolve that issue. so the small businesses that are viable can get loans because there's collateral there. >> well, on the margin you can do some things. first, beyond all of the stuff that we are trying to do to get the economy going again, you can work with appraisals. one the issues with real estate is that in a distressed

environment with very few sales, sometimes the appraisals come in very, very low. that's going to affect the collateral value. so the agencies in december issued a new guidance. the basic message is that the copper bowls is not the only thing that you want to look at. house -- how's the property going to be used, and cash flow. better appraisals is one thing that can be done. i think ultimately, until the real estate markets recover, which it's going to take a while still, the only way around this is again to make loans that don't rely on collateral for repayment. which means that you've got to do the hard work. as i said before of getting into what are the prospects of the business, what is it's cash flow? our guidance is very clear. you shouldn't be making loans and rejecting loans because of the industry or because of the geography or category. you need to look at the

business, think about the prospects, learn and make the tough decision. collateral is a way to make a loan without doing much work. given the collateral is a problem, the only way to make loans is going to be by doing the work. >> chairman bair, are you bankers too lazy to do that? >> i said in the beginning of the crisis on another panel, i think someone forget. i think there is again not mini banks. i think they deserve it. i think they are more high touched lenders. they ten to have more knowledge of their borrows. that's one the season why the loan balances remain stronger and some of the larger institutions have a more remote relationship sometimes with their borrows. yes, i think and i welcome it. that will give us better loan quality from a stand point of the deposit to reininsure and all of the exposure that we take if bankers get back to basics if you look at the underlying

ability. >> we're in the last two minutes. >> i just add two quick points. one the things we've been -- a number has been urging the regulator, if the loan is performing, even if the collateral value is down to ask somebody particularly in commercial loans, really puts folks between a rock and a hard place. particularly if they've been performing for a long time. one the things that we've also seeing, sheila made the comment, you have management that has been wiped out. and the total connection between the borrower and the banker has been so destroyed that it's a longer-term opportunity. i'm not sure long term we're going to be able to completely fund the community, and the whole small business community banking system. >> there's a huge unrealized and unaddressed loan loss embedded in the banking community on the real estate that has not been

addressed. it has not. i ran the public real estate and investment trust for eight years. it's not been addressed. we need the way if we want to get this stuff out of the system, get it into secondary hands, create a ftc type structure and invest. you know what, they want to make a profit. they want to make a profit. some will make betters and lose money, some will make bets and make sure. if you have create the structure, some people are going to get rich, others are going to lose none, but it will solve the problem. >> we have to wrap it up. but it was great. we could go for another half an hour. it was the original design of the t.a.r.p. was to use that purpose. >> rule to this. >> it's not been used and the issues festers. i wish we could end on a more optimistic note. please join me in thanking our panelist. [applause]

[applause] >> my colleague john harwood will be up with the next panel. we talked about the problems. john harwood is going to solve all of them. >> we're going to be much more optimistic. >> thank you very much. [inaudible conversations] [inaudible conversations] >> steve, thanks, panel, we'll talk to some of you later, chairman bair is going to back in a little bit. we're going to keep this discussion going. we're going to get down in the weeds on some of these issues and figure out what some of the solutions are given the problems with lending and bank standards. dan graves, deputy assistance of the department of treasury. we are keeping some mystery around the panel.

they are hiding on the other side of the wall. there's going to be eight of them. so we got to get chairs for everybody. if i could sing and dance, i would be doing that at the moment. everybody is coming out. don graves, steven smits, associated director of the small business administration, rebecca rainey, anthony lowe from the fdic, john harrison, superintendent of the alabama state banking department, kathleen sowa, jorge corralejo,

and denny. let me get everybody's take on the conundrum. banks say they are ready to lend, small businesses say they can't get loans. regulatory problem? some other problem in the economy? don? >> i think there are a number of issues at play here. we are coming out of the worst economic conditions that any of us have faced in their lifetime. because of that, you've seen some tightening of regulatory requirements on a lot of the banks. >> appropriate tightening? >> absolutely. i think you've seen some changes

to borrowers credit, and that's had an impact on their ability to access credit because they've had some dings. and i think you have some banks that are a little bit scared because of what they've seen over time. having gone through that period, i think we are now at the point where we are going to see a lot more lending going forward. we've taken a number of steps at the federal level to try to help banks do more so that they can increase their lending where as you may know, we just passed a small business bill that the president signed into law in september. and because of that, there are two programs that are very focused on providing banks with the capital that they need so that one, they can get the help from -- so that they can get the easing of the regulatory constraints by the regulators, so they can lend, and also so they can feel more confident that they can get those dollars out and use them appropriately.

>> rebecca, how much of is difference is the small business lending facility going to make. we heard some objections for people opposed to it who said that some banks already going to regard that as mini t.a.r.p., and not want to be associated with stigma. >> i think it provides a tremendous opportunity. they did a great job differentiating. so it is different. i think for those bankets are leading the capital that have the command, it'll be night and day. a tremendous opportunity for them to leverage and get back to lending. >> steve, do you agree? >> i absolutely agree. i think we have gone through a crisis. a recession that many of us have not seen in our professional lifetimes. i think that our businesses are beat up, our small businesses -- our banks are beat up. i think that this provides a wonderful opportunity for bank that is are looking for capital. and, you know, i think it will

do good at the right time. >> let me get a show of hands here, is there anybody on this panel -- does everybody on the panel agree with the 12th month from now, the economy is going to be in a lot stronger shape? that we are all headed in the right direction? anybody disagree with that? >> a lot. >> a lot. >> a lot. >> talk about it, a little. >> well, just coming from my experience in california, if you look at the levels of unemployment and you look at the number of foreclosures in 2011, we're looking at losing another approximately 2 million homes added to about 7 million. that's going to keep things very, very tough. i mean perhaps there's a major of growth. but i think in the small business sector, that's what we are hear about today, it will not be dramatic at all. it's unfortunate. it's good news. the large corporations are doing

better. that's good. however, the money that we are making are not going into job creation and the study that we've seen. more into stock buybacks and accusations and these kind of things. what are the opportunities for the small business to make the recovery? there's no economic recover without a small business that generates 65% of the jobs. >> kathleen, i think you could say a lot better for larger businesses. for smaller businesses, it's starting to improve. many are heavily invested in real estate, commercial, residential, and until we get that, it's going to a slow recovery for small businesses. >> john harrison, tell me from your perspective to what degree are we suffering from over reaction by regulators and how much improvement can we get by turning those dials as opposed to just waiting for the economy to lift this whole process.

>> well, the reaction is real the way we see it from our banks in alabama. it's not a single one of them probably if you dialed them up would not say they feel regulatory pressure when they are looking at trying to make a loan. but on the flip side of that, you know, banks cannot survive without lending. so, you know, we have tried to pull, we have tried to partner, we have tried to be involved from every aspect of making sure our banks were involved in the lending process. based on what we hear from that banks don't want to lend are not lending. and when we survey that, we some back and our banks say, no, we don't have the demand. we are willing to lend. >> anthony, what's your perspective on that?

it goes to some of the debates in 2010. some of the business complaining that the reason economies weren't doing better because of the often regularlation and -- regulation and created uncertainty. is that the economic conditions and recovery is going to be slow there's going not going the side scale of demand that we'd like to see? >> i think that's a large part of the issue. you know, when i talk -- we hear a lot of comments from bankers and congressional that it is the regulators causing the credit crunch, causing banks not to lend. when i talk individuallies with bankers and an examination. they consistently tell me they are open for business like the comment was made earlier. we're ready to make the loans. there's not the demand. a lot of the businesses, small businesses, people that bank for

years on end just not in a predicament or situation where they want to expand their business. the business themselves are trying to conserve capital, they are trying to make sure the business plan is going to be feasible and responsible going forward. i think it's a combination. >> do you agree with that, denny, do you think lack of demand at the business level is the fundamental problem? >> no, i think the problem is below lack of demand. there's more fundamental that create the lack of demand. clearly the demand is there. 2009 there were about 55% of all employers wanted to borrow. small employers. made some attempt of getting credit. in 2010, it fell 48%. the number of approvalled edged up slightly. so i'm not sure that the total numbers changed all that much from year to year. but clearly, demand at least in terms of the numbers of firms that wanted it, was down.

and reasonably substantially. now when you saw the feds survey of borrowers or lenders that come out of the major banks, of course, not just the small ones show that we begin to see something down that the downward trend really began to reverse itself in october. we were beginning to see that a little bit, yeah. but still demand is a real issue. >> what is your -- what is the perspective on the small business lending fund? >> good step by government? will it make a significant difference or not? >> eh. >> eh? >> i mean that's how -- we support it. >> $30 billion is not real money? >> we supported it in -- as the chamber when it was before the congress. but is it going to make a difference, not really. because what you are looking at is you are looking at a situation where it makes some

real assumptions. the first assumption is that banks don't have money to lend. and that's not true. for the most part. there are certain banks that do. we see even a lot of small banks with lots of money that are sitting there and are putting immunities because they don't have customers that they can lend it too. so you go through and you start looking at these and not only is there -- do you have the money, but there's the do you like the deal and that sort of thing. i would be curious to know how much banks have applied for this so far. i mean i think i saw that march 11th was the date that was kind of recommended that be applied before then or whatever. we are near that. i haven't heard how how many bas are interested. >> let me ask that you gene sperling, the president's new choice for the director of economic council broke his back getting that small business

lending passed through congress. as he broke his back through eh, was he wasting his time? >> i respectfully disagree. we've heard from businesses all across the country who are saying we can't get access to celt. i -- access to credit. i think there's an issue that's nuanced. there's a geographic dispersion for credit demand. certainly there are some parts where banks are flushed with money and no borrowers. there are large parts where businesses can't get access because the banks are constrained for a number of different reasons. we think the small business lending fund which it's a $30 billion capital fund will provide hundreds of billions of dollars in lending to small businesses across the country. sure it's not for everyone of it's not for every bank. it's not going to get to every business out there. but i think that at the end of the day, you are going to see a

huge uptake in the amount of lending by banks because of the program. >> rebecca, you are the reality check. who's right? >> i think there's a lot going on. our particular bank i'm not sure will use the funds. we do have liquidity, capital, and we need the demand. and so -- well, no because in looking at lot of my colleagues across the country, i think that there is an opportunity, there is a need for banks that need that capital so that they can. they are faced with capital concentrations, there's a number of things that they are up against that they are not able to lend. so for a lot of those organizations, this will be a tremendous help. it's not the solution for everything. but it's a part of the piece getting us there. >> kathleen, rebecca just ducked. who's right? >> you are ducking too. >> yeah, yeah. i wonder how many banks need the capital? it'll be interesting to find out

who has applied, i know there's a reluctant to apply given the stigma associated with it. i think it will help some the community banks. there are other provisions in there around capital access for states. that can help. those are borrowers at the margin. va lending isn't a total solution. it will help some borrowers. >> you know, in alabama, our banking department was a proponent of t.a.r.p.. we thought it was an absolute outstanding way for our banks to get some much needed capital that we saw they were going to need. perception that it was a government bailout. therefore, they took an awful lot of heat from their customers and from the press and from the public in general when actually it was a great investment for the government and for the banks as it's being repaid with interest and they made. and this is the same thing with

this fund. i see that our banks in alabama, we have some that made additional capital and absolutely the private equity markets are pretty rough. and that is an opportunity for them to be able to acquire capital. however, sometimes i look at whether the real criteria, the ones that probably need the capital and could make it and use it are not going to be able to qualify because they are -- they have some problems. and so the ones that are strong and healthy probably don't need the capital. therefore, they don't want to use this program. to date we have around 145, 50 banks somewhere in the neighborhood of $250 billion in

assets. i think we have one application on file. >> steve? >> well, you are going to tell me i ducked. the answer really is it's going to be good for some institutions, and other institutions are going to make a decision that they don't need it. and that's the honest truth. >> put it this way, is a good thing that congress created it? >> i think it's a very good thing. it provides another resource and the tool for the banks that really look at this. i mean this is tier one. >> it's $30 billion slush fund. >> i don't see that at all. i see this as supporting our community banks, our community banks play a vital role in providing access to capital to our small businesses and again this is another resource and a tool to help strengthen these banks. >> jorge, do you agree with that? >> i think the cop september is excellent. it's about as innovative as you are going to see from the

government. [laughter] >> you know, there's some funds there for community banks. we have a ton of them in california. >> do you have a low opinion of people that work in government? >> no, i don't. not at all. we saw some good folks this morning. the hearts and minds are into governing. but my point is this, i think it's a really good concept. there are a lot of other aspects to that jobs program that show innovative, additional innovative by the government. in terms of the sba, it's not enough. the biggest problem is it's a digit too small. if you look at nature of small business across the country and the need for funding. but there are other things that are so important about this like the lending the cdfi, we have listens of them in california, alternative means of providing credit. i think by looking at these kind of things you are looking at extraordinary majors that could serve some good. the problem is there's not enough funding. >> i want to shift gears for a

minute and talk i've got some cards with questioned that were submitted by some in the audience and some who were not here. one the ones that intrigued me was this question. they said there's now proof that the use of the personal credit score is major barrier to lending. what can be done about that? >> well, you know, i'm not sure if i would agree with that concept. i know when banks are looking at their lending function and deciding on making credit, the credit score maybe one the issues that they are going to look at, especially a personal credit score. a lot of small businesses, individuals are using they're homes at collateral. there's a personal attached to it to get the financing approved and those types of things. a credit score is just one factor. i think most of the lenders and things that i talked with are a variety of issues that they

looked at and considered. >> kathleen, big issue? >> i don't think so. there's less reliance. we are doing income verification and more traditional lending on most of the small business credits, not relying on the credit score. >> this question might have come from somebody in the room. if you are in the room and that was the question, do you want rebut any of the statement it's not a big deal? [inaudible comment] >> let me have you go to the microphone so we get all of this and repeat the question. and identify yourself and we'll start again. >> thank you. my name is mitch jacobs, an

entrepreneur, i bit a technology company. what we are doing is using technology to collect finance metrics of small businesses, main street businesses, and solve the problem of all of the time that goes into evaluating the financial health of a business using automation to solve that problem. banks feel like the reliance on the personal credit score is still very important. if they were to approach their regulator with a portfolio that had a lot of 600 ficos in it. it's the problem. but the fico score, or the personal score is not relevant to the overall health of the business. the work involved in evaluating businesses, it's too much work. >> rebecca, was the personal credit score a big deal? >> it's a part of the equation. we're working with individuals. it's their business. uh-huh. >> would you -- yeah, would you lend to 600 ficos.

>> yes, there's several on our books. it's part of the equation. it's what we do as bankers is look at the entire story. and that's sometimes it's good, sometimes it's bad. >> i think the other issue is 50 to $100,000 loans where there's millions of those that need to be made to bet this thing kick started. that's where the challenge comes in. i would be surprised and all there should be is a conversation about this. when you are dealing with the smaller loans, the reliance on the personal credit score is a major obstacle. >> anybody on this panel think that he has a good point and the financial system needs, and banks need to adjust to that point? >> he's an got extraordinary point. i think that -- we'd been doing, our chamber does most packages for members and other small business. and we've been a strong advocate for technical assistance for small business. part of that is that we can bring loans to bankers that where we have a technical assistance agreement with them,

long term. that's not to suggest that anybody having technical san is going to be eligible for a loan. however, we can prove the business is operating efficiently, they have the ability to repay the loan, opportunity for growth. that would really be a part, a measurement or a substitute as part of the credit analysis. >> denny, what do you think about this question if >> first of all, i'm fascinated by it. anything like that is always of great interest. the second thing that i keep thinking about is any of the states that i've been using pay decks rather than fico. it's the brad street score. there's a clear relationship between who's better off and the who's not. there is a direct relationship there. but it's interesting. because you are developing a new type of credit score that doesn't use fico, it sounds like to me. >> and it's the smaller businesses. they go below $3 billion of revenue.

that's seven million businesses in the united states that can't access capital. >> my point goes to the point that you are starting a new type of credit score, just not using fico. you know, that's a very interesting thing. i mean i've -- i'm very interested. i hope you go ahead and it works. i'm all for you. >> i just think it's -- you know, the country has extraordinary technology assets. i think it should be used to solve the problem with capital on main street. >> i want to shift to the discussion about collateral. we had the question about real estate as collateral. that was very difficult. here's a question, since small business lending is mostly based on collateral, i.e. real estate, values down 30%, what kind of products are possible? why not take warrants and preferred stock and invest in

upside? is that a viable way to compensate, and how would that come to pass? >> depends on what size of business. preferred stock in businesses doesn't exist in my community. if you are trying to get to rural america, it's tough when you are looking from a collateral perspective. yes, you can look at the history. if we start making a bunch of business loans without collateral, they are not going to treat us too fairly. there's an impasse when you are talking rural america. >> anthony, is this a dead-end suggestion? >> i wouldn't say that. i think the premise here the majority of our institutions when they are doing lending and looking at, you know, which loans are going to approve or fund, they are looking at repayment capacity. collateral looked at that as a secondary source. i think most bankers, you know, anything that they can -- think they can liquidate at the end.

what's the cash flow, what's the business plan, are going to be here a year from now and three years from now to pay back the loan? >> there's a fellow named arthur gif fer on the west coast that has been developing things along this line. there's a much more negotiated sort of thing in nontraditional way. we does talk about, you know, giving different types of paybacks and different types of what can i call -- anyway. he's tieing up certain types of ownership shares and so on. but it's a negotiated sort of thing. the thing that makes it useful is that it goes for a certain type of business which is a little larger small business. it's not basically the main street, the under 20s and under 30s. it tends to be the larger ones. that where i think the

opportunities arise for such things that, you know, that you are talking about. tom? >> one the other things that was mentioned earlier is that we've taken a number of steps at the federal level to support small businesses, recognizing that there are these collateral issues. that one the programs that was part of the small business jobs act is the billion and a half dollar state small business credit initiative. that program is specifically aimed at assisting states with their innovative credit support programs all around the country. those programs are aimed at supporting businesses that have had collateral deterioration issues. they are loan loss reserve or insurance programs are collateral support. obviously at the state government is facing, the federal government can step in

and provide them with that type of additional funding. we are going to see lending for those businesses have the most trouble. >> collateral is an issue. but the primary issue, i spoke to this. our number one reason for decline is lack of cash. the repayment is the primary issue. the reality is lot of them need equity. it's not lending. i think the previous panel spoke to that as well. the angel investor, that doesn't exist today. >> we are approaching martin luther king holiday. i'm going to read the question but invite the person to perhaps follow up when we are getting the answers. what can the president do before the 2012 election to help $6 million majority-owned businesses create jobs for more than 30 million million -- more0

million americans unemployed or under employed? what's the answer? >> you know, there's a number of things that the president could go without any action. i think part of it is in the data collection. before you know where you are going, to you have to see where you are been. tracks or lending, and these kind of things. key is on generating contracts for small businesses. if you look where the data is available, it's not generally that available, but it can be made. there are very few contracts to small businesses. government contracts, for example, or even the prime contractors. we need to analyze what is the major of contracting going to small business? because it would generate jobs. the president can -- what's the idea of making requirements on

contracts. >> that's a possibility. you can now analyze what you are doing with the small business if you don't know what's going on. once we can analyze, we can make some recommendations. but the president can ask the cabinet and regulators to provide him with data on contracts data on small business. people that do less than 10 billion a year, and less than 10,000 employees. deal with unemployment, dealing with lending, all of these things are a combination of those. >> steve, this president has been, some people say postracial, it's not been racial, he's been solutions that lift all votes, although some are targeted towards lower income.

what can be done specifically for majority businesses? we can talk about things we are doing as well. at the office of capital access, i look at our goal of filling and lending gap. our programs are designed to address where there are gaps in lending. so with that said, it's very clear that our under served community are hard hit by the recession that we are going through. to me that's a gap. i take that as the opposite for the fda. i take that as a responsibility as to how can we fill that gap? one way is we recently announced our programs which are actually addressing our underserved communities. we are going to be offering our sba7a which is our flagship government program where for the first time our in addition-based lenders, these are nonprofit

organizations that are increase of these communities all over the country that will now have the opportunity to provide loans to the underserved community. why is that important? it's important because of -- i think we talked about this for a little bit. technical assistance. i pent 20 years in the trenches as a small business lender. my philosophy is really simple. it's that the attention that the small business owners places before the front doors open can be all of the difference between a successful business or not successful. most of our communities need smaller loans.

$250,000 or under. in order to provide the loan, it has to be a very streamlined quick decision. it's not allowed on the handy. these mission based lenders are built upon the platform of hand holding. attention upfront, and in the communities, they understand the dynamics. that will translate into success for the small businesses in the future. >> sir, if this was your question, let me ask how satisfied are you if the government that was filling the gap, and how effectively are major financial institutions filling that gap? >> i think when he was talking about earlier regarding the carrots, one the great things in our upon is the diversity that maxine waters and obviously mr. frank supported.

that is a significant piece of legislation, if you will. it's going to have a great impact on minority-owned businesses and businesses in general. it requires financial institutions and other operations that are doing business that not only the employees, but the contract if you will. i've already pointed out, we've been trying to get data from the department of defense for the past two years to find out what percent of the contract is minority-owned business. the data that we have more 2005 is one percent on latinos, asia-owned businesses, same thing. this is critical.

we have taken on ourselves to have make that we have contracts at the federal government that adhere to this piece of the positive legislation. >> don, why are the numbers so low as we sited, and we need more data. why don't we have it? >> i can't speak to the first issue. i know the president has a strong commitment and secretary geithner has a commitment to this and administrator mills as well to ensure that we do the most that we can to support the success of businesses in all of our communities. as to data, i think the speaker is exactly correct. data is crucial to getting a better imagine on where we are doing a good job and where we

are not. this president and secretary geithner are willing to own up to problems that are there in the government. we want to work to do our best to ensure that wide range of businesses have access to the opportunity of the federal government. >> he says the gap is not being filled. >> yeah, i don't want to speak to the numbers. that's not my area in the sba. what i can tell you is the strong commitment and the sba and the role that we play to ensure that small businesses have access to contracts. i think we've done great strides and a amount of process working to ensure that our small businesses and firms and minority have access to participate in the contract. >> he mentioned one the strengths of the dodd-frank bill. let me get a show of hands, how

many people think that dodd-frank on balance is positive and it's going to make a difference for the better in the financial system? and who thinks it would be better off had it not passed? [laughter] >> you are not giving me -- >> no, i'm not going to give you that. there are parts that are fine and i'm not sure i like the balance. >> what's the biggest single problem? >> at the end of the day the business administration and democrats were saying do you want the old system? we got to go to something new. that's what's in front of us. what is the biggest single problem? >> well, the whole -- the biggest single problem is the whole regulatory structure that's going to be required of it. quite clearly too big to fail is a major issue that has to be degreed. it's ridiculous that we haven't done it before. there are lots of aspects.

but the whole day of going about is i'm not sure is the most appropriate way to do it. i think in terms, long terms in terms of the small businesses, i'm not sure it's going to have a big effect on small business. i'm not sure it's going to filter down to us. >> the impact is going to add time, cost to the lending process. we're going to have to gather more information. it's definitely doable. what we are concerned about having absolute clarity and as much simplicity as possible. it will not inhibit small business lending. >> i want -- it will not inhibit small business lending. i want to talk about health care. try to get a sense from the panel, especially beginning with rebecca and kathleen has to how

the passage of the health care bill is going to affect the viability of business. we had a business from the audience saying small business with so many people losing their jobs is very dependent on health insurance. why not scrap the employer-based altogether for the the portable. now that's water under the bridge. i'm wondering having passed a big health care bill whether you think it's going to make things better or worse for small business. >> this is a huge question. i think my business i'm still trying to figure out for my health insurance plan what is impact will be. we just went through. i think it adds one more thing that small businesses are having to figure out. i'm of the camp that something needed to happen. >> you wanted it to pass? >> i think so. but there's still a lot of questions that need to be

answered. >> i think that is dolling -- it gets to what rebecca said. uncertainty is just another thing that small businesses have to deal with. >> you know, it's complex. the health care bill brings a lot of positives. there's still a lot more work to do. it's far from over. with the businesses losing their health care services, they are dropping, the situation is a lose, lose situation. companies are losing policies, businesses giving it up for themselves. health care provides some opportunity for health care. minimal, at least, but it is positive. particularly given the times. >> i think i know where you are coming from. and also whether you think the bipartisan move towards repeals that reporting requirement on small business and transactions,

1099, whether that has gotten rid of and going to make a big difference. >> first of all, it's financial disaster. you can't add three million or 30 million people to the rolls and, you know, say that's not going to have an enormous demand effect. >> wait, the cbo said if the bill is repealed, it's going to raise the deficit by $230 billion. >> just a second. just is second. [laughter] >> first of all, you start out with -- first of all, the major problem has been the last several years. this stuff is going up at double digit rates every year. the last decade, it's gone up by like 130%. where wages and costs are going up for like 20%. so you seen this huge gap that's going into health care. got to get controls under, you know, on this spending side. or on the cost side. so what's -- what do we do? we go out and make it worse by

adding $30 million more people to the system with no additional spy. -- supply. we're already going to be short 120,000 physicians if nothing else happens. now add this demand. so my point is essentially that we're going to have a supply demand that's going to be just unbelievable. second thing is along those lines, is that the financial shenanigans that have gone in. cbo has to abide by certain reductions. it's basically the ten-year window frame. and one the ways that this thing supposedly works financially is that we start a system along term health care for seniors which we begin to pay for in the time frame, but which extends way out beyond the time frame where the benefits have to be paid. the program doesn't even come

any where close for paying for itself according to the chief actuary at the social security administration. so we've got all of these sorts of things that the cbo has to abide by that are essentially allows anyone who wants to to really play with the numbers. so we got a financial, a huge financial problem. our rates are going to go up. >> don, you are busted. >> again, i respectfully disagree with my colleagues. >> you disagree with my numbers? >> >> listen, the millions of people who are now going to be able to access safe and affordable health care is going to fundamentally change the way that our economy functions. you are basically helping those folks who have been from a business perspective, a drag on the economy because they haven't had adequate health care. they've had to go to the emergency room to get their

services. you are now putting them into a system where they can access the health care that they need to visit doctors and be part of that process of receiving the health care so you can diagnosis problems before they become acute. so i disagree with you. i think that, in fact, it's going to be a long term saver for the economy. secondly, for small businesses and large businesses alike, these employees are going to be able to get -- are going to be much more productive employees because they now will have the health care that they didn't have before. you won't find them taking sick days or missing work because they weren't taking care of their health. they now have the ability to go to a doctor, take care of their issues, and come back to work and be productive. >> john, what do you think about that? >> i think that's a good point. if you look at the small businesses, what is the small business lending, it's the business itself that has to be able to make a profit. they have the additional cost.

but the threat of what was going to happen on the tax issue. so when you have the combination of the two, it makes -- is there a business demand out there for the lending? i understand some businesses. :

who wants to go out and create more jobs. >> we've got a very interesting question from taylor webb was a congressional intern, who said if he did show up, make your way to the microphone. his question was none of that over at manageable institutions. in light of the financial crisis come at the appetite risk has been reduced at the individual level. what you believe is the best path to encourage individuals to take a much risk such as adding a small business? who wants to take that? >> entrepreneurship is interesting because people are willing to take risks and that does not seem to have slowed down. >> you don't think this problem access? >> well, it does exist. i'm saying still, entrepreneurs still rise would start

businesses. there's a lot of businesses starting a period they're growing at the rate of over 30% entrepreneurship. but i think of course there are problems, you know come with blending these kinds of things. but what i'd like to suggest is again speaking from my point of reference in california, there's a lot of opportunities for entrepreneurs that are developing california. the access to capital programs for small and medium-sized businesses assembly bill 1175 with these kinds of angel investments. there's a number of dynamic things in the work we need to flesh out perhaps a government with matching funds as well. >> this is going to be a real problem and i'm not sure it has to do with attitude as one with ink of, that their entrepreneurial spirit is studying. a lot of it is going to have to do with access to finance caused

by housing. a lot of people who became use their home as the piggy bank unfortunately. and what you're seeing is of course the deflation of the housing market. that isn't there anymore and you have a series of folks who might ordinarily go and who cannot do so. and we are seeing right now in the statistics to beginning fire coming through that for the first time in my memory, were having fewer starts in the last couple of years than we've had in the previous years. and so we not only have this group going out, but we have fewer coming in and a lot of it is tied to housing. >> i want to come back to the housing thing. but taylor, do you want to follow up? and how jorge was suggesting the problem at the individual level

was less significant than you think it is. go ahead. >> just to give you some background. i from highland, michigan and michigan has been really hit by this economic crisis. also, my grandpa started a small business. identity manufacture business it's going down as well so that is the background for this question. but even so, like being from my hometown and just being in a family that has lots of relatives he started small businesses, i can see the pinch in their pockets when yes, their home is sort of the base for the small dance. and secondly, there may be areas in the country that are more conducive to the small business loans being given out, but how do you see these new policies that are supposed to be put in place actually expanding in getting to some areas in the country that makes the most hard hit.

>> steve, as a small-town problem he's describing? >> without a doubt, there are parts of the country that are feeling the pain much more than others and it's not going to be a simple we are out of the woods. it's going to be regional. you're going to see parts of the country and i definitely see when we first started talking, we talked about are we headed in the right direction? i see good science. i look at numbers every single day, where we had in, what are we doing? last quarter the fda come as far as my own programs had the highest level of volume in the history of our program after. the week before christmas was the highest week of loan volume at a mediocre. that's all good. but again, i go back to commit to a measure success by how much volume we do? know, i measure success by i would love it. it's the gap were striking.

that also tells me there's been a big gap. however, we're starting to see landing. there's taking advantage of these government programs. we provide tools. my mission really is i provide access. i ensure access to her small businesses through our lending partners to small businesses that otherwise cannot access capital on reasonable terms and conditions. and so really, by watching our volume go up, he tells me that we are doing something right. you know, with the recovery act and extension of the jobs that at the end of september, our flagship program and the sba 78 had a higher loan guarantee and a fee abatement for our small businesses who pays for these government enhancements. he created an encouragement for small businesses and also encouraged our lenders, you

know, with a higher guarantee. the other thing i looked at and this was actually made me smile quite a bit this summer was wondering, you know, i wonder how many -- because when businesses and equipment, you know, that tells me that they're making a conscious decision to make an investment and that usually translates into growth, correct? that's a long-term decision. so i took a look at her flagship program and said what proportion of these are going toward equipment purchases? the recovery act kicked in and we talked about these provisions kick in in february of 2009 and the jobs that in september. the chart is absolutely incredible. it doubled the percentage of our law that went towards equipment purchases, doubled february 2009. so that tells me that the

entrepreneurs and business owners are making a conscious decision to invest. and with the growth in our loan partners, he tells me that our lenders are looking at, you know, lenders need to land. lenders want to end. however, everything we've talked about our challenges. so it takes a little bit of time to find out how we do with these challenges. one of the ways to do with the challenge is to look at the credit enhancement available and hungry, you know, and make it it make economic sense and how can we also control our risks? >> i want to go back to the real estate issue which denny product because it came up in the previous panel, too. tomball from the chamber, when he was asked what did like to see government do companies they do something about the real estate problem. and of course i'm the one hand we have people saying governments are pouring money down rat holes and deficits too

big and i have to start spending. on the other hand, do something about this big real estate sinkhole out there. let me ask rebecca and kathleen and danny are private sector type and also jorge, but should they do about this problem? >> i don't know. i mean, this is such a regional issue, to, that i think it's very challenging. you know, they've been known on appraisals these days and what evaluations are coming from, where marcus who don't have a lot of compton what you do, were you in markets, we are having to buy or sell properties. what does that do to the underlying evaluation. i think part of it is the role of the regulators and have her work as some of these credits. it's also very regional in terms of some of the local markets and how they go about dealing with it. >> this is the first panel that really answered the question. and i do think it's a huge issue

and no easy solution. but i think we need to get the foreclosures behind us and we still have a lot of people in their homes and can't afford to be in the homes. >> what is the role of government? >> i think helping lenders get to the process. i think just getting that behind us is very important for small business to move forward. >> let me ask you about that and throwing one extra thing at the end that all of a sudden i was talking about tax reform. take away reductions at it the way it's done. mortgage interest deductions are when they are talking about. is that a good idea and what should we do about real estate? >> i'm going to have to go with the magic hold on this one. i can tell you more about the problem then again the solution. for smaller firms and unbelievably important. just a few numbers, okay. 94% own a home, much higher than

the average. on the medium is 60% more valuable. plus of those who don't have a home-based business, that have an office or whatever you want to call it, almost half of those on that, particularly in the rural areas. and if we want to take it a step further, almost 40% of investment real estate. over half of which go more than one. so the small business owners are heavily into real estate to say the least. now for one of those critical reasons we have it. clearly the issue talking about on tax reform is going to come out. and i got is that small business owners aren't going to like a particular provision of what probably will be a major discussion on tax reform and that is either elimination of the home interest deduction or capping. my guess is tapping the lead to

one. and it's going to be central, has to be central to the discussion. in the short term it's going to be really, really tough because we have this horrible problem we have sat on it for two years. it's been three or four years where we just sat on it. what do you think by the way out to be down on the issue of corporate tax reform. treasury secretary payton are standing trial chief financial officers from the teen companies and talk about the possibility of removing deductions that many businesses like. i was talking to an analyst at the chamber said well, you know, half of all business income goes to businesses that are organized as corporations. he can to corporate tax reform to bring that down because businesses will still pay 35%. therefore it's all got to be done together. >> now, clearly i think that tax

reforms on the agenda should be on the agenda. i am old enough to remember the 86 act that worked pretty well and then all of a sudden we started putting holes in it again and so on and so forth. so i think this is something good that can benefit smaller firms in the long-term, particularly when it comes to simplification. there's certain parts will have to remain relatively complicated just because we talk about depreciation and things like that you have to be there. there are a whole series of things that don't have to be like they are. the home office deductions to little much for example. doesn't have to be anywhere close to that complicated, but it is. the whole idea of what is an employee doesn't have to have 20 tests. >> can it get done? can tax reform act individual level or both be done before the 2012 election or is it going to take longer than that?

>> were going to discuss it for a couple years. this is huge. this is very, very big and i don't think you can do well in two years. >> getting back to the housing. >> this is extraordinary complex. it continues to play a major role in said of outlay monies for principal reductions, which generally are just not working. if you have people underwater underwater for far more a principal reductions, it's a waste of money. but i think those monies could be better used for ownership counseling. and they think you can utilize these counseling sessions to the people in the new homes, which would reverse the trend that we have. but that is something we've been discussing and taking a look at when you're looking at the

principal reductions versus the new homeownership. so instead of continuing to lose the existing house to your income you can buy something more affordable and reverse the trends that way. >> i want to ask john and anthony a question that came in in the notes that were sent by rebecca. so i think they know where she stands on that, but with they to get her perspective on this. and it goes to some of the things that congress did in 2009, 2010 that sounded really popular. let's limit bank fees, overdraft fees, debit fees, that kind of thing. at the end of the day picks up the profitable viable. are the aggressive new regulations and restrictions got income from overdraft fees jeopardizing bank's ability to london ultimately hurting barbers? >> you know, when they look at overdraft fees that banks are bringing in, that's a large portion of income for some of

our banks, especially small community banks. but i think the overdraft policy that we have put forth at fdic is the king of the trade-off between the utility of what's being provided to the claimers versus those costs. we definitely don't want to put the temper down on any innovative type of business plan, but we want to make sure that a consumer is getting some value for what they're getting. >> john. >> i concur with that, you know, these are certainly important and large banks, too. but there are some constraints that we have to use to protect consumer and that's part of it. but i don't think where we see any of it that has any reflection and creates any problem with funding. >> so from your date, if you

don't think it makes great problems for lending is that protection of consumers opposed to playing to the grandstand in terms of voters and doing something that sounds great on an unintended consequence? >> yeah, i think it is important and the premise of it is that we're trying to protect consumers, making sure again that they know exactly what they're getting, what value they are getting for the cost of their pain. >> rebeca, do want to >> these guys down? [laughter] >> i'll be nice. this is a fascinating issue and one where all banks are lumped in one category. where the grocery store next to these folks. we're not going to take advantage of our consumers. we have overdraft programs that allow them to clear checks when they need to. we don't have the automatic program, some of the different stuff that has been created. look at it at the community

bank, just about everything i do these days is now being regulated. what do i do to our entrepreneur spirit and our ability to balance and knowing those are going to be times when it is off. how do we balance, hardly maintain income statements that we could do what we do not take a stereotypical approach to regulation so we can really get the problems where there are problems. i agree some of them have been taken advantage of. with things like interchange and assure that they construction issue, but something is really going to get the heart of community organizations. >> is another consumer protection issue or is that? >> i think there's number of further legislation that it didn't. i think we needed to take some steps to ensure that consumers understood the products that they were getting when we get charged to high fees on those

products and that we did it in a way that also ensures the long-term statements of the system. i think we struck a pretty good violence that did a good job on that. i understand there are differences among the bank community in terms of size and the types of products and services they offer. that said, i think what the legislation did was establish a baseline. this is not providing the types of fees of requirements that a lot of folks i think in certain parts of the lobbying community for the advocacy community wanted. they weren't as strong as those folks wanted. but at the same time, i think they were appropriate, necessary steps. >> rebeca, let me ask you this. since you from some seven come i guess your democrat.

so as a democrat, this would make him a credible critic. you agree with the charge that the obama illustration has gone bananas with regulation? >> no. you know, headlines in the top tomorrow. you know, there is a time and place and there is a need. i think what we're doing a lot with regulations these days is painting with a wide brush. yes we be some fixes but also consequences that go with them. >> i wanted to address and agree with rebeca until i found out she was a democrat. >> i don't know if i want to do that now. it doesn't matter whether the fees and exchange charges are what, but you know, we've got to realize that we can't paint with

the same fashion that has to do with straight regulation and a state regulator as well as it does the size of the bank that it operates in. we've still got to go back to some basic common sense examination of banks and look at them individually. look at them geographically and make sure that we're doing the best job to protect what is our main job and that is to protect from my standpoint this issue. >> john, as the federal government and federal regulators, are they capable of common sense regulation? [inaudible] [laughter] >> that's a good question and one that i will answer again. there used to be i see today

more so that it appears that since we've had this financial problem, banks have been suspect. we still have a number of problems on our list and millet like now we're a year of primary regulations, whether it's the rcc, whether it's the fed, what it looks like we are all coming from washington and at least what i see is that everybody wants to say well, we can't do what we can't do, but washington is making those calls. and to me that's not where we need to go. we need to be sunday night authority of that responsibility down to that region and the level person that should be able to work with that institution, know that market, noted economic conditions and come up with a

sound judgment. >> high-value said a minute ago it was a mistake to paint with a broad brush. >> it is. >> anthony cummings painting federal bureaucrats with a very broad brush. >> with respect, i have to disagree. you know, when we propose that where the regulations are changing, the majority of the time we put these out for public comment and we take those public comments into consideration before we finalize any of our rules. in the same thing when we give ready to pursue a corrective action of a foreign institution that is having problem. that action is tailored to the specific need for that specific institution. its capital management, whatever it might be. we don't have a place which is second on the problem banks are troubled banks and say you've got to do 50 different names. each of those actions is tailored. >> let me follow up with you,

anthony, on a clash unquestioned kathleen submitted and then see if having a satisfied with the answer. the question is how do you figure vocoders do with counterparts in the field and how do they ensure there is consistency in lending standards across the country? >> one thing we do is periodically most of the regions are from washington level. we have conference calls with our entire staff. i believe it's once a quarter where we talk about issues, talk about the regulations, you know, talk about congressional actions that may impact we were going to regulate institutions. there were also issuing internally all types of memory and a bit detailed as we were going to get better. some of our sio to commercial landing and encouraging that ranks to continue to renew credit, extend credit. when you take those memos, we talk with our staff and we

encourage them, you know, if you see a credit this deteriorating, the individual still has capacity. let's not criticize that specific credit. but seasoned judgment can use the balance. >> got to go to the jury for a second. is there anyone in the audience he thinks there's a problem with coordination? wow, okay. kathleen? >> we just heard from community bank. if your inspector not, you've got the right routines in place. as long as you're inspecting that's the case. i've heard that from community bank on a national bank issue. >> i think this is one of the issues that afflict many others were talking about right now. and that is for any process where we've had this tremendous run-up in the amount of credit this murder firms have been able

to get going into the 70s and on the senate sudden it changes very abruptly and goes back down the other way. we don't have rules that we don't understand one another anymore and everything is changing so we keep blaming one another as to what the problems are. and i'm not sure it until such time that we don't get a little bit more stability and find out what normal means. we don't know what normal is anymore until we find that now. we're going to be pointing fingers at one another and that's a real problem. >> any of our banks, if a bank feels they are not being treated fairly or not being balanced, we want to hear about that at a regional level, washington level. the chairman indicated earlier on the panel were going to have an 800 number that banks and consumers can call into. but if you don't feel that you're getting in fair shape and

not using proper judgment, would've to hear about it. >> kevin kelley who may be in our audience and if so at like to ask kevin to step to the microphone asks how can local community based organizations best work with the fdic? >> i think there are a number of ways. we have several events around the country where we, you know, talk with community-based organizations about how they potentially can partner with banks to do some activities, do some lending activities. we have at the fda advisory committee that is composed completely of community bankers. and you can provide insight to that group about any of our policies and practices that might be stymieing lending. a number of things to do across the country and a lot of our policies that give the public an opportunity to give us input about operations, were doing, we can do better, what kind of obstacle we are presenting to

lending. >> i want to go to an off-the-wall topic that's not necessarily on her agenda, will it be something that is happening next week. who gentile, the chinese leaders commit to me with resident upon the next week. treasury secretary baker gave a speech yesterday and talked about issues related to american competitiveness that we can take in this country and things want china to do regarding the evaluation of the currency. danny, jorge, kathleen, are you satisfied with the approach that the administration is taking to china? would it be better off for american business if they were more aggressive in trying to press the chinese found protection of intellectual property, currency or that risky trade weather would ultimately backfire? >> that's a little out of my area of expertise. >> i'm going to plea the same thing. i don't feel competent to answer

that question. >> i have a major experience, not a great deal, but let me make some comments. there's no question the president needs to engage more critically in china. their major partner and hold a great deal of our dads and we need a think to show more leadership. over the past several years that has hurt us. with regard to the valuation, but also with regards to importing businesses here. i'm on the board of governors and we deal him up with the chinese company is in some of them that are moving to this country. and being with a small business chamber, we are looking to generate some contractual agreements with them to expand businesses for some of the product. so overall, we need to play a much stronger role in d.c.

were doing things in southern california. however, is far greater and bigger issue. on these kinds of things, we need much stronger leadership in all these areas. >> john, no it's not your area of specialty either, but i'd be interested if you haven't a few, should the administration be tougher china? some polls say we should. >> i definitely think we should toughen up and protect the dollar and we stand a lot to lose that if we don't because they are dion have very big portion of it anyway and i don't know we want to get any deeper. >> i want to go to a question that jorge had sent, which is besides small business lending, what step would have the greatest impact on the government and creation of new jobs? we talked about real estate. let's put that aside since we've

been discussing that. what else can the government do or business can do that would have the greatest effect on generating job creation given the fact that unemployment still near 9% and it's going to stay high for a long time. who wants to take that? >> to some extent the whole idea of the payroll tax being repaid about 22 percentage points on the individual site is a good idea. we are two years too late with it. that's the problem. that should be the stimulus policy to begin with is focused entirely on this. going forward, i think we're a limited by the amount of money with our descent. you heard senator warner talking about the next couple of years we talk about dataset, we were going and that sort of thing. so i think our options are really, really limited. nea idea we now have begun to put out an actual stimulus into

place is probably the best for going to be able to do for a while as long as for not talking about real estate. >> is there anything the government can do? everybody is talking about the $2 trillion on balance sheets that is sitting there, waiting to be invested? we talked about the lack of demand. that's a problem that is causing the money to sit there. what can be done about that? >> that is going to come when there's a demand for investment. i mean, you look at smaller firms right now and you look further physical investment or you look for inventory investment. and amy, were early back to kind of a very low level now. >> is everyone on the panel of expensing, is that a good thing? >> were not to get in on.

part of that is caused by sales. the good guys have good profits, but a lot are coming from overseas and rather thin than from here, domestically. so before we get more investment from what going to have to have similar sales. >> john commuter treasury. you're in charge of the economy. [laughter] what to do to spur the creation of jobs given the fact that we're broke? >> i don't think there's any one silver bullet. >> are there any partly silver bullets? >> at the range of things you birdie her today. it's spurring additional lending to small businesses. it is spurring innovation and the president talked at length about his innovation agenda. so is helping small business owners, entrepreneurs take advantage of the great ideas they have right now and being able to take those ideas into products and services they can sell domestically and abroad.

you know, where i actually agree with my colleague, danny, as it is finding a balance of protect an american companies, but also ensuring that we are competitive globally. as work and all the globe with our partners, trading partners to make sure small businesses, large businesses have access to their market, but also has the financial wherewithal to do what they need to do. i think you've heard recently from a business roundtable that they expect their members to increase their hiring, to increase investment in their companies fairly substantially. and i think i will go a long way to turning around types of increasing small-business investment they would all like to see. it's not going to be one thing. it's going to be housing as

well, ensuring responsible homeowners can stay in their homes, that they have everything they need. it's really just a blaze in the economy as a whole, not one individual effort. >> a couple years ago interviewed alan winder used to advise president clinton, princeton, democratic, miss. he said we need to recognize -- is considered a moderate. we're in a jobs crisis and were going to be in a crisis for saturated time because it's going to be slow. we have to think about direct government hiring. you know, nuccio kind of stuff. is that crazy talk? could it make sense? >> i don't know that having federal programs aimed at hiring is the way to go. and i'm probably not qualified. >> is it a good to go? >> i think it is important because again, looking from my point of view in los angeles and southern california, los angeles

has about 600,000 small businesses. if you look at the desperation of these kinds of businesses, sales is critical. people who took money in their pockets to buy from a local retailers. without it we are seeing a flood of people going on it. so i think that is very much a part of this in the package. but it's important to note is that we cannot slow down or stop his recovery by the absence of the stimulating the economy. and that's what we're taking a look at. i think it has real value there. >> my comment is this. this country as small businesses. this country was built on small businesses. this country has been pulled out of the depths of every recession we've gone through with the help of our small businesses in this

country while the opportunity for us is going forward our small businesses. two out of every three of us work for or own a small businesses. you know, why these are for 27 years is because i'm fascinated by them. they will find the opportunities. they will find -- every single time. and so, we go back to be discussed, sales. so we need to take a look at where are the opportunities? worry global economy, exporting. these are the opportunities for small businesses and we need to take a look at that and we need to see, can we provide the assistance? can we provide technical training? can we provide the tools for our small businesses that really defined us to take advantage of that? >> let me follow up on that

point because i've had some conversations with economists, left and right, who usually as part of the conversation occurs off the record because it sounds politically incorrect. one i talked to a few months ago said we way over romanticize small business. people use these numbers that reflects a whole lotta turned and small business starting and stopping, that sort of thing. but if you look at it candidly, the best jobs for large business and the jobs that pay the best come to jobs at the best benefits. we need to focus more attention on increasing hiring among businesses rather than small businesses. it's kind of like talking about family farmers in an era where that is a little bit obsolete. >> my comment is this. and i can drive through town and point out to make his other businesses that help over the years. i was in the trenches. i was doing this. and a perfect example. businesses that provide it, may provided allowed for a

restaurant to open up a second location. we've talked about how many jobs are going to crate for that restaurant? how many points you have? as he walked to the project and a step back and take a look at how many jobs as that actually touched, that project? contractors, equipment companies. it's mind-boggling to stop and think about it. i think were underestimating. >> is there too much apple pie talk? >> it's been interesting recently because he got the economist coming out with all these new sorts of things. if you look the bureau of labor statistics, what they called a bad series, which is business employment dynamics series, which is recorded officially the numbers from 92, i'm going, it's 64 to 65% of all net, not just gross, net. in other words hires versus

layoffs or whatever. and that jobs are created by smaller firms. any good number of those are smaller firms under 20. now, those are government numbers. i'm not making this up. and all the data we have going back to about 1976 prior to that says approximately the same vein. so all of a sudden we get somebody who comes out and they know what the people are called the suspects here, they're very bright people, but all of a sudden he comes here and say well, a lot of fire brand-new firms. >> well, hello. they are small firms. are they not? we don't start first with five, six, 700 employees. so that's kind of just superfluous to the whole argument.

and so the job generation these days is quite clear, going into this recession. what's going to happen after this recession? we been able to do this for years and years and years. the guy i know dames david bircher wrote the original saying, everybody is criticizing him, but he has proven to fame, everybody's criticizing him, but he has proven to fame, everybody's criticizing him, but he has proven to be generators. we went into this recession. we has proven to be generators. we went into this recession. we may be something new happening for this recession. but basically it's indisputable. we just look at the government numbers. >> without stirring defense of the contribution of small business to the u.s. economy and with a lot of hope that things get a little bit better, they look right now, we want to thank our panel. we've got two more speakers at the end. were not quite done. thanks so much, guys.

[applause] [inaudible conversations] and now, i'm going to introduce our next-to-last beaker, the chairman of the federal deposit insurance corp., sheila bair. [applause] >> hello, again. thank you all for coming today. this has been intuitively productive discussion. i think to a panelists were very fortunate to have so many key policymakers, regulators, bankers, small-business owners and others join us. i'd also like to thank all of her fdic's staff, especially susy partner for a lot of work in a very short period of time in putting this together. and last but certainly not least, cbc for other help to set up and shot and steve policemen cohosting this. this has been a really good panelist discussion. [applause] i think we should all give a round of applause. it's been a very full and

productive afternoon. i know i've learned a lot about the realities of what is happening on main street and across the american economy. to wrap this up for us and give her own observations, were very privileged to have is the closing speaker, karen mills, the administrator of the business administration. i'm delighted to welcome karen to the fdic. i think she has business and key policymaking on administrative roles piercers earning mba from harvard university, cure never been counseling, managing, mentoring and investing in businesses all across the united states. when we came to the forefront during the recession of the 1990s, which was in the private sector and helped a number hockey number of small manufacturers enables them to survive the downturn. shows with extensive experience in attracting investment for rural and regional development she's an expert on regional innovation clusters and other new approaches to business

growth. you heard senator warner earlier this afternoon talking about how quickly she was educated by these two programs have gotten a lot of money at the door quickly in a very efficient way. she works effectively to grow businesses. first her work in the private sector in as administrator of the small business administration. she is an opportunity to support small business and it's been a privilege for me to be about to get to know her and work with her. she's been tremendous. i think there's nobody that's got more commitment and the federal government banned karen to small-business and she's done such an impressive job at the sba. give her a warm welcome. [applause] >> thank you very much to sheila. i was a very kind introduction. i really want to thank both the fdic for organizing this. there is really very, very few forums where we can have this impressive groups together on

this issue in this kind of way. i want to thank also cnbc for making it come alive here and bringing it to the attention of many others throughout the country. you know, we've been working very closely with sheila bair and the fdic and with the fad over i guess the past 18 months into this bank examiners because we needed to be sure that good loans were going out to credit worthy borrowers. and as i'm sure you know, we have a lot of work to do and there's probably still a lot of work to do, but we made a lot of progress. i really want to thank this collaboration with pad with the fdic, the guidance they provide a very early on this i think that a lot of borrowers to get loans and preventive some good borrowers are being frozen out,

even in that credit freeze. the thank you turn much. i also want to recognize their new associate administrator for x and z simon at the go explaining our problems, steve smith good as you've heard coming from the maligned investing in baking the small businesses for 25 years i think we are very, very pleased to have him as part of our leadership team at the sba. everybody here knows the facts. two out of three jobs are created by small business. half the people in this country own or work for small business. half the people. so in answer to the question that came up in the panel come if we are going to create the jobs, we do need to make sure that both main street small businesses and those high-growth develop scorpion reference how the access of the tools that

they need so they can grow and so they can prosper and they can compete globally. and create jobs here in america. and we do that the sba with two tools. we have a network of over 14,000 counselors. it's not enough to give small businesses the money. they need to do the business plan. they need help. mentoring, the new device to succeed. we have the think the gentleman from michigan talking about what to do for mentoring for youth entrepreneurs. we actually beat entrepreneurship programs. with special programs we are working on now for high-growth entrepreneurs entrepreneurial benchwork where were we encouraged axel businesspeople to influence the next generation. the other thing we do at the sba is we are responsible to make sure 23% about government contracts go to small business. that's $100 billion a year.

that's the oxygen that small businesses need, particularly in underserved market, to grow and take that next step. and that's a win-win at no cost to the american taxpayer. it's a zero cost to the american taxpayer. in fact, it is a benefit because departments, agencies like the veterans administration, department of defense, are getting access to some of the most innovative companies, usually with the attention of the ceo. so we worked very hard on those tuesdays. we work on counseling a contracts. third we talk about today is capital. and as you know ms has been mentioned quite a bit today, 2000 come october, credit markets froze. so we really couldn't get access and opportunity. and the sba guaranteed loans how to play a very critical role in coping with the market dilemma

that we have. and that's what government should do. it should fill the gap when the market is not serving the needs of the small businesses. so in the recovery act, in the small-business jobs that, we were able to get two very key provisions that helped us really sort this market out. we were able to raise our guarantees to 90% and reduce or eliminate our fees. and that allowed us to put $41 billion into the hands of small businesses over this period of time. is loan guarantees that gave a pretty good bang for the taxpayer buck because it cost only over a billion dollars to that. so we were able to really be quite efficient in the capital into the hands of small businesses. in fact, we were able to bring 1300 new lenders who had not been participating in the sba programs that are active sba

lending, during a critical time. and i was due to these recovery act incentives. so we are very, very happy with the fact that we have been able to work hard and fill that capital gap. there's still more work to be done, but to those who say there's no demand out there, i just want to point out the sba and the last quarter had it strongest quarter ever in the history of the sba can we put out $10 billion in this last quarter into the hands of small businesses and many, many of them are investing in equipment and other goodies that are going to create jobs. so this is nearly 90,000 -- 90,000 small businesses who we've talked with these loan guarantees. and i think the greatest part of my job as i travel all over the country in arkadelphia in

seattle and i hear businesses come up to me and say you saved my business. you saved my business. i could not have survived without this sba loan. so it really makes it a worthwhile thing. i want to actually also add a piece of data that i think steve may have mentioned appear. one of the things that i really care about is american manufacturing. i grew up in a manufacturing family. i found lots of manufacturing companies. and what i'd really like is to go walk the fact truthful or and talk with a business owner about how they're going to run and grow their business. we have been tracking the percentage of our loans that go to equipment purchases. and i'm very happy to say that put these recovery act loans and some of the other small-business job loans, the percentage has doubled. so we have two times as many of

our loans now going for equipment purchases. and i think it's a very good thing because we know the these are helping small companies carry up, innovate and compete. one of the reasons i think we have that success is the loan. the second is that any of the small-business jobs bills have included important tax incentives. they actually have 17 small-business tax incentives that have been passed in the combination of bills between the recovery act, the small-business jobs bill and recent tax provisions. we had tax incentives for small businesses for buying equipment. we have that for providing health care. we have it for hiring people. we have it for a zero capital gains come if you're investing in a small business. their five-year carryback of

your losses. so a small businesses are out there right now, talking to their tax preparer's, they are getting the benefit of these tax provisions that have been included. as they said in the latest tax-cut package, we were able to include 100% accelerated depreciation on equipment. that's all of you know, that means money right back in the pockets of the small businesses, which they need for working capital as they grow. so these are really critical provisions. looking forward to 2011, we are happy to see a lot of the positive signs. i think any of them were described in the first panel today. the conventional small-business lending looks like a stock type name. we needed to be expanded in a factory of many, many key large

lenders coming academic in practice pushes to market more small-business loans. were working very hard to partner with them because of its full markets back. sba market is back above are 2008 level. we need the conventional market to the back as well. but we still have some gaps. in one of the gaps was taught about today i think in the second panel. and that is we have some underserved markets that are not getting access and opportunity. this market still haven't opened back up. and in addition, we assume the markets for smaller amounts have not come back. that's why we announce the two programs that steve talked about earlier. we've got an advantage platform, carrying the advantage from a small but advantage. and some of you will be very pleased to hear it they include a streamlined application

process. the less paperwork, faster turnaround times. and that is something we are delivering both of these new programs and working on hard and arming programs. the other piece of a program i want to make sure you know about was not mentioned today. it came in the small-business jobs act and it's very important for our commercial real estate. and that is what we call our sidles for refinancing opportunity. it allows small businesses who need to refinance, perhaps the fault of, that they did a number of years ago, maybe five years ago, which is now coming up for refinancing on commercial real estate to be done to her 504 program. i think this is a real win-win. we are looking at strong businesses that are owner-occupied come have not missed a payment, but are not able to find that refinancing for commercial real estate because the market is still

tight. so we want to -- were just throwing out the program. were very pleased about it. it came in small-business jobs act as one of the things the administration is going to be very focused on, to making sure we continue to get capital into this market and small-business lending. the second piece of the $5 million loan that appeared were able to raise it from 2 million to 5 million. that also is helping experts. i just came here from xm bank presentation at the chamber of commerce, where we are working very hard on the president object is of domain experts in the next five years. small business act words are going to play a larger role in that. finally, i know that you all are looking forward and we are looking forward to gene sperling and the new head of the nec. he was one of the major architects of the new small-business lending fund. that is designed to provide

$30 billion in capital to community banks. we know that community banks on main street are a primary place that small businesses look for their next love and we are looking forward to help the small-business lending fund get more capital into those banks so they can lend it to small businesses. so all of this they think is good news for the community. we do have some things that we need to do better. some of them were talked about today. one of them i want to highlight were working very hard to sheila and others in getting better data. we need better data on small-business lending and on minority business lending. where a free pack space agency at the sba. from what we promised he was to use that data, to find that data, to collect it and use it to continue to try to make strong fact-based judgments on policy going forward, that provides access and opportunity

for capital for small businesses. because as we said, the end goal is very clear. if you get capital into the hands of these entrepreneurs, they can grow their businesses and create jobs. that's what we need to move forward in this economy and were very, very pleased to be part of a great collection of people who are working to make a happen. thank you very much. [applause] >> middle and high school students, it's time to upload your videos for c-span student can documentary competition. get your video on this topic, washington d.c. to my lens to

c-span at january 24 your chance to win the grand prize of $5000. there's $50,000 in total prizes. c-span student can documentary competition is open to grades six to 12. go online to student can.org. safety,n

eventommission on the bp deepwater oil spill released its report earlier this week, recommending additional funding and training for the bureau of ocean energy management. michael bromwich heads the bureau. he spoke this morning at this event.reet. >> -- that brings you to 18th street. so we're good.akes y >> said good morning and welcome. and senior vice president at the center, but for the purposesat today on the national security program and it's my great pleasure to have with us this morning, michael bromwich, director of the bureau of -- i'm going to crew this up. ocean energy management regulation and enforcement. thank you very much. okay. a bunch of things. for those of you who upload the offshore industry and i can see a lot of folks in the crowd had nhroughoutma the summer. bee

first last eight months or so have been kind of a tumultuous time and a bit of a roller coaster ride. ln for the folks that came out of the industry, when you listen to situion administration coming in in 2009, the situation was green, aoning to a cream low carbon economy. not a lot of discussion about conventional fields as a situation of baltimore become into this beginning of 2010 companies started seeing it more and more in part because davidge colburn and other sunni administration started talking about keeping conventional system robust. if you want the trains to run on time and lights to stay on as we transition to this new economy, it was important to keep the conventional system been stronge in march of 2010, president came out and abolished oil and gas are part of our future and set in no small part because of the success of the industry in the past in terms of their safety record and performance in the gulf of mexico, we should expand to the polls. lat

less than a few weeks later we were all confronted with the current news of the explosion in the tragic loss of one of theose peo.ple. throughout the summer, we don't what the oil spill and wespill. watched on youtube every day the flow rate and looked at capturing containment and prayed that it wouldn't hit the beaches. over the course of that summer, secretary salazar in may and announced a reorganization of in the bureau of what was formerly mms. on may 21 comer speaker today, michael bromwich, was sworn in as director. t rs .. you have been a busy boy. the bureau has launched an aggressive reorganization effort. they have a recruitment campaign to enhance the capabilities of the organization and to expand inspection. they have put in new drilling and workplace safety rules. they have begun a comprehensive

analysis of drilling in the arctic so that we can be better informed on new leasing decisions. they have initiated leasing activity for commercial offshore wind projects. that has been an effective six months. . over the course of the past 30 years, michael bromwich has had a distinguished career in the blic and. >> he's been a partner at mayor brown and platte. he's served as office of the independent council, he served as assistant u.s. attorney in the state of new york and most recently as inspector general in the justice department. he reportedly bleeds crimson, having harvard, and princeton.

last fall when we contacted his office, we looked at a mid october date to have him come. about a week before the expected date, we got a call from the interior department that said maybe we'll postpone this until january because about the time we were going to have that session is when they announced the suspicious of the moratorium. we talked about a safety case and did run a session in mid october. when we scheduled this we looked at january, with january 11th the oil commission. that was no small part just in case we'd have something to talk about. please join me in welcoming michael brown. this is a pleasure. the turnover is a testament to how interesting the topic is. he's going to read some prepared remarks and take some questions and answers at the end. thank you very much for coming. >> thanks, mike.

[applause] >> thank you very much, frank, for that warm introduction. good morning to all of you. it's a real pleasure and privilege to be here with you to discuss the profound changes that are taking place that involve oil and gas drilling and development in the waters off of our country's shores. these changes are long overdue. and as so often the case when it comes to serious reform anywhere and any field, they are being spurred by a major catastrophe. the unprecedented deepwater blowout of the macondo well, the explosion and sinking of the drilling rig, tragic death of workers, and spilling into the gulf of mexico. the deepwater horizon has shaken government and i hope shaken

industry. that hubris is not too strong of a word, created the circumstances in which the increased dangers were not matched by the increased vigilance and concern for the safety of those operations. this morning, i wanted to discuss the steps that are our agency is taking to renew it's commitment to the responsible stewardship of our nation's resources on the outer continental shelf. i will also discuss the reforms necessary both in government and in the oil and gas industry to ensure that this activity which is vital our economy and security is conducted safely. not quite seven months ago, i became the director of the bureau of ocean emergency management regulation and enforcement

the mandate was as daunting and ambitious as urgent. to reform the development starting with the agency responsible for overseeing it. since that time, we have been working to make the changes necessary to restore the public's confidence that offshore oil and gas drilling and production are being conducted safely and with operate productions for marine and coastal environments. my remarks today will address the changes that have occurred, and are ongoing. and the oversight of oil and gas operations on the outer continental shelf. this topic, of course, could not be more timely, as you know, and as frank has mentioned, the national commission on the bp deepwater horizon released it's findings and recommendations. the commission's report is a thoughtful and comprehensive analysis on not only the spill

itself, but of the history and development of offshore drilling and regulation of the offshore drilling. i want to commend the commission and staff for their hard work, their professionalism, and their willingness to cooperate with us and listen to different points of view. i encourage each of you to read the report. for our part even though we had commissions and staff over the past six months, we are thoroughly reviewing and analyzing the report. as the commission describes in it's report, regulatory and industry reform in the wake of significant offshore disaster has happened before. the uk and norway substantially changed their oversight of offshore drilling and production following the piper alpha and alexander keyland stint. australia is facing many of the issues we are occurring,

following blowout which occurred eight months before the deepwater horizon. the specific challenges facing us are unique in many specific respects. the scale of the off shore oil and gas in u.s. waters particularly in the gulf of mexico is vastly greater than those in the north sea. the economies of many of the gulf coast states, particularly louisiana are closely tied to offshore industry. the gulf accounts for more than 25% of domestic oil production, and approximately 12% of domestic gas production. one of the key problems that we are addressing and that cannot be avoided is this. how will government and industry make the fundamental reforms necessary to improve the safety and environmental protection in this massive industry while at the

>> particularly in deepwater. while continuing with operations. keeping productions flowing, and keeping people working. while the commission has been doing it's work, we at bomer have been working to address the issues in the report. let me be specific about what we have already done and what we plan to do in the future. together with secretary salazar we have taken the most aggressive reform of offshore oil and gas oversight in u.s. history. this includes the former mms, to

establish mission clarity and strengthen oversight. it also includes the development and implementation of heightened standards for drilling practices, safety equipment, and environmental safeguards. these new rules set forth prescriptive standards but they establish in the offshore regulatory system reform-based focused on the identification and mitigation of specific risks associated with offshore operations. these changes are substantial, and more work is being done to ensure that these changes are both lasting and effective. the ultimate goal is to establish an industry-wide culture of safety, and to have well equipped and professional regulators. both elements are necessary to keep pace with the challenges and risks of offshore drilling. particularly as those operations push into new frontiers and face increased technical challenges.

let me outline the reform of the mms. as has been previously announced and as frank alluded to in the place of the former mms, and in the place of bomer, the direct and temporary descendant of mms we are creating three strong agencies with clearly defined roles and missions. mms with it's conflicting missions of promoting research development, enforcing safety regulations, and maximizing revenues from offshore operations could not keep pace with the challenges of overseeing industry operating in u.s. waters. the reorganization of the former mms is designed to remove those conflicts by clarifying and separating missions across three agencies and providing the agencies with clear missions and

new resources necessary to fulfill those missions. we are designing and implementing these operational changes while we fully take into account the crucial need for information sharing and the other linkages and dependent -- dependencies among the mms. this is critical to ensure the regulatory process is related offshore, releasing plan apreyful and permitting did not succumb to bureaucratic analysis. the former mms became the office of natural resource revenue. the operate resource, and the next steps in the reorganization are more difficult and more important. they involved separating from the safety and environmental enforcement functions.

that will be responsible for developing the nation's offshore resources in a environmental and economically responsible way. on the other hand we have besi as we are calling it that will enforce regulations. over the past month we are gathering the facts to create in the most rational and sensible way. we are interviewing in all of our offices, collecting and analyzing data to the regulatory and developing models for restructuring and reforming the bureau. this work has been pain staking and time consuming. but it is critical in reforming the decision making regarding the transformation of the bureau. now we are close, very close, to being ready to lay out the

detailed framework. our design will be shaped by the following concepts. first we will separate resource management from safety oversight to allow our permitting engineers and inspectors greater independence, more budgetary autonomy, and clearer senior leadership focus. the goal is to create an aggressive and tough minded, but fair regulator that can effectively evaluate the risk of offshore drilling, will promote the development of safety cultures and offshore operators, and will keep pace with technological advances. we will provide a structure that ensures thorough analyses are conducted and proposed operations are given operate weight during decision making related to resource management in the oem. releasing plan and approval

activities are balanced. these processes must be rigorous and official so that operations can go forward in a timely way, but understanding of the potential environmental effects of those operations. we must also ensure the operate mitigation are in place. we will also strengthen in structural mechanisms. as we continue moving forward, we will continue to take the commissions recommendation into account in designing the final reorganize structure. now let me next discuss the important substantive work is that is going on within the agency to provide the tools, training, and changes to the culture that make sure that the reorganization will have the effects that we seek.

as part of our broad and continuing reform efforts, we have created 11 implementation teams that have been hard at work for several months. they are the central focus of our efforts to analyze critical aspects of bomer's structure, functions, and processes, and to implement our reform agenda. these teams are integral to the reorganization effort and are considering the various recommendations for improvement that we have received from several sources, including the oil commission, and safety board by secretary salazar. in short they are laying the lasting change and the way the successor agencies bomer and besi will do business in the future. let me briefly describe the key area they are working on. first, permitting. we have improving boemer.

this review and evaluation must be rigorous and efficient. so they are not unduly delayed by the process. this team has been working on plans to address the permitting workload in light of current resources. they are designed to assist in the responsibilities and ensure greater consistencies across our offices and clarity for industry. second, inspections. we have a number of teams that are focused on the various issues associated with developing effective risk-based approaching to our offshore inspections program. among other things, the teams are focusing on first, analysis of alternative organization structures, development of risk-based inspection programs that target risked proposed by

specific types of operation, and the appropriate distribution throughout the organization and internal management and oversight structures. next, defining near and long-term strategies for inspecting industry compliance with safety and environments and regulatory. including by the safety rule published last fall. we are also developing the infrastructure and will be recruiting the expert personnel necessary to conduct real time monitoring of the highest risk operations, such as deepwater drilling operations. monitoring during critical phrasing of drilling operations is capacity that we feel strongly must be developed. next on inspections he is developing training programs in curricula for inspectors, and engineering involved in the

safety compliance and enforcement programs. as i recognize very soon after arriving at the agency and is discussed in the commission's report, substantial improvements in our training programs are absolutely critical. the design and implementation of boemer training and development programs are central to reform agenda. this team is working on evidenting the resources necessary to develop an operate inhouse training program which we currently don't have. the development of both new recruit and refreshing training, and programs of the development of former field training program, the creation of individual professional development plans for these personnel, and programs to ensure that government personnel keep up with technological developments related to offshore operations. with better inspections and enforcement tools, including technological solutions for increasing inspections coverage

and efficiency, and for you'ving the -- improving the bureau's real time monitoring. we are monitoring the lap time computers and taplets by inspectors. we are also beginning to analyze the satellite, software, and live data feeds from offshore facilities to enforce our inspections capacity and effectiveness. finally, on inspections, we have introduced for the first time in the u.s. regulatory system perform-based standards for the identification of safety and environmental risks and the development of systems and personnel requirements to address those risks. these performance standards are embodied in the workplace safety rules, otherwise known as the sems role for reviewing and evaluating operators compliance

with the safety guidelines. once you get from the multiple inspection teams is regulatory enforcement. we are currently evaluating the adequacy, and the adequacy and use of civil penalties and process for evaluating operator qualifications as well as debarring unsafe operators. we are reviewing the gaps, including a author -- a thorough review by other countries. we are also looking for enforce the civil penalties of violation of our safety and environmental regulations, although review to make them more mariningful. -- meaningful. the current framework permits maximum fines of $35,000 per day

per incident is inadequate to deter violation. next is environmental compliance and enforcement. we have a team that's focused on designing new inspections and enforcement related to environmental compliance which has not existed. this team is developing staffing plans, analyzing systems for obtaining information necessary to support environmental enforcement. next team, incident investigations. we have an incident investigation which is evaluating and developing procedures related to specific categories of accidents and incidents, including industrial accidents on rigs and platforms, fires and stills. we are identifying the types of expertise necessary to support our investigation's programs and designing the systems for statuses, investigating sanctions, and improvements to safety and environmental regulations and practices recommended as a result of

investigations. finally, final implementation team, oil spill response. we have a team that's conducting a comprehensive review of oil spill response and adequacy of the operators oil spill response plans. this team is working closely with the coast guard and other agencies on developing the enhanced response plan and more effective reviews in light of lessons learned from the oil spill response. as you can tell, the goals of these implementation teams are ambitious. the teams have become the main engine of our reform efforts. in addition to the important work of the implementation teams, i want to briefly mention a number of other significant internal reforms that we have implemented. we are in the midst of a review of our application of nepa, including in particular, the use of categorical exclusions. we have obtained public comments on the policy and we're in the

process of reviewing and analyzing the comments. we are working closely with counsel on environmental quality on this education. in the mean time, we have announced a policy that will require that site specific environmental assessments as opposed to the categorical performance review will be conducted for all new development plans in deepwater. to address conflicts of interest, we have issues a tough new recusal policy that will reduce the potential for real or perceived conflicts of interest. employees in our district offices must notify their supervisors about any potential conflict of interest and request to be recused from performing in which a conflict exists or may exist. thus, the inspectors are required to accuse themselves at the facilities of the former employers. also, our inspectors must report any attempt by industry or by other agency personnel to

inappropriately influence. soon we will be issues a broader person the policy that applies the standards across the agencies and not just to personnel in our district offices. i know that this policy will present operational challenges for some of our district offices in the gulf region, which are located in small communities where the primary employers are offshore. defining the boundary for regulators and regulated are compelling. these rules are necessary to ensure the public that our inspections and enforcement programs are effective, aggressive, and independent. finally, we will continue to recruit internal and external candidates for the new investigations and review unit. a team of professionals with law enforcement backgrounds or technical expertise who's mission is to do several very important things. first to promptly and incredibly

respond to allegations or evidence of misconduct and unethical behavior by bureau employees. second to pursue allegations of misconduct against oil and gas involved in offshore energy projects, and third to provide the bureau with the ability to respond swiftly, including significant incidents such as bills and accidents. all of these measures will help us insure the rigorous and independent oversight of offshore drilling. i have discussed many of the reforms that we are pursuing to improvement the effectiveness in the offshore regulation and drilling. these are substantial and necessary. however, as the commission's report makes abundantly clear, industry must change as well. my agency has a clear and important role in helping to spur that change. we are doing so through the prom

migration to improve the safety and enhance the mitigation of environmental risk. we have improved the drills and productions stages of offshore operations and we will continue to do so in open and transparent ways in the coming months and years. we have also introduced first for the time performance-based standards for those used by regulators in the north base sea. we have done all of this with two new rules that raised standards for the oil and gas industry operation on the ocs. the first rule, drills and safety, prompted by deepwater horizon has has put in place tough new standards for well design, casing, and cements, and well control environment including blowout preventers. they are not required to obtain independent, third party inspection for each stage of the

drilling process. they must ensure they meet new standards for testing and maintenance, are capable of severing the drill pipe under anticipated well pressures. the second rule we complemented is the workplace safety, or sems rule, which aims to reduce the human errors that lies at the heart of many oil spills. the development was in process well before deepwater horizon. but the promulgation, and in the uk and norway, a took a major action for them to be imposed. operators now are required to develop a comprehensive safety and environmental management program that identifies the potential hazards and risk-reductions strategy for all phases of activity. from well design and construction to operation and maintenance, and finally to the

decommissioning of platforms. although many companies developed on a voluntary basis in the past, many had not. and our review had demonstrated that the percentage of offshore operators that had adopted such programs voluntarily was declining. in addition to the new rules, we have issued what we call notices to lessees or ntls, that provide on complies with existing regulation. in june we issued ntl6 which requires that operators include a well specific blowout and worst case discharge, and that operators also provide the assumptions and calculations behind those scenarios. and last month we issued ntl10 which established inspectional requirements, including a corporate statement from the operator that will it conduct the operation in compliance with all regulations, including the new safety rules.

it also condition firms our agency will be evaluating if they submitted and can demonstrate access and deploy subseat con stainment resources that would be sufficient to promptly respond to a deepwater blowout or other loss of well control. this information will help us evaluate operate's compliance with current spill response regulation. now these changes in regulatory enhancements has been rapid, and understandably, a number of questions from industry and others about our new regulations, about the ntls and object how we will apply nepa doing forward with respect to deep water drilling operations. we have held dozens of meeting both in the gulf and washington, d.c. with industry, nongovernmental, and individual operators to ask the questions about the new rules and provide

clarify about the postdeepwater horizon environment. we provided a comprehensive detailed outline for the way forward in permitting in deepwater. we have discussed the number of guidance and have received input on the guidance from them and industry. now we know that this guidance will not resolve every question that an operational may have about the deepwater permitting process, but we intended it to address the significant question that is we have heard to date, and provide answers to help operators move forward with the resumption of work in deepwater. the fact that continuing guidance is necessary is completely unsurprising. with the volume of new rules and formal guidance we have issued in recent months, the need for additional clarification was inevitable and necessary. it reflects no more than the fact that these are complex issues to work through.

which is exactly what we've been doing. we hope and trust that this guidance has substantially clarified some of the difficult and complex issues that have arisen in recent months. we are committed to working with industry to provide additional guidance on these and other issues as it becomes necessary. that said, the one thing that the secretary and i firmly believe and that is reinforced and supported by the commission's report is that a retreat on drilling safety is simply not an option. as you can see, we have already put in place significant pieces of the comprehensive reform agenda. but our work is far from complete. the technology associated with offshore drilling will continue to evolve, as will the complexities and risks of those operations particularly in frontier environments such as ultra deepwater and the arctic.

we are proceed through the rulemaking process to establishment further safety, including next generation subsidy containment, such as blowout preventers, and remotely operated vehicles. the bureau will al promulgate the reforms, including for third party verification of the operator sems programs. we will also evaluate used by other countries to ensure the standards applied in u.s. waters as well as the agency that enforces those standards are world glass. -- class. these are among the issues discussed in the report and provides useful insight about all of the issues. over the past few months, especially since our new rules were announced we have heard from countless members of congress about the anxiety that

exists in the industry. we will change the rules of the perming process significantly, thereby creating further uncertainty about what is required. the phrases that we hear are that we are changing the rules, we are moving the goal posts. the implementation that we have other regulatory requirements up our sleeve that we have not yet unvealed. this is simply not the case. barring significant unanticipated regulations that are ongoing into the root causes of the deepwater horizon, i do not anticipate further emergency rulemaking period. at the same time, we can no longer accept the view that the operate response to rapidly evolving, developing, and changing industry which employees increasingly sophisticated technologies is for the regulatory frame work and the applicable rules to remain froze none time. over time the regulatory framework and the specific

requirements must keep pace with advances in the industry and with industry ambitiouses to drill in deeper water in geological formations that have greater pressures. we will continue to analyze information that becomes variety, and make sure offshore oil production gas safer, smarter, and stronger protections for the workers and environment. in developing these reforms we balance the need for regulatory certainty who's important we recognize to act on new insight and adapt to changing technology. and importantly, the process of drilling permit applications and proposed drilling plans will not be delayed while these additional reforms are developed. you all know as well as i do that we can always do better and that we must always remain open to improvements in our regulations to develop the necessary culture of safety. in the past, industry has in

many instances, reflectively opposed new regulations. that is no more responsible than the mindless multily indication of new requirements for their own sake. we must strike a new balance that fully involves industry in the regulatory process, but that recognizes the need for us to exercise independent judgment. our challenge in the months and years ahead is to ensure that we do not once again become complacent, but rather than to continue to make progress in developing state-of-the-art safety and containment response capabilities. government, industry, and the best minds in our universities must collaborate in areas such as well conditioned sensor, capabilities, remote bop activation among others. government and industry must work together to establish the necessary procedures and constructives to address containment in the case of a blowout. it is critical, for example, to

ensure in the event of a loss of well control, containment resources are immediately available, regardless of the owner or operator involved. these are goals that we must pursue aggressively. now as an important step in this effort, the department of interior is establishing an ocean energy safety institute. you have heard about it from secretary salazar and from me, and it's forum continues to take shape president the institute this foster collaboration among other key stakeholders to increase offshore emergency safety. the institute will provide recommendations on matters and actions related to safety, including drilling and workplace, well intervention, and containment, and oil spill response, as well as collaborative research, development, training, execution in these and other areas relating to offshore safety. among the institute, objectives will be first developing a collaborative research and development in areas of drilling safety containment and spill

response. second, recommending research for advanced drilling testing and protocol. third, understanding full system risk and reliability for offshore environment. fourth, developing an ensuring research and development capability and knowledge base useful both for preventing and responding to accidents. fifth, recommending joint training and emergency response exercises and finally increasing opportunities for communication and coordination among industry, government, academia, and scientific community. this is a key component of long-term strategy to address on the ongoing basis, the technological needs, and inherit risks associated with offshore and deep water drilling in particular. final but very important part including continuing with the

international counterparts. sharing experiences across international system and establishing global standards and best practices. we agree wholeheartedly with that. the u.s. regulator can and should play a leading role in establishing those standards and elevating the safety of offshore operations around the world. we have already taken positive steps in this direction, boemer is one the founding members of the international regulators forum and worked with the international parts in that institutional context. this summer we hosted a meeting of the imf to share our experiences on drilling safety. we are also a substantial player in the department of states, energy, governance, and compassionate, to provide a range of technical capacity to the government and select country that is are expected to become emerging oil and gas

producers. we've also increased our bilateral outreach to our foreign counterparts. in october, i delivered a keynote speech in vancouver, canada. prior to the conference, i met with my counterparts from norway, uk, canada, and australia. later i'll be meeting with foreign officials from australia and uk to discuss our offshore regulatory programs. going forward it's my hope to continue to collaborate with the foreign counterparts for more safer and responsible drilling on the ocs. if i have learned nothing else, i learn that passions run deep with regard to offshore energy operation. i am committed to continuing the dialogue with industry, environmental os, and other stakeholders, improving the safe of offshore, and helping to strike the operate balance among

the concerns and industry that lie at the heart of offshore emergency. i thank you -- offshore energy. i thank you very much for your time. i'm happy to take questions with frank's help. [applause] >> that was terrific, mike. that was the best and most comprehensive walk through from rational to programmatic change. >> thank you very much, frank. >> let me start. we have a couple resumes in questions. because of the size of the crowd, we ask that you wait for a microphone. if you identify yourself and your affiliation to the extent that you can pose your question in a form of a question it would be most helpful. let me start by asking, the collaboration piece is extremely important. we can talk about budget and funding, because i think that'll be an obvious question. the commission report challenged the government and industry to step up their game, recognizing

the importance in the need to go forward, over the course of the summer as you've outlined the department has been ambitious and forward looking on the steps that they have taken. the industry has done, i would argue, the equality ambitious steps with the joint industry task force so they look at well design containment as we discussed earlier. we have moved from a range of legally compliant operations to more streamline best practices grouping. the marine well containment corporation have been set up. what extent when companies now apply for permits and they identify the capability to intervene in the deepwater well and contain a spill if that were to occur. how does the sequence of these pieces, do you have to have already signed up or initiated a contract with the containment corporation before that goes forward? what is safe enough to get the permitting process going again? >> it's a very topical question.

one that i discussed with an industry group yesterday. what companies and operators are required to do is to demonstrate that they have access to adequate subsea and surface containment resources and they are able to deploy those resources in the event of a blowout. there's no magic formula. they can sign up with the well containment corporation, they can sign up with helix, or both, or designate other resources that they believe are capable of doing what needs to be done to interview. so there's no magic solution. we will look carefully and closely at all applications. obviously we have a higher level of knowledge about those two institutional solutions than about ad hoc solutions, but we're not going to exclude ad hoc solutions.

>> right up front. thanks. >> jack jackson with news, the budget question is what i was concerned about. the changes are huge, in terms of personnel, and cost for hardware, software, all of the other things, huge change in the term of the roll of science. what's it going to cost, and who's going to pay? additional tax on industry, will it come out of the budget? can you help me understand that? >> we are exploring all alternative. we are involving those discussions on the relevant committees of congress and staff within the department of interior and so forth. i care far less where it comes from than we get what we need. as you probably know, the president put in a question for -- request for $100 billion, but the fact that department of

interior and my agencies are still operating on a continuing resolution, we have seen very little of that money. that has stymied us in terms of building the capabilities that we need to build and that i outlined in my remarks. i'm hopeful that we can get some greater clarity to the budget process and get firmer and stronger commitments of resources to build up the capabilities that i view as so essential. unfortunately after some encouraging signals last summer and early this fall, the whole budget process got stymied and unfortunately the expansion of our resources was stymied with it. that's where we are right now. >> right here in the back. >> herb chapman from bloomberg radio. one of your questions, the

economies on the gulf coast states, particularly louisiana, tied the offshore. they are campaigning that all rigs are deserting them to go to more friendly climbs. what's your evaluation of how things are going with that? and also more generally, your report card for the industry, are they doing what they need to do? or pushing back? >> well, it's a very good question. the fact is that things have not -- activity has not assumed as quickly as i would like. the fact is we have new require manies and rules that need to be met in order for drilling to resume. both in the shallow water, but particularly in the deep water. we're hopeful that through the consultation that we continue to undertake with operators with trade associations, and so

forth, that we will accelerate the process by which people are going to be able to get back to work and that activity will assume. so i think we've heard before the concern that there is the outpouring of rigs from the gulf. we haven't really seen that so far. my hope is certainly that this does not happen. and i think by providing greater certainty, further guidance, greater clarification of what the rules mean, and how we're applying them, that's providing the certainty that operators need in order to make decisions as to when they think they will be able to get back to work. but much of this is a black box to us. we don't know how the decisions are being made by individual companies, what things they are taking into account. the only part that we can control is being responsive to the questions and concerns that are articulated to us, and i

think we are doing a very diligent and professional job of getting back to the industry on those. i think industry has been cooperative. i think that they good dialogue, and different interest than we do and the past those interests have been mess clearly separate than they are now. we are determined to be objective, independent, tough, and aggressive, some of the things that industry may have been accustom to in the path including the very rapid processing of permits is not happening anymore. that's the source of frustration. >> on the deployment, there was a concern when the moratorium was announced, a lot of company's took the government word for six-month piece. it depends whether it's drill ready or on the world before you up and mobilize. i understand there's at least two rigs in 2011 that would have been dedicated to the gulf that are moving. and if the prospect is like

third quarter or fourth quarter, then other companies will consider. but it really is, you know, arnold -- around the corner. >> i would be stunned if we waited around the corner. >> given the extensive reforms that are needed, how do you -- have you had discussions about the alternative to deepwater production and security issues from importing more crude or environmental issues of tankers. is that something? sort of the opportunity cost, does that factor into your safety calculus? >> no. it really isn't explicitly factored into it. our job is to rate offshore

drilling in shallow and deepwater, now to make it as safe and environmentally possible. we don't intend to impose the cost on the operators. i ask them whether any of the rules we have imposed are unreasonable or misguided. to an operator, none has said that any of them is inappropriate or misguided. they all say they make sense. there's general agreement that we were not where we should have been, that we are getting to be where we should be. but inevitably, that's going to change the pace of the approval, both for the respect of plans and permits. i think industry understanding that. they are somewhat frustrated by it. i think the fact is we are applying our new rules regulations and guidance, and as industry is learning about the

new rules, regulations, and guidance, it's harder at the beginning. i think once we get more accustom to it, the place will speed up. but i'm frequently asked when will the pace of granting permits return to the preapril 20th level. the honest answer is probably never. >> here on the side. >> john with energy daily. i didn't hear you speak art -- about congress' role. i wanted to ask you. [inaudible comment] >> that claim to have jurisdiction over offshore oil -- [inaudible comment] >> and it creates confusion for government. for government regulators. do you agree? do you think congress should streamline the report of the osc

issues? >> the truth is i've been around a relatively short period of time. i have not a deep immersion in dealing with multiple committees. i would say so if i had experienced confusion and problems. the commission studied this question closely. they are almost surely have the basis for that. but in terms of my personal experience, i have not yet seen it. i think if you come back in two months, i may have experienced it and may have a different answer. but i have not, after the first few weeks that i was in office and i it's if -- i testified a number of times, i haven't had a lot of contact with the committees. i don't know if that's going to a problem or not. >> one of the reasons we are able to get speakers to come here, we agree to set timetables. in the interest of time, let me do this. we'll take three questions, group them together, maybe you can answer. gary, one from the side here. second row on this side, and

right in front. >> i'm missy ward, i'm with the naval grad school, this is an unbelievable impressive story. you told it really well. i find storytelling very important in this city. >> thank you so much. [laughter] >> well, you are standing out compared to a great many other leaders in this country. >> thank you. i appreciate that. >> i guess i think that with massive changes like this, the devil is in the detail. and part of my question is as things aren't quite right, will people will rewarded or punished for saying we ought to look at this. is there a mechanism in place which says we want people to let us know what's not happening. i mean i think the cultural aspects on that can make or break what you are trying to do. so i guess my question is how are you doing that? >> it's a very -- let me go ahead and answer that. it's a very perspective question. i think the most difficult

challenges one faces when you try to remake the agency are the cultural changes that you are talking about. particularly when the locust of our operations is over 1,000 miles away in the gulf of mexico. i think the best one can do is to continue to communication with people in the organization and let them know whatever the past experience has been, the leadership of the organization is open to their insights and observations and welcomed them. one the key guiding principals behind developing the developmentation teams that i talked about was to include a large number of from within the agencies that have a lot of experience in these areas. and let them know in the clearest possible terms, there were no limits to the thinking, suggestions, things we would consider. i think and hope that inclusioniveness in that process has made people feel that their views are truly welcome, that their voices are being heard,

and that the changes that they are suggesting in the areas of operations that they know best have a decent chance of being adopted. i have spoken live to all of the members of the implementation teams, letting them know these -- this is my highest priority. that's the way we're going to change the way we do business in our operations. and the teams have been very responsive on the whole in making progress, meeting milestones, and showing they are engaged in the process. >> i'm gary. third row white shirt. does that help you out? >> gary kenfield with plats. you mentioned one the teams is working on regulatory enforcement, specifically the process for evaluating operator qualification and the system for debarring unsafe operators. the commission has said that a

company's safety record ought to be consider when the government is considering leasing them public lands for offshore oil development in a bill that passed the house last year specifically would have barred companies with poor safety records from bidding on leases. can you give a little bit more detail about what you are considering here? >> well, we are considering the full range of options. certainly among those is considering the safety record of companies. but it's a much more comprehensive examination than that. we really don't have a coherent, consistent, enforcement program. nor one that to my mind is sufficiently aggressive. and so what we are doing is really looking at things from soup to nuts and figures how we can figure an enforcement program that realizes and achieves regulatory objectives. and certainly, figuring out whether there are ought to be consequences and what kinds of

consequences for serious regulatory violations is on the menu. >> spencer grey with fbr capitol markets. i'm wondering if you can update us on the assessments for the deepwater has been working on in december. they have a number of them in process right now. i don't recall the number. i think it's well over a dozen that we're doesn'tly working on. >> hi, my name is nancy with jones walker, i was wondering is there any update on the increase of the number of inspectors that you are going to put on the industry? >> as i think some of you you know, we had a very aggressive

recruitment tour that i did in october and early november. went to a number of engineering schools in texas and louisiana we had a job posting that was open and inside with that recruiting tour and quite surprisingly, we 550 applications. not just for inspectors, for inspectors and petroleum engineers. unfortunately, the personnel process always takes too long, and longer than i would like. we are ready well into the process of reviewing those applications, setting up interviews, and so forth. so again, our ability to proceed full speed ahead is stymied by the uncertainty of our budget situation. but we are doing the best that we can with the resources that we know are going to be available. : much. cough if yo