this week is spent on debating something relating to the number-one issue facing the country today and that's how to make sure that we get a handle on the deficit spending that takes place. i would note the absence of a quorum. the presiding officer: the clerk will call the roll. quorum call:

the presiding officer: a quorum is not present. the majority leader. mr. reid: i move to instruct the sergeant at arms to request the presence of absent senators. and i'd ask for the yeas and nays. the presiding officer: is there a sufficient second? there appears to be. the clerk will call the roll.

vote:

vote:

vote:

vote:

the presiding officer: are there any senators in the chamber wishing to vote or to change their vote? if not, the ayes are 83, the nays are 8. the motion is agreed to. a quorum is present. mr. casey: mr. president? the presiding officer: the senator from pennsylvania. mr. casey: mr. president, i ask unanimous consent the senate proceed to a period of morning business with senators permitted to speak for up to ten minutes each. the presiding officer: without objection. mr. casey: i understand that there is a bill at the desk and i ask for its first reading.

the presiding officer: the clerk will read the title of the bill for the first time. the clerk: s. 1326, a bill to implement the president's request to increase the statutory limit on the public debt. mr. casey: i now ask for a second reading and in order to place the bill on the calendar under the provisions of rule 14, i object to my own request. the presiding officer: objection is heard. the bill will be read the second time on the next legislative day. mr. casey: mr. president, i ask unanimous consent that when the senate completes its business today, it adjourn until 10:00 a.m. on wednesday, july 6. that following the prayer and pledge, the journal of proceedings be approved to date, the morning hour be deemed expired, and the time for the two leaders be reserved for their use later in the day. that following any leader remarks, the senate resume the motion to proceed to calendar number 93, s. 1323, to express

the sense of the senate on shared sacrifice in resolving the budget deficit, with the time until 12:30 p.m. equally divided and controlled between the two leaders or their designees, with senators permitted to speak for up to ten minutes each, and that the senate recess from 12:30 p.m. until 2:15 p.m. to allow for the weekly party conferences. further, that the time from 2:15 p.m. until 6:00 p.m. be equally divided and controlled between the two leaders or their designees with senators permitted to speak for up to ten minutes each. the presiding officer: without objection. mr. casey: mr. president, the majority leader filed cloture on the motion to proceed to s. 1323. unless further agreement is reached, this vote will be on thursday. mr. president, if there is no further business to come before the senate, i ask that it

adjourn under the previous order. the presiding officer: the the presiding officer: the

>> as we look to the future, the challenge grows more stark. the global population on the rise and strong economic growth is expanding middle classes and increasing demand for agriculture products. we'll have to increase food production by 70% to feed a larger, richer, global population of 9.3 billion by the year 2050. once more, agriculture will play a roll in meeting the growing demand for energy worldwise. which is to increase by 40% of

2035. the challenge of feeding a global, growing population is read, and our success is not necessarily guaranteed. for producers, this is also a time of uncertainty and constraint. as they confront the uncertainty of climate change and face the constraint of limited water resources. we know that past approaches to solving global hunger which focused on efforts on providing food aide is simply not enough. we need to focus on agriculture so that food is accessible to everyone in the world. i strongly believe that our nation, our scientists, our policymakers, and most importantly of all, our farmers, ranchers, and producers have proven that think are up to this challenge.

american farmers, afterall, with the most creative and productive in the world. seem is more productive over the course of the last century. america has moved from sustenance farming to today being the largest food experter. this evolution was not preordained. america producers embraced science in pursuit of greater productivity. technologies emerged from hard work, land grant universities, and private sector. issue number one as we address global food security lies in innovation. arising from research and development. higher productivity need not come at the expense of conserve ing our natural resources. american farmers have taken step it take care of the resources.

in fact, in the last 30 years alone, usda has helped producers to reduce soil erosion by 40% and agriculture has gone from being one the leading causes to restoration. farmlands, pattures, and forecasted area through proper conservation efforts help preserve our water resources and clean our air. so principal number two, in this effort to find a solution to global food security is that it need not be and should not be at the sacrifice of efforts to conserve our natural resources. two years ago, world leaders in italy committed to make sustained increase in investments and agriculture development. and the g-20 agriculture which i will attend next week will

continue to reinforce and move the agenda forward. during the two years, the focus and extent of cooperation among the leaders have been remarkable. and it is mirrored here. under the leadership of president obama, the united states government has pioneered a new coordinated approach to working towards global food security. feed the future. a presidential initiative led by the u.s. agency for international development is smarter and more efficient because it's focusing on raising the productivity and incomes of small holder farmers through country-led strategies. it is focused on specific geographic regions and value chains within 20 countries. so that we can significantly invest in priority areas to bring about the comparative advantage. bringing together the capabilities of the multiple parts of the u.s. government, feed the future is also working with multilateral partners and the private and nongovernment

sectors as well. to build local capacity, to sustain and increase the regional trade. through feed the future, u.s. is also closely coordinated effort with usaid and usda. in times of reduced financial resources, efforts must be focused on core competency. there are three core areas that have been identified. innovation through collaborative research, in country capacity, in areas such as regulation, trade and expension, and official market development through information, analysis, and statistics. so the third and important as we deal with food security as the door competency of u.s. departments and agencies as well as other developing countries

and international organizations. as we've seen for decades, it's the best for game changing results. research and a climate changing error is working to cop and extent through technologies and methods for agriculture water use efficiency, soul conservation, and basic productivity of land in which seeds are sown. at the same time, innovative genetic research is changing plant breeding by providing us with a better understanding of the genetic bases of high yielding and stress resistance crops. to confront heat and pest, soil cylinder, we're using discoveries about genetic information to better predict and access access -- accelerate. selecting lines rather than labor consumer field trials. in the past few years, usda field research has helped reveal

the research in a host of animals, including corn, soybeans, apple, pigs and grass as a great potential for biofuel crop. in the past few weeks alone we've published research of genome which damaged crops around the globe. this allows us to bypass generations of breeding and spring about more abundant and nutrition food. the new understanding of genetics is also having the impact on one the worlds most threatening agriculture challenges. the wheat stem rust. this devastating fungus is spreading across africa, asia, and the middle east with the potential to threaten crops that feed one billion people. the united states is playing a key role in the international effort to reduce it's effect and

change. we have provided more than 14,000 lines of wheat to be screened for resistance at plots at the kenyan agriculture research institute. thanks to genetics, we're prescreening lines of wheat before sending them for field tests. increasing the frequency with which kenyan researchers are finding rust resistance in our wheat and moving us closer towards developing new ug99 resistance. today we are take another strength. usda is celebrating the ground bracking of a new usda. a significant commitment on the part of the united states government under feed the future. the initiative to provide a more stable supply. other helped us lead to a flood

tolerant rice variety that shuts down during the conditions. but resumes growth afterwards. developed in conjunction with the university of california, and in the international rice research center in the philippines, new varieties are helping perform the food security in the feed the future focus countries. at the african growth last week, usda and usaid are proud to announce that through the food -- feed the future initiative, the u.s. government will support an african led partnership focused on controlling toxin. over 1.5 people -- billion people consume dangerous levels. this project paid for the broad array of international and local organizations and foundations includes $12 million from the u.s. government. this will help us develop comprehensive regional strategies on health and

economic growth. : and raising farm incomes both year, at home and across the globe. it is our belief in global innovation in agriculture, genetic information that forms the basis for much of the work is already available publicly

and every year, usda distributes at no cost over 150,000 sessions from her seed banks to researchers at home and around the globe. this research effort is not just a domestic effort. much of the best research is done in conjunction with their international partners and nonprofit funding. tape ashes threaten funding for the work at home and abroad, it's critical that we not only had kate for continued investment in this sort of innovation, but that we continue to encourage private and nonprofit funding as well. e.g. tony agriculture ministry, as if were to engage in with my counterparts and how we can continue to sustain support for such critical research and innovation globally. frankly, research alone will not feed the world. people will. farmers and ranchers in the chains of individuals who help artists, package, ship, so i'm prepared to go as well.

to me, future challenges he must help farmers adopt the latest is the type knowledge he, improved irrigation assistance for animal techniques in a inappropriately applied fertilizers and pesticides and herbicides if need be and help to regulate safety of the few systems and engage in the global trading system so that supply can be reached -- can reach the demand. see security efforts must be country that in country driven and focused at the local and community level. we sincerely want to engage small farmers and villagers to learn their ideas did not develop in their agricultural sector so we can help them with technologies, techniques and crops that fit their culture and lifestyle. our focus must also reflect an understanding of the role of women in framing who account for between 60 and 80% of food production in most developing

countries. chris conti take this opportunity to thank linda mix for your continued after, particularly in kenya and that's working on increased area production because that is having a profound impact and effect on folks not only in that country, but across africa. while we improve productivity, we must also ensure from the farms to denounce the need. we were subcommunities build safer water systems, stronger postservice infrastructure like roads and cold storage. we have to continue to ensure she's safe d. and encourage vibrant local markets and transparent information and improve financial services. national and regional governments have an enormous role to play in this effort. in the united states, land great universities and extension agents have helped producers practice successful attorney management and marketing and even help them form cooperative spirit the usda foreign agricultural service engage with ministries of agriculture in over 150 countries around the

world to enable trade to support policies based on sound science and help disseminate sound management practices in less developed countries. today through feed the future initiative come were focused on capacity in countries like barbash, haiti, tanzania as well as regions in east africa and central america. its initial focus countries and regions were selected because of the strength of their political attrition in their vision for confronting hunger. they have all committed to their own investment in agriculture sewer investment generates significant leverage. gone, for example, cutlasses between 30% and 40% of grain supply after harvest because of inadequate commercial and on farm commodity storage and handling facilities. to help tackle this challenge, the usda collaborates with land great university specialists to develop and deliver it there is

a training and capacity building programs to improve storage systems on and off the farm, which in turn will minimize moisture losses. our room fellowship program expose international counterparts to american agricultural systems and innovation at the same time that supports critical human capacity that underpins their growth. for example in kenya, the cochrane foundation fellowship program has helped the kenyan plant health inspectors service atop a port of entry section system similar to what we use here in the united states. this is preventing direct benefits to the kenyan economy as america is now importing of its fresh vegetables. it also has potential to make a big difference in the region as kenyans who have been trained through the usda programmer teaching procedures and assessments to government agricultural officers and other east african nations.

u.s. food aid programs are also trade in agricultural productivity, increases in raising the incomes of farmers. this year alone, though benefit more than 5.2 million people in the developing world. our food for progress programs, malawi, guatemala and tanzania are building cooperatives, supporting extension, linking producers and buyers in increasing market information and developing agricultural financial systems. and the program invests in the future by increasing school attendance, literacy food availability for children. this is occurring in over 30 countries around the world. ross at the same time building capacity to design, manage and fund sustainable national safe events like the one in the united states school lunch program would've been so successful in america. as we work to develop agricultural economies, we must remember the sound agricultural

policies here in the united states and in others she 20 countries and in the developing world are founded on good information. that's why another priority for a few security, which i look forward to discussing the counterparts next week must be increasing transparent tea and agricultural systems. that means establishing data collection, information and regulatory system so that nations can make informed decisions to establish some policies cannot respond to changing food supplies and reap the many benefits of agricultural trade. the united states supports the un's efforts to improve global, agricultural statistics and provide accurate and timely market information and forecasts. and we support in country efforts to improve data collection and analysis in many countries. we're also working to bolster here in the u.s. national agricultural data system and institutions in the feed the future nations of the countries

can carry out their own food security assessment, monitor and analyze functions to their country. in nigeria, usda is helping to pilot project to increase sampling methods and data collection techniques. in places like guatemala, were supporting market information system so farmers there can make informed decisions. as these new capabilities and systems take hold around the world, we believe they will not only be less waste and fewer hungry people, but the global community will be better able to mitigate and respond to crop failures and thin mints. countries will be able to make more informed agricultural choices as abbas satchel increase in global commodity prices for the second time in the last two years, it is a good reminder that the importance of increasing transparency in the free movement of the food supply at. these measures will get through to the people that need it most and helps with price spikes. the bottom line is the

transparent systems in place, farmers around the world, from the salient acre to two large row crop operations here in america will be able to respond to changing markets and grow what is most profitable for families and most needed by their neighbors, country and the globe. the policies adopted by the international community are critical to creating a successful environment to collect challenge before us. at the g20 meeting next week will establish priorities, greenways to increase the effectiveness of international agricultural systems, information and investments. i think it is significant that the g20 liter single out the importance of food security and are crafting together with how to address the problems of high food prices. i know they are interested in long-term solutions to improve productivity and i'm hopeful we'll have constructive conversations about additional thoughts about how to meet the

demand -- great demand for food over time. so i had to cicerone, optimistic about what can be accomplished and committed to the role of american innovation and driving sustainable intensification of agricultural production and improve nutrition around the world. in the end, progress on these issues is also good for us here in america. it means improved economic opportunities as developing nations grow economically and engage forcefully in global trade systems. and it means more stable nations and fewer threats to our national security. working to eliminate food and security across the globe to innovation, hard-working partnerships will provide incredible economic assets and natural resource enhancements to developing and developed countries alike. it will increase political stability in conflict and poverty-stricken regions of the countries around the world in our global community on a path to future prosperity. agricultural throat goes beyond

feeding and clothing the world. producers are key; two. in the united states are looking to biofuels to help confront challenges of providing adequate sustainable energy supplies, generating economic growth in rural communities in mitigating the impacts of climate change. in some cases come in the same goals can be met by biofuels productions and the rest of the world. as the fao bioenergy increased security project has shown, bioenergy production and use in the developing world isn't automatically good or bad. instead, we managed carefully, considering not only energy needs, but environmental needs, economic growth and food security, bioenergy can promote security by driving investments in increasing incomes in rural areas to help nations develop in countries reached right balance. the global energy partnership

recently announced a set of measurements and tools to promote the production and use of bioenergy is the way of encouraging sustainable development. this is a clear reminder we have to move beyond the all too common debate which puts food against fuel and figure out how to meet those challenges, energy security and food security. the truth of the matter is that corn-based ethanol does not desert the scapegoat repetition to some folks often attempt to assign to it. during the great run-up in food and commodity prices in 2007 in 2008, american biofuel production played only a minor role accounting for about 10% of the total cost in food prices. combating hunger and feeding the world, particularly the world's children is one of the great challenges of our day. giving the child a more project a future, affects not only that child, but for the child is raised on a country where he or

she lives in the entire world. as a moral issue and we are proud to be engaged in work that gives children and families around the world an opportunity to follow their dreams. thank you. [applause] >> thank you very much for your time, mr. secretary. there's no shortage of questions, but please feel free to submit more. first on your discussions are going to be having in the next couple weeks of other agriculture ministers, do you think the europe and the united states will agree at some point to reduce agricultural subsidies enough to satisfy china and india to the doha round? >> i think the challenge with doha is not so much america's willingness to consider reductions to support structure

and system. i think it's fairly obvious in her physical condition and circumstances that's likely to happen. the problem is there's not a corresponding willingness on the part of china and india to be definite and concrete about how open their markets would be. as we look at a doha round in any trade agreement, we want to make sure it's fair and balanced. we can quantify with great specificity what we're willing to do relative to our support structures and systems. we need the same kind of specificity from china, india, brazil and other countries in terms of how open markets will be to ensure we are getting a fair deal. >> one of the paradoxes of booming u.s. exports is that some of the most feared import dependent nations are the ones that have the greatest amount of food security and the most dependent on food prices seminar price spikes in more developed regions, they tend to bear the brunt because of their lack of car. for mr. security standpoint, how do you balance your charge,

really secretary of aquaculture to boost u.s. exports at the same time some of the poorest nations need to become less dependent on this export? >> well, first and foremost were interested in making sure those developing countries are able to create rural economies that are strong and can provide greater financial benefit to those who live in the rural areas. i won't forget for quite some time visiting a farmer in kenya who is going both corn and beans virtually the same place on his farm at the same time. his theory, roger, with subpoenas would basically provide nitrogen that would in turn are merged later to be better. we try to convince him that rotating the scraps would be more effect is, would increase sales, line to buy perhaps another dairy cow, which would allow him to create surplus and internet-enabled him to expand his operation.

so it isn't so much about imports and exports that it is making sure productivity of countries is maximized and folks appreciate how best to expand their operations. at the same time come it's important for americans to recognize that the rural areas of this country have suffered for an extended period of time. 90% of persistent poverty counties in this country are not located in urban centers. they are in rural counties. the per capita income difference between those in rural america and those who live elsewhere is about $11,000 per person. it is important and necessary for us to look at ways in which we can create economic opportunity and her country. at the same time we've seen a consolidation of farms to the point that now less than one 10th of 1% of americans produce 85% of the food. so as we look at strategies to embrace and to enhance economic development in rural areas, we have to understand that we have to have strategies for helping small landholders in the u.s.

who might benefit for make benefit from having an opportunity of a co-op of producing biofuel at the same time, we have to an opportunity for prosperity is a combination of meeting our needs and using the excess if you vote to provide export opportunities. honestly think we can balance this properly and with the demand we see both on the food and energy commanders more than enough opportunity for folks in developing countries to leverage and expand operations at the same time allow the united states to continue to export in the ways in which we can produce other kinds of crops in addition to food. >> you spoke about government initiatives. but these initiatives, they can be lacking from some countries,

especially in an environment of budget cutting. how much can governments realistically be expected to accomplish in the fight against it and security? >> welcome to g20 nations have made a significant commitment of $3.5 billion of additional resources about than the bond assistance. re: make good on roughly $2.5 billion of the $3.5 billion commitment. we'll see additional commitments in the fiscal year 2012. this is an opportunity to focus on the difference between reducing budgets and up is a circumstance strategy is driving the economy and investing in the future. there has to be a balance in their opportunities here for us to develop stronger relationships with other countries, create stronger middle classes, which in turn create demand for products the united states can produce, both

agriculture and otherwise. as i said earlier, does provide for stability in those countries, which means we have less threat to attend to for my national security perspective, which should allow us to take a look at her birdies, budget priorities. so we would be penny wise and pound foolish to reduce our commitment to global food security because if we think we have concerns and challenges today from a national security perspective, we did so we have a more serious food shortage and water shortage around the globe. at that point we will see how to they can be. we're much better off investing now in expanding the stands and encouraging developments in these developing countries and making sure the user agriculture to the fullest extent possible in their countries. >> following not come a question from a person who e-mailed us. are you considering the european union's anti-gmail, anti-pesticide stances exporting

hunger? >> you know, i think there is a need for us to continue the dialogue and conversation with our e.u. partners in terms of strategies that will work to address global few security. i don't think there's any question that we can't turn our back on science. this is a significant challenge when you think about increasing food production by 70% we may not of land for producing crops is not going to grow and likely going to shrink with expanding cities and communities. what are you going to do with? he got to figure out how to do more with less. the only way you do that is by figuring out ways in which you can use land that is currently nonproductive and make your project is for use land currently projected to make you more productive. that's what we found in the united states. in the 1930s for a subsistence farming country. if you didn't grow up, people didn't need. and just 75, 80 years we've gone from not point to the place we

were the largest exporter. why is that? it is because farmers embraced science and embraced new technologies. initially there was for the dems. initially there was reluctance to embrace the concept of a mechanized tractor. but over time for folks in agricultural areas overcame concerns, to the risk and found enormous benefit. i think the same thing will have to hold true in other parts of the world. there has to be a greater embracing of science. there has to be a process by which post-commit themselves to regulatory system based on sound science. and we have to obviously get away from some of the parochial views that we've had. we are seeing that happening in the united states. there is no discussion about our subsidy system, which i think it's healthy. we are going to continue to see more about a think think as we try to confront this major challenge we face as a globe.

this is not one country's responsibility. it's the entire code's responsibility. so i think it's very, very important for people to have an open mind and take a look at science and i think we're beginning to see an eastern european countries a greater acknowledgment and acceptance of the science i think it's ultimately going to lead to greater embracing. >> the journalist hl mencken who was honored here at the the national press club once said for every complex problem there is a solution that is simple, neat and wrong. what are some simple meat solutions to the problem of food security that you see is from? >> well, one solution is some countries have decided to sort of brain and can take the position they are going to limit the capacity to export in the developed bans on exporting commodities, which in turn distorts the market, creates potential for higher cost than

would otherwise occur. so i think at a time when there are difficulties, the initial reaction may think of folks is to sort of look inward, to try and hang on to what you have. and i think that is precisely the opposite of what we should be doing. this is a tremendous challenge, but a great opportunity for us in the unit states to develop relationships if we are willing to look outward. the same thing not to be true for other countries, particularly some of the major players. major players consider export bans as i said earlier to distort the market make it difficult for the rest of us to have the trains parents be -- the market information necessary to properly price and properly forecast properly estimate the status of food, which in turn makes it harder for these developing countries rather than easier. that would be one example.

>> we have several questions about food safety and e. coli scare in germany. in the wake of the e. coli scare in germany, how important is expanding e. coli tested in the united states? there is a proposal before a one b. important is it that proposal advanced? >> well, i think this is another important question. i think americans deserve to have a safe food supply. we have been fortunate i think on balance of having a relatively safe supply. but until we do not have a single incident of contamination got a single incident of people getting sick or fortunate tragically dying, we still have work to do. that is what i think it's important for us to take a look at ways in which we can continue to focus on the prevention of hurt. i think for us as we learn more about e. coli, as we learn more about the strands that can cause problems, we have to be willing to step forward and begin the

process of testing to make sure we can prevent illnesses and diseases rather than responding to them. i think what is happening in europe is a wake-up call. it requires us to be continually vigilant about food safety. it is an everyday responsibility and if you relax for a moment, it can cause devastating consequences. so our hope is we regret the industry, which is just as interested as the usda and the government has been having a safe food supply because obviously they are as concerned as we are about the safety of individuals. >> with the u.s. be better off with a single food inspection agency? why and why not? and the current budget discussion, house at a summit for this week, what impact to propose cuts to the fda budget and other safety measures have on the safety of the u.s. food

supply? >> well, i would just point out at least a release to usd i, our food safety inspection system takes a look at meats and poultry processed a come on most of the budget is not the vast majority of people. some parts of usda's budget to talk about programs, local governments, farmers. but in the food safety rain would talk about inspectors, people that are responsible for making sure that will lead us as safe as it can be. obviously anytime you impact to reduce commit it is safety in the budget of food safety, you're obviously going to impact a number of people responsible for food safety, which makes it that much more difficult. we are going to continue to work on the continue to do the best job we can. we are challenged to take a look at processors, ways we can do more with less, ways they can be more efficient and more effective with the safety? by their processes and systems that would be better? if so, we are now challenged to

look at those things very carefully and to embrace them. you know, the reality is still 325,000 people in this country get sick every year from a food related illness. that's far too many. and there is a consequence to that. there's health care expenses, loss of productivity and tragically and unfortunately 5000 people die. we need to continue to work on this. we need to continue to improve our safety systems. it doesn't necessarily matter what you've got one system or one department virtue department of multiple department defined as those departments have the same philosophy in the same approach. when i came into office, the president instructed me and kathleen sebelius of health and human services to look at how we can improve safety. to put together a food safety group of what we found with the need for fda and usda to have the same philosophy as it

related to food safety, which was a preventive safety, not vindication philosophy. but the passage of the food safety act, if properly supported, you'll see fda now has much more of a preventative circus, which is very similar to a usda is it doing for quite sometime. i believe that singular focus is probably the best thing we can do today to ensure a safer food supply. >> this audience ever asked, 70% of all antibiotics produced in the u.s. goes to farm animals. why can't the usda do more to reduce antibiotics >> welcome in the simple answer and the bureaucratic answer is that is the responsibility if fda. i would never acknowledge the fda is wrong. i think it is important for usda

to work with farm groups and those representing an concerned about ever to make sure that we talk about antibiotics and judicious use of antibiotics, the appropriate use as opposed to an overuse. and i think we have continued work to do in that area and we're continuing to work with the livestock industry to make sure that members, farmers, livestock producers understand it is in their best interests in the blunt terms to be judicious in how to use antibiotics. so i think working with fda, working with farm groups will continue to improve them. >> the united states is the world's largest producer and exporter of ethanol. after 30 years of tax credits and trade production come to set them all really need the subsidies? can the federal government even afford them? >> well, what we found out what we reduce or eliminate subsidies to quickly, we find out that

there is an unintended consequence of which is production capacity is compromised and ultimately judged us. at a time in this country really needs are people working, not fewer people, we have to be careful about what we do relative to support for biofuel industry. they are directly or indirectly over 400,000 folks employed in that industry. in the bio diesel tax credit was allowed to expire a year or so ago, we saw 50% of production capacity and 12,000 jobs the mass. again, let me mangy statistics for unemployment levels have historically been higher if were going to address, we have got to have opportunities and alternatives for job growth and income in rural areas. if were to meet the president's

challenge by a third, we're going to need to have a robust biofuel industry. to do that, we need to move away from corn-based ethanol from which everyone recognize and we are doing. the usd is helping to sponsor a variety of alternative stocks from algae to grassroots to woody biomass to agricultural waste and others to create new supplies and new ways to produce ethanol. at the same time, we have to make ethanol readily available throughout the united states can make it convenient for consumers. if we we did not have an ethanol industry and magically we could just order wave a magic wand and a tire biofuel industry would leave the country, everyone in this country would be paying on average about 90 cents a gallon more for their gas. it gives us an opportunity for competition. it gives us an opportunity for innovation and opportunity for job growth and opportunity for rural communities.

where we wish to $36 billion threshold which congress has set us where we need to be within the next decade or so, we will reduce our reliance on foreign oil by about 19%, which just happens to be the percentage we currently import from middle eastern countries in the area of the world, which is unstable in the instabilities reflected his house and the cost at the pump. if we want to stabilize that cost, stabilize energy cost this country, provide more economic opportunity, we obviously have to have to have your to biofuels. does that mean continuing subsidies forever? no. does that mean that they have to be continued until we reached 36 billions? now, but i think we have to be careful about the way in which we go about reducing the sense views. i think the time has come for us to redirect some of that support, to redirect the industry to provide a more convenient supply and

encouraging detroit to consider the small investment of 100 to $150 a card to make every single vehicle coming off the line of flexible fuel vehicle. .. let me just simply say that you don't want to put a lot of the growth opportunity. there are a million jobs at stake potentially as we expand

the industry and over 100 billion needed in the rural areas so we get more economic activity materials. so we have to be careful. >> following on that with the structure you've got basically a three leggitt stole so we 45 senator gallen credit that goes to biofuels and a tariff on ethanol imports from brazil and then a mandate, 13.2 million rising to 15 billion. a lot of it becomes cellulosic. so you have this mandate that requires 13 billion last year's production was 13.6 so when you're looking at, why can you not get by with the mandate which already requires about the same sort of production level and save taxpayers 5.7 in the free trade from brazil?

>> due to be careful about the savings to the taxpayer because to the extent to compromise the jobs currently in this industry to the extent to compromise the capitol investment made you may seek a loss of revenue as a result of job loss in you to be careful in the numbers you use. the tariff with brazil will be phased out over a period of time but right now brazil is having their own difficulties and have to reduce ethanol in their own vehicles because of the challenges they have with their own production process these. you are bumping up against the thing that didn't answer your question against the $15 billion threshold corn-based ethanol is ultimately tapped out and they

have to, some source other the corn-based. you have to work to get the new feedstocks to the point there are efficiently produced and help in assistance to get there but again the benefits to the country of more jobs in america, more capone investment, stryker bottomline from producers, alternatives to use more productive and more productively, opportunities for new innovations to occur and byproducts from the process that the livestock industry and other businesses, a tremendous opportunity and there's a trade component to this, so i think you have to be careful in terms of this debate that we don't limit our capacity to grow our way of a deficit. the usda has done a good job in terms of responding to the deficit really knocked out $4 billion of crop insurance cost to the government and applied to the reduction.

the resolution was passed by congress hitting a dhaka said the hard as any department. we took a 10% cut to the discretionary spending and the house is considering another 13% on top of that so we are hoping but i'm very concerned we are going to limit the capacity to grow our of the deficit. >> one final question on behalf of all because it's a fascinating topic. the lot of people have questions about ethanol and i think it's the crowd we are talking to today that 15 million-dollar limit the will letter of 2015 there's already a cellulosic feedstock limit component that is put in and that tends to get waived because the capacity isn't quite up to that point. when the 15 billion comes in a couple of years and corn continues to be productive and farmers have crops are we going to hear people say we don't really need the cellulosic ethanol there's more cornforth.

will there be the discussion and if not, why not? >> i don't think so because the key for this industry is to become national. brenau most of what's happening in the final production is located in the midwest. our goal was to make sure every part of the country has an opportunity to produce biofuel in a way that is convenient and effective for them so it may be in the northwest and it may be the south east you use grasses, it may be other areas algae is available. there's tremendous things occurring in this going to lead to new opportunities. just consider how we do is america built a strong middle class, the strongest economy in the world. it's because we were in the business of innovation and making and creating things. for too long we've been out of that business. the biofuel industry is one way we get back and if we get into it in a robust way we produce

not just biofuel but from a multitude of products and buy products that will rise from the production process. but mcginn genex symbol. in shenandoah fallujah there's a facility producing ethanol, corn-based ethanol and three components and the corn goes in this protein, starch and co2. the starches used to produce the fuel. would you do with the protein? mick livestock feed which is helping the industry, a one-third comes out or the ethanol production process comes out as livestock feed. would you do with co2? the decided they were going to make and use the co2 with heat from the process and reclaimed water and produce algae, get the harvest algae everyday through a vertical on a small number of acres have a tremendous crop of algae that can be used for

cosmetics, can be used also as a feedstock for fuel. there are 30,000 different kind of algae. these are unlimited circumstances and opportunities. the formula of president established to rebuild a simple one. the government will spend less but spent wisely. we have an economy that makes, creates and innovates and because we will innovate things never made or innervated before we will be able to export the opportunity to the rest of the world and through those exports create wealth in this country. it's worked and agriculture. less debt and agriculture, more productivity, larger exports today we are looking at income levels the highest they've been in quite some time. islamic we have questions about conservation to combine a couple local and international. first, what is the will of the

current sweep of conservation programs towards feeding tomorrows population and second what if any strategies are to usda and other leaders pursuing to preserve enough arable land for food given the population growth? >> conservation is about preventing soil erosion and improving water quality and we are beginning to take a look at how we use our conservation programs in the suite of conservation programs beginning to assess how we are doing in the soil erosion and things getting in the water that makes it more complicated to preserve water. we are finding as farmers are fall/winter the increasing the conservation, finding conservation is making a difference with erosion being reduced, less pesticides getting into the water but more work to be done. what we found is it's important and relevant in terms of water quality in particular that we, a sweep of conservation practices

not just rely on one practice but utilize a suite of practices at second they must be combined for the biggest effect with management plans when you combine those you see the largest most significant gains. we assess this and chesapeake bay area and mississippi and now the great lakes area and i think we will find that message to be supported. so, conservationist about preserving the quality and capability of the soil, and we are working with international partners to make sure conservation is part of the discussion, training and education we are undertaking with our agricultural efforts in other countries. we don't want productivity to be the expense of the richness of the soil because it will stop producing. >> we are almost out of time that we've too important matters to attend to.

first to remind our audience of the future speakers. tomorrow pratt scowcroft the former national security council chair under president ford will speak at the gerald ford journalism award and june 24th we have sheila bair the chair one of the fdic talking about the federal response in the financial crisis, a legend for the if the oscar-nominated actor will announce the formation of his foundation which will be a charity dedicated to raising funds for charities supporting the the military. second, i would like to present our guest with of the traditional national press club mog. [applause] about a round of applause. [applause] >> since you are a three-time speaker you can start handing them to your children when you have breakfast. final question, one of the bigger stories involving usda in recent weeks was the release of the my plea to dhaka on

replacing 19 years of pyramids. if you haven't seen it it's replete with different portions symbolizing having its grains, proteins, fruits and footballs and fruits and footballs are half replete and then a dairy, and there's a cup of very that's on the side within the next to that there's a fork and nothing assigned as the values of my final question mr. secretary is what is the symbolism of the fort? [laughter] >> well, it's what we use that usda to eat with. i don't know what you do what bloomberg news triet [laughter] [applause] having said that, the my replete is a great opportunity to send a concrete simple message to folks about proportion size and a and buy it to this country needs to pay attention to.

>> thank you, secretary vilsack. [applause] thank you for coming today. what it to thank the national press club stuff including the broadcast operations center. you can find more information about press club on the web site and if you'd like a copy of today's program check out our web site at pressboard. thank you for coming today. this meeting is adjourned. [inaudible conversations]

on july 21st 2010, president obama signed into law of financial regulation also known as the dodd-frank act. the financial reform project of new york university business school posted a daylong conference focusing on the implementation and impact of the legislation. next, remarks by the president of the federal reserve bank of kansas city. he discusses regulating so-called too big to fail institutions. this is 50 minutes. >> it's time for the lunchtime keynote and it's my pleasure to introduce president and ceo of the federal reserve bank of kansas city and the senior fomc member. he's a person whose practice law from colorado to misery and and mexico to wyoming.

it's a big chunk -- there you go. i didn't study civics for no purpose. he's had a distinguished career within the federal reserve bank of kansas largely. he joined the federal reserve bank in 1993 and has been president for 20 years, since 1991. he has the legendary jackson seminar every year which we either have attended and enjoy your wish we had but were never invited. [laughter] and his kansas city federal reserve bank says a financial industry during the recent crisis. so to share his thoughts on why

we haven't solved too big to fail problem yet and how we can, and honored to introduce thomas. [applause] >> thank you very much for the introduction. it's a pleasure to be here. i have to note we put the wrong embargo on the remarks. we said 1:00 so it's out. because of that i'm going to try to present my comments and leave time for questions because i'm sure there will be questions of one time or another. we are approaching the one-year anniversary of the dodd-frank bill and given all the work that is yet to be done and the uncertainties that surround it, i think it would be a little

premature to celebrate but i do think it's an opportune time to take stock in mer it is and where it might imply for the future and i want to congratulate the organizers of conference it think it's important we take this opportunity in nyu, and i particularly want to note some of the colleagues at the school because they've done some great analytical work and also some pretty practical ideas have come out that served us all as we talk about dodd-frank, the discussion in important ways revolves around the disruptions, the difficulties we've had over this crisis in the distortions that have come from the important financial institutions in fact, part of the discussion around the title i have for

these remarks do the of the future my remarks should they have a future, and that's really i think what it's important about. and as we talk about them, i always try to ask myself some fundamental questions about this and that his home in the world could we have investment banks have relatively minor importance in the global basis to merit the bailout and how can another investment bank with its failure cause such devastation and the collapse of the financial economic system among the world and how can large insurance companies that has failed be bailed out and left in private hands to go forward and finally how can a country the size of greece hold hostage most of the world's in financial sense.

and there aren't good answers to those questions. it's been my experience that are hard to answer and that's because i think the inconsistent that is having them and having these kind of even its mix then consistent with the concept of capitalism. they've been increasingly powerful, they've been number two increasingly destabilizing to the economy as we've seen by the recent crisis. the required special support, and they have if you will the availability of different rules, and i think that's why we have to go beyond dodd-frank to address the question as we now have. we have to end the artificial complexities that come with these very large systemically important institutions if we are that is to restore a more stable financial system, not a system that will be without crisis because we always will but one

that is more stable as we enter and exit a crisis. >> now i want to start by pointing out that i take this because the united states has been one of the most successful economies in history as an economy out of creation that it has been able to provide us and that's because i think it has been mostly over its history bound by the rules of capitalism which does untucked reward success but also it compels the participants in the market to play by open rules, have a market that is free in 5 cents of transactions and compelled to fail when they make poor decisions that keeps it efficient, vibrant and renewed, and i think that's in that way how we allocate credit in this

country to the most valued endeavors that made the country great and built the wealth. now, i think it's very important that while history has done this, we have changed, and in fact as recently as 1980, in this country we still at 14,000 financial institutions competing across the nation locally, we had available for providing credit for local needs, very large institutions that did in fact provide credit for the largest firms in the international business, and the largest five of those institutions controlled or managed about 29% of the deposits or financial assets among those institutions which was the equivalent to about 14% of gdp. but since then, and today, we have a far more concentrated and far less competitive banking

system as we've seen. there are fewer banks operating in the country, and the largest five control more than 60%, or more than 50% of deposits and assets in the industry, and equivalent of almost 60% of gdp, so the impact is larger and the largest 20 institutions control greater than 80% of the financial assets in the industry, and over 80% of gdp. so it's a very different environment we have today as we've seen. and the irony of all this important to keep in mind is that this very significant change has come from our efforts to make sure we are able to do the financial crisis without having the consequences of these financial crisis. the federal reserve for example is a product of the 1907 crisis in which we set up and parked to make sure there was liquidity in the market when there was needed

as people lost confidence. then we had deposit insurance come after the great depression and the fdic to make sure the small deposit is taken care of and therefore a more stable financial environment. and over the last 30 years, we've expanded bit by bit, piece by piece to an ever larger group of institutions covering a larger group of financial liabilities. and we then in the late nineties even as some of the instability was in place we've eliminated the glass-stegall act which separated the high-risk activities from those activities protected by the safety net and this created incentives for ever-increasing and the failings and that period starting with continental we confirm for the world some institutions were just too big to fail they were not subject the same capitals,

capitalist standards everyone else was and in that instance was born. it's no wonder we have this great recession, no wonder deutsch and the incentives we were put in place and the ability to grab for rest of the improved return on equity the lending practices became weaker and we began to trade very significant amounts at the desk and we increased leverage buy almost twice what it was before the delamination. the kindling was there and the housing market struck the match and we have this great financial crisis. and if the bailout of the crisis cost the american tax payers millions of dollars, and that's just the down payment. the ten per cent unemployment is contributed to by the financial and stability.

now i've heard them argue very often vent we are pushing too hard on capitol and that it's going to make them competitively less viable. but to keep the loans from growing plans for that are nonsense and i don't believe that. one of the things we know and i want to count wind some of those issues in my speech but after the crisis the congress began to address how we take care of and to deal with the crises and abuses that took place, but we pulled out the same alternatives we will enhance supervision, improve capital standards and have a resolution process to be failsafe or make sure they are not privy to fail but it's in the most important remedy after the great depression in my opinion and that is remedies

like the glass-stegall act. there's too principles around that i think i keep in mind when they start talking about the issues of sifis. the first principle is an institution that has access to the safety net should be complying to the core business for which the safety net was established and second the banking system should be reformed in its use of those activities that add to instability. those are money-market mutual funds so those are the principles i think our important as we try to think about the greater stability going forward. now, institutions that have the privilege, the advantage of the safety net should be, kind of commercial banking which is deposit taking and lending, they should still be allowed to underwrite securities, they can

to advisory services and asset management like trust activities and those related. but activities the would be prohibited include dealing in the market making, brokerage, proprietary trading because he gives them these activities plus the safety net you are in finding inexpensive risc incentive which will return in time as the crisis fades and certainly i would not allow them to transfer the accounts because of what became as soon as it's allowed in terms of inventory preparations, all the reasons you will be seen given quickly. these are the activities inconsistent in the purpose of the safety net and we shouldn't forget that or we will make mistakes of the past. now critics, understand, critics argue that we need scale and

scope. we need the complexity if we will be globally competitive and to get in touch of bringing costs down to make more loans and expand. it's important to have one-stop shopping, and that is absolutely we need a very large and expensive system if we are going to conduct monetary policy. i think these arguments are not convincing and they also miss especially when they say it will stop us from being competitive. it would be i think it's inconsistent with our 200 years of experience where we have had a low concentrated financial system and one of the strongest economies in the world so just the logic of that people say things have changed. ..

of this terrible crisis that we had recently and may have began if we don't correct things. so when you grow go to greater specialization can you serve the client better and it is, ladies and gentlemen, about the client and public as well as about the return on equity to the institution. i don't have any objection to return on equity at a safe and reliable and doesn't put people out of work as they take risk on it. now, the second reason we have to keep that in mind is that economies of scale that they are

geared or achieved excises finalize than the size of the sifis. it is just clearly over never been shown their economies of scale, but nowhere near. you don't need to be anywhere near $2 trillion to gain them. and thirdly, one-stop banking from the site to the days will remain in place under this proposal. now, the trading activities, high-risk activities will be out, but the customer will be well served in those activities can be purchased elsewhere in a very efficient environment. finally, it seems improbable to me the argument that i'll just pick up marbles and go to another country because i have to ask that country outside the united states, do they really have the gdp size, the ability to pick up the tab on too big to fail that they might insert a

vapor and being the institution? all countries should be focused on stability to economics is something many are. i think the united states has an opportunity to be that way rather than undermine the progress in that area. absolutely essential. one other thing that is brought up and i recognize his concern about the shadow banking system that shall push these activities, more risk oriented activities into the shadow banking system and that is an area where we have to pay attention. but there's a couple things we can do. one is big source of instability in these money market that was created to get around brief q. and that's the nature part of the instability. to what we to do is if you're going to be offering does come you can't have the -- you can't break the back. they have to float value of the assets. that will discourage the use of those ice deposits and discourage the run from them

though otherwise come. it won't end it, but it does discourage it. the second of course is the repo market. and i think there will be tied to short-term liabilities issued from the secured by long-term assets. that's what happened in the mortgage crisis and is very a liquid when you have a crisis. what we need to do is go back to the pre-2005 bankruptcy rules, where if you did have a problem, you can grab the the collateral and liquidate it right away, make them subject to the same rules as everyone else has to deal with in a failure. and that will discourage the use of these repos to find long-term assets again. so those are a couple things we can do to address that. now, it's my argument that by pushing out the high-risk act dvds that will help get price correctly and take the risk into

that part of the market where it belongs in the span of commercial banks to do what they're supposed to do under a protective banking system. make loans, make sure your sadness of the system stays in place and and win the long run will have a much healthier economic system, both in the united states and globally. now finallycoming to us as a member of the open market committee course i am aware that there are issues around primary dealers until you factor the matter is primary dealers are the counterparties for most of the transactions at the desk and so forth. or how about when it is primary dealers and most of them are affiliated with sifis right now or commercial banks. the fact of the matter is you don't have to be affiliated with the commercial bank to be a primary dealer or counterpart. before we have the breakout for the end of glass-steagall in

each reduction in graham leach bliley, we at many institutions were not commercial dealers. it's just a matter changing in the counterparties. it is not something that can't be accomplished. i would go further and suggest other opportunities to really broaden the base for monetary policy. one of the things we learned in the crisis was the use of the term auction facility, which allowed you to really issue on an ongoing basis through an auction in substantial amounts of reserves that you can conduct basically an auction type open market transaction, with a broad-based but banks across the united states, regional banks as well as pennysaver banks and other monetary base or reserve days and then use the primary dealers to fine-tune, if you will, in a daily basis to make sure you get close this to your fed funds target. so, there are opportunities from this to actually expand, if you

will, the democracy elements of conducting monetary policy. there are many opportunities around restructuring our financial system in a sustained way, and a long-lasting way that allows the safety net, which is not going to go away, to be directed appropriately, to allow this to go on and have outside the banking system and make sure that you don't honor trying. i think will be better off and certainly our businesses in this country will be better served. so i'm going to end with that and right on time and open for questions or challenge. because if i'm wrong, i always want to know that. and if you run, i was like to tell you. thank you. [applause] any questions? yes.

>> you describe the scenario where there is, over the course of 20 years this massive concentration in the financial space, yet, you didn't name why that might be the case. you have any thoughts as to, assuming you're not alleging any illicit behavior, how was it that says banks got to be the size that they are into stats say anything about the natural state of the market structure? >> well, there will be a couple of arguments for that. the first is that prior to that. come you have limits on state banking and if those limits, which is certainly a reasonable thing to do i suppose. in the second day will be these economies escape and admittedly they are economies of scale. as i said in my remarks, they are captured usually, at least

the research shows will be for the size they are. the third reason and the reason that gives me great concern is that if you are perceived and then it is confirmed by actions that you are too big to fail, then you have a capital cost advantage over other institutions and you can see it if u.s.a. regional bank of only 15,000,000,005. everyone is if you fail, you'll be taken over. they'll wipe out the stockholders. many of the uninsured depositors and in fact be losers in the transaction. so where you go is for you think that's not going to have been. if you're a company that is large enough to have the deposit can you go to the too big to fail institution. what that has done and there is some research out there that unlike anything else i guess you could argue, but there is clear suggestion that means the cost of capital is lower.

and if you want an advantage to expand, have their lower cost of capital expenditure and i think the fact you could raise deposits were easily, the cost of capital is less and you see that. if you look at the leverage ratios of those largest institutions is a change from 1992 the crisis. they went from roughly 1617 to one, real equity talking about here, not the made-up stuff. the 15 to 16. the market wasn't paying attention because we knew they would build out. it does the concentration. i think that's hard to dispute. so that's why i think it's as rapid as it has been.

others? >> well, such a convincing argument. it's hard to dispute it. go ahead. >> my question is about your observations and repose than money market funds and outside of ring and in those two sources of instability. it strikes me that there is a kind of cycle here, where you regulate or not makes a traditional project, a substitute emerges that has hidden risks for the systemic risk. and people grow complacent. they might know about that is a certain point and that might inhibit their adoption, but after a while it doesn't really

matter and it's that evolution of complacency they see as being particularly worrisome. i'm wondering how you do it as potential in your frame of things for her, you know, the fact is we core banking operations finding a way around the core banking regulatory system. >> well, there is no perfect solution, obviously, but the first thing i would tell you is having money market instruments, where you have this dollar protection and it's treated like a short-term deposit is a flaw. and if you've been reading the paper they need, you know how much everyone is worried about the money market account right now as they've invested in higher risk to get their yields up and so forth. and the person holding that instrument thinks they have a deposits and make an would make it doubtful they're going to

run. so you have to eliminate that. no something else emerge? perhaps. but i think if you split this out from the commercial banking industry and so it has a different mission, smaller, focused on mundane and this non-banquette dvd in shadow banks in the limit their ability, you will at least mitigate the likelihood of that, mitigate the likelihood of it has to be marked in a daily basis, people will pay a little more attention, maybe a lot more attention and therefore you won't have to build up of the access to the extent that we've had. so that is part of why you have to think about the shadow banking part of the system and be aware of what might have been there for tran preclude it. and don't do things than encourage it. i mean, having the repo market giving special protection i think was a serious error because it costs people to have a false sense of security and in

fact it had the idea of you look at sold-out and they were bailed out because of the nature of the crisis and that has to stop if we're going to have any kind of the real capitalistic system with a more effect of market discipline to it. you can say what you will about the dog frank hill and the resolution process and i would hope it would work, but it would be the first time ever -- i mean, i just can't imagine it working because i know that friday afternoon is like when the liquidity crisis is upon you in the market in the asian markets have been sunday night. it's hard to go through all the steps that are entering eyes and i suspect, you know, i would want to be the secretary of the treasury so i've been kind to bail them out. it has to be well before the crisis that she put in the stops, a few well and that's my point. yes, right here.

>> two quick questions. one, i don't know if you are familiar with the recess of the mahdi. i think when you talk about the uplifted too big to fail from skip the research and is much more robust and it's been quantified in a number of ways by a number as well as kind of the nonsense issue if we raise capital standards prakash lending goes down, forward as an assertion. other researchers on the other side. that would encourage you to be stronger in your assertion say because the research as they are. i don't know if you're here this morning but restarted or not, but there was discussion when michael byers and that piano with others about that which is politically -- policy optimal and politically possible. i actually lived through the politically impossible in the senate on the in many of the things you're talking about or attempted to get on the fourth amendment. it's difficult and the few that got them up after a few goes.

maybe the best epigram of what happened with senator durbin saying the banks own this place and he wasn't referring to the senate. he was referring to washington d.c. whether that's true or not and whether or not you want to agree or disagree with what you suggest and i certainly agree, the question is how do we get to where we are to where you think we should be in the current political environment? had he make that happen? have you see it happening is that all? just an easy question. >> well, i thought a lot about it. i think it's possible or i wouldn't be putting my point of view out so strongly. but i may not, if you correspond with her. i think she has done some great work as her colleagues have and as nyu has done that the capital issue islamist propaganda in terms of what the impact would be. because the stronger as a straight institution with a lover to draw the cap bill for

that group of capital seekers and so forth. and which are trying to do his managers take it manage you been given in bonuses that. precious human nature. so i think she has done some great work. it does refute the safety of essentially growth in this country. and i tell people we've had a lot of institutions is very strong capital and you always do better when working or may position of strength in terms of decisions and allocations of resources. for that i think is extremely important and i hope her work continues. the second point is yes, it is difficult and it should be difficult because you have different parties. one of my concerns that they bring up when i do use concentration ratios come at these institutions are far more powerful today than they were just 20 or 30 years ago. i did it in these remarks, but

it's a fact that when the federal reserve is formed, jpmorgan and we can't have back for the five largest institutions at that time controlled assets of 5% of gdp. i'm not so worried about that. but now it's over 60%. they are more important than other. and i have seen size of their political should be sure it's whatever them in a very significant cellulose into them. there is a day because i've seen that where i find whoever it is they do i.t. or what you have to say and they are willing to listen if your point is cogent and you can demonstrate it. in fact, one of the reasons we put out a way paper on how to do this was they say well, it's

nice, but how do you do a? was try to say here's how it works. we talked to them one at a time. and if you think about it, if it's in the best interest of the economic system of the united states and a growing of ethnicities and creation of wealth, robots across the country and you make that point, the research they are doing, then it becomes a more powerful argument itself. and i think there's a lot of businesses that are all tied up in daily activities, but when they hear this and begin to think about it can become an important part of the support. silverstein make a difference. glass-steagall, who would've thought at the time. bacteria. >> penn state university. i have a question that if you look at the shadow banking

system, it seems there is these three legs that still if not more. he attacked about money market funds. he talked about republican place, but she didn't talk about securitization process comes securitization marketplace. i was curious if you left that unintentionally. i decided that a little and done interviews with folks up and down that arena, trained to understand more about dynamics that were happening. i mean come it seems like there is a natural story memphis sanitation still have to accept my shortcomings, but my general sense as banks create these lawmaking institutions create balance. they have reserves, but they can take them off the balance sheet. they get put into a special purpose vehicle, which is not sifi size and there is a market-based capital requirement that goes with that, which is much lower than the federal reserve has controlled with the

institutions and the safety net and essentially assets are put onto it that the short-term commercial paper markets on the pension sheet, balance sheet et cetera. are the interesting things to be found in a research as part of the dynamic of sight to the capital requirements was at least in the housing market, the advance of technology with regard to the rate at which those could be created to purchase these vehicles are passed pastime have accelerated through the process that we saw the buildup in the asset bubble. and it's perhaps almost a monetary policy. but it seems like to the extent you have reserves creating asset and the speed of which they can create asset, it seems like that is an important thing to consider reforming also. i helped part of it, but didn't read all of it. i'm wondering if.frank addresses

that you think that is a substantial concern with the economy and the ability of the state to regulate and maintain stability of our economy. >> i think you make a good point to just directly answer your question. i think it is an area that needs and deserves more attention. i did not comment in my remarks and it's not in our white paper, but he do think it deserves attention. dodd-frank for some provisions in holding onto 8% issue holdup analogy. i agree with you there. so that is an area we probably should pay more attention to as we move forward because you're right. if that becomes the vehicle, not there is a whole host of other things around that problem. bad rating system and phony off-balance sheets instead of real off allergy. that is the capital requirements they think we last because everyone had with a wink and a nod that you have, we will

provide the bailout as an institution. so those have to be addressed. but i think in a systematic way we too need to address that and it's a very good point. yeah, morris. >> tom, you made the case is asked to way too big to fail such a problem, but in talking about how you discourage to stop it, at least in your oral remarks you put emphasis on bringing back glass-steagall. what about size caps? i mean, if you're worried about size, this semester i dream you could even argue with glass-steagall, you could get mergers after it lurches to two shins. $2 trillion they could move their money on tni loves rather than investment banking. why not size caps as they were three, 4% of gdp. half a dozen u.s. is to two shins but the effect it.

i mean, would already be about the cat and have to come down for some period. you could also have much bigger capital surcharges for sifis than was agreed over the weekend. that would be another way to go. i'm just curious as to why you've chosen the glass-steagall route as opposed to some of the other readers for discouraging too big to fail. >> well, we did think about size mars. part of what we thought about though is size isn't the only -- isn't really the fact terror. it's one of the factors, but not the primary factor. it is the nature of the race, whether you're bear stearns, which probably wouldn't have been caught underneath the size limit. it is the nature of the risk that you're bringing on that gives us pause. and second of all, giving sifis, if we can do at giving

them what i'll call a marginal capital requirements above, i think that would be fine, but i don't have any faith in it at all because it will be co-opted within three years of the recovery. on all kinds. for example, the resistance to 7% equity or tier one equity and then kind of an add-on to that is ferocious. once the economy turns around and institutions are now out to be found again and we'll start a road in this capital requirements just as we have in every instance in the past. so i don't have a last. for separating the nature of the risk will give you a more stable economy over time the new appeal to enforce the rules were clearly. one of the difficulties in terms of supervision of these sifis is they are so complex they don't understand it and the

supervisors can't deal with the issues. they have to simplify the system and i think if you simplify the system, you cannot capital standards that are forced overtime, more so than now. your long-run outcome would be better. size limits is another option, but i don't think it will be taken very seriously. yeah, kent. >> i've been thinking about what she said about friday night challenge, certainly the classic example of time consistency, where push comes to shove to enforce the rule and bring down the economy. the problem i have with your description is that i can see the same thing happening for the nonsense institutions that if any of them are systemic, even though they're not links, they could be systemic in another way. will the treasury secretary pull the plug? and if not, then don't they have the same problem we have the

current system? >> that is a risk, but if you have them separated out and they don't have been there isn't confusion with the safety net that there has been, then i think their capital standards -- the market will demand more in the market will pay more attention to it because the subject into real bankruptcy laws, then it becomes a greater risk to those creditors that are outside. right now the assumption is because you're taken to safety net, and a safety net will because the impact on the primary institution will be your main concern and you can't take any chances so you bailout over here. and the same thing with money. that's why went to limit their ability to do it. so that is what is behind that. now understand, i am not seeing crises go away.

it's better allocated, that are priced that inevitably will become more successful without having a 10% unemployment rate. and i'm not just thinking about these hundred aliens and look at a good part of that, but we are going to lose a fair amount. and it bothers me that speculators were able to go in knowing that the institution would not wipe out or we wouldn't wipe out the common stockholders speculate make money off the taxpayer. that bothers me. and i think we can do better than that. >> yeah, so i hear what you're saying about maybe there is no size limit on things, but the nature of the business might force them to downsize is that you're leaning towards. now that the risk of a trend in the 70s, 80s and 90s that banks were having a hard time getting a good price on a phone

to be corporations like exxon, wal-mart and target. so you know, if you are causing the financials -- the banking systems to survey reduce its size, you need that in the real economy, too and if it doesn't happen, redacted the problem of the 70s and 80s that the banks could make money lending to their corporate? that's why they want the expanded powers to kind of catch up. >> well, i've heard that argument. i am not convinced that the argument because you have this desire to get it for non-banks to get in the banking business so that they could -- they thought they could build their return on equity that way. i think there was the ability, there were consortiums are large industrial companies that you could get the loan out.

so i don't see that as necessarily what follows. and if you have a strong capital, you have the right size and you can do consortiums, you can fund about anyone because that's how we pretty much did it for hundreds -- well, for decades. i mean, i did not see the evidence that suggested to me that they were being disadvantaged that much. i remember, part of the issue i've made this statement before publicly. if you are too big to fail and if you have access to almost unum ltd. safety net, you are a gse. in the gse should have a lower return on equity. it still brings n. you still have back and you can still make loans. and you can make sounder loans. now, with a corporation go somewhere else? if you allow money markets and other kinds of activities that