will bring you the good stuff so i think he was overselling. >> i'm not his lawyer or advocate and i am saying only what i think is true and that i can verify. i wouldn't be so sure that he's wrong about this. what he is right about for sure are the legal constraints jim is talking about are either lines of courage or policy and the rules and regulations and supervisory chains and the audit trail given that it's taken place in secret can be used. his principal point is that there has been a buildup without our knowledge a remarkably powerful that is touching every american household even though they are not listening in on all of our calls and that the main constraint on that right now are

what the code says which can be changed or the policies are and what we do know is the find one reason might want to use this or adjust it on the spectrum just a little bit and over time you tend to have a one-way valve for the tools for reasons that are made in good faith. i believed that change the boundaries. >> how could it be that someone could go to work in a situation like this come in a position like this and work there for only three months and somehow get away with what he apparently -- we know he got away with some stuff because you printed it. that doesn't seem right to me. it seems that that is not a good situation.

it seems like there was a little glitch. just to move aside to make the networks more secure one of them is to restrict the administrator privileges so that an administrator can do whatever they want. that was probably the mistake. >> is ebit guy in the office like we have at cbs that go to the computer breakdown and that is who comes in and knows everybody's password. is that basically what his job was? >> someone described him as the help desk. >> there's a lot of stuff out there that the credentials or the job he worked at the large

subbranch of the threat operation center run by the nsa. he was the administrator of a very substantial portion of the system and also in charge of defending it. he was there to watch out for the incoming cyber attacks and intrusions on the system and he also administered a lot of the sort of rules and regulations and the firewalls that prevented people from getting places they want because they get a lot of power to get in have yourself to the estimate is there any suggestion and i know this is your source. is it your suggestion that he took this job and had his mind made up about something that needed to be exposed and he went in and got this job so he could do that? >> he spent a lot more years older than this last one working in the intelligence community.

it clearly formed the use overtime. he never took me he took this job in order to carry out his plan. but it's looking more and more like that based on the external evidence. >> what do we make of the fact that, you know, once he does this then he goes to hongkong and now he's in russia and all that? this isn't your stand standard whistle-blower is it? >> a lot of people would argue he wasn't a whistle-blower at all. whether or not you think he is a whistle-blower probably determines how you come down on the first place why the press publishes this, what kind of person he is and so forth. i think this has come into an interesting context at the moment there's a new president in china and the return of a previous presence in russia both of whom have just that president obama in separate meetings with

the past week and a half and both of whom showed a particular willingness to stand up and say this isn't my problem and perhaps in july have much this is causing the united states. in the case of the chinese i think they just wanted to get this problem of their plate. the prospect of a year or two years or however long, i think they believe and i knew from selling the chinese officials that it would be a fairly lengthy process that would erode a relationship at the time that he wants to deal with and i think they decided they would take a day or two for letting him out of hong kong and that then would become someone else's problem and someone else turned out to be lois

>> do you think that it might have been that they had already gotten everything they needed from it? is it possible we read all the stories -- i don't have the expertise to know they could have dreamed of the computers that he had without him even knowing it? >> i think that he is overstating his position. i do know a little about it and you know, he was not like a center of it. so did he have access to some good data? yes. didn't come as a surprise to the chinese or the russians? no. i think one of the problems that he found when he got there is that some of the stuff attracted a lot of public interest was not really -- he started a good debate and it wasn't really surprised that the foreign intelligence service. >> he has said and has given me a good reason to believe it is the material that could do extraordinary damage to the collections by disclosing things

that the targets don't know, they know in principle but they don't know in practice. he's not interested in tossing that out into the public record. he's interested in fostering some debate. there is a lot of fostering about whether the russians are doing so now. i wouldn't give a lot on that but if you gave me money i would make a fairly substantial bet against. i know more about the precautions he took and the planning he did anticipating exactly that issue and i think it would be difficult to do without and we haven't seen any sign of that. >> do you all think that he has done any harm to the national security? >> it's hard to judge from the outside. and of course you will always get insiders saying that any revelation of any of these types of programs or techniques does

harm. then you hear him make the point that he did which is most of this probably wasn't a surprise to the russians and the chinese. the information is of more of a surprise to the american people than it is to the russians and the chinese. or the piece that i wrote about in the sense that they had gotten out in 2010 and the iranians already had the code and the new somebody had been attacking and they didn't think that it was the swiss. then the question is are these programs classified because you are keeping our adversaries from going about it, or you are keeping americans from knowing about it. and that is a really important question to go answer. what i looked over on the documents that was published and the guardian published was the first question that came into my mind is why was the document

classified at all. what we give you an example. one of the most interesting the was published is one that we had written about called presidential decision directive number 20 and was signed by president obama last fall. it was the decision directed on the conditions under which the united states would make use of the defensive side or the offensive cyber and who is supposed to go do that and so forth and so on. and each is either confidential or secret or top secret and the entire document was supposed to be declassified in 2003 or something like that to but i went through this and i said i am almost certain that when the document was signed there were declassified briefings on almost all of the major details. i went back over my notes and there were some interesting things but most of the big issues we had been briefed on.

so we went back to the white house and said can somebody here give me the justification for why this document was classified the ants lagat that is because i was in the interest of the united states to classified. so many of these do raise a fundamental question which is what the government find itself in less of a difficult position today if it had said to the world yes we have a central repository in which all phone call data is poured into and we hold onto it for five years because any terrorist who went to the movies thinks we can go back and trace a call in 20 seconds, bright? why the presidential decision verdict it couldn't be published at which point it would have become a deterrent for other countries the would see the president has the use of fertility cyber weapons at some

point but no one really wants to engage in that debate in the government will not least publicly with all of us. >> it shouldn't open and close of the conversation of whether something would improve the public debate or close the conversation whether something might be damaging were actually could do some damage to the national security. john f. kennedy's great speech was we are willing to pay a price to year no burden. that is and what he said. there are trade-offs between self government in self-defense. the constitution begins with fundamental guiding principles about which we are here for. one of them is security so there are balances here that are to be

had. sometimes they are easy and sometimes they are hard. i do not dismiss the security risks that are involved in having this debate and even when a country or terrorist organization has a good reason to think that the nsa could be listening you could compare it to the a lavitra cameras that we know are there every day that we don't behave all the time the we like to have our photograph in the elevator on the internet. you forget and you stop thinking about, you stop worrying about it and so there's a chance that you are dissuading people from going there but it's very clear that in the documents the description of the program by which that information from nine of the largest silicon valley communications providers it's clear in the document marketing the most highly classified portion of the document was the

listing of the nine companies. microsoft, google, facebook and so on. that is the number one secret in there. and when i had conversations with the government officials about we were going to pregnant and we weren't, i said if the harm that you envision consists of private companies making a reputation or market loss because the american people don't like what they are doing that is why we are going to publish it. that is a high reason. it is a very high-stakes the what makes you want to publish the information. >> what can we do, jim? you have a better fix on this than probably any of us here. i'd remember before when i was talking to you before the presidential debate. you told me some of the things we can do. i mean, it is amazing. there is a difference isn't there in the capability and of using the capability of which is

one of the questions that comes up here. but we do have just tell us a little bit about what kind of capabilities we have. [laughter] that is a tough one. >> it is fair to say that after september 11th, there was a lot of effort to integrate intelligence and expand some collection devotees. one of the things the was most useful is to capture a cell phone in afghanistan, you look at the cell phone and there are some numbers. interesting one of them is in the u.s.. who is that person in the u.s. talking to? and at that point you are kind of stock. you need to know this, you really do. but to do this you have to get essentially what is like your phone bill so that is what they are collecting. and if you don't do that, you may have on happy surprises. so a lot of it is the ability to

collect and to combine the stuff capture on the battlefield that is where the image comes from now. this isn't new. if you remember there was the echelon debate in the 1990's where the europeans suddenly became excited because they thought that there was a global system to collect all traffic and they did a big investigation of this and then they concluded it's not so bad as we think. >> i think that is where we are going to in that year. there are trade-offs. more transparency would be useful. but we need the collection capability. >> i take issue with my new friend. >> i told him we were going to be fighting all night. [laughter] >> first of all, there is a legitimate problem here that you've identified. obviously, you have an intelligence legal framework in which you could spy on them

overseas and you could get one to spy on the known bad guys or suspected bad guys but when you get where you care about which is trying to protect the country, you have in additions coming you have barriers. but you just described is really not what these programs that we are writing about now are doing. if you pick up somebody's pocketbook in afghanistan and has 35 for members and 17 e-mail addresses, that is where you can go out and get the individual. go to court and say this is an so and so's pocket. you have to show that the information you want is relevant to and authorize the investigation using it in that case every time.

what they are using these programs for is what people call the data mining and what is called contact shaming in this context. they are looking for an unknown suspect some suspects by finding hidden relationships among people. if you start with one contact, who is in touch with that person and all those people? it is an exponential growth in the number of people that you are surveying that way. everybody remembers the 6 degrees of separation idea which is what you get six degrees or subornation from you or me or anyone in the room. so it is pretty far. it's a big number. >> but this is such an old technique, and this is declassified so you can find it on the web, they used to teach you how to do this using

envelopes. of course you want to find him so you don't know about -- you have one person you know and you want to see what is the network that he's involved in. and you have to look at people who are not known, not suspect that you couldn't get a warrant on and i think the administration is probably a little miffed because they feel they went out of their way to do this in a constitutional manner, not public enough but this is a traditional technique that goes at least back to the 19th century. i mean, they were teaching it to children when i was a boy. [laughter] >> i am in agreement with him that this method has been used a lot. the mistake of think the u.s. government may have made along the way is the judgment that what was declassified for doing it with male had to remain declassified with email and phone and so forth. and it does raise the question that was raised in the days they

wrote their story in 2005. again you ask why wouldn't the government have at least described the outlining program the reason they were open to the same kind of exposure and the date and the argument whether it needed to be classified. when you go back and look at some of these cases i would argue even wikileaks, the amount of damage that we were told was going to be done probably overstated again what damage was actually done. >> one reason why they don't want to have even that degree of transparency is because the more that you know about this, the more it keeps you out. listen to the bidding of what we now know about the program. they are collecting all of the

medved data involving -- meta data kimmage text, video, the voice over ip. >> the help me understand they are getting the e-mail message with your just getting -- >> they are not getting the content and the president has come out and said don't worry the impact on privacy is modest. we are not reading your e-mail. we are just looking at who it was sent to and from and when. but a lot more than that. and they call this dni, digital network information and also the device identifier locations. they say they are not collecting location but on the internet they are. if you gave me the voice right now based on the current data management techniques come here is the trace: i would subject

myself either to one month of having someone read all of my e-mails and listen to all of my phone calls or one month of all of my meta data i would take the content in a second. you could listen to me and read all of my notes. the infringement on my privacy would be much less even though law says otherwise and the jurisprudence is based on different assumptions. with the meta data, you know who is someone is talking to, when, where they are. if you start thinking about seceding that with everyone because they are getting all of yours, then they can tell whether you are negotiating secret business deals, whether you have a medical condition or you are having an extramarital affair, thinking of leaving your job, what do the to whether you haven't come out with your sexual preference. i'm not saying they are. they have taken all the information they would need to do that and they are holding at. >> but that doesn't make any sense. there is a limited number of analysts and they can only look at so much to the priority

number one is not your sex life. estimate it might be really interesting, priority number one is terrorism, proliferation, a couple countries that we had that relations with. there aren't that many analysts. no one is reading your stuff. the idea is that it might be bred especially for these guys for the foreign intelligence agencies. so, if china or russia or people like that look at your e-mail that wouldn't surprise me in the least. it is not a perfect world. it's not the 19th century agrarian republic where men and dinosaurs coexisted. [laughter] what it is is a place we have these trade-offs. creeps you out to have people looking at your meta dada --

meta data. when you collect these phone numbers and you decide that we need to -- is there a capability -- is that on what i use to call on tape, or is that somewhere recorded that you can play back? i mean, the e-mail would be there but with a telephone conversation be there? >> when analyzing the -- team, who you are talking to come from where and what content, they use it for me to go get the content under the surface. and so, once they decide to give a person of interest to them, than prospectively they can collect your kind occasions in real time or go back and get terabytes of communications echostar on facebook and so on.

>> once they storch becoming interested in you than they can listen to -- >> van de -- >> the conversation is going forward. i do not believe that there isn't any pressing evidence they are either capable of or actually collecting all communication content so they can go back and play it back later. >> i guess we should be appreciative of this on the dark secret when i started working on this along time ago from the state department with nsa, they kept talking about something called the bit bucket. there's too much inflation in the intelligence agency it's easy to collect but hard to analyze. so they just park it. they used to park it in the

freight cars and fort meade in the old days. de have people to read this stuff and so the content has to be -- and one of the things that's improved is the ability to focus in on persons of interest. >> but there are plenty of people that do all of the meta data analysis. >> it's not hard to it's like adding a few cycles to the computing capability. >> while you are thinking of questions let me go back to jim. i was interested in one thing that you wrote. you talk about some of these things and now that we are talking about cyber you said we are not in a cyber war with china right now and i thought it was interesting when you had to say. why did you say that? >> i forget who said it but i think it was you and the chinese probably couldn't wait to get him out of hong kong and the

other russians are probably trying to think of ways they can ship them off somewhere. china engages in espionage and i read in the papers now that we do, too. [laughter] but espionage is not war and so great powers but it's not the war. it's not an attack or the use of force. not unless you intend it. so the chinese take advantage of weakness is. we take advantage of weakness but that is not more fair. sometimes people say there is a cold war with china. it's not the cold war. they are the second-largest economy in the world. they are one of our biggest trading partners. it's not the soviet union. so no i don't think we are at war with them. >> can i get on that briefly? i think that jim is right on the spr side of this to the president obama has gone to some

length to differentiate the kind of traditional espionage from the intellectual property, so there is something of a commercial war underway. on the cold war question here, i don't think that you're in one now but we are all close to being on the verge of one. that is because the cyber issue has moved to the center of the relationship. and it's made far more complex by all of the issues jim ray's is. china is the world's second largest economy. a creating partner in the united states and that constrains us from doing some things that we did to the old soviet union during the cold war. but that doesn't necessarily mean we aren't headed into a cold war. it just means we are headed into a more complicated version of it unless this goes off into a different direction. >> questions? right here. >> wait for a microphone -- >> yes, sure.

tell us your name. >> ron, gw policy institute. congratulations, you kept your clearance. [laughter] i guess the question i would ask and maybe i will ask this of mr. schieffer, you and i are certainly old enough to remember you covered richard nixon. there was a time in which under kennedy and johnson a lot of the practices that he engaged in would have been acceptable. at least they were kept quiet and people ignored them or they were kept down. one of the things that strikes me about this, we've that the war for 12 or 13 years, and there have certainly been a lot along the line. a lot of statements along the line the press may or may not have picked up on our didn't pick up on and they would indicate this kind of thing was beginning to coalesce and come together. do you think that we just arrived at the point where -- is there a lot of stuff just sort of laying around here that someone finally collapsed and put together or is it something

that through brand new discovery? it doesn't strike me like that but i'm curious -- >> are you saying that this somehow has something to do with other things? >> i'm not so sure the press has done a great job over the last four or five or six years of doing what you are doing right now. one of the jobs of the press really come at least in the last four years, is the idea that they would be the watchdog. there's been a lot of this stuff out there and we see a lot of reporting. people have read the patriot act and have heard all this stuff around but for a large part it has been rumors here and there and we really haven't had the kind of press -- to you think the press has failed at some extent on this? >> welcome the press always fails. [laughter] every time one of these things happen we always look back and say the press fell down on the job on this one. i think by and large the press has done a pretty good job. but i mean, you know, i think after 9/11 a lot of people,

including me, didn't want to go through 9/11 again. i'm not one that thinks that edward snowen is a great hero -- snowden is a great hero. sometimes they are another kind of people come and this is a source, but i have real questions to be i mean, i said on television sunday, a couple sundays ago, people like martin luther king jr. and rosa parks were my heros, but the kind of stayed around. they didn't run off to china. and i think that if edward snowden had the case to make, i don't think that he helped his case by his behavior once this came out.

>> there was a really interesting story but i could not figure it out. so whether snowden is so whistle-blower or a coward or a hero or a villain what he has done among other things is to enable public debate that we all get to decide how much power we blind to the government to have. >> i would just add this. this is all taking place at a time when we are undergoing a cultural change in this country brought on

by the communications revolution and the capabilities we now have with the coming of the social media. people of the younger generation now put on facebook things that people my age would not have discussed it and mix company. people have a different idea of what privacy is now. and somehow that factors into all of this. we see this growing feeling how this affects the and regeneration they don't believe much of anything that the government or anybody tells them any more. i think that has to do with more than just the government running this program. i think that pass to do with a lot of things. >> jedi just a time in?

any given day i am lucky fire understand you were 3% what is going on around me with the u.s. government. so we don't understand a lot but go back over the past for five years were go back to the coverage of the fisa renewal debate or the coverage of the use of offensive weapons, go back and look at other work including many other reporters who had big stories along the way. there has been a steady drumbeat. hasn't been as broad as we would like? and no. the only way to get these stories is to pull on the strings and hope a little more unravels.

>> host: this is one of the most complicated stories that i can recall of recent times. we all go back to the ronald reagan trust but verify. the government says trust us but they cannot give us the information to help us verify that is classified. it is very difficult to know exactly what the government has done. they do have these enormous capabilities but these people on the oversight committee say no. maybe they're right or maybe they are wrong but that is another thing that makes it very difficult. >> i cannot help but think of the doomsday machine of dr. strange love that they

never told anybody. but what good is it if nobody knows about it? by keeping it secret that is beside the point*. but the most important thing is i am 31. i voted for obama 2008 definitely not 2012. this is the context of the story that everything that my generation is having a very hard time believing traditional news outlets, the politicians themselves, degradation of public trust. for me personally am pretty much everybody that i know, and i think this is what needs to be talked about more in the media. how will we repair this, are we going to? with your thoughts on that? >> it is interesting that you bring that up and fight

define it as legitimacy that you accept unquestioningly the authority that congress, the courts and the president to say yes, i can trust them. i am still working through it to give you the initial hypothesis but the internet internet, we saw this before with floods of new information available to new audiences they could read the bible to say i don't see a divine right of kings but you go through a similar process with a political effect degrading the institutions so it is a work in progress but this could take a long time to work through. >> host: with the cunning of the internet most people if they agree with the editorial of paul -- policy

of the newspaper, they generally accepted what was on the news page as the basic fact. because they generally accepted mainstream media did a certain teetwo of less lee make sure it was true but now you are given information from every corner that bears no resemblance and i think that is one reason it is so difficult now why people have such questions as something is true or not and that is part of its. >> just a quick note may be the solution is more transparency and that is that you mentioned dr. strange love with that report we did we have that quotation in it and that we could talk about nuclear weapons why can't we talk

about cyberstuff? maybe it is more transparency i have a two-part question. since the internet service providers were acknowledged in the article and so much data is available was there in the impasse would it was made known to the public? any perceived impact based on the public demise of trust for internet service providers? >> does my bill go up or down because of the use of might data? [laughter] >> your bill has gone up and up but you're not charging cashman university it. the bill you are paying is the revelation that you are giving to the enormous

$30 billion industry of people you have never heard of and to is where the marketing people the big data brokers and with the ada is of privacy we're not losing the pride of negative privacy primarily because of what be revealed but things that are being done completely without our knowledge or ability to understand if you click on the terms of service that are essentially unregulated only that you cannot say something that is factually untrue but if you try to figure out what fact is asserted under those terms. i recently took a look at what is happening behind your back on the commercial side if you look at a engravers.

>> host: are we safer now than we were online 11? >> i have not answer the question. your taxes are paying for that. when the first or did to collect the data there was the emergency appropriation and that i reported hundreds of millions of dollars to get bigger pots to put the data in to sift through it at the nsa. >> host: do you think for all this expenditure of what has happened are we safer now than they were on 9/11. >> i went to a conference is said nsa the free backup service. [laughter] you are getting some value. [laughter] if you compare how it was a

bitter lesson how things worked in the '90s they were well intentioned and trying hard and now that we are better off that there are problems in one of them is one of the reasons there is no other way to do national level surveillance. a huge exercise we cannot use communication surveillance to track terrorists in the west, we could not find them. you put people together and that nsa has stuff and all three agencies are talking. we're better off. are we safe? i will leave that to you. >> host: he has a question >> just a comment and a question. i agree that a free and robust prices is needed for a free society like ours and

made it always be that way. on the other hand,, i agree with what you said earlier that those to engage with civil disobedience took the medicine. they did not run off. last night i appeared on piers morgan interviewing alan dershowitz. and he said wind up law says if you knowingly publish classified information that is a felony. did you know, you're publishing classified information? >> that is an entirely different kind of conversation. >> you can take a fifth. >> of course, i knew that. it was in the paper. but there has been available theories of prosecution for many years now going back

through the espionage act under which a person who publishes information from the national defense even if not classified as there are the x number of active divisions down the line that you could prosecutes the newspaper for publishing that stuff. on balance there is yet to be in the it ministrations that thought that would be the right saying in terms how we organize as a society. so to test the constitutionality that will lead applied to the activities. i am not at all cavalier about this but it is true what david said if you are going to cover foreign affairs or national defense

is very difficult to right in the story as preaching the lines of the espionage act. >> host: but they could and always have been able to make that choice but but what nobody has commented on this is it is true that snowden precipitated this debate but my question is was it a necessary way to precipitate? it is important to keep in mind all of these programs that congress enacted these laws it is unfortunate the congressman did not go to the briefing this -- briefing. >> i think one of the things

that we should pay more attention to is the congressional oversight. of does it not true when they had the most recent briefing unfortunately they had it on friday afternoon then they had to get back home. so i think it deserves a lot more publicity. >> with oversight this is extraordinarily complex stuff. the way congress works the way senior executives work work, you need staff to advise on details and a very small minority that have staff with the briefings if you're not on the intelligence committee with the appropriations subcommittee you don't have

that. that is one thing. is this legal? according to every interpretation of the of law that happened what is happening is legal. there are lots of things that are legal or could be legal depending on the judicial decision that we as a society might like to debate. right now sova fisa court has radically reinterpreted some of the patriot act like section 215 business records the fbi tells us every year we only get a few dozen times per year that we even use this provision. a used to be the interpretation was a facility that you collected business records was a phone number or e-mail address. no it is all of them. the entirety of the call database.

nobody knew they did that i am confident if real lawyers get a chance to read that opinion there will be significant disagreement in the legal community if it is constitutional but it cannot be tested right now. >> just a quick point* to raise a question do you need these kinds of revelations to have a debate? history suggests that you probably do. we managed to have a good debate about nuclear weapons even though everything about nuclear weapons is classified. how you use them, where we keep them but we had a 25 year debate that ended up at the end of the cuban missile crisis 50 years ago including the conditions we would use nuclear weapons. in the case of drones it took an active class writing

about the subject review weeks to force the government of the united states to begin the debate with the conditions under which we would use a drone. with the case of offensive cyberyou needed revelations for there to be a debate in right now is very small whether or not we want to use this weapon and as has been indicated, you would not have the debate unless people stopped to say there was a law written when the only metadata you look was the address on the outside of the envelopes still apply in the era where you walk around with the cellphone and so they could figure out exactly where you are. then nature of the data is so much richer than applying the log in 30 or 40 years

ago may not make sense anymore. >> host: thank you all very much. [applause] [inaudible conversations]>> then refuse to testify about the irs review of political groups has forfeited her right to invoke the fifth amendment. the house oversight committee in a party-line vote 22 / 17 voted that lois lerner has given up her right to silence. here is what share darrell issa said at the beginning of the hearing. >> cutting now consider the facts and arguments i

believe chief -- lois lerner waved her fifth amendment privileges. she did so when she chose to make a voluntary open statement her opening statement referenced the treasury ig reports and the department of justice investigation and the assertions that she previously had provided with the assertions that she previously provided false information to the committee. she made for specific denials at the core of the committee's investigation in this matter. she stated that she had not done anything wrong. not broken any laws. not violated any irs rules are regulations. not provided false information to this or any other congressional

committee regarding areas of which committee members would have liked to ask questions. committee members are still interested in hearing from her. her statement covers almost the entire range of questions we wanted to ask when the hearing began on may 22nd. >> neither lois lerner nor her attorney were present and democrats said republicans should have allowed testimony from legal experts on fifth amendment protections when testifying before congress. opens the possibility she will be summoned back for another round of questioning. she again invoked the fifth amendment she could face contempt charges. falling to the early primary state of south carolina he will speak at a fund-raising dinner in colombia.

after that any event with former governor jeb bush and he gave the keynote address for the conservative party of new york. it began 6:30 p.m. this evening. life tomorrow chief justice john roberts refused fish just ended supreme court term. issued rulings on gay marriage, of the voting rights act and affirmative action before justice roberts, a fort -- former solicitor general and also linda greenhouse will discuss the court cases live tomorrow morning starting at 9:00 a.m. eastern. >> this sunday american history tv commemorates the 150th anniversary of the battle of gettysburg, this past wednesday senator king from maine spoke on the floor about the battle. >> we all know a week from tomorrow is the nation's most important anniversary

anniversary, july 4th anniversary, july 4th, 177 6, the first day of the country. tuesday july 2nd is also one of the most important anniversaries because the first, second, third are the days the battles of gettysburg ocher. probably defining event in the history of this country and it is important to this year because it is the 150th anniversary of the battle of gettysburg. i would like to share a few moments about one particular aspect of that battle that does indeed involve making and alabama. the man from maine it named joshua chamberlain in 1862 professor of modern languages at the college in maine. no soldier, no history in the military, but decided he had a vision of america and he wanted to serve his country. he joined a volunteer regiment in august 1862

called the 20th main regiment down the coast of the potomac to washington immediately deployed to antietam september 1862, the bloodiest day in american history. fortunately they were held in reserve that day, they did see action over the course of the fall and the winter of the battle of fredericksburg and along with two greeks armies, they headed north into the state of pennsylvania. >> mr. president there with my cartography skills but it is helpful if we can see what happened. it is easy to draw virginia because it is a big trying goal. this is virginia. here is the maryland pennsylvania border and in the summer of 1863 too great

armies and snake north out of virginia. lee's army came up the west side of the foothills of the appellation into pennsylvania shadowed by the army of the potomac of 90,000 men and leading the way without a particular destination but a desire to engage the federal army in one climactic battle that he saw correctly, could have ended the civil war. nobody knows exactly why on july 1st, 1863, those two armies collided in the little town of gettysburg. there is a rumor there was a shoe factory there and the southern army could requisition the shoes but for whatever reason, the two armies met in this little town of gettysburg pennsylvania. one of the interesting thing is that lee army already was

to berisford thin came down but the union army was coming up the road from washington from the southcom and they came from this direction is what the battle of gettysburg, mr. president the northern army came in from the south and the southern army came in from the north. it was a standoff and a net almost by accident. fierce fighting in the streets of gettysburg and south of the town and essentially a draw. at the end of the day on july 1st and then nawab this was the confrontation. this was its. reinforcements came in from both lines to be in this little town what happened on the second day on the morning of the second day the union troops of this is the town up here, the union troops ended up on the hill

can then in a long line to the south, all along in the area that was an old place that they varied people and of course, that is seminary ridge. the other side, the confederates and interestingly enough throughout american history the markers represent that confederates in the blue the federal state ended up on a long ridge that went about 1 mile apart and over here was a place where they trained people to be preachers. that of course, is cemetery ridge. so generations of six craters seminary ridge year in a cemetery ridge generations have been confused but it is cemetery for the union and seminary for the confederate troops. but the second day of the battle a union general notice there was a small hill at the bottom of the

entire line of the union troops occupied by either side. he also immediately realized this could be the most important piece of property in the entire battlefield because it has an elevation that looked up the entire federal line and anchored the federal line. the union general grab the nearest officer and said we have to occupy that hill immediately his name was strong benson to the officer from new york. he grabbed two other regiments from new york and pennsylvania and the 20th main regimented and they went to the top of this hill. joshua l. lawrence chamberlain was only the colonel for about one month. he was in charge of 358 men and vincent took him to the extreme left flank of the union army of this little hill which is called little round top.

. . round top. it is lots of places to be behind, and indeed chamberlain took the maximum advantage of that. half hour later or so they came

again. they were pushed back. they came again and they were pushed back. each time they got closer and closer to the top of the hill because of the nature of guns in the civil war a good shooter in the civil war, good handler of the rifle could get off four shots a minute. so i want you to think of yourself at the top of the hill the 15th alabama came with a rifle and shoot. you are now prepared to shoot a second period. that sounds like an eternity but is 15 seconds. that is how long it would take to get another shot. that's why in the situation the charge came closer and closer

and by the third or fourth charge it became a hand-to-hand combat. i mentioned he was not a soldier by trade. he was a professor. he spoke ten languages in 1856. but he had a deep vision for the meaning of america. and he had a deep concern about the issue of slavery. when he was a student in the early 1850's a young professors wife was writing a book and sat in the living room of this professor that listened to him read excerpts from this book and the book turned out to be the most influential book ever published in america. it was called on call tom's cabin and a described slavery and indeed when clinton met harriet beecher stowe he said i'm shaking the hand that started the civil war because it lit the fuse that led to the pressure that ultimately led to

the abolition of slavery. so in any case, for and then fight charges each time the 15th alabama was repulsed. but then they were gathering at the bottom of the hill for the final assault late in the day hot afternoon, july 2nd, 1863. the problem of was for chamberlain he had ammunition issued 60 cartridges at the beginning of the battle and they had all been fired during those five assaults. he then had a choice to make as a leader. he had three options. one was to retreat which is a perfectly honorable thing to do in the military situation but his orders were to hold the ground tall hazards because if the confederates had gotten around round top the entire rear of the union army was exposed.

his other option was to fight. that wouldn't have worked very well because it would have only delayed them for a few minutes. instead he chose an extra the option that was unusual even at that time he uttered one word and was bayonet. if there's a dispute in history whether he said charge but everyone agrees he uttered the word bayonet and his soldiers knew what that meant and down the hill into the face of the final confederate charge came to hundred crazy guys from maine. the 15th of an offer the first and only time in the civil war was so shocked by this technique that they turned around and the 200i say to hundred because at the beginning of this action there was over 300 lost 100

casualties and deaths captured for 500 confederates. they are on their way to richmond. and i tell the story because it is the story of extraordinary bravery. by the way they receive the congressional medal of honor for his bravery and creativity on that little hill wim pennsylvania. but i tell the story because it is a story of our country and of how a single person's actions and bravery can have enormous impact. historians argue about whether this was the key turning point. was their something else, was there another regiment but the argument can be made that this college professor saved the united states. the defining moment for the country was that hot afternoon

in pennsylvania, july 2nd, 1863. i believe it is one of the great stories in american history and in fact the story of chamberlain and little round top is taught in the army manuals to this day to the story of leadership and have creativity and perseverance and courage and to the devotion of god and country. these comments and thousands more like the mouse we celebrate not only the birth of the country next week but also the rebirth of the country in the three days prior to july 4th. thank you mr. president could

lawmakers this week their thoughts on whether the dodd-frank financial all would prevent another taxpayer bailout. they testified alongside the fdic chair and former fdic chair sheila bair before the house financial-services committee. this is about three hours.

>> the committee will come to order. without objection the chair is authorized to declare a recess of the committee at any time. the chair now recognizes himself for five minutes for an opening statement. not long after the financial crisis arose in 2008, we heard the cry occupy wall street. most americans never wanted to occupy wall street. they just want to quit bailing it out. today though there is a growing bipartisan consensus the dodd-frank act regrettably didn't end of the too big to fail phenomena or its consequential bailouts. we have much work ahead of us to the i want to thank chairman mchenry and the other members for their work so far on the subject. any tax payer funded bailout is

one of the reasons why the committee has invested so much time on the sustainable housing reform. the gse fannie and freddie are the original too big to fail poster children, yet they were untouched and unreformed in dodd-frank. they receive the largest taxpayer bailout merely to wondered billion dollars and along with the fha to come government now controls more than 90% of the nation's mortgage finance market with no end in sight. one of the most important steps we can take ending the too big to fail institution is to remove the permanent tax payer backed government guarantee of fannie and freddie. for far too long, fannie and freddie have been aware at wall street and foreign banks go to off load their financial risk on main street taxpayers. this must stop and this senate well as part of our committee system of housing legislation to a sustainable for homeowners so they can have the opportunity to buy homes they can actually afford to keep the rate sustainable for taxpayers so they are never again forced to

fund another washington bailout. sustainable for the nation's economy so that we avoid the boom and bust housing cycle that have heard so many in the past. regrettably, dodd-frank not only fails to end to big to fail in its intended taxpayer bailout, and actually codifies them into the law. title one, section 113 allows the government to actually designate the firms also known as sifis. notwithstanding its signing language, it clearly creates a tax payer funded bailout system that the cbo estimates will cost taxpayers over $20 billion. designating any firm as too big to fail is bad policy and worse, economics. it causes the erosion of market discipline and risks further bailout paid in full by hard-working americans. it also becomes a self-fulfilling prophecy. helping make firms better and riskier than they otherwise would be. since the passage of dodd-frank, the big financial institutions have gotten bigger.

the small financial institutions have become fewer, the taxpayer has become poor and credit allocations have become more political. some conclude certain financial firms are indeed too big to fail, and i am lot of that camp, it begs the question whether washington is competent to manage the risk or whether the american people in light of the recent revelations about onerous and the doj can trust washington to do so. the review of the federal government risk-management record does not inspire confidence. the federal housing administration risk management has left it undercapitalized. the pension benefit guaranty has an unfunded obligations of 34 million. even the national flood insurance program is 24 billion underwater coming yes upon intended. and of course regulators encourage banks to load up on sovereign debt and agency by requiring little or no capital to be reserved against them. the debt and fannie and freddie we should recall what was the risky affordable housing mandate

that principally listened the prudent underwriting standards in the first place the government not only did not mitigate the rest, it created the risk. we have to keep our focus on the right question if we are to achieve the right solutions. as a society what are we willing to pay for stability? are we treating of long-term instability for moral hazard why should the government to protect the firm's from taking office? do we want a solyndra economy where they're governed by politics more than economics and taxpayers are left to hold the bag? in fact more fundamentally don't we want financial firms to take risks? one of the large investment banks took a risk on apple when it was floundering and now apple is one of the most valuable companies in the world and its products have revolutionized our lives and economy. without financial risk we lose

out on innovation. under too big to fail we also risked encouraging your responsibility and moral hazard. bailout's degette bailouts. and the most fundamental question is this if we lose our ability to fail in america, then one day we may lose our ability to succeed. that is what this debate should be about. i now recognize the ranking member for five minutes for an opening statement. >> thank you mr. chairman. i welcome today's hearing as an opportunity to examine title 22 of dodd-frank and assess whether these provisions will achieve their continued goals of preserving the financial stability to the i want to thank the panel of witnesses for joining us today and i look forward to their insight and testimony on these critical issues. while there has been significant

public debate regarding wall street reform. not enough has been paid to the actual legislative text. i believe bill law may provide answers to many of our questions today which is why i would encourage my colleagues to read the law. title one established the financial stability oversight council and the office of the financial research to monitor systemic risk and potential threats to the financial stability. title one also gives federal regulators enhanced provincial authorities over the systemically significant financial institutions and requires the firm's to submit credible resolution plans known as a living will. the living wills are intended to reveal weaknesses and complexity

they have been liquidated. the law requires the firms to pursue bankruptcy and the first resort. however, if bankruptcy compromises the financial stability, the statute authorizes regulators to use an alternative tool for the systemically complex firms. title ii of dodd-frank creativity orderly liquidation authority. according to section 204, title ii, the purpose of the orderly liquidation authority is to provide banking regulators with the necessary authority to liquidate the failing financial companies that pose a significant risk to the financial stability of the united states and a matter that litigates the risks and minimizes moral hazards. moreover, section 214 of dodd-frank provides that all financial companies placed into the leadership under this title shall be liquidated.

no taxpayer funds shall be used to prevent the liquidation of any financial company and any funds expended in the liquidation of the financial firm must be recovered through assessments on the financial sector. title xi section 101 repeals the financing mechanisms the federal reserve used to be allowed the financial institutions in 2008. it mandates that any new federal reserve policy governing emergency lending served the purpose of providing liquidity to the financial system. not one of failing for member together and that such policies must protect taxpayers from losses. repealing title two of the dodd-frank act will make the financial system less stable and invite the chaos of the 2008 crisis on the current recovery and would be a huge step in the wrong direction. it will not make the mega banks

any less large or complex. in fact repealing title ii would take us that the status quo use of the bankruptcy code that would put the taxpayers and the financial system at risk. today my colleagues and i are going to use today's hearing as an opportunity to incorporate the engoulvent provisions of title one and title to outlining regulators new systemic risks and review authority. each of us will focus on a particular section of the law and explain what the provisions of all authorized and we will ask witnesses to expand on any ambiguity concerning how the regulators may interpret their authority. it is my hope that this will facilitate a rational discussion of important issues based on actual provisions within oh-la-la. mr. chairman, i yield back the balance of my time. >> the chair now recognizes the

gentleman from north carolina, mr. mchenry, the chairman of the oversight investigations committee for three minutes. >> thank you mr. chairman. i want to thank the panel for being here today to the two and a half years ago president obama, when he signed the dodd-frank act, said that this would end to big to fail. across the ideological spectrum, we hear the debate but a greater consensus on the side of the dodd-frank did not end to big to fail. i appreciate the ranking member's opening statement, and in fact, in the oversight subcommittee -- which i chair -- we have gone section by section in the text of dodd-frank. and we have heard a variety of witnesses over the past few months about how dodd-frank does not end to big to fail. and systemically we went through those sections by sections of dodd-frank to be a very important. from the hearings identified as

shocking inability of the financial stability oversight council to perform on its core functions, identifying the new risks to the economy. we have learned nearly three years after the enactment of dodd-frank the federal reserve is not considered more made public how it will apply its broad new authority is to prevent future financial crises. we have heard from legal scholars and economic experts on dodd-frank's new resolution of for ready, the liquidation of already come and what it would mean in the future bailouts as the bailout reckon as among the taxpayer will provide liquidity to the failed firms. the subcommittee learned that far from creating greater clarity and certainty in the marketplace, the dodd-frank law granted an incredible amount of power and discretion to federal regulators on the taxpayer

bailouts and specifically a specially designated large institutions. we've had a lot of discussion about this as well. finally, we heard testimony shockingly from the justice department regarding their obvious reluctance to prosecute large financial institutions, which may be the best evidence yet that this administration doesn't even believe that the dodd-frank act in this too big to fail. now the fact is dodd-frank didn't end to big to fail. it guaranteed it. instead of making it implicit, it now has made it explicit. that is a problem and we need to address it. and the message that is sent to the marketplace has created a perverse incentive to the creditors of the largest financial firms. now, this undermines the taxpayer. it undermines the financial institutions to lead and it

undermines a truly competitive and fair marketplace. too big to fail must end and that is when the hearing begins to discuss. thanks so much, mr. chairman. >> the chair now recognizes the gentle lady from new york for two minutes. >> thank you. welcome to the panelists. in 2008 when a large financial institution was on the verge of failing, regulators had two options. they could allow it to fail and the into bankruptcy as lehman brothers did, or they could bail it out as we did with aig. neither of them was a good option. dodd-frank gave regulators a third option by creating an orderly liquidation process for the large financial companies. this gives regulators the tools to successfully wind down a large financial companies similar to the fdic longstanding practice of winding down the

field commercial banks that works so well during the crisis. now, some of my colleagues say that we should just have bankruptcy. let them fail. but we tried that. that's what we did with lehman brothers and look at the results. we got a massive crisis and failure in the financial system to a massive financial crisis. this is not an acceptable solution to the economist alan blinder in his book says that too big to fail should be called fail and to wind down the large institutions to put firm on the runway and into orderly wind them down. it couldn't be clear in section 214 and says there is a prohibition of any taxpayer funds, and by quote no tax payer fund shall be used to prevent the liquidation of any financial

company under the title. it couldn't be clearer it is against the law to fund any bailout but dodd-frank gave a third option under title ii written by sheila bair and she can talk about it, we can now wind them down. and under title ii there was enhanced supervision calling for greater capital requirement stress tests, living wills, other tools to manage the wind down of the failed institutions. i yield back. >> the chair recognizes the gentleman from new jersey, mr. garrett for one minute. >> there is an old saying that you can't have your cake and eat it, too but unfortunately that is what the other side of the ogle is trying to do. you can't say banks are no longer too big to fail and then on the other hand they still are

whenever one of them has a significant trading loss you can't on the one hand say that there is an appropriate resolution process that allows the banks to be wound down without taxpayer support. but then on the other hand tell the same banks how they are to run the business because you are worried about their systemic risk and the cost to the u.s. taxpayer. you can't on the one hand also say that you have eliminated too big to fail with and then on the other hand specifically designate the companies as too big to fail with and give them access to the discount window. unfortunately, dodd-frank continued the long-term goal of many to essentially turn the banks and utilities that the government the regulators can control and use to fund the government and allocate resources to the favorite constituencies. you know we must finally reform the system to the financial system. this means ensuring that we have a credible resolution process free of picking the winners and losers.

>> apparently the gentleman is done. the chair recognizes the gentleman from new york for two minutes. 63 mr. chairman. i appreciate that today's hearing has provided opportunities to discuss the contours of the title toole of dodd-frank which deals with the orderly liquidation of already. and i respectfully think the ranking member for finally focusing our attention on the actual law itself. one of the objections of the act was to discuss the financial services exposure to the systemic risk of writing from the complex interconnected qualified financial contracts which represent a significant activity of two big to fail institutions. these contracts include security contracts, commodity contracts, approach disagreements and the derivative contracts. it is precisely the exponential growth, the financial and legal complexity of the interconnectedness of the contracts that have magnified the severity of the 2008

financial crisis and nearly brought our economy to its knees. the dodd-frank act addresses this risk by providing the fdic the power to mitigate this contagious effect. section 210 section 16 of the act reads the corporation as the recovered financial company or as the receiver of the subsidiary financial company has the power to enforce contracts of subsidiaries or affiliates of the covered financial company. the obligation under which are guaranteed or otherwise report were linked to the covered financial company debate and in fact these provisions give the fdic acting as the receiver for the financial company whose failure with a significant risk to the financial stability of the united states, the power to maintain the continuity and financial contracts and limit the disruption and failure of the interconnected institutions. as we observed through the failure of lehman brothers in 2008 our ability to isolate

these contracts and counterpart the financial obligations could mean the difference between experiencing the contained failure of a single institution verses experiencing another matter of the financial crisis. unfortunately the regulators didn't have the tools but i am convinced our economy is better protected from the concept of too big to fail because of the dodd-frank legislation. >> yield back. >> the time is expired and the chair recognizes the gentle lady from minnesota for one minute. >> thank you mr. chairman. just this month we received a progress report regarding the dodd-frank rulemakings. 279 rules had a deadline and they were passed. 63% of the deadlines were missed, specifically 64 came from the bank regulators were missed, cftc missed 17, the ftc next 49 and 35 deadlines were missed by other regulators.

now interestingly, supporters of dodd-frank plame the regulations prevent taxpayer bailout of the regulations aren't even implemented. so the point is if the regulatory agencies are finding that the rule making is too onerous for themselves to manage the imagine the compliance of a financial service industry and its customers. this is a bill that is so big it is already failing itself and failing the american financial services industry. that's why i introduced h.r. 46 which would fully repealed dodd-frank and i hope is that we did exactly that. i yield back. >> the chair recognizes the gentleman from texas for one minute. >> thank you mr. chairman. i am so pleased that medicine is very much unlike politics. if a drug proves to be efficacious we market its

virtues and on politics if the wall prune this to be efficacious we repeal it. one example might be what happened yesterday with the civil rights law. however i would like to focus for just a moment on a glass-steagall. it's a great piece of all that was repealed because it succeeded. now of course we have the volcker rule which is similar but not the same. this is what is happening to dodd-frank to be discreet be emasculated by some that would do so and if it succeeds it will be said that we no longer need it and if it is emasculated and fails it will be said that it shouldn't have been implemented in the first place to i stand with the ranking member. i was here with mr. franklin the portrait was revealed that it's ironic we would have this hearing today. i yield back to the >> we now welcome our distinguished witnesses for

today's hearing. from my left to my right, thomas currently serves as the vice chairman of the fdic prior to joining the fdic in 2012 was president of the federal reserve bank of kansas city and a member of the gomc from 91 to 2011 and served for almost 40 years and earned his degree in economics from the university and from st. benedict college in kansas. next, i am happy to welcome my friend and fellow dallasite richard fisher the ceo of the federal reserve bank of dallas. you know what, i'm going to end this introduction halfway through because i made a mistake. the gentleman from missouri needed to be recognized also to recognize him. my apologies to the gentleman from missouri. ..

and lastly came the fdic board. i've had the pleasure of working with him over the years. i even know his newspaper delivery man, who comes by his house every morning, and places the newspaper on his front porch. so we welcome you, mr. hoenig to the financial service committee. thank you, mr. chairman. >> meanwhile, back to mr. fisher. sorry about that. prior to his appointment, president fisher work and the

private sector. before that served as deputy u.s. trade rep from 97-2000. is earned his mba from stanford, undergraduate greek in economics from harvard. on a personal note he just flew in from the uk and sec finishes with this testimony, he's back destined for lone star soil where he will meet his brand-new grandson, william smith for rob active congratulcongratul ations. hopefully not making the same mistake twice, a gentleman from texas, mr. green is allocated three seconds for an introduction of the introduction. >> thank you, mr. chairman. it's nice to have a great texan introduced twice. i want you to know, mr. chairman, that while he is a small town just outside of houston known as dallas we don't hold it against them. he attended the naval academy, graduate with honors from harvard, has an mba from stanford. is a great and noble american. we welcome you to the committee, and mr. chairman, i yield back.

>> be careful or i may inquire apartment in with you can have your words taken down for besmirching dallas. fortunately, for you i could not. our next introduction, the presidency or the federal reserve bank of richmond, positions and in 2004. esl various positions within the bank since he joined as a columnist in 1989. before that he taught economics at the school o school of managt producer killed a ph.d in economics from the university of wisconsin-madison, bachelors degree from marshall college. last but not least, sorting a stranger to this committee we are happy to welcome back sheila bair to most recently served as the chairman of the fdic, a position that she was appointed to in 2006 comanche held that position during the worst years of the financial crisis. before that shielding number of

various public and private sector positions in the financial industry picture earn a law degree from the university of kansas. i believe each and every one of you is a veteran of testifying before the committee. if not, each of you will be given five minutes for an oral presentation of your written testimony. without objection each of the written statements will be made a part of the record after your oral remarks. please move the microphone very close to your mouth and sur ense it is on the on position when you intend to talk. hopefully you know the lighting system. otherwise when you have finished and the members of the committee will have an opportunity to ask you questions. vice chairman, you're now recognized for five minutes. >> chairman angelides, ranking member waters, and members of the day, i appreciate the opportunity to testify on issues relating to improving the safety and soundness of our nation's

banking system. our policymakers and regulars choose to structure the financial system to allocate the use of government facilities and subsidy. with the success of the economy. my testament to do is based on a paper titled restructure the banking system to improve safety and soundness that i prepared with my colleague in may of 2011. i welcome this opportunity to explain what i think our pro-growth, procompetition recommendations of the financial system in that paper. which i've attached my written statement. although i'm a board member of the fdic i speak only for myself at this hearing. today, the largest financial holding companies has nearly two and a half trillion dollars of assets using you as accounting in which is equivalent of 16% of our normal gross domestic product of the largest ageless global systemically important financial institutions hold in tandem potential in dollars of assets under u.s. accounting or the equivalent of two-thirds of

our national income. and 16 total dollars of assets if we were to include the fair value of derivatives which then would place them at 100% of our gross domestic product. whether result under bankruptcy or otherwise, problem institutions of the size relative to our national income will have systemic consequences. that i must add that my concern with the largest from is not just their size but their complexity. overcome the government safety net a deposit insurance federal reserve lending and direct investment has been it's been a to an ever broader array of activities outside the historic role of commercial banks. the u.s. allowed commercial banks to allow -- broker-dealer activities including proprietary trading, derivatives, swaps activities, all within the federal safety net. because of these kinds of activities were allowed to remain in the banking organization, perception that despite that from the government will likely support these

dominant and highly complex firms because of their outsized impact on the broader economy. this support transit simply subsidy worth billions of dollars and i provided a list of summit of independent studies documenting this subsidy. my proposal been a simple. improve the chances of improving longer financial stability amid the largest financial firms more market-driven. we must change the structure and incentives driving behavior. safety net should be narrowed and confined to commercial banking activities as intended when it was intimate with the federal reserve act and deposit insurance was introduced. commercial banking organizations that are afforded access to the safety net should be limited to conducting the following activities, commercial banking, underwriting securities come and advisory service and asset and wealth management. also for such reforms to be effective, the shadow banking system must be reformed and its activities subjected to more market discipline. first, money market funds and other investments that are

allowed to maintain a fixed net asset value of 1 dollar should be required of floating that as it values. shadow banks rely on the short term but it would be greatly reduced by requiring shared values to float with their market valley and be reported accurately. second we should change bankruptcy laws to eliminate the automatic state extension from mortgage related repurchase agreement collateral. this exemption riddled and proliferation and the use of we go based on mortgage related collateral. one of the sources of instability during the recent financial crisis was we go runs, to put on we go borrowers using subprime mortgage related assets as collateral. reforms the site in the proposal on describing today what not and are not intended to limit natural market-driven risks in the financial system. they do address the misaligned incentives, causing much of the extreme risks stemming from the safety nets coverage of non-bank activities. in addition this proposal would

facilitate the implementation of title i and q. of the dodd-frank act to resolve fill systemically important firms by rationalizing the structure of the financial system making it more manageable through crisis. market participants argue that this proposal would stifle their ability to compete globally. these largest firms understandably are driven by profit motives and the subsidy enhances their profits. i suggest the proposal offered would shrink and enhance competition which is what policymakers over the american public. this structure will also provide much stronger protection from the possibly a future government to intervention. i conclude my oral remarks by emphasizing again the choices we make today are critical to the future success of our economy. rationalizing the structure of the financial conglomerate, making them more market-driven will create more stable, more innovative, more competitive system that will serve to support the largest most successful economy in the world. thank you very much for this opportunity, and look forward to the questions.

>> mr. fisher, you are now recognized for five minutes. >> thank you, mr. chairman, and ranking member waters, members of the committee. we all share the goal of ending taxpayer bailouts of large financial institutions considered too big to fail. however, asked the iconic patrick henry, not patrick mchenry, said in one of his greatest speeches, different men often see the same subject in different lights. so i recognize and respect that difference of opinion on this google issue of how to eliminate taxpayer bailout funds, including the different perspectives of members of this committee, other observers and the members of this panel. it is our view of the dallas fed that dodd-frank despite his very best intentions does not do the job it's about to do. it is not in too big to fail. it does not prevent more taxpayer funded pales. first and quick facts, less than a dozen megabanks, 0.2% of all banking organizations. the concentration of assets is greatly intensified during the

2008-2009 financial crisis when several failing joints were absorbed with taxpayer support by large are presumably healthier ones. today we have about 5500 banking organizations, 5500 banks in the united states, most of these are bank holding companies and represent no threat to the survival of our economic system. but less than a dozen of the larger most complex banks are each capable through a series of missteps by the management of series of damaging the vitality and resilience and prosperity of u.s. economy. any of these megabanks given the systemic footprint, interconnectedness with other institutions could threaten to bring the economy down. these .2% of banks, the too big to fill megabanks, are treated differently from the other 99.8%, and differently from other businesses. and other dodd-frank unfortunately believe this imbalance of treatment has been unwittingly perpetuated. i estimate a lengthy detailed statement after the drawbacks of the act develop with my

colleague sitting behind me, a great economist at the federal reserve bank of dallas and with our staff. today, ms. were suggestions i'm going to specifically address title i antarctica and then if i had time to summarize dallas fed proposal to remedy the pathology of to the to the. title i, based on my spring to work in the financial markets since 1975, as soon as financial institutions designated system important is required under title i of the dodd-frank packet becomes known by the acronym sifi, it is you by the market as being the first to be saved by the first responded in a financial crisis. in other words, sifis occupies a privileged position in the financial system. one refers to the acronym sifi as meaning save its failure and pending. a banking customer has a disincentive to do business with smaller competitors because a non-sifi does not have been applied government funding

lifeline. even if a sifi antiphon itself with more equity capital in a smaller competitor, the choice remains of what you would like to a important financial relationships with an institution, with a government backstop, or one without. the advantages of size and subsidies accrue to the behemoth the banks. dodd-frank does not eliminate this perception, and again, it was intended to but anyways it perpetuates its reality. some have held ou out hope thata key business provision of title i requiring banking organizations to make detailed plans for so-called living wills without government assistance will provide for roadmap to avoid bailouts. however, these living wills are likely to prove futile to help you navigate our real-time systemic failure in my experience. given th the complexity and apae yesterday to the institutions, the inability of assets and liabilities across subsidiaries, as well as off-balance-sheet, a living will would like to be ineffective when it really matters. i don't have much faith.

the bank would run out of liquidity, not necessary capital, due to repetition risk quicker than the management would work with regulators to execute a living will blueprint regard to title ii, dodd-frank, subscribes and designates the orderly liquidation authority as resolution mechanism to handle the disposal of the giant systemically disrupted financial enterprise. these three letters themselves evoke the deceptive doublespeak of what i consider to be an orwellian nightmare. liquidation will in practice become a similar restructuring as would occur in a chapter 11 bankruptcy. but under the dodd-frank the u.s. treasury will likely provide to the fdic what is essentially debtor-in-possession financing from the yet to be funded orderly liquidation authority, all of them located in the united states treasury, the failed companies artificially kept alive operate subsidiaries for up to five years perhaps longer. under the single point of entry method, the offering offering ss remain protected as a holding

company is restructure. the country does business with subsidiaries, then this company is even more confident that counterparty is too big to fail. some officials refer to this procedure as liquidity provision rather than a bailout. whatever you call it this is taxpayer funding below market respect the dallas fed would call this from liquidation a nationalization of a financial institution. during the five year resolution to this does not have to pay taxes of any kind to any government entity or got to us this looks, sounds and tastes like a taxpayer bailout, just hidden behind a big of a difficult language of section 210 of title ii. i will stop there, mr. chairman. i would say after covering of title ii to us with all due respect to those that would argue otherwise, this is basically a rob peter to pay paul chain of events with taxpayer playing the role of peter. and we have made a proposal that would amend and summarize and semper fi dodd-frank. i was just the one thing in conclusion.

despite its a fortnight page prescription, it is thus far more 9000 pages of regulations that this very committee estimates will take 24,180,856 hours each year to comply with. market is still lacking as it was during the last financial crisis, and we need to improve upon dodd-frank. thank you, mr. chairman. >> the chair now recognizes mr. lacker. >> thank you, mr. chairman, ranking member, members of the committee. it's an honor to speak before the committee on the dodd-frank act and the persistence of too big to fail. the outset i should say my comments they are my own views and did not necessarily reflect those of my colleagues and the federal reserve system. the problem is too big to fail consist of two mutually reinforcing expectations. first, some financial institution creditors to protected by an oppressive government commitment of support should institution face financial distress. this belief dampens creditors risk an accident financing

artificially cheap for borrowing firms leading to excessive leverage and the overuse of forms of debt such a short term also funding that are most likely would enjoy such protection. second, policymakers at times believe that the philly of large financial firm with high reliance on short-term funding would result in undesirable destruction of financial markets and economic activity. this expectation induces policymakers to intervene in ways to let short-term creditors as cable losses. dos, reinforcing creditors expectations of support and firms incentives to rely on short-term funding to the result is more financial fragility and more rescues. the orderly liquidation authority of title ii of the dodd-frank act gives the fdic the ability with the agreement of other financial regulators to take a firm into receivership it believes the firms failure poses a threat to financial stability. title ii gives the fdic the ability to borrow funds from the treasury to make payments to creditors of the failed firm.

this encourages short-term creditors to believe that they would benefit from such treatment. they would, therefore, continue to pay insufficient attention to risk and to invest in fragile funding relationships. given widespread expectations of support for financial distress institutions in orderly title ii liquidations, regulators would likely feel forced to provide support simply to avoid the turbulence of disappointing expectations. we appear to have replicated the two mutually reinforcing expectations that the fine too big to fail. expectations of current rescues have arisen over the last four decades through the gradual accretion of precedents. research of the richmond fed is estimated that one-third of the financial sectors liabilities are perceived to benefit from implicit protection, and that's based on actual government actions and actual policy statements. adding implicit protection to the explicit protection of

programs such as deposit insurance, we found that 57% of the financial sectors liabilities were expected to benefit from government guarantees as of the end of 2011. reducing the probability that a large financial firm becomes financially distressed through enhanced standard for capital liquidity, for example, are useful. but will never be enough. the path towards a stable financial system requires that the unassisted failure of a financial firms does not with pe financial system at risk. the resolution process planning process prescribed by section 165 of title i of the dodd-frank provides a roadmap for this journey. resolution plan or living will is a description of the firm's strategy for rapid and orderly resolution under the u.s. bankruptcy code without government assistance in the event of material financial distress or figure it spells out the structure, key management infrastructure system, critical

operations and a mapping of the relationship between core business lines and legal entities. the federal reserve and the fdic can jointly determined that a plan is not credible or what not facilitate an orderly resolution of the bankruptcy code, in which case the firm would be required to submit a revised plan to address can identify the deficiencies. innocence, regulate can order changes in the structure and operations of a firm to make it resolve will and bankruptcy without government assistance but it's important to remember that all features of a large financial firm that rendered it hard to contemplate putting it through unassisted bankruptcy are under our control now before the next crisis. resolution plan will require a great deal of hard work but i see no other way to ensure the policymakers have confidence in unassisted bankruptcy and investors are convinced that bankruptcy is norbert resolution plan provides the framework for identifying the actions we need to take now to ensure that the next financial crisis is handled

appropriately, in a way that is fair to taxpayers, and in a way that establishes the right incentives. thank you. >> the chair now recognizes chairman bair for five minutes. >> thank you, mr. chairman. thank you for the opportunity to appear here today to discuss the dodd-frank act, too big to fail and the resolution of large complex financial institutions, or lcf eyes. no single issue is more important to the student of our financial system and the raiders were regime applicable to these institutions. the role certain large miss that financial institutions played in the lead up to the financial crisis is clear as is the need to take tough policy steps to ensure that taxpayers are never again forced to choose between bailing them out or financial collapse. as our economy continues to slowly recover from a financial crisis, what do not forget the lessons learned nor can we afford a repeat at the regulatory and marketers which allowed that debacle to occur. the dodd-frank act requirements for the regulation and, if

necessary, resolution of lcfis are essential to address the problems of too big to fail. i strongly disagree with the notion that orderly liquidation authority enshrines the bailout policies that prevailed in 2008 and 2009. implicit and explicit too big to fail policies were in effect under the legal structure that existed before dodd-frank. dodd-frank has abolished them. to be sure what needs be done to reduce the risk of the future else ef-5 failure and ensure that if an lcf i does failed the process is smooth and well understood by the market and minimizes unnecessary losses for creditors. however to extend the procession of too big to fail remains, it is because markets continue to question whether regulars were congress can and will follow through on the laws prohibition on a less. i believe we're on the right track for addressing these but more can and should be done. first, regulars must ensure that lcfis has sufficient long-term debt at the holding company level. the success of the fdic orderly

liquidation authority using the single point of entry strategy depends on the top of holding companies ability to absorb losses and fund recap position of the surviving operating entities. currently come with no regulation that addresses this need and we must address this gap. gap. to avoid gaming come to scene and secured a long-term debt must be issued at the top level holding company and they should also be based on non-persuader asses. to limit the contingent our dominant effect of an else lcfi failure, the debt should not be held by other lcfis or banks, nor should of lcfis be permitted to record protection for or have other real or synthetic exposure to that debt. a well-designed long-term debt commission would support the fdic single point of entry resolution strategy and help assure the markets that the else lcfi is indeed resolvable and not too big to fail. second in the financial stability oversight council must continue to designate potentially systemic non-bank financial firms for heightened oversight.

title i of the dodd-frank act requires that the fsoc destiny firms for heightened supervision by the federal reserve. this enhanced supervision is assigned to first improve regulation over large potentially systemic firms, too, provide regulars with important information to assess and plan for potential better, and three, reduce the likely the potential systemic risk will simply go unnoticed outside of the traditional sphere. while some have argued the designation might be viewed as a positive and fuel market perception, the country some a backstop by the government, i do disagree. this designation is not a badge of honor but discarded it includes no benefits from the government to get him high into the firms required capital and supervision to it doesn't mean the firm will be resolved under -- in fact section 165 requirements for resolutions are aimed at ensuring an orderly resolution under the bankruptcy code, not orderly liquidation. this explains why mostly lcfis have pushed back so strong to avoid this designation.

third, regulars just checking capital requirements so these from seven meaningful buffer against losses. our existing capper regime is incredibly complex riddled with uncertainty and result in a host of perverse and since it encourages bad mismanagement and synthetic risk taking at the expense of traditional lending. not only would it stronger and simpler capital ration provide a meaningful buffer that reduces likely of an else lcfi failure, it would reduce the artificial funny advantages available to large firms and give regulars a much better sense of a firm's financial health. while current capital regimes continue to over rely on risk weighting and into modeling, the better approach is a simple but our capital rules to strengthen leveraged ratio and eliminate razor relies on firms internal models. fourth, regular should improve public disclosure of a large complex financial institutions activity and risks so that investors can make better decisions about these companies. some markets and policy makers

can feel comfortable that a firm can fail in bankruptcy without destabilizing the financial system. improved disclosure about the level of large financial institutions unencumbered assets could increase the chances that debtor-in-possession financing could be seamlessly arranged and the bankruptcy process without disrupting payment processing and credit close. in addition where disclosure benefits corporate structure and profitability by business line to facilitate the markets vote to determine the optional size and structure for financial institutions. it would also allow investors to see if firms are too big or too complex to manage and would provide their shareholder value is broken up into smaller, simpler pieces. so thank you again for the opportunity to be here today. this remains an important and an enormous important issue and the committee is right to keep a very close eye on it. financial reform and system stability are not partisan issues. both parties want to into big to fail and other maybe different perspectives on how to achieve that goal, through open dialogue discussion and collaboration, we can achieve. we must.

thank you very much. >> i thank each and every one of our witnesses. the chair now recognizes himself for five minutes for questions. mr. fisher, i will start with you. in your statement you gave a group of statistics about the financial concentration and our largest money center banks. i assume implicit in that statistical rendition was that this is not natural market forces at work that has led to the concentration of these assets, is that correct? >> opec. >> if you -- is your microphone on? >> party but it's been occurring over time but this process et cetera during the crisis indeed we have greater concentration today. over two-thirds of the bank assets are concert in hands of less than a dozen institutions. and in my former presentation i provided a little graph that

explains that. >> is a my understand that you believe the orderly liquidation authority will further hasten that process leading to greater concentration within the financial services industry? >> it is my feeling that the orderly liquidation authority does not end the concept of taxpayer-funded bailout. even if you go through section 210, the wording is so okay, so difficult. i give you an example, mr. chairman. that says as this will fail for must be sufficient to repay, must be sufficient to repay the orderly liquidation authority fund. however, if a shortfall remains, well, how can it be sufficient of a shortfall remains? there's a lot of contradictory verbiage in there but essentially what happens is that you have a process that even by the wording of section 210, takes up to five years or more to occur. and if you due process that, according to section 210, what's interesting is that you into up, those institutions that might

provide additional funding with assessments, that is a tax-deferred or business expenses that is written off. so one way or another, the treasury into paying for terrific people in the country into paying for it and it is not not taxpayer-funded. but i do believe that it does not solve the issue of level the playing field for the other 5500 banks in the country. i hope that answers your question. >> mr. lacker, you have questioned the orderly liquidation authority as well, and i believe you have stated previously that you see it as a codification of the governments long-standing policy of constructive ambiguity. based upon our most recent financial crisis, how do you believe that, how constructive do you find constructive

ambiguity? and does remain in the orderly liquidation authority? >> i think it's clear that orderly liquidation authority and the use of the orderly liquidation fund, the fdic has a tremendous amount of discretion and the extent to which they provide creditors with returns that are greater than they would receive in bankruptcy. i think that discretion traps policymakers in a crisis. expectations built up that they may use that discretion to rescue creditors and let them out without, let them escape of losses. and given the expectation, policymakers feel compelled to fulfill the expectation in order to avoid the disruption of markets, pulling away from who they have led to on the basis of that expected support. so 1080 it does seem as if the discretion that is inherent in the liquidation of authority, and that's inherent in the way the fdic has laid out a

strategy, sort of the lack of specificity we have about the extent to which short-term creditors could or would get more than they would get in bankruptcy, i think that potential for trapping policymakers into rescuing more often they want is quite there. >> ostensibly, dodd-frank constrained the fed's ability to exercise its 13-3 authority. just how much constraint do you actually see there? wasn't effective? and if not, -- was it effective? if not, has dodd-frank hailed? >> i commend the effort to rein in 13-3 authority. i think it's unnecessary, and its existence poses the same dynamic for the fed that i described just now. it's not good but i think it's

an open ocean as to how constraining it is. it has to be a market, a program of market-based access, but it doesn't say that more than one firm has to show up to use it. its service inconceivable to me that a program can be designed that essential is only a failed by one firm. >> in the time that chairman doesn't have remaining, i just wanted to say to chairman bair that having read your testimony i've agreed with for more of it than i thought i would, and i hope another question she will discuss the need for a stronger yet simpler capital regime. since i believe an ounce of prevention is worth an ounce -- a pound of cure. is the ranking -- maybe i could ask another couple of questions. the chair now recognizes the ranking member for five minutes. >> thank you very much, mr. chairman. mr. hoenig, you mentioned the importance of activity limits for institutions that have

access to the federal safety net. and the first part of your proposal is to restrict bank activities to the core activities that making laws and taking deposits. as you know section 165 of the dodd-frank requires system clipboard financial institutions to submit orderly resolution plans to regulators showing how they would be wound down under the bankruptcy process. if regulators charged that a plan is not credible, the law says they may impose more stringent capital, leverage or liquidity requirements, or restriction on growth, activities or operations at the company. until the firm submits a credible plan the law also states that if the from doesn't fix the plan within two years, regulators can have a seizure of operations and assets. again this process is designed to ensure any of these large institutions could be resolved by normal bankruptcy

proceedings. the fed and the fdic have extended the deadline for submission of these plants to october. in your judgment, to the fdic and that have the authorities they need to limit activities? if they find the resolution plans would allow the banks to be wound down under an ordinary bankruptcy proceeding? >> first of all let me answer your question by first entering the chairman's, and that is, i think that the subsidy that is within the industry has allowed them to be larger than it otherwise would've been an not subject to the market discipline that would've otherwise been the. i think it forced broker-dealers that were independent to come into speed we claiming my time spent i will be right with you. >> we claiming my time spent will -- >> that gentlelady's time. >> we planning my time. >> to answer -- >> we claiming my time. >> sorry. >> i'm going to address this

question to ms. sheila bair. i do not care the question i will go back over it again. as you know, section 165 of the dodd-frank request system clipboard financial institutions to submit orderly resolution plans to regulators showing how they would be wound down under the bankruptcy process. if regulators judge that a plan is not credible the law says they may impose more stringent capital leverage or liquidity requirements. going to that, the fed and the fdic have extended the deadline for submission of these plants to october. in your judgment, to the fdic and fed of the authorities they need to limit activities if they find that the resolution plans wouldn't allow the banks to be wound down under an ordinary bankruptcy proceeding? >> yes. i think is very broad authority. as part of a living will process and agree with jeffrey lacker that this is a very important

speech i'm sorry, could you pull the microphone a little closer to you? >> yes. 125 gives the fed and the fdic a lot of authority as part of living will process to acquire these things too simple by the legal structures, divided activities, movie activities outside of insured banks. the standard is resolve ability in bankruptcy. it's a very tough standard, particularly with the current bankruptcy tools. so i think there's two minutes authority there, which i hope both the fed and fsu will aggressively used to get these banks to simplify their legal structures. i think tom's suggestions are great along those lines. >> will the fed and the fdic take other actions to study resolution plans submitted in october shows they are not credible? >> i think, i don't know. that might be address better to the fdic. my view is they should be as

fast as possible about the status of acceptability of these plants. and i knows there's confidential information they need to protect but i would like to see more disclosure about what's in a living wills as well as the process for improving them. >> mr. lacker, would you like to comment? we have a few seconds left. >> i agree with sheila bair. >> that's a very safe thing to do. i yield back. thank you. >> gentlelady yield's back. the chairman now yields five minutes to the gentleman from north carolina, is to mr. guinta, the chairman. >> thank you, mr. chairman. mr. fisher, does dodd-frank and too big to fill? >> no. >> mr. lacker? >> no. >> ms. bair? >> it provides the tools. >> mr. hoenig? >> it does provide the tools. >> so there's some disagreement here. so mr. lacker, explained the order of liquidation authority. you referenced this in your writings in previous speeches in

your testimony today. but does the orderly liquidation authority provide creditors with a different assumption about how they will be treated? >> there's three ways in which the returns to a creditor in an orderly liquidation authority resolution would potentially different from the returns, going through bankruptcy on, and unassisted bankruptcy. one is the fdic has the authority to provide creditors with more than they would get in liquidation. there's some conditions on the. it has to be if it's deemed to be the minimizing the cost of the fdic, but i think a fair reading of history is that that standard still provides a fair amount of latitude to the fdic. >> does that discretion provide greater certainty in the markets or lead to more uncertainty? >> is more uncertainty. in addition to that, they would potentially receive their money far earlier than they would in the resolution under the

bankruptcy code, in which there can be delays for procedural reasons in the resolution of claims of creditors. and then the third, the discretion is, provides greater latitude for uncertainty relative to the relative adherence to absolute priority rules and unassisted bankruptcy. >> mr. fisher, the fdic's authority, discretion authority mr. lacker speaks of within the orderly liquidation authority, does it provide them wider latitude for bailouts? >> according to the way the law is written it is substantial latitude certain in terms of time. i mentioned this in my spoken statement in terms of the liquidation process and the time it takes. i think it's important to realize that is one issue. we can have, given what it is structure and the way the wording is stated, this can take up to five years or longer.

this promotes and sustains an unusual longevity for a zombie financial institution but i believe it imposes a competitive disadvantage are small and medium-size institutions. one aspect of anybody has discussed in any event i studied before this committee is that if the reorganized company under the process cannot repay the treasury for its debtor-in-possession finance, which essentially is what it is, title ii suggests the repayments should be clawed back via a special assessment on other sifis, other large bank competitors. >> so in essence be dished excuse me. it is then written off as a tax-deductible business expense thereby reducing revenue to the treasury and the people of the united states. so to say that there is no taxpayer funding, i believe does not completely stated correctly. it may be reduced but it is still carried by the taxpayer. >> we are justified in saying

that is, in fact, a bailout by the taxpayer? >> that's one way to describe taxpayer support. >> or members of congress, right? so to this point there's a lot of debate about this. do the large financial institutions have a funding advantage as a result of this? >> i believe what mr. hoenig was about to say earlier, at least i will give you my interpretation, they present have a huge funding advantage. they are study by the imf, even one which is how disputed by bloomberg fisher $783 billion per year advantage. the bank of england states a much bigger number and the 300 billion for the internationally system of import financial institutions. but here's what i think is the fact that if you take the work of simon johnson, noted mit economist, who was the chief economist at the imf. that may discredit him in the eyes of some edition, i don't know, but as you point out all you have to do is ask a market

operator, is a large institution of a funny advantage over smaller one? the answer is yes. we at the dallas fed don't know what the number is a notice under brown veteran there is an effort under those two senators us to get the geo to study a number. but i have to tell you as a former practitioner with over 25 years experience in the business having been a banker, having run financial funds, having been an investor, that there is a substantial advantage to these institutions and to just name institutions, that's like saying i bought it at neiman marcus. it tracks and brands and provides special dispensation and i believe despite industries efforts that there is a funding advantage and i believe it's measurable and if it's not measure what it is certainly, you can feel it as a financial operator, and it advises against the supposed tadej the gentleman's time has expired. the chair now recognizes the

gentleman from texas, michigan, the ranking member of the subcommittee for five minutes. >> thank you, mr. chairman. let me start by calling lehman to our attention to as you know this was a largest bankruptcy in american history. and it's really created a chain reaction that had a tremendous impact on the economic order. in 2011, the fdic examines how lehman could've been wound down under dodd-frank. and i believe the report concluded that it could've been done in such a way as to allow taxpayers to be off the hook, and calls creditors as well as investors, shareholders, to share the burden of the cost. my question, ms. bair, to you is, could you please elaborate on how this could've been accomplished such that we would have preserved economic stability and avoid having

taxpayers bear the burden of the cost? >> so yes. that report concluded that under title ii, systemic destruction could have been avoided. and that also the losses for the creditors for the bondholders would be substantially less. lame its bondholders still haven't been paid yet. the losses are going to be substantial. once it happens. a strategy that was articulated in the paper is the one the fdic says it will use, which is single point of into, taking federal upholding coming, continuing to fund the healthy portions of the operation to avoid systemic reduction, to maintain the credit flows, required derivative counterparties to perform on the contracts were as an bankruptcy to have his privileged status with a can repudiate their contracts and ago. which creates a lot more losses for bondholders and that's one of the reasons why bondholders will be suffering such severe losses from lehman. so i think it is a viable

strategy. is a perfect? know. is a more work to be done? yes. but i do think we would have a much different result and ironically bankruptcy proponents, those who want to change bankruptcy to make it work for financial institutions which i'm all for, the careful with that because one of the things some of them want to do is provide government funding into a bankruptcy process. so you don't like the fact that can provide some liquidity support in a time to process, which will be repaid off the top, be careful because the bankruptcy folks want that same kind of mechanism and a bankruptcy process. the reason they want to do that is because a financial institution whether large or small, its franchise will be destroyed if it can't fund its assets anymore. it's not like brick-and-mortar company. it's got to have liquidity support to maintain healthy parts of its franchise. if you going to provide that type of mechanism make sure it's under the control of the government which has a public interest mandate. so i think it does need to be an

important part of the debate about bankruptcy versus title ii. but i do think it's a viable strategy and to think would've worked a lot better, served as a country bed and ironically lame and creditors if we had used in the case but we didn't have it in. >> thank you. now a question for everyone. i would like to ask of a difficult question much all brilliant people, and this should be easy for you, given what you've accomplished in life and what you studied. if you genuinely thought, in your heart of hearts, that the failure of a given entity would bring down the american economy as well as the world economy, if you genuinely thought that it would, and the only way to prevent it would be the utilization of tax dollars to be repaid, you genuinely believe that we may bring down the american economy if you do not

respond, and tax dollars to be repaid is the only methodology by which you can prevent this, would you take the measure of using the method of able to you, mr. fisher? >> i'm going to us for yes or no because time is of the essence. >> my quick answer, congressman, again, you are a personal friend of my but my quick answer is this. it's better to -- >> i reject your quick answer is that it's better to create -- [talking over each other] >> is what i'm going to ask. if you would not come if you would not do this, if you would not utilize the only method of able, which is tax dollars and the american come and/or pecan is about to go under, raise your hand. anyone. let the record show that there were no hands raised, including my very good friend, mr. fisher, and i would also say this to

you, friends. this is what dodd-frank attempts to do. it only has the ability or affords the ability if we are about to have a tragedy of economic import accountable to what happened with lehman. and as a result, as result, it would not allow us to bring down the economy. thank the chairman. >> the gentleman's time has expired. the chair now recognizes the chairman emeritus of our committee, gentleman from alabama, mr. baucus, for five minutes. >> thank you. you know, back in may and june of 2010 we were debating this very subject about how do we address the failure of a large financial institution. and we basically had two choices. and one was what i call rule of law. and that's enhanced bankruptcy. and the other was what chairman bair refer to a minute ago, is tools. but that would be tools you give

the government. and those our discretion. so really the choice is between rule of law and discretion, government discretion, in my mind, and i would just ask each of you to comment on that spirit let me come fma, congressman, number one, title i is bankruptcy and that is a preferred method. number two, our eyes been able to implement title i in bankruptcy increased if we take the subsidy, pull it back, and if we split out these activities. so that you can fail and not bring down the economy. i think that's a much better, preferable way. it does require the rule of law. >> as i understand you want to really limit commercial banking. >> i want commercial banking to be the really only sector that has this very explicit subsidy. >> that is one path, and i acknowledge that. >> i agree with mr. hoenig to

our proposal that i've outlined in my submission, just wish it's the federal safety net. net. net. that is, deposit insurance and access to the federal reserve discount window to what was always intended to be as mr. hoenig said, and that is traditional commercial banking deposit leading. if that were the law, that's the law. and then secondly, all other activities with other parts of the complex bank holding company, i do want to get rid of the complex bank holding companies. you can't stop the old rules back in the bottle, glass-steagall. but it would be very clear every transaction, every counterpart, every customer, anyone who does business with them as a clear contract that says they will never ever be a government bailout. that's much simpler than once in this legislation, which is so opaque and so-called gated. so when you have discretion, you have room for powerful lobbyist influence decision-making. as long as it's a good rule of

law, i believe is a simple proposal we've made from the dallas fed. then you remove that possibility for folks to work on regulators, the size of regulars, lobby the regulars and so want to inject greater chance of discipline. so this is all about the global, and i agree with you on that front. >> i think you're right to put your finger on the. i think discretion is the core too big to filter and the guts are regarded. over 40 years ago with the rescue of $1 billion institution in michigan with fdic went beyond insured depositors. the presidents they kept being set on through continental illinois gave rise to the expectation that policymakers might use their discretion with uninsured claimants. but regulars tried to have it both ways. we tried with constructive ambiguity, preserve the fiction that we wouldn't it be, try to get people to behave as if we

wouldn't intervene because that aligns incentives correctly and limits risk taking the and yet we wanted to preserve the discretion into being. markets saw through the. as result when the time came when push came to shove in the spring of 2008, more goods have built up a tremendous array of arrangements that were predicated on our support. we were boxed in. pulling the book out from under that would've been tremendously disrupted. the problem isn't that we need to provide the support. the problem is to defeat the expectation at the core. >> even on lehman was sort of whether the come would exercise his christian or not, it's unsettled end of the process unpredictable. and i would say this. discretion is almost entities is too predictability. and certainty. i think and when you have discretion, you take away certainty. and then it's hard have something orderly.

renewal, lehman had been allowed to leverage up the issue basically a deposit that had the impression of government backing and, therefore, facilitated its size, its vulnerability spent i'm going to write you all of letter about governor tarullo wanted to go beyond basel iii in some of his increased capital requirements, and other things such as that. i have a real concern the rest of the world won't follow was in that regard. but i will have to write a letter because of the time. >> can i point out as a point of fact, ms. bair was not at the fdic went continental illinois failed. >> the chair now recognizes the gentleman from massachusetts, mr. capuano, for five minutes. apparently i don't. i recognize the gentleman from new york, mr. meeks, for five minutes. >> thank you, mr. chairman.

my first question goes to chairman bair. dodd-frank created ola to apply only in the rare situation where it is necessary to avoid the adverse affects of liquid in systemically important financial company under the bankruptcy code. can you discuss other adverse effects that may result in liquidating a large and complex financial institution under traditional bankruptcy? and how ola helps mitigate some of these? >> right. so i think, to problems, the main problems you have, the bankruptcy which we were given advantage with the dodd-frank, title ii approach, is one, regulars can do advanced planning. these institutions don't go down overnight. even with lehman brothers. this is a slow burn over months of time. so regulars can inside institution planning try to figure out how it will be

resolved, if it fails. regulators can also provide the fdic can provide temporary funding support to keep the franchise operational. take a bank, for instance. so a bank goes down, it is no process for liquidity support, a small business can't access the credit line anymore to make payroll. you're going from yourself or your house there's no funding for your mortgage anymore. these are financial assets that making any value in the franchise you need to continue funding the operations. that's true with large and small banks. the government can do that under the stewardship of the fdic but i think you need a government agency if you're going to be putting temporarily government money into the. and again i caution you some of these bankruptcy efforts that's what they want but they want the fed to be lending. the third thing that we can do under dodd-frank i could always to underbanked is required counterpart to fall on the context of the kenneth walker and repudiate their opera

clinicians -- obligations. those are the things that are just better than his title ii. i think they are bankruptcy code changes that could be made that would facilitate very quick debtor-in-possession financing, provide that liquidity that you need, the top giving derivatives to counterparties as privileged status. the playthings to going to be a problem but maybe working with the regulators, that can work badly. but you don't have that now. so you need something like title ii. there's serious work going on at the fdic to make this a viable operational strategy where the shareholders and creditors will take the losses. there's no doubt in my mind about that. and there is substantial limitation on the discretion of regulators. they can't differentiate among creditors under to condition. one, maximize recoveries are to maintain essential operations. you've got to pay your employees. people mowing our lawn. that's true in bankruptcy because people are paid in full bankruptcy.

those creditors are differentiated. i think there are a lot of constraints. prior to dodd-frank, you're right, it was all over the place. it was bad but i think that frank was trying to say this is the process going forward, here's the come is going to do this, these are the limits on the discretion. i think there are very many laying -- very meaningful disagreements. it's in the statute. >> let me ask another question about living wills. which are important tools and should credibly show how a bank could be resolved under the bankruptcy code bu but it's not pretty white effective use of living wills makes elimination of the fdic's authority under title ii necessary for even advisable. can you discuss your views and orderly liquidation authority in light of the philly of the bankruptcy code to mitigate the systemic impact, for example, in lima's bankruptcy had on the economy and financial stability? and can also discussed how

taxpayers and the economy be more secure if a large systemic firm is liquidated under bankruptcy ?-que?-que x moreover, where would large firms find adequate better in possession financing and the private sector? >> good question. so i think the orderly liquidation process provides that discretion. i think it provides enough discretion that regulars are likely to feel boxed in and forced to use it. i think that lehman told the world a lot of things. sheila bair pointed out, i think, essentially five different firms have been handled for different ways. and then after aig it was six different firms, five different ways. i think the tremendous turmoil in financial markets was due to just confusion about what the government strategy was about doing that. now, as four, i bankruptcy of a

large financial institution, so, you know, we've come, become accustomed with the bankruptcy of a large airline, for example, to employ people are creditors of their lives. they go fly airlines that are bankrupt, and life goes on. i'm not saying that we can ever get to the point where large financial firm could fail going to bankruptcy and would be as far back in the newspaper as an airline bankruptcy, but we need to get to that point. the key thing to remember is that everything that makes bankruptcy scary for large financial firm is under our control now. they don't have to be so dependent on -- >> the gentleman's time has expired. the chair now recognizes the gentlelady from west virginia, the chair of the financial institutions subcommittee, for five minutes. >> thank you, mr. chairman. we obviously have a disagreement on the panel. and i think it's a basic disagreement is whether too big to fail exists or not, half the

people think this is, that in my opinion it exists. because real or imagined it is very much a part of the dodd-frank bill, and also the orderly liquidation authority. so let's dig down with the president laughter, talk about your living wills and how they may be used to then tweak as chairman bair was saying, or we shape the bankruptcy code to be able to address the issues that you all talk about today. ..

something we can plan for. we can estimate how liquidity they could meet, what is likely needed, what is the worst fire yo and they can organize their affairs -- scenarios of an organized their affairs. so they wouldn't need the fed or the fdic or the other liquidation authority petraeus dak let me ask on this because one of the pushback site on the enhanced bankruptcy windel wollman argued this the courts were not agile or quick enough to be able to react to this. does anybody have a comment on that? >> i will just go ahead and say i'm familiar with a proposal in the bankruptcy code chapter 14. there are some notorious features of the recommendations

that are definitely worth the to the consideration that would improve, that could approve on the bankruptcy process for the large financial firms. i think dedicated judges assigned specifically to this class of bankruptcy could help in that regard. >> another thing i have been concerned about on the financial institutions subcommittee is the consolidation and mergers that we are seeing not so much in the largesse institutions, but we know that they are getting bigger. some of the other smaller institutions that can't meet the cost of compliance so they are either being acquired or merged or something. i don't know if this liquidation resolution process will mean more conservation and the industry. has anyone thought of it like that because it does provide that? >> what is interesting about this conversation is that we are still talking about institutions that are too big to fail. they are to handle these

institutions that have a system cresco. as long as they exist and have a comparative funding advantage, they placed the smaller institutions at a competitive disadvantage and if that is your question, what i worry about here is this entire conversation is based on maintaining too big to fail and on the institutions that are the so-called system ackley important. putting them to reprocess is understandable and ernest that develops a massive bureaucracy and a procedure to deal with them should they get into trouble, far better i think that we propose to structure the system and incentivize the system to have institutions that don't put us in this position in the first place that is the basis of the were proposal. we are continuing to allow them to concentrate and then we have these fire drills we put up in case they get into trouble.

i agree with what he's saying but in bankruptcy there are two issues. one is financing in the other is cross border and that is what they are partially designed and that is what this chapter would address as well but if you rationalize the institution and you get these into manageable sizes and scale back the subsidy, you assess the drive to the consolidation although that is always an issue that you take away the competitive advantage importantly that they have over the regional community banks and you have a much more rational system that can be addressed through bankruptcy and title ii becomes more significant under the circumstances. >> i would like to add title to subject the large financial entities to the same process the community banks have always had and they support the title two of dodd-frank and they know the process it is a harsh process on bankruptcy because the

management is done, the board's oregon. i don't think there is a problem too many of these other of the conditions applying to the small banks process and that is going to come down on the consolidation. but i am entitled to if anything most community banks supported because it imposes the same discipline. i would like to ask sheila bair the bailout of aig in 2008 we did this by taking an 80% stake equity stake in the company the government or the american taxpayers became the owners of the company. and when we didn't put it through bankruptcy and we didn't liquidate the firm we kept it

alive with government money. now i would like to draw your attention to 206 of title ii which says the fdic, and i quote, shall not take an equity interest in or become a shareholder of any financial company or any company subsidiary and we wrote a large part of the title and in light of the provision in section 206 do you think that the title permits more from the fdic. you just can't do that anymore. it is more harsh as i said because of the punitively that the boards and managers are treated.

how could a liquidation under title to be different from the aig bailout? how would it be handled? how would it be different? the would be a restructuring. >> they would use the good bank and the bad bank structure and delectable to the receivers of the shareholders and creditors to their losses. would be recapitalized with the whole company level these would be the head equity positions spun off into the private sector. and i think it would take less than five years but it's less than they haven't been paid. and the world of restructuring and the bankruptcy process these five years isn't a long time.

can you please describe why the bankruptcy option and that process did not work for lehman brothers. so there was a full stop with the financing, the finance was much quicker because there was no liquidity left and i think that the devotee to the counterparties to repudiate the contract and the collateral also had a disruptive effect. and then of course you trigger the insolvency proceedings as it was mentioned because the whole thing was going into the receivership process as opposed to the point of entry strategy which is also the one with the bankruptcy format would want to use. in putting those in the jurisdictions remain open. >> very importantly, why didn't the lehman brothers bankruptcy really spur a global economic crisis? can you explain how that happened?

>> i think it is imagination of things. it surprised the market. there were so many different -- there was a bailout expectation and when the market didn't get the bailout, they don't like surprises. i think the derivatives and the funding was a problem and the derivative counter party is pulling out and then going back to the market. that created some significant disruptions and then a little uncertainty and that the recommendation i need in the testimony will help facilitate bankruptcy or title ii. it's what is inside of the firms in the financial statements the market doesn't have any confidence. then lehman brothers went down. you know, so who else is out there with the assets that we don't know about because the financial statements aren't doing a good job on that. >> speaking about the disclosure, there's been some testimony reports that show that the markets are more dark or less disclosed since dodd-frank but they are really not going on

the exchanges, so this is not the best way of an exchange where you know it's happening. >> the public traded companies and financial institutions in particular have to make publicly available. i think on the market reading it is another problem and that accelerates the volatility. who is trading with and what the market is. it is quite volatile so that does exacerbate the problem as well. >> my time is expired. >> the time of the gentlelady is expired and recognize this the chair of the market's committee the gentleman from new jersey. >> thanks. just to follow along the lines, who exactly is regarded to be unveiled in the situation under the title who exactly is being bailed out and the question is is if the creditors are being bailed out?

>> nobody is bailed out and the creditors are -- if they are paid something that is because they are remaining the value of the franchise to give them some of their money back. that is true in bankruptcy and in the fdic. that isn't a bailout. >> it is the creditors that are receiving the fruits of the payments in a situation. i don't want to get into it. >> it's the customers of the institution that are relying on the credit institution. they are the ones receiving the benefit. the unsecured creditors and shareholders are held in the receivership and well take whatever their or to the of the franchise is in the recovery, they won't get anything back. >> so, let me go into an area that i thought that i agree with you on. in your statement, and in general i agree with you more now than in previous capacity by

the way. that is with regard to the financial market utilities. and specifically to their access to the discount window. and in that area i do completely agree with that where you say that the new gse this is creating a potential new source of the system and stability if left in place. you may know that in the last congress i introduced but eliminated title among other things in hopes that this was included with a new package that goes forward. but a couple of points on this one. if the chairman of the fdic moves forward with the regulations of the transaction, it would take place outside of the country overseas but in the non-u.s. firms pity and to comply with the requirements under dodd-frank. the clearing houses will have to show the trade and then have access to our discount window is in that in short what

mr. dinsmoor is doing is maybe not trying to but actually importing the potential systemic risk over in europe and then looking to the tax payer here in the u.s. to bail them out? >> isn't that the actual outcome? >> can i give you a written response to that? i don't feel like i have enough information. >> regardless of where they are you're point is by having access to the discount window you basically have a backstop of the tax payers. >> absolutely. this isn't talking about the interrelationship between the designation and what they are proposing, but yes, that is the bailout. i don't think that it is absolutely too big to fail resignation with the liquidity access, no additional regulation. if you could get rid of that that would be great. that is all good and i agree with you on that. the flip side of that is you

have also talked, however on some of your public comments saying that u.s. been critical of the plan that allows the taxpayer bailouts in the section but then you advocated for the pre-funded pot of money paid for by additional levies on the financial institutions themselves. you say and i can pull out your statements this is not a tax on the consumer this is on the financial institutions is that correct on your assessment? >> i do not anticipate -- first of all you need to differentiate between the propping up the institution and leaving the management in place and giving them liquidity support and the clearing houses under title viii and once the institution is forced into the receivership the managers are gone, the boards are fired, the creditors will take whatever losses there are in the bankruptcy or the title ii. that is the process on the liquidity is a person you get the market discipline. >> ultimately at first it goes

on to the financial institutions and the first one with its equity would have you and if not, then to the other financial institutions and ultimately doesn't that get to the consumer -- >> i would be very surprised if that happens with that is a good reason why other large financial institutions work closely with the fed and the fdic to make sure title i and title to works. >> the simple solution i'm with you 100% on the first to eliminate that backstop. wouldn't a simple solution be treating both of them in the same way to prevent any possibility because nobody knew about the possibility going into 08 that this was and be paid back on the consumers of wouldn't it be the most direct way to eliminate them entirely? >> i would like to get to the world where for the operations outside of the insured banks and outside of the safety net and i would love the deferred activity differentiation the rest of that can go into the bankruptcy process without hurting the rest. i would love to see that.

we are just not there yet estimate the time of the gentleman is there yet and recognizes the gentleman from massachusetts mr. on of the pecos -- capuano. >> i have to rewind the tape at a later time and figure it out. in your testimony you used the word perception. you used the word an implicit, an official, people believe certain things and expectations. i agree with everything that you said on those issues but i need not agree on whether there is a real ability to use too big to fail but i agree that the perception is out there whether i like it or not, whether i agree with it or not, it's there. and by the way, the chairman agrees with it as well. to quote his testimony from an earlier day in the committee the market expectations and the government would bail out the

firms if they failed, period. those expectations are incorrect. he went on to further state obviously the perception is there but he thought the reality is not and at a later time he also stated that the tools and the federal reserve used to implement to big to fail in 2008 were no longer available to the fed. so, i guess a lot of this to me is a lot of wasted time. we can agree to disagree with a law does it or not there is no argument regardless of what we think it does. the perception is there. so the perception in this case may well be the reality today and i particularly like and i will be filing a bill to implement your second proposal. the item. i like that and i don't think we have to reveal anything to do that. i like adults and suspenders. i'm going to be filing a bill and i hope that my colleagues will co-sponsor with me to read that is a pretty good general proposal to be also like the comment earlier the first time i

think i heard it said it provides a competitive benefit to somebody. i actually believe that putting it but i congratulate you for saying it. i want to go back to the too big to fail. in my opinion it deals with a subsidy that some of the alleged subsidy which i happen to agree is there but some people disagree the bigger banks and the bigger the entities get. i was interested to note you didn't really talk about the size much. you talked mostly about the complexity. and the concentration. now, is obviously factors into that you cannot be complex if you aren't big enough. but i wonder how would you feel if i gave you the magic wand, would you implement something along the lines or something equivalent to glass-steagall if you had that power? >> this, i would. that's what i propose because you want to change the perception to the estimate i know that's why i asked you the question. i don't know what you proposed.

not on the same but something equivalent if you could. >> i think that what we have proposed is something similar. i don't think that you can stuff glass-steagall back in the bottle and i am proud to be in massachusetts now. >> would you impose something equivalent to glass-steagall if you could? >> i think the process will get us there if we need to go there. it will identify what activities we need to push out and separate from the banking activities if that is what is needed to make the unassisted the bankruptcy. >> ms. bear come something equivalent if you could? >> i think the regulators have the title to get their. >> or any of you familiar with an article the was written by the professor of a e.r.a. several months ago that appeared in forbes magazine that proposed something that would impose a market discipline of the larger

institutions to actually make themselves smaller and basically require the high your capital formation if these institutions were too big would you put the pressure on the stockholders to then voluntarily shrink the entity? i am just wondering if any of you are familiar with this or not. if you could read maybe i would send a copy of h.r. 2066 because that is my attempt to put it into the legislation. i like the idea of the market rather than the government saying you are too big i like the idea of the market because it is a little different than everything else and the entities themselves, the stockholders make the decision and i'm wondering are you familiar with the concept of the proposal? >> i am familiar with it in the concept and the issue is given that you have them internally on the market bench it will be gained and will be very hard to get the race is if you need.

that would be my concern. >> i am convinced that anything that we do which is why the congress exists to play with everybody else. >> are you familiar with the concept? >> the chair is going to back the gavel. >> the time of the gentleman has expired and now recognizes the gentleman from california of the monetary policy and subcommittee mr. campbell of california. >> thank you mr. chair. i'm down here in the corner. >> one thing we haven't talked about its capital. the fury from those of us that believe that the institutions should have more capital is that it is an elegant solution in that by requiring them to have more capital, it makes the circumstances under which under which any sort of government

bailout, what ever would be reduced. and that its simultaneously reduces those competitive advantages and the institutions have because the capitol will be expensive and it will thereby reduce the returns. either by the region or by the business. i encourage you on the capitol thing and i know you've talked about it, is bear, the long-term subordinated debt. good idea, bad idea, should it be a part of the proposal, not a part of the proposal, it is a complete solution, not the complete solution? i'm interested in all of your views on that. >> first of all, more capital would be a plus for the industry for the substantial margin they should increase the capitol you

could get them to the same level to accomplish something for the equal playing field they should have the same basic tangible capital levels and then we need to revise the basl iii against the tangible but we are woefully undercapitalized and the institutions and that needs to be addressed. >> i agree. we talked and that is before it has higher capital with the potential tools but they are not sufficient to ensure the survival of the company. and they will not eliminate the massive losses of the liquidity in the financial markets in the economy. so i would say they are necessary. they are important and the big bank is going to fight you on that big time.

you know that on your body armor? but i would say exactly what he said reminding you also the structural changes are an important part of the suspect. >> thank you. >> the robust capital is of importance and very valuable. we have seen increases in capital, very substantial since the crisis and hope that process continues. i agree with the president fisher they are insufficient. if you get to the point that you run out of liquidity and capital and the fact that you used to have a lot of capital i think that the misalignment of incentives that is at the core of the too big to fail problem it really has to do with what happens in the endgame when you get the point that you run for a couple and run through liquidity and we have to pay attention to that. >> the first strategy is always to try to prevent it or reduce the probability.

we also need to dramatically reduce and they are presenting it wouldn't be changed. >> in the last minute here, how much capital, debt or equity? >> i have suggested a minimum 8% that has for which i chair 8% of the leverage ratio with a denominator that includes a lot of off-balance sheet risks. so, it is the basl iii leverage ratio which is one of the good parts. not everything is good, but they only wanted three present and should be a minimum of 8%. i don't have a specific number all the way to know that they are uncomfortable with 8% capital ratios and alice said, it is woefully undercapitalized relatively speaking although improving and the shared courses as was said earlier i think that we have to be careful that we do have the outcome that doesn't

penalize the small ree and regional banks. >> i have suggested a leverage ratio as high as 10% because before we have the safety net, that is what the market basically demanded of the industry. and sweeter the least at that level and then simplify the industries of that we can in fact apply that systematically. >> i yield back mr. jam. >> before proceeding to the next member i was just informed you requesting to be excused at newland. we will not keep you here against your will to but it is the first i've heard of it. [laughter] so again, for the members asia take note that the chairmen bair has to leave soon. the chair recognizes the gentleman from missouri for five minutes. >> thank you mr. chairman to the i want to think the panel of witnesses for their participation today also this is a panel why the question --

panel-wide question. what was your position regarding the state of the u.s. economy that anyone on the panel sees a potential collapse of our economy and if so if you want any one or say anything about. and i will start mr. honig did you see trouble coming? >> in 2003, 2004i did not identify is exactly where this would all play out but i certainly had my concerns given the interest rates in place -- >> mr. hoenig, can you pull the microphone a little closer, please? >> yes, i did about the imbalances that were caused by

some of the interest-rate policies that were in place at that time. 63. mr. fisher, did you see any trouble? >> is in fact i listened to mr. hoenig at the table and mr. lacker all three of us spoke about this and we were concerned about the housing market, what was happening in the housing market and the excess securities and without getting technical here watching the credit the fault swap spread occurring among the certain firms and others, bear stearns, one could see the storm coming. as to how pervasive and dangerous it would be, one could not foresee that but one knew that there was a storm on the horizon and we spoke about it in great deal with the federal reserve. >> in june of 2008i gave a speech warning that the actions taken with a bear stearns would set precedents and to alter the incentives going forward and have the potential to contribute to the financial instability. in all fairness, i was looking forward to the next business cycle, not the one that we were

in. i had no idea that it would come so soon and so swiftly and with such ferocity. >> thank you. ms. bair? >> yes, when i was in the treasury in 2001, 2002i spoke about it and i tried to do something about the deteriorating mortgage standards. i went to academia and can get to the fdic in 2006. the fdic said i'm already on top of this. we started speaking very early about the lending standards. i think we do have a good track record on that. >> when you were at the fed, did you bring it to the attention of the then treasury secretary o'neill? >> well, we did. we initiated something. they tried to get -- the hill wasn't going to have mortgage lending standards. there were some on this committee were trying to do it and it but instead they decided they didn't want the lending standards. so we put together a group that the industry, consumer groups to

develop best practices to try to put some curbs on this, but it was voluntary. it helped a little on the margin. >> thank you for that response to be it one more panel wide question. do you think that u.s. taxpayers are better off today but dodd-frank or are they not better off in fear of another bailout. i will start with mr. hoenig. schenectady we have institutions that are every bit as vulnerable as we had before and i think that is the concern. hopefully we have the tools live in krepp si -- bayh bankruptcy to not repeat the mistakes of the past. if they do get into trouble we shall have the vulnerable financial system. >> i would agree with mr. hoenig, congressman. i don't think that we have prevented the taxpayer bailouts, but i think the taxpayer is so susceptible and i would like to have restructuring occurs that this would not be the case.

>> you don't think that dodd-frank and certain sanctions to the taxpayers. >> it still perpetuates too big to fail. estimate is the best approach to these issues back in the 1930's there were several pieces of substantial banking legislation wouldn't be on call for for the congress to revisit this issue again. >> it is against the taxpayer bailouts, the shareholders and creditors will be taking their losses but there should be the shortfalls this could be the industry assessment. tax payers are going to pay for it and i am happy to report to the tax code to eliminate the deductibility of the payments in the assessment of the group's. the gentleman from georgia will

mr. westmoreland. >> i want to think the witnesses for being here today. this question is for the president fisher and president lacker. kim dodd-frank's orderly liquidation authority provided the opportunity for the aig-like bailout for the hard-working tax paying factory worker in my district would end up bailing out the creditors of the european banks 100 cents on the dollar. >> mr. lacker, would you like to go first? >> it's been commented before that there were certain features and the we restructured the intervention into a ing which wouldn't be. having said that, the way the orderly liquidation of ortiz work with a single point of entry and the apparent company, it envisions providing the funds from the fdic the but what the

short-term creditors of operating subsidiaries escapes losses. so i have to say that your characterization is accurate and that it could happen again. >> with regard to your hard working factory, congressman, hard work -- the taxpayer i don't believe that it provides adequate protection for that type of individual. i think that again is meshes us in hyper bureaucracy and doesn't improve upon the situation of the competitive advantage of the two big to fail institutions have over the individual likely to go to secure the loan or finance their car or do the kind of thing they like to do if the small community and regional bank and as long as the advantages maintained or as long as the gentleman pointed out earlier it is perceived to have been maintained, then there is a

funding and a disadvantage to the obligations of the large systemically important financial institutions. from the standpoint of that particular constituent, it may mitigate the risk for the gigantic institutions that doesn't prevent these gigantic institutions in the first place or the advantage of a half an operating the banks and the institution is likely to work with. >> thank you. >> let me ask -- i know that there's been some agreement between most of you on the panel. i know one area that you do agree on i think the bill in the senate that we have heard a lot about, do you think that when we are looking at too big to fail some of the things in a brown better and i would like you to comment on is the 15% capital requirement for the eight largest banks.

i got in here goal lead and heard mr. campbell asking some questions about the cash requirement. so, do you feel that the 15% for these larger banks is unrealistic or do you think that is the right number? >> i think it does bring the discussion forward in the right way. with a 15% is the right number, i think that may be high given the history in terms of capital and in terms of my number is 10% with a leveraged no. but that would do much to improve the institutions which are shortly undercapitalized and to again make the point of this would be even more effective if we have the system rationalized we were looking at the commercial banks and the broker-dealers where the capitol requirements are different for each. they are different types of animals and they have different risk profiles and they should be markets should in fact demand

the capitol that it needs its going to do that if we scale back the subsidies for distorting what the right capital ratio should be. >> i would agree with that, congressman, and i would also add that one of the benefits and i am not willing to endorse the bill entirely. there are some aspects in terms of the federal reserve that are on defined in that. but it does show that there can be a bipartisan approach to dealing with what is a problem and it encourages me enormously as again if you were to follow our plan at the fed where we would only provide the guarantees to the commercial operation of the complex bank holding company is. i think that'll be a negotiated rate depending how big the lotteries are and how powerful they are influencing the senators that have to vote on this bill. >> one quick comment to that and i know my time is up.

there were different levels. 15, ten, five. do you think all of those need to be adjusted or from your standpoint may be just the top level. >> i think that we need to have an across-the-board number that is applicable to all so that you have a level playing field. but i think that is dependent on separating out the broker-dealer activities which then define your own capital needs. >> the time of the gentleman has expired. and again, for the members although i just recently learned about this, we will excuse of or witness, chairman bair come at this time. i assume, madam chair, if the members have any further questions you would be happy to answer them we recognize the gentleman from texas mr. hinojosa for five minutes. >> thank you today i had a

question for the honorable sheila bair. but i think -- [laughter] >> the gentleman is officially out of luck. spec i apologize that i have to run to speak to a very large group of students putative i'm on the education committee. and i was one of their speakers. so i ran down there and spoke and then i ran back to take this opportunity to ask a couple of questions. i will start with the first one for the president richard fisher i want you all to know that he is my fellow texan from london by know very well and would like to ask him a question or two because i read an article in bloomberg and i quoted he urges the bank break up and then too big to fail in justice and one sentence i will read says fisher reiterated his view the government should break up the

biggest institutions to safeguard the financial system. he is one of the central bank's most vocal critics of the too big to fail advantage and he says they have over smaller rivals. so my question then is you make those statements and respectfully i disagree with you about the tools within dodd-frank to end to big to fail but i am interested to hear your thoughts about the danger of the ever growing mega banks. what danger do they pose and how would you go about splitting them up? >> thank you, congressman hinojosa. i've explained that in my full statement i've submitted. i want to make clear that i would prefer to have the market driven solution here. and our first aspect of the proposal, which we discussed while you were in and out of the

room is that the government guarantees that its access to the federal reserve discount window would be applied only to the commercial banking operation of the complex bank holding companies. they would be allowed to continue to have those other aspects. but everybody that is a counterparty with those other parts of that big bank holding company with a little bank holding company, whatever it may be would simply sign an agreement saying that the government would never, ever come to their rescue should the transaction goes south. i think that if you did that, the market forces would begin to focus on who is strong in these areas and who is not and you would have a better allocation of it was understood that the antiyour bank holding company wasn't as too big to fail. so i want to make sure that you understand that i prefer the market driven solution rather than a government opposed solution although there may have to be a bridge in the period where the government might make it clear how we would approach this implemented the plan that we have suggested rather than

the complexity that is embedded in the 9,000 rules were pages of rules that come out of dodd-frank. >> i don't mean that disrespectfully. i'm standing in observation that trump's complexity. >> it is a huge piece of legislation and i want to say to our witnesses that i agree that it's important for us and conagra's, both republican and democrat to be the law and examine the relevant provisions within the dodd-frank act. and i want to ask a question on the dodd-frank act specifically title xi, section 1101, a.b. i3. as practical after the sub , the board shall establish by

regulation in consultation with the secretary of the treasury the policies and procedures governing the but emergency lending under this paragraph so my question i guess would go to first the panelist the honorable thomas if you would like to answer this question. can you discuss the emergency landing authorities that would use how they were used and how that type of lending as possible of title 11 of the dodd-frank. the section that was used was called 133 which allowed for the lending under the exigent circumstances to the institutions and including the non-bank institutions so that would allow for the markets and so forth and that provision was

used extensively in that crisis. the law that you are fighting now is designed to limit the ability that has to be a systemic industry-wide and so forth not to the individual institutions and that is the concept i don't know until you have the questions whether that will be -- with the federal reserve will be able to implement that successfully to the estimate the time of the gentleman is expired and we recognize the gentleman from california for five minutes. >> yes, i think as we go to the written testimony of mr. fisher and mr. lacker, we have this concept of what we do when we place a name sifi on these institutions. what are the unforeseen consequences of doing that? are we sending the messages to

say that they occupy a privileged space in the financial system what does that mean in the cost of borrowing as opposed to the cost faced by the small competitors. as was pointed out it's like saying you bought it at neiman marcus when you've got this stamp. the question is did the dodd-frank legislation further expand and compound the conundrum by using an arbitrary or somewhat arbitrary threshold number of 50 billion assets to determine sifi and dewey make the system saver by putting everyone in the pool together in the same way or is there a

better way to do it and if there is a better way to do it what is the better way and that is my question to the panel. >> when i think of the provision of the act about designating sifi it is an outgrowth of the animating philosophy of dodd-frank which is rescues are inevitable and we need to do what we can to strengthen the constraints on the risk-taking of the institutions providing strengthening the constraint is a valuable thing the together animating philosophy which at times competes is the we want to strengthen the market incentives and the discipline the competitive marketplace poses on the institutions and you get the power of that risk-taking. from that point of view the designation cuts in the other direction because of its implication coming out of the first philosophy the implication that it's there because they are

viewed as likely to be rescued. so there is a cross purpose there and that the designation. how we go out of that and transition away from that i'm not sure that i have a solution for you but it is a dilemma in the end. >> any other observations on that? >> i think that by designating an institution that is systemically important coming you give it a special moniker. second, by having a procedure which is under the fsoc to deal with the institutions that are considered assistant ackley important or that might present a risk by being systemically important because it is a special i just think that pleases the community and regional banks at a disadvantage and again, congressman 55 would ask you to take the time to read the proposal but we have made on the plan a few moderate sized

banks. >> remember part of my question was the 50 billion threshold. it has its advantages and disadvantages. they have to do these living wills today i found in the last crisis nobody wanted to be a holding company until they wanted to be holding company and it is to their advantage. there are institutions that do not want to be designated sifis until they need to be and i think that is a risk. on the 50 billion i think if that is -- i think is not indexed or a lot of institutions would be pulled into that if that is the issue, raised the limit because they don't want it to be discretionary anymore than absolutely necessary because you get different outcomes depending will the political pull and so forth. >> and i would agree with that.

>> the last question i would ask is the factors that should be taken into account if we are going to set the regulatory standard in terms of moving over from the risk-based approach to the equity capital standard or equity leverage ratio if we move in that direction what then are the factors that should be taken into account and setting devotee the three standard. >> we need to make sure the leverage does include of balance sheet items either using international accounting standards for -- >> that is the major issue to you. >> on value you have 1.5 trillion off balance sheet to the evidence. that is not the line of credit so that means to be brought into the equation then what should be the right number and i think the discussion to be with the right number should be based on the research that is out there and

with the timeframe to get to that number should be treated then you have a systematic approach for the leverage than simplify the risk-based to make sure they don't get out of bounds using the pure leverage ratio. >> the chair now recognizes the gentleman from massachusetts. >> thank you mr. chairman and i want to thank the witnesses coming before this committee. let's pick up on that point of data evidence tvd each of you has expressed concerns about inappropriate use of the government safety net section section 716 commonly referred to as the partial provision which forces banks to move the riskiest swaps out of the depositor institution and do you believe the pricing of these institutions receive the benefit from access to federal safety net and do you support our

efforts to move them out of that depository institution? >> yes and yes they should be outside and i think being inside does give them a subsidy and facilitate their ability to use the instruments beyond what they would be able to do without a subsidy. >> yes and yes squared. >> they provide the opportunities to take excessive risks and i'm not sure that it doesn't go too far and limit the devotee of the banks to use derivatives in legitimate ways triet >> on of the problems that remains here by allowing the internal models of the banks to calculate the risk is in many cases like discounting the rest that the mega banks burr of the

exposures and also the accounting rules in the u.s. i think allow some of that discounting to occur. mr. hoenig and mr. fisher i believe from your earlier testimony would you agree that going to just a capital standard such as in the world just a 15% instead of getting into whether or not the activity is putting a flat 15%. i know 15% doesn't have to be the number but certainly using the total asset based standard

verses and activity standard is that more appropriate? >> i think you need to be out of the -- i think you need to have them pushed out away from the ct net where the hour current debate to encouraging leverage but for those institutions you need a strong capital standard in terms of the unexpected. it is for good management to make mistakes. it doesn't save everyone from foolish mistakes but it does help moderate the extremes but you also have to change the incentive because if you have the subsidy you're going to do it as we have seen over the last 15 years pete >> i would like to make a side comment if i need to be it's going from the mentality to the income statement mentality. that is the old banking system used to be refocused on preserving the institution, protecting your depositors and doing what the bankers to

between the short-term deposit and longer-term risk in terms of the commercial etc. the transition that took place post travelers and citigroup, which was quite willing that is the transition to the income statement how much can we make every single year and i think what we really need to guard against is the utilization of these derivative transactions to continue to maintain the income statement my topic that seems to be pervasive in the large industry. my belief for what it's worth, and i stress for what it's worth we should have equity capital as the primary protective capital of the institution. again especially securing the commercial banking operations in the institution which is where we provide the government guarantees that we provide restricted if they provide. >> i think the capitol quality is very important. i also think we should be humble

about the ability of any regulators or supervisors to set along the single optimal formula for capital so i think that we must approach multiple measures. >> my time is expired. yield back to the disconnect thank you mr. chairman and gentlemen for being i wanted to talk with regards to an article that she wrote appearing in "the wall street journal" with regards to allowing the banks to basically develop their own internal models with risk facing the capitol. she starts out with a head wind and regulators let big banks look safer than they are with the subtitle the capitol ratio rules on the collateralized loans are riskier than the provisions. as you go through the article she talks about the difficulties and actually comparing the big banks because of the way they

model their capital asset ratio and the risky assets that you are looking at. and she made the comment that they've shown how they can create incentives or legitimate models to be manipulated and then talks about the latest stress test on morgan stanley reporting their risk-based ratio was 14% taking the risk out drops it down to seven. the u.s. bank court has a ratio of nine and a virtually the same ratio on the non-risk basis so we are playing games with the ratio and i think we mentioned a few times and i would like to get down to the nitty gritty because each one of you have alluded to the same things a couple times here in the last folks that ask questions how you can play around with ratios and get right down to the exact tier one capital. can you give me some hard fast

information opinion on that? >> you're the one that said they would need to simplify the capitol. >> i'm familiar with the article. i happen to agree with that completely. i think that the reporting of the 14% is what counting only 15% of the total assets or risks. then when you take out the good will and the intangibles you get the equity capital and bring on the balance sheet of the derivatives and so forth. it's about 3%. so you have given the wrong impression to the market and to the public. what i am suggesting is you have a leverage ratio that is equity capital with the goodwill in the intangible self and that you bring on to the balance sheet the risk. without the internal models it is an opportunity to game of the

system under the report risk assets based on the advantages the regulators give and lead to bad outcomes. >> how are you going to get through this whole manipulation being done? when you look at these are you going to say this is not where you need to be to be a we are going to take a look at this a little bit differently and force them to raise capital or do something different with the risky assets? >> hopefully through the process of coming together we will come to a ratio that is meaningful and that is in the process as we look at this agreement. we need to have a full capital program that includes proper risks people can at least operate or understand from the outside with a leveraged that

gives a standard across all institutions nationally and internationally so you can compare apples to apples and then judge the risk based upon the system. we should do that as one proposal. >> i appreciate your comment because a lot of members and a lot of public believe that dodd-frank solve all these problems but there are still inherent problems with the way that they are regulated and the way some of the information is interpreted. while dodd-frank may have the ability to wind down a particular institution if you have a meltdown like we had been 2008 its we will for about the regulation and do whatever it takes to get the situation salt. and with that i have 37 seconds left. you mentioned you have 1930 walls and regulations we need to look at if you would like to leverage just a little bit. >> they were expecting 33 as a response to the tremendous

turmoil of the banks and 31, 32 and 33 and then congress revisited the banking legislation leader to the they didn't feel as if the act of 33 was sufficient. you might want to take a second. >> the only good advice we can get. i appreciate all three gentlemen being here today and i yield back. >> the gentleman from colorado for five minutes. >> thank you mr. chairman. gentlemen, appreciate the testimony today. i guess i have a couple questions and i will start with you. i've had the opportunity now to talk a little bit about glass-steagall. you and i have had conversations and though as i remember it there are three parts, the creation of your organization, the separation of investment banks and commercial banking and insurance companies and that kind of stuff and the creation of unitary banking so each bank

big or small stood on its own capital. i've had the opportunity as a state senator to vote against the banking because i believed in the unitary banking. i had the opportunity here when we were going through to offer an amendment a separate investment banking from commercial banking and i lost. so i appreciate the things that you are saying that we are in a political world and you have to have more votes. first we try to deal with things in advance. i know a couple of the institutions have 3,000

subsidiaries. as regulators we have put a lot of pressure in the responsibility on your shoulders to look at the living wills to say this gives us a good road map as to what to do if everything falls apart. connect? >> yes. >> i'm going to leave you a little bit here. it's kind of what i do. [laughter] then if you see some things that are potentially a problem you can demand more capital as a regulator, isn't that right? >> yes. >> and if that is not sufficient you can ask for divestiture. this is all in advance of getting us out of bankruptcy because -- i will get to you to map. you can order some part of the organization could be the investment banking, it could be the entrance, it could be the making of engines.

we have a big one that is in the manufacturing business, correct? >> none of that works then malae start into the statute. section 202 allows the treasury secretary to go to the united states district court and petition the court to place ball whole kit and caboodle in to the receivership. isn't that right? and this can be done in a confidential setting with that united states district judge. and it's very similar to what occurs today, is it not, when the fdic -- they don't go to a judge but they can place somebody into a liquidation over the course of the weekend. >> that's correct. >> and it does that with the to go to the judge, the place a broker-dealer goes into liquidation they do have to get an order of the court.

so, now we are in the courtroom. we are in a bankruptcy setting bets with the allied states district court. >> that's correct. >> so now we are in court. what is it that allows for the secretary and the fdic as its agent, the receiver? we are now in the court. you've got the bank potentially being liquidated by the fdic and the rest of the company in court in a bankruptcy. bankruptcy has been used very loosely. there is liquidating and there is reorganizing. so what is it that really bothers you now we are in court you have the bank and liquidation and the fdic in charge and the rest of the company going under the

authority of the district judge and receiver. >> i'm already out of time to the it seems as though you're leading questions are correct assumptions. >> that's why i said do you agree. >> i said you can do it. whether you will is the question. >> do the regulators have the guts. that is the question. >> but congressman, the bank holding company has had a provision for the last 30 years that if and non-bank affiliate is jeopardize in the bank you can force the best pitcher and i don't think it has ever been used. >> i've given you the tools. >> the time of the gentleman has expired. the chair now recognizes the gentleman from north carolina for five minutes. >> thank you. i will direct this to you.

welcome. why is the complex capital regulation and an effective way of landing in the market expectation of the government bailouts? >> i'm sorry,, chris and i didn't hear the question. >> why is more accomplished regulation more complex capital regulation? and any effective way of ringing in the expectation of the government bailouts. >> i think if you are simple and straightforward as a better solution in the complexity. one of the disadvantages is that it places the region institutions at a disadvantage. if you talk to the community bankers they will tell you they are hiring their lawyers and consultants that make the loans and effective business paid to do. so they give to those that are big and rich and the more complex it is the more you are giving a competitive advantage

to those that have the means to deal with these complexities and that means the large institutions and that is the simplest way that i can explain it. >> would you like to respond? >> i'm not sure that they understood your question completely. but i think the fact is more capital is helpful. but if you have a subsidy that is driving you towards leveraging and gives a cost of capital that vantage over the regional community banks it leads to i think unintended bad outcomes where you consolidate the industry ever larger and give them a competitive advantage they don't otherwise deserve or would earn in the market. i hope i answered the question. >> banking is a complex activity these days.

i think you need to grapple with that complexity. it doesn't mean you fine-tune the advisory approach or regulations but you have to be robust against the ways in which the firms and markets can adapt to what regime you put in place so that is what you have to look for and that is why i think on the capital from the there is a logic but there's also the sense in which humanity ought to lead you to not place all of your eggs in the basket of one capital regime. and the value of simplicity i think comes forward. >> let me ask you how can we level the playing field between the smaller and the regional financial institutions compared to the too big to fail? >> i think leveling the playing field is the and to require

eliminating the expectation of support for the wholesale funding lenders that benefit from that source as what i see the most consequential aspect to the large institutions. it comes with an outside burden of compliance but it has hit a lot of small and regional institutions as well. a lot of the compliance burden is a reaction to the risk that has been taken and the risk that we see in the banking industry and the exposure of the taxpayers and the government to these institutions large and small. if we were able to rely on the incentives on the market discipline, would there be less

need to continue the growth compliance burden on these institutions and that would help level the playing field as well. >> my definition is if he wore a small regional bank or if you are in the 99.8% of the 5500 bankholding companies we have, the fdic has a saying in by friday out by monday. if you screw up your management is removed and new ownership is put in place. the playing field will be level and that applies to all financial institutions including large ones. >> if i could data, number one coming you do need to get the capitol ratio to be more equal. by now the largest institutions have a capital vintage. number two, you do need to rationalize and separate that out so that the commercial banks are commercial banks and the subsidy is complying to that. then whether you are a community bank or a regional bank or large bank, you are playing on a much larger playing field to be a i think the competition would be

well served. and again that is the purpose of the proposal, congressman. estimate the time of the gentleman has expired and we recognize the gentleman from delaware for five mets. >> thank you, mr. chairman, and to the panelists this has been an interesting and fascinating discussion to date. i don't know that we have shed any light on the answering of questions of whether too big to fail excess or not, but we have had some really great discussions i think about that. i would like to say with respect to the privileged designation, it's funny i've not had anybody come to me requesting to be put into the category to get in fact just the opposite. people come to us saying we shouldn't be included in this designation just as an observation. but i would like to pick up where mr. perlmutter left off in the district court. and i guess start with you,

mr. fisher and ask the question i think he was about to answer which is what problem do you have with the legislation as it relates to the firm that bought into the district court by the u.s. treasury because it is in big trouble? >> i'm going to ask mr. hoenig to address this if i may. >> i think first of all coming you have this largest institution in the country at risk of failure and you have to go to the federal reserve and the fdic and you get the two-thirds vote. estimate the potential as he said in his testimony to these institutions that take on the rest of the financial system. >> so you are against this major consequence to the economy. then you go to the treasury of the secretary who has the choice. do i put it in receivership and put that chaos and play or do i

do something else? the options perhaps i could find that would not force it into the bankruptcy and going into the district court, going to the president. so that is a very difficult process, which it should be. but i think that when you then have the economy going down, you want to step in and intervene in a way that doesn't cause failure rightly coming yes? >> you will be very slow to act against an and the district court judge determines whether to require the orderly liquidation under the act, correct? steny of the treasury secretary does bring it to him, yes. >> what if the legislation gave -- are you familiar with the enhanced bankruptcy proposals that the people have developed? >> yes. >> what if the district judge

had the opportunity of triggering the liquidation authority or some sort of structured bankruptcy? the difference being i am no expert, there is no access to the wholesale funding source. >> if i could comment on this is worth pointing out that in the scenario the congressman laid out a actually they don't spend much time in court in the sense that it's true there's only limited aspects of the secretary of the treasury decision that are subject to review by the court. it's these fact finding things out of the determinations the secretary makes. >> we don't have much time. >> i'm interested in whether you think it would be the process if the judge had that discussion. >> it would be useful if the regulators themselves could initiate bankruptcy as things

stand out they don't have the option to do the orderly liquidation by themselves concede they can ask the firm to put themselves and 14 for chapter 1119. but they cannot force that group proposal to give regulators the devotee to do that. and i think that would be valuable. that would be a better way to get to the right outcome. >> if the group is successful in the chapter 14 which they are now working on which they have to issues one st financing how do you provide liquidity and across the border which they are now working very hard to solve. if that is successful, and i hope it is, then bankruptcy will be a natural first choice in every instance and those are the two things that the order liquidation addresses. that's why it's there. so you have to get this solution to make sure that we can put them into bankruptcy through the

possession and cross border issues and that is where they are working. >> thank you. my time is expired. >> thank you mr. chairman. i want to thank you all for your testimony here today. and i am sorry that ms. bair is gone to the it occurs to me as i listen to the testimony there can be or should be some opportunity here to amend the law in a way that really can get us where i think we all want to be and that is something that has eluded us over the last two years i've been in this congress and so this gives me some hope that maybe there is a possibility that we can do these important things we must take the opportunity to do while we can. as mr. lacker said, all the

things we can -- all the things we can do to control, to keep this from happening again, we've control those. so i'm just very interested in your testimony. thank you. my question for ms. bair but have then she makes it pretty clear the bailouts are abolished under dodd-frank. and there's something different on this side of the table it isn't that clear and when you look at the numbers, and i was particularly interested in the numbers on the financial sector the liabilities today are 27% the financial sector liabilities today that in july and an implicit government guarantee. and that being the case -- and i know that you can't speak for her but can you help those of us up here that are listening to the intelligent people, can you help us figure out where is the

difference between what ms. bair is saying and what i think the facts are and that is that there are tremendous -- there is a tremendous guarantees and there is a risk associated with that. >> and ms. bair's defense, the legal authority under which we provided assistance to the merger of jpmorgan chase and assisted aig was 13 throop 03, and the ability to craft a specific program has been eliminated. we can craft a program that has to be a wide market availability to the use of that sort of narrows. but too big to fail has been around since the start of the early 70's. that was carried out over the fdic authority. they had the authority to add extra money and pay off the on

injured creditors, on injured depositors and the federal reserve has april, too because when we lend to the failing bank before it is closed, we can let the uninjured creditors get their money before the closure takes place and the remaining uninsured creditors are forced to take losses. so we still have those modalities and those people devotees of keeping short-term creditors from loving that escapes without bearing losses to begin so that is the extent to which -- that authority that we use and the way we chose to do it has been abolished but we were doing in other ways before that. >> anything you want to add to any of that? >> i think the president has given a good explanation of what we think she meant by that. >> one of the things that has been touched on both sides of the dial is this idea that the

subsidy, the government subsidy that is real that gives competitive disadvantage to the largest banks and i think that you see that trend seems to me to be continuing. but that trend is in favor of the banks despite the fact that we are told the banks had been abolished continues to -- we continue to see that. and so, it concerns me from an issue of competitiveness domestically. but are there other concerns that any of you have as it relates to the global competitiveness? obviously it goes to the heart of what the individual customers and banks in competitiveness that exists in this country but does any of this rice to the level of concern of global competitiveness? >> congressman, i've been asked that question a lot and i am convinced that the banking system that competes from the position of strength will be the

system that wins. and i think having a strong capital situation -- what we have now, we have a structure that is not a free market structure. it's heavily subsidized because of that we have capital levels that are lower than they otherwise would be to the we are asking if you will directly or indirectly for other members of the banking industry or of the public to underwrite our ability to supposedly compete with the rest of the world. when we rationalized this before -- when we had the broker-dealers separate from, we were the most competitive capital market in the world. we were the successful nation from strength to this gimmick that time of the gentleman has expired. >> the chair recognizes the gentleman from new mexico for five minutes. >> thank you mr. chairman and each of you for being here today. so, we started this discussion today on whether or not dodd-frank and the too big to

fail and a lot of different opinions. i think the first thing that i was curious about -- under title ii we have the insurance and the too big to fail banking firms are just different financial firms. because where i'm going is under title ii they are now covered by the deposit insurance which gives them access to the funds to small to succeed. so i just wondered what kind of advantage we are giving too big to fail. supported with or not dodd-frank did anything on the different opinions. but what about do you have an opinion about that devotee for the firms to get into the deposit insurance fund now? >> i believe that i address that very specifically in my submission but just to

summarize, again, the purpose of the deposit insurance was the old fashioned purpose of assisting the commercial bankers to make the kind of loans that they depend on. >> that should be the purpose of that insurance. >> for other services we don't want to take with a capacity to the services but it should be restricted for the purpose that was intended. >> forget the discussion of whether they technically ended it. we have given them a conduit to the funds they didn't have access to the fore which seems to maybe that doesn't have much affect killing too big to fail is what our friends on the other side of the aisle say.

mr. hoenig, are there consequences -- chris deval regulators have that discretion. is that correct? >> discretion for -- >> making decisions on what to do under the circumstances of too big to fail during the bankruptcy in the discretion to the is that correct? >> under the bankruptcy they would go to a bankruptcy court and would be handled there. >> but if that approach is that, the regulator has the ability to maneuver certain tools. >> the regulators will examine the institution or deal with the institution and insist on more capital to keep it from failing and so forth. >> do they have any consequences for the regulators? if they choose incorrectly? to purposely make a mistake -- >> just if they make a mistake. we will leave it at that. >> will come if it is a mistake is a mistake. that's what you have capital

for. for the management or otherwise. >> i find the whole discussion that we are having today we are going to create a regulatory agency that comes in and looks to determine if the firms are solvent, if they are qualified. but we are going to turn it over to the regulators. keep in mind the regulators have been hearing for ten years he was doing stuff that they turned a blind eye and the courts found that the regulators couldn't be held accountable for that. they were shielded by the discretionary function exception and the court did express regrettable disdain for the actions, but nothing happened. now, so we are trying to decide on the fairly small nuances here but there is no nuance taking and segregated customer accounts and yet john corvine still hasn't had anything done to him. he took $1.5 billion. the regulators were sitting in

the room watching him. multiple regulators are saying we are having a protracted discussion here today on should the regulations be tweaked here or there. if we cannot hold the regulators accountable, i would guarantee that it does not matter if too big to fail is in place or is not in place. but the regulators would have in their discretion in the terms, the discretion to determine whether or not things should be done, but or not they should get bail out and there is nothing that we can do. these are the things making people furious in the streets. they get stuck for people that have run every single bit of profit they can out on a risky adventures and then the taxpayer get stung with it and i will guarantee you this whole system has many problems ahead of it if we do not get this right to - we continue to create a system of two big to fail. >> the time of the gentleman has

expired. the gentleman from kentucky is recognized for five minutes. >> thank you mr. chairman. i think of all of the data available to the members of the congress and the observers of this interesting question about the two big to fail. there is one piece of data that is the most telling about whether or not dodd-frank sold too big to fail question. it's the statistics mr. fisher points to to read the .2% of institutions control nearly 70% of the industry assets. so, for those folks out there that say that dodd-frank has solved too big to fail, i think that is a statistic that we ought to always keep in mind. to that point, have we seen a greater concentration of industry assets in these banks since the three years they've been all of the land? >> congressman, we have seen a

greater concentration as we go through time and certainly from the for the financial crisis until now, yes because the acquisitions remain. we've seen a greater concentration. you have kind of two parts to this. you've got the implicit government taxpayer subsidy to the $83 billion subsidy, the cost of the funding advantage, but you also have the regulatory pressures placed on the 99.8% of the other banks, the regional banks, the consolidation that we have seen come and the smaller banks. i would like for the panelist to comment not only on the taxpayer subsidy and the funding advantage but also the effect of dodd-frank and the regulatory

pressures and the lack of the charters and the smaller banking sector and whether or not that has exacerbated the problem of too big to fail. >> i'm going to quickly comment in the two and a half minutes left to buy troubled about my district which is a large district federal reserve district of dallas. i need constantly with bankers. these are community bankers and regional bankers. they are deeply concerned that they are being overwhelmed by regulation and having to spend their money as i said earlier, hiring people, lawyers and federal with all due respect to the lawyers to help them constitute being able to afford their limited budget and with their interest being so tight. hiring the bankers to make loans and do what they are paid to do. so, we are being constantly criticized and voice of concerns are being raised that they are

swamped in terms of all the different things you mentioned and it isn't just dodd-frank. you mentioned others that have been granted under the different legislation that was enacted and they just feel the luft and that puts them at a disadvantage because if you can't spend your time worrying about how to make a loan someone else will make it for you. it just goes to show that we ought not just look at title ii and the implicit taxpayer subsidy but also the consolidation that is happening with the lack of sufficient competition because of the consolidation. >> one final question as my time is expiring and the question is to all of you and relates to the regulatory discretion that is covered under the ola and whether we are moving away from

the rule of law based system in which there's an excess of discretion and we are moving away from orloff law and the automobile bailout was highly politicized because the federal government conditions are given preferred treatment by the union claims. the president under the ola, could the fdic use its discretion to pick winners and losers much like we saw picking winners and losers and the politicized manner much like we saw in the although bailout. ..

the congregation is constrained. as i read the statute for authority and discussion than a judge does in bankruptcy to violate priority. >> mr. fisher is not in -- at the time of the jebt l man is definitely expired. the chair recognizes the gentleman from north carolina. >> thank you, mr. chairman. i want to go back to the opening statements it caught my

attention. it was the actually language of section 214, she read it accurately inspect no taxpayer funds -- under the tight. i think for some people both in the room and outside of this room, that ends the discussion. i think it's clear it doesn't end the discussion. in fact you heard mr. green give a certain set of circumstance he would support additional taxpayer funds. it's an open question as to whether or not taxpayer funds can be used. help me walk through the process it might happen. i turn to section 214b out of the title should be recovered from the dispositions of assets of such financial company. it immediately contemplates it might not be enough to pay. or shall be the responsibility of a financial sector through assessment. what the financial sector is.

that's the word that is used. the assessment, number one, how use would it be to do that? we are talking about a situation, the economic situation a major bank is failing. how is it going to be to seas -- assess the other banks and sector. >> it's hard to do it in a timely way. my sense what is envisioned in the fdic plan for implementing the act and the act itself is that the recovery after the fact. after over the course of several years. you cothe calculation that said we have to go back. the point i would make about the taxpayer point is the key about too big to fail is the incentive. from that point of view, it doesn't matter where you get the money. you are short circuiting in sentence and that gives excessive risk taking and short

term wholesale funding. >> i recognize that. >> i was looking, sir, at the remarking made by martin, the when he was acting chairman of the fdic in a federal reserve bank of chicago. to make your point he talk about the orderly liquidation fund located. those are were taxpayer monies. he earned liquidation fund must be made from the recovery of the asset of the failed firm or a larger more complex financial companies. taxpayers, as you said, cannot bear any loss from the dodd-frank act >> well, as i pointed out in my spoken comments, i mean, first of all, these are taxpayer money. there's an opportunity cost of setting them aside. we don't often talk about it. it's something to consider. it's insufficient in liquidation and you need to go back to the industry, as you mention and assess them. they are give a tax dededuction

as a business expense for the business of the funds. that's taking money from the taxpayer as far as i'm concerned. >> by the way, if we get the assessments set up, who ult ultimately pays for those? >> the customers pay for it. tight i and i think title ii is designed for idiosyncratic event. a large institution get in trouble and you owe. if you have a systemic melt dpown as we had last time. i feel pretty confident that the congress will be asked for another tarp. and that's where you have it. and the market perceives, if you have a systemic melt down that may the case. you have many issues. >> i think it's an excellent point. this might work if you have an aberration. it raises serious issueses if you end up in a similar. >> i agree with that. remember how interconnected the

firms are. i doubt you would have one alone. >> right. bankruptcy will be -- then you go back to -- to the point if you diverted -- perverted the market and give the sense of safety where there is no. you encourage creditors to lend when they shouldn't be doing so. >> why is why we should racialize or simplify the system. we continue end up in the same position in 2008. we need to pull back the safety net two commercial banking so we can -- >> i hate to cut you off. i have twenty section left. they shall bear no losses. i would suggest to you and the chairman that simply is unenforceable. it's language that made people feel good about voting for it. there are folks in here today that would use taxpayer money again we'ved to dodd-frank in place. >> thank you. the time of the gentleman

expired. no other members are in the queue. i wish to thank our witnesses for the testimony today. without objection they will have legislative days in which to submit additional written questions to the chair which will be forwarded. i ask each to respond as promptly as able. without objection, all members will have five legislative cays to submit extraneous material to the chair for conclusion to the record. the hearing stands adjourned. [inaudible conversations] c-span road to the white house 2016 coverage continue as we follow potential republican presidential candidate kentucky senator rand paul to the early primary state of south carolina. he'll be speaking at the fundraising dinner. after that, an event from last week with former governor jeb bush. he gave the keynote address at the fund-raiser for the conservative party of new york. it begins this evening at 6:30 eastern on c-span. live tomorrow on c-span,

chief justice john roberts review the just-ended supreme court term. the highest court issued rules on gay marriage, the voting rights act. and affirmative actions. before justice roberts former solicitor general and former "new york times" supreme court correspondent will discuss the court's cases. it will be live tomorrow morning starting at 9:00 eastern on c-span. i was also looking for things completely pessimistic. i think we could have won who without patent. you take away the burned out athens and two-thirds of greece the greeks would have even fought are without they would not have recovered much of the western part of the roman empire. i don't think thrchesz a union general alive who could have taken atlanta at cost we took it

very small cost compared to what was going on for virginia. i don't know anybody who could have done what matthew ridgeway. i wish i could say there were american generals, maybe one or two who could have done what david petraeus did. he talk about five general that single handily reversed a direction of the war to the country 'favor. saturday at 10:00 p.m. eastern. part of book booktv this weekend on c-span2. >> this sunday american history tv on c-span 3 commemorates the 150th anniversary of the battle of gettysburg. >> they were recruited by the general early in the war to form the brigade out of new york. out of new york city. this particular regimen, the 73rd was recruited in the fire hall of new york city. so the firemen answered the call to come to duty as union

soldiers. there are about 350 of them out here july 2nd. they'll suffer 46% casualty. if the dedication ceremony, the honorable robert b said this "there are times in the lives of nations when energetic actions enduring courage of a small number of mens will arouse in others the highest noble semblance, and spur them on to a sense of duty and greater degree than the chief live coverage sunday beginning at 9:30 eastern with the historians throughout the day including harrold, howard, and allen. ladder at k5u 30 we'll take your call and tweets.

during the week's question time. british prime minister defended the government's proposed spending plans which covered departmental cut, changing to the national health service. over the next half hour prime minister cameron answers questions from members of parliament. >> questions for the prime minister. gordon enderson. >> mr. speaker, the prime minister, thank you, mr. speaker. this morning i had meetings with colleagues and others an in addition to my duty to the house i should have further such meeting later today. gordon henderson. >> thank you, mr. chairman. >> many people --

who have mortgages of benefiting historically low interest rates. [inaudible] their mortgages will be affordable under his government. >> we make an important point we enjoy record low interest rates. that's good news for homeowners. we need to stick to the plans we set out and have a sensible fiscal policy to the bank of england to keep interest rates low. one piece of advice i won't be taking on saturday of the leader of the labour party said he wanted to control from -- borrowing could go up. so perhaps -- [inaudible] lay -- [shouting] mr. speaker, mr. speaker. last may, the education

secretary said, i quote, what will begin immediately on 261 projects under the priority school building program. can the prime minister tell house how many? [inaudible] >> infrastructure spending under this government has been higher than it was under labor. we have our own 40 billion pounds reserved for capital spending on the schools. we had to clear up the appalling mess left by the school in the future program. >> i don't think he knows the answer, mr. speaker. >> i'll tell them. >> i'll tell him the answer. the answer is 261 schools were promised -- only one have -- [inaudible] recover from the importing mess of the building school to the future program. that is the the record deficit.

it's this government that are providing extra school places. >> i don't think he knew the answer, mr. speaker. >>let try another one. in october of 2011, he said he wanted to bring forward, again, i quote from the prime minister, every single infrastructure project that is in the pipeline. so out of 576 projects that are set out in the plan, how many have been completed? [shouting] >> let me give him the figure for infrastructure spending. our annual infrastructure investment is 33 billion pounds a year. that's 4 billion more every year than ever achieved under labor. let me give him the biggest. we're investing more in major -- [inaudible] in each of the first -- the answer from the prime minister must be heard, and

questions to him from each and every side of the house must be heard. it's very clear, very simple. it's called the democracy. the prime minister. he asked the question how many have been completed? you cannot build a nuclear power station overnight. [shouting] >>, by the way, they had thirteen years. they didn't build a single one. let me give him the figures. this government, on rail, is electrifying more than 300 miles much railways. [shouting] >> perhaps he can tell us how many elect fied were under labor. nine miles. that's the labor record that this government is recovery from. 100 new hospitals under -- [inaudible]

three and a half new children -- let me tell him the answer again. want an is seven out of 576. and five were started under the last government. now he said he would take a long time -- [inaudible] more promise, no delivery. nowlet see if he can answer another one. last year the government said the new buy guarantee scheme would help 100,000 people buy new homes. how many people has it helped? it has been welcomed by the entire try industry. he talk about what was built under a labor government. we saw the result of pfi schemes with restill paying -- [inaudible]

[shouting] those are the proof of what we are doing. we all know that the one question here he has to answer he wants to put or borrowing up. will you admit it? >> prime minister, every time i come parliament, the question, i ask him a question. he doesn't answer the question. he just -- mr. speaker. and the only fact that tells me needs to know about borrowing is at promise the chancellor made -- [inaudible] it went up last year. but let me answer the question he didn't know the answer to. he prompted 100,000 new homes on the home buyers. the answer is just 2,000. at that rate, it will take until 2058 to meet the target he set. mr. speaker, the british chamber of commerce said the government's plan for infrastructure is, i quote, hot air a complete fiction.

even the deputy prime minister's dcial [inaudible] he said, and i quote, yesterday the gap between announcement and delivery is quite significant. no kidding. [laughter] why should we believe the promises the chancellor made on infrastructure today when his own -- [inaudible] are failing to deliver? the figure on housing. let me give him the figure on housing we have delivered 84,000 new affordable new homes. the housing supply is at the highest level since 2008. house is increasing at the faster rate for over two years. we put in place 11 billion pounds for housing investment. let me ask him again the question he won't answer. will he -- i know he doesn't want to answer the question. that's why, i have to say, mr. speaker, half the country think he's born from the muppets. they think he belongs in sees smee --

sesame street. will you admit borrowing will go up under labor? mr. speaker, let me -- we'll talk it any time. here is the reality. here is the reality. the prime minister promised the balance the books before it was up last year. he said we're all in it together. living standards are falling. he promised to get british buildings they haven't. all you need to know about the chancellor's spending review is the british people are paying the price for their failures. [shouting] >> mr. speaker! mr. speaker! [shouting] >> let us remember -- let us remember what the leader of the opposition said at the time of the last spending review. he told us unemployment would go up, it's gone down. he told us crime would go up, it's gone down. he told us volunteering could go down. it's gone up. he told us poorer students

wouldn't go universities. the% age has gone up. and he told us our immigration policy wouldn't work. we cut immigration by a third. that's we have done, as ever, wrong about the economy, wrong about everything. never trusted by the british people. [shouting] thank you, mr. speaker. the government publishing spending rounds for 2015 to 2016. can they confirm it rejects the resignation to borrowing more unproposed by the -- [inaudible] on saturday the leader of the labour party told us there would be discipline on spending. on sunday the shadow chancellor on the television five times admit, yes, borrowing could go up. there we have it. they want to borrow less by borrowing more, they want to spendless by spending more. they want to cap welfare by spending more on welfare.

people at -- [inaudible] saying new balls please. [shouting] order! order! order! [laughter] order! in congratulating the honorable gentleman on the birthday, i calm mr. david. [cheering and applause] ♪ [laughter] >> is the prime minister aware how shocking it was with the place apparently -- investigating the parent and friend of stephen lawrence than the further itself which took place in 1993. when she --

[inaudible] is she going to apologize for what occurred? is it right for the police to investigate i.t.? >> yes. >> i thinkly makes an extremely serious point. it's a serious situation. the lawrence family have suffered. they lost their son. the failure to investigate improperly for year after year. now they hear allegations that the police were trying to undermine them rather than help them. my honorable friend sat in the house on monday, the two inquiry independent inquiries already underway. she's met again with mark ellison, this morning to make sure his inquiry will cover the allegations that were made overnight about bugging by the police of a friend of stephen lawrence. i have to say nothing is off the table. if more needs to be done. if further investigations need to be held. they will be held. we must goat bot -- bottom of it. >> it's attracting a large

amount of investment for major infrastructure projects from around the world. does the prime minister agree with me one of the way in which restoring the u.k.'s credibility by dealing with the debt and showing how public spending -- [inaudible] [shouting] >> my honorable friend make an excellent point. that's a power station which for automatic of those years under labor stood there completely empty and unused, the redevelopment is going starting this year. because under this government, we take infrastructure seriously, we get investors to come our country, and we get projects started. unlike the wasted years under labour. >> what about the backlog? [inaudible] in the last six years the labour government developed major infrastructure projects. can the prime minister confirm under his flee years there has been zero dislifer i are -- delivery of such project, zero

-- when will the prime minister stop screwing around and get the new fly over and the new [inaudible] started? >> the last government made a lot of guarantee. they wrote a lot of checks but couldn't deliver. [shouting] >> let me give in the biggest, our spending on capital spending is higher than what labor plan, the annual infrastructure investment is 33 billion pounds. that's 4 billion pounds higher than they achieved even in the boom years. that's what happened. they had an unaffordable -- [inaudible]

he will note two of them are by the previous government. they don't deliver in thirteen years. i have been -- [inaudible] [shouting] >> when it comes to promises, the -- [inaudible] they are very good at promising we deliver. they are right. they don't like hearing the evidence of the new schools being built by this government in difficult times. also, when we talk about the east of england, of course, year after year there were call for improvement. never delivered. delivered bit government. >> thank you, mr. mr. speaker. the staging proved that it's open to the world for business we need the business of the world to come to northern ireland.

can the prime minister give us an jot line what he'll do injunction with the north and executive to deliver a successful inward investment conference in october to deliver much needed private sector jobs. >> looking forward to coming to northern ireland for this. what we'll be able to demonstrate is the success of the 8 -- the coming together of the uk government and the northern irish assembly with the plan for democratic development and breaking down the barriers within northern island with different community. i think that's not just important for the future of society. it's also important for the future of our economy too. >> so robert smith, thank you, mr. speaker. >> i recently met with academy in the international group with the highlight concern about the women in afghanistan.

make an important point. we should don't support the afghan ?iewftion, which gives important guarantee in the regard. i spoke yesterday to president karzai including about the issue of the afghan constitution and how important it is. and major investment through the aid program over 100 million a year. that can help to secure the advances in afghanistan we want to see. >> thank you, mr. speaker. that is he had the conversation? >> like i said, i've never been

lobbied about anything. but the difference between me and frankly, every member of the party opposite is i can also put my hand on my heart and say i have never been lobbied by trade union after trade union. that's the real problem in british politics. it's time we cleaned it up. [shouting] >> thank you, mr. speaker. with armed forces day in -- very important matters, and the telegraph encouraging local to come in packed boxes to be sent to the troops serving in afghanistan. we hope at the end of the

weekend we'll have 500 to be sent. [shouting] i congratulate my honorable friend who is taking part of the excellent initiative. i think actually these boxes, i have seen them, not only being packed here in britain but also unloaded in afghanistan. i can see the huge pleasure and support they give to our troops in afghanistan. i also think we should continue to use money that has been raised in fines irresponsible wangers over the libel inquiry to invest in the armed forces. under the government making real progress in delivering that sort of health and support to armed forces and their families and communities.

is a pretty political strategy. that's the question he's got ask the front. in 2008 they had three report of a culture of fear in the nhs. now -- [inaudible] cover up in the excess over the last decade. there was a cultural under the last government of not revealing problems in the nhs.

[cheering and applause] they are shaking their head. frankly, this is what the former head of the "cq" -- meredith young appointed bit last government said. he said i don't know they don't want to hear it. frankly, they have to hear it. it's important we understand the culture that went wrong on the labor. she said this, there was huge government pressure because the government hated the idea that a regulator would criticize by criticizing one of the hospitals or one of the services it was responsible for. that is are what barbara young said. and he said, we will under more pressure when the right honorable gentleman became a minister under the politics. there have a culture problem. the sooner they admit it, the better. >> we know now from the -- [inaudible] that's terrible. and the prime minister will report that the chancellor

checker two years ago said we asked the british people for all there is needed. there's no need to ask for more. today why is he asking for more? we have to have a spending review to cover the year 2015, '16 which was wasn't covered by previous spending review. we have got the deficit down by a third. it's hard, painful, and difficult work. frankly, we are clearing up the mess left. he was the minister of the last government. thank you, mr. speaker. they can receive free school meals in schools academy, free school, technical colleges, but not in colleges and [inaudible] like those in my constituency. will the prime minister act now to end this clear injustice left by the party opposite? very much in the news this week. it's a week we should be promoting healthy eating in our schools. happy to look at the issue.

we have to think carefully about how best to use the education budget to get money directly for all of our children. >> mr. chairman. >> thank you, mr. speaker. i think the prime minister will agree with me his generation and mine were lucky enough to come to the labour market at the time of full employment and greater opportunity. has he seen the figures this morning? the report that shows degravity of use employment in our country. can we please, that the late stage in this government have a determination to stop unemployment up to the age of 25, as i do in the -- why can't we deliver that to the young people? >> i absolutely agree with him. the youth unemployment is -- there's good news in the fact that unemployment has been coming down, and youth unplowment has been coming down. where he's absolutely right is that it shouldn't be the case that we have youth unemployment of 55% in spain, and under 8% in holland. we need to make sure in the u.k.

we are performing alongside holland and germany and the countries with the lowest rate of youth unemployment. we do it by having a flexible labor market by helping businesses inest vest. this country employment is growing faster here than it is in any other g7 country including germany. so we are doing the right thing. but we need to focus more on young people. [inaudible] >> i have a -- [inaudible] in the lining of the own house that housing development not from the green belt. i gave it -- [inaudible] the planning inspector reviewing of the core strategy and i regret to report that he upheld the principle that in the green belted could be identified for development against the wirns of the local people. will he direct amendment of the national planning policy framework to better present greenfield in the green belt?

and i remember underlining that it haven't changed. taking something out and putting it back in in consultation with the local people. i know, he's having the discussion with the local authority. and i'm convinced we have in place. we can get the balance right between environmental protection on the one hand and the need for more housing on the other. >> the high spread preparation. can the prime minister explain why his instruction is -- [inaudible] to oppose their extension at the transeuropean networking north of london, which will mean that high speed 2 and other transport will not be eligible for -- [inaudible] >> [inaudible]

>> thank you, mr. speaker, the prime minister knows how hard the structure have worked to get a direct train service from london there. they want to implement the direct service in december. unfortunately networking rail are trying to prevent it from happening. we were the only town in england without a direct train service to london. will 44 use the officer to ensure the blockage is resolved. >> i'm happy to tell my honorable fend they'll be meeting next week to discuss the issue. and in term of the answer i gave a moment ago, i think we have to recognize that there is a lot of congestion on our existing main line. and it will help free up services so we can have more direct connections particularly to important times -- towns like that.

the business proposes to abolish the protection for the name sheetfield that guarantees the quality of our manufactured goods. the ministry of defense proposes to move the headquarter of our territorial army regimen out of the city. what has the government got death sentence be the -- against the business and people of cheffield? >> i'm proud of the fact through the regional growth fund we are investing in the future of it. on the issue of the reserves, we are actually putting more money in to the reserves an extra one and a half billion pounds to make sure we can get it up to the level of strength that needed. on other issue, she should have some confidence. >> military banks are --

[inaudible] but also the civilian population. the last labor government count the number of army by a quarter. to this armed forces week will the prime minister give an assurance there knob no further cuts? >> the assurance i can give to my honorable friend as the can already say in a minute. yes, of course we had to make difficult in the ministry of defense. there will be no further reduction in the sides of our army, navy, or air force. we'll continue with an equipment program i think is second to none in term of the capabilities we'll give the personnel. mr. speaker, you will recall it was over a year ago, you probably know the exact date -- [laughter] when the prime minister announced the inquiry to be held by the lord gold.

in to the the access scandal had in which major conservative -- royally entertained. czecher. whose did blank blank publish the result of the inquiry? >> i'm happy to set out all of the things they recommended and all the steps taking. as we do so, perhaps he could impose on the front bench on the issue of donations and ask them when they're going pay back the taxes [inaudible] >> thank you. meals week which is taking place in the room this afternoon. i certainly join my honorable friend. i think it's an important cause because we have several problems

over the years ago with school meals them not being attractive enough for young people wanting to take them on. and also having problem with obesity as well. getting this right, which is something that has been happening over recent years is important. i speak as someone who two children who enjoy the school meal. i want the school to win the battle for the school meals rather than having to do the packed lunch. >> mr. speakerring with the revelation they may have withheld evidence from the ib has been met with public division. but the prime minister answer didn't go far enough. this public are not satisfied by the police investigating the police. nor will an inquiry that is held in secret no matter how imminent they satisfy public opinion. they will now give an undertaking to a power to someone people and hear evidence under oath? [inaudible] i said earlier we rule nothing

out. we have to get to the bottom of it. t not the met poll contain one is more mark ellis who played a major role in prosecuting some of those responsible. and the second is chief counsel police force. we need to make sure they have the power and everything they need. as i said clearly if, if we need two further to get to the truth, we will. [inaudible] will the prime minister assure them that hmrc given to clamp down on tax avoice dan like the 700,000 pounds avoided? [shouting] i think he makes a good point. i'm going mention it in every prime minister question. i've mentioned it one. they owe 700,000 pounds of tax

that could be going to school and hospital. it's about time they realize what hypocrites they are and pay up the money. [inaudible] up in the country. does the prime minister agree with me we should not put pressure on companies to start building and creating jobs rather than simply await for their profit to increase? >> yes. i agree with the honorable lady we need to do more to encourage businesses to build out the plot they already have. that's why we have taken unprecedented steps that are making available mortgages to young people. all of those initiatives are actually making it difference radically up with two years ago. taking further steps as well.

[inaudible] since 2010. can i share with the prime minister there's growing concern over the lack of clarity regarding the placement at the beginning of the year. look at that as a matter of urgency? i'm proud of the fund. as my friend said, it's saved many lives. it's made available drugs over to 30,000 people. it's been expanded to include some treatment as well as drugs. i certainly want to see a record we build on in no way put at risk. >> thank you, mr. speaker. last week the prime minister said that the people on these benches -- [inaudible] i can assure my constituents certainly haven't. in my city last week, only 23 one bedroom home were available for rent. of those -- [inaudible] four of them had over 200 applicant. when is the prime minister going

admit this is not the best way of reducing the housing benefit bills? >> i want to make the honorable lady, removing it it's right to be fair between people in private rented accommodation and people in -- [inaudible] accommodation. this is in a way is the perfect prelude to the spending review are about to hear about. labor told us they're going to be responsible about spending. they are going accept the cuts that have been made. we hear week after week back bench after front benching complain about the difficult decisions we had to take and promising to reverse them. that's why they have no credibility whatsoever. [cheering and applause] order. chief justice john roberts reviews the supreme court term live tomorrow on c-span. this week the nationest nation's highest court issued rules. solicitor general and "new york

times" correspondent discuss the cases. it's tomorrow morning starting at 9:00 eastern on c-span. this sunday american history tv on c-span 3 commemorates the 150th anniversary of the battle of gettysburg. >> the 73rd and four other regimens were recruited early in the war to firm the brigade out of new york. in to the army adds as union soldiers. there will be about 350 out here july 2nd. they'll suffer 46% casualty. at the dedication ceremony, the honorable robert b. nooney said this. he said there are times in the

lives of nation when the energetic actions and enduring courage of a small number of men will arouse in others the highest and noblest sentiment and spur their mind to a sense of their duty and a greater degree than the eloquence of even the most gifted orator." the 150th anniversary of the battle of gettysburg. live coverage sunday beginning at 9:00 eastern. live historians throughout the day. later at 5:30 we take your calls and tweets for author of "god and -- [inaudible] taking your calls and tweets. you can submit questions and comments to our sunday guests today at facebook.com/c pan --

span history. >> i was looking for things that were completely pessimistic. i don't think without -- you take away the domestic leave and burned out athens and greece to occupy the greeks would have fought domestically without would not have recovered much of the western part roman empire. i don't think there was a union general alive who could have taken atlanta at the cost we took. a small cost compared who what was going on in virginia. i adopt don't nobody -- i wish i could say there were american generals, maybe one or two. not many that could have done what david petraeus did. >> victor davis hansen talk about five generals he said reversed the direction of the war to the country's favor. saturday at 10:00 p.m. eastern.

part of booktv this weekend on c-span2. republican lead committee voted today the irs official who refused to testify about irs review of political groups as forted her right to invoke the amendment. the house oversight committee in a vote of 22-17 ruled that lois lerner has given up the right to silence. here is what committee chair darrell issa said at the start of today's hearing. >> having now considered the facts in arguments, i believe lois lerner waved the fifth amendment privileges. she did so when she chose to make an voluntary opening statement. her opening statement referenced the treasury ig report. and the department of justice

investigation and the assertions she previously provided -- and assertions she peevely provided false information to the committee. she made four specific denials, those denials are at the core of the committee's investigation in this matter. she stated that she had not done anything wrong. not broken any laws. not violated any irs rules or regulations. and not provided false information to or any other congressional committee regarding areas about which committee members would have liked to ask her questions. indeed committee members are still interested in hearing from her. her statement covers almost the entire range of questions we wanted to ask when the hearing began on may 22nd. >> the vote said she gave up the fifth amendment right and opens up the possibility that she'll

be summoned back to the committee for another round of questioning. it she again invokes the fifth amendment she could face contempt charges. acting irs commissioner danielle werfel were targeted by extra scrutiny. he testified before the house ways & means committee for three hours. [inaudible conversations]

[inaudible conversations] >> are you ready? [inaudible] [inaudible] [inaudible conversations] the committee will come to order. good morning, it's been six weeks since the irs first revealed they were purposefully targeting conservative leading organizations. and this week additional irs documents revealed that the term progressive along with others

were also included on the be on the lookout list or bolo. i want to make one thing clear. no taxpayer regardless of political affiliation should be unfairly targeted. it's wrong and the committee is working to ensure it will never happen again. the committee welcomed all groups that feel they have been targeted for extra scrutiny to come forward. i urge them to do so. so far it only shows conservatives, systemically targeted through the irs not just flagged but targeted. these americans consistently had their applications delayed for nearly three years, were asked intrusive and inappropriate questions, had their donor information leaked, and even threatened by the irs with additional taxes. but as i said we're in the early teenage -- stage of the investigation, as we gather the facts we'll follow them whenever they lead. if there additional group of any political afghanistan -- affiliation that feel they were

mistreated i urge them to come forward and share the story. t clear the irs is broken agency that needs to answer to the american people. mr. werfel, in the interest of accountability and discretion of secretary lew you spear-headed a thirty-day review. unfortunately, while i'm aware it's an initial report, it fails to deliver the accountability that the american people deserve. this report doesn't answer even the most basic significant questions who started this practices? why is it allowed to continue for so long? how widespread was it? in fact the report suggests that you haven't even asked anyone those questions. additionally, the report fails to address so. most e egregious offenses by the irs. i'm talking about the leaking of considerable taxpayer information. and the irs threatening conservative donor with additional taxes.

the review notes it's important that the inspector general continue to identify inappropriate actions, but where is the internal oversight? where are the checks to prevent this behavior in the first place? how will the irs learn from the inexcusable action and provide the american taxpayer with real proof and evidence that it will not happen again? it will be necessary to provide concrete reforms and assurance to begin rebuilding the trust the agency lost with the american people. a glaring recommendation in this report is that congress fulfilled the agency's budget request of and additional $1 billion. frankly, it's insulting to tax payers that the irs would ask for additional billion dollars right out we find out they are targeting tack payers for the belief. after they spent millions of taxpayer's dollars on frivolous conference, produced completely useless video, and put expensive dinner and alcohol on irs credit cards. let me be clear, until they can

prove they can responsibly manage the current fund. they will not see one more dime in taxpayer funding. we need real reform and must be implemented so the american people can have a restored faith they have government that works for them. not against them. it begins with instituting long-term and meaningful changes. changes to how the agent operates and the tax code that the agency is trying to enforce. as i stated before, often hear from constituents in michigan about the fear being audited by the irs. that fear used to stem from the fact that the tax code was complicated. nobody knew what was in it or if they had filed their tax correctly. they signed the return not knowing what was in and hoping the preparer got it right. it's something the committee must and will fix. however, today americans fear an audit. not just because the tax code is too complex. because we have an agency that is out of control. we have managers in washington

sitting on cases for years, directing intrusive and inappropriate questions to be asked, and after a month long internal review, what you tell the committee a few people have been removed from the old jobs. you cannot assure us they have been removed from the agency. it's my understanding they either continue to be paid, or are receiving full retirement benefits. and on top of the salary and benefits the employees have received over a quarter million dollars in bonuses over the last few years. and you have not identified any structure changes within the irs that would prevent the abuses of power from happening again. if there's anything this report shows it's just how much more work must be done, congress will continue the investigation to the irs's actions and get to the bottom of it so we can ensure that no american is targeted again. with that i yield to mr. levin for the purpose of his opening statement. >> thank you, mr. werfel. i'll go over my opening statement in just a moment.

i want to urge you, you've heard the opening statement of the chairman. i know, you mostly have been kind of a technician all of your years in both the bush administration and in this administration. i hope, though, that you will -- if i might suggest, respond very vigorously when the statements are made. i hope you will actively report on what you have done during your first thirty days. where mistakes have been made by the internal revenue service, we on the democratic side have been very, very clear when inappropriate criteria were used, we were among the first to say that those who were in charge in the irs should be

relieved of their duties. so i hope you'll respond very actively and vigorously that all of the questions. i think we need to get the facts and not innuendos. we're hear today to learn about the corrective action the irs has taken to address mismanagement and processing of tax exempt applications. so, mr. werfel, welcome to the ways & means committee. i'm not sure how warm it is. but welcome. i'm glad to see in your thirty day report, you have instituted management changes that span the entire irs management chain as needed. i see from your report that these changes reach to the exempt organization division indeed is necessary. and the team -- responsible for determination

and applications for tax tax-exempt status. we are also interested in your recommendations for obtaining greater effectiveness within the irs with respect to better early warnings systemming and risk-management. we look forward to hearing your testimony on your new enterprise risk-management program. which i understand will improve irs accountability, and responsivend to stakeholders including this congress. as your report makes clear, there was clear mismanagement on the part of the irs exempt organizations division. in processing these tax exemption applications. the additional assessment and plan of action appear to be a solid road map to addressing the problems, and we encourage you, as i said at the beginning, to actively, vigorously, to

completely pursuing this plan. .. reviewed in their audits and receive tighten scrutiny. three and, the inspector general didn't research how the term progressive was added to the screening list or how the cases were handled by a different group or a specialist in the irs.