worked when money went to the state? it?you're there waiting for >> well in this case, mr. the funding -- new york city got its own direct allocation, which was great for .s the level of damage that we totained and our ability take those resources and really start working with them strong.ely is really so far the allocation that have come, there's a separate of newion for the state york and new york city has gotten its own allocations from it's beenective, great. >> that's worked? >> yes. >> let me stop there. i have additional questions but go to senator booker. >> senator from new york, who has a wonderful view of new jersey would like to go first go.use she has someplace to >> please. >> thank you, mr. chairman. thank you very much, senator booker. work you've all the done and every single one of you has done extraordinary work in terms of getting money flowing, getting large projects done,

getting things up and rung. i appreciate it. from my i hear constituents is not good. i hear so many stories of rebuild,nts who can't who haven't gotten money. there's so much red tape that theirannot possibly find way through. so i want to ask each of you tape thats of red concern me that hopefully you can give me the road forward so let my constituents know that relief is possible. secretary donovan, this one seems very difficult. a number of my constituents were that becauseearn they accepted small business administration loans that they now ineligible for cdbg funding. i understand the need to make duplication in getting federal benefits and we want to protect against fraud, but -- and that is absolutely critical to the integrity of this program. but is there any distinction grantsn be made between and loans under the duplication of benefits regulations? and under the current federal regulations what are the options

for sandy affected homeowners whoaccepted sba loans but believe they are at a financial disadvantage relative to homeowners who chose not to an sba loan? >> this is something your office raised with us and that others did. clear thatally made even if a homeowner or business been approved for a loan, sba were still eligible for assistance. so, in fact, it is not accurate are ineligible. >> but they had been told they're ineligible. is that something we can fix in of those communicating? >> let me be clear though. in cdbg, iting else is up to local communities to they use exactly how these funds. and one thing that we have encouraged communities to do, i want to be clear about what situation the homeowners you're talking to, if a if a small business

can afford to repay a loan, we not think, and we've made clear, that communities should grants available because these are precious, limited dollars. encouragedve communities to do is to do an evaluation. and i have heard frustrations owners,iness homeowners. they say, well, somebody else is getting a grant, i'm getting a loan. is, if they can afford that grant -- i mean, that loan, then doencourage communities to an underwrite and evaluate that and to use grants only where a homeowner or a business cannot afford to repay a loan. the guidance that we've given. but we do leave flexibility for communities to make that determination. that youd appreciate make that guidance very clear when someone's looking at an sba loan. need to know what limitations they will be under in the future. it needs to be clearer. >> i agree there was confusion. we have absolutely worked with your office. raised this before, to

that. clarify >> thank you. deputy mayor holloway, we've yoman's working on so many infrom a fra structure issues -- issues.ucture but there's still enormous challenges for homeowners. while fema caps the payment at very few people receive the full payout. their home might have been destroyed and their eligible for grant $8,000. so while we do our best, it's homeownersfor these to rebuild. and in fact, there are families that are still homeless a year unit. that'-- a year out. that's horrible. island,zy point, staton the rock aways, how quickly do get tonk cdgb money will homeowners? what percentage have received any? >> each of those areas having workedere many times and with particularly in breezy point the homeowners association, we have done a lot advance building.

it's not only getting the money. it's being able to actually build. things in the ground. so we've been able to advance that. in terms of fema recovery that really is a case-by-case determination of ther assessment of what damage is. we now have 26,000 families that signed up for build it back. and we are in some stage of financial assessment for them. so as secretary donovan said, money is money of last resort, which means that you have to do an insurance verification, figure out whether they got any other fema money, any funds from any other sources. we're working closely with insurance companies. but we have 1400 request for verification from one company in particular that hadn't been met. this process,s in which we're not opposed to in any way because you do have to sure that the dollars are going to people who actually need it, but they do take time. i think we have had some

cdbg money flow, but i will say is not satisfied that it's gotten to enough people yet. i think you will see -- i'm will see --u between now and the end of the year we will begin to ramp up to then ultimately thousands who will be getting funding. >> thank you. let me address some of the red mayor is probably experiencing with regard to administrator few gate. -- few gate. fema worked with these throats submit project worksheets which eligible for reimbursement. over the last year many of these project worksheets have still been paid. and these delays have cause the to theback -- setbacks projectprojects. do you know how many project worksheets fema is process and what the anticipated time frame around is?ng those >> it depends upon the project. toroject worksheet is a tool determine what's damaged and what's going to be needed to repairs.

we have prioritized working with the state. some of the first projects we're be -- were going to be all debris and all of the emergency costs that were expended. oute were dollars that went the door immediately. so as we've been going through that, we have to have to demonstrate the cost so that we can satisfy the theirements that they did work. it was expended. and we reimbursed that. out most of the emphasis has been on the initial cost. there are some that were still either needing more documentation -- and if you got specifics, we'll working on them. the rebuilding piece of those project worksheets is going to take more time. get in the permanent work, we have several different tools we're trying to use to speed this process up. we still have to work through the processes to ensure is this over 50%, are we going to be abl to mitigate thi? and what is the longer term requirements to build. >> thank you. for assistant secretary darcy,

obviously long island is so important. people are very concerned about the time it's taking for the stabilization projects within study to be started and to know when these emergency stabilization projects will be done. give a quick update about where we are on that process? to --n the fire island >> correct. >> we have begun doing some of wasemergency response which part of the rebuilding what was there. reviewingcurrently the fire island to montauk point as i mentioned. but un-- anrized authorize but unconstructed project. we have to look at that time to make sure it's in today's sea and climate change lens that we're look through and building to the right dimensions. we're committed to doing some expedited review processes for projects.se >> thank you very much, senator booker. we'll probably have time for another round if there's available questions. >> i just want to say, again, this you for holding

hearing. i have a lot of affection for you even though we've only been days.gues for six [laughter] born from thefection is fact that you know what it's like to be a mayor and the difficulties you have grappling with the real issues on the every single day. people don't know what a secretary's number is. they don't know what a but theyr's number is know where you live. it's something that i take very, very seriously. i just want to say to the panel assembled, i'm grateful that you're here. here for six days. i still have that new senator smell, i'm told. i've had a chance to deal with the secretary on multiple occasion as mayor. think the obama administration has many stars and frankly none of them shine brighter than you do. the frustration my office already has is that we are ofling with lots and lots people who feel the sense of discontent, ill at ease, frustration. and a lot of stories. and we're unraveling them. assembled here has been

incredible with my office. meeting look forward to with you and bringing a lot of the individual concerns that were not necessarily necessary go through here because you've made yourself so available. i'm sure, and i expect, i'm sure toan expect, the ability meet with all of you as i deal with what is a sense of urgency office. shaun, excuse me, secretary donovan -- thank you very much. you can call me cory. i know the best thing about you is that your head is with the atire state but you married new jerseyan, so your heart is with new jersey i'm sure. >> as your colleague says, i married up. >> yes. most exceptionally. office, and wey plan on spending time in the district over this next month meeting with a lot of families many of them don't know who to call. they're so frustrated. they don't feel like they can government anymore. they've gone through some of the .ed tape and gotten nowhere as we stood -- two points to make. hopingchairperson, i'm

that we can do more of these as a recovery continues. this is to the going to be twoshed in a month, in months, in five months. but this is very good as awe move forward. on that, i will sell you one of the goals of this committee and another committee the rolesir is one of the senate should do more of is oversight so we're not waiting but sixisis to occur months from now or a year from now we're going is have these conversations baugh we want to keep track of how it's going. and if there's legislative and regulatory changes, we should be trying to do that in concert. the idea is to have oversight to bork with -- work with agencies improve what they're doing and make sure people are what they thought they were getting. >> my hope -- >> that shouldn't count geeps time -- against your time. i'm telling that to the staff, the clock holder. >> senate is a generous finding.on i'm >> he is new. >> the point is that sense of urgency you get from being a

mayor is the sense of urg urgeny we're going to treat this with.m we have challenging counties on the western shore of new jersey who feel they've been left out of this equation, who feel like there's everything from debris still in bodies of water to destroyed.l so my hope with everybody is we ,et up our internal benchmarks that we'll be able to touch base over a regular period of time to make sure that your professionals are operating with that constant sense of urgency and driving your teams as hard meet the needs of the state of new jersey. in the 90 seconds i have my friend, again, a when we have respect, stood together just about two weeks ago when i was still senator-elect, we talked about the next tranche being released. it was interesting. heard from the mayor's assembly and some individual hope isions so my there's going to be a third tranche. to you've done a lot

expedite funding compared to what happened in previous -- you brought it to a whole new level. concern is, it still doesn't seem fast enough. secretary donovan in the few seconds i have remaining, could you just talk generally about things you're doing to further expedite it and help me understand your expectation on that third so critical. is >> thank you for your leadership in newark as well. .he city is much stronger many family that would not have gotten help without your leadership i have know there is still pain there. but thank you for your leadership. i know you're going to bring the same energy to the senate as well. i think the problem with talking about these is this is blocking and tackling hundreds of small that are made a-- decision that are made along the way. orould give you a list of 20 30 key changes that we've made that have made a difference. was someexample, there cruel irony that anyone who

started rebuilding themselves wouldn't then be eligible for cdbg help. we changed that with urging for many of your colleagues so that now somebody can get reimbursed. that's just one small example. historic preservation reviews in the environmental. we followed on with fema's good made a programmatic agreement that sped that up. so there are hundreds of small things like that. the areas where i would say big picture are most insurance the process. not just on flood insurance and having enough reviewers and other things in a very, very dense area like new york or new but also getting sodowner policies align that families can know -- often they get their insurance. then they can't even get access because their bank is there. and that's something we've worked on. i think that's critical. and then the environmental reviews. the committee did something very important in giving us the authority.

when fema puts money into a project to just accept their environmental review, we don't any that authority for other agency. it's something we think legislatively ought to be done. that's an example. happy to provide you a longer list. >> ok. thank you. >> i'll get back if you're able to stay. we'll give you another round. but senator schumer? >> thank you. the first question is to secretary a-- assistant darcy.ry i'm really worried about more the wayacy getting in .f doing rock away, fire island one of the problems we ever as omb, even though we gave the secretary the authority to approve general reevaluation reports, without extra review by omb, they seem to be demanding review. about this.omb we've talked about it. but i'm really worried about getting in the way of both

the fimp study and east rock to rockaway inlet. if they have to review everything, it's going to slow things down too much. that gives me worry about another storm. could you tell us what's view,ing, what's your your candid view, of o.m.b.'s shall i say meddling here? and what we can do to speed things up. doing,thing that we're senator schumer, with both the limited reevaluation reports as the general reevaluation reports is we're having monthly with c.e.q. and o.m.b. with our division commander me, to give them a status report on a monthly basis ofwhere we are on each these -- of the 18 projects that you're referring to that were in thatnterim two report so we can all know what the status where we are so that that will help to speed that review. it will be ongoing before there's even a final product.

-- i's my understanding was probably the lead author of this legislation -- that we o.m.b. approval for were alreadyat authorized like fimp are they seeking such approval and is it the way? i don't mind your consulting with them. that's fine with me. senator,s stage, those -- a say -- we're going to be consulting with them and reviewing this. law as itl follow the was. tooo -- without being confrontational to your dear friends, you're agreeing with me that the law does not require their approval? >> that's correct. >> thank you. very good answer. [laughter] >> that was a perfect answer. not sure i feel comfortable about it. [laughter] >> yeah. perfect from this side of the table. >> let me just say if i can, senator schumer, your honesty forthrightness is greatly appreciated.

>> right. ok. to --t we're going >> i can feel it. secretary -- another -- i mean it. guyguys have done -- you and gals have done a very good job. rochester.rom so that explains a lot of it. two questions. when can we expect an announcement of the remaining f.t.a. emergency relief funds? and more importantly, federal behway relief money cannot used for mitigation, like on ocean parkway. that's why we turn to other help us with ocean parkway. but, are you considering using any of your authority to use f.t.a. money for resiliency on other transportation modes? do that should you wish,

as i understand it. it wasn't used on ocean parkway but it should be in other places on long island and in new york city. that.e a little about >> you're correct, senator. first, the authority exists under the act for the secretary to another money mode. first to answer your question on of transitanche money -- again, that's the single biggest need in the transportation network. well know. we have a notice of funding availability that's in internal review right now. we will have that completed very quickly. for $3 billion, specifically awarded on a merit resiliency projects. we will coordinate it with the taskforce by, for example, making sure that we have corps, reviewersand other looking at that from a systems perspective to make sure -- $3 billion is a

fraction of the niedermayered out there. -- of the need, needed out there the transit network. the thinking is also there are real projects that may fall into category. there are shared facilities of,h you're well aware substation 4 is it, an amtrak-owned but serves both new transit and inner city passenger rail. and either through the award directly or through the secretary's transfer authority, be real projects. we do not anticipate going and inner city passenger rail projects with that. >> right i have just hope you'll an open mind with the remaining $2 billion in terms of authority using your to transfer so we can build better to avoid the next storm. very important. >> resiliency will be our focus and we know given the vulnerability of the whole network.ation but in particular, the transit system -- and what we know about sea level rise, for example, we

have a lot of work to do. >> you bet. could i ask one more question your indulgence? >> almost time for a second round. this goes to first mr. holloway and then shaun donovan of as is news.s, it's not homeowners are complaining they're not getting the money .uickly enough there are all kinds of reasons for that. as i said, i think the second going to be much, much happier with the money's in ing.pipeline and flow the spigot is open. but what, in your opinion, i'm sureway -- and this would be true for your colleagues in long island and well -- is the biggest red tape problem getting in the way of aid to homeowners and projects at the federal level? >> i'll start by saying that there's been a lot of red tape that previously had existed up.'s been cleared so that has been tremendous. is a challenge,

cdbg is essentially the backstop, it is a challenge to get to the backstop. >> right. >> now, that is not to say that hud's issue,sarily but getting verification from insurance companies, getting everybody's financial conditions order is very challenging to do. to say what would relieve that issue, figuring out the right kind of way without up the specter of duplication of benefits and all of those things which have a lot of the creation of a lot of process to basically get enough data to say, ok, we're pretty sure we're good -- that -- you know, we can give you some portion of funding even if you're not at the end of the verification process. i know that would be difficult do.

but that's the challenge. >> and, yes, a lot of that -- we to pay when insurance has already paid. would you agree that, shaun? donovan? >> i think it is absolutely the center of many of the things that appear as red tape to homeowners whether they're necessary or just, frankly, unnecessary delays. one of the things that as we started to work through this my team began developing is call a program in a box. one of the problems that you state orhat each locality developing particularly smaller localities, new york city has as high capacity. i'm a little biased here. but as high capacity as any city the country. but for many of the smaller hitunities that have been to create a brand new program, to figure out how to do these other things is a major barrier. so what weaver' begun to work -- is a begun to working on program in a box where literally

we could say here's the model, it and it will allow you to move faster. i don't think that takes care of all the issues. but it certainly could remove some of the unnecessary red tape. and then i think it's worth thinking about on duplication of benefits are there things that we could do to simplify and streamline that while still not running afoul of basically subsidizing insurance companies. >> thank you, mr. chairman. thank you, senator booker. >> thank you very much. couple of quicks ones and then to senator booker. as -- dawned on me in your testimony you mentioned the impact of sequestration to some of the this next round we're about to hit, the cr and sequestrationtial if we can't get a budget, will that have an impact on the have?onal resources you i don't know -- >> generally speaking, senator, reductionne-time of -- so specifically for the a 5%illion, it was

reduction down to 15.2. that's pretty much across the board. >> that's -- ok. good. i can ask i can, if you a question, you had reporting process that aren't in place. someou going to prepare at point or you could prepare, i guess, for this committee, kind what those items would recommend to ensure that at transparency more in reporting of how the expenditures are being done so people like yourself and others can review them in a more accurate way? and if that is done by or legislation. that's the first question. second questio have you in whate looking at and uncovered any questions or hot that might say here's an area we better be looking at today in regards to some of expenditures. and if the answer is yes to that, is that occurring? last question make

sense? >> yes. mr. chairman, we're happy to information on specific recommendations that we would make. but just to sort of give you -- one thing we really learned from recovery is the public is very iserested in where money going, really specifically where it is going and what it's being for. a lot of our impetus, you know, ofon transparency information. easy fix to usn to do what the federal base alreadyata does, which is when a hurricane or a special event hits, they special code. and why can't we do that on usa spending so that we know what on website is being spent for hurricane sandy? us.ust seems easy to >> what's the response? >> it had to be something done right out of the box. doisn't something we can

now. it isn't something -- >> let me pause you there. >> please. >> we have four agencies here. >> yes. >> so your statement is a good statement. question ifere's my i can pause you for a second to the four agencies. system now or a into the knew tour -- future -- assume there's no disaster coming, would be a mistake. there will be one at some point. can you do this simple system here? >> senator, let me address because we have been working with the recovery accountability and transparency board on this. set up a system to collect data. website available monthly with information on spending. i think the issue is not that we can't do that. to get to the level of detail and information requires additional steps sox we do fact, it wasin parted of our sandy recovery

taskforce report, that we ought to have a legislative requirement for future appropriations like that we a project management officen that there are data requirements -- regulativeeed a requirement? why don't you just do it? answer is that because -- the extent of work get to that to reporting. it means inserting in hundreds the federalcross government particular lines or codes. is not something you can do overnight. to jump in.he wants can we go back? >> well, i don't know. to not knowing the mechanics of what happens on the federal procurement data system. every contract let by the thatnment, it's a system g.s.a. has set up in the federal procurement data system that you a box thatt fill in

says, yes, this is a hurricane sandy. national interest action code, i think it is called. i think we're really talking about something that i think usa spending itself could generate. know if it has to mean changes to thousands of agency's feeding data. i know that the hud taskforce and they doood job have a website that does discuss spending. very highit's at a level. and the secretary is right that what we're really talking about much more granular. now, usa spending has some of that. know, it that, you does not separately capture or you can't, you know, search by, what's a code for hurricane sandy. there's no reason why the major portal we have for federal that.ng can't do i don't think -- i'm not a person who can tell you what the having thate of

done. but i think it can be done without actually legislation, i think. there just has to be a decision made to do it. that. me hold you at i've run out of time. let me ask you that last -- .irst part of the question can you produce for the committee that shopping list? >> absolutely. >> ok. would you submit that? and if you can indicate if you think it's regulatory or legislative so that can help us do a little understanding of what we can do here or what we can press to have happen. will. >> fantastic. senator booker for your next round. take toll yays in the fact that this -- take solis in the fact that this committee as will have hearings in the future. obviously this is probably one two storms that had a has hit our country in the last century in terms of its impact, damage, and cost. especially in our region in the region, whichrsey -- this ishe most

obviously something of great concern. not just to our region but to the country as a whole. mark for the record my gratitude that everyone shook their heads up and down about to meet withness me and work with my office as we try to tackle these problems. bring up --g i'll and i know i'm looking forward gateeting with mr. few and -- fugate and discuss this issue. i guess i'm confused. the municipal level things don't make sense. but national level, i'm sure rational here in washington. has chilled my understanding of what's going to happen to my region when the insurance rates go so up, it's going to devastate, devastate areas of new jersey. not only it will affect homers on being but they won't even

abible to sell their homes. who's going to buy their homes high insurance levels? for my understanding, just my into thisto dig personally, when bigger waters to do at required fema study about the insurance kwreu78ility and the pact on the region. it seems like a critical thing before you allow the phasing in high these incredibly insurance rates that we would know sort of what we're going to do to that legion. guess -- a matter of the record for now and something we could get into more when we you let me understand what's going on with that study and what it really devastatinghe this could have to regions like mine? >> yes. was to move towards an insurance sound program that would encourage private sector participation because we would no longer subsidize rates below value.

there were many pieces to that. generally when you would see would tien that specific action before further action would go, the language would have been written so that affordability study would have been requirement before you went to the next steps. the way the legislation was was all done con currently. so the phase-in was not tied to an affordability being done. it was affordability study to be but not hold up any of the other implementations. i think this is the area we've and worked. senator menendez asked for drafting assistance that the that we wereng given and time frames -- we wasn't to the we went to the national academy of science. they informed us they could not complete the study. that even seem rational to you to let the phasing in understanding how the study is completed? >> the ability to not phase in permitted in the legislation. there were certain time frames that we were required to implement those phase-ins to

start moving towards actually ago we hadyear already done secondary hoaxes, commercial-- homes, and repetitive loss. the next steps were for those subsidized,rrently phase them in over a period of time. the most immediate problem, there is a very limited phase in. of these changes were predicated upon when the legislation was passed, you had certain time frames to get that done. and the only delays was the regulatory process of implementing those rules for that. the affordability study, although still required, again, technical the drafting assistance that we need to be able to expend the funds, of national academy sciences, would be required and allow the time frames they stated it would be allowed. then postpone the increases for those areas until that study done. >> that sounds like a recommendation. it makes sense to

do the study. the study right now is not being done, nor do we have the money the study yet we're still moving forward with the phasing in in. it sounds like you're saying thing to do,able to do it right, to actually understand -- to do the study, allocate whatever resources are necessary so we understand and don't fly into this blind and hurt a lot of people. >> again, understand that as the legislation was signed into law, implementing the law. as it's been designed. whenis an area that senator mendez and the previous hearing that i testified on flood insurance, he specifically to supports technical drafting assistance. and that is exactly what we've on. working how do we make insurance o so we don't subsidize risks beyond which there's a return of taxpayer?it but the intended goal should not to be place people out of their homes because we make insurance so unaffordable. >> i understand that i guess what i'm missing is the link. i'll talk to the senator about

this. i guess i'm missing a link. in other words, you've provided the technical assistance. not done.till >> it still requires legislative this to behange signed into law. as we understand the law, we given any flexibility in implementing the time frames regulations done that the affordability study was were note increases dependent upon affordable study being done. it was written in such a way being done all concurrent. >> you're saying it's on the legislature to act in order for way it be done the should be done. time, weestified last have not found any way to delay those implementations without at of congress giving us of ability to suspend some those increases until such time as an affordability studsy is done. >> we're rushing forward with this not knowing the impact that's going to have, not knowing if we've struck the balance. that to me just seems a million

damaging.ong and would you agree? >> i would agree that i've don't addresse affordability, our risk is we're not going to be able to move this program to a sound basis. we'll subsidize risk being, encourage growth and development where we should be building that way. put people out of their homes. so there is a balance that has atbe struck between looking at ad forrability but -- at affordability but not risk at such a low rate we increase vulnerabilities. we have got to change how we're building. but it should not be at the expense of people in their homes, forcing them out. but understand that long-term we have got to look at how do we build in coastal communities in such eh way that people's homes are not threatened every time we face a storm. >> i agree with you. frustrating thing for me is, you've got to know before you go. thee acting without having knowledge base necessary to make sound decisions. ad we could end up with

situation profoundly devastati devastating. could just -- two points. this is an issue the administration raised when bigger waters was passed. in our statement of administration policy, we raise fact that there was not an affordability provision that would allow us to protect folks. raised in thewe sandy taskforce report. to echo craig's point that this is something to act on without undermining what is an important in making the program snag doesn't encourage development in places. i think it's important we strike that balance. we could get some authority to start doing this even before the affordability work is done if we could correctly with you to get the right legislation. >> i would agree. colleagues from new york as well as the chairman probably would agree with that as well. thank you. much.nk you very

let me add to that and then close this hearing. we have a piece of legislation, know, that's pending. i'm hopeful that you have reviewed that legislation that implementation based on the affordability study done. i would ask if you have not input on that, at least to have tomittee, you may individual members. i would greatly appreciate that. what you're experiencing, ofator booker is a piece legislation that was not crafted well. it was crafted with a good but there is piece of the equation that was discovered after the fact that now we're trying to fix. problem is, the administration is bound by the go through they must through. if we went back in time, i bet be a different discussion going on knowing the facts we know today. but we are in this quandary. we a bill pending. senator mendez. i'm a co-sponsor. is to partially unwrap

this to get us to the anordability study, get to affordability of rates, and then deal with the rate structure has to be reform. i think the administrators made it very clear. and everyone knows this. reform but wee have to get to the affordability and also the timetable. it's one of these pieces of you lookon that when at it today, you go, why didn't we fill in the blank. thewe're trying to fill in blank but clock is work much faster for them to administer versus us legislatively. there is a pending bill. we're anxious to try to find a to move it. senate has a version. house has no version as far as we know right now. me say for the record we'll stay open until november 21 for additional questions that and submit tove the committee. i do want to thank the panel. usually we break panels into two. because of all the uniqueness and experiences you all have, it was important table. you all at the thank you for being here. thank you for being part of this hearing. then, to senator booker and

other folks from new jersey and new york that were here, we will efforts to follow this and make sure we're on the right track with the expenditures and activity with it's aecause i think good learning opportunity to make sure we improve our system. thank you all for being here. committee isappreciate t. the eru joerne [inaudible conversations] in a few moments the international monetary fund hears about lessons learned fromming 2008 financial crisis from federal reserve chairman ben bernanke and lawrence summers. in a little more than an hour and a half, the senate foreign relations committee will consider the dpaibility treaty. a law if ratified the veteran's day ceremony at the world war ii memorial. and later a hearing on reducing

federal prison populations. you're watching c-span2 with politics and public affairs. you can see past programs and gut our schedules at our website. you can join in the conversation on social media sites. the international monetary fund heard from ben bernanke, ben summer and others about what lessons can be learned from the 2008 financial crisis. this is an hour and a half. [inaudible conversations] >> so this is the session of the -- [inaudible]

>> the final discussion. this is a case in which absolutely no need to introduce the speakers. i shall not do this. this is also a case in which the chair can think of questions that should be answered by the panel. at least -- [inaudible] so i decided i would ask questions. the first is the lesson that one should draw from the crisis or the crises. i suggested three -- the number can be negotiated. and then the second question is are we ready for the next one? and with this in mind, we'll proceed in order. i think about the first round 15 minute each or something like this. and the first is ben bernanke, please.

>> thank you. i'm very pleased to participate in this event. in the honor of stanley fisher. stan was my teacher and graduate school and both a role model and frequent adviser ever since. an expert on financial crises he's written prolifically on the subject and served on the frontline, so to speak. notingly in his role of first managing director of the imf during the emerging crises of the 1990s. stan also helped to fight hyper inflation in israel of the '0u78 and the central bank, he managed monetary policy to mitigate the effects of the recent crisis on the valley economy. subsequently israeli housing prices moved upward, he became ab advocate of mariah carey pry decial policies. he frequently counseled his students to take an hi call perspective which is good advice

in general but particularly helpful for understanding financial crises which have been around far long time. i think the recent global crisis is best understood as a classic financial panic transposed to a novel constitutional context of 21st century financial system. and appreciation of the parallel between recent and historical of the founding of the federal reserve. it's particularly appropriate to recall; therefore, that the federal reserve i.t. was created in response to a severe financial panic. the panic of 1970. it lead to the creation of the national monetary commission the 1911 report was a impetus to the federal reserve act signed in to law by president wilson on december 23, 1913.

because the panic of 1970 fit the archetype of a financial panic in many ways. it's worth discussing the similarity and differences with the recent crisis. like many other financial panics, including the most recent one, the panic of 1907 took place while the economy was weakening. according to the nber a recession had begun in may of 1907. also, as characteristic of prefederal reserve panics, money markets were tight when the panic struck in october. the immediate trigger of the panic was a failed effort by a grouch speculators to corner the united copper company. the main perpetrators of the failed scheme had extensive connection with number of financial institutions in new york city. when the news of the failed speculation broke, the positive fear about the constitutions

lead to a series of runs on the banks. including a bank in which heinz served as president. to try to restore confidence the new york clearing house reviewed the book of the banks under pressure, declared them solvent, and offered conditional support. one of the condition being that heinz and the board step down. these steps were largely successful in stopping run in the new york banks. but even as the banks stabilized, concerns intensified about the financial health of a number of so-called trust companies. financial institutions less heavily regulated than national or state banks and not member of the clearing house. as the trust companies worsened they needed cash to meet the demand for withdrawal. in the absence of a central bank, new york's leading financiers lead by jpmorgan considered providing liquidity. however, more began and the colleagues decided didn't have sufficient information to judge

the solvent sincerity of the institutions so they declined to lend. over whemmed by a run, the knicker bocker trust company failed on october 22nd. underwriting public confidence in the remaining trust companies. to satisfy the demand for cash, the trust companies began to sell or lick date assets including loans made to finance stock purchases. the sell-off of shares and other assets and what today we call a fire sale precipitated a sharp decline in the stock market. increasingly concerned morgan and other financiers including the future governor of the federal reserve bank, ben strong, lead a coordinated response that included provision of liquidity through the clearing house and the imposition of temporary limit on the withdrawals. these efforts eventually calmed the panic.

by then; however, the u.s. financial system was severely disrupted and the economy con trapted through the middle of 1908. the recent crisis echoed many aspect of the 1907 panic. like most crises the episode had an identifiable trigger. in this case, the growing realization that sub prime mortgage and other credits were seriously deficient in their underwriting and disclosures. as economy slowed to housing prices declined, diverse financial institutions including many of the largest and most internationally active firms suffered credit losses that were clearly large but also hard for outsiders to assess. pervasive uncertainty about the size and incident of losses thread sharp wrawl of short term fund farring wide range of institutions. these funding pressure precipitated fire sales.

institutional changes over the past century reflected in the difference in the type of funding that ran. in 1907, in the absence of deposit insurance, retail deposit were prone to run. in 2008 most withdrawal were uninsured funding. interestingly a steep decline in interrer bank lending was important in both episodes. also interest was the 1907 panic involved institutions the trust companies, that faced relatively less regulation which probably contributed to their wrapped growth in the years leading up to the panic. in an fashion in the recent crisis, much of the panic occurred out the perimeter of traditional bank regulation in the so-called shadow banking sector. the responses for the panic of 1907 and 2008 also provide instructive comparisons.

in both cases, the provisions of the liquidity in the early stages was chris call. in 19 open the united had no central bank. and the more recent crisis the federal reserve fulfilled the role of liquidity provider consistent with the classic discrepancies of walter. the fed not only to bank but seeking to stem the panic and whole sell funding marketer last resort facility to support nonbank institutions such as investment banks and money market funds and key financial markets such of those for financial paper and asset-backed security. in both open -- full stablization required the restoration of public confidence. three basic tools for rear restoring confidence are temporary, public, or private

guarantee. at least to some extent morgan and the new york clearing house used these tools giving assistance to trouble firm and providing assurance to the public about the condition of individual banks. all of these were used in the recent crisis. the united states guarantees included fdic guarantee of bank debt, the treasury department of money market funds, and the private guarantees offered by stronger firms that acquired weaker ones. public and private captain injections strength, the balance sheet. finally the stress test that the federal reserve lead in the spring of 2009 and the publication of the stress test funding help restore confidence in the u.s. banking system. collectively these measures help end the acute phase of the financial crisises. the economic consequences are still with us. once the fire is out, the public

turns to the question of how to better fireproof the system. here the context and the response is different between 107 and the recent crisis. as i mentioned following in 1907 crisis reform efforts lead to the founding of the federal reserve which was charged both with preventing panics, and with providing an elastic currency to smooth interest rate fluctuations. oversight of the banking system is being strang end by the financial oversight counsel of nonbank systemically important financial institutions for con consolidated super vision by the fed and measures being tank to address the potential instability of wholesale funding. as we try make the financial system saver, we must inevitably

confront the problem of moral hazard. the actions taken by central banks and other authorities to stabilize the panic in the short run can work against stability in the long run if investors and firms infer they will never bear the full consequences of assessive risk taking. steps can be taken to limit it. second, through the use of appropriate sticks regulators can invest the private sector in monitoring risk taking. for example, the federal reserve process bank stress test of 2009 requires not only that large financial institutions have sufficient capital to weather extreme shocks, but also they demonstrate their internal

risk-management systems are effective. in addition, the results of the stress test portion are publicly disclosed providing investors and analysts the information they need to assess banks financial strength. for dealing with a failing lead policy makers with only the terrible choices of a bailout or allowing of the potentially stabilizing collapse. the dodd-frank act under the liquidation authority of title ii created an alternative mechanician takes in to account the need for moral hazard reasons to impose cost on the creditors of failing firm and the need to protect financial stability. the f f ic with the cooperation of the federal reserve has been hard at work fleshing out the

authority. a credible resolution mechanism for important firms will be important for reducing uncertainty and enhancing the discipline. our continuing challenge is to make financial crises far less likely if they happen farless costly. the task is complicated by the reality that every financial panic has its own unique feature that depend on a historical context and the detail of a institutional setting. but the stan fisher has done with unusual skill throughout his career, one can, by stripping away the aspect of individual crises, hope to reveal the common elements. in 1907, no one had heard of an asset-banked security. and a single individual could -- needed to bail out the system. yet fundamentally the panic of 1907 and the panic of 2008 were instances of the same phenomena. as i discussed today.

the challenge for policy makers is to identify and isolate the common factors behind crises allowing us to prevent crises when possible and to defectively when not. thank you. [applause] >> thank you, ben. >> i would like to thank the imf for organizing this conference and for giving me the privilege to have a con friday named in honor of me. and it's actually been a great conference. lots of practical papers on lessons we have learned from recent crises, and from earlier

crises particularly comparison of the difference between the crisis of the late '90s and the crisis that began in 2008. and i commend the papers from the conference to those of you who haven't -- not able to be here to listen to them. i would like to also thank ben bernanke for everything he's done as chairman of the fed i believe that when the history books get written, the innovations that were made in this crisis will be recognized as changing the way in which central banks deal with financial crises, and i'll have to -- and oliva has asked us to speak about some of those ways and he told us three.

so i'll talk about three features of the change -- changes that will occur, i think, in our thinking if we remember this. there is a line that those who do not learn history are condemned to repeat it. frank knight, the inventer of risk as opposed -- uncertainty as opposed to risk had a lot of one-liners which he used on every and his one-liner on that line was -- and those who do remember history are also condemned to repeat it. [laughter] so i hope we're not. one of the three things i'm here to talk about. the first that what terksbooks say -- what the textbooks say when they write about the model is

fundamentally right. what we have learned this time is monetary policy does not in fact, necessarily loose its effectivenesses at the zero lower bound. there's a lot the centralback can do to don't support the economy. even when the central bank interest rate is effectively zero. it that we know from what the fed has done in the crisis. controversy about how effective those programs are. there's a large amount of imper call work done on the effectivenesses of those programs. ben and his 2011 kansas city speech gave a list of the imper

call work that had been done on the issues. it's hard to reach the conclusion that the unorthodox -- they essentially go that by working or either the provision of liquidity in -- moving for instance in markets where longer term interest rates are determined. in addition, in this context the fed try to name a constant called credit easy. i'm not sure what credit eases is meant to be. it's close to the concept of the

central bank as market maker of last resort as oppose to the central bank as lender of last resort. and we saw the fed acting in that role, in for instance, the commercial paper market very early in the crisis. when that market dried up. a very important of source -- short term financing for corporations appeared to be unavailable and the fed went in and revived that market. effectively buying commercial paper in appropriately large quantities. and another example of the fed as market maker of last resort, at least contributed to making markets in, for instance, itself current quantitative easing on mortgage-backed securities. so i think the textbook will

have to say something other than what they used to say. and it's to tell you the twelfth edition will appear shortly. and we'll note that the privacy when the -- you have to switch to fiscal policy is not entirely correct. you can keep going with monetary and fiscal policy. if you don't want to call it monetary. you can call it central bank policy. second lesson. it is better to fix banking and debt problems rapidly than to rely on regulatory fore banners. it's a lesson we knew and learned by policy makers in the united states. it was understood in particular

by the speed with which the united states dealt with problems. of the banking system. the stress test which were undertaken early after the collapse of the leeman brothers. it was remarkably quick that the actions were undertaken. i had thought when i read about it from a distance that fed was possibilitily taking a significant risk in undertaking those tests and being willing to -- publish the results. because the ruts have been bad. i thought the consequences would be serious. but this, in fact, was not the case as explained to me by someone else. because of the -- the system had the capital to recapitalize the banks.

it that had been what was needed, and what was revealed by the stress tests. that ill traits a problem with contrast between what was done in the banking system in the united states and what was done in the banking system in europe, in which at this stage the dealing with the problems of the banking systems has been left to national regulators and now moving to the banking union and they're doing an acid quality review that is to say an examination of the quality of the assets that the banks hold, which is to say an assessment of the quality of the cap tail they hold. and then will move to the wanging union. i think before we will roll our

eyes and say how very slow -- setting up european banking union not trivial enterprise and i'm i don't believe that the schedule they're on is particularly slow given the -- given the situation. but i do believe that the minimum slowness that we're seeing now is holding back european recovery. and that the quicker that can be done the better that would be. i think the third lesson we have learned is that the financial system is a system. and needs to be regulated on that basis which is the

underlying for marc pry additional super vision and for the concept of marc -- super vision nap is that the system regulatory system needs to ask itself what are the interactions within the financial system. that could lead to problems over and beyond those that would arise for individual banks that got in to trouble. and of course, the example is the leeman brothers crisis. a barning which was sort of being a moderate size and possibly not quite possibly not being quite comprehended how extensive the interactions. how that event lead to a very wide spread global --

followed bay wide spread global financial crisis. there is no question, but that in every country the emphasis has shifted now been an addition of a discussion of how to do macropry additional. it's very hard. in almost every country there are multiple regulators. and in israel there were three. getting the three cooperate was very hard. in fact, hasn't been quite achieved yet. the united has many more regulators. and the framework has been set out to get them to cooperate one very much hopes that will be possible. now, in the end, the central

bank has a central role to play in most of these in that type of supervision. in the end, it's likely or not impossible that end up looking to the central bank as act as lender of last resort where that is legally possible. the strang bank has to be one of the central elements of building the super vision and the system of super vision. treasuries always are because when banks are insole vent, you begin to deal with calls on the public first. and typically require treasury participation. so those are two elements. the rest of the institution needs to be supervised appellant rest of the system, which is called a shadow banking system, but always be a shadow banking

system. even if we succeed in pulling the current unregulated institution to a regulated networking. something else will merge outside that system. as a way of avoiding regulation and taking advantage of the avoidance of those regulations. so it's going fake a lot more work to get the pry -- system working. i believe the bank of england has done this is promising we'll have to watch how well it works. the bank of england has a financial policy committee as well as monetary policy committee. and the financial has a slightly different -- the governor of the central bank is the chairman of both committees and the financial policy committee has a

responsibility by law for super vising the entire financial system. and we have to watch how that works. that takes me over to the second set of questions that you asked. which is, are we better equipped to deal with the next crisis? and the answer is, we're better equipped in the areas we have dealt with and help set up improved systems. but the harder answer is that it's very hard to know until you do a lot of stress test and the ultimate stress test is in fact what reality throws you away. it's hard to be sure. i think, for example, of the fact that the financial authority set up by the british in 1997, which was very em --

elegantly done convinced many people it was the way to go. that was what you should a financial supervisor i are authority outside the central bank. charged with responsibility and -- the idea was the same. charged with the responsibility would be the right answer. it was not subject to a test of really really -- reality.

exercise which they are examined under circumstance which they can think of. that we need. i think we'll have the stress test the regulatory system as well as the financial systems. that is one concern in that area and in others measures we are undertaken. we e won't now effective they are until they are stress tested by experience.

they have many different sources. and general prepare for the last war, economists prepare for the last crisis. and sometimes the last war is very similar to the next war. and sometimes it isn't. and i spent a lot of my time as governor looking in the direction and being sure that something was coming up right behind me. there was going to be some crisis which none of us thought about and hit us with considerable force.

it wasn't a surprise. got 2007 and 2008, the presence of that crisis became less implausible and eventually became the fact. we will need to keep asking ourselves, we have to do this by sitting down and asking how we would deal with a variety of problems if they should occur. we'll have to do those things and keep on doing them because they originate in many places. economic crisis originate in even more different places. we need to keep asking ourselves what else is it that we need to think about and deal with to make the economy operate with fewer crises and greater stability. thank you. [applause]

>> it's a pressure to speak at this event in honor of stan fisher and many contribution as a scholar and policy maker. i thank all of us here who worked with stan recognize him as a economy and became policy maker and policy maker. there was sort of a war going on in macroeconomic between the new neo classic call. the right way to -- we i disagreed with each other. it felt the only person that both sides respected was stan fisher.

he was sit there in the middle. i must say maybe john taylor also was there. i was just, you know, aghast at that i should say it was a resolve by both sides continuing to believe they were right. that's another story. then we heard a lot of talk, of course, stan as a molls maker policy maker. i've had a lifelong professional lifelong experience with stan. many people have spoke. one thing i learned from him -- also on the staff chief economist and also when i was student. he had a very engageed which was said. he has a good way of balancing praise and constructive criticism. which was a hard thing as a boss and brother. -- professor and shows the class in doing that.

i will take up the topic. i'm on the podium with four men who had extraordinary experience in dealing with financial crisis. they are all going to be historic figures enruer than go on with lessons. and maybe other people said. i want to pick a couple of points. i would say number one if you think you're dealing with liquidity crisis. it might be systemic. it might be something that is going to bring down a region and the economy you need to react forcefully and creatively. i thank all of these gentlemen have showed extraordinary creativity early on in this policy career, larry summers dealt with the mexican crisis. stan, i think you just arrived

when it happened. and one of the things that was done was they came up with money out of nowhere. the exchange rate stablization fund in the u.s. was somehow used to bail out, mexico. congress at that time didn't realize they could do it and hadn't stopped them. they generated some -- from across the street. i remember larry i was talking with him about it. probably still in the late '90s i think he was visiting us at princeton. maybe he was talking with me and he said, well, you would have done that; right? i go, yeah. [laughter] it was creative. and certainly you can look at some of the things stan did during the asian christy. more recently with policies with israel. where, you know, it's not just a question of courage and thinking you might do it.

and of course, you know, it would be heart sitting here with ben bernanke all of his former academic colleagues commented on the central banks the record their creativity the fed did during the crisis doing things nobody imagined. stan talked about some of them. i have to remember waking up one day and finding out they made the investment banks in to banks. so they could bail them out. i thought i was living in an alternate universe or something. really, this is way out of the box. oliva, i won't pick on it so much. you're in the middle of it. people cede you were create and maybe not so much. so i guess one of the problems you have practically, as a policy maker, that all of them have faced is when it's a liquidity crisis and you just

know it. you generate money, print money, bail them out. the sphact there are few crises that set the -- we teach that model because it's so simple and nothing else is going on. actually there are other models. t more complicated so people don't teach it so much. of course, in the real world, they are. i know when i was in the fund and here from 2001 to 2003 as chief economist and involved in some of these you go around the table. t a liquidity crisis. it's a solve sincerity crisis. you reach different conclusions on what you're going to do.

i must say there are cases where the patient arrives in the emergency room and hasn't seen a doctor, you know, for some chronic condition, which is now become severe. it's harder to treat the patient and there have been certainly been cases like that. so extraordinary creativity is one lesson. i would say certainly another one is the if it's a liquidity crisis overwhelming force you don't stop to wonder what it going work. you do everything. and i think we saw that particularly in the 2008 crisis. you throw the kitchen sink if they doesn't work the cabinet, the chair, the tear up the tile. try to save your family. you do everything possible. what do you do after the crisis. i think that hits on one of the problem. when is the after the crisis. you don't know when they're

going to be after shocks. in the case of the recent crisis there are many things early on. and the euro popped up. it was hard know what was going to happen next. i think that some of the perhaps policy correction that should have been made were perhaps on overly rosie forecast of when it would be over. there was certainly a triumph lymph early on that was all okay. some of the forecast were too rosie. i wouldn't say it's not about austerity. it's about what you spend on them. i think as it evolves it clear if you had accepted that it was going take a long time that financial crises have a long flow aftermath something we have written about. you might have thought more about long-term investment projects. you're not necessarily trying to

to spend all at once. it's dpiflt. i think a difficult decision and one that worries me the who's when we look at the history book and try to draw lessons from those. is how much do you bail everything out? how much do you have some right down? i think that really needs to be looked at. for example, i think two of the more concrete things in the case of mortgage. should the many others around about that. and of course, i think in the case of europe there are some solvent sei. there's some liquidity. there's some solve sei in some places. i think looking at debt write down would have made a lot of sense. let me move on to say sort of post crisis. and a huge issue, but at the end

of the day evolving to a world where we have less -- is clearly what you want to do. have a series of paper saying that banks thought have to raise more of their money with equity it's called capital. they mean how you fund bank. i think the spirit makes a lot of sen. my former coauthor, jeremy, was a student of stanes and paul have a another version of this. they describe it as banks printing their own money. you basically get neighed equity when things go sour. i think these are good ideas. oles in term of having retroform of debt. bob has been e evangelistic about having newer form of debt linked to gdp.

not necessarily the greatest advertise thament argentina was the first to try it. i think it is a good idea. they involve a lot of changes in order to be able to do this. i think the general spirit of trying to have less plain vanilla debt is where you want to head. it may involve regulation. we have regulation about having the government having monopoly over currency. we allow these close substitutes. we think it's good. but maybe in their ways it's not so good maybe we want to have a future where we all have an atm at the fed. instead of intermediateuated through banks. there can be service contract. if you want a better deal and interest on your money, you can buy what is basically a bond fund may be liquid.

you are not guaranteed you're paid back in full. i think it would be a wonderful future where our grandchildren look at the plain have vanilla bank deposit like they are own children look at dvd that's just -- what? you used to do that. that's crazy. we don't do that anymore. i think there is hope to do that. i clearly think we need more public education about the financial sector. about finance in concern -- general. i speak public activity, radio, internet, more broadly hopefully providing balanced analysis. and then maybe helping them understand the complicated contract they have to buy because we don't have anything except an atm at the bank. then finally, of course, the political system at the core of all deep financial crises.

we need reform here. can we never not have financial crises depending how you look at it. let me say i think the imf will always be in business. we have a human element, i think, will be with us for a long time. i think that we really can evolve the system more ambitiously and maybe do better. thank you. [applause] [inaudible] >> i'm glad for the opportunity to be here. i had an occasion to speak some years ago about stan's remarkable accomplishment at the imf when he left the imf. i had an occasion some months ago to speak about his remarkable accomplishment at the israeli central bank when he

left the israeli central bank. [laughter] so i will not speak about either of those accomplishments this afternoon. instead the number in my mind is a number, i guess, entirely unfamiliar to most of the people in this room. but is familiar to all of the people on this stage. that is 14462. that is the course number that stan fisher's course in monetary economic at m. i. t. for graduate students was. it was an important part of why i chose to spend my life ooze i have. as a macro economist. i strongly suspect that the same is true for oliva and ben and

ken. it was a remarkable intellectual experience. and it was remarkable also because span never lost sight of the fact it was an intellectual gain. getting these questions right made a profound difference in the lives of nations, and their peoples. i will leave it to others to talk about the imf and israel. ly say to you, stan, thank you on behalf of all of us for 14462 and all you have taught us ever since. [applause]