they don't have access to affordable, reliable base load power. coal is a proven technology. why would we discriminate against this particular reliable source of energy? >> as they tried to explain in my response to congresswoman

capito we have very strong concerns about climate change domestically and internationally while promoting access to energy around. >> i understand and i heard your testimony before. >> your policy regards their vote in international bodies. it does not regard private financing. >> well, with respect in reclaiming my time i would encourage treasury to reconsider the goal truly is to deliver energy diversity and opportunity which we include a portfolio of coal-fired power. quickly shifting to the ogre rule. i want to focus on the ambiguity in the volcker rule and whether it's consistent enforcemeenforceme enforcement. you have heard in recent days after the issuance of the rule federal governor raskin talking about how section 619 of dodd-frank certainly doesn't specify enforcement standards. she indicates that the fcc made

bring one perspective and the occ may bring a different perspective. commissioner gallagher says banking agencies can employ discretion where is the sec a rule as a rule and they have a different approach. so with a 71 page textual rule no guidance in the statutory language of section 619. 892 pages of explanation. how are banking in marker regulators under your purview supposed to enforce this rule. they have such divergent philosophies. >> mr. chairman? >> brief response please. >> congressman i think for 100 years in the evolution of our financial regulatory system that has worked to create the five hotties i think that the fact that the five agencies agreed on supervision and enforcement from a common starting point is

enormous progress so i think we are going into the stronger than anyone might have expected. >> the time of the gentleman has expired in the chair recognizes the gentleman from maryland mr. delaney. >> thank you mr. chairman and thank you mr. secretary for joining us here today. i was going to frame my question around the issue of asset managers being systemically important which i don't think they should be deemed systemically important but my good friend and colleague from kentucky made me think about another question i want to ask. i would just like your opinion on this topic. if you are confronted with the following kind of policy question that was being posed to the president which is that we would implement some form of market driven and market taste carbon tax, and if the revenues produced from that form of a carbon tax were used entirely to provide a variety of tax breaks to individuals and businesses so

that it was a revenue-neutral proposal but we actually had a true market based tax which is something i'm in favor of, but the revenues generated from something like that were entirely given back to the american population through individual or corporate tax breaks. how would you at isa president to think about something like back? what would be your directional view on a step like back? >> congressman, this has obviously been debated over many decades. ida was part of the administrative and oppose the tax and was unsuccessful because it had such resistance in the 1990s. i think these are questions we have to look at in the right context in terms of conference attacks reform where you are are looking over all added tax system and how to make it more conducive to a growing efficient economy and the administration

has not made any proposals. >> right and i agree with you obviously the best way to do tax reform is on a comprehensive matter both for individual and corporate but, and i say this respectfully and i'm not trying to pin you down but if you are just presented with the option that i described, so i'm not owing to allow you to refer to conference of reform because i agree with conference of reform but you're actually i'm trying to get a sense of how you weigh these things because politically when we think about a carbon tax again and market taste carbon tax which allows the private markets to do what i think we oftentimes try to have regulators do too much of. i would much rather see the private market adjusts behavior in a way that i think is in the best interest of us across the long-term as opposed to trying to regulate that behavior but if we were to have a real market driven carbon tax and the only way that could be done politically with the taking of tax revenues and giving them back to individuals and corporations through a variety of tax reductions, do you think

directionally that is something you would be supportive of or an could you comment on that? >> congressman i'm not a point where i can comment on it. i haven't looked closely at this matter in recent years. i think that it would be a good thing if we had a debate over broad tax reform in the context that helps deal with our long-term fiscal challenges and it's not enough to be revenue-neutral. it has to help solve the fiscal challenges we face and we haven't gotten us deeply into that discussion. >> if it were just revenue-neutral do you think is compelling enough to take this step towards behavior that in my opinion which ends climate change? >> i appreciate your asking the question for the third time but i'm going to have to say i would have to look at it again. >> do you think climate change is a big economic risk to the united states? >> i do. >> do you think corporate tax rates are too high? >> i think as we have been clear we think it's important that we

do business tax reform to lower the statutory rate in the more competitive and flatten out some of the system so it doesn't -- economic decision-making. >> okay, thank you sir. >> the gentleman yields back. the chair recognizes among from pennsylvania mr. rothfus for five minutes. >> thank you mr. chairman and thank you mr. secretary for being here today. i'd like to touch a little bit on the coal-fired power generation guidelines that has recently come out following up on congressman barr and congressman capito. did the administration consult with other countries and develop these policies as a result of multilateral the cushy shins at the boards of these institutions? >> we have had discussions and i would have to check whether they were discussions that would rise to the level of negotiations. >> i would be interested in hearing if they were so if you could please follow up with us in writing to see who was involved with those.

my concern is that this is essentially unilateral political decision made at the white house without consulting our friends and allies. >> we have had conversations with friends and allies about it so it is obviously our view but it's not something we have done without talking to our friends and allies. >> can you tell us whether the countries that will be made in eligible the development tank funding for coal-fired funding plants agree with this u.s. policy? >> well i think you can see from the facilities and proposals moving through that there are plans that continue to be presented for funding. >> we hear a lot about china investing in africa. country start buying power plants that are less durable and do not have the same rigorous standards we have in the united states read. >> look, i think that relates to a separate question which is that china is increasingly

looking for ways to increase its participation in multi--- international -- >> has china adopted the same regulations? >> i don't believe so. >> is it fair mr. secretary to deny underdeveloped countries the opportunity to grow their economy afloat cost energy? >> congressman we are trying to help underdeveloped countries gain access to bountiful and in many cases renewable energy. >> how many people are then lifted out of poverty because of solar? >> hydrois a big factor in many underdeveloped countries and renewable has potential and i would say this about china. china's confronting climate change in a very real way because they are dealing with the public health con -- problem in their own country treats the has china suspended the construction of coal-fired plants? >> they have unsuspended but they are very -- >> in a recent article that appeared in the pages "the wall

street journal" is supported the number of nanking is situations in the united states has fallen to its lowest level since the great depression down on the peak of more than 18,000 to below 7000. this significant decline has come almost entirely in the form of exits by banks with less than $100 million in assets, in other words our community banks. rising costs cited as a major reason why these companies are declining. over the past year this committee is heard from a number of witnesses about these driving regulatory costs and how they acutely burton financial institutions both community banks and credit unions. mr. secretary you concerned about these banks in consolidation with the service industry? >> congressman i think community banks play a very important role. i've met with representatives on quite a number of great -- occasions and met with regulators and shared my concerns with them. i think if you look at the actions taken by regulators is shows a great deal of attention to trying to carve out rules

that treat community banks appropriately even the vocal rule finalized this week. so i think we are concerned with the health of the community banks and trying to balance the responsibilities we have two safety and soundness of the financial system with a good opportunity for community banks to be healthy. >> and a recent speech he delivered at the pew charitable trust you heralded the work of the consumer financial protection bureau which will go into effect in a couple of weeks. you criticize the work of this committee of their reforms to make a barrel more accountable to the american people. just a few weeks ago before he delivered that speech chairman capito and i held a roundtable in pittsburgh where we heard first-hand from banks, credit unions housing advocates community development organizations about how the qm rule is currently written will cause significant harm to the housing market and economy make it more difficult for working families in western pennsylvania

and around the nation to buy homes. as the chairman of fsoc you have oversight authority over rulemaking including qm so i would like to hear your response to these concerns. >> congressman as director cordray has indicated they are working through the final details and i believe that many of those concerns can be addressed and when the institutions understand better. >> with those concerns i would encourage you to listen to the advocates for the lower to moderate income set there. >> the chair recognizes the gentlelady from ohio. >> thank you mr. chair and ranking member. thank you mr. secretary for being here. first let me start by saying thank you to all of the assistant secretaries, assistant chief of staffs or assistant legislative directors for their scholarship and their hard work. i am sure much of it you are

doing today has been signed and sent from some assistant terry that is my question to you. in your selection of assistant secretaries would you say yes or no to some of them in their complex specialty areas are as talented or even more talented? >> in a these positions we make federal service attracted to people who come with technical knowledge the ability to help support decision-making by like myself. >> thank you. we heard the word radical views to describe president obama's response to our financial crises sowed hearing the views with so much disdain i decided i would do some research on radical responses and plans from presidents. president loesh came up repeatedly and let me just share with you, president bush

outlined radical plans to nationalize banks. he said this in a press conference from the white house as he authorized hundreds and hundreds of billions of dollars with banks to shore up the financial crisis in 2008. in his televised statement he said it was essential, although it was unprecedented, it was necessary to be aggressive to address the financial crisis. so would you say sometimes it takes radical action and that's not said with disdain, whether it is climate repaired and is, whether it is health care, whether it is the debt ceiling that leaders sometimes must take aggressive radical action. >> i will leave to others

whether the word radical is the right word to describe it by taking decisive and effective action in market leadership is one that i'm proud we have tried to follow in the words i've described today. >> thank you. now to something a little more related to financial focus. we are -- for almost 11 months i have served on the financial committee and certainly we have heard as you have heard a lot about oversight and regulation. where should we be in between with it? so my first question to you is, is there a comparable market segment of what we call small or midsized places like europe or china? >> the banking system overseas tend to be very concentrated and they have a real challenge in many countries opening up lines

of capital. that given get into small and medium-sized enterprises. the variety of diversity serves us well and i think we have the deepest and most liquid financial markets in the world. part of that is due to the fact that we serve different constitution serving different needs. >> would apply the same banking regulations with covering a 2 trillion-dollar bank be appropriate for let's say a 40 billion-dollar bank? >> we have tried, as i noted a few moments ago, at every level that our rules have to be different to firms representing different characteristics and they have to be designed to meet the needs of ensuring financial stability and that is why there are special provisions that provide different kinds of treatments for smaller banks and

larger banks. that's why we have supplemental requirements ranging from the living wills to supplementary capital were apartments. so we can't have a one-size-fits-all system and we don't. >> lastly, is there reason based on the average small or midsized bank is actively participating in global financial activity? c. i think every bank has unique business but i think most of your smaller banks are dealing with pretty much local business. >> thank you very much. i yield back. >> the time of the gentlelady has expired and the chair recognizes the gentleman from california mr. royce the chairman of the house -- committee. >> thank you mr. chairman. mr. secretary want to thank you to you -- for your comments to mr. nuegebauer earlier regarding

the insurance office modernization report and that report was originally introduced in the dodd-frank amendment that i cosponsored with another member here on this committee. one of the goals for a long time on insurance modernization has been this concept of trying to create more uniform -- first of all, hopefully less government price and product control and more competition infused into the system. we have sort of moved in the other direction in some ways in recent years because now we have regulation that the federal reserve on top of the tangled web of state drucker sees and regulations. i think now more than ever that we restart this conversation on how to best serve the consumer in this country and it appears the report is off the printer so

my hope was this will shed some more light on what we should expect and will that report include specific language on recommendations to improved the uniformity, the uniformity of insurance regulation in the country or even our ability to deal with international regulatory issues where we are out of compliance and so forth? >> congressman i don't want to jump too far ahead of the report being released so that you can read it and make an evaluation of it on your own its entirety but i would say this, that and the work that has been done in preparing it, there has been a lot of focus on the fact that we have a history of state regulation of insurance in this country. we have crosscutting national concerns, finding a way to talents that even better than we have in the past is important.

that means queuing up important questions for further scrutiny. i think that is what the report really tries to do, to focus on the issues we need to do with together to answer the questions you are posing. i think you'll find that the report is conclusory and all of these areas. >> we did have that creepiest treasury blueprint, which did lay out recommendations for legislative action. my hope was that it would be decisive enough to at least delineate. >> i think you'll find ample food for thought in the report when it comes out and i look forward to following up once we can talk. great. >> i will look forward to meeting with you on that. i wanted to jump over to iran sanctions and the specific i have on the 4.2 billion over sales of the interim agreement stated that we are going to allow iran to access and the other aspect of that is there is

also language in the agreement where it sort of puts a pause on this concept of nations having to significantly reduce their purchases. but going to that first , nowhere in the law dusted it supposedly allow for a limited release of these funds, and so if they're going to ask to access this 4.2 billion in currency under what specific authority will you allow that repatriation? how would that work in terms of the hard currency coming into the iranian regime? are you going to invoke a waiver to do that? >> congressman, if i can get back to on the specific legal authority i would be happy to do that. let me just address the economic issue and try to put it into a

bit of perspective. we have to immobilized roughly a hundred billion dollars of iranian assets so the relief of 4.2 is a small fraction of the assets that we have immobilized. the period of the interment dream that there will be additional $30 billion of forgone oil sales because of the sanctions. >> because of the existence. >> we are continuing to keep pressure on iran. >> we are a little off-topic here of the authority. i would like to get an answer on that but i will say this. sanctions are largely psychological, so when you pick up you know "the wall street journal" and the headline says, you know business is rushing to iran to do business and you have read the articles about it. oil and gas queuing up because of the anticipation of courses that once you start down this road will sanctions start to unravel? i'm not sure that the impact is going to be as slight as you

think it is. already you see their currency rebounding going up 30% partly the result of reversing course. >> mr. chairman if i could respond briefly. iran's economy has shrunk by 5% over the last year because of sanctions. the relief we are talking about is roughly 1% of their economy. there is still going to be more pain put on their economy. whatever is driving iran to change its views and negotiate in the interim context to continue to force them and make concessions to get real relief which is the only way they will get real relief. >> the time of the gentleman has expired and the chair recognizes gentleman from washington for five minutes. >> thank you mr. chairman. i'm grateful to my colleague from kentucky for having asked about the export-import bank because it reminded me of a question i've been on it to ask for some time. as you know mr. secretary the export-import bank is scheduled to expire next october 1.

as you also will know the export-import they transfer to you $1.057 billion about six weeks ago in what otherwise would be called prophets. as you know, the export-import bank has been independently assessed to have created by virtue of the tech to be approximately a quarter of a million jobs. my question to you sir if we were allowed the export-import them to expire the bank which is never used one red cent of federal treasury or tax dollars, would that render the united states of america the only developed nation on the face of the globe without an entity something like the export-import bank? >> commerce and i have to do a little research to answer whether would be the only one that we certainly would find ourselves facing an unlevel playing field because so many countries have programs like

this. >> thank you and now i want to return to the subject in my opening statement. i noted that it prompted a chuckle or two when i asked you about the rule of the department of treasury in providing access to banking services that constituted marijuana businesses in well-regulated states. in washington state in colorado last year the voters approved the use of adult marijuana. the department of justice said that the state is well-regulated they will stand down on enforcement of criminal activity and prosecution. these businesses still do not have access to bank services and in washington state it has been forecast by fairly reputable work that it will be about $1 billion a year set her of the economy. this is a serious question. he billion dollars in cash floating around an economy where the businesses which otherwise legally operate cannot access

core services can't issue checks, can't receive credit card payments. in fact all cash, it is in fact sir an open invitation instead of setting out the welcome mat that organized crime and disorganized crime is sending out the welcome mat for tax avoidance. it is an open invitation to all sorts of activities which will render us and our communities and our neighborhoods less safe. the context is today right now as we speak, the bank advisory group is meeting. fincen, the division of treasury is with them and i suspect they're talking about some guidelines to parallel with the department justices efforts to allow access to bank services. my question to you sir is given all of this do you recognize, do you understand, do you acknowledge the threats to

public safety if these businesses otherwise legally constituted did not have access to bank services? >> congressman i recognize the serious challenges that are intended to this and obviously where there are state laws and federal laws that are not consistent it creates complicated decisions that have to be made. i look forward to seeing the work comes out of these meetings that you are describing and will evaluate them when i present them to you. >> would you commit even in the general sense to a timeline of action keeping in mind in both colorado and washington state these businesses go live in a matter of a few weeks from now? >> congressman i can't commit to a timeline until i see the results of the work that is done here but i would be happy to follow up with you. >> you understand the urgency is? >> i understand the external timeline quite well and when informed of the recommendations

would be glad to follow. >> in the brief amount of time time remaining out like to commend you for the work that your agency personally and it took to lead the adoption of the volcker rule. we are all aware that there are lawsuits pending and according to news reports several more possible. my question to you and if i could get a brief answer, what would be your general statement about the risk associated to the progress that you gave in a speech last week that the combination of this rule making has provided towards the objective of safety and soundness of a financial institution and our economy, if those suits some are all of them are successful? >> obviously i've spoken on how important important a rule us and i know the foundation is strong and i would think it would be a much better thing if it would just go forward. >> the time of the congressman has expired. >> thank you mr. chairman.

welcome. glad to have you this morning. it was morning a few minutes ago. >> it seems to happen. >> i know, goes quick here there has been discussion including if standards are -- during her confirmation hearing quote a one-size-fits-all approach is not going to work here. insurance companies have a very different set of asset liability structures than banks and a one-size-fits-all approach is not owing to be an effective form of supervision or regulation. do you concur and a great? >> i've tried to indicate in response to several other members the committee it's important that the regulators look at what it requires to regulate insurance companies appropriately and look at the discretion they have within their authorities to make distinctions and we are going to work together on this going forward to make sure we do it right.

the objective of the review was to determine whether or not there's a systemic risk. the job of tailoring the rate of tory approach is in the hands of the respective supervisory regulatory agencies and they are focused on trying to do this effectively. >> my concern is the timing. the treasury's position has been no statutory change should be made to dodd-frank until the implementation is complete which as late as far as i'm concerned. the federal reserve has expressed in section 171 dodd-frank provision the standard should non-bank such as insurance and bernanke confirmed that several times. my concern is that even though it's acknowledge there's a problem and won't work treasury's position as we are not going to do anything until after the implementation is complete in five position is too late at that point in time. i think it's a matter of timing

and you have helped to work solve this problem in your role as treasure. >> congressman, i believe that each of the regulatory agencies is looking at what discretion they have in their current statutes. i don't know that they have reached final judgments in every case. i don't believe they have. i think their differences in view as to how much flexibility they have and we will need to continue looking at this and working together if there is an issue. >> but if there is an acknowledgment and there's no argument you have a tough job ahead of you but if there's an acknowledgment that there is a problem and yet the agency is going to move forward with the implementation, acknowledging there is a problem and about that implementation to occur such that we will somewhat fix x it later like the feds say, seems like he should step back and say we know there's a problem. we know this is not going to work. why don't we take care of it in the normal process?

>> obviously each of the issues that comes up under dodd-frank has somewhat different character. many of the issues where we have taken the view that it's premature were issues that agencies were still in the process of making judgments and the legislation was jumping out of it. i believe it's more complicated. i think -- >> especially for insurance companies. >> eight think it's a mistake to conclude that agencies don't have any flexibility here because i know there is some flexibility that they do have and whether it's enough is the question. i think we have to wait and see if it is enough and that look forward to continuing the conversation. >> okay. on september 30 the treasury ofr published a report entitled asset at the direction of sr. the asset managers quote activities differ in important ways from commercial banking and asset managers acting as agents

managing assets on behalf of clients as opposed to investing on the manager's behalf. losses are worn by and again accrued to clients rather than asset management firms. do you agree with the study and the asset manager banking firm's? >> i think there is no doubt that they are different and the question is whether or not there are systemic risks that rise to the level of designation. let me just point out the ofr study was not a regulatory study it is an analytic study. it's a totally separate matter to reach a determination. >> but do you see a clear line between the function's? >> i think we deal with a complex financial system where we have many different players that have different functions. they sometimes look more similar in some cases than others but acknowledging that they are different seems to be necessary to understand. the question is to whether or not there are issues of systemic risk has to flow from a

character which each organization is. we can't be afraid to ask the question. >> the chair recognizes the gentleman from texas mr. green for five minutes. >> i think the ranking member and i would like to associate myself with the opening comments of the ranking member and i would like to pursue some of what he said. by the way i welcome you to the committee mr. secretary. i have an article style the top 25 hedge fund managers earned more than all the 500 top ceos together. the first paragraph reads, the best chance of becoming super rich is to one of the highest-paid hedge fund managers or masters of the universe as it says here. in 2010 the top 25 hedge fund managers combined earned roughly four times and some things bear

repeating, roughly four times as much as all of the 500 ceos at the top of the 500 giant corporations. that make up the s&p 500 index. and then it indicates that the average pay of these 25 hedge fund managers was $134 million in 2002 and peaked at over a billion dollars in 2007. now if we go down to paragraph number seven quickly,. this is what i find quite interesting. it talks about the poverty among managers of all firms in it reason i quote. the poverty of law firm partners is striking. the average poverty per partner was just 1.6 million in 2010.

i would call to your attention 2007 when a hedge fund manager made over $3 billion by the way i don't begrudge any of these people for making the money that they are making. his fund manager made over $3 billion. that's a lot money and it's difficult to get your mind around it. that's about $100 million. it would take a minimum wage worker to make it $3 billion. 198 thousand years, 198 dollars and years, which brings me to my question. speculative income is taxed at a lower rate than ordinary income. are there policies that we should review such that this type of inequality does not continue to expand because of the chasm between the poor

partners of law firms who are only making $1.6 million the superrich hedge fund managers has to be dealt with? what policies could we implement to do with this? >> congressman, i think the president spoke at great length to this question of inequality just the other day. it is a deep, deep problem. i don't think frankly the poverty of the attorneys you are talking about is what he is focusing on but it was the challenges of the minimum-wage workers who work full-time but can't support their families. i think we have to ask different questions of what can we do to provide opportunity for people to rise to the middle-class? how do we have middle-class income and things like raising the minimum wage prior to that. things like at the beginning of this year where the top tax rate

went back to where it was before the tax cuts of 2001 to 2003. we have a lot more work to do and be fundamentally have to focus on the rowing economy to create jobs that have good salaries and middle-class opportunities. >> i appreciate your answer. would you agree that ordinary income is taxed at a higher rate than speculative income? >> earned an unearned income are taxed differently and i have over the years thought that we have to look at that as a question whether we have it in the right place. raising the top rate was part of it and as we go through individual tax reform we ought to be asking these types of questions. >> generally speaking and this is in a very general sense, speculative income is taxed at roughly around 15%. is that a fair statement? ordinary income which

secretaries make, probably your ordinary income is around 35%, is that correct? >> yes. >> these minimum-wage workers who live -- work full-time and live below the poverty line, something has to be done. >> i think we have to have a tax system that encourages investment in the tax system that encourages people to work and i think we have a lot more work to do. >> the time of the gentleman has expired in the chair recognizes gentleman from -- mr. pittenger. >> thank you for your service and for being here today. during the government shutdown the treasury department administration declared there were 90% of the treasury's 15,0009 irs employees deemed to be nonessential. including nearly every staffer of the financial crimes enforcement network and the office of foreign asset control.

the treasury put out a statement on the state of affairs and it said this massively reduce staffing impairs ofac's abilities to execute terrorism financial intelligence broader efforts to combat money laundering and illicit finance, protecting the integrity of the u.s. financial system and disrupt the underpinnings of our adversaries. let me read some statements put out by the treasury on september september 27. it says the treasury assures the public that in the unfortunate case of a lapse of appropriations it will continue to provide certain critical functions. among them terrorism and financial intelligence offices will continue collection, analysis and reporting of intelligence as well as administration of the specially designated nationalists.

a little bit later you put out another statement that said the office of foreign asset control which implements the u.s. government's financial sanctions has had to furlough nearly all of its staff due to the lapse in congressional funding that is unable to sustain its core functions. according to this press guidance, this massively reduce staffing quote for tea at five offices undermines quote efforts to combat money laundering and illicit finance, protect the integrity of the u.s. financial system and disrupt the financial underpinnings of our adversaries mr. secretary the treasury caps top political appointees on the job during this time and declared them to be essential. at the same time they furloughed almost every professional who was tasked with stopping the funding of terror and stopping

people doing business with iran's rob regime. by that decision those jobs were deemed nonessential. that troubles me deeply. it leads to a few questions. first i was preventing a terror attack on the u.s. in preventing iran from developing a nuclear weapon nonessential and what sort of jobs are more important than the? >> congressman, going back to october i believe deeply then and i believe deeply now that there were many bad consequences that came from the fact that there was that kind of drinks and ship an important things weren't happening because of the government shutdown so that's just a consequence of shutting down the government. there were guidelines put out by the office of management and budget in making judgments. there are categories of employees who because of their status fall on one side of the line of the other. i can tell you that we brought back the staff that were needed to support the negotiations that

were going on with regard to iran. they had the capacity to do that but there are consequences to shutting down the government. you can't keep the whole government open when the government shuts down. >> mr. secretary let me ask you this. you'd made the statement september 27 at the lapse of appropriations with these important functions related to the department regarding collecting and analysis reporting to intelligence would continue in the midst of a shutdown. what happened between the time of that statement and a subsequent statement that says that he would have massively reduce staffing? >> congressman, during the days of the shutdown in the beginning of the shutdown there was not a flow of intelligence information coming in because our intelligence operation was in the same position that are financing was. >> mr. secretary with all due respect it's clear that you kept

political appointees intact. it's clear that you eliminated jobs of professionals whose assignment is to protect this country. i think it's not clear to the american people why he would make that type of decision. >> congressman we follow the guidelines of the office of management and budget and we follow followed the rules and the law regarding the determinations. the problem when you have the kind of confrontation that shuts down the government. >> mr. secretary my time is up of what i will say is one that you will continue to fund it and [inaudible] >> the time of the gentleman has expired. the chairman will announce to own members we have an opportunity for two more members to question the chair now. recognize the gentleman from california mr. sherman for five minutes. >> thank you.

i want to commend you and secretary cohen for the effect of hard work to enforce existing sanctions and laws particular your new announcement today. secretary kerry testified before the foreign affairs committee yesterday that we are going to move forward to enforce and you have proved him right. the chair made an opening statement focusing on aol's. we have worked hard together the chair and i and many others to prevent statutes from providing pre-existing bailout authority but i would point out that the bailout authority in 2008 and that is why we change the statute and we adopted tarp and i oppose that at the time but i hope you will join me in cosponsoring the bill to say that too big to fail is too big to exist because i will tell you now if goldman sachs is going under, you and i may be working against the bailout, who knows?

maybe we won't be but in any case i don't think we are going to have a different result. too big to fail is too big to exist and i know the secretary along with the other regulators has the authority of the dodd-frank debate on too big to fail but i'm not sure he is going to do it and tell you and i pass a law requiring it. ms. malone lee made an excellent opening statement focusing on the need for stable housing finance system. i would add that the higher conforming loan limit that we have in her state and mind and 10 other high-cost areas makes money for fannie and freddie and thus for the federal government and we would increase the national debt if we cut that back. mr. campbell focused on the 63 billion-dollar change at the imf and the pointed out a number of things congress would want to see on a bill authorizing that. i will add one more speaking

only for myself and that is there should be a requirement that the imf prior to us dealing with a $63 billion suspend iran and iran be ineligible for any transactions with the imf until such time as i-80% majority the imf or determined that they had demanded their nuclear weapons program. mr. green pointed out the focus on unfairness in tax rates. even if you believe and i will point out the capital gains rate is in effect 23.8%, not quite as bad as 15%, but still less than ordinary working people are paying and even if you believe that we should have a lower rate for profits earned on capital risk the hedge fund managers are able to take their earned income

and view it as a capital gain unless they make it based in the cayman islands etc. and it's a 0% rate. speaking of international taxation mr. secretary the last time you were here in may in my question i focused on the california system of apportionment of international taxation known as the california system. you promised you would look at it and ask for a full discussion left i wonder if you could commit that we will talk about that to cut the gordian knot and eliminate the transaction by transaction approach and instead say that if a company is 50% pace in the united states we have to tax 50% of its worldwide income so can i count on you for further discussions? >> we will continue the conversation. >> i will also add in this is a smaller thing, that we have to disallow any deduction for payment for the use of intellectual property if that

intellectual property was developed in a high-cost, a high tax country like the united states but has now been transferred to a low-cost countries such as the cayman islands. your department and you personally issued a report on the currency manipulation. the national association of manufacturers dealing with it is undervalued i almost 40%. frankly if we were able to prevent that undervaluation you would be here testifying about the labor shortage in the united states. why have they not reported to us that china is indeed manipulating its currency? >> congressman i have addressed the issue of exchange rates and number of times. we have pushed very hard on china to move towards the market exchange rate.

>> the tariffs would push them a lot harder. >> the time of the gentleman has expired and the chair record rises gentlelady from minnesota ms. buck and for five minutes. >> thank you mr. chairman mr. secretary for being here. i understand today the treasury department made additional designations regarding sanctions of companies organizations dealing with iran. i think that's a positive move that the treasury department made but it seems additional sanctions against iran would he exactly what is needed now to let iran know that the united states will do whatever it takes including a military option to stop iran from reaching its stated goal of ultimately having a nuclear program. what i'm wondering is, congress is not aware that the administration was undertaking secret and a with iran regarding sanctions relief with its nuclear program for that period

of time. were you all where of the secret negotiations with iran? >> congresswoman, i have been aware of many things going on with regard to that but i don't think this is an appropriate place to discuss that topic. >> the reason why i asked that is because a report came out on november 8 that in june when mr. rouhani was elected president of iran that at that time it appeared from a review of treasury notices that there was a distinct cutting back on the number of designations are. that designation again that was done today and one report said in the six weeks prior to the iranian election in june and the treasury issued seven notices of designations or sanctions violators that includes more than 100 people company's aircraft and sea vessels. since june 14th when rouhani

was elected the treasury department only issued to designation notices that identified six people and for companies is violating iran sanctions. it seems like two things have gone on. well the secret negotiations were going on between the united states and iran it seems to me that at the worst possible time in negotiations beginning last june, the united states intentionally chose to weaken our hand and our negotiating position with iran at a crucial time, sending a signal of weakness, sending a signal of sanctions reductions and at the same time it appears that the obama administration was strengthening iran's hand in those negotiations. it also appears that two things were happening with the obama

administration. one is cutting back on the number of designations but number two, making it very clear that they are adamantly opposed to new sanctions. oath of those would send a signal to iran that we mean business that they will never have a nuclear weapon. it seems that the exact wrong tact was taken from the treasury department and it seems that it is treasury more than any other agency that sent the signal to iran that they are going to prevail under negotiations rather than the united states. >> i disagree with that characterization -- characterization most completely. this is messerschmitts push the toughest sanctions in history which is the only reason iran is looking to make concessions, the only reason there is any chance for a resolution of this. i think treasuries impression that sanctions is consistent and the action taken today and the

action taken yesterday in a negotiated settlement with the royal bank of scotland these are matters that take months to develop and we are working every day and i have said to hundreds of ceos make no mistake about it enforcement will continue. we are not taking our eye off of the ball at all and we will not. >> there are numbers of companies that are essentially front organizations for iran, front organizations to help the regime to be able to continue to proliferate into the work that they are doing. it seems to me that the bottom line with iran is will they have the right to enrich uranium? it doesn't seem to me that when we are pulling back on the number of designations from june essentially to this week that we have sent a signal of strength or it appears that we have sent a signal that america is weak, america is in decline and america's pulling back militarily and we are waking ourselves economically. >> if you look at iran's economy

they are feeling the pain of the sanctions every day. the devaluation -- they are seeing all kinds of pain and that's only reason -- >> which is exactly why we got them to the negotiating table. at the time when we finally have them talking the obama administration decided to strengthen their hand and weaken their own. i yield back. >> the time of the gentlelady has expired. we appreciate your testimony today however a number of questions do remain unanswered as do a number of inquiries from members of both sides of the aisle so thus early in the new year we will take the liberty of inviting you back in hopes that these questions can be addressed and we trust you will accept our invitation. without objection all members will have five legislative days in which to submit further questions through the witness to the chair which will again be forwarded to the witness. without objection members will

have five legislative days to submit materials for the record. this hearing stands adjourned. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations]

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beginning of the republic. >> the thing is, thomas jefferson did the most wonderful thing in putting in the furniture, and the sad thing with the war of 1812, when everything was burned. then they have to start piecemeals instead. and every president who came could sell what he didn't like what was there. they used to have auctions in the square. and then every president could change the deck corp., if he wanted. president grant had the blue room violet, chester had it robin's egg blue, and finally that was all stopped by thomas roosevelt. >> first lady influence and image. this week lew hoover to jacqueline kennedy. what is going on today comes

down to two words, and they're not my two words. fundamental transformation. those are obama's words. and i ask a couple of questions: when you look at the constitution and the power of the president, does the president have the power to fundamentally transform america? of course now. and why would you want to transform america. that means you don't like america very much, do you. it doesn't mean you like capitalist and private property rights and our constitutional system very much. when you hear the fundamental transformation, change is hard, you need more time for change. you need to understand it's a direct attack on our constitutional system. that's what he's talking about. that's what he means. sunday january 5th. best selling author, lawyer, reagan administration official, and radio personal mark l erk

vin. live for three hours starting at noon eastern. booktv's in-depth, the first sunday of every month on c-span2 . online for december's booktv book club. we want to know your favorite books. throughout the month, join other readers to discuss the notable books published this year. go to booktv.org and click to enter the chat room. up next a discussion on the federal reserve system and its quantitative easing program. this event was before ben bernanke's announcement. panel liberalizeds include the former governor, the president of the peterson institute for international economic, and a number of others inspect is about an hour.st." we'r [inaudible conversations]hare >> thank you. thank you for coming. i know, you've been focused on the fed all day. we're going try to pull the lenl back now.them.

go global.all for co here we are. been five years after the crisis, and the world's major central bankse w and go global. here we are five years after th still i'm sure that's to their chagrin, they wished they moved on by now. not just the fed, bank of japan, european central bank and bank of england we'll focus on. to start they have a lot in common. they all had to deal with crisis, recession and struggled to revive their economies during sluggish recovery. they talk together all the time, meet various conferences, share notes on how policies are working, borrow packages from play books. many know each other because they study, taught, work together in academia.

they are in some ways a special club right now in the world of economic policymakers. at the same time there are differences. each one of them has a different mandate that's ort of the mission statement or marching orders from respective governments which affects their ability to maneuver. they obviously have different politics at home, which constrain their actions and other challenges and different economies and banking systems that present special challenges. i think what we'd like to do is talk about how these differences responded from the crisis, what lessons can we learn from those responses and is there any way to consider how that might affect policy going forward. if we could start, just explain to us the different mandates and how did the feds evolve to be so different than the others. >> thanks. let me first spend moments

thanking george washington university for the event. since this is about the fed, how small the university all three of us started our careers in the federal reserve system and this is what we share in common. going back to the question really before the crisis, a consensus evolved globally about how central banks would operate and in particular how monetary policy would be designed around the globe. that consensus recognized the price stability along the lines mentioned this morning as the key mandate for central bank, medium term, long-term and also the ability of monetary policy to help economies grow as long as they kept their focus on price stability. start with that because this was, in my mind, the consensus, at least before the crisis, the

consensus that we arrived at both as a result of academic work but also very much the practical experience of the various decades before that. but the actual legal mandates of central banks, here we have the federal reserve with so-called dual mandate that was developed in the 1970s as opposed to with a mandate already essentially extracting the federal reserve to place attention, full employment or maximum employment mandate as well as price stability mandate. that is in contrast to what we see, for example, in the

european union where we have bank of england. talk more about that, but european central bank. everybody matt european union. this is something specified in 1922 gives the mandate of central banks throughout the european union to be the price stability primary ability of the central bank legally price stability of central bank and facilitate other objectives of governments. this before the crisis was interpreted roughly, similarly, i would say, in the united states and in europe and in many other countries and economies. during the crisis, we could see differences. clearly in the last couple of years when the federal reserve has introduced the language with explicit mention of the

unemployment rate as a threshold for policy and exclusive mention in the statements they put out this january and last january about the attention to maximum employment, i think we have seen the federal reserve go closer to the legal text but further away from what the european banks are. this, i think, is a difference that and right now that was not there before the crisis. >> can i pick up on that. very generous, i was merely at the federal bank of new york when i was at the federal reserve board. i didn't get hired by the board. it is interesting there was this convergence, and to be a more apparent divergence in the last couple of years. there's a mistake we're making here, which is to emphasize the

mandates. if you go back through recent history and last 100 years, central mandates had very little power for anything. the most price oriented banks, delivered very low inflation, it had a mandate of about eight different targets in it, something to do with agriculture milk prices. if you go back, it's not that the fed is interpreting employment mandate, it's that the ecb is more ostentatiously ignoring the mandate. the ecb is supposed to have a mandate -- he knows better than i. supposed to pursue price stability inflation rate close to 2% measured in the particular way they specify and supposed to be having monetary pillar,

reasonable rate of monetary growth. below inflation target by a significant amount and below the money growth target by a significant amount for years. the ecb has decided -- decided they are not going to do anything about it because they have other goals to pursue. the idea of the mandates is very misleading. >> does it not matter? >> only for law abiding banks of central bank. bank of japan ignored mandates, too. >> let me let nathan. >> i appreciate that. so i think that adam is right in 99% of the cases. but i really do believe in recent years we've seen some of the 1% manifest itself and specifically i think if the fed had a single mandate, it would have been much harder for the federal reserve to justify it's qe3 program. at that point inflation was very

close to 2%. if that was the only objective for the federal reserve, coming in with big guns of $85 billion a month would have been very, very difficult to justify. this was very much about helping the labor market and other leg of the mandate. if the ecb had a dual mandate, i think there would have been additional precious on the ecb to respond to the soft economic performance we've seen there over the last several years. now, i agree with your point. if you think hard about this -- about the mandate that they have, that they haven't been vigorous in trying to achieve it. i think if there had been another leg there, i think there would have been additional institutional pressures on them to stimulate. >> just to be clear, the bank of england while i was there, we had an inflation target. but we interpreted the mandate

to say we were not going to kill the economy. >> medium term inflation target. look forward, come down, satisfying our mandate. right? >> i agree with you and i agree with the underlying point, you can't sacrifice your price stability anchor. but to say that we were somehow constrained by our target i think is wrong. >> that was actually my next question. >> i want to respond at least a little bit to adam's suggestion. you say ecb is violating? >> yes. >> i should respond. >> you should admit it's true. that would be progress. >> it's not true. i want to highlight one of the major difficulties i see central banks including federal reserve facing. central banks are incredibly

overburdened. politicians in different countries have different problems. we have fiscal problems in the united states, for example. many, many other problems. >> none of which is in the ecb's mandate. we have a major structural flaw in the way it's structured in that the governments haven't figured out how to help each other get out of the crisis and they haven't managed four years of the crisis to set up fdic entity to take care of the banking crisis. we need to realize ecb is really asked to hold the area together, that is the secondary objective we have subject to price stability and it's an impossible job. so yes, i agree with you, adam, that it would have been nice if

ecb engineered higher inflation, i fully agree with that. i think basically has been trying to do that. they eased policy further recently. the question is how much they can with a dysfunctional banking system. >> that's not in their mandate. >> everything is in the mandate subject to price stability, then the policies of the ecb is to contribute -- >> you're ignoring. >> -- to the welfare of the union. >> let me jump in here on the overburden point. i think one of the upshots of the global financial crisis is that now central banks throughout the world recognize at least an implicit additional mandate. that's a mandate for price stability. so now you've got a federal reserve pursuing full employment, price stability and financial stability.

i do think there's a risk as you layer on additional responsibilities on top of a central bank. one risk is you've got to choose, which way do you go? how much human capital can one institution have. >> let me turn that into a question, some people would argue, and some do in washington, the fed should have a single mandate. giving them a dual mandate you are setting them up for failure. they can only control inflation and there's one argument saying the fed is overburdened by its mandate or the other banks are too restricted by their single mandates if they took them seriously. >> i agree with the proponents of single primary mandate for federal reserve for a very simple reason. we just heard in one of the earlier sessions today how politics interferes with central

banking. the importance of looking at central banks in the kmex econo of a country. think about loosening policy and tightening, you need to be symmetric for price stability but the process is not symmetric for the attention it gets. it's always much harder to tighten policy when a central bank needs to tighten policy to maintain price stability. this is where prime comes. asymmetric in that way. i think that the -- i'm not a religious fanatic. >> you believe in the -- >> i actually believe in the policy we've seen. i'm believing how the fed has operated. >> lets be clear what's in your

catechism and how it totally is unrelated to reality. your catechism is what's called time and consistency model of inflation, dominated academic discourse for 30 plus years. it has never had any empirical support. it's not true the phillips curve is vertical in the short-term or medium, not true inflation shoots up in a trigger fashion as specified in those models once inflation is high. it's not true it's difficult to get inflation down. most importantly your political claim, which is the basis for this asymmetric bias is not true elts. we've seen right now based on things nell just said federal reserve under attack from right wing, single mandate arnold stymied from doing things it would want to do, powers constrained because there's such a huge political reaction. that is what's happening right now. you look at europe right now.

you agree the policy in europe would be more expansionary, more reacting to the banks. political pressure about german, french, dutch banks don't get losses. that political pressure is totally deflationary. you're saying things demonstrably false. >> i don't agree with you. >> i think i agree with adam on this. >> the last comment on the mandate. >> not quite as violently. i do believe mandates matter. given my religion, my background, i like the dual mandate. i think the justification for it is in reality central banks have to trade-off price stability against something. i think in the spirit of honesty you might as well make it explicit. i think it makes sense to say it's an equally weighted objective. two legs of the mandate is manageable. once you move to three he i start getting nervous.

>> since we agree on mandates we're going to move on to the crisis. >> two is a company, three is a crowd. >> to the crisis. books written, more books written about the crisis. lets try to keep it condensed. how each rate response to the crisis collectively or individually. in retrospect if there's anything you would do differently, tell me one thing, one thing you recommend they could have done differently. lets go from here to there. >> okay. you really need to break up the crisis into two parts. the first part is the severe seizing up of the financial system from mid 2007 to the end of 2009. on that one, i think the central banks were fabulous. they were innovative, creative. i think it was true of all the major central banks. i'd say you give them an a plus through that period. what gets more difficult is how

to judge 2010, 2012, 2013 period. in the u.s., history is out on this. we'll have to see. i think phd students will be where did he go their dissertations about this for decades ahead. personally i'd give the fed an a minus. ecb i think responded too passively to its financial crisis, particularly under them, a minus, then england same as the fed, a minus. >> what would you do differently, one thing. >> the one glaring mistake the central banks made, ecb's lagging response to the financial crisis, fiscal crisis that emerged in 2010.

i think if they had gone in aggressively, this would have required support from governments as well. if they had gone in early in 2010 and extinguished that, i don't think there was necessarily any predetermined mandate from the heavens there would have been an enormous european crisis. the lagging slow response opened the door and let some of those fumes we put back in in 2009, let them out again, and we had another round of crisis. i think that was the big mistake. >> so i would first agree with nathan that the response following the episode in the united states was phenomenal. this was probably the best example in global corporation among central banks we have in the centrhistory of central ban.

lines in the past would have generated questions and currencies. beyond that, i'm going to go back to the issue of what do we expect central banks to deliver when they do not have the tools. we have a fiscal crisis in my view in japan, for example. do we expect the bank of japan to fix that. i'm going to talk about europe. in europe we did have what was really a very tiny hiccup in late 2009. greece where problems started, 2% of gdp. even if you think they had a problem equal to 50% of their gdp, there would be 1% in the area and there it was mishandled. terribly, terribly mishandled.

was that an issue with the central bank. here is where i differ with nathan. i don't think this is a problem they could fix. it was an area where governments had to figure out how to help each other. you can ask the central bank, should the central bank try to predict the governments are going to mishandle so badly a year later and try to undo some of the damage with monetary policy or doing things outside the mandate. i don't think this is feasible to do. even though outcomes are terrible, it's not clear to me they are terrible because ecb could have done things in 2010 or twofr 2011 and they did not.

>> just 10 seconds. >> boys, boys -- gentlemen, gentlemen, why don't you wait one second. tell me one thing you would change and we'll go to adam. >> he's impatient. >> essentially i will agree with adam just looking at the inflation of the country, i would agree the overall monetary policy could have been somewhat more expansionary. i don't think we'll solve the existential problem for the last three years. in terms of ecb, this is something don kohn asked the panel and i was sbempting the way he answered for the area. should the ecb have confronted the governments in 2010 and explained to governments, look, we can't help you. we will not even help temporarily with interventions

in the secondary bond market for greece, for example. a very controversial decision, started buying greek bonds. in retrospect, retrospect, i would dare say it would have been better for ecb not to do that because it allowed governments to get off the hook and postpone resolution of the crisis, which they keep doing all the way through. in 2010, retrospect, that decision was the wrong decision. ecb should not have tried to help the governments postpone the problem by being in this gray area really for mandate of ecb. >> mr. posen. >> i agree there is a division between immediate crisis response and subsequent

response. like most people, i would emphasize there was a common response in 2008, 2009. it was good. i give ecb credit in that period. they had facilities and a lot that the fed and bank of england had to play catchup and learn from over 2008 and 2009. what i would say, i would change two things. the grade, i would give a mississippi us to everybody and i would give a c minus to ecb now, a to fed and b to bank ofening. so what are the things i would change. one is i think the fed and particularly bank of england messed up in toile. we knew from the time bear stearns went down only a matter of time before other things. all kinds of debate about the

record. my reading was there was not enough action taken by the fed. bank of england, i wasn't there but i'll sign up for responsibility somehow, playing games with moral hazard, not getting out in front of the crisis made it worse. i think there was a bad situation there. i have to disagree. the choice between should they have eased or not eased. should they have eased a tiny amount or more? what they could have done in 2009 or 2010 was buy a lot more bonds. the only reason they didn't was arrogantly play a game with governments trying to force them to do something else. if that central bank instead of crying how terrible everyone, kept interest rates down, a lot of human beings would have been better off.

>> wow, lets talk about politics. each central bank operating in different environments. we don't have to go through all of them but how did the difference play out limiting or pressuring them. >> let me use this to respond to adam. you compare ecb reporting of 18 governments with multiple language, so vastly different than the vanilla problems bank of england is facing or federal reserve is facing. when adam suggests policy could have been easier, if i hear you, you want them to do government bonds of the countries under stress. the question is whether it's legal for ecb. >> of course it is.

it's entirely legal. >> there are varying interpretations of this for the very simple reason the opinion and treaty states that monetary financing is prohibited. i know it does not preclude, but this is the problem the bank of england might have faced but it doesn't. there is another issue that is much more pressing for the area, that the assumption of debts is prohibited by other countries. the idea of the ecb chasing all of the greek debts to stop the greek crisis essentially would have shifted the cost of the greek government to the other government. it's something not as clear-cut at all. >> according to the -- >> by the size of the country,

buying bonds by the size of the country would not have stopped the crisis. it would not have stopped the crisis at all. you would have run out of debt, if you needed to have the greek situation. we have to look at the differences in operating procedure. each cb coop expand balance sheet, debts because of the much broader collateral -- these are technical issues we don't need to get to. this is not a matter of not easing monetary policy or not. this is a matter of could the ecb pick a country, doesn't have to be greece, could be portugal, ireland, we're going to focus all on saving this country without having a prior agreement of the other governments that they were willing to let ecb actually impose those costs on them. frankly i do not think ecb has

either legal or political legitimacy to do this. this is something that's a political crisis. >> the legitimacy to force berlusconi out of power, legitimacy to double youth employment in greece. >> the government did not force berlusconi out of his job, even though some actions interpreted as contributing to that. clearly, most clearly you cannot blame governing council of the ecb for the terrible outcome of unemployment in europe. >> of course you can. of course you k entirely. >> going back to the questions, as a 30,000 foot statement, very much agree with you that the institutional structure that the ecb faces is far more complicated than that, the federal reserve and bank of

england and bank of japan have. on the one hand you have a german economy that's performing very well, and you have these peripherals that are struggling intensively. how do you put together a monetary policy on the one hand >> that's adequate and ak september septemberble to everyone. >> i think what's ended up happening for the acb, the acb has been a little bit like the guy that's got one foot in hot water and the other on ice cold water. on average, they're doing pretty well. of necessity, that's where the ecb has been. but i think that refleblgts fle reflects some deeper kinds of problems and questionable whether it really is an optimal currency zone. >> one more point in response to what you folks have said, that i've heard -- and i think adam

and i have a somewhat different view on this. we've argued are central banks the cry sisz fight isis fighter resort. my feeling is that the only thing worse than the central bank being the crisis fire of last resort is got being the crisis fire of last resort. given the institutional structure and framework that we have now. it would be great if it allowed central banks to step back and say oh, that's too dirty for us. that might even create some moral hazard. but i don't think we're there. and i think that europe would have within better served if the ecb had been more aggressive. >> i'm going to first start by i want to agree with you. everyone going back to the very first question, what were

central banks doing? what were they created for? they were created to preserve stability and help fight crisis. i fully agree. the question is how coyou do this when i know you're being asked to shift resources from one country to another. this would be like asking the federal reserve, why don't you take some u.s. taxpayer money and shift it to brazil or argentina 10, 20, 30 years ago when they had crisis. this is really une kwquivalency. you would have to ask, if they agreed to this, then the federal reserve would be able to do this. >> okay, so let's get back to reality. first point, the ecb is the most independent central bank in the

world. the european parliament only sits over barely in name. they can ignore it. european parliament has no power to change the rules, prerogatives, anything. that's all in the international treaty. second, when the ecb has wanted to ignore pop you lar popular man date, it has done so repeat dwli. >> third, whenever central bankers tell you it's too hard because they don't have tool, you should hear a warning sign go off in your head. they kept saying we can't really do anything. inflation in orflat deflationary, but gosh, the

comet -- the government changed the central leadership with these mandate never trust a central bank. it is like of military. i cannot go varity officials want me to go. it i it's not the issue. it is not a fair statement to say it's transferred from u.s. to argentina. the members are members of a military unit and are members of a political partial. it's ridiculous to say putting stuff on the balance sheet is equivalent to a transfer. overtime, those debts get paid off. and if that was true, then the ecb couldn't have the target

balances so don't believe any of that. focus on the fact that central banks need to be accountable from leaving their goals. and the ecb has been too cowardly to do what it should do. >> okay, so we agree on that. let's move onto policy. let's talk kiwi. it means buying bonlds to keep interest rates very low hoping to spur more growth and hiring. all the major forms -- you explain how they're approaching this differently and lly and h effective do you think this is? >> so i think the framework for

qe is major central banks at various paces took their policy rates to an effective roller bound. you can argue whether that's absolutely zero or 25 or 50 basis points and the ecue seems to be evaluating that, but they took their policy rates to very low levels. and then, the next question is, well, what do you do to stimulate your economy from there. in some sense, following the lead through the bank of japan and going into very aggressive, asset purchase programings. the fed has purchased various kinds of mortgages and government securities and so forth. and its balance sheet, as a result of this, has grown to a

little less than a trillion dollars to almost $4 trillion today. so i think this's the general framework. the underlying idea, hay take safe assets out of prior hands. it just goes a little bit further out with the maturity strukdture and so forth. honestly, it seems like it's been moderately effective in stimulating economic activity. i think if the united states hadn't seen any qe from the federal reserve, the level of gdp there might be a couple of percentage points lower than it is today. so i think the qe has provided meaningful stimulus, but it isn't growing to fix things.

it can provide support and stimulus and help, but at the end of the day, we've got to have consumers who are willing to consume. we need businesses who are willing to deploy their balance sheets through investment and hiring. so my feeling is that ultimately, you're waiting to see whether that next leg of recovery kicks in. the thing i'm a little bit nervous about, i do believe there are benefits up front that we experience. but, to the extent that there

are costs, i think the costs are something that we're going to be struggling with and dealing with and evaluating it. it's too early to say. >> let me start by saying first if a central bank reaches a see row rate, then you fall in love with conventional measures. we've done this before the crisis. the unconventional measures are not as precise ly calibrated.

>> all other measures extending the balance sheet of the central bank in this crisis. how exactly you do this depends on the framework. so, again, they did not do it the same way. so when we criticize, this would be like asking the federal reserve in the united states by buying detroit bonds and puerto rico bonlds.

some in the case of the acb, the acb uses, essentially, cheap money, 0 interest rate money and expand the balance sheet in this way. it could have done more. so i'm going to repeat that i agree with adam. it's just looking at the balance sheet and is unable to climb in the past year where the fed's balance sheet has actually accelerated with a qe stratosphere. it's more uncertain than conventional policy. i would agree with adam that you

should never trust a central bank that tells you that they cannot generate inflation over a very, very long period. this is, indeed, the issue with japan. you can have miscalibrations for one, two, three years. you can't have calibrations for 15 years. quantitizi quantitizing, as a result of the crisis, i'm not sure that the same reason applies for the qe problem from a year ago. since a year ago, if they do

nothing, they keep expanding the balance sheet. i cannot recall an equivalent and this is of concern to me. >> how effective is qe? >> as many of these things, i'm a bit of an out liar. if you were to go back to a year ago, august, chairman bernanke gave a speech about qualitative easing in which he v the work summarized the empirical literature. and to the best that economists can do, qe is effective.

whatever it is, it's always difficult to determine what the factors are. so many people will go out there and say oh, there's no proof that qe works. all you see is that certain interest rates move and certain spreads move and you don't know what happens to the real economy. the real economy is not doing well so it can't be effective. sf we go back and look at when the federal reserve or the bank of england has cut interest rates in the past, you get the same results.

so it is a misnomer to think that qe didn't work. balance p balance sheet leveraging and fiscal crisis, the idea that qe is somehow demonstratively not worked, i think that is misleading. i agree with nathan. that doesn mean that if he had qe, everything would be solved. that's not my point. but just the fact that central bankers have allowed them to get into this historical trap, it starts apologizing. oh, we wish we weren't -- nathan, i think said this, we weren't getting our hands so dirty. but i'm with him on what he said about the crisis. get the job done. >> well, i'd be happy to continue asking questions.

but i think it's time to let a couple of you. i think we have microphones around the room that can be passed. raise your hand if you want to ask a question. right here? is there someone here? >> if you just could identify who you are. >> my question is i wanted's really a simon johnson's 13 banking question. the u.s. part of the strategy seemed to include the steps where banks were allowed to consolidate and get larger. in europe, less so. and if it is correct, did the united states make a mistake by

allowing banks to get larger. it is a natural and constructive immediate response to do bank consolidation. usually, you're trying to avoid system disruption. you hope it's a weaker bank. there's somebody stronger in the system. there's some value left, they put in some money to keep it operating. it is an understandable cry sisz response. but even more so, you have a point. there has been a great deal of minimalization. this is a place where government -- other agencies get involved.

but let me be very clear. ms. henderson was asking this earlier top give grades. this is a place where the combined bank of england, u.k. government, including while i was there, gets a very poor grade. we ended up with four big banks running the entire financial system in the u.k. it's been very problematic. now, whatever you said about your own area, that is the most extreme. >> so i'll comment on what adam just mentioned.

if you have a weak bank, it's only natural to ask if a stronger bank would take it over. unfortunately, it's true. in form of dwrads grades, i would have a hard time choosing tweenl a d and an s. this, again, goes back to a dysfunction in the euro area. it's a very different situation where you may have one banking

lobby to gain advantage. they have been in disaster because the governments have collectively allowed these things to happen. going n going forward, we have larger banks and what they're fwg asked to do. impossible things, really. frankly, i don't think we have the vision of how the euro is going to get out of this mess.

>> i think that the on going to leveraging of the banking system in the euro area. on the one hand, because they have very large balance sheets. and on the other hand, they haven't been forthcoming. they're bringing their balance sheet size down by reducing a viert of assets, including lending. i think this is creating a powerful credit crunch. other than that, i hear my compliance office saying no comment. >> is there another question?

>> i was just wonder fg you guys could address the current debates going on which is saying a lot of the central banks are doing with the financial sectors of the economy and the assets of the economy that are disproportioning -- it's a lot of the incremental argument that is you hear that the gains have basically all gone to the top 10% because they're really only the asset helping class. and they're not going to trickle out. obviously, you guys have all commented on how absent they've been from doing the job. but i wanted to know if you guys could talk about that challenge. >> but i think you put your feet

in your arm. what you're really facing are structural questions, not monetary policy questions. so when the economy is in a mess, the central bank, all they can do is try to fix it. it's very minor compared to the broadening effect on the economy. many preparations that central banks are doing are from fiscal operations. if you worry about the distribution, the central banks have their own agents in the economy to ask. this is the question that i think people, not only in the united states, but everywhere should with saying come on. we see a distribution issue here. fix it while the central panks

a banks are trying to figure out the economy. >>. >> i think that the caveats are very well taken. but i think that every point in time the fed feels a responsible fi to pursue a policy that brings them closer to the mandate and they don't feel that there's even an option to say okay, that's a structural problem. we're going to pass that on to the fiscal policy. so specifically, on your question, i really think if we were to put our finger on one section of the economy, that the

fed has particularly focused on with the qe policies, it's been the housing sector. i think housing is particularly a very mainstream issue. there's been labor markt concerns around trying to meet the full employment leg of the dual math tag. i think that is very much a mainstream issue. and the final point, would they have been happy if they would have had that tool? >> absolutely they would have been happy to have that tool. but, at the end of the day, the need to respond and use the

tools that they have. >>. >> is it possible that the nature of the business itself exacerbated distributional sources that occurred? generally, you lower rates and general rate more growth and that benefits kind oaf everybody. but because crisis were so great, a lot of the people who were under water or people who would like to enter the housing market can't because they're credit impaired or they've got tons of student debt. >> i thil that's right.

essentially wharks y lly what y we're not getting the kind of multiplier into the real economy. if you would have had more prop proper action, you would have seen moreover that. i think another piece of it is yes, there are some games in the share market. this is making a more extreme version, as url v usual, of nathan's point.

i would argue at least through 2011. long term unemployment for anybody is just devastating. if your choice is.

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