we're really interested in principal reduction. you said identifying target segments who go to foreclosure without principal reduction is too difficult. i won't go on to talk about what mr. dudley said. if you're not supporting principal reduction and you're not talking about how hope owners can get out from under this foreclosure market, what do you suspect we do to improve the housing market? >> we discuss a whole variety of things in our white paper. again, with the proviso there was our goal was to provide background analysis to help congress make good decisions. for example, we have a big overhang of homes in the market. one of the ideas that we've discussed is the moving reo to rental. that is something that the fha has begun a pilot program on

that's interesting. we talked about -- tried to identify some of the barriers to doing that on a large scale. that's one potential direction. there's a lot of issues right now with the tightness of mortgage standards where people can't get mortgage credit even bh they meet gse standards. so we have talked about clarifying the warranties as well. i think that could be a constructive step. servicing is an important issue. you know, you just referred to the beginning the servicing agreement. since early last year we put consent orders on all the major servicers to improve their practices and have principal points of contact for individual borrowers to provide more counseling and better controls and so on. there's a whole variety of things to be done and not all are congressional.

so are our own responsibilities at regulators. some require congressional input. >> the vice chairman is now recognized for five minutes. >> thank you, mr. chairman. chairman bernanke, in your testimony you describe the recovery as modest relative to historic terms with note for the record that under this administration when you add in those that are underemployed, those who have left the labor force due to giving up the true unemployment rate is 15.4%. half of all americans are low income and in poverty, and 1 in 7 rely on food stamps. so from the% it active of my constituents, the use of the term modest is indeed modest. i would like to first return to the subject of our structural debt.

wauft major players in our economy hassed the number one driver is medicare and medicaid and our health care spending, nothing comes close. that, of course, was our president, barack obama. so i would suggest to the ranking member when convenient he first debate the president on the subject before he debates us. i would skk this, p if we cut the pentagon by 50%, have we solved the long-term skrushgtal debt crisis in our nation? yes, that's you. >> you refer to headlight calthd this is where costs go up faster than gdp. the output of the health care industry is not that markedly better than other countries, so clearly not only for fiscal issues but also for private sector productivity. it's an important issue to

address, and as a mart of arithmetic it is true that over time the increasing share of the total outlay will go with medicare, medicaid and other health-related programs. it's very important to address that. on page 7 of your testimony you say the employment is largely determined by non-monetary factors. in my remaining time i want to pursue this theme. i certainly agree with the assessment, but i question after three years in the most highly accommodative monetary policy i believe in the history of our nation, the recent announcement that we will continue this policy for two more years. i mean, i note according to your own statistics, public companies are 2.1 trillion in excess liquid wit and banks have a trilian xaf of excess liquidity, which suggests that perhaps

monetary policy is not the challenge that we have today. recently the dallas fed president, richard fisher, made me aware of a harvard business study showing the greatest impediments to job creation to be taxation, red tape and uncertainty. a recent gallup poll of small businesses show that ruffly half believe that health care and government regulations is what is causing them not to hire more workers. you have job creator after job creator like bernie marcus and home depot saying i can tell you today that the impediments the government imposes are impossible to deal with. home depot would have never succeeded if we tried to start today. i had add the voices of every small business person i talked to the fifth congressional district of texas that i represent. so, again, it begs two questions. number one, the limits of the efficacy of monetary policy and frankly the risk as well. it was brought up early that we

have retirees being squeezed, pension funds, savers. you certainly know that community banks feel squeezed. many of them are lending out on the risk curve. i'm very grateful you've shown your concern and anxiety over the structural debt, but so some extent you're one of the major playe players by creating these artificial rates that i would argue mask the true cost of our fisc fiscal folly by keep be rates artificially this low, aren't you simply postponing and exacerbating the problem, particularly the unintended consequences of another asset bubble? do you share these concerns, and how do you balance them?

>> you raise a lot of good points. it has been constructive in bringing employment back towards the maximum employment level. congressman frank pointed out the sharp movement in march of '09. that was when we began qe-1. since qe-2 in 2010 there's been half a million new jobs created. i don't claim credit for all the jobs, of course. many other factors are at work, but i think it has been structurive. you're absolutely right. in terms of what long-term employment, productivity dpans are sustained by this economy, monetary policy is not the answer to that. the answer is good -- in partnership with good economic policies ranging from trade to regulation to education to infrastructure to tax code and so on. all those things are in the province of the congress of course. i agree that monetary policy is

not a panacea. it can help offset cyclical fluctuations and financial crises like we have had, but the long-term health of the economy depends on decisions taken by congress in the administration. >> thank you very much, mr. maloney. >> thank you. welcome, and thank you very much for your public service. in your testimony today, you had some encouraging points specifically that in january the private sector gained over 260,000 private sector jobs, and we've seen over the past 23 months a steady gain in private sector employment over 3.7 million new jobs gained. i believe your chart is very grafg. we were losing 7,000 jobs a

month when president obama took office, and we're moving forward with economic recovery. i thank you for your leadership, really your brave and innovative leadership during this time. but we are still facing many, many challenges including the challenge of the long-term unemployed that seems so persistent and deep and strong, over 40% of those unemployed have been so over six months. i'd like to know whether you feel this is structural, or is this something we can address with an improved conditions in our overall economy. i am deeply concerned about the fact that we are facing the largest income disparity in the history of our country. and that the gap seems to be getting larger and larger, and the challenges for the middle and moderate and low income

people become stronger for them to make progress. the administration has announced their number one priority is creating jobs, growing our economy, and what are the things that we could accomplish in order to stabilize our economy and create the conditions that would improve the opportunity for more job growth? i obviously believe in the dual mandate. and specifically do you think that at this in the cycle thae we need the budgetary tightness or shrinking of the government thatmy friends on on the other side of the aisle are advocating for? doesn't it make more sense in terms of our fragile economy to have more fiscal stimulus, to pass the transportation bill, to help create jobs and improvements in our economy?

again, thank you for your service. >> thank you. it's a very worrisome problem and very high level of long-term unemployment. as you say 40% plus of the unemployed have been unemployed for six months or more which is the highest bar far in the post-war period. i think that happened because the decline in the economy was so sharp and so severe in 2008 and 2009 that firms in a panic-stricken mode cut many, many workers, and many have not found work in now maybe three years. this has a lot of potentially serious long-run consequences. we know with individual workers and you're out a job for a long time and you found a new job. it's awe much lower paying job or much less secure job. the concern in particular is people out of work for six months or more start to lose skills and lose attachment to the label force. they don't know what's happening

in the industry and that's one reason to get jobs created and into a more global labor market. that's what we're paying more attention to. there's no easy solution here. you asked about -- i tried to make three poinds about fit cal policy and one we talked about that achieving long run sustainability and providing comfort to the public in the markets that deficits come under control for a period of time and that's important for confidence and for creating, you know, more support for the recovery. at the same time i think you also have to protect the proe recovery in the near term. you are not current law on january 1, 2013, this is a massive fiscal cliff of large spending cuts and tax increases. i hope the congress will look at that and figure out ways to achieve the same long-run fiscal improvement without having it all happen at one date.

so attention should be paid to the -- >> but mr. chairman, if i could -- my time is running out. in some ways monetary policy has replaced fiscal stimulus. wouldn't the recovery happen faster if we had a better balance between the two? could you comment on the need for a more fiscal stimulus to believe more? i think if you do that it needs to be part of a two-handed plan, so to speak. the actions you take in the short run, whether they're unfra structure or education or tax reform or whatever they may be, i hope that they're, you know, considered and wisely chosen. it's also important that we keep in mind the long-term necessity of making fiscal policy sustainab sustainable. you need to think about those two things together, i think. >> thank you very much. >> thank you. the chair at this time recognizes the chair of the subcommittee on financial

institutions. miss biggard has done good work on housing, actually. >> thank you, mr. chairman. i would like to return to housing for a moment. today through fha and rhs and fannie and freddie, the federal government and taxpayers back nearly 100%. it's in the 90% right now of residential mortgages. is this healthy for the economy, and what are the barriers to private capital re-entering the mortgage lending and the secondary market for home loans? >> you're correct that government sptd agencies are now pretty much the entire security zax market. they don't make all the mortgage loans, but think securityize and buy most of the loans in the economy. that's not healthy. we'd like a more diversified system with greater private

sector participation. we're not seeing that. the reasons are not certain. i think in part the private label of so-called mortgage markets are still recovering from the shocks of the financial crisis. there's a lot of uncertainty about where the housing market is going. therefore, the uninsured securities that are put together by a non-gse securityizers are not as appealing as they were before. there's still uncertainty about and legal framework for securitization in the future. there's a lot of reasons we want a more diversified system. >> does dodd-frank help or hurt the re-entry of the private capital into the market? >> well, i think it's important to create more certainty and we're not the a lot of discussion for example in the

federal reserve and other agencies think about risk retention requirements, france, and those have not been specified. it's helpful to get greater clai clarity. it's helpful to get creative clarity about what the long-run mortgage market structure will discussion in this committee about gse reform and about covered bonds and other types of structures, but certnty about wt will go. >> thank you. i go on to another question. thdodd-frank effective date for the volcker rule is justly 21st. we've heard thatthink this is ao complete by that. do you have any plans to phase in implementation of the volcker rule? >> yes. the statute allows for a two-year transition period, and so we will certainly be giving institutions adequate time

adjust and adopt to whatever -- adapt to whatever rule is put out. >> thank you. then i've heard from some of my constituent insurance companies that fed staff has been deployed to insurance companies. what's the purpose of their presence that -- given that the insurance companies are regulated by the states? is the fed simply increasing its insurance expertise, or does dodd-frank give the fed insure? >> no, we don't have any authority to regulate insurers, unless in the future a systemically critical insurance company is so designated by the fsoc. that has not happened yet. i'm not quite sure what you're alluding to. it could be there's discussions to give ourselves better insight into the industry. >> what i'm alluding to is

there's insurance companies where there have been ten of your staff has kind of moved in and taken up residency and they don't know why they're there. but they're going through -- >> i will find out, and i will . >> i appreciate that. and what -- what kind of discussions are you or your staff having with the new federal insurance office, which was designated to be the federal insurance expert on national and international issues? >> we've been interacting with them on the fsoc, financial stability oversight council, and our staff is interacting in that respect. on the previous question it could be they're thrift holding companies because they hold thrifts, in which kay we have actually some oversight. >> all right. thank you. i yield back, mr. chairman. >> thank you. >> thank you, mr. chairman. chairman bernanke, while credit

conditions for small businesses have improved over the last past year, the number of small dollar loans, loans of 250,000 or less remains below pre-recession levels. as you know, these are the type of loans that are important to early stage and startups. do you think credit availability for these loans will ever fullary rebound to the high water marks set in 2007? >> i think there are a number of reasons why the number of loans being made is lower. first, given that the economy isn't that strong, demand for loans is not quite what it was. secondly, of course, lending standards have tightened since before the crisis, and some of that is appropriate because, as you know, there was credit standards were too easy before the crisis. so there are some reasons why lending has fallen, which no

doubt will improve over time. but i think it's still case that we're a little bit too far -- the pendulum has swung a little bit too far, and we are certainly working with banks, particularly small banks, and i will reiterate at this point that it's incredibly important for banks to take a balanced approach and for examiners to take a balanced approach so that on the one hand, they make safe and sound loans, but that they're also making loans to creditworthy borrowers because they're still important for our community and economy to recover. >> if you look at the type of loans banks are making, they're the big loans because they are the profitable ones. so in that regard, this is why we pass this small business lending bill where the feds were lending community banks money where they paid t.a.r.p. money

back. so do you think it's still an important and meaningful role for the federal government to play in providing lending programs that will fill that gap that exists from the private sector? >> well, we've had a good relationship -- the fed has had a good relationship with the sba, small business administration, and there were some additional provisions during the crisis that gave them more flexibility and more funding. that might be an area worth looking at. >> under your leadership, the feds have significantly increased its commitment to transparency, quoting more press conferences and increasing interest rates forecast for the first time in its history. while these policy tools are good for the financial market, they are of limited use to the general public.

would you consider reenlisting guidance for house holds and small businesses after open market committee meetings on what changes to monetary policy means to them? >> that's an interesting idea. we have, of course, many speeches, and i'm here giving the report to congress without monetary policy. i'd like to think about what that would look like, but obviously we are trying to communicate to the broad public. i've been on some tv programs and the like, and in fact, later this spring, i'll be giving lectures at george washington university, which will be available to anybody on line about the fed and the financial crisis. so we are working to improve our communications and your suggestions are more than welcome. >> thank you. thank you, mr. chairman. >> thank you, mr. chairman.

there is much talk about the wall street reform bill, and we will continue to, and it was said that the bill is bipartisan and the nature of that should not be overlooked. i would like to point out for the record that what's bipartisan is called dodd frank. mr. bernanke, thank you for being here today. in your testimony and written remarks, there are some things coming from michigan, a very hard-hit state that is struggling to come back in this stagnant economy. there are some things that bear repeating. on page, i believe, 2. the economy appears to have been growing during that time frame at or below its long-term trend. continued improvement in the job market is likely to require stronger growth and final demand and production. notwithstanding the better recent data, the job market remains far from normal. the unemployment rate remains elevated, long-term unemployment is still near record levels, and the number of persons working

part-time for economic reasons is very high. i go on. fundamentals to support spending continue to be weak. real household and economic wealth were flat in 2011 and much credit remained strict for several borrowers. two questions and then i'll be quiet and listen. the first is, in terms of the credit still not getting to potential borrowers, what specifically do you think the reason for that is, and what do you think can be specifically done about it? if not by you, i can understand why you can't discourse on that. and finally my concern is that -- just a question about how this operates. it says here on page 6, the target range for federal funds rate remains at 0 to a quarter

percent. when that type of rate remains in effect, does that have an effect on the personal saving interest rates that individuals who bank get, and if that is the case, somehow that, let's say, stops them from getting a higher rate of return. would that not constitute them essentially subsidizing the operations to try to get money to, say, the banks or other people who are still not giving the credit which then leads to the horrible things that i started off my remarks with? >> well, on the latter point, you know, we are certainly paying attention to the effects of low interest rates not only in saveres but other financial institutions and the like. they say that increases their profit margin, so that's not a big problem. for most savers, i think less than 10% of all savings by

retirees is in the form of fixed instruments like cds. remember, people also own equities, they own money market fund, they own mutual funds, they have 401(k)s in a variety of things. those assets are returns on how very strong the economy is. in trying to strengthen the economy, we are actually helping savers by making the interest rates higher. i see that in the stock market. >> i don't subscribe to the fact that at 10%, that's okay to have their rate of return artificially lower. what i think you're saying, then, is, yes, they are subsidizing this, but in the long run it's better for them because you believe this will lead to economic growth. although, again, and we'll get to the second part of my question, that very much remains

in doubt, doesn't it? >> well, the economy has been recovering, and i believe monetary policy is set appropriately to help the economy recover. again, you can't get good returns in the economy unless you have growth. the other thing that we're doing is we have set an inflation target and we're committed to keeping inflation low and stable, and that also, of course, is good for savers, because it's the inflation adjustment return that matters in the end. >> if i could, because these are interrelated. in short, it's almost as if you've decided what their potential interest rates return would have been into your recovery for the economy. and again, it may be recovering, but by your own admission, it's either at or below trends, we still have trouble getting money into the hands of people for credit, into the hands of people who can grow the economy and get jobs back, and the long-term prognosis is not particularly good for unemployment rates dropping in a

precipitously fashion any time soon. it doesn't sound like a very good investment if i'm saving and you're spending the money on our recovery. >> we're not spending anybody's money. it's arguable that the interest rates are too high, that they're being constrained by the fact that interest rates can go below zero. we have an economy where demand falls far short of the capacity of the economy to produce. we have an economy where the durable goods is higher than the ability to produce. we can't make interest rates lower, of course, only can go down to zero. and again, i would argue a healthy economy with good returns is the best way to get returns to savers. on providing credit, i guess i would make one observation which was the news this morning, that bank lending increased last quarter at the fastest rate since the recession. >> thank you. >> we also, the housing market

has declined in i think 19 or 22 major markets. we are seeing some signs of deflation. mr. watt? >> thank you, mr. chairman. i just wanted to let my friend know that the protocol has been to name bills after the people who head the committees of jurisdiction, which is why the bill was called dodd frank. we had the majority in the house and the senate. when it was split, it was falba falbane ochsley, which he didn't like, i guess. ochsley was the majority in the house. we're following the same protocol. >> gentlemen, yield. >> we didn't vote for it, either. >> y