committed. i don't know if anyone's noticed. the fed has committed to holding down long-term interest rates as well as short-term rates. they're already doing everything they can. let me put the size to have problem into perspective. last year, uncle sam borrowed an average cost of 2.5 per cent points. the average of the last 20 years which was sort of after the new normal came in, low, basically low historically was 5.7 per cent points. that 320 basis point difference times the size of the deficit at the end of the decade, debt at the end of the decade, amounts to about $800 billion a year in added interest costs. added interest kots. that's longer than the defense budget. that's roughly twice current corporate tax receipts. it's about 80% of personal

income tax receipts. so, in other words, not to shrink the deficit, but just to pay the average added interest costs we basically have to abolish the defense department completely or we'd have to have an 80% rise in all personal tax rates. doesn't work. math doesn't work. the markets are going to call us on it long before then. because we are in a situation that economists call fiscal dominance. our monetary policy unintentionally has now become dominated by fiscal necessity. and we're not admitting it to ourselves yet. and we didn't get there because we chose -- i'm not criticizing chairman bernanke for the choice he's made. but those are the facts. we're not going to be able to back out of our current highly expansion their, highly accommodative monetary policy

until we get our fiscal house in order. and if we continue to run greek deficits with why don't we call it old style greek monetary policy, preeuro monetary policy, we know where it ends. history has done this over and over again and it ain't pretty. >> so -- so you're very concerned about the deficit. you think that the estimates for growth and spending are not realistic in the administration, the public debate generally. how do you tackle this? is it a combination of tax increases, cuts in spending? what's the -- what what's the responsible approach to dealing with this? >> yes. we will need all the above. but if i can go back to the original theme, we need quality as well as quantity. because if you simply do the tax increases and the spending cuts needed to make it close.

and you continue to spend and design policy as wastefully as we do now, you will doom the economy. so what we have to start thinking about is how do you improve the quality with which we collect tans taxes and how do you improve the quality with which we deliver services? that's what i think has to be on the agenda right now. we all talk comprehensive tax reform. i think if you look at what's actually being proposed, there isn't a lot being proposed from the administration. even on the republican side, i would give it at best a c minus. you can do a lot better. my side can do a lot better on the taxes side. your side can do a heck of a lot better on the spending side. and that's where we have to focus. and again, if we and i'm going to again put us clktively in the

establishment, we are going to be held accountable. it is our job to get these people to do the right thing and that's why we, especially you media guys who are out there need to start holding these folks' feet to the fire. >> tax reform, can you go into a little more detail on the way you'd approach it? >> sure. on the personal side, start there. you know, i think that bowles simpson made a good stab in that direction. i can argue with the tweaks of it. but they collected more revenue with lower rates across the board and a much more progressive tax system. now that is because boles dominated it. i might want to tweak it here or

there. it's doable. they've done it. they can pull 50 examples off the shelf. corporate tax reform. here's a simple case where both sides are talking like they like corporate tax reform and there's -- i know, corporate tax reform, your eyes have very glazed over. i know it. i'm going to give you two words that i should listen for. these are words we all understand the meaning of. when you hear them from a politician, you know they're feeding you a line because they don't really understand it. my favorite is the word territorial. everyone's for a territorial tax system. what does it mean? it means you tax things within the territory. very simple. plain english. no jargon. let's think about this. we have after japan the highest corporate tax burden in the

world. so if we apply a territorial standard and don't cut revenue collections, we've just put on the highest corporate tax burden on things we do inside america. not exactly a job creator. okay. very simple. we hear the word territorial they don't know what they're talking about if they're for job creation. the right word you should hear from them, which you don't is border adjustable. border adjustable means that when the goods hit the border coming in, they're subject to an adjustment that levels the playing field. and when the goods go out, they're subject to a board eadjustment on tax rebates that level the playing field. example, when a bmw leaves the port of hamburg, the company gets a 17% of value rebate.

it hits no tariff when it hits america. when we ship a cadillac to germany, it has a 17% tax imposed upon it. germany is doing border adjustablity. we are not. we are getting to ourselves, i don't know -- the word isn't coming to mind. but you know what i'm talking about. we're doing it to ourselves. let me put it that way. got out of that one. you know, this is a self-inflicted wound. the chinese are doing it, too. the politicians talk about territoriality. higher taxes on things in america and we should be talking about border adjustablity. very simple. think what those words mean and listen to the politicians when they say it.

>> we have a few minutes for questions. i'll give you a minute to stand up there. the microphone's over there and over there. if you have a question, while we're getting the questions ready, you refer briefly to the activities of the fed in bernanke. do you place yourself in either the villain or the hero camp on bernanke in your assessment of him? >> you know, i've had four stints in government. for me to think that anyone is anything other than human after all that it would be crazy on my part. so basically, i think he did a heroic job under very difficult circumstances. in general, i'm a member of the central bankers union, the international brotherhood of central bankers. i have a union card. and we do not criticize our brothers. i do think, though, that, you

know, going back to one of keyenes favorite longs, in the long run we're all dead. he said that to justify short-term action. the more years that we all drag on doing the same old thing, the closer we are to dying. that's why we had better start paying attention to it. this is not a long run sustainable policy. monetary policy is a way of buying time. and if we don't use the time wisely, we're just running up a bill without having solved our problems. >> we're going to go to questions. can you please state your name and affiliation. >> i'm peter tanis from the perk links facility. the example you cited of border adjustablity, which i think was very clear and interesting, wouldn't we accomplish the same thing by doing what 150 other

countries do and impose a value added ta? >> absolutely. in fact, my -- i didn't get this chance. i once testified before the senate. in fact, i was on the panel of four people. we were across the political spectrum. and we didn't compare notes before we went in. and what we told the senators was -- all four of us was, we should have a value added tax. the senators then proceeded to tell us that you know that the senate voted 93-2 to never even consider a value added tax. and well, there we are. now so what i think we should do. if you're going to follow that logic, you want to pack everything into a value added tax, right? not just the corporate tax. you want to have the entire tax system be border adjustable. that's how you make america competitive again. that's how you get rid of the self-inflicted wound. if i could revise and extend my comments. my simple tax reform is scrap

income-based taxation and go to value added-based taxation. there are ways to make it progressive. i'm not going to go into the details of that. it would make us more competitive. what we should not do. what we should not do, i see laura taking notes, i want to make it clear, what we don't want to do is add another layer of taxation. and another layer of accounting on top of what we already do. that will make things worse. substituting a value added tax for income-based taxation will make things unambiguously better. >> question? >> see how easy it was. right, if they would just step down and let us governor, we'd be fine. >> i'm ed levee, a recovering government economist and now a freelance writer.

you mentioned before what you say is u.s. one of the highest corporate tax rates in the world. but aren't in fact our corporations paying effectively only about the average tax rate compared to the other industrialized countries? >> see, so again, you know, i think the way to think about it is to -- you know, we economists agree that active -- decisions take place at the margin. so when you have a high marginal rate and a low average rate, you're really doing damage. buzz you're doing the maximum disincentive effects. while at the same time not collecting enough revenue to justify it. that would be an example of why we cry out for tax reform. plus the complexity of it all. it's just ridiculous. >> time for one more question. get the microphone on. keep going.

>> i'm casey with the american society of civil engineers. a number of speakers have spoken about infrastructure investment as maybe a piece of the fiscal discipline going forward. any comments on the role of the private sector in infrastructure, public sector, state, federal, i just haven't heard you comment on that issue yet? >> great. i'm all for it. what i want it to be done in a cost effective way. and what is interesting is that in general, our actual say road construction costs are much higher than elsewhere. and the reason has to do with federal contracting rules. here again i can see the eyes glazing over. but what we have done is made getting a federal contract, simple federal contract so complex that only large firms with a dedicated person to

filling out the forms actually can get the contracts. dedicated person or personnel. it's often a department. so, you know, a new construction company where the guy, you know, hires his cousins doesn't have a chance. we have rules that compel the paying essentially of union wages. we have set aside rules where companies basically set up dumby corporations with -- that have the right quote ceo in order to qualify. we have all kinds of rules and regulations that are environmental, that just aren't cost effective. i'm not for no sbiermtal regulation. i'm for a real cost benefit test here. i think if we were able to get those kinds of changes in place, you could do 25 to 30% more of

what you want to accomplish for the same amount of money. by all means let's do it, but let's get maximum value for the buck. >> okay, our time is up. >> this afternoon president obama will sign the jump start our business start ups act, called the jobs act. it includes initiatives to help startups grow through initial public offerings and reduces regulation on how small businesses raise funds. the sign willing take place in the rose garden and c-span will have coverage at 2:10 eastern. today marks the second anniversary of the second mining accident in 40 years. 20 workers died in the upper big branch mine in west virginia. a house committee held a hearing on mine safety.

we'll have that hearing at 2:50 eastern. and at 5:15, defense secretary leon panetta is joined by chairman dempsey in explaining the spending plan to the house budget committee. you can see the hearing here on c-span 3. this eastern on book tv, join our live call in program with distinguished navy seal and author chris kyle as he talks about his life from professional rodeo rider to becoming the mosley tal military sniper in american military history. >> if you think of yourself as a family and as a team, she said when i get a raise at work he's so proud of me. we got a raise. we got a raise. i felt that she had redefined providing to include what what her husband does. >> the richer sex author on the

changing role of women as the breadwinners of the family and how that impacts their lives. also this weekend, "america the beautiful." director of pediatric neurosurgery at johns hopkins, ben carson, compares the decline of empires past with america and shares his thoughts on what should be done to avoid a similar fate. sunday at 3 dhirt p.m. book tv every weekend on c-span 2. >> former fdic chairman sheilah bear now discusses regulations to protect investors. she says there's a difference between free markets and free for all markets. she spoke at the atlantic magazine's economic summit. this is about a half-hour. >> i couldn't help but think when we were listening to larry lindsey and he kept referring to the sympathetic media and whether or not i was a part of that mess. i'm going to try to be very hard

hitting. sheilah, good to see you. we've had fantastic conversations today. there have been a lot of digs. people have been taking decision at the other side ideal lodgely. i've seechb things all over the place. people are ingesting information about the bank stress tests. because you were here today we decided to move up the results of the stress tests from yesterday. now they're out. when you and i talked about this on tuesday morning you suggested that not everybody was going to pass with flying colors. giving your evaluation first of all of your stress tests. >> the stress tests was to determine what the bank's

tangible risk based assets would be in a very high stressed economic scenario. 21% drop in home prices. that would be a very, very distressed economic environment and not one that people are predicting. a lot of people weren't predicting the 2008 crisis. even in this distressed environment, banks could have another capital to keep lending. that was a problem in 2008. examiners would go into a bank. is the bank making money right now?

the evaluation of the financial institution would be based on burnt profitability and examiners did not -- regulators did not and bank management did not look forward enough. what happens if home prices drop. i've goat an adjustable rate mortgage. that kind of analysis wasn't done. it's an evolving process. in 2009 the stresses weren't two stressed. i think it was a 10.3% unemployment rate was the stress assumption of course unemployment peaked at 10.1.

they're all still solvent after the distress test, but some are better than others. i think that is good, too. i think during the financial stabilization measures called bailouts, there was a lot of painting everybody with the same brush. that was unfortunately. you did what you had to do. you don't want to punish bad bank management by putting everything in the same group. perhaps it puts more pressure on the banks that aren't doing so well for market participants and challenge them as to why they're not doing better. you asked me to take a few punches. i'll tell you areas where i think the stress test could be better. one is that the focus is on risked based capital. there's two types of capital

standards for banks. one is capital based on risk weighted assets. risk based capital is not always a bad barometer. so that is, you don't try to wait or exercise any jum on how risky the assets are. precrisis, we found there's a lot of academic analysis by the basel committee, show those banks that reported very strong risk based ratios very weak lempl ratios were the ones that got into trouble. leverage ratios when the crisis came, really the market completely dispointed the

risk-based capital ratios. everybody looked a tractor-trailer leverage ratio. if you look at the stress test results, i encourage you to do so, you should look at the leverage number. there are a number of banks that would actually have capital -- leverage capital ratios below 3%. which implies the leverage of over 33-1 in this distressed scenario. if i were a regulator, i would be troubled by that. there are some questions about how the losses on housing. housing is a big, big question.

so some of the mark commentary is asking if the losses that are predicted, are as robust as they must be. i don't really express a view on that. i think it's healthy that analysts and investors and others are taking the data that the fed has made available and doing their own analysis. a lot of this is subject to the market. asking questions is a very, very healthy process and a very good discipline on the banks themselves. also the stress tests are really focused on credit losses. what happens if a borrower can't make good on his or her loan? that was clearly the driver of the 2008 crisis. people couldn't pay their mortgages. going forward, this has been addressed by this excellent list of speakers you have today. what's the future risk? and should perhaps interest rate

risk be built into the stress scenarios of these stress tests? interest rates are not going to stay this low forever. as the economy picks up steam and alternative places for investors to put their money and as europe repairs itself, the interest rates are -- they go up. so i think stressing interest rate risk as well as liquidity risk in future stress tests would be very helpful. a lot of banks had capital solvency problems. at one point all of them had liquidity problems. they didn't have enough cash to solve their obligations. doing a little bit better job of stressing liquidity, i think going forward would be extremely helpful. over all it was good that we started in 2009 they've gotten better. i'm please that had the fed has been so open and transparent about the results. >> one of the issues that we've talked about with risk-based capital ratios is that the

things that the bank would determine were safe as few as five years ago -- >> were not safe. >> right. in many cases these banks would have held sovereign debt. >> that's right. >> how do we in the world of evaluating banks come to some consensus on how we evaluate what a bank holds that is safe? >> right. so i think there will always be some jum, which is why you need the leverage ratio and a risk based ratio. we have it in the united states. they did not have it in europe. you're right, european banks were able to hold zero capital like in coverage debt holdings. that's been a key problem of the european banking system. you will always have an imperfect judgment about how risky bank assets are. i do think that it's important to have hard and fast parameters about what the risk weightings can be. as some of you may have heard the basel three standards, we

blocked implementation here, basel two allowed large banks to use their own judgment and there was no floor over how safe they could say their assets were. we stopped it here. in europe, the european banks, most of them were saying and there's a barclay's report on this, really excellent analysis shows that the european banks were saying even during the depths of the recession that theirsy sets were getting safer. that just can't happen. you really cannot rely completely on bank judgment and models to do this. we feel strongly there need to be some hard and strong parameters. minimum capital cannot be below x. your minimum coverage debt cannot be below x.

there was another framework that uses that same approach. you make a good point that the 19 banks it's necessary for different banks to be measured differently. we'd love to be able to put all banks on one grid and figure out how it works. if this is important for these banks. why don't we have a process and particularly one that's public for all the rest of the banks and one of the issues we struggle with is the fdic does have a list of banks that are in danger, but that's not public usually? >> right. i think the troubled bank list is really banks that really are in trouble. they're given close attention and most are nursed back to

health and required by institutions. the reason to keep that confidential is to prevent bank runs. in contrast that to a stress test that applies to everybody and really is i guess theoretically it could show if a bank was unsolvent. the first year we did this we did show a severe capital shortfall. the first year the government said we will come in with capital to backstop the weak banks. and fortunately they've gotten stronger now. i don't think any are on the precipice the way they were in 2009. it's always a dell indicate balance between transparency and protecting stability and not. and trying to guard against bank runs. for weak institutions that may be solvent, but need some special attention. >> you and i got to know each other through the worst of times when things started to go poorly for a number of