if you have a deep-seated need to be loved and admired every day, this is not the business for you. go work in a pet shop somewhere. [ laughter ] >> we've got courage, trust, fairness, balance, let me throw out another word, senator simpson. see how you put this, use this in the context of your plan. not just avoiding a catastrophe but painting a picture of what america can look like if a plan like this is implemented and what it's going to mean, just to the average man or woman sitting at home. >> first, just a comment on the mayor. if you're a leader you're taking flack by the ton. and you said it beautifully. if you want to be loved, go somewhere else. but learn to -- i had my skin ripped off a hundred times and it grows back double strength.

my dad ran for public office. he was a governor and senator. some guy hollered at him one day, simpson, i wouldn't vote for you if you were jesus christ. he said if i was jesus christ you wouldn't be in my precinct. [ laughter ] an attack unanswered is an attack believed. and furthermore, you are entitled to be called a fool, boob, idiot, bonehead, but never let them distort who you are. that's the real issue. but i'm an optimist. i believe these guys. they are all talking about what they have to do. i do have hope and i just -- it will come before december 31st because in a room, somewhere, guys like paul and chris will sit down and they will draw -- there is no need to study it any further. you had all of those things and everything is out there. there is nothing hidden as to what you do. you have to have a blend of

revenue and you can't cut spending your way out of this. you can't tax your way out of it and you can't grow your way out of it. we didn't have a single economist who said you could have double digit growth for 20 years and you couldn't grow your way out of this. so you have to have the blend. but if you're in a situation where -- like coburn with a lot of guts, working with andy stern, oh, that stereo typing was something. did andy turn on your group, isn't he that commy. then no, coburn. those two guys put together our recommendation what we do with the defense budget. if you can't get that done, and forget the stereotyping and that's what's out there now. you say dick durbin signed on to our commissioner report, and they say dick durbin? god, what is this? so it's names now. that doesn't help. i can tell you that i really feel you're going to see people come together and drop all of the phony stuff.

and the phony stuff is i'm not going to touch medicare, medicaid, social security and defense. those people are fraud. total fraud. and here's one. every cent of revenue last year, everything, excised, sales, everything that the federal government brought in, went to only three programs. medicare, medicaid and social security and we borrowed everything else including the wars and homeland security and culture and infrastructure and research and development. that's where we are. >> so there is the hopeful case. i want to go back to last august and this relatively unprecedented stalemate over the debt limit. last august. we saw the downgrades of the u.s. fiscal position immediately coming out of that. and it did seem like that was a moment when the world was watching and where the country was watching washington and walked away and said it's just not working at all.

what were the, if any, practical effects in your ceo suite as that was happening? >> i'll give you a very specific example. but just to the optimism point for a second. i do think that the topic is getting -- it's recognized. two, three years ago it wasn't. if you consider that progress, raising the focus, raising the visibility, sounding the alarm and having people hear it that's progress. the next you have to do something. we were banging away. no one was listening a few years ago. so we have a pretty good investment portfolio. size wise. $70 billion round numbers in bonds. and i never believed for a moment that a maturing treasury bill or bond wouldn't be paid. i never believed it. we run the place, what if we're wrong. what if we just whiff on one. so in the week before we raised half a billion dollars of cash.

and i mean initially cash, and we went to two banks, which i found very funny. we were worried that the federal government wouldn't pay its obligations, but we were prepared to give the money to two banks. neither had been supported by the u.s. government but it was a relevant point. we put half a billion dollars into two banks we did enough cash flow to know if we were wrong we could run our business for 30 days on that cash flow. >> so you planned for a -- >> we di did. >> -- a temporary default. >> we did. i couldn't imagine that maturing bill wouldn't be paid. it was unfathomable to me. >> that was the bob used the word back in 1993-94 when he said it was literally unthinkable that we wouldn't hit the debt limit. yet we came far closer than anyone ever believed. >> again, when you really start diving in two separate issues, a maturing bond doesn't actually require a higher debt limit. the bond matures and you issue new. so we couldn't imagine that a maturing obligation wouldn't get

paid. the fact they couldn't borrow more. they couldn't in effect fuel the engine to spend money. but the politics of the moment were unclear. and i couldn't -- it wasn't visible enough to any of us to roll the dice and bet the ranch. that we would be right. so yeah, we did -- we had enough, you know, in the mattress so that if we were wrong, we could keep the place going. >> didn't have to put money away? >> i hope -- we're going to need a bigger mattress this time. >> and mayor, let me ask you, because you've referred to it a couple of times. could you have done what did you without the requirement you had to balance your budget? >> i would have wanted to. i mean, i believe in fiscal integrity. i believe in the fundamental principles that you cannot spend more than you have. that you have to have a balanced budget. with or without a balanced budget requirement, which is in

our humble charter, the financial oversight agency, but also we have rating agencies. you know, when i came into government in 1992 with then mayor rendell, the city was facing a fiscal crisis. it had nothing to what was going on in the rest of the country. i learned some tough lessons there. i used to be in the vestment banking business. i paid attention to the finances of the city very closely so fiscal integrity and fiscal security are very, very important to me. we have a lot of people watching what goes on in our city. and so the ratings agencies also pay attention to that issue. so i'm constantly trying to get our rating up. i think the facts that we have a balanced budget requirement, we have to produce a five-year plan. sets a certain context for people understanding that -- i use the word so it's unfathomable that we won't have a balanced budget. we have to have a five-year plan approve bade financial oversight

agency. and honestly, it would be a major embarrassment not to be able to do those things. it forces fiscal discipline. it forces you to think of every dollar you want to spend, that's $5. every dollar you save, that's $5. so it ensures a certain amount of discipline but to plan for the future. jay is planning for the future. i'm planning for the future. not sure what the folks here are doing other than get through the next news cycle. so that kind of discipline really is required. and you have to understand the consequences of your actions. i'm left with the impression back in philly and many other mayors some of the proposed cuts that come down through these budgets we're not clear that many members of congress truly understand the consequences of these cuts, the impact that it will have back at home, and whether it's cbgb or cops program or -- you can name 100

programs which all have their constituencies. i get that. but there have to be some fundamentals that you agree to, and fiscal integrity has to be one of them. so dealing with this debt crisis finally i think is paramount issue with the government. i agree with the senator. i agree with jay that it has to be a balanced approach. it's not one thing. it will be a number of different things. but you have to have some core principles about what you're trying to do, why you're trying to do them, what are the outcomes that you're expecting, and where are you going. those are the kinds of things unfortunately many of us don't see and don't hear about at the local level. >> and senator, let me have you wrap this up with applying hippocratic oath to the next six months between now and the election. it doesn't look like much is going to get done in washington until afterwards. but what is the best way you think for both parties to do no harm to the ultimate goal between now and november? >> i think it's to keep telling the story and sounds so corny, town meetings.

i would find out where they were after me, and then i would have a town meeting in that place. and i'd speak for five minutes and stay for two hours. these people won't expose themselves to the public except in certain other ways. i don't know why that slipped out there like that. [ laughter ] now wait, where we were here. communication, communication, talking, going back to their -- when erskine and i were on the road, and i bet we talked to 500,000 people in the last year and a half. we would speak for ten minutes each and take questions for an hour, and stick around sometimes, and people are saying how come people don't understand where we are? and they say because you're listening to people who are interested, more interested in their re-election than their country. let's just pick. grover norquist is one smart cookie, but he is the most powerful man in america right

now. how does that sound to you that grover norquist of the americans for taxpayers reform or whatever it is the most powerful man in america because he had 95% of the sitting members of my party pledging never to raise a single penny of tax without a commensurate cut in spending. and so we said here's one for you, grover, babe. we're taking the tax expenditures and getting rid of 180 plus of them and taking $100 billion to reduce the debt, and the other trillion to give the lower tax base. and what can he do to you? he can't murder you, can't burn your house down. the only thing he can do is defeat you for re-election or put some dud into your primary to take you out. and if that means more to you than your country and extremity you shouldn't even be in congress. >> and that will be the last word. gentlemen, thank you all very much. [ applause ] >> oh my goodness. >> jay, that was fun.

got to get out of here. >> saturday on "washington journal," a discussion about bipartisan efforts in the u.s. senate to change campaign finance laws. our guest is meredith mcgehee of the campaign legal center. and captain manning talking about positions open to women. and thomas wright of the brookings institution. "washington journal" live every morning starting at 7:00 a.m. eastern on c-span. i work a lot now, especially on the build of our new site with this younger generation of digital natives. and from their point of view, they feel like old media is insufficiently fact checked. one of the things that drives them crazy is anything that doesn't have a link to the source. so actually being inaccurate with your sourcing is much hard

erion line than it is in print, because you can just go check that link right away. and i think the internet community keeps you a lot -- can keep you a lot more honest. >> our coverage of a panel on journalism and digital media by the columbia journalism review was the most watched event in the past week at the c-span video library with over 20,000 views. watch it online any time, plus you can clip portions of the event, e-mail and blog post all at c-span.org/video library. next a house hearing on designating financial institutions too big to fail. a deputy assistant treasury secretary testified with the federal reserve board's michael gibson. they explained the designation process of the financial stability oversight council and how to avoid a one size fits all approach. this is about two hours.

>> this hearing is called to order. i want to welcome everyone. this morning the financial institutions and the consumer credit subcommittee will examine the impact of being designated as systematically important financial institutions, specifically for nonbank financial entities. but i couldn't begin the hearing without talking about the most topical subject of the day or of the week there is no doubt that this week's news of jpmorgan's trading loss has raised significant questions about the supervision of risk within an institution. the story is still unfolding. and although it appears that the -- and seems to be that the firm had sufficient capital to absorb the significant loss, one of the questions i would ask is would a less capitalized institution survive a similar loss. are other financial firms that are deemed systemically significant sufficiently capitalized?

where did the lapses in the internal risk controls within the firm occur? were federal financial regulators aware of the positions that jpmorgan was taking, transparency is a question i think. did they do an adequate job of supervising the firm's risk? are they able to supervise the complexity of the firm's positions? the losses at jpmorgan emanated from their london office, which begs the question how well are our federal financial regulators coordinatoring with their financial counterparts across the globe, and how do the provisions in dodd/frank help or exacerbate the problem. there are plenty of questions we'll be answering certainly in the next several weeks. but this morning's hearing focuses on the effect of designating nonbank financial firms as systemically important. the dodd-frank act grants the financial services -- or the financial stability oversight council better known as the fsoc the authority to designate firms

as systemically important. while the statute is clear which financial institutions will be designated, it is less clear about designating nonbank financial institutions. the financial -- the fsoc was tasked with promulgating rules to determine the criteria for nonbank financial institutions to be designated as systematically important, and the federal reserve is in the process of finalizing rules to supervise the entities that are designated. there are many questions, again, about the effect the systemically significant designation will have on these nonbank firms. we have already seen with the largest banks systemic significance equates to market participants viewing these institutions as being too big to fail and expect the government to intervene in times of severe distress. the implied government guarantee also results in lower borrowing costs. it is less clear what the effect of this designation will have on nonbank entities. i know many of our witnesses on

the second panel have serious concerns about the standards used not only for designating the firm but also for the supervision of nonbank firms once it is designated. there are legitimate questions about how these standards will work with the various business models of nonbank firms. does the federal reserve have the expertise to supervise nonbank firms from different industries? how well will the fsoc and the federal reserve coordinate to ensure the standards for designation supervision are in harmony and are they working with their counterparts across the globe to harmonize the standards for systemic significance in the united states with global systems is significance? there are still questions that deserve a robust discussion. i'm hoping we get to that in this hearing. i'd like to thank our witnesses for appearing before the subcommittee this morning, and i would like to recognize the ranking minority member, the gentle lady from new york, ms. maloney for the purpose of making an opening statement. >> first of all, i want to thank you, madame chair, for calling

this hearing and i welcome our witnesses. this hearing today is about a very important set of issues around designation of nonbank companies as systemically significant. and there are certainly a lot of perspectives and issues around it that have been raised already by the chair, but i think these are important issues and that we should stay focused on them. if there was one area that we learned from the financial crisis in 2008 was that the regulators did not have the tools to regulate complex interconnected nonbank companies like aig. and did not have the ability to you wind down these companies in the event of a failure without disrupting the system and without taxpayer funding. as a result, these highly interconnected overleveraged firms nearly brought this entire country and its financial system

to its knees, and it was quickly recognized that key supervision for these nonbank areas was missing. we did two important things in dodd-frank to address this bill eliminating the hiding places from regulation and ending too big to fail. first we gave the fsoc, which was the financial stability oversight council, the authority to require federal supervision of nonbank financial companies that pose a systemic risk and required the fed to impose heightened regulatory requirements on these companies as well as any bank holding company with at least $50 billion in assets. these changes also level the playing field between nonbanks and banks. secondly, if a company does fail in spite of the heightened requirements and supervision, we also provided an orderly

liquidation authority in title 2 of dodd frank so that regulators would not be faced with the horrible choice between either bailing a company out at taxpayers' expense which we did at taxpayers expense which we did with aig tore letting it fail to the great detriment of the broader financial system. designation of non-bank companies is a two-step process, the entities must first be identified as non-bank sfis and then subjected to heightened supervision. fsoc rule was not required by dodd-frank and really was done to provide clarity to the public and companies about how fsocs will designate non-banks as sfis. i understand that it has been estimated that about 50 entities will be considered for heightened regulation based on the size and scope of their financial activities.

once designated, these companies will be subject to stricter standards under rules that the fed is currently developing and which has asked for detailed input. so i look forward to hearing from the panels and i also look forward to hearing from the firms. i welcome our panelists today and i also would like to ask unanimous consent for mr. green to have privileges as a subcommittee member today so he may question also. >> without objection so ordered. >> thank you. >> i would like to recognize the chairman of the full committee, mr. backus, for three minutes for opening statement. >> thank you, chairman. at today's hearing we'll have an opportunity to examine one of dodd-frank's most vague and potentially problematic mandates. we're here to better understand what it means to be systemically important, a eu ph ism for too big to fail.

which institution will be categorized is significantly important. what are the consequences of being deemed systemically important, what are the advantages, and what are the disadvantages? how will these institutions be regulated, and how will counter parties and other market participants interact with them. we have been told by the fdic that part of this interaction will be to indemnify certain creditors and counter parties and that seems very similar to aig which dodd-frank and members on both sides pledge that we would not get into another bailout situation. many companies are asking themselves the same questions and whether the regulators think they're systemically important. the financial stability oversight counsel's final rule is not at all clear. it is therefore my hope the regulators testifying here today can help provide the committee

and all affected parties with some much needed clarity on these importantish autos. i look forward to this discussion and thank the witnesses for being here. i do want to say in conclusion that because of the j.p. morgan chase situation we are again hearing from some of our colleagues that we need a law which will essentially prevent a business from losing money or taking risk, and no law can do that nor should a law attempt to prohibit a company from taking risk. in fact, that's just an impossibility. now, when taxpayer funds are at risk and a bailout situation would certainly be one of those, or deposits, then that's another

question. just to put in perspective, j.p. morgan chase and if you're concerned about deposits and that institution, let me put that trading loss in perspective. their pretax profit last year was $25 billion, so a $2 billion loss would represent one month of earnings. it would reduce if it had been last year it would reduce earnings to $23 billion. the loss is about 100th of the firm's $189 billion net worth and roughly 1,000th of the firm's 2.3 trillion in assets. even with this loss i believe they're one of the most profitable financial institutions in the country, and unless the facts are

diametrically different from what we heard, there is no risk from this loss to depositors or to taxpayers. they remain a very profitable, viable institution. thank you, madam chairman. >> thank you, mr. bachus for two minutes. >> thank you, madam chair, and want to thank you for hosting this hearing along with the ranking member. also want to thank both of the panelists for being here with us to offer their insight in this important topic. as we know in the financial service committee, greenspan came to us many times and said trust them, they know what they're doing. i guess we're still trying to figure out if we should trust them and apparently we shouldn't have not trusted them, but we did. one of the biggest developments during the economic crisis in 2008 was the realization how much of the impact could be felt from the collapse of the firms. until the problem arose, it seemed that no one quite

understood the level of interconnectedness some of these firms had, and everyone know that is our government took drastic action to limit the stress the clapgs of these institutions cause and had obviously no one wants to see the event of 2008 repeated in itself. in writing and passing the dodd-frank two years ago i believe we created a sound framework. i state i believe we created a sound framework that would allow us to stay ahe had had of the curve with the systematic important institutions, basically to make sure we regulate them and also that we do a lot of the enforcement that needs to be done. it is not just regulating them but how are we going to enforce them and what action will be taken to make sure we don't develop additional crisis and solve the problems? this framework will allow the regularities to work with a market to create efficient and secure regulatory structures. at the same time it will allow the market to continue to operate in a free manner that

will not be dictated by the needs of demands of the regulators. finally, a firm does not run into trouble, the market has the confidence that the mistakes of a few will not impact the actions of many others, and that's only if the action is taken and it is brought before us to make sure that it doesn't affect a lot of the consumers or individuals involved. at the end of the day what everyone is looking for is certainty. industries want to be certain they can run their business in a manner where they don't fear becoming too unsuccessful but at the same time doing what is right. regulators want to be certain they can step in and can act in a timely manner to correct the bad behaviors and that is going to not key right there. the american public wants to know that all parties involved are doing the best to ensure that the abusive behavior is not something that will be allowed to be repeated in itself again i want to thank the ranking member and the chair for having this hearing. >> thank you.

mr. garrett for one minute for opening statement. excuse me, minute and a half. >> thank the chair also for this important hearing with regard to the designation of firms that are systemically important financial institutions or sfis but instead of calling them systemically important financial institutions i think what we should call them is what we know they are and what the market calls them as well and that is too big to fail institutions. if you're honest about it, dodd-frank basically codified too big to file and change the name to sfis and when you change the name, you really haven't changed anything about the characterization of them or you change the distance of them. you really haven't solved the do big to fail problem. the firms on the list of firms that are chosen by this administration and fsoc that are formally designated as too big to fail, they basically still have funding advantages in the marketplace and because of that

designation and they are subject to a resolution process that still allows the government to use taxpayer money at the end of the day to decide which creditors will win and which creditors will lose. so if you really end it too big to fail, then members on the other side of the aisle would not state at one of they are goals for next congress is let's end too big to fail. if we really ended too big to fail, there would be no reason whatsoever in the media or any place else here for people to be all concerned about j.p. morgan's $2 billion loss because the taxpayers could not be on the hook and protected from it. let's be honest. the entire debate about sfi regulation is nothing more than a charade and we should call it what it is, which institutions are too big to fail and we should not debate which are too big to fail. we should debate how do we end the taxpayer being on the hooblg for these institutions. i yield back. >> mr. scott for two minutes.