with this amendment where the secretary of treasury has a responsibility to shareholders, the same as if he were a ceo or member of the board of directors of a private company. therefore, in discharging a fiduciary responsibility, we've removed the conflict of interest. we have made it clear he will be subject to the same kinds of laws and regulations and yes, perhaps shareholder lawsuits. anyone would be in a position of fiduciary responsibility of the company. by doing that, i will spur the desire of the secretary of treasury to comply with senator alexander's part of the amendment and get rid of this stock as pat -- as fast as we possibly can. and giving it to the american people who have paid for it strikes me as a good idea. another portion of my amendment

says no more tarp money can go to a bankrupt company. that money was sold to the congress as acquiring assets, not acquiring stock positions in various companies. particularly not in acquiring a stock position in a bankrupt manufacturing co. one week -- when we approved tarp the first time, it was made clear we regaling with a financial meltdown. instead, it has spent -- has gone to bankrupt companies and once again, the question of the conflict of interest, i say there must be no conflict of interest with respect to how the money is being spent. so the treasury secretary says wearing a hat, looking out for the benefit of general motors, i am going to switch and take my hat as treasury secretary and determine that some money will

go to relieve my problems as an executive overseeing the on companies. those are the two aspects of the addition by making to center alexander's amendment. we're giving the secretary of the treasury this same type of fiduciary responsibility and therefore exposure to any officer or director have in a corporate opportunity, and at the same time we're saying no more tarp money, mr. secretary. >> i support -- i'm just teasing. i'm proud to be a co-sponsor of the alexander-and amendment because they joined to excellent ideas together in something i think is critical. the american people are fed up with this notion of the federal government taking over businesses and running them. part of this is in response to

that. but there is a very good governance aspect to this that i want to bring to your attention. the government of the united states of america is made up of the people. the people came first. it is we the people, an order to form a more perfect union, get together and give the government some of our rights and we will see where it goes from there. the people are the government in the united states. when we talk about the government owning something, it is the people who own it. so it is the people who should have the shares of stocks, not the government. that is the first great idea. the stock in this company that the people now own will be held by the people. it's not just an abstract notion. the second important reason for what senator alexander is doing here is that it would not be a good financial thing for the

united states government to have to sell off all the stock in a relatively short time. we don't want government to hold the stock for a long time. because it is essentially a fire sale. everyone in the market knows the government has to unload 60% of the company. so are they going to pay high dollars for? they will pay low dollars for it. the value of the government would get back would not represent the true, altman about you, we believe, of this stock. if it is held on the other hand by millions of taxpaying americans, some might want to cash in right away, some might want to hold it. most will believe there's a significant upside potential and give it to their children and hold for a long time. i think frankly that is what would happen here if the country -- if the company is run correctly and will be with the addition of the bennett concept to the amendment. you don't want the government to get rid of this stock at fire

sale prices because nobody benefits. that is the second practical reason. we the people should have the stock and secondly, it will make the most sense from a long term, value perspective. senator bennett has spoken to the reasons that is important. i hope that rather than viewing this as some kind of partisan exercise, our democratic colleagues will listen to their constituents back home who are not happy about the way things are going with government takeovers these days, and will see the value for them in adopting this amendment. this is a bill that should be adopted. i'm very hopeful our democratic colleagues will join us in seeing that happen. >> any questions? >> have you gotten reaction from the auto task force and is there any concern about the complexity

of doing something like this? >> the irs knows where to find is when april 15 come, so they can find this when it's giving us something. they did not have problem with tax rebates, have the names and addresses and electronic files on about 120 million people who filed returns on april 15. it ought to be relatively easy to get stock to them. typically, and the way stock is handled, they hold the stock certificates on behalf of the individual owner. so you just have to let the 120 million americans know that they have stock in general motors and chrysler and when it is time to sell, go through the process. it should be simple. >> [inaudible] >> i have not suggested that to the administration. it seems to be perfectly

obvious. the president of general motors made it clear. it is the treasury's decision when they sell the stock according to the law today. he said it is a large amount of stock and senator kyl said selling it would have to be done in stages over years. it could be done in a few months and we are out of it. that means we have 120 million americans who own general motors and chrysler. that's 60% of general motors. the uaw fund owns 17%, and non- voting. the government of canada owns 12% in the bondholders hold the rest. it would be widely dispersed and we would be back to the companies are supposed to operate. instead of driving their hybrids from detroit to washington every day to answer questions from subcommittee about the next car model could focus on the design and building of cars and trying to make the value of their stock go up. >> would you support any

legislation that would protect jobs in tennessee? >> i don't know what kind of legislation that would be. i believe in the free market. the jobs are in tennessee. we've gone from having no other jobs to having one third manufacturing jobs because we're the best place to build cars. we have low taxes, one of the best four-lane highway systems, so that's why nissan has been the most efficient auto plant in america and while volkswagen chose tennessee and why the spring hill plant of gm will be successful. >> [inaudible] >> you cannot run the country that way. that's the direction we're headed. i am trying to go the other way.

i'm trying to say get the stock out of washington so everyone in washington with trying to run the car companies. >> it may be more efficient for gm to downsize the headquarters, but the president is quickly on the phone with the mayor of detroit, saying don't worry, we will keep headquarters in detroit. that's the kind of political decision that has no place in the running of the company for the value of the stockholders. >> [inaudible] >> i will try to forecast what we're going to see tomorrow. the unemployment problem is a serious one and is a tragic one for those people have lost their jobs. i say that as one who has lost my job at various points in my

career and as one who has seen my son lose his job in the financial crisis. it is a time of great, great difficulty for the individuals and their families. fortunately, my son found another job and i have found another job that i'm trying to keep. that having been said, however, one of the things we have learned is that artificial attempts to maintain employment that go against market forces, prolong recessions and turn them into depressions. there is evidence with respect to the great depression now, as we go back and study it, that many of the things that were done in the name of protecting jobs in the great depression in fact caused it to last year's longer than it otherwise might have done. you can read the literature and come to your own conclusion as

to how convincing it may be. the most important thing we must do is get manufacturing and all those parts of the supply chain that support manufacturing back in healthy condition again. it's not just automobiles, it's every portion of the economy that needs to come back. you asked about individual states. in my state, the last time we had the unemployment rate, it was 4.8%. i expect it will be higher than that as the recession continues to have the problems. but that is significantly below where it is in many other states. that underscores the fact that while there are national unemployment rates, they vary dramatically from one region of the country to another. the recovery is uneven. there are some parts of the country where housing prices have stabilized and indeed some

where they are actually rising. remember, this whole thing was caused by the bursting of that -- the bursting of housing bubble. if housing starts to get sex, that's the most important thing that can be done to get the recession fixed. -- if the housing starts to get fixed, that's the most important thing that can be done to get the recession fixed. we will look at the national numbers with interest, but the solution to the problem will come from the economy and the actual creation of employment activity, region by region. >> [inaudible] >> i supported the first round of tarp because it was to prevent an attack -- an international meltdown of the financial system, and i believe it did.

i believe it was justified. i have voted against every other distribution because i disagree with the way they are being managed and maybe good intentions, but i've not at all sure they're going to be successful as their supporters said it would be. >> general motors is significantly stock company. there is equity and debt. i don't think that's the situation with aig. >> i excluded banks from my amendment. the taxpayer owns 60% of the new gm, 8% of chrysler. that's a very straightforward, very simple. we can distribute that to taxpayers within a matter of months. the bank stocks and warrants that we may own to be more complicated and i was not willing to included as part of this but i am studying it. >> i am sorry i misunderstood

your question but i agree with his answer. >> but next, federal reserve chairman, ben bernanke, updates members of congress on the upper air -- on the economy. next, the labor secretary talks about the employment situation. after that, senator john ensign on the future of the republican party. >> tonight on "q &a" governments

daniels. he was director of the office of management and budget under president george w. bush and a senior adviser to president ronald reagan. that's at 8:00 eastern tonight on c-span. >> federal reserve chairman, ben bernanke, testified before congress on the state of the economy. some of the topics addressed are the gm bankruptcy, interest rates, and health of the nation's banks. this is just over two hours. >> the committee will come to order. we meet today to hear the distinguished chairman of the federal reserve, benjamin

bernanke, testify on the recession that is plaguing our economy and on the prospects of recovery. chairman bernanke testified before our committee on october 20 of last year, as we searched for ways to mitigate, if not avoid a long recession. the chairman acknowledged then that monetary policy has its limits. without being specific, he welcomed a fiscal compromise. congress had just passed a bipartisan compromise offering $700 billion to dispose of troubled assets, so-called t.a.r.p. backed by these funds, the treasury, the fed, the fdic have made extraordinary measures to banks and other financial institutions, recognizing what chairman bernanke told the joint economic committee last month, quote, a sustained recovery in economic activity depends critically on restoring stability to the financial system. this is one question we hope you'll address today, mr. chairman. just how strong and how table are our financial institutions.

by february of this year it was clear that t.a.r.p. relief was a necessary, but not sufficient, solution. so, congress bassed on a partisan basis an even bigger boost, the recovery and reinvestment act, which packed $787 billion of official simply in the form of spending increases and tax decreases. we would like to know, mr. chairman, whether from the fed's viewpoint this is working. bold action was necessary to head off a collapse of the financial system. but the steps taken also swell the nation's deficit and the national debt. it's all but impossible to balance the budget when the economy is bucking a headwind like this recession, because what we do to make the economy better is likely to make the deficit worse. yet at the same time we cannot add infinitely to the national debt without facing the consequences of global credit markets or on our future

capacity to borrow. one purpose of this hearing is to explore both the advantages and the potential downside risk of our bold and unprecedented response to financial turmoil. should we be concerned that some of our swelling debt must be financed with foreign credit? we hope that most of our outlays are for nonrecurring needs and much of what has been advanced in recent months will in time be recovered, repaid and used to pay down the debt we are incurring. we'd like to have your assessment, mr. chairman, of that possibility. despite, bold, unprecedented action the director of the budget office told this committee on may 21st that our economy is still running at 7% or more below its capacity or a trillion dollars per year below its potentially. recently there have been signs, however, of a turnaround. business inventories are down. stock market is up a bit and so, too, to some extent is the housing market. my question to you, mr. chairman, is whether these are

glimmers of hope or flashes in the pan. to keep this recession from growing worse, the fed has pumped enormous liquidity into the money markets. so much so that some critics even worry of inflations, lurking to be sure over the horizon, but a threat nevertheless. the spread between short and long-term treasuries has widened. we would like to know whether they, salutary signs of a recovery or signs of inflation. even after the recovery gets under way, the rate of real economic growth is likely to remain below potential for a while, only gradually gaining momentum. the old locomotives that pulled the economy out of the rut in the past, real estate, consumer durables, are unavailing now. this causes us to ask, mr. chairman, what will empower a

turnaround in this dismass economy, and when can we expect a return to normality? mr. chairman, as you can see, we've got a lot of grist for our mill today. we thank you for being here, but most of all, we thank you for your service to our nation at this very crucial time. before proceeding to a statement, let me turn to mr. ryan for his opening remarks. >> thank you, chairman. you come before this committee with the financial markets in a better position than in your previous appearance last fall. the economy is finally showing some signs of stabilizing, and that's encouraging. but despite these short-term glimmers of hope, i've become more concerned about the longer-term implications of our economic policies. on the fiscal side, the treasury is issuing record amounts of debt, over $2 trillion this year alone to support record government spending and record deficits. meanwhile the federal reserve has injected an enormous amount of monetary stimulus into the economy and has even started purchasing longer-term treasury

bonds in an attempt to lower borrowing costs and further ease financial conditions. this can be a dangerous policy mix. the treasury is issuing debt and the central bank is buying it. it gives the alarming impression that the u.s. one day might begin to meet its financial obligations by simply printing money d we all know what happens to a country that chooses to monetary its debt. it gets runaway inflation and a gradual erosion of workers' paychecks and family savings. there's an increased discussion in the financial press about the negative consequences of our economic policies. just this week the yield on the ten-year treasury bond rose to a six-month high, over 3.7%, a sign that global investors are becoming concerned about debt levels and the possibility of future inflation. this is the bond market telling us that there is no free lunch. when i issue record amounts of debt and your central bank has the monetary policy levers at full throttle, red flags begin toet raised and our borrowing costs go up. there are some faint warning bells going off.

the value of the dollar has slipped recently. the price of gold is up, and inflation compensation spreads and the treasury bond market have risen to a nine-month high. i realize some of the signs are likely reassuring since the predominant risk over the short term has been deflation and this could be signs of a recovery. but i'm genuinely concerned that the fed will be unable to unwind its considerable monetary policy stimulus in a timely manner to prevent sharp rise in inflation over the medium term. there are a number of technical problems associated with shrinking your balance sheet and returning to a more normal monetary stance. but i'm more concerned about the political chal lenges the fed will face when you finally have to make this call. i imagine there will be substantial political pressure on the fed to delay tightening its monletary policy while the unemployment rate is still rising, for instance, but the fed's political independence is critical -- it's critical and essential -- for safeguarding its commitment to price

stability which is the chief policy concern of every central bank. this clear commitment is all the more important at a time when the fine line between monetary policy and fiscal policy seems a bit blurry. despite the recent signs of stabilization in the economy, we policymakers should recognize that our most challenging period is going to be ahead of us as we try to right the ship and get back on the path to sustainable growth and job creation. that will clearly take a renewed sense of fiscal discipline to rein in spending and budget deficits. but it will also take a clear exit strategy on the part of the fed and firm commitment to price stability. we in congress are willing to work with the administration to accomplish the former and we trust the fed will work diligently to ensure the latter. thank you, chairman. >> thank you, mr. ryan. now, before proceeding with chairman bernanke, let me as a housekeeping detail, ask for unanimous consent that all members be allowed to submit an opening statement for the record at this point. so ordered.

let me further say that the chairman's testimony has been received and will be, without objection, entered in the record so that you may summarize as you see fit. i think it's an important statement full in detail and we would encourage you to -- to plow all the way through, mr. chairman. one very important detail, the chairman has to leave at 12:30 today, so we'll be running the clock very closely and questions that members ask. mr. chairman, the floor is yours. and thank you, sir, again for coming. >> thank you, mr. chairman. chairman spratt, ranking member ryan and other members of the committee, i'm pleased to have this opportunity to offer my views on current economic and financial conditions and on issues pertaining to the federal budget. the u.s. economy has contracted sharply since last fall with real gross domestic product having dropped at an average annual rate of about 6% during the fourth quarter of 2008 and the first quarter of this year. among the enormous costs of the downturn is the loss of nearly 6 million jobs since the beginning of 2008.

the most recent information on the labor market, the number of new and continuing claims for unemployment insurance, through late may, suggests that sizable job losses and further increases in unemployment are likely over the next few months. however, the recent data also suggests that the pace of economic contraction may be slowing. notably, consumer spending, which dropped sharply in the second half of last year, has been roughly flat since the turn of the year. and consumer sentiment has improved. n-m coming months, household spending power will be boosted by the fiscal stimulus program. nonetheless, a number of factors are likely to continue to weigh on consumer spending, among them the weak labor market, the declines in equity and housing wealth that households have experienced over the past two years and still-tight credit conditions. activity in the housing market, after a long period of decline, has also shown some signs of bottoming. sales of existing homes have been fairly stable since late

last year, and sales of new homes seemed to have flattened out in the past couple of monthly readings, though they remain at depressed levels. meanwhile, construction of new homes has been sufficiently restrained to allow the backlog of unsold new homes to deline, a preconditional for any recovery in home building. businesses remain very cautious. on a more positive note, firms are making progress in shed din the unwanted inventories following last fall's sharp downturn in sales. the commerce department estimates the pace of inventory liquidation quickened during the first quarter, accounting for a sizable decline in real gdp in that period. as inventory stocks move into better alignment, firms should be more willing to increase production. we continue to expect overall economic activity to bottom out and then to turn up later this year. our assessment that consumer

spending and housing demand will stabilize and that the pace of inventory liquidation will slow are key building blocks of that forecast. final demand should also be supported by fiscal and monetary stimulus and u.s. exports may benefit if recent signs of stabilization and foreign economic activity prove accurate. a relapse in the financial sector would be a significant drag on economic activity and could cause the incipient recovery to stall. i will provide brief update on financial markets in a moment. even after recovery gets under way, the rate of growth of real economic activity is likely to remain below its longer-run potential for a while, implying that the current slack in resource utilization will increase further. we expect that the recovery will only gradually gain momentum and that economic slack will diminish slowly.

in particular, businesses are likely to be cautious about hiring and the unemployment rate is likely to rise for a time, even after economic growth resumes. in this environment, we anticipate that inflation will remain low. the slack in resource utilization remains sizable, and notwithstanding recent increases in the prices of oil and other commodities, cost pressures generally remain subdued. as a consequence, inflation is likely to move down some this year relative to its pace in 2008. that said, improving economic conditions and stable inflation expectations should limit further declines in inflation. conditions at a number of financial markets have improved since earlier this year. likely reflecting both policy actions taken by the federal reserve and other agencies as well as the somewhat better economic outlook. nevertheless, financial markets and financial institutions remain under stress, and low asset prices and tight credit conditions continue to restrain economic activity.

among the markets where functioning has improved recently are those for short-term funding include the interbank lending market and the commercial paper macket. risk spreads in those markets appear to have moderated and more lending is taking place at longer maturities. the better performance reflects short-term lending programs. it is encouraging that the private sector's reliance on the fed's programs has declined as market stresses have eased, an outcome that was a key objective when we designed these interventions. the issuance of asset-backed securities backed by credit, auto and student loans has also picked up this spring and abs funding rates have declined back by term asset-backed securities loan facility or talf as a market backstop. bond issuance by nonfinancial firms has been relatively strong recently and spr