in that sense, from the banking sector. the fed under this plan will become that systemic regulator that would be responsible. they have pretty sweeping authority to go into any firm and get what it needs if it is a firm that is interconnected and can pose that kind of a risk. all along the fed has had its responsibility for largely the big banks, but it did not have any control over a firm like aig. .

guest: congress is displeased at some time with various aspects. many lawmakers are upset with the fed and its handling in the late 1990's with mortgage regulation. it got the right from congress to deal with some of these abuses that led into the housing boom and bust in did not really take advantage of that until the housing market had peaked in the crisis was under way. the current chairman, ben bernanke has done a fair amount to do with the risk in terms of after the fact setting regulation on the right course. he has also done a lot of credit

cards, but after the fact. there is a lot of negative sentiment towards his predecessor. but it leaves the concern of whether you only read this into the hands of the fed chairman and that is why the administration has proposed creating an agency for regulating these financial products. especially with credit cards, mortgages, and for a one case -- and 401k's. host: good morning to our caller from louisiana. caller: when the federal reserve reduces the interest rate -- how long does it take for that to get to your local bank? also, i always thought if you did not have 20% down on a loan

for a house that you had to pay a certain type of insurance on that. can you answer those two questions? guest: absolutely. the question of how long the fed interest rate changes takes this kind of complicated. normally the fed, it could take six months up to 18 months to have the full effect flowing through the economy. obviously, there is some immediate affect in financial markets that affect savings accounts and lending rates quickly. but the entire link is usually 18 months. there has been some concern over the crisis that given the severity and the locked up in lending and liquidity that it

has been taking longer. that it has not been passing through as quickly as it was supposed to. that is why the fed is engaged in some unconventional measures. it is probably too soon to say how those programs will do. 20% down as a down payment for mortgage is nearly assumed right now. if you do not have that you have to pay interest on the other mortgage you get. many require 20% down payment now and if you do not have that you have to have pretty good credit. host: our next call is nexterie county, new york. caller: good morning. how are you guys today? guest: doing well. caller: that is great. i have a concern in regards to the federal reserve.

they are mainly asking for all these funds and when it is granted the keep for their families and friends, not reporting to congress nor the president of certain situations and i am really concerned about that. guest: i am not completely sure what the caller was getting up there, but there is some concern about where the fence interests lie. it is the fed serving the banking system, or is it serving the broader economy and financial system? fed officials will argue they are serving the broader system. it is critical and it is how lending for any major project is

usually taken. there are alternative forms of much of it ties into the banking system. one of the sources of anger on capitol hill is the issue of whether the fed is serving people properly. host: on the republican line from tacoma, washington. caller: thank you for the opportunity to speak. good morning. i have two comments. then a question. let me comment on the gm issue brief. i bought, have bought a gm truck since i was out of high school and will never buy another one because this company got into bed with the government. philosophically, i will never buy another as a result. i will buy a ford in another five years. have you reported on ron paul's legislation to audit the fed? this legislation is chaired by

four members, multi-millionaires and a think it is at the root of many of our deals are now. woodrow wilson put that into power at the same time that stalin was coming into power in russia. i'm not in that every democrat is communists, but i think that he was. he imprisoned people. i think that if you were to poll the american people 95% of those who would know anything would want the fed completely severed from the government. guest: that is a growing sentiment right now, the concern about the fed's power. on the ron paul legislation specifically, he has introduced a bill to audit the fed. right now the fed is audited internally extensively and has some outside auditing from the

government accountability office, but it is limited because the fed is intended to be an independent institution. you do not want the fed, congress and political authorities interfering in something like the management of interest rates because the fed officials may need to raise them at some time. many lawmakers are not part of that because it could hurt jobs in the region. this particular bill for ron paul would increase the auditing of the fed. ron paul is generally not in many of the mainstream in terms of the fed specifically and its oversight. but he has been a leader on this issue. the majority of the house have stepped up to support this legislation to audit the fed. with this kind of an effort and sentiment is likely the fed will be required to undergo greater

scrutiny. it is not clear yet what will come from it. the house has to go through legislation, the senate -- a sentiment is still strong in the senate against the fed, but it is a little bit cooler than in the house. host: we have the story from the associated press talking about how orders to u.s. factories rose sharply for the second straight month in may. something from the commerce department says that the demand for durable groupgoods rose onet 8% last month, better than expected. guest: durable-goods are washing machines, cars, things expected to last three years or longer. it is a barometer for the manufacturing sector. if those are good in means manufacturers will have to start up factories. it has been a bleak few months.

not only long-term issues with losing jobs to overseas competitors, but also given the weak demand in the united states. people have held off on major purchases. so if there is an uptick there we might see a rebound in manufacturing. if they buy more raw materials the entire cycle of the economy will get a boost of a little. host: market joins us on the democrat blind from wilmington, delaware. caller: 01 to echo the comments from the jump in from tacoma, washington. like he said, most americans do not know that the federal reserve couperins the currency -- who prince the currency in makes monetary policy is a

private entity made of several banks. it is the largest. am i correct in that it is the largest entity in the world that is private? guest: the federal reserve is both public and private. the board of governors in washington is a government institution and operates under the aegis of the government in terms of sellers. there are 12 reserve banks around the country better non- government institutions. caller: and they are private, right? guest: yes. caller: is it true that the internal revenue service is also under the auspices of the treasury, but managed and run privately? guest: i believe most of the irs is run as a government organization. there are some elements that are

outsourced for collection. caller: my last question, one of the founding members of the fed made a comment in the early 1900's -- i care not who writes the laws of the country as long as you give me their rights to print the money. do you know who that is? guest: dead trivia, i do not know who that is. but that is the sense of the power of the federal reserve. it has a lot of authority over the economy and the currency. it is getting a lot of attention because of this worry about inflation even though it is right now very low. many are concerned it could shoot up in the aftermath of this crisis.

host: let's talk about the fed and how they're trying to decide to change the monetary stance. guest: the traditional leader, interest rates, what is now between 0% up to .25% will probably stay there for quite some time. the issue now is what the fed will do with the rest of this program. it has been buying up long-term securities to bring overall rates down for loans and has had some success. with signs of improvement rates for mortgages have gone up. the fed has bought mortgage- backed securities and some of the debt from government- sponsored enterprises like fannie and freddie. they have had a lot of success. talk to people were getting mortgage rates around 4.26%

which is remarkable. it was a great time to go out and get a mortgage up every even if the housing market was still in trouble. but since the economy might be rebounding those programs, the effect has been diminishing and pretend and rising. the concern is whether to expand that. they are more likely to tweak the programs a little. there was about $1. 75 trillion that the fed was buying. the may change the composition. a lot of this is the internal workings of monetary policy and open market policies. they're trying to avoid stress in the environment.

the fed will also work on the statement this afternoon as to how long it plans to keep the policy stamp at this level. there's concern about the future. some of those have priced in an increase by the end of the year. it is generally viewed as not likely. the unemployment rate will still be going up through the end of the year. it is 9.4% now. congress is expected to peak at somewhere around 10% or 11%. the fed is not likely to let go of stimulus while that is still rising. what they might do is try to reinforce the perception. that statement is closely followed by financial markets. there is language to explain when the fed, how long it will keep policy this fellow.

it said most recently it would keep rates exceptionally low for an extended period of time. there are various words you could use to reinforce the two markets that there will not hike traditional interest rates this year. host: on the independent line from baton rouge. caller: hello, how are you? i was wondering if you have read the book "the creature from jekyll island." that is a thick book about the federal reserve. i recommend it to the guest. also, i interpret the new plan from the obama administration as response to the growing sentiment about 1207. why would it be such a bad idea for the fed to be audited by the

senators? guest: the legislation to audit the fed -- the real reason it is of concern is that there's some sense it could be the beginning of an encouragement of political authority on the fed's responsibility for monetary policy. you can look at examples around the world when you have huge inflation rates in half zimbabwe, suggests 1 million%. it creates other problems. that is why there is this policy. fed governors in washington each have 14-year terms. the comptroller general has a 15-year term and federal does

have a lifetime appointment. but the fed is given the long- term outlook to have a dependency needs to make tough decisions about interest rates that affect inflation. keeping inflation stable is very important. auditing the fed could encroach on that. there are some limitations on auditing of the foreign holdings kept in the fed, foreign central banks to keep their holdings there. they are watching closely what happens. outside the u.s. they are concerned that if there is much interference from political authorities that their holdings could be devalued in put at risk. host: from north carolina we have nancy on the the republican line. welcome. caller: good morning, one of my

questions was answered earlier concerning ron paul who i back 100%. guest: i am sorry? caller: have they [unintelligible] financing at all? guest: i do not know. i hope not. host: what is that kind of financing? caller: it is islamic-backed financing. they mix their religion in with financing. i hope not. guest: i don't think so. host: on the democrats' line from houston, texas. caller: but mine. how are you doing? i like to say something about what is happening to the economy. on october 29, 1929 we had the

depression, don't you remember? from oklahoma to california -- ok, what happened was they past the glass-stegall act in 1932 and when phil gramm was chairman of the finance committee he directed investment-banking which began appreciable rate markets. people would have $800 escalate to $3,000. what obama is doing is deregulate commercial and investment banking. it is simple. anyone who is well-read in knows -- i majored in history and political science at southern university. if you know what happened, you know this happened. he calls us whiners last year, but they did.

he needs to get it back like it was. that is all they need to do. guest: that is a nice history lesson there. and might be the first time i have herdsmen suggest that president obama is trying to remove some of the regulatory walls there. many people accuse him of trying to put too much regulation into the system. he has said he is trying to have a light touch. but certainly the umbrella would be expanded under his proposal. there is concern about the removal of walls between commercial and investment banking and the extent it has had on this crisis. it is debated on both sides affected has had.

the risk institutions took after the walls came down over the years was at least part of the cause of the crisis. it does not mean it was the only cause. there could have been regulation over some of those changes and risks taken to prevent something like this. host: from washington, d.c. on the independent line. caller: thank you very much for c-span. i have always loved listening. i also want to thank mr. sudeep reddy for being on. i met him some time ago in providence. i enjoy his work. i want to ask a quick question. does the federal reserve have a five-year strategic plan? if so, what are its goals and is success measured on a strategic level? guest: thank you for the call, good to hear from you.

the fed does not necessarily have a strategic plan. of the past two years most of what it has done has been ad hoc. we certainly did get pretty close to collapse. but that has a plan in terms of how operates and has plans that go out. that might be what the caller is getting out. in terms of what the fed will look like in coming years in terms of policy and regulation, that is what is being developed now. it has created many programs on the fly over the last six months to a year in managing the

crisis. it will probably need more of a plan going for. is a managing the exit strategy is one of the main concerns. host: on the the website for "the wall street journal" recently wrote about congress taking on the federal reserve. you raised the question that it failed before, why reward it? reining in poor lending practices is where the fed might be most susceptible. the government is creating a new consumer protection agency -- is that the argument for what we hear renown? is your column from june 18 still gaining steam?

guest: it absolutely is. it will be the central question on consumer protection with the fed going forward. the argument of the fed is that consumer protection has a place in its institution because it has this broad responsibility over big banks. it is those that are doing a lot of the consumer lending. so, having the supervisors of this banks responsible for the consumer protection role gives it a window. if you put that into a separate agency will not have the inside information you can take from one part of the fed to another. the criticism is that the fed already have this authority. alan greenspan decided not to use it. there is a of and to avoid regulating some products. you could also argued that the banking sector is very powerful

and powerful and lobbying. their executives meet with lawmakers appear. it is not just a new york issue. the have a lot of sweat with congress and have tried to prevent regulation over the years -- they have a lot of sway. you could say that maybe it is because the fed did not push all of this. there was opposition from the banking sector. there was opposition from the top of the government. we have had a policy for many years in the government that everyone should be able to own a home. if you look back to the first half of this decade, 2000, that these were beneficial rather than a concern. that kind of environment allowed this to curbing new -- that of a

garment allowed this to occur. the credit card legislations, the fed had responsibility. given sentiment toward banks, the fed has pushed ford with credit-card regulations. the house bill largely mirrored fed regulation. the fed order passed in december and the house made a few changes and then passed it themselves. the fed was ahead of the game over congress. so the criticism might not be deserved. but you could argue whether a specific agency would give more attention to consumer protection. host: our next call is from

virginia could you please turn down your television or radio? you are on the air. caller: hello? it is good to talk to today. i was wondering if you could tell me if all the power of the fed wilhas is within or beyond the constitution? are they within the boundaries? it seems like president bush has given them so much power and leeway to do things that they are in things they should not be in. everything that we do ought to be in line with the constitution. guest: that was a concern that has come up from many lawmakers in recent months.

whether the fed's authority is specifically delineated in the constitution. everything that the fed does is under the aegis of congress. if congress and below it did people, lawmakers want to change that -- if congress and elected people want to change it they can adjust how the fed operates. fed officials are aware of that. what do congress and administration want to change? and what are the alternatives? the concern is that alternatives would be more political and dangerous than what we have now. but the caller is correct that the fed has taken extraordinary actions throughout the crisis. they have raised questions about whether the fed is acting within its authority