[cheers] >> all right. hi, guys. thank you. thank you. thank you so much. it is good to be with all of you. please sit down, everybody. it is just great to be with nurses again. it is great to be with becky. i want with knowledge -- i want to make sure i get them in order. this is linda. that is so ounya. i want to acknowledge dr. mary

wakefield, our health resources services administrator. thank you, becky for your leadership. i want to thank you for leading an extraordinary organization, the american nurses association. i was mentioning the first time we met that when i was in the state legislature i was the chairman of the health and human services committee, and one of my strongest allies in springfield, illinois, was the nurses' association. we did a lot of work together to make sure that nurses work it did -- nurses were getting treated properly, they were getting the time off the needy, getting the ratios they needed, and so i have a wonderful

history working with all of you. as a consequence i want to say thank-you for all the support you are providing for health insurance reform for the american people. i am so pleased to be joined by all of you. i have said before, i just love nurses. i do not know what it is. i love nurses. michelle knows about it. i will never forget how compassionate, professional, and how dedicated nurses have been to michele and i when we needed it most. when our daughters were born, one of our best friends is an

ob-gyn. the truth of the matter is we only saw her for 10 minutes. that was it. she was one of our best friends. the rest of the time we spend with nurses who not only east the nerves of the anxious father but make sure that michelle was doing ok. when sasha was diagnosed with meningitis, it was one of the scariest moments of my life, and she ended up being a hospital, and we did not know whether she was going to be permanently affected by it. it was the nurses walked us through what was happening and made sure that sasha was ok. that continues -- but obviously in tougher times, when my mother

passed away from cancer, when my grandmother passed away. each time nurses were there to provide extraordinary care, but also extraordinary support. i am thankful for that. as a father, and as a son, grandson, i will be in debt due within and men of your profession. millions of other families feel the same way. you are the bedrock of our medical profession, on the front lines. you are on the front lines of health care in small clinics and in large hospitals, in rural towns and big cities across this country. few people understand as well as you why to the's health care system so badly needs reform. -- why today's health care system so badly needs reform.

when part of the problem is the uninsured, and this morning the census released data showing not only the poverty rate increased last year, but also the number of uninsured rose in 2008. we know from surveys that since the root test box looks -- since the recession intensified, the situation has grown worse. the ranks of the uninsured have grown by 6 million people. that is 17,000 men and women every single day. during this period of time the number of adults who get their coverage at the workplace has dropped by 8 million people. i do not have to tell you about all the problems plaguing the system. the fact that they do not just affect the uninsured. most americans have insurance and have never had less security

and stability than they do right now. because they are subject to the whims of health insurance companies, many people fear that they will lose their insurance if they move or if they lose their job, they change jobs, or the insurance will not cover them when they need the most, because insurance companies deny coverage if people have a pre- existing condition. people fear that they will not be covered when they get sick, because there is not a cap on how much a person can pay in out-of-pocket expenses each year. they believe they will be left in financial rules that -- financial ruin. i got a letter from a woman who had been changing jobs and had just gone to sign up for her do across blue shield policy. in january, before she had taken her new job, she felt a lump and had been referred to do a

mammogram. she found out unfortunately she had breast cancer. the new policy said this was a pre-existing condition. she now owes $250,000. this happens all the time all across the country. you see it every day. it is heartbreaking, wrong, and nobody should be treated that way in the united states of america. nobody. [applause] so, the reason i need nurses so badly is because now is the time that act, and i will not permit this to be postponed or in peril by the usual ideological diversions. we do not need more president -- partisan distractions. if there are concerns about any aspect of my plan, let's address it. we have talked this issue today

-- to death. the time of talk is winding down. the time for bickering is passed. we can and have to be the last generation to take up this cause. [applause] just in case folks were not tune in last night -- [laughter] if they were watching "so you think you can dance," a show michelle likes, let me explain what health insurance reform will mean for ordinary americans. simply put, it will mean that as folks go about their everyday lives, one thing they will not have to worry about is their health care. it will provide more security

and stability to those who have health insurance, provide insurance to those who do not, and slow the growth of costs for families, businesses, and our government. for the hundreds of millions of americans who have health insurance, nothing in this plan will require you wear your employer to change the coverage or the arrangement you have. nothing will change if you have insurance. what this plan will do is make the insurance you have worked better for you. it will -- we will put protections in place that will make it illegal for companies to deny purses -- to deny a person coverage on the basis of pre- existing conditions. [applause] we will make sure that we place a limit on how much folks have to pay for out of pocket expenses. for the tens of millions of americans who are uninsured, we

will create an exchange, a marketplace where uninsured americans and businesses can choose help insurance at competitive prices, from a number of different options. by pulling the uninsured and small businesses together as a group, we give companies the incentive to participate and give consumers leverage to bargain for better prices. as i have said from the outset, and repeated last night, one way to give people a choice when it comes to their health care and keep insurance companies honest is by making one of the options available in such a marketplace a not-for-profit public auction. -- option. [applause] but let me repeat, because this is the source of the rumor that we're putting some government takeover of health care, it would just be one option among

many. no one would be forced to choose it. everett the -- everybody would believe they would still be getting their private interests. adding it up, it will cost $900 billion over 10 years. that is real money. it is more than wheat -- it is less than we have spent on the iraq and afghanistan wars and it is less than the tax cuts for the wealthiest americans that congress passed at the beginning of the previous administration. [applause] the cost of this plan will not add to the deficit. the middle class will be rewarded with greater security, and if we are able to slow the growth of health care costs by just a fraction of 1% each year, which will reduce the deficit by four -- $4 trillion. when we stop spending money but

that did not contribute to quality, we can spend money on those that can improve quality, we can pay nurses and profs more money to train more nurses so that we can have that quality that we need. one example, a random example. amid all the chatter on tv and radio, with all the falsehoods that are being promoted by talk- show hosts and prominent politicians, it can be easy to lose sight of what the debate of reform is all about. it is about stories like the one told by an oncology nurse. a few weeks ago she wrote a post about a patient. he was in his 60's, recent

grandfather, spent the last three months of his life worrying about medical bills. she wrote, "my patient thought he had planned well for his needs. he never thought he would wake up with a diagnosis of leukemia." that is why we need health care reform. that is why we need health care reform. i am absolutely confident that if you continue to do your part, you guys have a lot of credibility, you touch a lot of people's lives, people trust you, if you are out there saying it is time for us to act, we need to go ahead and make a change, if all of us do our parts, not just here in washington but all across the country, then we will build the -- bid farewell where health care is the source of worry. america will join the ranks of

every other advanced nation by providing quality insurance to all its citizens. we're going to me that this year with your help. thank you. god bless you. thank you, guys. >> republican congressman eric cantor and senator john kyle respond to the president's speech last night on health care. thery are followed by democratic senators. >> my counterpart will be here

momentarily. i have been asked about my reaction to the remarks last night, and i am disappointed. for a couple of reasons, first of all, if his goal last night was the clarifying the specifics of his proposal on health care reform, and to try to reach out to those with whom he has had this agreement to attempt to reach a bipartisan compromise, it seems to me that he failed significantly on both grounds. let me start with the second. i do not think you reach out to people by continually to rodgers beach referring -- by continually throughout the speech referring to their arguments the way he did. i have never heard a more partisan speech by a president in that house chamber. i have listened to five presidents now as a member of the house and senate. the terminology used, like

partisan spectacle, unyielding ideological, bogus claims, the president is good at setting up strongman and knocking them down nobody can have a disagreement based on a valid opinion. the arguments are false, it is a lie. to my republican friends, i say that rather than making wild claims, here is an issue that has been subjected to distortion, do not pay attention to the scary stories. he did not hear any scary stories from the president last night in his remarks creek said it is time to do kill this plan than to improve it. how about us that have differences of opinion. if you misrepresent what is in the plan, we will call you out. it sounded very much like the

chicago politics that i know he is familiar with. but i was perplexed by the fact that throughout the entire speech it appeared as if he was trying to ram something through with power rather than to refer to what the people have been saying to all of us over the last six or seven weeks. no reference to what the american people have said, no reference to their opposition to his plan, no concept of listening to what they have to say about what they want. it is basically his way or the highway. the second point has to do with the clarification of what is in his plan. some point i was not clear what he was referring to. when he talked about the fact that there would not be any deficit, he was not referring to either the house or the senate bills because the cbo has

projected they will have deaths is -- deficits. more than the lack of specificity was the disingenuousness of his arguments. let me give you examples of why i use that pejorative term. for months, he has been saying, if you like your insurance, you get to keep it. anybody not heard that phrase? we called him out on that. it is not true, under the bills. even if you like your interests, there is a chance you will not be able to keep it. finally, i gather some of his staff said, mr. president, he cannot keep saying that. they got lawyers did that there -- together, and they said nothing in this plan will require you or your employer to

change the coverage with the doctor you have. he repeated that. that is true. but the fact remains for at least three reasons people who have coverage now and like it will not get to keep it. start with the cuts in medicare, and he referred to the subsidies to the medicare advantage plan. a lot of seniors, over 10 million seniors, 22%, of the medicare knowledgeable folks, have medicare advantage plan spirit errors and has one of the highest rates, 39% of the beneficiaries are enrolled in the medicare advantage plan. under the estimates about a reduction in subsidies, 7 million of those seniors are going to lose their advantage plan. as a direct result of policies in the legislation, people will lose coverage they now like and enjoy it.

if the government run plant is part of this legislation -- if the government-run plan as part of this let legislation, a group recognized that over 88 million americans who are currently employed will lose their coverage at the job and be put into the government plan. not because the government requires it, but because the penalties established in the legislation, economically, makes sense for the employer to drop their coverage and pay the penalty, which is much less than the cost of the coverage. there are other reasons, but those are the primary reasons that under this legislation, if you like your insurance, he will not necessarily get to keep it. close to 100 million americans will not be able to keep their insurance. the point is the way he cleverly said it is thought to suggest that, anybody that

suggests this is incorrect. he is technically, legally correct, but it totally misses the point. he did not deal with the critical commentary that was made. i do not think he wants to engage in an honest debate about the details of the plan. he talked about medical liability reform. here again, a very disingenuous to say i will take you up on it. we will revive the bush administration idea to go to the states and encourage them to develop dispute resolution mechanisms. after three different bills -- at least there were two, where democrats defeated the reform, the bush administration said wish to be talking to the states about what they should do. the was never any effort to pursue it, but the idea was to encourage states to develop alternative dispute resolution mechanisms. that is hardly medical liability reform. the president is serious about

taking this effort, he will entertain the idea is that we proposed about medical liability reform, including things like health care courts. senator cornyn and i have, the arizona and texas reforms, which have made a big difference in our two states. that was not a genuine proposal. by putting the secretary of hhs in charge, we can see what happened to it. she was director of the kansas state trial lawyers association for many years. he talked -- he said the proposals i would put forth would not apply legally. that is a correct statement. it is also correct the democrats defeated proposed amendments in the house that would have required some verification of eligibility. if there is no verification of

eligibility, the it is probable illegal immigrants will end up receiving the benefits of the legislation. he says no federal dollars will be used to fund abortions. representative kantor will speak to this because that is where the amendments are in the house. it was defeated earlier. i wonder what that tells you. finally, he made this last point, not a dollar of the medicare trust fund will be used plaay for the plan. the trust fund is broke. what he is doing is cutting payments to providers and cutting the allotment to the

insurance plans that provide medicare advantage options, and those two things will result in a reduction of choice, and i submit a rationing of care to seniors. production of choice because the plans largely go away, and when you pay the doctors and hospitals less, even then they are being paid to the, something has to give. seniors are concerned it will be their health care, and have every reason to be concerned. the point is not that we are taking money out of the trust fund to pay for something, the fact of the matter is instead of helping to make the medicare trust fund healthier, the reduced payments to providers and cut the allocations to medicare advantage in such a way as to disadvantage seniors without creating any money to pay for anything else. i did not hear anything about how these plans were going to be paid for last night. we could go through all the

different ways in which people are taxed, individuals, big businesses, small businesses, premium holders will end up paying taxes. no detail about that. bottom line, i thought the speech was partisan, uninformative, disingenuous, and not likely to encourage those who have honest disagreements with him to be able to work toward some kind of common solution. republicans remain committed to working together if we can achieve that, you know about our ideas, we have repeated many times, i would be happy to repeat them again here, and that is what we would like to see, push the restart button and engage in real bipartisan discussions rather than the kind of threats that were the major thrust of the president's remarks last night. my colleague and counterpart

from virginia, representative eric cantor. >> there is no question that the bar was set very high for this president in his speech last night. his performance did not match his expectations and i do not think he did reach that bar. if we listen to his speech, what was a striking was there was a disconnect between his message and where the american people are in terms of their fear of where washington is headed in terms of changing their health care. i know that i wanted to hear some specifics. a lot of us did. what we heard is much of what the president has been out seen before. in fact, there were at least 100 speeches prior in which the president talked about health care. not much new came out of the

speech. the president did say he is open to the republicans bringing forth ideas. i am going to take him at his word just like we at the to take him at his word when we began the process in january over the question of the spending stimulus bill that was in the makings then. i am hopeful that this process will result in a better product for sure, especially as we are dealing with something that is so personal to the american families. if the president is serious and wants our participation and wants our input, i think we ought to start in three directions. one is to provide and make sure the american people know that we are going to guarantee that there will be no government substitute for the decision- making power that patients and doctors have over their health care. two, that there will be a

guarantee for the american people that there will be no government rationing, that there will be no government force discrimination on any basis, as far as health care access and delivery is concerned. and, third, to guarantee to the american people that we are not going to break the bank in passing a health care bill. people are cognizant of the enormous amount of debt, and they're asking the question, who is going to pay for all this? if we can get straight on these type of pre requisites and have some substantive agreement on that, there are some things that we can work together on. the present mentioned senator mccain -- the president mentioned senator mccain last night and his proposals. these are individuals who may

face a disease such as multiple sclerosis, that tend to cause insurance premiums to skyrocket, that may find themselves in the individual market and an able to afford coverage. senator mccain has opposed all -- has a proposal. i like the term universal access programs treat these are efforts i think we can have agreement on and deal with. the other issue is the issue of portability. the president was right in saying he should not have to lose your health care if you lose your job. let's go ahead and more on that. we can do that. we can provide the flexibility and the insurance -- in the insurance laws to make sure that no one can lose their health care if they lose their job. the area of medical liability reform. i was very disappointed by the

proposals being suggested by this president, and that somehow we are going to be able to accomplish real reform, the end of lawsuit abuse by administratively engaging in pilot projects. we know the american -- we know and the american people you cannot effect tort reform at something with state law to affect the operation in state law to finally address, getting the lawyers out of the examining room which would bring down the cost of health care in this country. >> questions? [inaudible] one reason they have not been achieved before this is an

amorphous notion that we can cut waste, fraud, and abuse from medicare. it is very hard to do. there is nothing specific in these bills that's just how that is to be done. the two ways it road or kerr -- the to this id will occur is reductions in the medicare advantage plan and the other 60% by reducing payments to providers. the other half, the other half of the trillion dollar cost comes in all these taxes that i mentioned, the taxes on jobs, small business, chronically ill, which is the limitation on flexible savings accounts, penalties for the middle class. there are a series of new taxes which are designed to raise the

other 1/2. [inaudible] >> all of us who know show wilson know that he did the right thing and apologize -- in apologizing to the white house. i do not think anyone accepts the type of outburst and the lack of decorum in the house chamber, and i think joe wilson has shown as much and he has done the proper thing. as far as any other type of protest going on in the house, i was unaware of it around me, but i will tell you that we all do need to dedicate ourselves to working in a civil manner to address a very important issue

for the american people. there is some support disagreements about how we can effect health care reform in this country. if you listen to what the president said, it is almost as if there is a certain amount of tone deafness on the part of the white house. the american people are clearly in a position where they think that washington is going to produce a replacement for the health-care system that they know. if you then take the facts that most people in this country have health care, most people that have it like it, it is just too expensive and aggravates the number of uninsured. if we can start with what works and guarantee that we are going to preserve those principles and the operation of what works and then tried to defect piece that does not, i think we can all seemed to move towards a final product that actually it gets it

right. if the president would demonstrate that it is more important we get it right then get it done, i think that would go a long way, as well. [inaudible] >> a group has for years been a highly respected think tanks and research and tv -- and ended the that the value its proposals, and i have never heard anyone contend that they have been biased or that they have an agenda, which they pursued in their work. if anybody would like to make that presentation, it can certainly be evaluated. there is a difference in assumptions between the cbo and the group with respect to

proposals. that is the reason why there are different outcomes in research. i think the assumptions that the group made are better of assumptions than those made on one of the particular pieces of analysis. i have seen nobody contend that the group has not approached their work in a totally objective and constructive way. >> could you envision a time when you would put together the kinds of things have been talking about into a bill and present it on the floor, and what you think of biden's suggestions, to have a final bill to vote on? >> somebody else needs for the room. republicans have been talking about a variety of approaches to the cost and access issues, both in the house and senate. they are fairly well known.

my personal suggestion is that we should go ahead and introduce six or seven bills that embodied these individual principals, so that we can take it one bite at that time. it will not scare anybody if we create a piece of legislation that allows a small business to join together and negotiate with insurance companies with the same power as big businesses. it should not scare anybody to have legislation -- some object -- to allow insurers to compete across state lines. that will cause some insurance companies to get their backs up because they do not like the composition -- competition. consumers like that. on malpractice reform we should have specific bills. senator cornyn and i are working

on this. senator coats worn -- coburn also has one. let's start with good ideas and do not try to reform the whole way that health care is delivered, but try to target specific solutions to is this a problem spirit my personal preference is rather than put them in a big comprehensive bill, because that is harder to get a big comprehensive bill done. a 1300 page bill, people did not read it. republicans have those proposals, and some of us will go ahead and introduce the legislation and see if we can keep -- -- see if we can get people to buy into that. let me take this last one.

[inaudible] correct. >> it seems like a new low on a very important issue. will we be able to get beyond these personal things to do with the issue at hand? >> it is not constructive to a bipartisan dialogue. my honest compression of the president who spoke in a very partisan and political way last night, a way that i think is not constructive, it is my obligation to put out the fact that this is not the way you get people to cooperate. he did not say if you disagree with us we're wrong to call you out and use all those pejorative terms he used. it is harsh for me to criticize him for doing that, and it may

certainly seen that way, i think it is honest, and i am trying to convey something here, which is if you want cooperation, that stood at over board. push the reset button and talk about things that you know which had been concerned about four years. did not say we will meet you halfway on medical malpractice by trying to encourage states to gauge -- to engage in resolution. that is not the -- meeting us halfway. i'm trying to make a point here, which is i cannot think the president of advanced the bipartisan ball last night. that needs to be pointed out in clear, honest language. i am ready to drop that at this moment to engage in real bipartisan conversations if we can do that. thank you.

>> it is fair to say that the president's speech was a game changer. he spoke directly to the american people and the american congress. the details he outlined will provide guidance for what we are going to do here in the senate and in congress generally. everything he talked about will be legislation that preserves patients' choice, lowers costs, and improves care. that is what this debate is all about. i think it is also important that on some of the morning shows, even republicans have acknowledged clearly that the legislation he talked about is not care how -- does not

provide health care for illegal immigrants and there are no death penalty. senator mccain said that very clearly, and i appreciate that. the president came to congress and offered an olive branch to the members of congress. he included prado -- republican proposals to his plan. he referred to a specific number of senators, mccain, hatch, he took a page out of president bush's bupage. there is no question that the president is sincere that this is the time we do something, whether just talk about that, and in spite of the efforts of those who tried to derail the plan and maintain the status quo, as the president said last night we are 90% done with the hard stuff, and we got to get the details done now.

when chairman baucus lays down a bill next week, i think we will find there is going to be room for a vigorous debate on what is on to take place in the senate. that is the way it should be. the bottom line is we have to rein in skyrocketing costs that they can -- breaking the back of the people. today, across the country, nevada, washington, illinois, new york, all over the country, some 14,000 americans will lose their health insurance. i was confused with the number from nevada, which is 220. that's as it all. 14,000 people from 50 states and to the 20 from nevada. we will continue working on the last 20% of the health care proposal that has come before the american people, and we have

a schedule now, announced by the chairman of finance committee, and we will move forward to get this done as quickly as it can. senator durbin? >> there were questions asked of congress and the senators that are here today. the first question is, will the president be specific? he did. he spelled at exactly that those who have insurance, and stability, so they know that interest will be there when they need it and they can afford a trip how about those who do not have it? the president said we will give you the same option that members of congress have. you will choose from an exchange that will offer private health- insurance that can be something you can count on. he said we have to bring down the cost of this. if you are concerned about the deficit, then we have to do something about health care. if you are concerned about what

this means the families and businesses we have to do something about health care. he was specific. he said -- he called for the joint session and his commitment is to get this job done. he said he wants to be the last president to bring this up. the final question is, is he willing to be bipartisan? all the president said he was. for those who can sit down and come out at idea, his phone is there and the door was apparent that has been his approach from the start. it was a great moment. how i sat next to senator reid and i hope that you watched it and sense what happened as the chamber was filled with emotion and then reached a point at the end of the speech when he was referring to senator kennedy tossed letter. it was an amazing performance, and an amazing message from the

president about this amazing opportunity. >> i thought the president's speech was a tour force. what the president did last night was staked out the high moral ground. he said, they have -- i have ideas in place, and, republicans, we're willing to meet -- to reach out to you. he praised senators mccain, grassley, hatch. he even spoke about four or four, something that republicans have felt is very necessary in the bill and democrats feel is not. so he was saying to the american people and to independents in particular to get a good health care bill, i am willing to reach out. the bill -- the ball is now in the court of the republican party. are they going to continue to just say no? or will they beat us part of the

way? that is the question. and the president, again, he laid it out exquisitely, and i will say this, he was not speaking to the senators as much as he was to the american people. what i think is going to happen as a result of this speech is that independents who had been clearly questioning whether we needed health care are going to move in the president's direction, because he is reaching out in a bipartisan way, and up to now, the republican party, with perhaps the exception of olympia snowe, is just say no. this was a final moment for the democratic party, a vital moment for the president, and a vital moment for america, but also a final moment for the republican party, but the question is, will the rise to

the occasion,, sit with us, and come up with a strong bipartisan bill so that medicare, private insurance, and health care will not go broke 10 years from now. >> last night the president forcefully told us as leaders of this nation, as the adults in the room, it is time for the struggling to be over, it is time to move on, the status quo is not sustainable. this is exactly what i heard from my state in august when i went home, when i talked to a young boy, who lost his mom because she had a job, lost her job because she was sick, and it ended up not being able to get a doctor appointment because she lost her health care and ended up dying. it was a woman who owned a restaurant on capitol hill in my neighborhood in seattle, he told me that she was trying really hard to get health care insurance for her 35 employes,

wanted to do the right thing, knew what was the responsible thing to do, both for her business and for community, but was denied health insurance coverage over and over by companies, and finally had one insurance person tell her it is because of your zip code that you cannot get health insurance. it was a woman who came to me with a pilot papers two feet high told me her husband got sick, she had been paid her insurance, all the sudden every claim she filed was denied and she had to fight it, and a pile of papers she had sitting in front of me was the correspondence that she had had to have with her insurance company over the last year and half to get paid what she was due for all the insurance coverage that she had been paying for your spirit this is the status quo. every day more and more americans are facing those kinds of obstacles. we have responsibility to move

forward and to pay -- to get health care reform done in a wry wit, and that is what the president challenged us to do last night. the house committee i sit on sat through weeks of bipartisan amendments, 161 of them, and got a bill after the finance committee is moving forward now. the house is moving forward. we cannot say the status quo is ok. we have a responsibility. now as leaders of the country, it is up to us to solve this problem. and that is what the president asked us to do. >> if you cannot pick up any republican votes, what does it do to help reform? >> we are working on very narrow margins here. you pundits have said we have not had successful legislation

in the six months. each of the measures we past we had enough republicans to get it done. that is what we're working on. the president understands that. we look forward to a bipartisan bill. everyone knows we are going to the reform now. the president made that clear. wheat will continue on the road of bipartisanship that we have traveled on so far, and republicans that are out there that are willing to help us, we're confident of that. we can always go to reconciliation, but that is of the we did not want to do. that is our second choice. >> what do you think of the proposal that they put out? >> he has put out an outline, and i have not read it. it was distributed over the weekend to the six, and the members of the finance committee, it earlier this week. it is and at one -- it is an outline.

i am satisfied with the progress. the finance committee has gotten 90% of the work done. they have 10% to do in the next week. [inaudible] >> you think that is appropriate in the future? >> it is not a public policy at all. that is in the eye of the beholder. we have a very firm, strong public auction in the health bill. i favor a public auction. we have to know those two together. -- i favored a public option. [inaudible]

>> you agree with that? >> no, i don't. we will look all the options. >> what about the moderates [inaudible] >> we are going to be fine with the moderates. emily, if he did not have your hand up, it is a rare occasion. [inaudible] well, today -- i am sorry. this week is a typical week in

the senate, if you have the republicans doing to the american people what they have done. they are doing everything they can to stall and get as little done as possible. this week they finished the travel promotion act, but we have wasted dozens of hours on that waiting for the republicans. we had a cloture vote where we got 80 votes. they use up the entire 30 hours on that. we got 63 or 64 votes on another. the richest wasting time. we have a lot of work to do that takes time. we have finished four appropriation bills. the next one is chairman murray's. we should be working on that one

right now. we should have been able to start on that on wednesday, or maybe even tuesday, because we have literally not gotten -- we have not had the opportunity because of their stalling tactics to get things done. they say, ok, senator murray's bill, if he did not file and a motor to proceed, we will let you go to that. they are stalling for time. that is what they've done all year. i hope the american people can see this. they do not want us to get things done. in spite of that, which have been able to get things done, but it is -- it has been hard and is taking a lot more time than it should. we will have to have a cr because they have stalled on everything. remember the 100 filibuster's last congress?

[inaudible] i hope we can get it done before thanksgiving. senator biden has spent more time in the senate and i have appeared i would hope we can beat the thanksgiving date. >> russ feingold has proposed a flexible timeline for getting troops out of afghanistan. [inaudible] >> the speaker and i met with him on tuesday. as far as i'm concerned, the thing i am going to do, let's just take it easy. we have a new commander over there, general mcchrystal, he has gotten his feet on the ground. he has made recommendations to the president. the president said he has spoken to the defense secretary.

i'm going to recommend to wait until the president makes up his mind, and then we will have the opportunity to do that. in the meantime, i do not think we need 100 secretaries of state. we should give the president the opportunity to see what he recommends and then we can accept that. final question. [inaudible] the purpose of a public option is this -- to create competition, which is still important, and create quality health care. as you have heard me say, if there were ever industry that needs competition, it is the insurance industry, because it is the only industry that is not

subject to the antitrust laws in this country except baseball. that is what we're talking about. we're keeping the insurance companies honest because they can conspire to fix prices, and they're not subject to penalties. if we can come up with the concept of a cooperative -- it makes more competition, makes insurance companies on this, yes, i think that would fill the bill. >> that's it. >> for more detaliils, we talked to a capitol hill reporter. and such a caring person and

such an honorable and decent man that i just wish that my it is had a mixed reaction. some of the more liberal democrats and the committee, such as senator jay rockefeller, have expressed concerns they have on it. it does not have a public auction. -- option. instead it has a co-op system. they have a hard time accepting that that might not be included in the bill at all. >> the gang of six has been meeting for several weeks for it was the timetable for senator baucus getting the bill to his committee? >> he said yesterday that he was going to move forward and have

a german's mark of the bill read the next week, and this is with or without republican support. they have been trying for several months to get republican support. . . he did it regularly. these were freshman members of the senate. ted didn't really need them. he could get whatever he had to get done and they would support him. but he just cared about them. as if they were almost family. but he just cared about them. as if they were almost family. and then whenever we had a and i would be the emissary and go to ted and say, can we go upstairs? of course. and amy klobuchar and sherrod brown and bob casey, their faces would lloyd up and up we would go to hear more stories about the past, the senate, and the

individuals, a memory none of us will ever forget. and ted kennedy would size people up early on and care about them. he was very kind to me but he also knew that i was the kind of guy he had to put in his place. i would get hazed by ted kennedy and jay rockefeller went through the same thing. he knew who i was but he there were so many seminaries that he said it agreed it into their efforts because of some much of what president obama talk about with the $900 billion price tag, a deficit- neutral bill, and the list goes on. it is very similar to what this finance group is looking at said they felt their efforts were bolstered by the similarities in the speech and their proposal. >> you mentioned there will not likely be a public option from

this proposal. that might not set well with the president. >> you are right. the president left the door open for these proposals. there is something called the trigger option which would be a public option which would kick in if the private insurers are not offering affordable insurance. the president did seem to leave a little leeway that he might be able to sign a bill that did not have the public option in it. senator max baucus brought it up today as well. >> how is the house going to get moving forward on its three versions of house legislation? >> i am not sure when the house is going to move. i have not followed them closely. we have not heard when they will be moving on the billl.

it does seem they will wait to see what the finance committee will come up with so they know where everything stands before they bring it to the floor. >> thank you for joining us. >> thank you. >> next on c-span, treasury secretary tim geithner testifies on capitol hill about the tarp program. president obama talks about his health care proposal. tomorrow, the american enterprise institute hosts a discussion about health care policy. a panel of key players will talk about the politics of health care and what congress is likely to achieve this time.

live coverage begins at 9:15 a.m. eastern on c-span to. this weekend, the role of conspiracy theories in american history and politics with the author of "real enemies." next, an update on the more than $700 billion for the troubled assets relief program. treasury secretary timothy geithner testified today before a congressional oversight panel on the distribution of funds to certain banks and financial institutions. this hearing last an hour and 45 minutes. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2009] >> this hearing is called to order. thank you for being here today, mr. secretary. i want to start by saying, thank

you for being here. we welcome you. i also want to welcome paul atkins, the newest member of the congressional oversight panel. we are glad to have you here today. thank you. i also wanted to say that the panel has agreed to keep their opening statements very short so we can focus on the questions and we appreciate that you have agreed to do the same, mr. secretary. thank you for being here. this hearing offers an important opportunity to hear from you about the $700 billion investment that taxpayers have made in the financial system. almost a year ago, secretary paulson it told congress that the country was in a dire state. americans were alarmed. congress quickly passed the laws that created tarp. since that time, public fear has turned into anger. savings have evaporated, jobs

have disappeared, and mortgage foreclosures are measured in the billions of dollars. taxpayers question what tarp accomplished when it on an individual level their circumstances seemed more precarious than ever. they feel like they got stuck with the bill for this bailout but they did not get the benefits. such enormous discretion with a tarp money, congress expected in equal measure of accountability. taxpayers have the right to understand clearly what treasury is doing and why it is doing it. each month, the panel has issued a detailed report. we evaluated the stress tests in june. we examined the repayment of tarp funds in july. after we reported that the first 11 banks repurchased their warrants from the treasury at a price which was 66% of the estimated value, the next round of banks repurchased their

warrants which were much closer to our estimated value. the panel to examine the impact to leave troubled assets on the books of the banks and how much risk that leaves in the banking system in august. yesterday, the panel released a report using tarp funds in the domestic auto industry and recommended that taxpayers who now own substantial amounts of both chrysler and gm might be better protected if treasury would put its shares in a trust so someone not in government can actively manage them and make the best decisions. taxpayers are now stakeholders in hundreds of financial institutions as well. taxpayers still want to know how the money has been used and what difference their investment has made. have these companies been cleansed of toxic assets? are these companies better run today than they were a year ago? do they treat consumers better

now than they did last year? the fear that no one has to think about -- what are the chances these financial institutions will stumble again? are we going to change the rules that got us into this mess before it happens again? ben, thank you for coming. >> [inaudible] i expect we will disagree in the future but i do want to thank you for your public service at a time of great challenge in our nation's history. i would note that this is your second appearance before the congressional oversight panel. since the president was sworn in in january, it is now september and that believe you have to agree to appear before this panel at least on a quarterly basis. i would ask you once again to

consider appearing on a monthly basis given that president has made the commitment that his administration would be the most transparent and accountable administration ever. i think it would comport with that goal a little better we are clearly coming up on the one- year anniversary of the legislation. tarp has never really been as advertised as we know it. toxic asset removal program became a capital infusion program. i am not here to continue the debate on whether or not it was wise legislation at the time. i think there are smart people on both sides of that debate. i must admit that almost one year later, i continue to be concerned and am curious as to what tarp has evolved into as of today. i think many americans share the fear that i have, that an

emergency piece of legislation that was meant for economic stability has now morphed into a $700 billion revolving bailout fund for the administration. i am concerned that the previous administration crossed a line in investing in gm and chrysler, something that this administration continued to do. i fear this penetration crossed another statutory line favoring members of the uaw in those organizations of similar situated creditors. i feel like the administration crossed another statutory line in giving fiat up to 35% of chrysler. they will receive this if they produce a car capable of making 40 miles a gallon. i am having trouble somehow rectifying this with the charge of taxpayer protection and of

financial stability. i continue to be concerned about the issue of taxpayer protection. although certainly not all loved it, i need not tell you that we have the first trillion dollars deficit in our nation's history. i don't have to tell you that recently oab missed their figure by about one-third. now they are looking at $9 trillion of debt. part of this is tarp. the cbo expects $40 million worth of loss in the although program so there continues to be a concern. i look forward to hearing from you, mr. secretary, particularly after the president announced last night that your administration has saved us from the brink of economic ruin. i paraphrase. if that is true, why do we

continue to need this tarp statued that many of us believe it is no longer about financial stability? i look forward to your testimony and i yield back. >> thank you, congressman. mr. silvers? >> thank you. good afternoon, mr. secretary. i very much appreciate your presence here today. this is the second time you have appeared in we are grateful. i appreciate the support that you have given to the office of financial stability. i believe congress and the american people should ask three basic questions about the program. first, is tarp and the associated programs of the fed and the fdic preventing and or, in the acute crisis in our financial markets? secondly, is tarp playing it the

proper role as a provider of capital to the real economy? finally, is the public providing funds receiving fair terms? when you last appeared before us, i focused on the question of whether the public was being treated fairly. i remain deeply concerned about whether inappropriate subsidies are being extended. credit enhancements and the repurchases of warrants from banks that have repeled -- that have repaid investments i believe you have made progress in these areas around the issue of fairness. today, i hope to discuss with you the question of whether tarp's strategies with particular reference to the continued weakness of three of our four largest banks, is

subject addressed in the august report. this question is tied to the important question of what the fed and the fdic's strategy is to withdraw public support for the financial system. you address these matters today in your written testimony. looming over this situation is japan's lost decade which you are quite expert. despite optimistic statements of the kind that we saw from the regional fed banks yesterday, the numbers that we see tell a tale of rising unemployment, rising foreclosures, a growing crisis in commercial real estate, which has been addressed in this panel, rising small bank failures and failing bank business lending. the danger of a vicious circle could overwhelm the strategy of helping the banks earned themselves back to health. i believe the treasury, the

federal reserve, and the fdic can take credit for calming the crisis of last fall, another matter that you addressed in your written remarks. i believe the decision to infuse capital rather than to buy troubled assets that secretary paulson made and that you have largely carried ford was the correct decision and has borne substantial food for our country and in the world. i think the stimulus package is also an important part of this plan and is intertwined in these matters. are we addressing the fundamental weakness in our banking system or are we hoping that if we close our eyes it will go away? i look forward to your thoughts. >> good afternoon and i join my colleagues on the panel in welcoming secretary geithner. thank you very much for appearing today. it is a privilege for me to be

here today to serve the american taxpayers on this panel with our oversight role on the troubled asset relief program. tarp size of $700 billion seems almost quaint. since we are in the building named after him, i am reminded about the senator's line about federal spending habits. a billion here, a billion there, pretty soon you are talking about real money. congress has set out this robust oversight framework with a special inspector general, a special audit, government accounting rules, and this panel. i take this accountability and transparency mandate from congress very seriously. press reports indicate that you have resolved in the ambiguities of the report in relationship to the treasury in favor of

independence. i think that is an import result of the unusual nature of the program. the information sharing relationship between treasury and this panel has been problematic in the past and perhaps can be improved. there is a special liaison in treasury assigned to work with this panel so i look forward to working with you all and experiencing this state of interaction. we are approaching the one-year anniversary of the passage of the legislation that set up tarp. treasury has created an alphabet soup of programs under tarp and that does not include the other programs of the other banking agencies. how effective have each of these programs ben? has some been more effective than others? has tarp achieve its original purpose and mission? what other costs such as moral

hazard? the authority expires on the 31st of this year. the treasury secretary in the past has the authority to extend tarp until october 2010. will tarp be extended? what are the conditions under which you might make that decision? the statute only provides the vague guidelines. that cost cannot be quantified without a rigorous economic analysis including direct and indirect costs. with that, i will yield my time and i look forward to the testimonies. >> thank you, commissioner at kent. superintendent for banking in new york. >> mr. secretary, thank you for being here today and there will keep my comments brief. first, i want to acknowledge

treasury's responsiveness to the panel's inquiries on behalf of taxpayers. when we first met with you, you pledge to you and your staff would be available to us and provide open lines of communication. to the many meetings we have had with other members of your staff, i think you for your level of cooperation and for supporting our work. you also responded to nearly 30 questions that i put to you directly from members of the public, some of which were very tough and candid. these questions and responses are now posted on the internet to serve as a resource for concerned americans. although financial stability has not yet been fully achieved, you deserve credit for making substantial progress. we are by no means out of the crisis but there are positive signs such as decreasing credit spreads and the revival in

securitization markets. nevertheless, our gains in financial stability remain fragile. addressing homeowners who face foreclosure is key to breaking down the downward cycle and achieving sustainable results. the home of affordable modification program is integral in this effort but initial results have been mixed. i intend to explore several of these issues with my time here including issues around the service participation and uneven service performance, bar were frustrations around eligibility standards and access to account information, and the need to complement the program with additional initiatives to address foreclosures stemming from job loss and the recession. finally, with congress returning this week, it is expected that your regulatory reform proposals will experience significant movement and debate. i will ask you about a provision for developing an architecture

that best supports consumer protection and long-term financial stability. i look forward to your testimony. >> thank you, commissioner. [inaudible] >> mr. secretary, we received your remarks this morning. thank you very much. they will be part of the record so that we will have more time to be able to question you and your answers. i am going to ask to keep your oral remarks to five minutes. anything else you wish can be entered into the record. >> it is a pleasure to be here. this is my 16th time testifying before the congress of the united states and in front of the oversight panel i am happy to see you want more of me. the executive branch was not given -- it provided oversight

with the establishment of the tarp and giving hte gao its usual mandate for oversight. we take the process seriously. we have examined everything you have written, adopted many of the recommendations of the oversight panels, and that think they have made our programs more effective than it would have been. the complement your thoughtfulness and the seriousness of your approach. i also want to thank you what you said about herb allison. i have the opportunity to work with very dedicated and talented people in the treasury. you want to have people with the greatest sophistication about financial markets so they can drive a hard bargain in the interest of the taxpayer. i think that team is doing a good job of that. last september, of course, we

face the risk of catastrophic financial failure and the risk of the great depression. because of a comprehensive policy actions put in place since then, we are back from the edge of the abyss. the consensus is that the u.s. economy is now growing again. the financial system is showing very important signs of repair. cost of credit has fallen dramatically, not just for homeowners for households but for businesses as well. because of the signs of early progress, we are in a position to adjust our strategy, moving from a crisis response to recovery, from rescuing the economy to repairing and rebuilding the financial system, to repairing and rebuilding the foundation for future growth. we have to begin winding down programs that are no longer necessary and that by design are

not as important. let me highlight a few things that _ this transition we put a reserve fund in the budget that recognize the possibility that we would need an additional $700 billion of authority to fix this problem. we believe that money is unlikely to be necessary and have removed it from projections. we are borrowing less already them what we expected to resolve this crisis. the money market guarantee fund will be allowed to expire, earning more than a billion dollars in income, no cost to the taxpayer. the fdic program to guarantee senior debt has generated more than $9 billion and has seen very dramatic declines in usage. the facilities that the federal reserve put in place to provide liquidity and broad support to credit markets have seen dramatic reduction in usage. we are now at the point where

lines of these facilities is down 80% to 90% from its peak. the commercial paper market, etc., the details are in my testimony. when i took this job, the government made outstanding commitments in the range of $240 billion. today, we have $180 billion outstanding. that is a dramatic reduction in the scale of our direct exposure in terms of capital to the financial system. in large part because of the successful efforts of making it more possible for private capital to come in and recapitalized this system. the dividends paid on those investments and the warrants we received a total $12 billion. for the 23 banks, treasury has earned a return of roughly 17%. all of these steps underscroe

our commitment to unwind these programs as soon as conditions permit. at the same time, though, we have to continue to reinforce this process of repair and recovery until it is truly self sustaining led by private demand. the problems of government acting too late and putting on the brake too early -- we are not going to repeat those mistakes. it would increase the cost of this crisis in terms of the damage it causes to the fabric of the american economy. millions of americans are still suffering deeply from this crisis, still facing the most challenging financial market we have seen in generations. unemployment is still high. the mortgage market outside what supported directly by fannie mae and freddie mac, fha, is still significantly paried. small businesses and part because they are more dependent on banks have

less options to access credit in this difficult environment. >> you are at 5 minutes. >> i am winding it up. foreclosures are rising significantly because the high rate of unemployment we are seeing as a country. because of those challenges, we need to make it clear that we are going to keep those programs that are necessary for a recovery in place as long as the conditions required. there is a lot of concern that as conditions improve, we are going to let the market to go back to the conditions that were enjoyed before the crisis. we are not going to let that happen. if you look at the list of the top 20 firms in the country two years ago, a substantial fraction of those firms no longer exist today as independent entities. the contras system is going to be smaller but it is going to be stronger. for that to happen, economists have to come join with us to

pass comprehensive financial reform so we have much stronger rules of the road and constraints in place from preventing this happening again. i look forward to your questions. >> thank you. >> that was only about 6 minutes. >> and 19 seconds. a year ago, secretary paulson told us that we were in its financial crisis because of toxic assets on the bank's books. he explained, is needed to give $700 billion to the treasury department's to deploy in order to remove this toxic assets. we have had one year to get rid of them. does treasury know how many toxic assets remain on the books of the banks? do you have a dollar figure? >> we put the u.s. banking system to stress tests so you now have an unprecedented disclosure of exactly what loans

and securities they hold with a pretty careful estimate of the potential losses on those exposures that you would face in the worst economic environment. the critical thing to recognize is, and the reason we care about these toxic assets and the losses, is because they require capital. we came into this crisis with the banking system that did not have enough capital to cover losses in a deep recession and that is what helped produce the worst and into crisis in generations. because we put the system to this incredibly exacting set of stress tests, with much more exposure, the banking system has much more capital in it and that makes it much less likely that the financial system is going to be a source of headwinds. if they had not been able to raise private capital, if they were still left with too little capital against losses, we would be facing a much greater

challenge. the problems posed by this assets are addressed by the dramatic improvement. >> let me see if i can pin this down. for the 20 largest banks for which we have the stress tests, you believe we have a sense of how much is left in the wake of toxic assets? >> absolutely. >> do you have a dollar figure? >> i would be happy to have the fed decal that for you. >> for all the banks for which a stress test was not run, but we know how many toxic assets? >> we are a country of 9000 banks, not just 20. >> although fewer every day. >> fewer every day but that is a necessary process of repair and reconstruction. many of this bank's came into this crisis with more capital but many also had more exposure to real estate.

we chose not to put the rest of the u.s. banking system through the kind of existing stress we applied to the biggest institutions. a lot of complicated judgments went into that. you are right to point out today that we have less disclosure. the supervisors of the country are spending a lot of care and attention looking at those risks in those institutions, helping them move through that. it is important to recognize that those banks together, those remaining 9000 banks together account for between a quarter and a third of the u.s. banking system. we are probably unlikely, as a country, to be able to manage through and withstand those remaining pressures. we can do with more confidence because of the actions we talk. >> when the washington post

summarized yesterday's report, they summarized it by saying the banking sector remains a mess. would you take issue with that characterization? >> i would say it this way. i think the u.s. financial system today is in substantially stronger shape than it was months ago. there is a greater recognition of losses and we are in a better position remember, this is just the first quarter. we are just getting to see signs of growth. it is very early and we did a lot of damage to the financial system of this country. it is going to take longer to do it because we are going to do it right. i would not want anyone to be left with the impression that we are not still facing really substantial and enormous challenges in the financial system. where there has been improvement, it has been

dramatic. but a lot of that has come to the direct effects of policy, policy that put capital in banks, policy to provide support to the markets that were the most damaged. we have a lot of challenges ahead. >> thank you, mr. secretary. >> mr. secretary, under the statute, how do you define financial institution? >> i was looking forward to this discussion and i think i understand where you are going. the statute was written, as you apply it -- as you implied in your opening statement, quite broadly. my predecessor, the previous administration made a judgment, not just in the economic interest of the country to provide support for the auto industry, but it was legal and appropriate to do so using this legislation.

>> you concurred in that opinion? >> we would not have spent a penny using that authority if we did not incur in both of those judgments -- >> if you concur, you believe chrysler and gm are financial institutions. is at&t a financial institution? >> again, i understand why it would appear -- if you look at the plain facts of what i inherited, why in my heart to explain why an automobile industry is a financial institution. that was a judgment made by my predecessor. >> you voluntarily chose to continue the practice but i am still trying to figure out your legal interpretation of the statute. so clearly, i assume you do not believe you are breaking the law, so you believe chrysler and gm meet that definition of a

financial institution. >> as the law was written. >> of course. the question is, is at&t a financial institution? is american airlines a financial institution? >> no and no. >> no and no? >> i think it is important to recognize two important things. i did not design this statute. i was not in office what it was designed. it gave the executive branch of the united states broad authority and discretion to fix this. the fact that we waited so long to make that authority available made this crisis more damaging. one important fact and reality. in a crisis of this severity, a recession this deep, we have to be prepared to do things that we would never want to do. >> i understand that. congress had the house that had

legislation that dealt specifically with the automobile industry so there were some members of the house who clearly did not believe that chrysler and gm came within that statutory limit. chrysler and gm, yes, they are financial institutions. at&t and american airlines are not, so is there any additional clarity? one of the things that markets demand is clarity of public policy. who will be bailed out, who will not bail out? i again ask you for some clarity on what is a financial institution? >> congressmen, i don't think we are going to be able to take this further. i do not believe you can read this statute today. things might be different in the future. i don't think you can read the statute today to justify action

beyond the scope of the actions we have taken in this context. >> i am personally hoping that the legal interpretation of a statute does not change in the passing of a handful of months. >> we have to pass two tests to use this authority. does the law gives us the authority to act proved the other is, are those actions necessary and prudent in the interest of fixing this mass, restored to financial stability? it is not the simple test -- >> forgive me because our time is constrained. leaving the question of the definition of a financial institution, there are roughly six or eight major programs under tarp. i am curious for having been

serving on this panel for a year, i am having trouble discovering where treasury has identified only particular metrics of success beyond financial stability. >> i would be happy to help you. >> the capital purchase program is to stabilize and prevent the destruction of the automobile industry. >> i am going to have to stop you there. >> can i -- >> i will give you 20 seconds. >> you can look at each of these programs, and this is the great virtue of the markets that we live in today. you concede evidence of whether it is having an effect on lowering borrowing costs, improving confidence in the system. one of the great things you can see today, you can look at the cost of borrowing for businesses

and families, the costs of mortgages, confidence in financial institutions -- those are good indications of how our programs are having an effect. >> thank you, mr. secretary. we all have to be quiet here or else we will have to clear the room. mr. silvers? >> i went to pick up on the threads of your testimony -- i want to pick up on the threads of your testimony. a couple of weeks ago, it in it two parallel stories in the washington post, the following statement was made. "the wounded u.s. economy has shown signs of improvement in recent weeks but many economists are is enjoying the negative, bracing for headwinds that could cause the economy -- the

recovery to be weak. huge swaths of the financial system have been damaged which could lock consumers and businesses out of loans for years to come." there was another story about asia. you probably read the same paper as i do. that story said the asian recovery has been far more robust than ours and a key factor in that has been the relative strength of asian banks. do you agree with this characterization? >> in the best of times, we grow roughly at an average of 2.5% a year. for an emerging market economy -- >> japan was the comparative. >> i doubt you are going to seek a more robust recovery there. he need to think about that

relative comparison. -- you need to think about the relative comparison. i think we are in a position that it is much more less likely today that weakness in the financial system proves to be a substantial constraint on the pace of recovery. the dominant pace of recovery is the basic reality that as a country, we borrowed too much, saved too little, lived within our means, and the process of correcting that pattern of behavior is going to necessarily produce a slow recovery for the united states. >> why is it that the weakness of the banking system -- in light of your comments that the mortgage market is a creature right now of your efforts. secondly, as you noted in your written testimony, business

lending by banks is going in the wrong direction quite seriously. why is that not a problem? >> i think it is a problem. we are in a much position today than we have been or we could give expected to be. it is less likely today that it would be a constraint. bank lending is declining but it is declining much less than it has in past recessions. in part because we have been relatively affective in restoring confidence and stability. the decline has been more than offset by the increase in borrowing in the securities markets. overall, in a situation now where mostly we are seeing a reduction in demand for credit, as people improve their balance sheets, spend more, save less, but it is still early largely because of the forceful actions we took and the support we will

continue to provide. it would not be prudent for us to infer from that sign of progress that we art at the point where we could wind this stuff back completely. >> one sentence i found very interesting. is it really a good thing that essentially credit provision has moved away from the banking system to the extent that it is going on? most creators of jobs can't access the bond market. >> it is an interesting question. remember, our banking system took on too much leverage. >> unquestionably. >> inevitably, the banking system's leverage had to come down. it is the strength of our system that there are

alternatives to banks and the capital markets that actually work. if there is a weakness in banks, there is an offset. part of the process that we are committed to is that the securities markets and others have a stronger, more robust from work because that will make our system more stable in the future. >> my time has expired. >> i wanted to start out by looking ahead. as i said before, the authority under the statute expires at the end of the year and you have the authority to certify that it can be extended. no one would be happier than i to see if it meet its end. according to the statue, your certification should include justification of why the extension is necessary to assist

families, stabilize markets, as well as the expected cost to the taxpayers. my first question is, have you made a decision yet? >> i have not yet. >> that is what i wanted to explore. no offense to their congressmen, but this is very squishy and it is really questionable to me. to stabilize financial markets, he said it has been relatively effective in restoring stability. are you comparing it to a year ago, in which case they are much more stable? three years ago? what kind of market would you look at? the u.s. stock market? commodities? the dollar? i think all of these things need to be carefully looked at but i am not sure if you started this process. >> you want to look at, again,

what is the capacity of the financial system to live on the town without these exceptional supports? how likely is it that you are going to see enough repair and strength in the securities markets for us to withdraw that support? some of these programs, realistically, are going to take a longer time. the expected path of foreclosures in the u.s. is going to last for a long time so it is very unlikely we will be at the point in the next humans to say that the housing market is at a point where we can be confident that we can withdraw these exceptional actions. there are parts of the credit markets with there has been substantial improvements but a lot of it has come on the strength of the basic backstop we have provided. we want to look at a broad set of measures and make sure that people are confident that we are going to get this thing on a

strong foundation. the classic mistake that people make is, they declare victory too soon and withdraw these things. the system has to go back and build more insurance and that could intensify the recession. >> you could also make the mistake of leaving the crutch on too long. we are talking about moral hazard. i hope you have to take that into account because i think that is a huge, usually undermining factor, of our financial system. >> let me point out one thing that is helpful on that front. largely, these programs are designed so that they will be expensive when things normalize. that is why you have seen the use of these programs dramatically decline as these conditions improve, helping to mitigate the risk that people depend on them too much.

>> i think you could argue that -- for example, the warrants. i am sure the taxpayer is making profit. is that we could end commensurate with the risk that was taken? >> when you look at two types of things of measuring the effectiveness of the programs, what was the directly measured benefit to the taxpayer in terms of the return that we talk? but that is not sufficient. the best way to measure the program is to take a broader view of what did you do to help get this economy out of the crisis and into recovery. that is a harder thing to measure. if you look at any measure of cost of credit, confidence in the financial system, credit availability, concerned about risk, all of those measures are

dramatically lower. that is the fair way to capture the return on these investments, not just the 18% return we got on our investment. >> [unintelligible] >> i don't think it does. there is no science and it. the part in this is that if you commit to do enough, you make that credible to people. u.n. not going to be always chasing the crisis so you will more likely solve it at a lower cost. if you prematurely pull it back, it is going to be more expensive in the future. that is the basic essential design for an effective strategy in financial crises. >> thank you. >> thank you. mr. secretary, the news service report on mortgage modification represents an important step in data access and accountability. it also confirms in the report just issued this week that there

are wide disparities among the rates of modifications. some firms have not started any trout modifications, while many more have rates in the low single digits. you how to import the meeting on july 28 to discuss these very issues -- you held an important meeting on july 28 to discuss these issues. the report that was just issued shows that there are tryout modification started around 360,000. these would indicate really only about 12% of estimated eligible borrowers. the secretary indicated that servicers have committed to increase that number to a total of half a million modifications by november 1. based on the benchmark of reaching 3 million to 4 million,

are you satisfied we are on that track? have we set realistic expectations? is the real risk and challenge in converting those trial modifications to permanent, sustainable modifications? >> it is not enough to send out $1.8 million in solicitations and modifications. it is not enough that you have something like in the close to half a million offers extended, it is not enough that you have more than 350 million households benefiting from substantial reductions in interest rates. we are very focused on making sure this program reaches as many eligible homeowners as possible. two important things to point out. it is very helpful to do what we just did it, to put in the

public domain of every month that allows the american people to see how many banks it is reaching. i am quite confident that can produce much faster modifications much more quickly because institutions do not want to live with the consequences of being so far behind the curve of what is possible in helping families get through this exceptional set of problems. we are making sure that we are going in after the fact and looking at whether people are denying eligible homeowners access to modifications. there is a second look program, which is a program of auditing to make sure they are not the ninth eligible homeowners the chance to participate. i think this is going to reach a substantial share of people who are eligible, but it is

important to recognize that this was just one part of a set of actions that we took to bring down mortgage interest rates. this actions looked in total has helped bring mortgage rates to low levels and have helped bring a measure of stability to housing prices, housing activity faster than many economists had forecast it. fundamentally, it is that broader measure which should be the ultimate test of this program. >> i would be interested in your comments about the obstacles of increasing the effectiveness of participation. what we are hearing and talking with servicers, there is still concern about our reach, getting documentation back from them. some creative approaches is that people are not responding to going out physically and visiting. i would like to thoughts on other creative approaches. i have suggested possibly letters from yourself or the

president of the united states to make sure people are opening their mail and realizing this is not just another creditor notification, but a real response from the government. >> we are very pragmatic and won this to work. we will act on any reasonable suggestion. for this to work, people need to take some initiative. they need to find out how to make sure to get help. 350,000 families today have seen a dramatic reduction in the cost of carrying their mortgage in ways that puts more money in their hands. the pace of that curve is very rapid. >> i have 10 seconds left. we will be holding a hearing on september 24 in philadelphia on this very issue and we look for

support from your office to ensure we have representatives from the treasury, fannie mae, and freddie mac to go over those programs that you referenced. >> a good use of your extra 20 seconds. >> thank you. >> thank you. i would like to return to a point you raised. the stress tests are affectively the tool by which we have measured the strength of the 20 largest financial institutions. that is what gives you confidence, both that we understand the risk of exposure on toxic assets and the overall projections on how stable these institutions are. the worst-case scenario under the stress tests for 2009 projected average unemployment for the year at 8.9%. as you know, the current unemployment rate is 9.7%, and

the average of the year has reached 8.9%. so, the panel has recommended that under those circumstances, the stress tests be repeated for these financial institutions. does treasury plan to do that? >> i think there is an important thing to start with. the most important thing to look at was the loss rates that were assumed for the worst-case scenario. if you look carefully, as you have done, at the design, the rates that were assumed in the stress scenario or worse than peak losses experienced by this country during the great depression. they assumed roughly loss rates rise as much as 9%.

we are now more in the 2% or 3% range. losses are running well below that level. earnings are running substantially above the assumptions. >> let me stop there. you are the one who put out what the appropriate details were in the stress tests. >> the fed designed it as you expect. >> but you with the one who advanced it. one of the featured album it was unemployment and we all know that unemployment relate very closely to the level of foreclosures which relates it very closely to the value of the toxic assets. >> the framing constrained in the stress tests was the loss estimates that were applied -- those did not relate to the unemployment forecast. >> is not what you advertised

matter? >> our assessment was, we put it in the public demand for everyone to see and assess themselves what the loss rates were. >> that raises the question. we would like to be able to rerun the stress tests. i have understood that we would have enough information about how the stress tests are composed, that reasonable people could sit down, build assumptions, and see how the stress tests would come up with these major banks. in fact, we don't have the data inputs. >> i would be happy to remedy that. >> i will take yes as an answer. >> these were an important improvement in the market's capacity to assess risks in these institutions. you have seen a substantial amount of private capital come

into the financial system. we never said it was sufficient. things could change going forward. i think we have a basis for people to be able to independently assess whether these assumptions were rigorous enough. >> we also ask the question about expanding the stress tests to midsize banks and perhaps even smaller banks in a somewhat modified form. is treasury willing to do it? >> we have said publicly we are not going to conduct a similar exercise bank by bank. >> how about the next 100? >> let me explain what the supervisors have done. what they have done is to apply pretty careful and exacting from work through the supervisory process to the rest of those institutions so that we can have a better sense of making judgments.

it is not realistic or feasible for us to conduct, for the fed, to conduct the level of detailed assessment for this to be credible for a banking system that has 9000 additional banks. >> thank you, mr. secretary. . .

i can find no demonstrable metrics for success by the administration. so can you enlighten me? going through again with the testimony and the substantial reports, the fed and financial stability oversight board providing -- i would be happy to do it. but i do not think we are saying is very -- what you're saying is fair. we can see how much money we're spending, but what is happening to boring conditions? one of the most important things we did with the fed was designed

to provide a backstop of support to the when the markets critical for small businesses, ought to finance, credit card receivables, etc.. and you can see detailed evidence of how much issuance has come with this program, what has happened to the cost, how much is directly funded, as opposed to direct a supported. >> mr. secretary, what you are asking us to do is to draw the cause and effect. have people look at statistics in the economy, but coming from an oversight panel a year, it is hard not to conclude that essentially you have the subjective power to invest $700 billion on a revolving basis on any institution you deem is a financial institution and that any program will be judged as a success if you deem it that after the fact. >> i would not claim that. i would just remind you, congressman from the united states divided the authority

provided. >> you have the ability under the programs designed to say here are the metrics. >> again, this is the great virtue. you can see now is to return when people repay, the prices relative to market, but you can see directly, program-by- program, what is happening to credit conditions. that is the ultimate test, the great virtue. you can do better than that. >> if what is happening in the markets is the ultimate test, clearly the spreads for the month were incredible back during the crisis in september of 2008. by the time your administration took office, they went down from 300 basis points to 20 basis points. since your administration came into power, they are down to 10, so certainly that is an improvement, but it sounds like a lot of this happened from the

previous watch. again, i do not know what the cause and effect relationship is. >> is much easier and more clear than most things we try to measure the effect of economic policy, and you were right to point up actions taken by my predecessor did have an important effect in breaking the panic in the fall of 2009, but it is also true that almost any measure of financial health in this country in january of this year was still in signs of emergency. >> what is the taxpayer getting for their money today? we can debate the purpose? >> i will tell you. we have a financial system that is more stable, credit is more available, people can borrow at lower costs, and you can see in the investments we have made

returns in terms of actual billions of dollars. there is no better measure of the return that anyone could see. >> how about an additional 2.5 million jobs lost, the highest unemployment 25 years, delinquencies and foreclosures up. it is a mixed report card at best. >> it is only now we're seeing positive growth for the first time. unemployment could stay high for some time. we are not close to being through this. but on the clearest direct measures of the program we were tasked with executing, we have made more progress than people reasonably expected. not enough yet, and we will keep at it. >> thank you. >> mr. silver? >> i want to take this from a

different angle. i think one of your achievements, clearly yours, was to put an end to the fiction that all banks were equally healthy. i understand why that fiction was originally involved. i do not think it was done out of bad faith, but it was important to put an end to it. i think many of the characterization's of success that you indulged in with my colleagues are due to unwind and funds from strong banks. they pay them back a profit, and that was never worth the risk was imbedded, anyway. there was always some risk, but it was not there creeks or want to talk about some banks, and i hope he will indulge me. can you explain to meet what a zombie bank is and why it is

dangerous? >> i do not use that term myself, because it does not mean anything. the risk is if you have a banking system without enough capital, they will have to reduce, if they delay a college education for their children, they hope think that is why it matters and it is a good use of policy and financial resources. >> an institution that is not insolvent, but too weak to land. is that accurate? >> i think you have the right

concept. where are you going with this? >> where i am going with this is whether or not you like graphic terms, they sometimes have the ability to clarify things otherwise seem very mysterious. whether in your view, is city groups such an institution? >> no. >> why? >> this will not satisfy you, but i am not -- i cannot talk in this context and i will never talk about the detailed outputs for negligent institutions in our country, wherever they are. i want to return war i began, which is that the best test of whether these things are working is whether you are seeing private capital, private investors in this country willing to come in and provide capital to institutions, provide funding for them.

and one of the great virtues of the stress test was it gave them a chance to make that choice and they basically have since voted with -- >> how can you be sure? i recognize that the cause and effect issues are real. but how can you be certain that what you did not to and the trust -- stress test was a signal that you will not be able to handle these banks, and there is no implicit guarantee, even though they remain at their court -- not really functioning institutions, were to use the graphic terms, zombies. >> again, you are right to point out that we did a range of other things besides just making it possible for private capital to come into these banks. instead of guarantee liquidity, they were important things, helpful for restoring

confidence. but again, i think by any measure, you have a system that we have today that is in a smaller but stronger capacity, and that is the ultimate test of what we're trying to do. >> mr. secretary? >> i was going to ask you about wells. i will not spend time doing that, and you will not answer, and i understand what you think it would be inappropriate to be specific with respect to certain institutions. those three institutions are macroeconomic problems going directly to jobs. as this panel has gone to the country talking to people trying to create jobs, we hear over and over again that the various ways, depending on what it is, agriculture, real estate, large firms, small firms, we hear over and over again that the system is weak and the large institutions are not stepping

up. >> i want to go back to the statute a little bit, because one of the provisions is an audit, and i think significantly it is not government accounting rules, but under gatt and gas, which will be interesting. they will have to get to some of these issues. it will have to do a balance sheet and that sort of thing, and it will have to look at costs. so my question is, first of all, has this been scoped out yet as far as the audit goes? where does that stand? >> i cannot do justice today, but i will get back to you in writing. i know we have something coming up which will include estimates of those measures, but in terms of the gao process, i did not know the details.

i would be happy to have them get back to you or do it ourselves directly. >> ok. another issue that you brought up in your opening statement is regulatory change, that you all have proposed to congress. i guess coming from an independent agency, you know, i value that sort of tradition of independence from the administration, and earlier this year, there were reports of the press about what i would term as excessive pressure from the administration, especially your colleagues on the business working group and elsewhere. i wonder where that stands as far as you're concerned, as far as dealing with others as independent agencies. now part of the administration, of course. and how you view your interaction. >> actually believe there's a

lot of agreement on the things we try to achieve. and in broad structure, with the framework of derivatives we put out, you can see it in terms of core provisions of capital. you heard us a couple of weeks ago. there is a broader criminal crossed those agencies on reforms -- a broad agreement across those agencies on reforms. there are areas where they prefer we leave existing authority. if you have heard from them in public, the focus of some concerns has been where we propose to take authority from them and put it in a different place. most conspicuously in the area of consumer credit protection, where by any measure, to put in a stronger system you have to

put a single entity in, with both the authority to write rules and enforce them. i think that is the best example of where there is still disagreement, and you would expect it. nothing surprising about that. >> i guess we can have another chance to talk about these particular is later on. with respect to the programs under tarp, do you have any expectation of expanding list to have now? >> we tried to provide targeted support for credit markets the search for recovery -- necessary for recovery, and a broad framework in those areas. that was our best judgment at the time about what it would take. we wanted to have some capacity to modify and adapt those overtime to make sure they were doing what they needed to do.

at this stage, we do not have any specific plans to substantially expand the scope, and areas we would target, but it is possible that, looking at the damage in the system remaining, we might make that judgment. but we would want to set a high are doing so because we would want to demonstrate to you that that is an appropriate use of taxpayer money in terms of the returns that we are going to get. >> another issue is whether tarp is a revolving arrangement, with the money available for the future. do you have a legal analysis of this? >> we provided extensive responses with how we interpret the authority, and i think there is broad acceptance, "the view" in the congress by the architects of that legislation that the way it works is this. if it comes back, if the dollar

comes back and substantial billions come back from the financial system, that goes directly to the general fund to reduce debt outstanding. but all was still the best authority to use that if we think we need to do it to help protect the system. >> i would like to see some analysis. >> happy to do that. >> thank you. >> your proposal includes merger of the occ and 02 yes, and i support that change. some, including the largest banks, proposed going further, creating a single monolithic regulator raising serious concerns. creating single regulators as a means of improving financial regulation relies, in my opinion, on the faulty assumption that consolidation leads to a stronger and safer

banking system itself. in my opinion, the opposite is true. such a proposal would increase the fragility of the system by increasing industry consolidation, eliminating needed checks and balances, and subordinating the interest of consumers to the business goals of a handful of banks. my experience, multiple regulators yield better results for consumers and financial stability, much like multiple judges are used in the olympics to arrive at the right score. what are your concerns about the proposals created for a single monolithic regulator, and how important was it for you drafting your proposal that the fdic and federal reserve retain authority to better inform their respective missions of composite insurance and lender of last resort? >> that frame the choices roughly. one thing we had to do was to

eliminate the opportunity for people to take advantage of weaker supervision and flip their risk. one of the principal examples, unfortunately, was in the difference between thrifts and banks. we thought that was an absolutely essential condition to reform, eliminating that. if you look ahead, there is less evidence that having the system we have, with two entities responsible for different types of chartered banks alongside a single federal supervisor would create really meaningful risk arbitrage and future critical look at the standard by bank supervisors in general or even applied or more effectively enforced, we do not think it was necessary or desirable to try and force all of that into one new entity, probably because of the concerns about concentrated

power and having congress do a lot in the short time, and the guiding principle affecting our choice was to sit and we wanted to focus on things that were essential, and not those that were desirable but would not offer a benefit proportionate to the political difficulty or practical difficulty of doing it. and further consolidation of supervisors, we did not think met that test. we're open to suggestions, and if there is will in the congress, then it we would be happy to be supported -- supportive of that. >> and you would share my concerns over the role of checks and balances? i use as an example the role of the independent fdic and raising issues to the importance of the leverage issue in the regulatory scheme? >> there is virtue in that

multiple pairs of eyes looking at this, but regulators experience risk, too. we do not always get that right. but we will be open to suggestions about getting that balance better. >> aig has it received about $70 billion in tarp money and $100 billion in loans. do you know where the money went? >> absolutely. i would be happy to provide any details you like to see on this. the money in that context went to help stabilize institutions fatwood have post, we think, very substantial risk of systemic failure. >> maybe i should ask with more

specificity. were treasury's aware of the parties that would receive payment in full on the credit defaults what? -- swap? >> they have hundreds of thousands of parties. i'm sure the supervisors and the people at the fed on the front lines had detailed access. i think they could have known. whether they knew at that time, i'm not sure they knew it. but of course it would have access to that. >> about the members -- >> many of the counterparties are institutions, supervised all the time -- >> but they were holding pieces of paper from an entity that is clearly insolvent, and the question of the government infusion of dollars there would

make the difference between whether they got paid off in full or ended up with nothing. >> right. but let me finish. what would you like to know? >> i just want to know, did treasury have conversations with the parties who ultimately profited? >> i do not know. i was at the new york fed and central to the basic judgment we reached together to prevent g e, and your right to point out that that action did help make the station more stable, including the direct penalties. but one more thing, to the premise of your question, the reason why aig posed systemic risk was not because of the direct exposure of those institutions, those counter parties. the biggest risk of failure to

the system is in the damage it would have done to both retail people who bought insurance protections from aig, as well as the type of risky saw lehman present. is a more complicated picture. >> we just finished our report, chrysler and gm insolvent, aig insolvent. they have secured creditors and employees and all took big hair cuts. aig had people hold their credit defaults swaps. we took no hair cut at all. they give us money from the federal government, 100 cents on the dollar, and i have to understand what they are different from one another. >> that is the tragic failure, because we did not have the legal capacity to manage the orderly unwinding of a large, complex financial institution.

we do have a capacity for small banks and thrifts, but not aig, said that forces us to do things that we would not normally do. we would have done in a second if he could have done that, but in deciding that, we would have presented the risk of further systemic damage to a fragile system. by preventing default, we help them meet the immediate obligations, not just for insurance protection, but for broad counterparties. that is the consequence of that. and if you think through what happens when you let the default happen, you can look at the wake of the trauma caused by lehman's to fall to get a sense of the damage second cost, and that is why -- you can look at their

default to see the damage that cost. and that is why we're working at better tools for the future. >> a year ago, we were worried about banks being too big to fail. but they have gotten bigger in the last year, and some experts estimate that a thousand banks could disappear before this crisis is over. are we more at risk than a year ago? >> i do not think so, but it depends largely on what congress ultimately decides to do it termed the financial reform. -- in terms of financial reform. the only way to deal with the problem is to make sure there are a set of reforms in place that make us better able to withstand the failure of large institutions so we do not have to intervene to protect her money at risk to prevent them

from more orderly resolution, and that requires more authority, stronger capital, a whole set of cushions and safeguards that limit the risk of contagion is spreading, and that is what reform is so important, and that is the only way to make a system safer for future failure. >> thank you, madam chair. mr. secretary, i continue to be concerned with the chrysler and general motors intervention, and you are well acquainted with the facts and reorganizations. gm and other bondholders were asked to swap 27 billion in debt for 10% common equity. the uaw agreed to swap 20 billion for 70.5% of common equity, 9 billion in pervert -- preferred stock, ending up with

55% of chrysler, 17.5% of gm. when you talk about the success of your administration in stabilizing the financial markets, i'm very concerned about how with senior secured bondholders go, we see the uaw receive preferential treatment. warren buffett said if priorities do not mean anything, that will disrupt lending practices. that would have consequences. the wall street journal, some would say the investor journal, wrote an op-ed-in may, saying that by stepping over the

arbitrary behavior of men, president obama may have created 1000 new failing businesses that could have received financing before but now will not, since lenders pace -- faced potential confiscation. this undermines the reason for buying a bond at all, except a lower return to exchange for legal guarantees that will in turn reduce the willingness to buy bonds. that seems anecdotal. when i speak to investors, i believe there are hundreds of billions of dollars sitting on the sidelines, not knowing what the policy is, concerned about the potential to confiscate their investments. i have small businesses throughout the fifth district that tell me they cannot get lines of credit. so i know there is a huge stabilization. i'm not sure there is a lot of

improvement, and i question what precedent you have set and what the impact is for financial stability in treating the uaw so differently than creditors were equal. >> i know you have had testimony in this before, and i understand your concerns. many people have raised them for some time. but this was a process overseen by a bankruptcy judge. that looked at the terms of the agreement and reached a judgment about whether it was acceptable. >> it was financed under tarp. >> and i know you oppose the action, which i understand. but we took this action because we thought it was important and effective to do in the face of

this crisis and recession, and i think this will be judged as an exceptionally well divine -- well-designed dramatic restructuring. it goes well beyond that which was contemplated by members of this congress. >> another aspect i do not understand is how fiat is brought into the deal. 20% of chrysler, up to 35% if they produce cars that receive 40 miles to the gallon. i know the president and administration are passionate about their global warming agenda. we can have that debate. but i am having trouble finding out why fiat, who was not owe it does live -- who does not owe a dime, " having them use taxpayer

money to produce these cars in the future had anything to do with protection our financial stability. i just do not get it. >> i respect what my predecessor did in the automobile industry, but companies are not forced to. it is the use of what congress did best. >> bank. mr. silvers. thank you. >> my colleague appears to be under the misapprehension that you are in bankruptcy judge. >> last time you asked if i was an investment banker, and i said no. but i have also never been a bankruptcy judge. >> the term banker does seem to apply to the federal reserve bank of new york. >> that would be stretching the

definition. >> is not a bang? -- is not a bank? -- it is not a bank? never mind. a provider of financing makes strategic decisions about how they want the money to be used, right? i assume the treasury would, as well. >> yes, and we did what was best for the taxpayer, and those judgments were overseen by a bankruptcy judge. >> let me move on. you made some references to regulatory reform. one criticism of a program which i believe is a serious and positive program put up by the illustration is the criticism that it does not really deal with what structurally went wrong in our banking system and

markets in that it does not deal with the combination and risk associated with investment banking, and in particular proprietary trading, combined with insured deposits. i am particularly concerned about this problem because of, to go back to my prior questioning, the zombi bank problem. if you have weak financial systems with an explicit guarantee that has not been dissolved, they are very weak, there's a temptation to gamble that is almost irresistible. can you comment on how this will be addressed in the program? >> >> we have to make sure that there is insurance against risks for the future.

it is like a rainy day fund, that they can draw on. it will make the system better able to understand the risk of failure, and that is the centerpiece. and there is more capital held against the riskiest activities. it is probably the most important thing we can do. if we talked to the strategy of guaranteeing the financial system, not conditioning our insistence on the restructuring, i would be more worried about risks attached you refer to.

>> is it your view that an aggressor proprietary trading desk is consistent with allowing -- consistent with being part of the holding company that has significant insured deposits, as a wise form of public policy? >> you should hold capital against risk you take. we will be looking at this crisis for a long time. most of the losses that were material for the weak and strong institutions have not come from those activities. they came overwhelmingly from what you could describe as classic extensive credit, particularly where they are backed by real estate, and those classic banking decisions -- and this is the crisis -- >> if you look at where the holes came in the commercial banks, they were substantially -- i give one example.

we did not make any subprime loans. at the capital markets desk, they were in the business of repackaging other vehicles. do you disagree with that as a characterization of how we got there? >> these were extensions of credit. if firms were not forced to hold capital, we will be vulnerable again. we are not want to let that happen. >> i'm glad you have confidence in capital, but even with the levels you were talking about, it would not have prevented what went on last year. so some of it is flying by the

seat of your pants, ultimately. one of the central things is predictability, because as he talked about aig, if you go back, it is a debate for a different time. but turning around to freeze up the marketplace, people are concerned. but i want to get to the public- private program to get to where that stands. the two basic programs and the loan programs. the legacy in security program is one that has been going, and i'm wondering where that stands, how many purchases have been made, and if you view these as bible and the great scheme of instruments out there

-- viable in the great scheme of instruments out there? >> we selected to raise capitals. all of them are raising a lot of interest. soon, there will be a position where they are buying securities in the market. but you saw when details were put out a pretty significant effect on prices. the prospect of financing capital coming in did help improve liquidity in the markets. so as you saw before, we expect less demand for these facilities and was initially expected, in part because liquidity has improved, in part because more capital came into the financial system. but i think it is worth going over, and if there's a high return, then we would be open to expanding further. >> i think we can say that for

another day, and your time is short. i will give him an activity, as well. >> you're right to say that if you look back over the arc of the crisis, one damaging thing was the lack of clarity over whether the government would step in and stabilize the system. but to be fair, it was largely the consequence of the fact that until congress acted, the government of the united states did not have the authority to step in and provide capital, and only with that authority and subsequent actions were we able to have the tools necessary to stabilize this thing. clarity about strategy matched by resources and authority is central to confidence.

and this crisis was more damaging and prolonged because of the constraints put on, and that is something we have to fix. we cannot go into a position where we put ourselves to the next potential risk with that limited set of tools. that is why the authority is so important. >> i am not sure that your proposals will do that, actually. i think they raise other issues with the systemic regulator. it could be an issue for another time. >> again, we welcome the chance to talk in more detail about it, and we do not claim a monopoly of wisdom. we expect our approvals to be refined as they go through congress. but one thing to recognize is that we cannot go back to where things were with that much risk and so few tools.

>> we're down to our last question. >> ipod the administration for taking the long steps with respect to financial services. i share this commitment to protection, and strongly agree with your proposal to empower states for consumer protection, particularly by karen tiring -- by guaranteeing. but first, i have a fundamental concern about safety and soundness. these are not conflicting missions. isn't one of the primary reasons that a loan that is unfair is not a safe and sound love? doesn't that lesson argue for greater integration of the two disciplines into a holistic approach to supervision, rather

than further segregation? i would also question whether it is necessary to create a new organization, with all of the unintended consequences it would bring, or whether expanding an agency like the federal trade administration, which its strong track record, may have a better ability to expand the goals of regulatory reform without creating new bureaucracies and costs. my question to you is what thought, if any, was given to alternatives, such as expanding the position of the reserve board or expanding the jurisdiction of the ftc or a similar agency that could better protect consumers and not create new bureaucracy? >> we looked at a lot of models and thought about the concerns you expressed. we have been living as a country with a system where we gave bank

supervisors the primary responsibility, and how did that turned out -- turn out? it did not work. it has failed in its most basic mission, and the reasons were complicated, but i think we had a test of the viability of the model that combines the authority for provisions for protection and the judgment we reached was based on experience over many decades, several recessions, past crises, that you need to put authority in a single place with the resources. by clarifying where authority is, we will not be adding to the overall authority of the system. ftc has a great job and a lot to do. and in credit, it is very, very hard.

looking at the best path forward, but i understand why you are a supervisor and why many supervisors look at the prospect of a different model and can be uncomfortable with the implications of change. but i think the rules would be poorly written. >> but you do take strong action with respect to mortgages? >> i agree with you, and they provide reforms in the mortgage area, as well. but he said the important thing. when did those rules,? the federal reserve was directed to have the governor on board?

>> we have to make a gesture with congress about what will be most effective, and we have had a painful experience which gave those entities responsibility for rules and enforcement, and it was a damaging failure. some of the most damaging things happened outside banks, and part of the failure of the system was not to provide bigger protections, and that is the centerpiece of what we propose. let me move on to another area that is arguably not getting as much attention, and that his products suitability and effective disclosures. consumers and investors new disclosures, not just more pages of print. for example, made the suggestion of a nationally recognized rating system to communicate chronic safety and complexity, perhaps along with a one page or two page summary.

i often compare this to the system on ski slopes. when i am on top of the mountain, i cannot imagine screaming without a green, red, or double diamond. >> when you compare that to the recommendations we made, we're open to suggestions about how to get it better. >> we are out of time. >> i heard you, and we will try to respond. we will do as much as we can make sure you have good representation. thank you. >> thank you very much, mr. secretary. we appreciate you being here and giving detailed answers to your questions, and we look forward to seeing you soon. >> thank you very much. >> this hearing is concluded. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2009]

>> up next, the senate banking committee looks at sec officials who investigated fraud committed by bernie madoff. then, comments on health care for president obama and

congressional leaders. later, and look at a campaign finance case currently before the supreme court. >> tomorrow marks the eighth anniversary of the september 11 attacks. we will have live coverage of the pentagon memorial cemetery -- ceremony, including remarks from robert gates and president obama. that begins at 9:30 a.m. eastern. this weekend, the role of conspiracy theories in history and politics with the author of "real enemies," catherine olmstead, on c-span two. >> now, the investigation into the bernie madoff $55 million ponzi scheme, and why it could

not be identified. also they are looking into how to improve performance in the committee. it runs about 2.5 hours. >> the committee will come to order. let me thank all of our guests here today thank the staff let me thank the staff. this hearing will conclude the examination of this question, because this is something the americans are well aware of, including twin mr. madoff and others in which his contempt for the sec and american people is quite evident. obviously, as he says, first of

all, this conversation never took place, some indication of what an individual we're dealing with on these issues. i want to make some brief opening comments and then i will turn to senator shelby. following the bob corker rule, there will be no statement by any other member of the committee until the opening. >> is that we have to be thankful to? [laughter] >> i do not know. i was teasing him a long delay. again, if anyone feels compelled to throw something out, i will try to accommodate your request. but i would like to go long and covered ground. bernie madoff stole $50 billion, maybe more.

stole from pension funds, charities, and municipalities. he stole more than money. he stole the retirement savings and economic security of families and individuals, organizations, charities all across the united states. and the very agency charged with responsibility of policing him, the securities and exchange commission, did not stop him. from there can be no excuse for that failure. with democrats and republicans, the victims of this fraud, some of whom helped my home state and many across the country who have testified before this committee also demanded an explanation. how did this happen? what went on? who was on the beat? what went on that allowed this thievery to occur? today, we hold our third hearing on ponzi schemes and are second on the madoff brought, -- made

of fraud, to find out how this could have happened and what we need to do as a government, a commission, as well as the congress of the united states to minimize this ever happening again. it emerged last year that the staff of the sec had received over 16 years, from 1992 to 2008, that bernie madoff's business was not legitimate, but had not taken action. to his credit, the inspector general, christopher cox, conducted a full investigation. he released the report last week. it is deeply disturbing, to put it mildly. as the report indicates, the sec received more than ample information in the form of details and substantive

complaints, but a thorough examination was never performed. the report goes on to describe an embarrassing series of internal failures. one is directing supervisors' offices to look only for the types of fraud they understood and failed to recognize the type actually been committed to the madoff case. no. 2 -- inexperienced staff simply accepted his claims without making a single phone call or sending a single letter that it would have taken to verify the information that was given. number three, no one ever thought it merits a closer look when mr. madoff said he traded in europe with a firm that reporter there was no account activity. and fourth, divisions and officers failed to coordinate shared information. this is all leased tough -- ugly

stuff. because the task of following up on information was assigned to junior staff were supervisors with insufficient experience in the securities market, because they failed to take simple steps to verify what was told them by mr. madoff, and because their supervisors discouraged further investigation -- in short, because the sec failed to do their job, bernard madoff stole $50 billion. to date with your complete called inspector general about his report.

guest is an investment analyst to continually attempted to get fcc -- sec attention in regard to the madoff fraud and his ideas about improving the organization, and we will hear from the division of enforcement about what the sec has done in light of the revelations, and about what chairman shapiro intends to do going forward. there are several clear steps that i believe, and i hope my colleagues and others agree, need to be taken. the sec staff should be trained in market and investment strategy so they can no -- no fraud when they see it -- know fraud when they see it. they should be able to verify statements made by targets in investigation, and coordination between the sec office and

divisions must be improved, a point i will come back to over and over again. the sec is not the only organization suffering from stovepipe mentality. but here, you share knowledge arriving at decisions deciding whether or not to go forward in matters like this. lastly, there should be hints and allegations, involving articles in the press. many americans have been following this event since last fall. i'm stunned and angry, as are many people in the country, that this frog was allowed to happen. but i also believe that the sec can do better. a lot of people work there. this is not part of my prepared remarks. i have high regard for the many people who work there and do a

terrific job every day. i do not want this to be seen as a sweeping indictment of everybody who works in this organization. far from it. i have high regard for people who dedicate their lives and work long hours to ferret out fraud. we need to find out how this happened, and how we can step forward. to reflect respect for the hundreds of people who dedicate their lives to this agency. i thank you for the work you do. we're going to ask you to help us to make sure we minimize, if not prohibit, this type of event ever happening again. i get email every day from constituents of mine in connecticut, not wealthy people. these people work every day, hard, to save and retire to by security for themselves. they have been ruined in their minds by what happened. they have been wiped out by what

happened. one constituent test but in january before this very committee about what happened to his medical practice. they're devastated. i do not know if there's any way to adequately compensate them. but we have got to make sure this does not happen again. i do not want every individual to feel that somehow this is an indictment across the spectrum of everyone there. but clearly, we have got to do a better job. a mob let me turn to senator shelby. >> thank you, -- with that, let me turn to senator shelby. >> thank you, mr. chairman. bernard madoff confessed to running in multibillion dollar, multi-decade ponzi scheme. we're trying to understand how

fraud of that magnitude could go undetected by the securities and exchange commission by so many years. in the intervening months since his conviction, the sec inspector general has been piecing together what really happened. his report sets out technology -- chronology of 15 years of considerable incompetence. they found that the office of compliance inspections and examinations and the division of enforcement at the securities and exchange commission were made aware at least six times that there might be something wrong with madoff's firm. potentially fruitful leads were not pursued, while significant resources were devoted to running down clearly ineffective maneuvers. investigations were unfocused and improperly documented.