administration then all of those other presidents combined. guest: in the last case, i am sure he is including 9/11. it heart of that attacks soak overwhelm the other terrorist attacks, so that is absolutely true, and i guess that is counting the service members who were killed, so that is true. then you get into the debate of what the situation should have been. what was his first point? host: i apologize. i have forgotten. guest: the core group is using suicide bombers. i guess that is the ultimate level of intensity, so there is still the fact that the court that is still fighting is as phanatic -- the core is still fighting as a fanatic. they can be just as phanatic. and that is, there are some

signs of progress -- just as phanafanatic. again, we saw these in the european cases. they are not as good. there are not as many. they cannot vet them in their training camps, but the court that there is still fighting r -- tothhe core is still as fanatic. host: what about an imam pushing this forward? >> they are focusing more on more -- more and more on local foot soldiers, and young men, usually between 18 and 29, who go to a radicalized mosque, and it is preached that the west is

their enemy, and they decide they will do something about this, so these imams, in almost every case, they are recruiting. this. host: if al qaeda was dismantled -- guest: if it went away, we would guest: if it went away, we would be much safer. that means they were a direct threat. i imagine there was some hope

that these conflicts were localized. if they have now identified pakistan as a weak link. we have to worry about anything that might suggest it would fall into the hands of radical islamists because they have the atomic bomb. host: do you think we are safer? guest: absolutely. host: but why? guest: we have put them on the offensive. we have focussed now. we understand the problem. we understand you have to make out reach to muslim population

in europe. we have to watch who comes and goes from tribal areas of that area. host: have we made mistakes? guest: of course. host: where? guest: i'm in the camp that thinks iraq was a huge mistake for starters. the original strategy was to defeat the west and to withdraw support from all these regimes. the fight was afghanistan. iraq was a huge i do version of resources. caller: my heart goes out to

all the fooinl victims. i'm wondering do you think we are safer now than we were. also bush and chepy have been criticized so much for the war. why, why has the vietnam war -- they have not been ridiculed for this. my husband was in vietnam. we lost all our friends in the vietnam war. what's going on here? what's wrong?

every time the current president opens his mouth -- george bush is not president anymore. the bush administration can rightly be krit sdiezed for a lot of things. >> it is a mixed bag.

if you take poles now, it shows muslims are turning away from al qaeda. part of the reason is because they don't view america so poorly. the screenings we all go through in the airports. it's a mixed bag in this town. host: round lake, illinois. phil caller: my question is. as far as safer, i don't think you are right. they killed a couple people the

first time and kimmed over 3,000 the second. with the findings to make us safer, we don't really know who is coming in and out of our country. we still have 100,000 migrants coming into the country. i just pray the american people keep us safe.

bush didn't keep us safe. we kept him safe. guest: we are not safe. i didn't say we were safe. he makes a good point. securing the boarders is probably impossible. we haven't done it very well. we'll tried. all these thwarted plots show we have made progress could another attack happen? absolutely. host: secretary of state, robert gates will hold a memorial. the president will be there in

about 10:00. after this call from austin, we'll take you live to watch. austin, texas. caller: thank you. it wasn't the greatness of all kieda that caused fooim. the f.b.i. lady knew they were flying planes. we never did follow up on that. there was a document out that bin laden had planned he was going to do something to attack us by planes. host: what about intelligence sharing within the u.s. guest: he's exactly right. there were terrible intelligence lapses that lead up to 9/11.

we have developed this intelligence czar and we have worked together an intelligence center where f.b.i. and tomorrow he talks about health reform and this tax pair march. perry began previews a taxpayer rally and susan need eley

discusses her opposition to tax on sugary drinks. up next, timothy geithner updates congress on the troubled assets relief program. after that, a discussion on the importance of elementary and high-school students studying engineering for the then remarks by onto a merkel on troop actions in afghanistan. -- engineering. then remarks by angela merkel on to the actions in afghanistan. >> 1.7 million immigrants each year are followers of islam. reflections on the revolution in europe. >> not timothy kantor testifies

about the troubled as a tree the program otherwise known as park. he is speaking to members of the oversight panel which is treated to oversee the spending of tarp funds. this is about an hour and 45 minutes. >> 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 this week, it is expected that your regulatory reform i will be asking about your vision for developing a regular -- a regulatory architecture. i look forward to your testimony. >> thank you promot. let us go forward. we've received your remarks this morning. thank you very much. they will be part of the back it. -- part of the record. we will have more time to question you and your answers. and when to as the to keep your remarks to 5 minutes.

>> it is a pleasure to be here again. this my first time testifying this year. i am glad to hear you want to see more of me. i think this is an important part of the process. it gave the gao a demand. we take the process very seriously. we have examined everything you ever in ended up the many recommendations of the oversight panel. i think they have made our programs more effective. i welcome that. i was a rigid diet thank you for your thoughtfulness. >> -- i want to thank you for your thoughtfulness. i work with talented and

dedicated people. 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@@@ i do not think he can read the statute today. you cannot justify it beyond the scope of the actions taken this context. >> the legal interpretation of the steps to -- of the statute is the change in a couple of months. -- does not change in a couple of months. >> you have to pass to test to meet this authority. one is, does the law give us the authority to act? the other is, are this actions

necessary and prudent in the interest of fixing this mess. 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 based on the benchmark of reaching 3 million to 4 every set realistic and -- indications sex is the real risk in converting those -- -- it indicates it is a real risk in converting those? >> the numbers we have approached the car almost the level. it is not enough that you have something -- it is not enough

they have more than 350 households benefiting from substantial reductions in interest rates. you need to make sure those are converted into things that will work overtime. we are very focused on making sure this program reaches as many 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@@@@@@@@@

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.

,daá 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. >>uá@@@@@ @ @ @ @ @ @ gp dz@ @

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 å@ @ @ @ @ @ @ @ @ @ @ @ @ @ @

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]

the senator this morning on generous 162009 was replacing joe biden. this senator advocated for new innovation.

in june, he introduced an act, bipartisan legislation in effectiveness of certain efforts. he worked for the phone company. he had an undergraduate degree from duke university and an mba from the wharton school. thank you for being here today. [applause]

i really think this is an important area for the country. i became an engineer nearly 50 years ago. many americans are inspired to become an engineer with a sense of patriotism. young people all across the country knew that america needed the intellect, creativity, and innovation that we could provide. we met the challenge head-on. that was seen when we sent the first man on the moon several years ago. i truly believe that engineers will once again help us meet the obstacles we face. not only does that mean tackling in solving the world's most

daunting challenges. it is amazing. the young people today want to make a difference in their lives. the problem is that they do not perceive engineering as a way to do that. that is ridiculous. we need to we brand engineering and that young people know that's the way to make a difference is to participate as an engineer in green revolution and the alternative energy sources. there are many things that we can do in the coming years. engineers have always been the problem solvers of the world. we have a history of making a difference in the lives of people. clean renewable energy, affordable health care and others. these are rate can fall of the great challenges the young engineers who set personal goals and helped to achieve. if we are to tackle these

immense challenges, we can no longer wait to begin training our nation's future engineers until they get down the pipeline. we are offering an aggressive agenda for improving k-12 education. if you cannot get a young person interested in coppola's while in high school, you probably -- calculus well in high school comedy probably will not get that child to go into engineering. people talk about how you can make education fund, calculus is not fun. you have to think that there is some reason why you are going through the pain of calculus. that is why we have to give our students and incentive.

i did not do as well as i should have. my mother told me, that if i did good on my report card i would get rewarded. we have to tell them that if they want to make a difference and solve the world's problems, this is how you are going to get there. what can we do better? efforts have focused on mathematics instead of technology. as the committee said, there are some efforts to engage students in rolled efforts -- essential skills in the 21st century is science and literacy. engineering is very important. young people can make a

difference through engineering and tackle the challenges of the 21st century. this type of learning may improve students' learning in science and math. the increase their technological capabilities. it could boost their interest in pursuing a career in the field. there is some untapped engineering potential out there. we cannot afford to let engineers fall by the wayside. here are some things i think we should do. engineering and innovation are the key to success in the global economy. i believe this from the bottom of my being.

these are keys to economic success in the global economy. we need significant private investment. one of the good things we did recently is that the american recovery and reinvestment act has are provided over $20 billion to science and research. the science and engineering community must show that stimulus funds dedicated for research development is important for innovation that can be translated into helping the economy. engineers and scientists have thought before putting us on the path of economic sustainability. it will drive the real world applications from our nation's health and science to improve

our quality of life. these innovations will create millions of new jobs and invest in our future. the science community must connect the dots for our public to see the stimulus funds work for us all. we must encourage a new generation of engineers of policy that promotes education. earlier this summer, introduced a particular act. this bill is identical to a version that passed overwhelmingly in the house and will ensure that our current education programs are working efficiently and as effectively as possible. it will establish a committee in the national technology council that will coordinate stem activities.

we have evidence that demonstrates that. these include federal stem of programs working with various departments by the department of education. current stamp programs should operate efficiently and effectively. that is very important. having three daughters, we must promote policies that encourage women and underrepresented minorities. women acetate have of the workforce. there 12% of the science and engineering work force. african-americans hold 4.4% of the these types of jobs. we must do better. we can do better.

a strong support of the participation of women and underrepresented minorities is encouraged. of the bill which passed last month includes $500 -- $500,000 to fund research grants for women and minorities in the stem field. this is a small but important first step that we continue to build on from year to year. at america continues on its path to economic recovery, we will look at those stem fields to solve the problems facing our nation. there is a cell for -- silver lining. you can have changed. we are going to have to change.

we have to determine how we should change. we have to inspire students as we did for the race to the moon to face the challenges facing our world. what better way to do this than through engineering education? if given the opportunity, and you'd generation of engineers and scientists will step forward to meet this challenge. thank you very much. [applause] if anybody has any questions, i will be happy to try to answer them. yes.

>> there have been some efforts in the past to do certain things. the think we can do them better different lane? >> i think if we passed the bill and put it a permit in, -- i think there is change coming. i think people are aware of it. you cannot solve problems especially the federal government by putting them in a box. i think one has worked together well. one term was used by the previous speakers. i think i think we can have the

agency's work together. i do think it is time for change. we did not try that before. >> i think we will start regarding some technology and education. is it as important as science and math? >> yes. i hope what is going to happen is going to get better and engineering will be at the top. i was there when we went through the sputnik thing. everybody wanted to be an engineer. i'll i am not denigrating anyone.

when i got to college, high school, everybody was really smart wanted to be an engineer. i have watched that turn on its head. the top students are now going into business. many are going to wall street. there are cycles for different things. i think the key to this, i really america's future -- economic future not environmental future or political future but economic future is tied to all of the screen technology. hopefully hopes will be lifted so we do not have to do it a report like this where we do engineering and technology and things like that. some people can argue with me but during the late '50s and

'60s, engineering was evolving. we were -- yes. >> i wonder what your thought is on the efforts between the federal agencies, the people on the ground in the business -- there is a lot of bring technology. a lot of innovation with firms that i know of. a lot of it does not seem to correlate well with the teachers and schools. we may be next door to a big engineering sector.

there is not good coordination. what about bringing those three groups together? the three major big players. >> it has to start at the top, out with what the president is doing. let me talk about green technology and jobs. i do not know if many of you know john dor to is a venture capitalist in silicon valley. he talked to the senator's it was about a couple of months ago. he said if the internet is x green jobs are 3x. we have been looking at this all

wrong in terms of climate change and what this is going to mean. the good news is it could be three times bigger than the internet. the bad thing is that the united states are not involved in it. that is what he was arguing for. the spent a couple of months intervening and looking at these things. this is where it is. it is going to be that way. this is not going to require some extensive coordination. everybody is going to be trying to figure out how i can get a piece of this. the big thing people say is that why do we spend so much money on stimulus? if we come out of stimulus, economic recovery next year and everything is fine and we have not done something about a green jobs and health care technology,

what we have done is we cannot compete. the chinese have figured this out along with europe. the chinese had figured out that this is not a burden, this whole climate change, energy, pollution, clean air and water. they can either let the rest of the world developed the largest industry in the world and come to them or they can develop it themselves. they have decided to develop it themselves. my hope is that this will not take a mechanical -- how many of you know about one program? i went to it the other day. it is incredible in terms of -- dupont is very involved in

helping the students. they can see engineering up close. many students are considering engineering for the first time. it is incredible. it goes to show people what to do. hopefully, we will do better at this. ross perot said there is a gigantic sucking signed -- sound -- copley we will have that found at the top saying that we need engineers and that is where jobs of going to be created. when people tell me they have to worry about their grandchildren , they are usually talking about the deficit. if we do not do something about a green technology, the deficit will not be a factor. we have to spend money on science and technology and education.

thank you. >> what can we do to make sure that this is a bipartisan issue in congress? >> the show them the facts. this is where the action is. this is where it is going to be. i think we can do it. i think we have to do it. i do not think it is that hard if we decide that that is what we are going to do. people in this room are very helpful in terms of giving under

pining that is intellectual for this thing. how will spend my time in the senate pushing decision makers to move. i think the president understands this. i talked to secretary steven chu, and he gets it. i think he is one of the most articulate spokespersons for our cause going. he is a nobel prize winner. he can bring it right down to actual cost benefits and things like that. we have a lot of problems to overcome. the good news is that this is a great opportunity. the bad news is that we are way behind. i think that is the driving force. it is not going to be about electing republicans or democrats. there is always the partisan problem of not -- republicans

not likely to spend money on expenses on things like that. the president is clearly behind this. it is clearly our future. i think that is finally getting through to people. i am very optimistic on this thing. you should never let a crisis go to waste. we should not let this crisis go to waste. this is our opportunity to do something. from there are certain times when there are opportunities. you can work or work on something. there are other times when the sun comes through and people understand. i think we have an incredible opportunity to make a difference for the future of our country and our grandchildren and great- grandchildren and our great great-grandchildren. thank you very much. [applause]

>> here is our next speaker. it is lend. she received her ph.d. and master's degree from princeton university. she received her bachelor's from drexel university. she was a professor at the university of michigan.

she is a fellow of the american geophysical union. she has served as a member of the governing body of the engineering association. here she is. [applause] >> talk about a hard act to follow. i did not expect to be the last speaker of the day. i appreciated the invitation to be here. i was on the committee. -- i was not on the committee. and speaking about higher education today. we have a center for engineering education and an outrage. i do not usually speak of this myself, but my director usually gives these talks. this is the first time i have had an opportunity and what we are doing for k-12.

we had a technology problem with the video. sorry. maybe we can bring the lights down just a little. is that possible? i thought i would give a few questions. why should engineering schools look at k-12? what methods and tools are needed? i will give you some of my thoughts and how they going to the recommendations on how the committee is going. i was asked specifically to think about how we should change higher education to

change things in k-12 and where we go from here. you have heard a lot about the pipeline issues. engineering schools are still concerned about the pipeline. if we do not attract underrepresented groups in engineering, we have to educate more. women earning bachelor's degrees have been dropping. caucasian males account for the vast majority of our students. there is an interesting recent article. it says that there has been a slight decline but an increase of underclassmen. if you look at the statistics, women are at 17.4% of

undergraduate students. that is a decline from 20. i am not so sure it is a slow search. i do think the economic crisis, climate change, is creating an upsurge in the interest we see in students. this may translate into more interest in science and technology and engineering. i hope it does, but it is too early to say. we have a very progressive legislator. we have a testing procedure. this is an article that appeared a few years it said the failure rates at urban high schools suggested that in urban high schools, 60% of students were

feeling the comprehensive exam and engineering is one of the subjects on the exam. all high school students have to pass one of the science tests or engineering tests to graduate high school. a couple of years ago, only about 2% were considered to be advanced in science -- in technology and engineering. about 24% were failing. those numbers have changed a little and improved. just last week, there is an article on the front page of the globe saying 6000 seniors are in jeopardy of not graduating right now. this will be the first year it goes into effect. i am not sure what they're going to do, because i think they have three more chances to pass. we have put these exams in place, but we have not met all

the changes we need to make in the system to support the students in achieving the goal. we started to include math in the licensing for the test in inspiring teachers. a great percentage failed. they never had to pass math requirements on these exams. we are in the process of elevating imported math and science technology in engineering. i think states believe the importance in the state economy as well as the national economy. i think this is a good thing. we have to figure out how to provide educators on what they need. we have to worry about the

pipeline. we have to figure out how to help with the education of those students and the attraction of underrepresented groups. we are concerned in elevating the profession of engineering. we would like to increase technical help. there are some benefits that have not been discussed very much. there is a way to engage in retain students in college. we have a program. 60% of students in that are females. it has doubled in the representation. this is not talked about enough. being involved and engaged in these activities can improve the skills sets of our students.

something mentioned recently is that it can help with the academic partnership. it is a good basis for creating a good partnership. it stimulates innovation educational tools and technology, paradigm, an interdisciplinary research. all that is important to us. those are indirect benefits. i want to talk about that. this was mentioned earlier. my predecessor is not the director of the boston museum of science. she was very involved in this for many years. he is leading the development engineering and technology lessons for children. you heard about the success of one school. those are what i would consider more traditional schools. i think the place that higher

education can assist is the development of other tools. the senator mentioned lego engineering. one is a developer of a world will lab. it is a programming language based on -- one developer works on robo lab which brings robotics down to middle and elementary schools. it is a set of materials and a way of approaching products that are not as messy as the others. there is a graphical programming language allows it to help elementary schools all -- students all the way up to college. they help the undergraduate level as well. this is when technology got away from us. i should be able to open this.

sorry. i should be able to open a folder and play this video. this is a short video clips of some middle school girls. that shows you some of the excitement that comes with this program. it has been really amazing to see the enthusiasm of these kids get generated. the other system developed is stop action animation software. there is software that you can download. we have some registered teacher users. it is used on all seven continents. the network is a great way of disseminating -- disseminating information.

then i closed up? one moment. this video was of a first grade project. they had to produce a video using stop action animation software. this is the effort of a first grader. there is no sound. [laughter]

[applause] my understanding is that this is project-based learning. they have to concede a project and figure out how they are going to present its. it has been a real success. now i want to turn to how we educate the educators. there is a program i am aware of. we talk about attracting math and science experts into teaching. we are talking about as exciting the existing teacher and others. you teach if you are not familiar is the program out of austin, texas. it received a big grant to expand engineering. this is in partnership with college education. the concept is to bring the

students majoring in engineering into teaching. it allows them to get the certification. that is one program. there is a similar program that needs to be adopted. we have a very active program that was founded in 2001 through a private grant. we are bringing undergraduates into the classroom. that video that you saw was this type of video using legal engineering. they have models that they bring in one hour a week. there is an online community. it was founded in 2001. there have been a number of

other universities since then that are part of this network. just last year, we made some additions. now i believe the figure represents 30% of mechanical engineering undergrads. we have more than 60 students every year participating. 60% of them are females. i want to show this video. you can imagine how it is working. we also have others that we bring in to help with working in the classroom. in terms of impact, we have

about 3200 participants in the conferences. that was in 2004. we have at 5000 visitors to this network in the last year. we have several thousand students who left an impact. mckenzie that we are having an impact even though we are a smaller institution. -- anecdotal evidence for benefits. we do not have a lot of hard data. do is going to perform this research? this is where i think higher education can be of assistance. we instituted a joint program with our education department in the school of engineering.

the goal is not so much to go out into the elementary or middle-class firms but to become one of the educators of the educator and to do research in these topics. this is very new. we had six graduate students and four graduates. they are supported by at one organization. research products include a house designed impacts our students understand concepts. -- how would design impact house didn't understand concepts -- how a design impacts the way

students understand concepts. -- i think there has been a lot of innovation and products. i think you'll see a resurgence in labs. engineers without borders has exploded across campuses and universities. service learning is a design type of process where you have a problem, you can take an approach to solving it. it could be extracurricular or curricular. one of the major representatives of this learning was founded in

1995. it has grown up in several universities now. it is drawing students in. it is vertically integrated. students can continue in this program all the way through from the soft more to the senior level. the work in teams. we have a competition at tufts university that students can enter with their innovation. and engineer winds almost every year. the competition is open across the campus. you may have seen a another group on the today show. i am sorry. i had a senior moment here. this professor went into electrical and computer engineering.

we have to fight the stereotypes of women in engineering. they do a lot of products in the community. they provide role models for young women. the other thing that is happening is that -- i do not believe in silos. we have to reach out. there isn't any reduction to engineering mathematics and physics and taught at princeton. these types of courses are becoming more prevalent. we have a minor in music engineering which is a partnership with mathematics, mechanical, computer, electrical engineering. it is expanding -- expanding. a lot of cross fertilization. and the university seminar has stepped up to provide courses

across the campus. one professor from various fields come together. those are the kinds of interesting courses that are appearing on our campus. these dishes are driving this not just the faculty. i am not worried about killing their enthusiasm once they get to the college level. i think there is a lot going on in students are going to demand this. i would like to get my thoughts on where we go from here. engineering education has not been thought of as an area of scholarship. that is starting to change. i think it has to continue to change. the first frontiers of

engineering education will occur at a symposium earlier this year. we have to make the career paths attractive to individuals. i think we are headed in that direction. the other thing that we need to be able to do is see good outcomes of assessment research. we have to do that research. we need to develop new tools and methodologies. there is another area that is really exciting. it needs to be interdisciplinary. we do not want to create a silos and say that engineers are the only ones that know how to do that. we need the education people and psychology people and scientists. we do not want to create another sign of. we need to educate teachers

whether it is through workshops or including science and engineering. we want to encourage innovation at the undergraduate level. it has not been discussed very much, but i believe we are missing a large segment if we do not engage the engineering practitioner. we have to figure out how to show the kids what it means to do engineering in context. i have tried to do that at the undergraduate and graduate level. we have 12 professors of the practice. it is a -- we are advising students and it is working very well. those are my remarks. i hope i am ok time wise.

should i ask for questions? ok. thanks. [applause] >> one of the disconnects i have heard is that you have all of these activities now and then at the university level -- one thing i see distant -- distance is the admissions process. there are kids creating portfolios of information so that -- should not to be looking at different ways -- grades and transcripts? >> i agree. i have been experimenting with that. we have allowed students -- that

are submitting products and trying to evaluate the creativity and innovation. not just the ability to take exams. the jury is still out on how successful we are at evaluating that. one of the problems is that ranking depends on those numbers. do i think we have to be willing to change our admission. i totally agree. i want to spend more time on encouraging innovation. are you referring -- what are you referring to? >> i was referring to engineering schools in terms of the developments of new courses,

bringing neutrals into the classroom, more interdisciplinary activity. more crossed the part of mental design projects -- all of that. i am not sure, i had not thought about it outside of this in any other context, but that is what i was thinking. does that answer your question? i think we have to do more partnering. what we have found is that there is very little knowledge of this bad grade science knowledge. through the center, we have been developing partnerships and joint proposals we are starting to see a diffusion of the expertise. i think we have to see a lot more of that absolutely.

those of us in higher education no that a major obstacle to change is rewards. what have you done about that? >> as a school, we are very small. we have 67 a faculty that are tenured track. one of my things is engineering education. we are trying to build critical mass of faculty. i agree -- that is why you have not seen as many engineering departments are ride or at the university. it is because of this issue. i think it is changing and i think you'll see more of it. i think they're putting a lot of resources and administration will respond to resources. i think it is changing.

>> i enjoyed your presentation. i like the way you connect k-12 issues and connected with higher education. i am less optimistic. how they see the community is -- scientific communities that want to do research on how people learn about job. i think community mathematics education having a strong community in, there is a reward system in place.

i do not see the education community doing this kind of research there are some journals but they are not really doing research. it seems to me that this is the basis for moving this kind of report of good intentions into research based competition. >> i am not speaking from a lot of knowledge hear from those communities. >> if you have a problem, how do they expect them to work or how will they engage? i wonder about this. this is the basic problem in the united states by not having a

research-based community in by not having information to help people will learn. >> i see our inefficiency in this area. there are very few graduates now. they are in high demand because there are so few programs and a lot of universities are contemplating developing programs. i believe that we will see a growth and a greater vigor in the research aspect. >> this is where i am less optimistic. i do not think they will double up with the engineering faculty. what i think is that they have to do their time in the science communities and find the kind

of -- it has to be the science. >> the students who are enrolled right now have extensive undergraduate degrees. some of them are working on toes or doing learning research. i do think it is going to be a joint venture. i do not see it sitting squarely in to engineering college culture. i hope to see a space form that spans education, child development, psychology, as i said, and this area is a valid and vibrant area for scholarship and research. i guess i do agree that i did not see it only housed in engineering. i think it needs to expand. i do not know how the science education in mathematics

education committees are structured, but they probably have more on the education side. is that correct? yes. >> i am from mississippi state university. we do not have engineering education at a college. . i appreciate your help. my question is about the engineering practitioner we have been starting a program called engineers and residence based on things we were doing in the 1980's. the problem is what if we do if someone comes into the school. a lot of them want to come in and teach, but they may not understand the demographic they are working with. how do i help them encourage engineering at their school? what are you doing to model

that can help engineers be engaged in a local community schools. >> i am sorry. i lost you. i thought you were talking about being engaged in the university. >> what about down for the k-12 area? >> we have a lot of volunteers that have a little bit of training and they understand the models. there is more structure going in. that kind of program looks like it has some promise. i do not have any other great ideas at the moment as to how to do that. at the university level, i am very fortunate to have a large metropolitan area. there is an enormous amount of people who are interested in participating in the university. they can dedicate one day a week. they are on campus and are

engaged in bring students to the workplace and it is working well. there are ways like that to bring that down to the elementary and high school levels. i think we heard of one example from wisconsin. i do not have a great ideas on that. [applause] >> we came to the end of this event today. i would like to thank you on behalf of the committee for being with us today. we tried to lay out the recommendations and findings of the report and also engage with you in a discussion about what is important and how we will move forward. and lots of the concepts we

discussed today are not very typical. i would say that the thinking of using engineering as a means to allow our use to learn about mother and science is important. i would like to suggest that we take this with us and try to figure out how to take it forward. it will be very difficult for us as a society to make a leap ahead of others in trying to move from 4% of students in high schools selecting engineering and those who really want to do math and science a move to 20% as in other countries. we cannot do the same thing. i think it will be critical for us in thinking out of the box.

there are many unique approaches we can take and try to do creative things in this country in this particular area. we are trying to get an advantage moving forward. we do not have much time to create a competitive work force in today's environment. i believe this committee is making some simple recommendations. the question of how we take this forward to those students and programs is important. i'd like you to take this to your workplaces and communities and tried to communicate the idea and bring us back the information to the academy of.