enormous frustrations over the last month, and the last weeks. i am certain this is frustrating to you. you listen to all of these senators talking about what we are hearing on the ground, about what is happening with small business. to hear about the small businesses that are massing of small credit cards and are unable to the lending and they're not giving them the head room that they need. every time, you answer very well. we are doing training. we have the guidelines. and we do not want people to land. my question is, can we move beyond this conversation to a place to acquire evidence of whether or not lending is going on.

is the tightness of the credit market related to the fact that we not have a good credit risk. we were overly cautious. how do you of value with this? how do you know that your guidelines are working? how'd you know what is going on? . . and guidelines work? how do you know what is going on in the states? i don't want to go through another hearing in another month, another week where we don't know what the evidence really is of what's going on on the ground. >> well, it's -- it's intrinsically to have statistics on how many good loans weren't made. if we knew what loans were good, we would instruct the banks to make them. what we do, one metric we have. >> i might agree with you prospectively.

i mean, even retro actively, if we can look at what has happened. your choice on the period of time so that we can get -- we time so that we can get -- we could take the aneck dotal evidence and the efforts you have made and see whether the efforts are successful or not. if it's not been successful, people go to the trainings and come back and don't follow the guidelines you have given them or if we are being too conservative. i would not -- i stipulate to the view that we shouldn't do bad loans. how are we going to know that or not? the reason it's so important is i don't see any way to get the unemployment rate down without our small businesses having access to having credit. i think you've heard that unversely today. >> i have heard it. i will give it more thought. one statistic we have is we do

survey the loan office, the senior loan sters at banks. we ask them a whole bunch of questions. one thing that is clear is that the tightness of lending standards imposed by the banks themselves are at record tight levels. so it is not just the regulators. >> so here's what i -- first of all, i, for one, would be willing to work with you and your staff on this. because we have to move past the he said, she said aspect of what is going on. the examiners saying one thing is true, an observation gnat you just made about banks holding on to capital. i feel like we're being guided by vague impressions of what might be going on when the people that actually cannot keep

their doors open and feel that they are good credit and that they are able to pay can't get access to credit. and they may be wrong, in other words, they credit may not be good, i can tell you there's an avenue vanalanche of that feeli there. i would like to be able to say, here's what is going on. or at least be able to say that the examiners and banks, and people in washington have somehow convened together the try to diagnose the issue. so a month from nourks we can say, thinks ags are getting bet or things are getting worse. the frustration, is we have no measuring stick at all, really, other than people's impressions. >> other than surveys and data on the loans being made, the fed staff did work -- >> we woundn't run our business

that way. survey data is useful. >> i was going to add the fed staff did work with the treasury to try to develop metrics for the t.a.r.p. program. there was progress made. your point is well taken. i have heard it many times. i will take this back to our staff and see if we can figure out some more useful metrics or ways of thinking about this problem. >> i think again, because of the consequence of my siting at the end, i can hear the same conversation over and over again. >> as you can imagine, i have heard it many times. >> i know. i think it would be useful for everybody if we were able to agree upon a set of metrics going forward. you mentioned something early this morning about the importance of withdrawing from this economy in what they creates jobs.

i may be putting language, i think i wrote it down in manner that promotes job creation, something like that. could you talk about that? >> with drawing the policy accommodation? >> no, withdraw your balance sheet from our economy. >> right, so, um, as part of the normalization of monetary policy, right now it's quite supportive to economic growth. we have a number of programs to keep down interest rates. as i was describing to senator johans, we'll have to unwind those programs. we have a set of ways of doing that. basically, the trade-off is the same one we usually have. at a certain point, we need to scale back the stimulus so we don't create over problems down

the road. that's a judgment call. all i was saying is that we have to find, sort of the right moment, the right communication to begin the withdrawal of stimulus or continue that process. we've done that by reducing the size of our programs. how to withdraw the stimulus in way that would avoid side effects. at the sim time, be consistent with a sustainable and increasing expansion. that's the challenge that we always fats at this stage. >> thank you, mr. chairman. appreciate it as always. >> senator, thank you very, very much. senator gregg? >> i apologize. senator hutchinson. >> thank you. i appreciate that note.

thank you, mr. bernanke for coming to be with us in what has been a long hearing. i appreciate that you are here. during your awe peerns before the committee in july, we spoke of the effect of the proposed health care reform that it would have on our fiscal policy and the economy as a whole. at that time, you said that when considering health care reform cost must be an issue. it must be the issue. the democrats proposal has come to the floor and we see that it has a $2.5 trillion price tag over the ten years when it starts to where it ends. yet, the huge government takeover of health care is not going to lower health care costs and, in fact, insurance premium for every individual and family will go up. and i think if we're going to look at how we can change that

cost curve, we need to have the ability to determine not only how to do it but what is going to be the long-term effect of the $2.5 trillion price tag that is going to be on it on our long-term economic situation. i would like to ask what you think it will be? >> as i said last time, i think the real issue is health care costs per -- not just the total bill in some sense but what does it do to the cost of care per person. health care costs per person have being rising about 2.5% a year faster than income. that's not sustainable. so what i consider to be the key issue, given that the government

has exposeur toerks medicaid, medicare, i have not read the cpo study. i know enough to know that health care economists have differed quite a bit. i'm not going to weigh in with a number i don't have a good number to give you. only to repeat what i have said before, which is that as part of this process, it's very, very important that we do our best not to reduce the quality of care or reduce coverage, or to make health care worse. this is a very inefficient system. there must be ways to reduce the cost of delivering health care. many ideas have been suggested. ranging from information technology to various ensentive payments to experimental or

evidence-based medicine. i just want to reiterate that because sit critical that we get a stable and sustainable fiscal trajectory going forward, we do need to address this issue. i don't think we can get a sustainable fiscal situation without addressing the issue. in terms of the specifics, there's a lot of disagreement about the effects on individual health care costs that this will have. >> if i understand what you're saying is you have not looked at the numbers yourself but if it is, in fact, going to increase the costs of premiums to every family and the overall cost to every individual, every business, as well as to the government, that that would have a harmful effect on our economy long term? >> if that's the case. higher cost to the private sector increases the cost of doig business, reduce wages.

higher cost to the government means a significant effect to interest rates and the health of the economy. it's a very crucial issue that we try to address the cost issue. in health care. >> thank you. we share your concern. let me move to the financial regulatory policies that chairman dodd has put a bill forward. a bill has also come out of the house. one of the issues is the too big to fail issue. and i think every one of us is concerned about it. we have different approaches to that issue. but let me ask you this. in chairman dodd's proposal, there is a systematic risk resolution mechanism that would

allocate the risk, attempts to allocate the risk, and it would exempt community banks at the $10 billion or below level. i have concerns about using the asset test because at $10 billion, you could include funds that are highly lempbled and risky to our financial system. you would exclude asset heavy mid market community banks that pose no threat. do you have a recommendation, as we work through this, for how you could measure a financial institution's risk so we ensure that sit not a safe and sound community bank paying for the too big to fail policy risk that it will not have a part in reducing nor profiting from? because i don't think any of us

want another taxpayer bailout. many of us are concerned about the one that is before us now. and not being used the way we were told it would be used. but secondly, i am very concerned about putting any more burden on the community bangs, which are trying to lend. and trying to have -- an impact for business. that would give them liquidity and so, i want to protect those community banks from having to pay for the -- risk of the too big to fails so that the taxpayer doesn't have to do it, nor do they. what would you suggest is the best measure to determine who should pay for the risk so that taxpayers will not going forward? >> well, relatively simple thing

to do. this is just one suggestion. to exempt all insured deposits. don't make people do a liability test but excluding deposits for which the premiums w are being paid to the fdic, which seems fair. beyond that, it would in practice exempt most community banks that have primarily deposit-based funding. and perhaps additional exemption above that. a more difficult apoach would be the analogy to what the fdic does now, make the premiums risk based. that would depend on things like the riskiness of the positions that the bank takes that affects the fdic premium.

the fupding might -- might be affected by the funding mix. the complexity of operations. a variety of things. i think that would be a complicated thing to do. my first guess would be to try to find a formula that exempts deposit funded or community sized banks, for the most part. and puts most of the weight on firms that do a lot of proprietary trading and riskier types of activities. doing it based on uninsured dep sits. >> my time the up, thank you very much. >> thank you, senator. let me turn to senator gregg. >> am i it? >> you may be. my colleague ma have a thing or two to say. you're not the last person. >> i want to say thank you on

behalf of people that live on main street new hampshire. if you had not been there and willing to take extraordinary action last fall and into last winter and the early spring, along with the secretary paulson and geithner, this country would be in a catastrophicic financial situation. we would be experienced potentially a depression or a recession radically more than we're expeer yens. the way i describe sit like people driving over a bridge that was about to fall down, they didn't know somebody was there to fix it because it didn't. they don't give you credit. it was an aggressive and creative action. you have acknowledged over $2 trillion that it looks like to mow that went into making the

institutions liquid at this time. i respect what you did. obviously don't agree with 100% of it. i didn't hold the magic wand. the proof is in the pudding that we're coming out of the recession and the world didn't deinvolve into fiscal chaos. which it might have done without your initiative. there are a lot of big issues pending sllt of that. as we try to reorder the way we approach the structure of financial institutions. what i think is critical is that as we do that, we not undermine our great an unique strength as a nation, that is we are able the create credit, create capital, and we are able to advance credit and capital to entrepreneurs in way that no ere nation has done. people are willing to take chances, create jobs, they can find the resources to do it.

we move this forward, we don't want to create unintendeded consequences. the rest of the world has advantages over us, we have advantages over them. how the fed is postured in this is critical. you're at the epicenter of the financial and credit institutions and the monetary policies. i am concerned, deeply, about this i call it pandering pop list movement to step on monetary policy. have the political entities step on the monetary policies. you've spoken out against it well and eloquently. i want to second what you have said. i know secretary somers did research on this. i can't think of nation where the value of its currency was

turned over to or significantly influned or marginally influence ed be people to cause to it fail. we don't want the political process to set the value of the money. we're too big and too important to allow this to happen here. i understand it's a political vote. go out and beat up on the fed. you're a mysterious event. you could be in a deann brown novel. we recognized as nation it was important to keep monetary policy separate from fiscal policy and monetary policy independent. that's the long explanation of support for your position. you are as you said, audited in

every area in a very open and aggressive way. and we have the access to those audits. everyone does except on the issue of monetary policy. that's the way it should be. i want to get into the too big to fail issue. i haven't figured out how to ard this yet. there's a proposal out of the house banking committee that said healthy, well capitalized, institutions with no risk to them will be stoubt the potential breakup. that will be determined by an independent group of politically pointed people, or maybe even members of congress for all i know, arbitrarily. i mean, that, to me, is a european model of governance that is very threatening. their biggest, not necessarily bad, in my instances, it makes

for a competitive advantage. if these institutions are solvent and structured well. and competing. they give us an economic advantage. and it would be incredible industrial policy for a group of politicians to say, you're too big, we don't like you, we're going to break you up. where does that stop? does that stop with wal-mart because they're not unionized? does it stop with coca-cola because they produce a product some people blame for obesity? i guess i would ask you, obviously, too big to fail is a big issue for us. it's got to be addressed. but shouldn't it be addressed on the issue of the institution be a risk as opposed to just being big?

>> so, my preferred approach to too big to fail is, i agree, the central issue in financial reform, one of the biggest ones has two or two and half components. one is two offset some of the incentives to become too big to fail. and to take into account the additional risks that a very large firm may pose to the system. >> by raising the capital requirements? >> making sure their safe. >> which is a function of making them safe. >> that's the regular ta la toir approach. the other part is to have maskt discipline. the way to do that is to have the ability to fail. we've talked about this several times today. it's crucial that when people lend money to a large financial inty institution, they're doing due diligence and looking at the

riskiness and profitability. not make the loan on awe su assumptions. >> the stockholders are at risk. >> if we say, under the current system, we say we're going let them fail, it's not entirely credible. if we come to a huge crisis and need to protect the system, we might intervene. the only way to make it credible is to have rules and laws that allow us safely to allow firms fail. so that their failures don't affect the broad economy. size is not a particularly good indicator of riskiness or danger to the financial system. i think it would be worthwhile to consider, for example, whether regulators might prohibit certain activities if a financial institution can not demonstrate it can safely manage

the risks of a particular type of activity, it could be scaled back. or otherwise addressed. i think those are the elements that would solve the problem. the tougher regulation and resolution regime. >> i'll take your xhenlts then as saying that simply because a company is large is not a reason a group of politicians should step in and break it up? >> i do recognize. i think we all should that size and complexity often have economic benefits. we should, as much as possible, let the market decide. one of the many advantages of getting rid of too big to fail is the ability to sell funding and shares, is not on the government's backstop, but on the economic value of the operation. >> if i might be undull jed for one more second, not the imply

that the chairman's proposal falls into the category of what i'm saying. the one is the language out of the house. the living women for large institutions. is that a situation where you, almost by saying, you have to b have a living will, you're giving the too big to fail. or is that the opportunity to say that's not the case? >> i think living wills can be a usefuled useful adjunct. for tax reasons, international reasons, financial institutions are extremely complicated. it's difficult to unwind them when the time comes. it would be helpful in a planning sense for us to

understand how the firm is strug which you ared, what the legal connections are. and in situations where extraordinary complex legal structures are there for tax avoa avoidance is there. i think it would be a useful tool in the wind down or in the process of understanding how the firm works and whether or not simplification in terms of structure might be beneficial. >> thank you. >> thank you very much. just for the purpose of public. we're not talking about death panels. it's a separate hearing that deals with those. senator? >> thank you very much, mr. chair. thank you for your testimony. several times today, when you have been asked about too big to fail, you've emphasized the

power to unwind the institution. you mentioned in passing in one of your replies the issue of risk from one company to another. and but i don't think you specifically talked about it in terms of the role of derivatives. folks would say that those are the issue in too big to fail because that's why we intervene. not to save one financial institution but because through derivatives, there are kons quens of failure are transported to other financial institutions. could you elaborate on that piece of the puzzle, on the role of derivatives on too big to fall. how do we reduce that risk? >> i don't think that derivatives are by any means the only issue. we have had destructive crises

where that were not the point. in this crisis, they were not proep rately overseen. they were not protected by capital or reserves. the classic case was aig. they had a lot of one-direction nal bets. they didn't have reserves of capital behind that. when the bet went wrong, then the company came under a lot of pressure. one thing that the aig example illustrates is that derivatives have the risk associated with the outcome but counter party risk. those people who are holding aig insurance faced not only the possibility of loss because of the underlying but because of the possibility that have aig could not pay. so clearly, making derivatives

safer both this terms of the operational sense in terms of the way they're traded and protecting against counterparty risk is an important part of this reform. i agree with proposals that have been made that derivatives that can be standardized, that's quite a few of them, and are accepted by central counterparties for clearing on those institutions should be traded on a central don't party. it would be an organization that, by taking margin and holding capital, essential lly insures against don't party risk. a much more transparent situation. people will know what

outstanding issues look like. no credit of false swaps. there's confusion about who owes what to whom. i do think that strengthening the infrastructure generally, but in particular, making sure derivatives are traded on an exchange is an important step to making the system stronger. it sighs into too big to fail in a couple of ways. if you get rid of the count counterparty risk, there's less risk of contagion. and secondly, you should be regulating those derivatives to make sure you don't have a situation where a company is essentially betting the bank, saying that if coin comes up

heads, we make a hot of money, if coin comes up tails, the government bails us out. we don't want that situation. a good regulation of derivatives would be part of a new resheech. >> if i could summarize. you support moving to an exchange. as you put it, for all the derivatives that could be standardized? we have the challenge of deciding to what degree derivatives can be standardized. we have a loft end users very resistant to the idea of going to an exchange because they feel the margin costs would impede their ability to hedge. that might be an argument that may be coming forward regardless. any thoughts about that issue? >> i think the case for

exceptions is not the margin costs. that's an appropriate cost of protecting against the counterparty risk. the case for not putting everything on the exchange, some risks are not hedgeable. i may want to hedge against a complicate ed set of events as municipality. they might not be a standard that meets my needs. there will be circumstances where derivatives are not customizable. a couple of practical issues come up. the main goal is to avoid getting around the regulations through indirect means of setting up tease deals. for legitimate end users who have, who are nonfinancial companies that need to hedge specific risks.

we ought to make it possible for them to do that. on the other side, if they're trapgs acting with a bank or a dealer, the bank or the dealer should face regulations or capital requirements to make sure they're safe in the positions they're taking, and to intern liz the potential costs to the system. there's a risk associated with the derivatives not traded on corral counterparties. if a bank knows it has to hold capital, that will affect the cost of offer those positions. that will, in some sense, balance the scales so there's not an artificial incentive to create noncustomized derivatives. we want the leave some space for derivatives the that are specialized for individual needs. >> the challenge of drawing that line between what is

customized and providing that community, if you will, to address it, also then the challenge that i think this is -- i think this is what you're saying, and i'll just repeat it and make sure i understand, is that you want to have an appropriate boundaries on that to prevent that exception from being something that the entire derivative market is driven through. >> that's right. >> and then when you say that there need to be fees based on otc derivatives that as part of that system? >> not necessarily fees, but to the extent you have demonstrated that the otc derivatives -- there should be sufficient capital behind them and sufficient oversight of their positions. so that a., the institution is not being put into mortal danger by its position that its taken and b., the extra capital that its cost and that would tend to even the playing field between

customized and noncustomized derivatives. >> mr. chair, can i put in one more question here? >> yeah. i think we've got to vote here. >> a quick question, then. you referred earlier to the fact that you didn't feel in the aig that you all had much leverage in terms of asking institutions to take a haircut. and that it was a little -- it's a little hard for ordinary americans and some of us, myself included, to get my hands around that, because if the risk is that folks might have a tremendous loss, it seems like they would be ready to come to the table and say, well, we'll mitigate that by taking some share. but let's just say that in that crisis, that moment, the need to move fast, that wasn't possible. are there things that we should do in structuring this bill that in the future, when there is that situation arises that gives the sort of leverage reach that

makes sense to enable the fed to drive a better deal, if you will? >> absolutely. my earlier response -- i didn't want to convey that we didn't want to get the haircut. we really did. and we tried. the problem under the existing system is that the only way to get the haircut is to have a credible threat that, well, if you don't take the care haircut, we're going to bankrupt and lose everything. but since we had the means to prevent going bankrupt, and everybody knew that it just wasn't credible we would let that happen, and so we didn't have the leverage. so it was a bad outcome, absolutely, i agree. but it was -- we really didn't have much choice, given the legal structure we were in. by all means, the reform ought to fix that. and in particular, when a -- the government comes in, the treasury, the fdic comes in, to unwind a systematically critical financial firm, it should be using a special bankruptcy procedure, not the usual one, a

special procedure, which allows the government to under perhaps some specified rules in advance to take haircuts, to -- not to protect the equity holders, subordinated at the time holders, for example. at the same time that you're still having a safe line down. so i think if you structure this resolution authority, one of the many benefits of it will be that the government will be able to put the cost on the creditors, it will be able to renegotiate contracts, including bonuses and things of that sort. those are all of the things we needed. but we didn't have in the current system. >> all right. thank you, very much. >> thank you, very much. and we're going to briefly turn to my colleague. and then closing remarks. but senator corker wants to come back. he has a question or two for you, as well, mr. chair. >> thank you, mr. chairman. i'll try to be brief, mr. chairman. chairman bernanke, i believe that the last few years have provided us with ample evidence concluding that the current regulatory structure that we

have, one in which the fed serves the preeminent regulatory body, requires considerable restructuring. in fact, i believe the american people realize that. i also believe, too, that the feds' monetary policy independence is crucial, and it must be preserved. very important to central bank. fortunately, the regulatory reform process gives us here, i think, a chance to develop a better, more accountable regulatory structure, and enhance the real and perceived independence of the federal reserve as a monetary policy setting entity. very important. but to achieve these ends, i think the fed would have to give up some of the regulatory authority senator dodd has proposed. i would hope that you as the chairman in the interest of achieving better regulation and better monetary policy and independence of the fed, would put, you know, the monetary policy ahead of your interest, of the feds' interest, in prote

protecting turf. mr. chairman, i do have just a short letter, and i want to share it, and i would like it to be made part of the record. this is a letter in the "washington post" today, and some of you probably have read it. but it was written by vincent rhinehart, a res department scholar for the american enterprise institute, and it has to do with proposals chairman dodd. it says regarding federal reserve chairman ben bernanke's november the 29th sunday opinion commentary, quote, the right reform, that you wrote, and as a result of legislative convenience, and historical happenstance, a variety of responsibilities have accreted to the fed over the years. in addition to conducting monetary policy, the fed also distributes currency and runs a system through which banks transfer funds, supervises financial holding companies, and some banks, and writes rules for tech consumers and financial transactions. mr. bernanke argues that

preserving this medical an j is not only efficient but crucial to protecting the feds' independence. apparently, the letter goes on, there are hidden synergies that make expertise in banks and writing consumer protections useful and serving monetary policy. in fact, collecting diverse responsibilities in one institution fundamentally violates the principle of comparative advantage, akin to asking a plumber to check the wiring in your basement. there is an easily verifiable test, he writes, the arm of the fed that sets monetary policy, the federal open market, has scrupulously kept transcripts of its meeting over the decades. and the man writing this says, i should know, i was the fomc secretary for a time. and then after a lag of five years, this record is released to the public. if the fomc made materially better decisions because of the fed's role in supervision, there

would be instances of informed discussion of the linkages. anyone making the case of beneficial spillovers should be asked to produce numerous, relevant excerpts from that historical resource. i don't think they will be able to do so. he writes further, the biggest threat to the feds independent is doubt about its competence. the more that congress expects the fed to do, the more likely will such doubts blemish its reputation. i ask this letter be put in the record. >> without objection, it will be. mr. chairman, senator corker will close up here. but first i want to thank senator shelby for his comments about the efforts we're making. and i want to thank him as well, and his staff. and you have been tremendously helpful already, very constructive. i was one of those people in that room the night of september 18th, when the new ag policy came into the room. and there is a lot of people going back, and i'll go to my grave believing what you did, what we did, over that two-week

period, some of the economic equivalents of 9/11, such as you described that evening, very straight forward, monotone voice, i'll never forget your words, will go down as the right thing to have done. and he's not here now, but judge gray, bob corker, jack reid, chuck schumer, on this side, anyway, we met, along with some others, and worked with you and others in putting that proposal together. and is you deserve, in my view, a great deal of credit for moving that forward and then the creative ideas that kept us out of the difficult. improving the negative is always hard. and obviously, we don't to be in a situation to have to prove that. but nonetheless, i think we did by the actions that were taken. i also want to go over the idea of having something big is bad. i think it's a bad idea, and we won't include that. i think the idea you have described, how you acquire capital standards and so forth to make sure that you don't have an institution be at risk makes a lot of sense, as well. and the door is open here. look, we're very much in the process, dynamic process we're engaged in. i strongly support your

confirmation, and as i said at the outset, i believe you're the right person at the right time to do this job. and -- but i want you to know, the door is open. as we're trying to evaluate how best to do this. i think all of us here are very much appreciative. this is a unique moment we're getting. there are many of us before who talked about doing this, but there was never the will to do it. if there is any silver lining in what we have been through, and the fact that we have been through 52 hearings a year on this chubt alone in this committee, if we wait too long, the moment passes. and people say why bother. if we acted too early, we might have overreacted, in my view, and that would have been bad, as well. and i believe there is a common determination by virtually everybody on this committee, democrat or republican, not seeing this ideal logically, but what works, what doesn't, what's right, what's wrong. and we invite you and your staff and others, to be at that table with us as we go through this. not to suggest we're going to agree on everything, but i want you to know that door is open. >> mr. chairman, can i say one

thing? >> yes. >> i agree with senator dodd. i don't think big is necessarily bad. but i do believe big is bad when it has an implicit -- >> i agree. >> -- response out there with the marketplace that the government is backing. >> i agree. >> i agree, as well. >> we all agree on that. senator corker? >> thank you. >> we're going to vote. you're in charge. >> okay. well, when you come back, you'll never know what may have happened to this place. but i'll try to behave like a gentleman. thank you. mr. chairman, i thank you for being with us so long, and i think you know that -- >> thank you. >> that -- i think you know that i was, you know, happy that the administration decided to renominate you. and i think you knew coming in these confirmations, unless something really strange happened, that i was going to support you, and i am. okay? i am becoming slightly frustrated, though. and i just -- i know that you're

probably going to be confirmed, and i don't know when that's going to happen. you know, it may be held off until after the right reform occurs, as i mentioned the other day on the phone, it may happen for the fed chairman, regardless. i think you're the fed chairman until another fed chairman is nominate and had approved, and is i think that's the case. your staff is nodding no, but that's debatable, i guess. but i do -- i've worked very closely with you over the last year, which i appreciate, a year-and-a-half. and we have talked about a lot of important -- important to our country things. and what i appreciate about you is i absolutely do not believe you have a political cell in your body, as i have said publicly many times, and i really believe you wake up every day trying to do what you think is best for our country. but i am concerned, and i'm becoming sort of frustrated with it, that the activity -- i mean,

you have worked very closely with both administrations. this is not partisanment. i mean, i think much of that is -- has hurt your credibility some. and just as you mention, we talked earlier in our last exchange on the fiscal side. i do think that you end up getting used as a tool for administrations to advance policies that they think is good, it's outside the monetary policy issue. and i just would caution you, i think that hurts you, okay? i mean, the bush stimulus was -- it was ridiculous. i mean, it was silly. it was sophomoric, and it had no effect, and you supported it. and when you support it, i mean, what happens on the senate floor, when ben bernanke says that he supports something, because of the respect, not only of you, but position, that has an effect. same thing with the obama thing. thus which, you know, regardless of what you say, what people say, it did not accomplish what

they said it would do, and i think it was certainly less -- and we can debate that. it didn't really matter. that's not what matters. what matters to me is that you weighed in, and when you weigh in on something, it's like it gets the moody's rating, not that the moody rating matters much anymore. and that's what it does. and i think the same thing is happening right now in financial regulation. and as i said way back when, long before this, six, eight months ago, maybe the last humphrey hawkins meeting, i think to the extent that the fed continues to thrust itself in the middle of things, you know, being the systemic regulator, which, again, we're going to have another systemic risk, we're going to have another failure, we're going to have -- i don't care who the fed chairman is. i don't care what kind of reg bill we pass, it's going to happen. and it just seems to me that the more you thrust yourself in the middle of those things that are

outside of monetary policy, and outside of last resort, the more you do things that damage the institution. and i say that because i respect the institution, and just like judd gregg said, and just like i think i said in my comments, i don't want us involved in monetary policy. i think that would be a disaster not only for our country, but for every country that does business with us, which is every country. so i am just -- i'm becoming -- you know, i know you're lobbying us heavily. right now. as far as what the fed role should be in regulation. and on a private basis, i want to hear that. i mean, just a minute ago, i know that you alluded to chairman dodd's bill, and i have to tell you, and everyone on this staff knows this. i very much appreciate what he is doing to try to work out a bipartisan bill. and i think we're going to do

that. or at least i'm going to keep saying i think we're going to do that, until i think we're not, okay? but just like, for instance, saying a minute ago that you think his bill absolutely solves too big to fail. well, at least that's what was reported to me. and it wasn't another -- please clarify that. because as much as i respect him, i think there are some frailties in the legislation. >> i only -- i only talked about some general elements. i certainly didn't endorse the bill. >> good. i got an e-mail, and i'm glad. i just think that you -- you are highly respected. the position is highly respected. i think the more the fed throws itself in the middle of things that are outside the categories that it's charged to do that chargeses are -- maybe not you, but the next person down the road, the feds' independents end up being undermined. and no question to me that the

efforts by congressman paul and others to do the things that are occurring right now, note his longer term goal -- understand he is a gold standard person. and i understand there are other goals behind that. but i do think that much of what's happened recently in the hyperactivity of some of the 13-3 issues with maiden lane and aig. i mean, you know, that's kind of questionable. i mean, it ends up sort of being equity. and i don't mean that, again, to poke jabs. but that type of activity ends up hurting the fed, an institution that, like judd gregg and others, i respect. you i respect. and i guess over the last 45 days ago or so, i've become very nervous about that activity. and i just want to tell you that. and i'm nervous about us and what we might do. but i'm also beginning to be nervous about the powers that you at the fed want to take on, that treasury is encouraging you

to take on, and i wonder if you might respond to that, knowing that i'm somebody who -- unless the sky falls in, i'm going to support your nomination, and i respect your abilities and intellect, and i appreciate what you have tried to do on behalf of our country. but i'm concerned about what that's actually doing to the fed itself. i don't know if you're understanding -- i don't know if i'm expressing myself well. >> you express yourself well, senator. i would like to respond briefly, if i couldment and first of all, i thank you for the conversations we've had, and very good to work with you. first, your point on fiscal policy. i have tried to stay out of fiscal policy. i will be more vigilant in the future. i think there is an appropriate division of labor. congress and the administration, fiscal policy, federal reserve, monetary policy. and i will try to -- to do that. although i should say that i think there are some broad

general issues, like the deficit, for example, where the federal reserve chairman does have some responsibility to speak up. and i think i'll have to continue to do that. >> and i'm speaking more just specific policy proposals, and i think -- >> well, even in the cases you cite, i never said anything more than, you know, maybe it's time to think about this general thing. i never endorsed any particular plan, i never endorsed any components of it or any size or anything like that. but i take your point. secondly, some of the steps we have taken, like the aig episode, for example, obviously have hurt the fed a lot politically. we know that. we did it -- and i think that should just be proof that we did it for the good of the country. we didn't do it for ourselves, because it obviously has hurt the federal reserve, and the public's view. we did it because we felt that there was no other way to avoid what number of your colleagues have called the risk of a catastrophic collapse of the financial system. and so we did what we did, knowing it would be politically

unpopular, knowing it would bring problems for the federal reserve. but because we didn't have an alternative, and one of the things we're hoping, of course, that congress will come up with will be some framework that will allow this to be done in a more orderly way, and will leave the federal reserve completely out of it. we would like to be left out of it. on financial stability, i would like to differ just a little bit, which is that the federal reserve actually was founded in 1913 for financial stability purposes not monetary policy. and has been for 100 years, almost. and in that respect, we haven't been lobbying, but what we have been doing, if in addition, is trying to provide advice and our reasoned views on the subject. and what some might think of as turf, in my view s an important component of thinking about how a successful financial stability program ought to be structured. so given that that is very much in our domain, i -- you know, i don't want to use undue

influence, but to the extent that we have arguments and positions to take, i only ask you to believe that we do it based on what our view is of the appropriate public policy, and not because of turf. and you'll notice that we had not used the same kind of energy on some other aspects, that this has been the thing which we view as critical. and i do actually do believe if the federal reserve is eliminated from financial stability policy, it will have very negative consequences at some time in the future when neither you or i may be here. so i hope you understand that on that particular issue, we do feel we have a state and an expertise, and that we are trying to just get the right policy. >> well, i appreciate that. and i also apologize for being given some information about the hearing a minute ago that apparently was off base, and certainly i'm very glad you cleared that up. and i would just say that -- echo the same thing that chairman dodd just said, and that is, i think that we -- all

of us here, just are trying to get it right. and i think it's really hard. i think the resolution piece and the too big to fail piece is -- is the most important. if we do nothing else over the course of the next several months but solve that, i think it's the most important thing, in my opinion. if we only did that, that would be fine. i hope that you will, you know, continue to talk with us in our offices, both privately and in any other setting to help us work through this. and my comments today, again, are not in had any way to -- they're just to say that, look, my antenna right now makes me feel nervous about the hyperactivity and the unintended consequences of what could happen down the road. i mean, you responded aggressively during this last

cycle. and as -- as has been said, i mean, you know, you're being criticized for responding aggressively. and -- and i think if we allow the feds' role in our financial system to become something far greater than it should be, there's an appropriate level, i understand. but far greater than it should be, we're going to set ourselves up to do some ultimate longer-term damage to our country. and anyway, thank you for letting me talk with you. i -- i know all of us could monday morning quarterback the many zillion calls you've had to make over the last year or so, and with little information and little time. i respect you for what you're doing, i thank you for coming and being so patient with us today. and i do look forward to over the next couple of months with chairman dodd's staff and ranking member shelby's staff and all of us working together to try and get it right.

and i thank you. >> thank you. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2009] >> senators are continue their debate on the health care bill over the weekend. our regular book tv schedule will be pre-empted. that will resume after the debate. watch the senate debate on health care, live on our companion network c-span to, the only network with the full debate, and edited and commercial break. you can go online to the cspan

health care hub. senators continue with their debate this morning. "washington journal" is next with today's news and your calls for it will have an interview with the afghan ambassador to the u.s. he is at the johns hopkins school of international studies. and we will talk with a reporter "the wall street journal" on the role of the federal reserve. it former representative from florida talks about his book.