institution. today as we emerge from the crisis which could have been, remember one year ago, more than one year ago could have been as big as the great depression as we were to shape the pascals of this world, i think it's timely to meet and discuss the future role of the fund. . >> it is a vision which is

firmly grounded. one of the core mandates of the fund given by our founders. it is a new fund, but it is still the same. throughout its history, and surely this audience knows better than any other, the fund has adapted -- has adapted a lot. but there has been important continuity in an overarching game -- an overarching aim to promote financial stability, and to support peace and prosperity. i think this link between troubled financial stability on the one hand, the most obvious

mandate of the fund, and the link between this and maintaining peace all over the world is certainly part ofñr the genius of the founders -- gains, white, and other visionaries. could i dare to say that in this crisis the fund proved its worth to the world? you all know the story, and there is no need to elaborate too much. we made the case for coordinated policy stimulus and put forward our concern about the health of major banks. we reformed our lending instruments and boosted our resources. we have changed our approach and our thinking. and you may have noticed this by looking at the recent issue -- the issues of macroeconomics or capital controls. now, we need to build on the

specific momentum, updating our mandate as a critical part of this process. the mandate must cover a full range of economic and financial sector policies, but the bottom line -- the bottom line is very simple. what we need is a strengthened mandate and a strengthened role to be the guardian of systemic stability. and i think this word, "systemic," is the word most used during the crisis and the one on which we need now to focus. today, i do not want to enter into technical or legal details of the i m f's mandate. rather, i will try to set out what key elements of shared -- what key elements a shared vision might include.

i see for this three priorities. the first one is that one of the lessons of the crisis is that it needs to be more rigorous, with greater coverage of regulatory issues. also, i would say an appreciation of systemic risks. the second priority is that if the fund is to serve as a reliable provider of private financing, then our lending must be of coverage and size far beyond previous. the third point is that we need to do more to strengthen, in the long term, the stability of our international monetary system. let me turn to these three points rapidly. i would like to start with crisis prevention.

we need to improve our oversight of systemic and financial risks. in principle, the fund surveillance has to combine parliamentary surveillance with developments relating to the global economy as a whole. in practice, it is a bit different. the brunt of our efforts have been devoted at the country level. obviously, we did not pay enough attention to linkages between the different economies. that is why we need a clearer mandate to pursue risks to the global economy, but i stress -- not only for economic stabilit, but also swore -- also for financial stability. we are floating the idea of a

new multilateral surveillance procedure. we need to take these issues of systemic importance, regularly and evenhandedly. i believe the world is ready for more systemic revision of imf surveillance. the reason i say this is i feel a strong indication in what the g-20 has chosen to implement in the multilateral assessment procedure that has been defined in pittsburgh, redefined during the fall and the winter, which imh the first result being released at the spring meetings and at the g-20 leaders' meeting in june. the ideal is to make the largest economy accountable -- the

largest economies accountable to each other, insuring consistency in economic policy. it is obvious that the u.s., the chinese, the japanese, and others have in mind that what they are going to do in the coming years must be consistent. if it is not, the idea will be consistent but different from what was expected. we need to have a consistent view. it will be the role of the leaders to define some change in economic policy. they want to change the outcome that is given by what they have in mind today. the first is to insure consistency. that is what we are going to prepare for the spring meeting. this is in some ways a new kind of -- a new approach, or new hat, to multilateral surveillance. the imf will be providing technical assistance to the g- 20. it is a process led by the g-20.

it shows me the world is ready for making a step forward in the direction of this multilateral surveillance. at the same time, of course, we need to enrich the systemic content of our bilateral surveillance. one way to do this is to work on the magic accountability -- to work on a thematic accountability reports between countries, dealing with common issues. i think this will improve a cross-country analysis of regional spillovers between member countries. what about financial risks? obviously, we need to do a better job in trading -- in tracing how risk calculates through the system. it is essential to improve our ability to monitor the several thousands of large complex

financial institutions that make up the basic plumbing through which global capital flows. let me be crystal clear. the idea is not to monitor the risks to the solvency of individual institutions. that has to be done by national regulators. it is rather to get a handle on the nexus of exposure is and shifting patterns -- exposures and shifting patterns in assets and liabilities. in short, we need to be able to construct a global risk map. we did something looking a bit like that about central europe more than one year ago. you must be quite aware of that because for reasons i cannot understand there hauu been some leaks in the press, and the

financial press reported about it. it was a first attempt, limited to central europe, to see how banking systems in one country may have consequences on another country and what kind of feedback passes from the original country to the parent bank, other parts of europe, and the second wave of feedback from western europe to eastern europe. it was really enlightening and useful. i think that it helps a lot to maintain stability in central europe, as we did for the last two years. we are not doing this alone. we are doing this with our partner, the financial stability board. their knowledge, in terms of microeconomics, is absolutely necessary to completely complement what we are doing on the macroeconomics side -- the

macroeconomic side. also of great importance to us -- we need to look at government risk. you know the role of the imf. we stepped in when the capital flows stop or even reverse. to do this, effectively, the surveillance of the capital flows needs to be more effective, t 00. so what it needs to be more forthright in our policy advice. for many years now, the fund advice has been that lateralization of accounts should be pursued and cautiously, at the right time and in the right sequence. during the crisis, we have maintained this pragmatic position. but we certainly can do more in providing guidance as to what

condition should be in place before realization is allowed, and when capital control may be an appropriate response to economic pressures. the normal response when you have a big capital inflow is to have a re-evaluation in your currency. but sometimes you are in a country where the value of your currency is ok, so what should you go up with? the second response is reserve accumulation. you may be in a situation where you do not want to accumulate more reserved. you have a third line of the event -- a line of defense which has to do with prevention measures. if none of this works, then temporarily you may use capital control. it is something we should consider with pragmaticism. the last point on crisis

prevention -- it is not only oversight. surveillance is certainly useful, but we also need to strengthen our member countrie'' own capacity. and that is why we spend so much time and such a large part of our resources to helping countries avoid crisis. it is certainly one side of risk. it is also to do with new capacity in the member countries. let me different -- let me turn to my second priority, which has to do with our response to the crisis and the way we enhance things. an important fact during the crisis is that four key of emerging market economies, the fund has not been the first responder.

rather, some countries turned to the fed or the central banks, who served -- who supplied capital. without doubt, this has been a very positive move of enormous importance. but what about the willingness of central banks to provide such liquidity support in the future? we just do not know, and we should not take this support for granted. i believe it is critical that the multilateral institution will be ready to answer theñi call, and we are actually exploring various options, including four short-term multi- country credit lines. this can be done building on the stf, the flexible credit line which was created a few months

ago. you know it is a credit line very different to what the fund had in the past. it relies on pre-qualification with no further conditions. how can we bet on this? i see two avenues. the first one is to make the fcl more attractive by increasing flexibility of access and duration. but there is also another route, probably more ambitious, which is to enhance our collaboration with regional reserve pools. i do not see those regional entities as competitors. they are capitalizing forces in international financing. let me give you an example. we have been working very closely with the european union in central europe, the imf leading the missions but members

of the european commission being part of our mission. at the end of the day, they provide part of the resources which were needed by hungary, in latvia, or other countries like this. if we look even further, and being even more ambitious, we could imagine a system where federal resources could serve as a backstop to regional tools. that is mostly for emerging market economies. what about other countries? we have come a long way, over the last two years. we have revamped our lending framework, introducing new financing instruments and streamlining conditionality. we also, as you know, had a major boost in our lending

resources, which will allow us to triple our lending to low- income countries over the next two years. on top of that, we do this not only as the g-20 in april asked the imf with increased conditionality, but with the highest possible level of conditionality, which is a zero interest rate lending. it has never been done in the past, at least until -- and at least until 2012, it will be the case. then we will have to look at the need for maintaining this interest rate or if interest rates have risen in the global economy to change the levels. but i am not sure. maybe we could go on. the problem is to find substitute resources to be able to get the zero interest rate.

how it was done was part of the proceeds. we will see in the future where we will find the resources. of course, having a zero interest rate lending scheme is one of the reasons why many countries came to us -- more countries came to us than in the past. that is part of the reason for this tripling of our resources went to low income countries. -- resources lent to low-income countries. i think we can do more. we can provide insurance for low-income countries against global shocks, including the effects of climate change, all the challenges. we can try to find a way to support members facing security issues. i just mentioned climate change.

many of you may believe that is not a core mandate of the imf. why should the imf deal with climate change? many look a little bit, you see that the serious -- you see there are serious macroeconomic ñifinancial consequences that may be a threat toñr those global economs that may not be able to face the changes they have to make in climate change. at the end of the day,ñi this is big -- probably the most critical problem of mankind has to face in the 21st century. if this is really addressed, many low-income countries will be destabilized by the efforts. then it becomes our business, which is to maintain stability

in that current account and in global economic and financial stability. you may ask about time. in this case, does the imf have the resources? our resources have been boosted to $850 billion. furthermore, i think it should be sufficient. of course, it is sufficient for the short term, the coming years. we need to carefully analyze the potential needs of our members. let me, briefly to the third area of our mandate review, namely, the stability of our financial and monetary system. in my view, the current system, despite some of the subject problems, -- despite some episodic problems, demonstrated

resilience during the crisis. the u.s. dollar has played its role as a safe asset. many of you probably, including the, thought that with such -- including me, thought that with such a crisis the value of the dollar would collapse. that has not happened. we still have a tension arising from, on the one hand, the high demand for precautionary reserves and on the other hand, the high demand for those reserves. the fund has a role to play. it partly can be done to further refinement of the stl.

that can play an important role. in addition, we have to do something to try to reduce the tension. to reduce this tension means broadly addressing the problem of the so-called global downturn. we had countries before and after the crisis having accumulated and still accumulating huge reserves at a time when other countries are accumulating huge deficits. those kind of imbalance is feed the crisis. we need -- those kinds of imbalances feed the crisis. we have to address them. that goes to part of the problem, which has to do with more balance in the international monetary system. but there is another long-term question, which is the question of a new global reserve asset, which has been raised by many. is it needed?

obviously, having several suppliers of reserveñiñr assetsl limit the dependence on the policies and conditions of a single albeit dominant country. one day, the fund might be called upon to globally issue assets similar to but different to the existing ones. my point is that that day has not yet come. it is certainly intellectually healthy to explore this kind of idea, but we are still at the level of ideas. as we address these three priorities -- crisis prevention, crisis response, and

strengthening of the international monetary system -- we need at the same time to address another very important point is probably underlying the success of all i have said before now. that is governmental reform. let me say one word about that. a renewed mandate for the imf will have little legitimacy unless we tackle the longstanding grievance with our governors. our crisis prevention efforts could be hampered by concern about evenhandedness. our crisis response efforts could lack credibility. our commitment to address long- term issues affecting international monetary stability may be questioned if we are not

able to solve or make progress in governance. when i addressed the board of the imf -- the first time i met those entities, when i was presenting my candidacy to the imf in august 2007, i made a small speech. the logic of the speech was legitimacy and effectiveness. the imf needs more legitimacy. the imf needs more effectiveness. they are not too different problems. there is no way to increase effectiveness without increasing at the same time the legitimacy. here we are. we need to really make progress in terms of legitimacy. the good news is that as you all know the g-20 has provided

political backing, asking the imf and our sister organization the world bank to make progress in terms of shifting money to emerging countries, reflecting the new economic reality. for the imf, the shift will be a shift of 5%. the bad news is that translating this into reality is not always easy. xdto obtain a consensus for whee you share the shift -- the fact is that we already did. in 2008, we also had a ship as big as this one -- we had a shift almost as big as this one, 2.7%.

it is difficult, but it has been done. the problem is it has been approved by an overwhelming majority of our governors, around 98%. ministers of centralñi banks, te governor ofñi the imf approved e reform. it is still not implemented two years later. why? because for many countries we need parliamentary approval. not for all of them, but for many. until we have this parliamentary approval, it cannot be implemented. today, i have 64 countries out of 186 having done their homework, meaning having passed the building need to pass to approve the vote of their governors. we are not going to reach the majority soon if the countries do not move. i can understand it is not on

the top of their agenda. they have lots of problems, especially in a crisis time. boating to ratify the approval given by -- voting to ratify the approval given by their representative to the imf, on the other hand, is not a very contentious. -- is not very contentious. let us go forward. our african friends have passed it. the reforms included not only a shift in the corkoura, but theye ready to do it. why not implemented? because we need approval. complaining about the fact that the reform has not yet been implemented, i want to say there is no use to decide a political

shift at pittsburg, to make it in the paper at the end -- for the beginning of 2011. having the governors approved it and having nothing to show for it? the opportunity for improving the legitimacy of the imf is at least as important as a symbolic step of reform. you all know that among the countries having not yet ratified this process you have the ones which are the most vocal in asking for the reform. we are exactly at the crux of the matter. the question of legitimacy is not only a matter of choice. it is also a matter of diversity and of presenting diversity in staff and management of the institution. i do not underestimate the

symbolic, and not only symbolic, consequences of a global shift. more than that, you need to have all of the countries' membership having ownership of the institution. this means much more than a shift in core members. it means people providing the historical and political knowledge from different members of the institution. on this point we have a lot to do to improve the current situation. let me go to you with a simple idea that i guess members of the bretton, woods -- the bretton woods committee would share. the world needs more multilateralism, not less. before i say a word about that, i want to stress one point. the debate over the fund and's

mandate -- over the fund's mandate is not about expanding in new directions. it is about seeking a capacity to deal with systemic risk, which in some respect was already in the ideas of the founders, but which needs new instruments, new tools to be effective. what does that have to do with more multilateralism? it is obvious. bilateral is and was probably enough to avoid global crisis is in the past. the new linkages in the financial sector, and not only their -- it is impossible to imagine that bilateral surveillance can be enough to fulfill our commitment and to be able to avoid, or at least to mitigate, the risk of a global crisis.

so we need to be effective. that means more multilateralism. if the crisis has taught us anything, it is that the world needs at least as much, and probably more, multilateralism then in 1944 -- than in 19944. the other thing that has emerged from this crisis is unprecedented cooperation between countries. it has never happened in the past that such a large number of countries have tried to use the same tool to reach the same target and have succeeded. this spirit of working together is exactly the spirit of multilateralism which was in the mind of the founders of the imf. of course, there is a risk that

with the crisis finishing, even if we are far from being out of the woods, with the crisis vanishing, this will to build consensus may also vanishe. that is why we need to push all of you, if you believe in this institution, to push forward to explain that we need more of this collaboration, more multilateralism, not less, more imf, not less. make no mistake. it does not mean the original mandate has not been validated. on the contrary, the original mandate has been validated. it is exactly why this institution has been built. but in a different world, we need to explain it differently and to reshape the institution to be able to provide for the

global economy what our member countries are right to expect from us. so that is the work, looking forward, for which all your comments, of course, are of extreme importance. we need to clarify and strengthen the institution even more to meet the global challenges ahead, to serve our membership even more effectively, and more simply, to build the fund of the 21st century. thank you. [applause] >> thank you very much. that is really -- when you consider what has been going on

the last couple of years, amazing progress has taken place within the imf. and i am going to ask a question related to the group of 30 report that came out last october that had to do with the government's, legitimacy -- the government'ance and legitimacy s well as coordination on the financial side. you have done a lot of work on the ladder and have tried to do a lot of work on the governance issue. we have in this room mostly americans who are very much interested in this subject, bretton woods committee members. the united states itself, as you

know, has been a proponent of change, and at the same time, like every other country, we have to go to the process. what kind of message would you like to convey to this audience as to what the priorities should be today -- today and going forward? what can be done to our congress? -- what can be done through our congress? >> the first thing you can do is certainly the help the u.s. congress has provided already. it was obvious one year ago that it was impossible to get through and obtain approval of the congress for theñr goals. the goals were very important for two reasons. the original reason was to provide the imf with a new income model not relying on its

lending, being able to have current financing that will not depend on the financial crisis. it is a bit awkward to have an institution which is rich when the world goes badly and is poor and almost destroyed when the world -- when things are going well. the better we work, the better we are able to provide stability, the poorer we are. i find that a bit odd. the idea of the report providing the imf with stable resources was certainly a good idea. but between the idea and the implementation of the idea, you have all of the realities of life. one of the main obstacles was to obtain the authorization for sale by the u.s. congress. the previous administration, this is ministration especially

-- this administration especially has been extremely helpful. with lobbying in congress, it finally worked. i am very thankful to barney frank and others who helped us going forward. whatñi can we do looking forwar? i think the idea that the imf has changed -- again, not changing its overriding goals and not changing in terms of what we need to do. but it has adapted to the new reality of the 21st century. it needs to be conveyed. it is not that obvious. you know this because, being here, you are interested in these questions. it is not obvious for not even the man on the street but even highly educated people like u.s. congressman. so you can do that.

another thing is to push the idea that i tried to underline in my conclusion, which is to push the idea of multilateralism. it is sad to say that multilateralism is not the most popular idea in the u.s. congress. ñihelping -- explaining why it s in the interest of the u.s., not only in the interest of the world. the leading economy that the u.s. is has to be concerned by the global economy. the united states itself must provide this kind of multilateral money -- i think this is very helpful. let me give you an example that probably -- you may come back later on if you wish, and i guess you will. in the aftermath of theñr crisi,

we will have a difficult time. we are not out of the woods. the financial crisis itself is probably behind us. the probability of having another lehman brothers is pretty low. but we will have to deal with the consequences for a rather long time. it is not exactly easy to manage. the temptation, for many, to find a scapegoat -- for the u.s., it is the chinese. for the europeans, it is the u.s. whatever. we all know -- we have examples from the past. it is essentially goingxd to repeat itself directly. this does not lead to good solutions.

the only way is to have everybody around the table, as institutions like the imf can help to deal with. dealing with this on a multilateral basis is the most important message. >> while said. thank you. we have many, many questions. we are not going to get to all of them. we heard announcement that the deputy government of -- the deputy government of the -- we heard an announcement that the deputy governor of the chinese central bank will be working with you. what does this mean, in terms of the voice of emerging markets with in the -- within the imf? the whole question of the population of the imf. >> i thought your question would be what does it mean to have a

special advisor? >> what does it mean to have a special adviser who happens to be deputy governor of china? >> we agree. we have two points. the first point is that one of the things we need to change in the imf is that we are less handicapped and others, but we are still not totally able to deal with the financial linkages in the economy. the imf is a unique institution standing at the corner of main street and wall street. there is no other institution working on the linkages between the two. even if we're the only institution positioned to do this, we are lacking the experience of people having

worked in the private sector, or at least in commercial banks. i am not going to bash the economists in the fund. that is probably the best team in the world. it has putçó together hundreds f ph.d. s in economics. but that is not the whole story. the more we go, the more market knowledge of the private sector is needed. we need to have people having this kind of skill. obviously, having been vice- president of the bank of china, he has this. he is not the only one, but he is a very experienced and very respected banker around the world. that is one thing. the other thing -- you noticed he is chinese. [laughter] çówell, you know, a large part f

the reform will show the barry -- the very big increase of china in the global economy. a lot of the shift will reflect the fact that the chinese economy is much stronger than it was five or 10 years ago. it is just obvious. if we want the imf to be able to deal with what i said before, being the body where people are talking together, confident in the institution, likely to find solutions sitting around the table,ñi we need all our members to feel comfortable with the institution. what does that mean? it means formal things. it also means having national actors at a really high level in

the institution. i can understand not only china saying "this institution based in washington is defacto an institution led by the europeans and americans or only by the americans." it is wrong. it has to be demonstrated that it is wrong. so i try to hire people coming from all the rest of the world. it is not the end of the story. diversity in staff and management is important. it is also the economy which is moving the fastest in the global economy. i think it is fine to have a better quality soñi that a chine member representing a large part of my corner will feel at home

in the imf. that is the only way you can discuss. if everybody feels at home. i am very happy to have him join the fun the beginning in may. his experience, knowledge, and skills in the financial sector will be very helpful. it is a way to show the chinese that they can be at home. the imf is also a way for the chinese to show that they feel at home in the imf. >> thank you. here is one that could be expected. is the greek financial crisis posing a systemic risk? did the imf for see this in its article for consultations with greece? >> you have all the difficult questions.

well, the article we have for civilians -- the article we have for bilateral surveillance in greece is public. how do we address the problem? the situation is a very special situation, as everybody knows, because greece is a member of the imf, but also a member of the european union and the euro zone. therefore, all of the discussion -- i am not going to elaborate about a single chair for the euro zone on the imf. however, it makes a special case. why? when we deal with a country having problems, we have a lot of variables that we can try to use -- providing resources,

implementing correct economic policy. incorrect economic policy, you have one tool -- in correcting economic policy, you have one tool, which is currency. the members of the year rose on want it to deal with the problem itself. having been one of many founders of the euro, i can put myself in my shoes and understand that they need to deal with their own problem. european surveillance has not been effective enough. xdthey want to clean up the situation themself. i perfectly respect this. i do believe they are able to do that. ñiçówe remain in a position whee are happy to have, if asked --

as you know, we have been recently asked to provide to the european commission in athens -- we were happy to provide an expert. we do what our members ask us. this institution has to be at the service of its members. if we were asked to do more, we would do more. the europeans, i believe are able to fix the problem. ñi>> i have time for one more. i would be happy to give you more as you leave. >the imf has recently shifted longstanding policy stances in encouraging countries to use spending as a tool in economic downturns and by indulging the effectiveness of capital controls.

what does this say about the lessons the imf has learned over the past decade or so, and how member countries should treat imf prescriptions going forward? >> we have advised fiscal stimulus as soon as january 2008. the reason for this is that we felt it would be important. our forecast was certainly more accurate than all of the other forecasts. why? not because we are geniuses. maybe we are, but not for that reason. as i have said before, the institution takes to kinds of information -- macroeconomic information and financial sector

information. this being the first crisis created by the financialñi sect, it is no surprise that an institution having a background in taking information data, trying to see problems on the macroeconomic and the financial side, would be able to foresee the crisis better than others. i am not arguing that we have seen this crisisñi coming four years. not at all. but in the run-up to the climax of the crisis in the first six months of 2008, our forecast showed that the situation would be a really serious one, and that the risk of the great depression was a real risk. maybe some of you remember that when we released this forecast for the spring meeting of 2008, we were criticized a lot.

we were called to pessimistic. i remembered meetings with some members of big countries telling me, "i know my country better than you know." six months later, they came back and said, "you were right." good. on the one hand, it shows the need for an institution like the imf. no other one can do this. on the other hand, it shows also that we were likely to adapt. our mandate is economic stability. in most cases in the past, to provide economic stability was to refrain in overspending and to limit deficits. if it happens that to provide economic stability was to increase deficits and provide stimulus, we were exactly in the line of our mandate in doing it.

the mandate was not "the imf has been built to restrain deficits ." weñi were built to maintain economic stability. when economic stability grows to stimulus, it is our responsibility to provide stimulus. we changed our advice. we did not change our logic. the same thing for capital controls. when most countries are trying to build a great wall of china around their country, are trying few rational arguments, one of the best things for them is to have a floating currency, when they are able to do it cautiously, and to liberalize their capital account. we gave that a vice. -- we gave that advice.

to be pragmatic, countries are receiving huge capital in flu for many reasons they are not accountable for. there is a lot of liquidity in the world. there is a search for return. i was about to say that greed is coming back. forget about this. a search for return comes back. most investors, including some wealthier than others, say, "we are not going to invest that much in japan or the european union. the u.s. we do not know. let us focus on emerging markets." a huge amount of capital goes to brazil and others. we have to see what they can do. we are not saying at theñr fund that capital control is at the beginning and the end of the story, and that the only way to

deal with it is to capital control. but if, at the end, they have no other way, on a temporary basis, then using this kind of thing to avoid damages to their economy, why should they not do it? we should make a distinction between capital controls of inflows and outflows. in the case of outflows, we advise the government to implement capital controls of outflows. we are right. we have probably saved the economy not just to this but through a series of measures. they needed to have capital close -- capital flows for stabilization. in some cases, it may be more damaging than useful. >> in my long term as an observer of the fund, i must say

it is very impressive, the rate of progress you have been able to achieve over the last two challenging years. it has been extraordinary. we thank you so much, and we will be your support. [applause] >> thank you very much. >> thank you. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> president obama has made appointments to his new debt commission. he named honeywell executive david cote, union president andy stern, and advertising executives ann fuge. republican and democratic leaders will have the chance to

each name six commission members. coming up, and remarks from new york governor david paterson. announcing he is ending his campaign for governor. later, speaker nancy pelosi on job legislation and the recent white house health care summit. sunday, a replay of the entire white house health care summit. we will hear opening comments from the president and congressional leaders, followed by discussions on health care costs, insurance reform, and expanded coverage. it all starts at 10:30 a.m. eastern here on c-span. ñrçóthis week, on "america andñe the fcc indecency case stemming

from the 2004 super bowl performancexd of janet jackson d justinñr timberlake. the court will decide whether the fcc policy on the broadcast of fleetingñrñr nudity violatese first amendment. ñi>> the new c-span video libray is a digitalñi archive of c-span iprogramming from barack obama o ronaldçóñr reagan, and everyonen between, over 750,000 hours of video. it is fast and free. try it out at csñr ñ panvideo.org. >> go berserk -- governor paterson took office following

the resignation of eliot spitzer, and was be -- and was this is 10 minutes. >> thank you. for the past 25 years, it has serve the people of new york.2j all the while, i have tried to improve the quality of life for families and for special interests who would maintain the status qu[n have made, as i said in my state of the state address, focuses çóaround this question. çóare we doing what is right for the people of new york? ñiat times, it has not been eas, but no matter how difficult the circumstances were, i have

never forgotten my oath, nor my responsibility to serve the people of new york with faith and with integrity. over the past couple of years, working with the legislature, we have reduced $33 billion of deficit. by this april, that number will probably go over $40 billion. ñithat is three times as much as we have ever had to do before, and over six times the deficit collections in a normal two year period. . .

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[inaudible] >> well, i -- i offered my õassistance to attorney general *q(ááx but let's wai.esqá's ask and >> governor -- >> and the only way you woulf need, the bahlot box!?ijz%ñ need, the bahlot box!?ijz%ñ another box. eing pushed? thg0ballot box becatse it woule be hard to reelect me when i'm not running. >> i signed up for public service. and this is what happens in public service. i admit i guess disturbed for three weeks unsubstantiated rumors, all dispeled in the end,

aligned the front page of nurq(s you have newspapers ! demanded coverage. it was impossible and difficult for me to stop that. and it was painful, both for michelle and i and other members things we didn't do.ccused of 2j it was difficult. i hoe my stand i took at thatú work very harf, who make mistakes. i'm one of them. we all make mistakes but i think that we're trxing to do right by the public and -- and when we become sort of celebrity cartoon forget these are real people who i hope that some who i thought respectful of those who come later th me. i'm not angry about it at all,

because i rest assured that i did my best, and i worked hard and i mate a -- made a lot óf, difficult decisions and i had to situation was and what our dj responsibilities are, and m am -- e perfectly satisfied with >> thank you. [captions copyright national cabl% satellite corp. 2010] [captions performed by the national captioning institute] >> tonight nancy pelosi and the and that of remarks crom thomas faderal reserve reserve bank of kansas city. on tomorrow's washingto'

journal, we'll discuss health care policy and a look at the housing department. and "christian science monitor" will discuss her article about private property rights in africa. this is live on 7:00.

>> thank you. thank you. >> good morning. >> and what were you up to yesterday? watching tv? funny how people react to things. people said to me, everybody room was and i thought, they dj wouldn't even notice how crowded. was that an issue. i don't know. but anyway, we were focusing on outside that room we were focusing on jobs and hue we

could move the legislation. up series of job qieces and the house bill will soon vote on hiring incentives remem er txat. and encouraging next steps to -- to put more in our drive to put more people to work. and this is important bilbao it is -- it has targeted investments to spur job creation and energy and infrastructure and then provides specific support for small businesses and tak svedits and accelerated right off. ant. focuses as you know. and this is part of our ongoing broader agenda, expanding lending to shawl businesses and building highways and transits and poor job training and hopefully summer jobs in the next bale keep police and fire and teachers on the job. yesterday once again the president brought together dngs -- democrats and republicans to

explore agreement and seek out common ground and to discuss health care reform. as you play recall, one year ago nearly, march 5th of 2009, the president started this bipartisan conversation at the white house at the summit. it was a great day with -- it was house and senate democrats and áepublicans outside stake holders and consumers and all present. of course the biggest presence outside the president was the -- when senator kennedy came into enlist as a foot soldier in the fight, in the campaign to pass $ health care reform. and it had been his life's work. he would later say to the president, this is about the -- not about the details of policy, it is about the character of our country. many of us carry that with us. we have gone forward in this campaign and brought it to the table yesterday. we also brought to the table,

the concerns that -- american familys have when they sit down at the kitchen table, to talk about their job security and the uducation of their children and how they could afford that -- their pensions and of course how they're going to pay their .-". e mindful of to pay their .-". that, that what we do is relevant to their lives. and i was very proud of the president's presentation, for those of us who have be94($(lc@+ involved in this issue for decades it see the knowledge perspective and history that he knows on the subject and the vision that he has. , and his vision and he wants to build consensus, he started that six weeks after his swearing in last year and the march 5th meeting and it complainted through the consideration of the bills in committees here and took a while to give the0senate more time to reach bipartisan and still, has the door open to that. and hopefully we could find some

initiatives to incorporate in the bill, in addition to the over 100 republican amendments that are already accepted into the house and senate bills, more like 150. and well over 100 amendments, that the republicans have put forth. and are there any others that -- that we could km date, we certainly will. and i'm not of the school that says unless you vote for the bill, we're not going to accept your amendment. if they have a good idea and it works for the american people, bravo, we welcome it. and the -- the -- i think what was clear coming out of the meeting yesterday, if you want to know what i thought is that -- that two things were clear, that the -- the president clearly has recognized and it was evident yesterday, that in order to improve health care insurence for -- health insurance for the american people, we must have some regulations of the insurance

industry. we have to go beyond the status quo. and it was clear also that the republicans didn't -- were accepting of this status quo. and i was very proud and mentioned that on wednesday, we passed in the house, a overwhelming bipartisan split and it was like 410-19 and something like that. 406-19 that 0 -- to remove the exemption for insurance, health insurance companies, in the -- in the -- that they have had for over 60 years. and that has not served the american people well. and i think that left to their own devices the insurance companies behaved very poor my and the american people have paid the price. and this legislation is essentially. and we're at a point that is clear is that while we all talk about -- ending the -- the dening, coverage on the basis of pre-existing conditions which is

uj needed and desired reform that the american people recognize and want, is -- is something that the democrats stand fully behind and the republicans do not have it in their bill. when they say they support it, you have to support the underlying bill if you're going to have that prohibition on -- on discriminating against people on the basis of pre-existing conditions. if you don't you'rd giving the insurance companies once again a license to like up prices. and so this is been about costs and improving quality and expanding coverage. what i'm excited about is now we could move to a place that will accommodate whatever suggestions people had using the president's bill and not bill but proposal that he put on the internet of monday and to go from there and talk about what is in the bill. not controversy around it but

what is in the bill. it is about the future and the innovation and it is about -- about0prevention and diet and not diabetes and it is about healthy america, not health care for america. it is about -- it is, it is very exciting because it'll take us down a new different path, and it allows for, for effective, effective -- initiatives, to take hold, rather than just building on what we have done before. and it is about what is new and innovative.

and that is that the other debate that you saw would start over and -- eensy weensy spider, little teeny tiny, you can't do it. there's certain things unless you do them together, it doesn't the have impact, it doesn't have the synergy, it doesn't hold insurance companies accountable. so, i -- i really was pleased with how the president of course but also the members made it very clear, sfor harkin said it best, if somebody is drowning 90 feet out and you throw them a 10 foot rope, and say we're doing it incrementally, it doesn't work. and everybody that spoke yesterday spoke about stories, that they had, whether they met the person in person or constituents or family members or letters they had received about how -- how medical bills were just pulling them down and

not only health wise but economically. and so -- again, we will be -- have seven hours and i think it made a difference and moved us closer to passing a bill that -- that meets the aaa standard of accountability, of the insurance companies and accessibility of many more people and very important to us in the house affordability for the middle class. and that, i will take questions. >> and i'm sure you know admonished khar my rangel, give n you promised to run the most ethical and honest congress in history. >> and we are. >> do you think he should step down as chairman of the committee? >> i understand and i haven't seen in the report, i don't tw preááh)elease where they said that he did not violate the rules of the house> statement for that -- that they

made. so, there's more to -- e mr. rangel's situation and we look forward to hearing from the ethics committee on that. >> they did admonish him. they said if staff knew about the corporate funding for the trips. and -- and they said this, press release shall stand as the admonishment of him. thaé's what i read. >>úîuáu$ink it ends there? nd i thank them for taking this action. i hope that they will have otngr actions. they did not take action against him. they said he did not willfully break the rules. we'll just se what happens next, which comes out of the ethmcs committee next. qá"ti p!ortion funf end. >> yes. u*páq" on!your

rjj it is not fitting his stand a ard on funding and a sense that's going to be a problem in the weeks to come. >> let let me say it this way. there are -- yop to say principles but three standards that we're using as we go forward and i'm not -- odq

>> where do things stand now? do you think it is possible along with the changes for reconciliation and how is that process formal right now. >>ñiññiçó it is up to them. >> here are the thrqv steps. whatñi is theñ-3 ub stance andçs õhatñi we'll put togetherw3 and didn't wantçó to do that beforee heard from the republicans and second whatñi is the senate able to do with añi simple msjmrity? andñi then, we will -- act upon that. prospects for passing legislation, in heightñr of the gave to t$ó concernsñiñr of the house hebs. thatñi would beñr affordability the middle class and closing the ek"tq'dingñr the -- the nebrask

and make having state equity for all states and fourth just to name the major ones changing the pay for from the excise tax. and so, that -- that was a very big split. we were eager to see what the president would put forth. we didn't know exactly what it would be until we as you did at that same time saw it on the internet and that's a big step forward. something together and harry reid, and we'll see whatiçóçóñr to -- what he could get the votes for. and then we'll goñp#rom there. >> and whatever changes do you think you would be able to pass the bill through the house? >> when we see what theñi senat is able to do. between the house and senate bill. remember, 75% of the bill are the same underneath. >> and what the procesk(ñsr isçg

to look like over the next week % trying +ñi find ways to accommodate other ideas or republican ideas. >> and how -- how they will have a voice in the process and what we could spect to see as you try to build. >> some of the ideas put forth yesterday have possibilities and as i say, i don't ever think, i don't know, i would hope that we could get republican votes but it doesn't matter if they have a good idea that works for the american people, we should try to encoreñr -- incorporate it a quite frankly,ñi largely what w heard from the republicans yes, sir was about process and let's start over. those who were makingçó about -- sellingi insurance across state lines and talked about the nature of theçóñrñrñi exchanges. and wasn't even a question whether there would be an other changes that we could make in the scanges. that gives me a good opportunitr

to say, we haveok comingñi a lo way since last march 5th on this legislation. i don't know if you recall but senator grassley at that time questioned the merits of a public option, which as you know still remains very popular in theñi and theñrñiçó president said at time, i believe the public option is a good way to keep the insurance companies honest and to create competition. well, whetherññit is açó bqwf.t i don't think it is a better idea. but it is an idea. c ei it doesn't save the same kind of money that having a public option would. and so yesterday was interesting to me, that well, we know olympia snowe and durbin had añ bill and senator i thinkly was talking about changes and maybe we could find positive suggestions from what they were

am@áell as an -- any language , that may be helpful across state lines and then we'll see what else. we didn't have many other ideas except let's start over, i don't like the process, that wasn't as shall we say, fertile territory for us to incorporate bo what we were doing. from here as i mentioned, dana would go from, from -- freezing the design on the substance, and without the substance, you ask me, you have the votes for this and that, without the substance, it is -- we can't go to the next step and the next step would require to see what the senate will do. and we have voted on the bill that we like and we'll see if they can accommodate the changes that the president has put forth and then we could go to the next step. and we'll keep you posted along the way. >> and what about the job bill,

do you -- how do you plan to proceed with the jobs bill? and how do you see the agenda developing given the difficulties you're having? >> yes, as you know, we passed our jobs bill before christmas that we thought was urgent at the time and it is urgent now. i think what you will, i know what you will see is -- is a -- a segmentation, there will be this jobs bill that we start w as i mentioned, that i mentioned with investments and infrastructure and energy and transportation and that, with the -- with the tax credits for hiring. and for small business, as well as the accelerated depreciation in that bill. and to help small business. the next bill we have to address in the next bill, that comes up, we have to address the -- the fact that the unemployment insurance is expiring now. and that has to be. we have to pass legislation to

do, to correct that, to extend that, and really, it is really hard to -- to understand why, why, onexdú&!9q=i in the unite states senate isñrxd holding up and i'm pleased that the, that the senate democrats are trying ñ [móçó instead ofñr a bigger bill, you will see segmentation and i guess they have. you have to ask them why they're going that route but it is okay with us, so long as we getxd th bills here to sendñi back. i believe we'll have a higher bill up next week. >> and now, police speaker, i know you said you're waiting for the ethics committee but does this hairsplitting over whether it was mr. rangel or his staff, and the appearanceñr of irqáy and the other matters that the ethics committee are lookingñi into. doesn'tñi that damage your prome

to drain theñiçóçó swamps?tz#ej have his day before theñiñi eth committee. they said he did not knowingly ru. again, if this were the end of it, that would be one thing. ñrñ come and we'll seeñi what /appe with that butht every member h that right.çó st members accountable for what their staff's knew and i would be interested to seeñi how thatr rñi reverberates.xdñiñiñiñr >> thank you very much.

>> john, thank you for joining us. >> thanks for having me. >> this sunday on c-span's news makers, congressman george miller weighs in on whether rangel should remain chairman of

the house ways and means committee. >> sometimes in policy, you have to do, you have to do difficult things and -- and i can make, i can make a case why he should step down and i could make añiñ serious case aboutçó he's entiti to a day in court. itpi0 not a perfect process. i hope they wrap up their work as quickly as possible and then congress will make a decision and i think that's what -- that is what people would be entitled >> as a chairman, though, he thinks he could continue to be effect niff that position given the questions surrounding it? >> it makes it difficult. there's no question about that. and -- and he is, he and the members of his committee and the leadership will discuss that. this all happened on friday, and i think that -- that we have to review that. i think it is important that the leadership review that. we're not, it is not about dodginged the issue. i think they're trying to do the

rye thing and sometimes we know the right thing in a heated political environment is very difficult to -- to do. makers atñiçó 10:00 eastern on span. sunday on c-span a replay of the whouth white house health care summit. we'll hear comments and discussions on he tell care costs and insurance reforms and deficit reduction and expanding coverage. and it all starts at 10:30 a.m. eastern here on c-span. ñii0 years old,ñi adams, hooverçó an reagan and ford. and find theñiaute and other presidential facts inñi c-span' newly ñiupdated book, ñzñho is ipburie >> a guide book. ipburie and it is a travelogue, if you

will and it is also kind of a mini history and a work on -- work of each of the presidents. you could tell a lot aboutçó ñh people at the end of their lives. a resource guide to every presidential grave site and insights about their lives and who is buried in grant's tomb? who iñrs at book seller. and public affairs bookçós. and remarks fr[im the president of the federal reserve bank of kansas city on senatorçó dodd's proposal to appoint a single regulator to oversee banks. this is a little over 25 minutes. >> on your screeiñi is thomasñ honig who is president of the federal reservepb- of kansas city. dr doctor, whatñr is the role o3 the ferve when it comesçó to

the role of the federal multi-" regulation of banks. first it has an oversight stability and that of course involves the major financial institutionsñr in ñithe country. then more specifically, it has a supervñiisory authority where i actually can examine the the activities and the books of the major, all of the bank hoñi&din companies and state banks that choose to be members of the federal reserve system and this gives us a hands on -- information about conditions in the -- in the financial and in the banking industry. i call it federal reserve. the country. and not just on wall street, but in -- inñkother parts of americ like our region of the country which is in the center of the country. it is a very important function, and essential to ourñr role in in assuring the -- the financial stability, not just on wall street, butiin -- inñrçiñr r-t

of main street. ge% consider is a essential function. >> what is the legislation being committee that would alter that role and ñrwhat is yoñiur view ó+ i know it is not out yet but i learned, and through conversations with some individuals in the senate and then of course in the ñimedia, that theñiçó proposals cannotw3 templated taking the federal role at this time or in the near future and i think that is a -- añrçó tragic mistake and as i s it takes the eyes away from the federal reserve in knowing what( is going on içón america, not jt on wall str-#]txt inñr middle (k% for example, right now, we know kñissues in pw about small business lending ani -- by having examiners involved

here and gathering intelligent ñ information on what is causing obviously the recessionñi çóand partly capital pressures on been dealing with problem loans and we're working with the banks. and to figure out waysito allu them for example to restructure l9merh way e lh%uj*uá helps them deal with the%)oblem. you can'tñr do that from a distance. you have to be involved on a -- 0 ongoing detail my, what i call is i think the essential elements and that's why i very tuá wou-d not -- take that kind of responsibility awayñmfrom theç federal reserve. because i think the&routçócome nñy a very bad outñrho;cp forñi ban and for the commuçónities of ñr america.

cautioned senators in the to curtail the fed's banking oversight, referring to -- to short-term political liability, and for this.ñi >> well, and i think he'sñ'i absolutely correct. i think to -- you know, peopleñ tend, these kiçónds of s to wan to blame someone and the problem with that is -- is there are plenty of of people to blame. we deregulated the industry and congress deregulated the industry. of deregulation. and -ñg this encouraged some whr ç&tr>xcall speculative activitt collapse. the ñibubbles and the and i think it is an overreaction and i think that -- theñrñi outñicome would >pq ooz worse outcomes rather than better ones and that was what the chairman was communicating.

r that's my message. >> does the senateñi banking committee and the member, are they right to be angry at the fed at all? >> i think if they're going to be ache -- angry, they have to be angry at everyone, including themselves. that's the honest truth. they did, pass rambling and ñi allowed the organizations to get bigger and more risk oriented. and yes, the regulatory agencies because of this culture,ñiñi we- were kind of backed off if you will but i also sayñr that -- i that kind of environment, wññen things that i proposed is that we need to have clear rules of and that is -- we need to reintroduceñiñi simvrleñp understandable rules, aroundñr ipcapit. and underwriting standards pit. [pancluding loani]ñi to value r these are the standards. if you tell a supervisor that

generally we want things to be good and you're going to a binñ and you look the at the books and you say, this is a pretty concentration of credit and could be problem in the future, they're going to loñk añrt you y say look at performance of the portfolio, it is paid off andñi and if you have clear lpóverage ratios, ñ9ñy-ñi say no, you ca have. if you're going to, if you roñu your balance sheets you haveñ%3 have more capital/r specificall ]k%9 yoñ=ññi say, over that, you have to make adjustments, that's counter cyclical and the outcñiomes are less for a finançot)p& crisis unq"háhe conditions. those are the things that we have to go back to. we have to diagnosisçó this problem correctly and -- and rearranging who is the supervisor and taking away from the federal reserve, who is going to be there in their place and who is going to gather the

information in order to hend for -- for liquidity needs for financial institutions not just in wall street but across the those are theñai kinçód oñrriñi before you take this responsibility away from the ópfederal r. >> and we're putting the numbers up on the screen if you likeñi ç ¤yrñ wokp >> what is your job as president of the kansas city federal reserve? >> well, as president of the @ity, çz have mult+rple responsibilitys like any c.e.o.k would çóhave. l reserve isçóçó ñi wx% of the federal reserve market committee meeting and every third year i'm a voting member

as i am this year and that's a major responsibility for me. secondli i have responsibility for -- for oversight of our bank supervision activities although those activities are vested with the board of governors in washington, those employees report and then for that information -- forward that on to board governors, but i manage that operation if you will. >> for your region? >> for the reserve district, just so you're clear is -- is western missouri and nebraska and kansas and oklahoma and wyoming and colorado and northern new mexico. and then thirdly our bank processes payments,xdñiñr we ar we're in termsçof what we call wire transfers and money and large volume transactions and we process small electronic transactions through our bank and that's a major operation and we also distribute cash for our regional banks. so there's multiple -- multiple

responsibilities with that job. >> is it necessary, in your view in the 21st century to -- have the fed divided into regions anymore? >> absolutely. and i think it is more important than ever. i tell people, in 1913, when the feve was formed, there was -- there was no need for a 12 region system. and -- because you know, the federal reserve system is the hirdt central bank of the united states. the first two were monolithic organizations and they failed because people they were distributed across the country. and the federal reserve in that sense is a product of -- if you will main streets, and -- distrust of cannot sen twated financial power. and -- a they were uneasy with it being just concentrated in ñq washington or ju'otçó concentr in wall street, so, in the compromise to give people confidence in the centralñi ban and and to address fearsii,ñi iu will, they distributed the powei across to these other 11 banks

besides the federal reserve bank of new york. and that is essential, and we gather information on -- and we have boards of directors who come from all walks of life and across our region are agriculture and technology and from labor and that is essential to the input and essential to the feedback that goes. it is more critical in these trying times to have that network and that communication stream up and back than it has ever been. and i couldn't, i couldn't emphasize that enough to the american people. and this is in the financial times, this morning. >> greg predicts u.s. meltdown and the u.s. is heading for a debt driven financial melt tyne within five to seven years according to senator judd greg, outgoing senator for new hampshire. >> and well, i think that is a, is a bit extreme. i'm very concerned myself about the debt levels in the united states. and i'm very concerned about the

federal deficit and very concerned about the total debt and as -- as has been noted by others, depending onyour assumptions about the economy, we will -- that -- e that federal debt will grow either, out of --ee at an unsustainable level starting immediately or in very few years. and we do have significant private debt, so that's -- that is, what worries me about that that puts pressure on the federal reserve to keep interest rates artificial lilo as you try and deal with that debt and that will only make the problem worse. now is it -- are we necessarily going to have a crisis in five years? no, there are actions we could take and the administration can 3 i know çóthey have a commission s up, to say here's how we're going to deal with that. secondly, we, as a nation will have to -- to systematicly increase the savings rate and so that we could fund our debt and -- therefore bring down the debt

over time and we don't want to do it too quickly because that o gr7b1yin the,rxñ,#i but we have to do it and -- and theñr p sooner we began the process, thi less likely that prediction is the longeçv@]e delayçó the mor likely that prediction is to come true. >> and#rone more question. how independent are you and how much is ben bernanke your boss? >> well, we're, we're,çó tçóhñi reserve banks are set up to be independent but, the board of governors does have what they have general oversightçó responsibility for the 12 banks o#ty correctly. we're autonomousçó and the chairman of the federal reserve is the chairman of the board of governors, the federaokv?;búr's imñ authority, and w7riñiñin that r. but i also have a board of directors from my çñegion, ñran they're my boss asñi well, or ty are my boss. and they can fire me.

and or fail to reappoint my and so, i have a hot of oversight. and i think it is very important, though, that i have this board of directors because that brings that independent to the open market committee and that's essential and tha>e's w we were designed the way we were. >> you have the longest tenureñ of all of the presidents of the federal reserve. you have been in that positñrio since 19ñfñ and been with theñip of kñ.nsas city since 1981 in various positions. and let's takeñi calls and in line and you're on with thomas of the federal reserve bank. >> what an honor to speak to one of the crime organization known as the federal reserve bank. it is a misnomer for you to say they got federal oversight of i but a -- federal but a private bank. i'm doing everything i can to

you're late on your boss mr.ñi n bernanke there by the esteemed, of mr. ron, the -- representative ron paul who wasn't wants to audit the fed, something of course you will vehemently be agaiçónst, whichñ can't figure out because, i mean ñ>pafteróall you're a bank, yo said if you go into a bank and audit it and find things that don't add up you try to fix them. >> and we got the point. and the c.e.o., ron paul. , et cetera. >> and i get these questions often. it is always interesting because of the misinformation that comes forward from this kind of call. let me explain first of all, representative paul has every right to his view. he calls it -- calls it audit the fed and it is in the fed, as you suggested in your call and certainly you have a right to that view. i would say number one, though,s of it audits that you're

bank of kansas city, and the federal reserve system broadly is añiudited by the goverñázent accountability office and it is audited by a -- açó majorçóñiñig firm and it is audited by thir treasury and it is our bank is actually examined by the board of governors and -- añi so ther is -- enormous amount of ñiauditing that goes onñr withie federal reserve and if -- e exceptions are found, we are held accountable for that and -- and we correct them. in terms of allegations against the chairman or anyone else, they won't be, i think, found -- to have any substance to them. but, we welcome that reviewñi a i think federal reserve system has -- has encouraged the -- the government accountability accounting office to take a look rpa i understand your frustration a and it is unfortunate but it is also misinformed.

>> those audits public? >> the g.a.o. audits are posted on their site and we publish in our annual report and the public accounting, and offices reports just like any company would do. and those are very public, and -- they're on our website, so i invite you to look at those, go to the g.a.o.'s website or go to ours and begin to look at the audits whenever you wish. >> have you ever hadñi a conversation with ron paul or read his book? >> i have not had a conversation with him or read his book. i have seen parts of his book, i get the essence of the book & knowhrthe gold standard, he woud love to see the gold standard t-and it is one monetary system and it was bitterly opposed by a -- many people in america at the f its deflationry impact and those are choices that the congress can make but i -- i would not recommend it tñi and i would --ee and i would encourage ron paul to look

beyond his goal of ending the fed. >> and lincolntown georgia. you're on with dr. thomas hoenig. >> good morning. it is an honor to se with you. as opposed to the first call, i know you're one of the more sane members of the fed and your more recent remarks have been reining in the insanities than mr. bernanke wñiith his loose money policy. one question i like to ask, does the fed realize çóthe terribly destructive impact that you had on -- on savers and frugal people in this coaintry by reducing theirñi interest incom to below, really, real negative interest rates while the crank ud sters that created the problem are being rewarded?

>> and i understand the from us -- your from ustation and i do think that -- onsj of the issu that i have dñiealt with is howe bring interest rates back to -- to a more long-term sustainable %uá)qr)ñi extreme lilo, obv]iously, unsu)wtñtainable le a.m. -- añind there are some disagreements, that's one thing about a commit phi liket( the on market committee where you can have differing views and do i share a different view. i think we should be -- going back to a more normal level sooner rare than later and as i said in my public speeches and i think i'máqsóot, my concern is that -- in terms of, the last time i voted iñi dissçóented on usage of the word extended period. in a position, shoot economy continue to improve and i think it will modestly that we be able to move -- back to more normal rates sooner rather than later and i don't consider it

necessarily, in -- in our interests to -- to assure the markets that rates will be zero and they could play the curve and because while it has intended effects hk assuring the markets that they could, it also invites and sometimes incites speculative activities. that's what we have to be careful of. and i'm in the the majority at this point but those are different views and as we debate this, i think -- those are important things to bring out and then in the end, hopefully, come to the right solution and the right time. so thank you for your question. >> and dr. hoenig got his masters and ph.d at iowa state university and undçóergraduate benedictine college. how important is your ñr relañhrtionship with congress? >> i think they're ultimately responsible for our being iñ/ existence. so there is, i think a very important relationship there, and -- and a need to be

responsive to the congress of the united states. now the complaining knowing if you put the printing press with the spending, you're going to get bad outcomes gave the central bank the federal reserve system a certain degree of independence and was structed in the way it was, to help insure that independence, so you had -- you h?dçd different views and y could take a longer teñirm -- vw of things, from a policy per spect pitch and so ts a very ç'3 important relationship but somewhat independent from the daily pressures of politician, so we could hopefully over time come up with the right answers for, for the long-term sustainability of the economy and for that matter, because our economy is so important it affects the world in general. so, very, very important that we have a degree of autonomy but also we're accountable. and on a professional level, is health care reform important to you? >> on professional level, it

certainly is. and -- it is, it has to be looked at because -- of the future liabilities that come with medicare and with the -- with the with the baby boom population entering their retirement years. those are important because they were -- they will impact the budget and the fiscal deficit and the total amount of debt outstanding that will affect monetary policy in the long run. a solution there is extremely important for all of us. and from -- from a long-term economic perspective as bell. how and what that is up to the congress and the adóministrati >> and bruce,ñr democrat, not - knoxville,çóñrñiñihjrtennessee. >> good morning, sir. q how are you? >>ñi i'm fine thank you. >> and i have a couplñie of qxd questions. who is on your board of governors? >> on the board of governors in washington,ñi >> in you're area.

>> the board çñif directors. >> we have nineñr members and w have -- we have, an individual from omaha who is with the li]ar union and anñi individual in kansas city that snt grain business and we haveñi a food processor and a book seller frrm oklahoma and we have a rancher from wyoming and we have, a banker from denver and a bankeró from -- from ashland nebraska and a banker from kansas. rural kansas. geographically in geography and in professions that are part of our -- 3 question?çó >> because the ren for that question is i wanted to know, financial side how many financial side individuals was in this. and the next question i have for you sirçó jms, is is iee you mentioned you were against what was going to be happening today, and you didn't say anything

about the role and the accountability of the federal bank and -- and another quick question. >> and hey, bruce. we're running out of time and we'll leave it right there, thanks for calling in though. >> in the first part of your question. there was, there are three bankers on our board of directors. . . our bank has -- the board of governors has oversight of the bank. the congress of the united states can change the structure as is being discussed in one dimension right now if it should

decide to do so, so there is a great deal of accountability of the federal reserve banks to its board to have directors, that is those people who live in that region to the board of governors, those]ió people in washington and to the congress who are elected by the american people. host: lake placid, keep it short. caller: the federal reserve is nothing but a big scam created inñi 1913 to stabilize and to hp prevent inflation and unemployment. it has failed and all it really does is it usurps money from the working class and puts that into the banking system and inflating the economy and then deflating the economy. guest: well, i'm sorry you feel that way but the federal reserve's mission is assigned by congress to look to the long run stable growth of the economy and

to maintain stable prices. now the economy has a lot of moving parts and we are one element of that. the laws of the nation affect it in terms of what ease going on in the country. fiscal policy certainly affects it and those all play a role but i think that the mission and the reason that you have -- i want to emphasize to you the reason you have these 12 banks across the country and one in the center of the country, one in the south, one in the north of the center of the country is to gather information from the broad pob also a of those regions and feed that into the policy making and also be able to communicate back. it would be a tragedy to give that up. i can tell you. now an economy has to have money and you can go to a gold standard but if you look at the history you're going to find that you still have deflation so i'm sorry you feel that way but i think the federal reserve is really a necessary parts for an industrialized country like our own.

host: there are some rumors out there that you might be the next treasury secretary. do you know how those starts and what do you think about them stp >> those are always fun things to hear about sand so forth. my goal is to do a very good job as president of the federal reserve bank of kansas city and to be independent-minded in that role. i think part of that came because someone agreed with one of my views and said therefore he should have that job. host: do you work closely with secretary geitner or other treasury secretaries? >> i do not work closely with him. we are independent. i do know the secretary and i do talk with him on occasion. it is more important, though, to keep that independent view out there. host: our guest has been dr. thomas hoenig. >> on tomorrow's "washington

journal" we'll discuss health care policy with analyst davered defensive endal. p'd jinaçó rights in africa. "washington journal" is at 7:00 a.m. eastern time. c-span, our public affairs content is available on television, radio and online and you can also connect with us on twitter, facebook and youtube and sign up for our scheduled alert emails at c-span.org.ñr which fourñi presidents lived pt 90 years old? they were john adams. her better hoover, ronald reagan and jerald ford.ñrxdñi >> a guide book. it is a travel log if you will, but it is also kind of a mini

history work of biography of each of these presidents an let's face it, you can tell a lot about people at the end of their lives. >> a research guide to every presidential gravesite, the story of their final moments, who is buried in grant's tomb. now available at your favorite bookñrñiñr seller or getçóçy/ discount at the public affairs website. >> next, a look at mortgage lending practices for small businesses. earlier this months the obama administration proposed transfering $30 billion from the tarp program into a new federal fund to support lending for small businesses. now a portion of the house financial services and small business committee hearing. this is an hour and 20 minutes.

>> meet willing come to order. this is a joint hearing on the committee of small business. it is an unusual hearing because we are dealing with a subject of unusual importance. as we look at our economy today no subject is more important and very few are as important as ñrñó businesses, particularly small businesses. n sinesses. we're going to move fairly quickly. let me just outline the rules here first of all. we have three panels. unusually by standards of the congress, the regulator panel representing the public officials are coming second. we didn't want them to state their case and then leave. we wanted people who have questions and needed them to speak first and then others who'll speak after. we have borrowers first, the regulators and then the lenders. because it is a large number of members and it is a tough day, we had originally planned to have this hearing on february 11, the chair of the small

business committee correctly argued for having it on a someday where they would be no time pressuresñi on the members. unfortunately we gotñiñi snowed. given the calendars of coordinating two committees, this is the best we can do. there will be two hours for each panel and we will keep the opening statements very, very short. you have just heard mine and with that, i will now call on the gentleman from missouri who is the ranking member of small business and then we'll goat to miss vell as kezz. dele do the d.r. then we'll go to the gentleman from new york. >> thank you. i would like to thank youç!et chairwoman velasqez. dwiven theñr continues economic sqe relying on theñr agility andñrñ

resourcefulness and create jobs that lead to long-term economic growth. american small business owners need capital. whetherñr it is to purchase inventory, fund the purchase of land and buildings. american economy will march on capital. there is no doubt that the cu nvironment for raising capital is different, even for the largest businesses with aaa credit ratings. that is when they have to compete against the voracious appetite of the most creditworthy borrowers in the world -- the united states government. i can imagine how difficult it is for small businesses to find capital. the committee has held a number of hearings in which entrepreneurs testified about their ability to obtain immediate debt capital. some talked about lines that were reduced. some or even several complete with no explanation. others mentioned it could not find capital at all. at those same hearings, bankers testified they had credit available and were willing to lend. there were so concerned about

regulators that they were still keeping their capital. in these situations, the programs are supposed to kick in and help small businesses obtain needed capital, however, even sba capital programs have shown signa be reduced lending activity. further efforts to inject liquidity -- have showed significantly reduce lending activity. the cost of capital may be so high that some person -- some business centers will not take the risk. we have heard from people all over about their ideas for making affordable capital available to america's entrepreneurs. i would like to hear what the regulatory actions -- what regulatory actions are needed that will allow capital to small businesses without reason there wrists. i thank you for having us here. -- raising the risks. >> thank you.

thank you for agreeing to hold these joint hearings. earlier this week, the fdic reported that last year they saw the largest annual declines in landings since the 1940's. congress and the administration have taken a serious attempt to restart the small business credit market. the top -- the tar program was launched to shore up banks. -- t.a.r.p. program was launched to shore up banks. while the steps we have taken have helped, the flow of credit is not where we needed to be. a recent fund said that 10.8% of banks have cost -- have cut small business lending.

lending is down 30% from 2007. they continue to struggle to find credit. most efforts focused on getting banks to lend. if we're truly going to open up financing options for small business, we need a more balanced approach. that does not mean doing more for financial institutions and expecting the benefits to trickle through two small firms. taking $30 billion and simply handing it to banks in the hopes that they will make loans is not sound policy. allowing lenders to make fewer loans that are bigger is an equally questionable strategy. entrepreneurs can go out and find affordable sources of financing -- until then, we will not see the type of job flows our economy needs. small businesses are our best job creators.

during economic recovery, this job-creating potential is even more important. ñifollowing the recession of the ì(53 created 3.8 million jobs. outpaced big business growth. we want to put americans back to work. as we pursue policies to get credit flowing again, we must get it right. our economic recovery depends on it. i hope that today's hearing will take a hard look at proposals that may help us make wise decisions as we move forward. thank you, mr. frank. >> i thank the chairman and would urge the administration -- the jurisdiction is shared.

in my view, it has to be done together. i urge the administration to work with the chairman. and now the man from alabama. >> i do not have a statement. >> we will begin with the panel. i will ask the gentleman from idaho to introduce our first witness. >> it is my pleasure to introduce one of the largest and most efficient of residential real-estate developers and idaho. he is going to talk about the difficulties of obtaining financing in the current market. >> please, begin. >> thank you. i appreciate the invitation and

the opportunity to testify before you today. i am the president and owner of a diversified real-estate firm in boise, idaho. in art -- in addition to our activities in idaho, we have activities in other states. our real estate development activity spans both commercial and residential, which makes us a little bit unique. given the nature of our business, i have been a ground zero witness to the series of ourñr economic events that have brought theçó economy to its knees. i watched the formation of our residential real-estate bubble that was inflated by cheap credit, fragile underwriting practices, and inadequate credregulation. it was not supported by underlying fundamentals. the correction was inevitable. what was avoidable was the death of a correction and associates collateral damage -- was the depth of a correction and

associated collateral damage. i shook my head in wonder. everything i saw or run the was deeply impacted byçóñi the housg market. -- everything i saw around me@@ it is not a recession for us. this is a depression. unlike housing, we did not the witness formation of añi bubblen theñi commercial real estate markets. the first did was at a rate of $13.50 a squareñr foot. 18 years later at the peak of the market we were doing markets for r $18.50 per square foot. an increase of just 1.77%. those are not the kind of numbers that suggest a bubble in the commercial real estate market, at least in our markets. as anotherñi example, i sold an

office building in 2002 for 2.7 million. the replacement cost on that building would be $2.2 million. that same billing went into foreclosure last month and failed to sell at a credit auction, foreclosure auction for $1 million, the minimum creditors' bid. that's indicate -- indicative of what can happen where credit isn't available. 30% to 50% values can fall below replacement costs by 30% to 50%. it provides for the democrat ization of credit. it should provide credit at the most reasonable rate possible.

all they have reconstituted the markets for some areas, it is still structured to resurrect the secondary credit market. but the market requirements are so complex that it is only realistically available to the most sophisticated and elite buyers. there must be characteristics not required under the now defunct system. çóxdbond issuers who are respone for underwriting the debt must maintain a significant level of brrisk. rating agencies must be accountable for what they issue and should be compensated by the per sure -- purchaser. services must be authorized and given the tools to deal with troubled assets within the security pool. initially, federal guarantees will be required to stimulate

the formation of a functional market. the guarantees can be phased out over time as the private sector gains confidence in the system, the system destroyed recently, and replace the need for federal brparticipation. consider this -- without the existence of fannie mae, freddie mac, and the fha, we would not have a housing market today and we would be in a full-blown depression. the only equivalent we have for these is this program, the equivalent of the fed creating a super-jumbo market for commercial real estate. if we did that in the residential market, we would be leaving the entry level to medium home price buyers in the lurch. too much time has passed without adequate resolve. the regulatory agencies should

move expeditiously to pass necessary legislation or regulation needed to reconstitute the commercial mortgage-backed securities market. the lawyer to do so will result in further undervaluing -- that failure to do so will result in further and valuing -- undervaluing. >> the chief executive of united statesñiñpi chamber. >> i thank you for this opportunity to be here today. i represent the 500,000 members of the chamber of commerce. the status of small business lending is so devastatingly poor that many business owners have given up on trying to secure capital credit for their businesses. members tell us that regardless of their personal credit scores, proven business and financial

records, and contracts in hand, their access to capital and credit have become severely limited. fees and interest rates on their iexisting loans have risen too long chart levels. -- to loan-shark levels. small business losses accounted for 40% of the losses. it provides us with a clear picture of the small business lending marketplace. the smallest businesses have been wiped out or are struggling every day to stay in business. businesses in the 250 to 5000 range are weathering the storm. firms in this range tell us they could grown-up and add jobs if they could only access the capital and credit they need. many businesses in the $500,000

to $1 million range have been very challenging growth. they have no assets to fuel growth. firms with over $1 million have a more diversified group of providers. they have little appetite for growth due to the uncertainty and exorbitant rates. nearly all businesses say the consumer competences is extremely poor. increased consumer confidence would fuel their business growth. if we could complete the reform of health care and create a strong consumer financial protection agency, they will have upa clear picture of the future and can plan with confidence. u.s. banks reported the sharpest declines in lending since 1942. another troubling trend is the

extreme contraction in lending to women and minority-owned firms. between 2008 and 2009, the percentage of those dropped from 23% to below 20%. the total dollars lent drop from 18% to dilute 16%. -- the total dollars lent dropped from 18% to 16%. the job creation legislation recently passed in the senate falls woefully short in addressing the size and scope of our problem. the recent fdic comments on meeting the credit needs of credit for the small businesses do nothing to change the basic problem. the president's proposal to distribute $30 billion of t.a.r.p. funds is simply more of the same. clearly, this action would once again benefit the banks with no guarantees of assistance to small business owners. the treasury secretary has said

these funds should be removed from the tar program -- part -- t.a.r.p. program. he said many removed their applications because they did not want to face the ñiñiñirestrictionsñi or the per. we recommend thçóincreased sba lending guarantees to 90%, focus on the sectors with the greatest urgent need -- loans under $200,000 and in the next category up -- establish a direct lending program through the sba, allowing a scale back of loans to private sector ñiinvestors andçorñr lenders afe time. ñiwe encourage congress to respd with larger scale solutions to improve the opportunities of businesses to secure capital and credit, help stabilize the cost, help small businesses to convert

into fixed-term loans and help them make good choices for the future. transparency, access to capital, protection from abuse -- they are vitally important so that our economy may be revitalized and our small businesses brought back to life and jobs created. thank you. >> thank you. next, the president of another corporation. >> madam chairman, mr. chairman, distinguished members of the committee -- thank you for inviting me to testify this morning. i am from clearwater, florida. i am honored to be here and to deliver this testimony before the congress. i am here as the voice of regular small business owners who have historically been the largest creator of jobs in our country. we are frustrated with the inability to obtain financing to create critically needed jobs. jobs can only be greeted with capital.

the build out the banks are not helping -- the bailed-out banks are not helping. banks are taking away existing credit lines. while this may be prudent for self preservation, it lowers your credit scores and a then increase our rates. consider my story -- i am the owner of a small business that manufactures water devices to save water. they cost us less than $10 and we of sold over 800,000 units. globally, we could sell 200 million units. we could create many jobs now and 75 more of the next three years. as we grow, 25% of our employees will be people with disabilities. we challenge others to match

this commitment. we will create jobs for our suppliers and distributors. we're ready to move forward and implement our marketing plan. this will not happen without the necessary capital. innovation is what made this country an economic leader. people with innovative ideas grow them at huge personal expense in pursuit of the american dream. yet, when the time is right to grow beyond their individual means, this creative endeavor is also not judged for its dismalñi -- for its business plan or what can do for the country or what can do for the environment, not for the jobs it will create or for the potential increase in export sales -- it all comes down to your credit score. the current lending model does not work in today's post-crass economy -- post-crash economy. we're in for a long painful recession if we depend on banks. they cannot figure out how to

solve the foreclosure problem. we need to change our strategy. the government must take responsibility and solve the capital crisis. congress lent directly to the banks, the automakers, aig -- it is time for a similar program for small business. i propose that congress pass legislation to make as b.a. a direct lender to small business. any money approved should be kept in a separate account. the american people do not want to give any more money to the banks. the real estate crash, the recession, and the banks have lowered its credit to most americans. credits course cannot be used -- credit scores cannot be used as the sole factor. i am proposing a new criteria. some of the key determining criteria are, how many new jobs

will it create? how many jobs will be created for disabled americans? will this help protect the environment or conserve natural resources? will the product or service be produced in the knighted states and can be exported -- in the united states and can be exported? has the applicants economic situation been dedamage? capital is the tool the drives american business and we need your help. please roumove quickly to resole this. a message to the american people -- congress needs to put an end to it partisan behavior. it is time to find compromises. in the business world, we get things approve with the majority. as a reminder, there is no r or d or i in americans have been so proud of

the olympic team -- a teen usa -- team usa. we request that congress pick up the pace and immediately take action to solve the jobs crisis. please come up pass health care reformñi for the 45 million americans who do not have health insurance. thank you for giving me the opportunity to be heard on these very important issues. >> next is the foundation from george mason university. >> it is my pleasure to testify today on the commission. as noted in a recent study, he reminds us that many independent entrepreneurial businesses rely on what is conventionally known as consumer credit to start building their business -- things like credit cards, home- equity loans, and others. these are especially important for women and minorities who

tend to be excluded from traditional small business lending markets. as a result, a lot of regulation thatçó seems to be e as a result, a lot of regulations that seem to be extensively aimed at consumer lending will disrupt effectively small business lending as well. prudent well-designed regulation of consumer and small business lending can certainly promote competition, expand consumer choice and lead to overall productive lending. the truth in lending act before it got laid up with amounts of lit ration and regulation, provides a good example. itñi mayçó have a large number unintended consequences as well. this year one of those is theçó curtail identical of lending, especially to consumers and small entrepreneurial businesses. unintended consequences are most likely most severe when orñr l beyond the modest goals of

improving -- the market it is basic economics that a bank has to considerations. it must be able to estimate the risk of a long and price alone accordingly. regulation that increases the risk of lending or makes it more difficult to -- will make it more difficult and expensive. if the bank can and accurately price alone, they have to reduce their risk exposure. -- if the bank inaccurate txdçóy pricesñi a loan,ñi they have to reduce their risk exposure. provisions in recent legislation have made it more difficult for credit-card issuers to price risk.

the consequences have been predictable. credit-card issuers have tried to adjust other terms in order to try to continue to price risk efficiently. they have acted to reduce their risk exposure when they have been unable to do so. they have offered fewer loans and reduced credit lines. if proposed legislation is enacted, it will further exacerbate the credit crunch and increase the risk of lending, making it more difficult to price risk, resulti&/ in a greater curtailment of lending. let's talkñrzv about a credit d act. it had some modest ladies and proposals in it that may have helped -- modestly useful proposals that may have helped some consumers.

new limitations on interest rate adjustments, deep fault provisions, that sort of thing. the market response illustrates how it can disrupt the credit market. consider a few of the terms of the credit card. interest rates, annual fees, the amount and circumstances on which the fis will be assessed. i could go on -- on which the fees will be assessed. i could go on. it places limitations on the borrowers. it tries to price risk accurately and offset declining revenues from newly revenue -- nearly regulated credit-card terms. -- newly regulated credit card terms. they have created a conversion

of cards and become stingier in other fees. notably, some provisions make it more difficult for card issuers to raise rates on consumer is based on risk and changes in economic circumstances. the market response has been predictable. credit-card issuers have raised rates on all card holders in order to guard against the risk they might meet later. most relevant for this hearing, there is a widespread result of the credit card act -- they have slashed credit card lines. it reflects the effect of the act. memo i recognize the gentleman from michigan -- >> i recognize the gentleman from michigan who will introduce legislation. >> we are joined by the gentleman from michigan who is representing small

manufacturers. many small businesses have been impacted by the credit crunch, but it has been particularly acute for our small manufacturers. he is the owner of a manufacturing company and of member of the board of the community bank, bringing a unique perspective. his company employs 250 employees, located in both michigan and tennessee. >> thank you. >> i am the president and owner of a manufacturing company. i serve on the board of a small community bank. i bring a unique perspective from both the borrower and the lender. i have been a manufacturer for 45 years. i appreciate the opportunity to discuss the challenges that small manufacturers and the motor vehicle industry face. my company is one of the michigan, and athens, tennessee.

my father began the business in 1962. it has grown to over 400,000 square feet of supplier. we read the first metal-stamping facility in the nation to be awarded for our outstanding safety programs and our determination to continue to provide meaningful employment to are now over 250 employees. . and we will record a loss for the first time in 40çó years.ñi8 we projected our salesçó that couldñi allow us to hire over 2 people. just recently our lenderñr redur

just recently our lenderñr redur our line ofñi creditñrñ  tov: an unsufficient amount. >> as they aim to educe their exposure to temporarily impaired companies -- most of the companies enjoyed a long history with their lenders, having successfully worked together for decades. our personal opinion is that lenders are under such intense pressure from federal regulators that they went from one extreme, flooding the market with substandard loans, to almost completely closing the faucet. i urged policy-makers to work with lenders and borrowers to reach a delicate balance needed to restore manufacturing in america and stimulate job growth. i do not believe regulators should ease their standards in oversight. i do believe that congress and the agencies can develop guidelines to govern loans to small businesses. this would allow banks to fill

comfortable to lend to manufacturers while establishing compliance rules. i applaud committees on capitol hill for holding these hearings and for various proposals from the white house and members of congress. it is up to washington to create an environment where small manufacturers can access adequate and timely credit and lenders can conduct sound transactions without fear of government reprisals. capital in the market is only one part. washington needs to strengthen oversight without stifling economic growth. according to the small businesses ministration, small companies comprise over 95% of manufacturing companies in the u.s.. yet we are often overlooked. on one side is the vehicle manufacturers, a dozen or so major original equipment manufacturers that dominate

world markets. on the other side is a dozen or so material providers, plastic providers. caught in between are some 300,000 suppliers that produce over the 10,000 parts necessary to make every passenger car and truck bicker it -- car and truck. suppliers have not provided small manufacturers with the capital and resources to supply -- to survive. banks with reduced capital positions are not in a position to increase loan portfolio regardless of enhanced collateral positions. this committee has before it interesting proposals that collectively will go to addressing the challenges faced by small manufacturers, the manufacturing modernization and diversity act and the small business loan program. we will be pleased to work with

committee members on the initiatives and legislation laid out in my written statement. i thank you for your time and efforts for making the millions of american manufacturing voices heard. i hope my message is understood and acted upon before it is too late. >> i want to ask -- to introduce into the record a package submitted to members of this committee. these have been looked at by all sides. is there any objection? if not, they will be put in the record. are there any other documents you want in the record? that will be included as well. as we go to the questioning, we have a large number of members of the panel. what i will do on the democratic side is give members the choice of which panel want to talk to.

as we get to the member, if you would prefer to defer and ask your questions of the other panel, that would be acceptable. i am going to save my question is for the regulators. i will therefore not be asking questions at this time. the gentleman from alabama -- members of the financial services committee, if you want to ask this panel, you can. there is no guarantee we will get to everybody anyway. >> a point of clarification -- can we ask this panel in question and the next panel? >> as republican members, you can do what you want. >> i think we will let everybody. miss dorfman, your and mr gordon's testimony was similar,

that we should lend money directly, bypass the banks. is that what i am hearing? >> will we find is the banks have not been lending and the best way to get money into small businesses would be to provide a direct lending program through the sba so that small businesses access those funds. >> what i propose, and this is the problem in banking today it -- you go in for a loan, you deal with a bank officer. he has no idea what you do as a manufacturer. at the sba, there are so many smart people. if you just set up a task force for jobs and had three member panels, one from a retired member and two from an sba person, they could call and in 30 minutes decide whether it is a good loan or not. >> what i am saying is you want

the sba to sort of -- >> i want business to be back in business loans. >> i understand your goal is to create jobs and get lending going. i think essentially you are wanting the sba to come in and loan additional amounts of money is because the banks are not doing it. >> because they are not doing it and because they do not understand business. it is a big problem. banks do not understand business. >> i understand that. >> i want the sba to work on it directly. >> do you believe that the banks or that the sba is as qualified as the banks to make decisions on lending and credit worthiness? >> i do not. i think they are more qualified. much more qualified. >> do you believe that the sba would make much better decisions

as to lending? >> i think that if you -- first of all that we have such a huge problem out there, we would have to -- >> i understand there is a huge problem. i want to focus on which one is better qualified. >> i think we need expanded criteria and the sba is more qualified. >> i would say that what we have seen, not just from the economic turndown but from years prior -- the banks typically go cherry picking. they will take the best looking loans. it cost the same for them to do a loan for $75,000 as it does for $10 million. in order to move forward, if we put the money to the sba to allow them to land, would we have to put in a program that would -- >> i understand. the sba would basically play the role that the banks have, as you say, not played by not lyndon. >> i would like the sba to have

a direct lending program for small business. >> how big do you to visualize that -- good?ñ%i you know, to do any d- >>ñr well, ifñiñiñiñr we canñta going to give theñi banks and jó turn itñiñiñi over to the s.b.a. >> ok. >> that's a drop in the bucket $30 billion. >> to put it in perspective, $30 billion isñr 3% of theñi origin money for theñiñi firstñi stimu package so the goal hereymók'ó ÷ of the money and 75% of the jobs that weteñçóçó i it is just notñiñiçó enough. it is just not enough. >> let me ask you this.ñr if the loans are not paidñi bac what is your understanding? is it theñi>nf taxpayer?

>>xdñr well, at thisçóñi rate, e look overall of what theñ3]ok s lending has done, there isñiñi relatively a loan default system. ck >> it would be absorbed by the sba. >> where does the sba gets its funding? >> we understand that it is taxpayers', but this is an investment in the u.s. economy. >> i am not arguing that, but it is the taxpayer on the hook if it is not paid back. is that your understanding? >> that is right. right now, the sba guarantees 90% of the loan anyway. the other alternative is to continue paying unemployment compensation. there is a 100 percent chance. it needs to be looked at. if you do not act, there is a

100% chance -- >> another question if i can. are you aware that we are spending so much we are going to double the national debt in five years and triple it in 10 years? does that bother you? is that a concern? >> what we are doing here is we are investing in businesses to create jobs to get people off unemployment. it is a very important issue. if you do not understand why we mean -- why we need to make loans -- banks would move quicker if they were paying the weekly expense for unemployment. since they have no expense in the weekly check -- >> the gentleman's time has expired. >> ms. dorfman, the administration has proposed the creation of a $30 billion fund. if this proposal moves forward,

do you believe there should be penalties for lenders who receive money but do not make loans to small businesses? >> i absolutely do. i would also like to see some sort of penalty for the banks who are now "providing sba loans" that are not. we have seen a small business go in and ask for an sba loan. they are told they are not giving them. they are pointed to the higher interest rate. >> if money is supposed to help small businesses access to affordable credit, the branch that would take this money should use it to lend to small businesses. do you believe there should be a penalty for lenders to use the funds solely to increase profit margins on loans they would have made any way? >> absolutely. yes. >> mr. gordon, in the last year,

we have seen the government bailout aig, at gm, and chrysler, and give infusions to our largest banks, including goldmansachs. now the demonstration is proposing to cut another $30 million a check to banks under the premise that it will trickle down to firms like your own. do you believe that any of this $30 billion will reach businesses like yours? >> absolutely not. this is what really bothers americans. i do not understand why congress cannot just cut through all this stuff and or direct. why in the world would you want to give money to the banks and have them do nothing? why not put it in an account under government management so that 100% of those funds are used for loans? why give money to banks and hope

they are going to do something when they have proven -- we do not need more branches. we do not need more chairs. we want loans. if you are only giving us $30 billion, we want 100% of that money to go to us. we want that money in a separate account. >> mr. graves, you are recognized. >> thank you. i am pleased to be here. i have a couple of questions. in a former life, i was in small business. for 12 years, my wife and i met a payroll for a home construction company. i have been there. i know that the right banks

make loan money. i would think banks would be anxious to loan money. i am having trouble understanding that there are creditable small businesses out there that want to borrow money, why banks are not loaning money to them. i know they are gun shy. they have been in this business for a very long time. i am surprised that they are not devising means of determining whether the applicant is creditable so that he is a good risk for a loan. i am wondering why they have not done this. it is very suspicious, the idea that government could do a better job at making these assessments. you mentioned that for existing businesses the fees and interest on present loans have risen to

loan shark like levels. i do not go to las vegas and i do not play russian roulette. i do not understand why a business would open themselves up to a variable rate interest loan. apparently, that is what happened. that is really a gamble to open yourself up to all the potential problems of a variable interest rate. what percent of the loans of our small business community are these variable rate interest loans so that the fees and interest rate can go up? >> i do not have an exact rate. but we have heard from our members that what has happened is they have gone out to apply for a loan because they need to grow their business. what they are provided with is an alternative lending instruments with high fees. they are forced to take it because of the downturn. it is their only opportunity to either make ends meet or get to the next level.

>> so these are not really fees on existing loans. if they want to increase an existing loan, they have to pay higher fees and interest. >> it depends on the instrument. there are some loans at fixed rates and others that are not. those are the ones that have grown. >> mr. chairman, i yield back. >> the gentleman from georgia, who i think is on both committees but still only gets five minutes. >> thank you. i appreciate that. i cannot think of a more important hearing if we want to do something about the jobless rate and high unemployment. small business is the incubator of our jobs, creates more jobs than any other level of industry. that is where jobs come from. i want to deal with each of you and get to the bottom of this. i mean, we have got a problem here with the core of our financial system. and that has been the history of

this for the last couple of years. we have been grappling with that financial problem. that is the failure of the banking system to do its job. that is the heart of our financial system. that is the heart that pumps the blood out, that pumps it all out. i want to ask you -- why is it, in your opinion, the banks do not want to lend money? even in the beginning, it is one of the problems we had with the automobile industry. dealers could not get loans. they sat before you with the same thing. now you have $30 billion that is set aside, here. and i would like to get each of your understandings of how this works, and particularly is it your understanding that even if the small banks that we are going to set this money up for,

even if they get this money, there is no definitive requirement that they lend it? they would get some kind of benefit on a sliding scale. let me start with you, miss dorfman. i think your testimony really hit this issue. what is stopping the banks from lending the money, period, and what is wrong with the program of $30 billion that we have set up theire, your fear that that will not be let out? >> the banks were only doing cherry picking and lending to the -- $10 million, we will consider you. $70 thousand, we will not consider you. it is too much.

the downturn happened. the banks claim that they needed our money. what they did was balance their books and also pay the executives the bonuses. but they were not lending. the money still is not there. what we are hoping for with a direct lending program is that instead of wondering whether a bank will or will not land, we will get the loans out there through the sba. once they are out there and in a good payment cycle, perhaps we can sell them off to the banks and continue to work with the other new lenders. >> do you think that if we were to raise the level for credit unions from their present 12.5% and raise that cap to 25% that

that might be helpful, that that might give some competition to these banks, get them to act straight more and access more capital to small businesses? would credit unions be a help on that? >> they could be. once again, do we know that the money is going to truly be lent? i think what we are concerned about is are we going to repeat the past, giving money to banks and seeing it not getting out to small businesses. i also have to say we have heard a lot from this administration about small businesses being the answer to the growth in our economy. we need to have some money where the mouth is. put the money with the sba. get the money into the pockets of small businesses so we can grow those businesses, create jobs, and turn the economy around. >> instead of giving the $30 billion to banks, we should instead give it to the sba?

>> correct, with a direct lending program. >> i see. is that your assessment, t o o? >> to understand the problem, you need to understand where the banks came from. before the crash, they were not doing a lot of business loans anyway. before the crash, they were focused on mortgage loans. it is easy to send an appraiser to a property, find out what the value is, and make a loan decision. it is more difficult to have the time and resources to evaluate someone's product potential. if i show a bank by business plan, they do not have the people qualified to review them. they are not set up for it. they do not feel comfortable with it. that is a problem. >> somebody puts things on seats that say "do not sit there." ignore them.

the first row is set aside for the federal regulators, none of whom are allowed to go out without three people to make sure they only say what they are allowed to say, but they are not here. if there is an empty seat, sit in it. i do not want people to have to stand up. >> thank you, mr. chairman. i want to thank you witnesses for sharing your perspectives. there are many factors impacting lending, but i think one of the biggest issues is the uncertainty created by the government. small businesses are uncertain about the cost congress added to them, and the lenders are uncertain about the changing regulatory environment. i just spent two weeks in my congressional district, talking to lenders and small