what were the things we missed and what should we be looking at. one of the questions i hear almost all of your former colleagues. you keep using the word capital. that is the primary way to do that. looking forward, what is going to be the appropriate leverage level we should allow our large financial institutions to have so that they will have a shock absorber moving forward. some of these were leveraged. has the chairman and the primary reserve regulated on the primary leverage. >> we have been working with

other countries to try to develop new standards. we have implemented a few of them for market trading, at this point, we have not completed the whole process of developing higher capital standards for large firms, banks are being asked to evaluate how much capital to hold. we get a sense. i don't know what number yet. we are trying to figure out what would be safe. it would depend on the assets and higher capital you should have. we are working to try by the end of 2010 to try to have a concrete proposal that each country would have to decide whether to adopt or not. you would agree the standards

before would not work. the liquidity issue also during the crisis, many banks were well capitolized and didn't have the carbon hand. jo one of the concerns i have, some of these entities, i am wandering if it is not better, sooner for the fed to develop the guidelines and standards and start asking the entities you are regulating to pony up or leverage balance sheets, certainly the taxpayers don't want another round of this. do you have a time line in mind where we could anticipate hearing where the fed is taking action to increase the stand ars or setting new capital standards?

the federal reserve is normalizing. you go on to talk about your new federal funds rate the last thing i heard before i came here

this morning was a prediction by analysts on television in one month, we could expect increasing interest rates on mortgages and home loans. it's not the federal funds rate that we raised. it was the discount rate. nothing to do with the funds rate.

it has to do with normalizing our support >> let us be clear, the change you have made, no matter how slighted it is will increase the amount you have to pay for their loans. is that right, the banks >> can you assure us that will not happen.

if this is going to trigger an increase, we are gooding to have more foreclosures. the predictions are that we have not seen the end to these foreclosures i don't want to see the interest rates increase on these adjustable rate mortgages well, i want to be clear for this committee that the actions you have taken have no connection to the possibility of increase in the household interest rates. we don't have to worry about that, is that right.

that means they got to pay more money, is that right? >> i don't expect any affect on the consumers? >> no. it's very small. >> lastly, let me ask, you talked about the employment rate. that does not really reflect what's happening in poor rural communities and latino communities where the unemployment rates are up as high as 16.9d% and higher in some of these poor rural communities.

is there anything you can recommend that we could do to deal with this problem. these minorities have a lower interest rate. that's a terrible problem.

welcome. >> somebody has their mic on. >> thank you, on page 3, you talk about the lending institutions one of the reasons

why bank lending is down. the other since you began is that in situations for example how many loans were turned down.

we like reserve banks around the country with summit meetings with community leaders and development organizations there will be some cases where tighter stand ars are justified because of the weakness of the economy and the condition. my second question is completely different. we have 4 million jobs and picked up 4 million government jobs. when i went on the recovery

website. my question is in a larger sense. more government spend spending and obligations. >> we have loss somewhere in the vicinity of 7 or 8,000 jobs. two of the industries that have added jobs are health education.

many teachers are technically government employees. we want the private sector to be healthy in the economy and don't want to create too much in theover head in the jobs that are not productive in some sense. >> the ja gentle woman from new york. thank you. i'm sorry. >> the joint economic committee. >> thank you. thank you so much.

>> thank you and congratulations on your renom ination. we have been fortunate to have at the helm during this financial crisis, a scholar and professor who has dedicated his life work to studying the great depression, writing about it. i believe the fed came forward with many creative, unconventional responses to help us move out of this crisis.

the rule on overdraft is welcome to consumers. the concern and analysis about charges and how you would make them fair the law would go into affect.

there would be no delay we are working to have a seft rules if someone's interest rate had been raised for some reason because they are perceived as being at risk. we are looking at the rules in which the interest rate ought to be returned. we anticipate having those returns shortly. the month president obama took

office, we lost 18,000 jobs. we are definitely trending in the right direction. the fed is looking at ways to move back to a normal economy. one article i was reading said you should invest more. we have two broad sets of funding. the financial system was extremely disrupted. those facilities have been quite successful. the commercial paper market and repo market with the improvement

of those markets, we have been shutting those down. this is a question congresswoman waters asked about. we believe as those markets are normalizing we can begin to reduce the sources. including lower interest rates and the pumps of mortgage back securities mortgageage backed securities. taking that off the market in it self will keep mortgage rates below what they would normally be. we bloeb there will still be stimulus. we think economy as opposed to money markets still requires

support. i believe across this country we are going, jobs are number one. >> i want to go back to what my colleague was talking about. 4 million jobs in government and manufacturing. you talked about that. but you cannot sustain that you talked about unemployment being 10%.

you said 40% of the unemployed have been out of work six months or more. if you go down the road here, there's more than 100,000 people who work here that make more than $100,000. the money is better used inside the classroom. where are ways we can create jobs quickly. you talked about the international the international is recovering.

do you agree that 1%, it would give you and create 250,000 new jobs? >> i don't know that number. opening up trade creates opportunities for us to exporter. i'm sure it would. it would not cost anything more but would create jobs that weren't government related. >> it ought to improve the division of labor. each country could be more productive and increase a standard of living. >> if i could just touch base on what the ranking member talked about. we had many discussions with you and the path of your study and some of their down falls. the national debt, you have told us you cannot sustain a budget

deficit i wrote down a few words you refresh. if we were able to get the fiscal from this, it would help the recovery. is that correct? looking at the current budget, does that reflect the commitment of changing the growth curve of the budget deficit or our national debt? >> as i said earlier, the projections of 4-7% and deficits of 2013-2020. everyone would agree that that's not sustainable and we need to address those numbers and get them down. i'm trying to say here that the congressional member, hearing your words, you cannot sustain

this. watching our national debt go up outsideñi the number of world w ii. what do we do today? your quote said it would help the current recovery. so looking at the current budget, does it give us the change needed in any shape or form. >> we are sitting in a place we vote and look today. we all realize this is putting in a place that gives us great hardship. your comment says it helps the current recovery if we take action as well. the current budget i see does not give us that. i'm asking you, do you see it as helping us or does it expand the deficit further.

>> i think it would be helpful this would be difficult showing how the deficit would fall over the nextçó two years we are tryg to be fairly strict on the time. chairman bernanke needs to be out by 2:00. the gentleman from illinois.

>> con dprat layingses on your reelection. the fdic reported yesterday that bank lending in 2009 fell by 7.75%. $587 billion in the washington journal said it was epic, the decline. there's a chart behind. why is bank lending falling so dramatically. it's falling because we are forcing to receive reserves. upon the committee room tv now is a chart from the oversite value report. increasing 700% since the first quarter of 2007.

you'll notice from the chart that if the trend continues, the rate of free loans will soon be off that chart. the dramatic increase to me is really approaching a tsunami approaching our local communities. it is estimated to pique with over 300 billion expected to mature each year. 3.5 trillion, more held by banks and thrift. much held by the community banks that have survived the first part of the mortgage. now being threatened by this one. fdic yesterday added 450 banks to the troubled bank lits doubling the number from the start of 200 9d. many have invested in the communities for the decade.

i just held a hearing on the epidemic on bank failures focusing on the seizure of the great security. i would rather not have more hearsings on the coming year. i want to focus on how we could help these good banks and how we are getting back to lending. how much do you think of the coming tsunami of these loans. 1.# trillion held by our local banks is going to harm our communities and local banks. what are you planning to tend to take about it? >> it is a serious problem. as i mentioned earlier, the commercial real estate losses are pointed out. those banks go out of business,

that's going to affect the supply of credit and our economy as well.

the feds have come down some deals outside the reserve program. >> i appreciate all you are doing with the regulators. really losing it's ñishirt. now they are out of business because they followed the recommendations in the institutions. i really think we could argue

whether the program has worked well or not the various capitol projects will expire. we still have the continuing problem.

i have been surprised at the background of some of these people. i see that the lending by bank institutions has fallen my question to you that you could be doing. my further question is what is happenening we being both the tarp program have put a lot of money into lending institutions. the theory is that we are the ones going to lend that seems to

not have connected what is it we could do and perhaps as the economist, what else should we be doing differently or consider doing in terms of helping with employment. by we, we mean congress and the federal reserve. there were two objectives in the tarp money. the politics are very bad as you know money and the banks have done what they could to pay it back as best as possible.

one of the reasons that we lost so many jobs is that american firms were incredibly efficient in reducing their costs it's partly for that reason that it is hard to judge what jobs will come back. firms have already cut to the bone. as dproej comes back as we are seeing, they'll be forced to bring back workers as we

anticipated. you know the menu of things you could do which could create jobs. there's no silver bullet here. >> i just hope the fed would continue to monday i tert banking institutions and what they are doing with the money they get and the return on the capital and the issuance of funding. >> let me ask a different question.

dealing with the financing of mortgage structures. do you believe we should leave them in tact? we were concerned about their stablt. we are paying the cost of that right now. we will not support -- let me be careful. we would be caution about supporting a return to the existing structure where you have this potential conflict between the share holders and objective. i think there are alternatives. thing that's would be more stable including either

privatization approach or public utility approach. i had to fish or cut bait. it turned out we thought this would be a day that there are not boats until that evening. we will in the next available hearing date have a full hearing on exactly that topic. we will be looking for an elaboration. we had the hearing set for march 2 on the topic, not just fannie mae and freddie mac and all the various strains. we'll get the rest of that answer within 10 days at the latest. the gentle woman from new york.

we all know job creators in our country are small businesses. if you talk to any member in this panel, they tell you each one of us know some credit worthy borrowers who could access lending. we know that we have put

together if we have tried all these tools even the lone guarantee, we have seen 50,000 less loans. we increase the guarantee from 75 to 95. we reduce the fees paid by baroers and lenders. do you think there is a time given this crisis for the federal government to play a more aggressive role in direct lending in a temporary basis.

we are trying to get regulation. we consider it very important. one of the reasons we value the role is thatñr it provides that information and gives us the ability to understand what is going on in that market. there are a number of thing that's could be done. there's a proposal toçó provide capital for small banks. >> they have been citying ma tied by the people in this country. if it didn't work before, for example. when the secondary market -- we try to unlock by creating under

treasury, a small business lending facility, it didn't work then, why did you think it's going to work now? i do know that the proposal is to try to put some distance between the tarp program. whether that works or not, i don't know. there are some things you could look at. we will continue to look at it from the perspective of the supervision. >> ok, mr. chairman. you mentioned your concern about real estate losses. my question to you is if the central bank is currently in the process of winding down the facility. what would the fed do if it returns in the stablt of the cre or small lending market.

>> the turn was to tryñi to get the commercial mortgage backed securities market going ñixdñia >> today it had been reported 25% of all mortgage baroers were under water. what is the fed doing to encourage the ability in the housing sector so tight to the

recovery in the long term. we did workñi with the congress and the treasury which has really not met expectations at this point. the structure was to give principal reductions and forgiveness. we would like the rest of that answer in writing.

thank you. ñi i watched and listened with interest to the opening statements here since january of 2007, since every spending bill originates in the house, we have had democratic majorities in the house and senate and i was a critic as you might recall ofñi republican spending in 2005-2006. since 2007, it has been explosive. i think there is some confusion on the part of the public in terms of where the spending comes from. to me, when içó first reviewed e administration proposal. something that struck me was the fact that at no point does in

where in the future does our administration expect to have a balanced budget. at no point according to its own numbers and presuming do they expect this to change. ñr the deficits are expected to spike dramatically in 2020 the failure to operate within our mean plung our nation deeper and deeper into debt. when we talk about the interest to expanse. it's going to be the fourth largest budget item. as you said, budget deficits as far as the eye can see are simply unsustainable. eventually, it occurs to those

of us who have been a part of this process. that the window before it spirals out of control is closing very quickly. i'm afraid there is a lack of urgency here. here is what i wanted to ask you. first, would you agree that this plan put forward by the administration is not sustainable. second, would you concur in the past, the federal reserve has stepped forward to try to give direction to congress. the warnings that came from the fed where congress has told you were strifking the collapse to the financial system if you don't do something about the 100-1 leverage, the fact that you put mandates on these

institutions to buy subprimeñi loans. this is a systemic risk. the fact that you did at least alert a lot of people that otherwise wouldn't have been aware of it. what can do you now in your capacity? this is my second question, in order to call attention to the severity to this? that threatensñr hyper inflatio what can be done to really get this point across. >> i think everyone understands the basic math here if the deficit goes on. that picture would probably get

worse because theñi spending an aging will go on. it will spiral out of control. it'cr easy to say this. i don't have to grapple with these projects. it's easy forñi congress to com to some kind of plan that willñ show how the united states 0 government is going to bring it back to the position. this plan is not it. assuming that those numbers are appropriate. the forecast are difficult to make. assuming that it is appropriate, no. it's not. >> assuming that would just not pencil out. it's a difficult challenge. it's not something that is 10 years away. it affects the markets today.

the longer you wait, the longer it will be. >> time for another question, thank you. >> we have a vote. we'll get two more in. i'll recognize the gentleman from ñicalifornia. jo gentleman from california mr. mac ar think talks about kradñi agreements. so far, trade agreements have given us unbalanced trade. i don't think that helps our job situation. chairman bernanke, i'm going to layout a few reasons that have been put forward why you may want a few reasons and get your response. the first of these is that monetary easing can help stimulate the economy at zero

increase and reduces our debt. whereas we inñr congress are considering fiscal stimulus which does increase the national debt. there is a stickiness in cutting certain payments, particularlyñ wages. so if we had 3, 45% inflation rate. the third is that your predçó sesor used to come to the congress and said that the cpi is overstating urine flags rate as measured by the cpi, you are really targeting for the 1% inflation rate as we thought it ought to be calculated. we have the resent imf economist report saying the central bankers ought to aim for a

higher inflation rate so that in bad times they had more monday i tarry tools when you start with low interest rate and inflation and try to stimulate the economy, you can't go below zero. the first question is are you currently pedal to the metal. i see statements coming out that talk about increasing the discount rate. those starments can have a slight affect of reducing the easing. i realize a lot of talk about accelerators in other room here. easing up a bit and your discussion that you will not monday he ties the debt. short term, are you or should you be pedal to the metal. longer term, should you be

aiming for a higher rate given the report of the imf. >> we are clear that the higher discount rate is not compared to the policy. there is no expectation that did notten gender in any crease. that was successful in that regard. how do we know later we'll go to five or six or seven? >> if you say two. that's a slipry step to four.

we have taken taxpayer money and injected it into capitol banks. we are beiging the banks and begging for the right to make loans and not count it against their limit on business lending. they are telling me that they could make another $10 billion in small business loans, create another 100,000 jobs. with high capital standards if we let them result in the

capital. should we be relying more on credit unions to give us the tool to get us out of the recession. >> credit union razz tax favored. the banks would complain. i think that's the trade off that congress has. >> only time for the witness to finish. members are going to ask complicated questions with 10 or so seks, don't expect a lost back and forth. we'll get more questions after 2:00. thank you. the district i represent has

1500-2000 factories. the institute for supply management is up now for the six or seventh month in a row. as i talk to my manufacturers, it's the same choke point. the president said the new report makes a powerful case

they can't get capital in order to make the new product. we have a choke point in credit. it is the super super crisis. these are existingboroers. these are people with very low debt to equity ratio. what is the answer? what would i tell them? beside that's we invited them to come out to our district and perhaps help the banks out.

part of the issue is more than one regulator. next time police ask who the regulator is. i'd like to hear from you. i'll be happy to talk about it. we understand that if a baroer is not able to manage the loans. we want the bank to make the loan. the problem is that we are at the beginning of a real

recovery. not making up jobs for the dumb stimulus bill. the creation of real jobs going back to work and exportered. they just can't get the money >> i'd be happy to hear more details. we are working very hard to ensure that's not the case in bank that's we supervisor. >> is it possible that you could be personal with some of these people? >> certainly. >> i'll take you up on that >> the committee will be in recess. in member that wants to ask

questions, we'll call on them. . .