these have been opposed by a lot of different states and teachers' unions, et cetera. i sort of heard you talk about it. but how are we going to deal i think the public does not know how much things have changed. one example, the president of the amt gave a speech here. she talked about how much better teacher evaluations have to get. she talked about not protecting bad -- bad teachers, and her willingness -- i went to of both national conferences of the unions and talked about teachers being broken. everyone cheered. no one thinks the status quo is good enough. it has to be done in partnership. it has to be done with the teachers, but no one is saying that teacher evaluations work. there several districts doing

innovative things. but those are just isolated situations. some folks are breaking through but there is a willingness now maybe not eight years ago. there is a long way ahead of us. >> i still worry that giving up of tenure after a short you period of time. i think it will be very difficult to get there. my time is up so i will yield back. . my time is up. so i will yield back, mr. chairman. of. >> thank you, mr. chairman. thank you, mr. secretary. you've mentioned the achievement gap several times. and it seems to me that if you have a chronic situation where african-americans in a community are getting a tenth grade education and everybody else is getting a twelfth grade education, that you have essentially violated the civil essentially violated the civil rights, the minority unity,

and in violation of brown v. board of education where you have denied the students of the minority race of an equal educational opportunity. do you see the achievement gap as a civil rights violation? >> i see educations -- civil rights issue of our generation, and where you have chronic achievement gaps that aren't changing. we absolutely have to challenge the status quo. we have to make sure, you know -- some schools have 49 a.p. classes and some schools have none. some children have access to dual enrollment college classes and some have none. and we just have to make sure that all children have a chance to get a high-quality education. >> now, one of the gaps is in the dropout and dropout rates. and in previous discussion, i think you acknowledged that a school that has a 50% dropout rate should not be given, as some are now, credit for ayp, because those that remained in school did okay. while half of them dropped out. >> i talked about perverse incentives. you just nailed one of them. >> we put that -- we thought we

had dealt with that when we passed the bill way back when it started. because we required -- we worked together and required a provision in there that dealt with dropouts, where you would not have the perverse incentive. unfortunately, we gave everybody the opportunity to make up their own numbers, and which they did. they don't count -- there is no standardized count, there is no standardized goal. you can make up what you want, and it's essentially has no basis at all. where you can achieve ayp with a 50% dropout rate. do you -- are you working to

we want to make sure easton seven opportunity to graduate. -- students have an opportunity to graduate. let's one of the problems and have a witness saw a blood behind is that if we detest -- we saw with no child lippi kind is that if we did the test, [unintelligible] >> what we want to do is invest in what is working.

we are going to put a lot more resources behind that. why can that go up to five? when things are not working, we want to challenge the status quo. we think this could be a row flourish of innovation and good things could happen. the one to reward that. >> 3 have a research capability to capture this information in a form for best practices and translated into rhetorical practices? one of our challenges is figuring out with a highly qualified teacher is produce.

judicially coming you read a resume. some can teach in some cannot. what are we doing to ascertain whether or not a teacher is effective not just one with paper qualifications? >> we want to make from highly qualified to highly effective based on the difference to make people's lives. you could have four degrees from the universities. it shouldn't not learning, you are not a great teacher. moving from paper credentials to effectiveness is where we want to go. >> thank you. i want to enter into the record another study. we talked about the problems they are having in charter schools. another study is coming out of this to the same conclusion. we like it entered into the record.

>> thank you. >> i have two basic questions. one, i believe it is fair this simple. i'm confused as lightly do not do it. we have individual education plans for each special needs students. why isn't the planet earth model? why isn't that either it iep adjusted? we have now managed these two problems. >> i think you are on to something that we wanted it that closely. >> we are playing a lot of money to develop this a whole annual plan that does not seem to be messed with the measurement of the school. . i think it would be a measure break. we want to measure like students against like students.

student disabilities are getting different outcomes. we want to understand why that is. >> that is part of my next question i am a little worried. my next question, and indiana is doing that. and i'm a little worried, and i ask forgiveness from god, because this question sounds a little like chairman miller's question. and that's always dangerous. >> very careful. >> in the lower 5% schools, i've watched from many years as a staffer and as a member and working with this, we have tried many of your four different things -- we've tried magnet schools, we tried changing the names of the schools, firing the principals, changing the teachers. and your list of four seems relatively prescriptive. that in a sense of two of them have replaced the principals, and has firing half the school, closed the school. and two others. you're putting additional funds in, and you said that you're going to try to measure like

students to like students. but one of the challenges here is why would anyone ever choose to teach in one of these schools if they think there is a 50% chance they're going to get fired? why would a principal go there? how are we assured that these same schools that haven't been chronic are going to be measured fairly and get the improvement? >> those are great, great questions. and to be clear, where you have a principle who has recently arrived there, they're not fired, i will say there are no high-performing schools without great principals. and if that principal has been there 20 years and nothing has moved, i think honestly, you do need to make some changes there. what i will tell you, and this is a really important point, that around the country, you have heroic teachers and principals who desperately want to go to the toughest communities and make a difference. in fact, that's why many people go into education. what they haven't had is a real opportunity where they thought they could make a difference. and so where you have a critical mass of folks coming together, and you're creating the right set of opportunities, great leadership, more time to

collaborate, more time for students, real sense of master teachers helping out, there are phenomenal teachers that want to do this. i agree with that wholeheartedly, and we have several schools inside ft. wayne where teachers actually moved to those schools. and your point about the 50 ways to fail and undersucceed, that was an excellent point, because in measuring student to student performance may help, or similar type schools may help. but the bottom line is, some of those where they have really put their effort in, they get marginal change, even working weekends and so on. and those highly motivated teachers didn't move to those schools thinking that 50% of them could be fired within a certain number of years. if they do everything they can and spend the extra hours, we obviously have english learners mixed in with this. of all sorts of economic changes of inside schools. sometimes where we see these great performing schools, we see that there has been a student mix that's changed. they're all of a sudden getting a neighborhood change. it isn't just that it was suddenly some miraculous -- they

used some language program and turned around. >> no, it's got to be -- >> it does require the committed principals and teachers. i agree with that. >> and to chairman miller's point, it requires the whole community. but i will tell you, as hard as this is, it's difficult. i've been to school after school in this country, in a relatively short amount of time. i was in one school that had the second-most violent incidents in its city. and two years later, there is basically no violence. nothing going on. there are schools where in the first year, maybe test scores don't sky rocket, but there are schools in which students' attendance increases 12%. 12% may not sound a lot. 12% on a 180-day school year is about another month of school that students are choosing to come to school. so there are all kinds of indicators where we can look at adults working in there extraordinarily hard. this is the toughest work in america today, and i would argue the most important. and we need to again community by community find those folks, create the environment where they have a chance to be successful. reward success. learn. this won't happen perfectly

everywhere, but when you see students one year to the next going to school a month more, something good is going on. when you see violence disappear, something is happening in the culture. >> i visited a school in new orleans right after katrina where only two students failed the no child left behind even though it was 100% poverty. i know it can be done. i would like to see, too, the sustainability of some of those. >> we have to stay the course. >> the gentleman's time is expired. i would like to try to recognize two others if they're will to go stay here and if they have their track shoes on. oh, i'm sorry, miss biggert. so i'll go to miss woesy, miss biggert and then the votes and be back after those votes. miss woesy. >> thank you, very much. thank you, mr. secretary. it's wonderful to see you. no child left behind sounded very similar. different words, different -- absolutely a different group presenting it to us. and no child left behind turned

out to be punitive instead of helpful. so i hate to sound like mr. hoekstra, but -- >> geez, you're bringing us together in a way we never imagined. [ laughter ] >> i know. >> this is unprecedented in this community over the last decade. >> but i -- i really worry that we're -- we've got a new team in town, we've got a new white house, a new secretary. so now we've got to do a new something. but it won't be that different. so i will know it's different if we actually invest in the kids that need the help the most. so what i want to know is, is there an amount in the budget that will be targeted to ensure the students are ready to learn when they enter the classroom? because to bring those failing kids, the sick kid, the hungry kid, the worried child, is going to be costly. are we going to make that

investment? or are we going to expect the teacher to bridge that gap? hold that teacher accountable for something that's impossible. because you cannot build a workable product if the parts are broken. so mr. secretary, my question is, how much are -- or are we willing to spend more money on those kids than on my grandchildren who are well-adjusted, well-fed, happy kids, going to school, ready to learn. >> great question. let me be very clear. if a child is hungry, he or she cannot learn. if a child is scared, either in school or going there is a series of physical and emotional support that we have to put in place. we have six large buckets. when is student support.

$1.8 billion, a 60% increase, to extend after-school programs. this is decree neighborhoods that are safe and neighborhoods that are safe. you crave not to schools of entire communities. we want to put unprecedented resources behind the effort to give students a chance to think about algebra and going to college. you are not hitting those emotional needs first and we are kidding ourselves. we are going to put a huge amount of resources not behind every child that behind the committees with the greatest need. -- not just behind every child but behind the communities with the greatest need. >> thank you, mr. chairman. it is nice to see you again.

on page 16, you got a teacher and leader in innovation fund. you've got a teacher and leader innovation fund. and i'm not quite sure how that all fits in. does this mean that the blueprint requires a statewide definition of effective teachers and principles that's based quite in large part on student academic growth? and i know we growth agree that the student achievement measure must be improved. but is this an assessment competition designed to have a few states develop a new model assessments or -- and does that mean that other states until this happens -- that they'll be still under the old tests? >> yeah. we think states can provide some parameters, but we think this can only be done at the local level. so local school leaders, unions, teachers, management boards

working together at the local level. and are sort of, again, i think nothing is more important than great teachers and great principles. we have $3.86 billion in our proposed budget. that's a $350 million increase. and so we to work with those states and districts who want to do something better. one of the things i want to say, mr. chairman, is that we have spent a lot of money on evaluation systems on professional development, billions of dollars a year. of with very, very little to show for it. so we want to work with places willing to change the status quo and get dramatically better. this is a place where we have a long, long way to go as a country. >> but in the meantime, will the teacher effectiveness determinations be made using the existing standardized tests for those that aren't in this? >> well, the different ways to do it -- we're moving toward this next generation of assessments. you can use existing assessments. some of those aren't very strong. and so you don't have to just look at the test results. you can look at in every state, you have different categories of students. of students below basic, basic,

above, or advanced. and so you can look at the movement of students between different the categories. and so these systems are not perfect. we're in a period of transition. there are different ways to do it. but at the end of the day, we want to get to a better system as quickly as we can. in the interim, there are ways to measure progress and growth. >> okay. just another quick question. when does your department plan to announce new data on the number of homeless students in the united states? i'm really -- always have been concerned about the homeless students. and is i've heard that it may now over 1 million. >> yeah. i don't know the data. i'll get you that and tell you one change we're making. historically, title 1 dollars could not be used for transportation for homeless students. and we're creating flexibility in our plan. >> okay. >> in our proposed plan so that homeless children would have access to transportation using title 1 dollars. >> one thing i'm concerned about, and it has to do with hud, because they're working to change the homeless definition, and it really does depend on what the education department says is the number of homeless.

and that would really be helpful, if you have that number. >> i will check that data and get back to you. >> thank you. and i yield back. >> i yield to mr. -- we have three minutes left. if you to take your three minutes now, you're welcome to do that. >> i'll gladly take it and come back for a second round. thank you, very much. >> you'll take your three minutes now. and i think that will be it. but go ahead. >> i want to ask two questions, mr. secretary. how do you propose to support high-need schools, who oftentimes call drop out factories in both urban and rural areas through the reauthorization of esea? and in that response, please include how the blueprint for reform improves middle schools so that we can stop the high dropout which occurs in grade 7, 8 and 9? >> on the middle school piece, all of the reforms we're talking about, better teachers and leaders, well-rounded education,

again, not just reading and math, but science, social studies and the arts, all those things, better student supports, will impact and help middle schools to become stronger. and, again, looking at growth and gain and how much students are improving, we think is going to be very, very important. for those schools that have chronically underperformed, we had the school improvement grants, which is a $3.5 billion investment in those schools. >> can you see that middle schools get a greater amount than they have been receiving the last decade? because the -- when i have feedback in middle schools, they always compare how little they get versus the elementary and versus the high school. so that needs some specificity. >> yeah. one thing that is not quite answering your question directly, but one thing that concerns me is high schools like to point the fingers at middle schools, and right down the line. and what we're really asking is for communities to come together behind their children.

everyone rally behind. that's one of the things that's been so appeal to go me about the harlem children's zone. those aren't someone else's children. every child there is our child. and everybody is working behind. so what we want to get out of is the finger-pointing and blame game and get entire communities rallying behind children. and obviously, middle schools are a huge piece of that pipeline. >> my second question to you is the esaea blueprint calls for identifying and developing for effective teachers and leaders. how will you encourage and support states and districts in recruiting bilingual teachers and principals to better meet the needs of english language learners? >> we want to put unprecedented resources behind better teacher recruitment, including bilingual teachers and principals. i said repeatedly, i think our department has underinvested in principal leadership, and that's huge and we're asking for a five-fold increase there. of and as we have an increasingly student diverse population, i want the adults in

front of those students to reflect the diversity of our country. and i worry about the growing imbalance between our students and the adults there. so making sure we have great representation, whether bilingual or teachers and principals who have an ell background, a student who faced low expectations and this is a personal battle. i worry about the lack of men. i think most teachers around this country, 2% of teachers are african-american males. 1.5% are hispanic males. so 3.5% males from the hispanic and african-american community. something is wrong with that picture. and we've got to do better. >> we will return. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010]

x he is recognized next. mr. tierney? >> thank you for this contest. i appreciate being at the senate this morning. it is a little bit like basketball practice. can you cite any evidence for states like massachusetts that the top down improvement models letters opposed the use on underperforming schools actually has led to success? o be used on

so-called under performing schools actually have led to any success anywhere? >> in massachusetts or -- >> massachusetts first but generally otherwise. >> there are a number of high performing schools around the country. >> that have used one of your floor models that you cite? >> yes, sir. >> all of them have been shown to have some success? >> i think there are examples of success and examples where there hasn't been perfect success. nothing is a hundred percent. >> all right. but if each of those models has shown to be successful so that you've included them on here as something that would help improve failing schools let me ask you what your reasoning is for restricting the number of certain models that can be used. >> actually what was said for high performing districts they could come in with a different model so we're giving some flexibility there. >> a fifth model you're saying? >> high performing districts would have that flexibility. >> of the four you restricted the use of the transformtive

model. if this is proven to be effective why restrict it? why not let states and districts have the flexibility of using that? >> that's just for districts with many, many schools. >> well, nine. >> yeah. nine or above. >> but nine is not so big in new york and chicago. nine is a lot in boston and salem. >> yeah. what we're trying to do is with no child left behind everybody picked other and nothing changed. >> but this isn't other. this is one of the four you set out. you put it in there because you think it is successful so i assume if the people that proved that, they're okay with you, proving one of your successful models you're using so why should someone else be precluded from choosing that one over the other three? >> we think it's a good model and we think we need to do other things where there are lots of schools. >> presumably there will be people doing other things if you give them the four choices. i assume not everybody is going to pick that one but by having some arbitrary number i'm mystified as to what -- >> we think a lot of people would choose that model.

it's a very good model but we want to see other moves as well. >> well, you know, i don't buy it. i'm sorry. i disagree. i think we'll probably be working against it. i think the transformation model is very good. seems to me where most people should be going. i think the idea, i look at the evidence from charter schools as there are some good ones like there are good public schools and bad ones like some bad public schools. in fact they're bad or worse than our public schools and good or no better than. i don't know why we're driving people in that direction but that is a choice. if people want to take it i suppose not a problem. why you didn't restrict that i don't know. the turn around model where you dump off half the teachers and the principal, i don't think that will be attractive for most people because as was said earlier you can't blame it on the teachers and principals every time and to just arbitrarily say you'll just dump half of them doesn't seem to make it. the closure model may or may not work. it may be an option in some instances. i just don't get the rationale

and i don't see any evidence as a foundation for your decision to limit that transformation model where you haven't limited the others. >> again, what we want to see is in the very low performing schools, these are the bottom 5% in any state we want to see very aggressive action and that needs to be a piece of that. >> good. but why not restrict the other three then? you only use up half, on the transformation, why can't you only do half on restart, half on the turn-around model, half on the closure model? >> yeah. again, we could look to do that. i don't think it's necessary. i think most people will be picking the transformation model. >> well, then you've limited it to half just because you think people are going to go for the really good one you want them to go to one of the less good ones or less attractive to them. >> we want to see a multitude of strategies to take on under performance. >> what i need to ask you is to provide to this committee and mr. chairman i ask that we do this, all of the detail you have that the turn-around model has worked anywhere and where it

hasn't worked. all the detail of where the restart model has worked and where it hasn't, all the detail of the closure model and all of the detail on transformative model where it's worked and hasn't worked and some data behind why you chose these four and how they stack up against one another because i don't think it's going to bear out. i don't mind the flexibility of choosing between four but precluding people from choosing the one that looks really attractive just on the fact that you want to force some people to try a less attractive one doesn't seem like a model for success. >> we're not saying schools have to do this next year. this is over the next couple years we're asking folks to take this every year and take some schools and do something dramatically different. >> we're all for doing something but you're precluding one of the somethings. thank you. thank you, mr. chairman. >> mr. ahlers. >> thank you, mr. chairman. thank you, mr. secretary. appreciate you waiting around for the laggards here.

>> if the gentleman could suspend for one minute the secretary will be leaving at 5:20 so the extent to which we can get to the people in the room and the questioning, that would be great. thank you. >> okay. and i can be fairly brief. first want to tell you i appreciate the blueprint you have prepared. i printed it out last saturday night and read it eagerly and i think it's a very good analysis of what we have done and what we should do. i recognize the devil is always in the details. but i think it's a good place to start. thank you for doing that. i want to comment about a couple i think it is an issue we have to be addressed. it is not of want to control standards from washington i think what the states have done is very good. i think that in my elementary school days, most of the members

of my class quit school after eighth grade. i grew up in a farming community. they learned everything they would need to know. it would of been very good for them to continue on to high school instead of chemistry and mathematics. today farms are far different than they were in 1948. and farmers today have to be well educated in very aspects of science. i want the standards not is because the science or for signs, but i think we owe it to our students today, because we had such a mobile society today. most people move every four years or so. it is possible for a family to move over the christmas holiday. a saddam has studied a certain subject, particularly in math.

-- a particular student may have studied a certain subject, particularly in math. these to the misses out on the course that would have been taught. semester. this is a major problem when you're talking about every four years. a lot of kids just get left in the cold. and if we wonder why so many americans don't understand fractions or percentages or a lot of other things, that's one of the causes of it. so it's not so much, i'm not concerned quite as much about the standards in terms of what is taught or the quality that's taught but the sequential nature of courses. it's crucial for science and mathematics. and i hope that everyone on this committee will appreciate that's a really serious problem. if we're serious about catching up and, in fact, exceeding what the chinese and the indians are doing lately, as well as some 30

nations we have to look at that very seriously. and most of those nations that are doing better than us do have a standardized curriculum. it doesn't mean there are set standards nationally but they have the curriculum nationalized so you avoid the sequential problem and you also can help make sure that those students get the courses they are going to need. so i wanted that in the record. but also, hear any comments that you might have about that. and ways we can address it while at the same time taking into account the concerns of my colleagues who are very worried about establishing national standards. >> i just think this is happening at the right time for the right reasons and the leadership at the right place which is the local level. this has been bipartisan, republican governors, democratic governors. unions, business communities, everybody, chamber of commerce, everybody working together. i think that making sure those

courses are linked sequentially and at the end of the day high bar, everyone is working hard together now. not done yet but i'm very, very enkournld. i think this is a fundamental breakthrough for our country. >> i agree and i'm delighted the states have done this. working together. that way it's the ideal way and leave us out of it. even though i introduced the bill to provide tentative national standards, i am delighted if the bill is not necessary. i suspect introducing the bill probably instigated action on the part of the states to avoid congress taking action. >> i would just say on the common standards, i think it was professor william schmidt actually from michigan i believe who raised the whole issue and i think the standards reflect this idea of sequencing as something we haven't done. we jump around a lot and certainly in the beginning study of mathematics so i think --

>> he's done a marvelous job and i've discussed it with him many times. >> ms. davis? >> thank you very much, mr. chairman. >> you got about eight mints left, folks. >> good to see you, mr. secretary. just a comment on the common standards. i think that there are a lot of things in place, certainly, the states' efforts, your efforts, the president's efforts. i think i'm still looking for a sputnik like moment. is that something that you feel as well, that, wow, there is all this attention, you don't sense that urgency really in the country as a whole? and i'm not sure whether that's good or bad. i mean maybe it's okay that this really does have to be thoroughly grass roots in the sense of coming through locals but i just wonder whether you have that sense and is it -- where -- where is that effort missing? is it missing in the business community? >> i think, frankly, as a country we have lacked a sense of urgency and so we feel a huge urgency.

i feel it every single day. i think you're seeing more and more people around the country. but yes we have to get dramatically better and do it as fast as we can and we're losing competitive advantage by every way you measure. if you're serious about educating your way to a better economy we have got to get better now. >> i want to focus on the evaluations. i'm very pleased you're doing that. i worked at the state level as well in teacher evaluations and how do we really, i think, work with what we might call the lowest performing schools now to have some assurances that they're actually taking the time to develop those evaluations or using ones that are out there? i mean, there must be several different plans that schools have been using that are best practices. how do we disseminate that in such a way it doesn't become top down? >> there are plenty of good models out there. when i was in chicago we used the teach aerodynamic advancement project. it was jointly worked on at the national level with the a.f.t.

and with folks actually from the milken foundation. it was very, very strong. to me the evaluation piece shouldn't be at the school level but really the district level. we don't want 95,000 schools doing their own evaluations. districts should be working together. there are good models out there. we want to put money behind places willing to do more of that. >> is there an accountability piece in there so that schools that don't develop them or they're not going really beyond what exists today? what do you do? >> well, we're going to try and push hard and it's not just up to individual schools. districts have to provide leadership. management, unions working together, teachers, stakeholders working together have to create that framework at the district level and the schools need to implement it. >> i'm going to try to get through here and the secretary will leave here, he has to be somewhere else at 5:30. he has allowed himself ten minutes' travel time. mr. guthrie, if you can limit yourself we can quickly jump through the members. i apologize. >> okay. i have a couple questions but

we'll forecasttalk again. thank you so much. i enjoy your attitude and the way you're progressing and hopefully we'll have a good solution by the end of the year. i had a couple other questions but i'll keep it to this. we had discussion earlier about charter schools and good students are those picking elite charter schools and leaving i guess the parents who aren't as motivated on their children or not as sophisticated, their kids are staying in the public school, the traditional public school. and how do you -- i mean, how do you think through that issue and i mean there's an issue of people leaving charter schools which i'm for because i think the option is leaving a kid into a school their parent doesn't want them to attend or giving them an option to the charter school but does the public school dwindle away? and then you talk about autonomous public schools. how does that differ from charter school? >> we just need more good schools. if there happens to be a good

charter school in the community we need to be working on that neighborhood school as well. we just need more choices. what i fundamentally think is wealthy families in our country have had two, three, four great educational options for decades. for centuries. poor families have often had one choice and often that choice wasn't a great one. so think about if every family in this country and this obviously works more with more population but had two or three choices. every parent, rich, poor, whatever educational background, every parent wants the best thing for their child and we need to give parents those opportunities. >> i agree with you but the autonomous public school you mentioned in the bill. >> charters don't have enough innovation. they are wonderfully innovative, traditional public schools and we wanted to see more flexibility and a chance to create a vision. charters are a piece that answer. autonomous schools as part of a district that have some freedom of flexibility are also part of that answer. >> thank you. two minutes. >> the critical role of teachers

and can good teaching be taught, we've talked about this briefly before. the "new york times" magazine article. what i want to know is are we getting to the science of good teaching? is there something specific in the blueprint that gets us to the science of good teaching? >> i don't think we have science of good teaching in the blueprint. what we want to do is invest in those places, those districts, those states, those schools of education that are doing a great job of accelerating student achievement and by definition are getting towards that science of good teaching. i don't think it's up to us to come up with that definition. i think it's our opportunity to invest in places that are taking this very seriously. >> is there monday anytey in th blueprint for that? >> there is very significant money in the blueprint for that, yes. >> thank you. >> mr. courtney. >> thank you. secretary, earlier this year you were touting the new haven school contract as a model for

collaboration and flexibility and i agree with you in terms of the significance and the change that was included in that document. what i would say is i would challenge you or your staff to come to my office and explain to me how the turn-around grants and the models you're proposing square with this contract because they explicitly focused on the issue of turn-around schools which new haven, you know, the leadership recognizes that change needs to happen there. frankly, i don't see how, what this blueprint calls for complies or dovetails with the hard work that people did on a collaborative basis. number two, you don't have to answer that right this second. >> i'd be happy to. we actually think there is lots of common ground. that's a good conversation to have. we'll follow up on that. >> the second question is just, you know, your work on the recovery act funding i think avoided a blood bath in this country in terms of school districts with the worst economy in our lifetime and, unfortunately, i don't think

we're out of the woods yet. every school superintendent i talked to talked about the cliff in 2011. i understand the thinking behind the competitive grant model in terms of trying to reform a system but we have an economy that's like a patient with a heart attack. we're asking school districts to run a marathon right now with resources that are going to really get real scary at the end of the calendar year. and i would just sort of share that with you that aside from the merits of the substance of it there is a practical challenge facing every superintendent in this country and i'm not sure this budget really acknowledges that. >> we absolutely share that concern and everywhere i go we're very concerned about the potential cuts and we were able to save hundreds of thousands of teaching jobs this past year. we worry going into the next year. we need to do both. we need to maintain that and drive reform. these shouldn't be in conflict. it's a real challenge and i share the concern.

>> the chair is going to mr. petri and ms. chu and then that's it. two minutes. >> i will only take 30 seconds and in respect to our witness, but just to say that one of the key tensions in the no child left behind was the way the assessment worked and how it was driving decisions in schools and in classrooms and there's a lot that can be done. there is no magic bullet but something like adaptive testing which is a little more flexible and assesses student progress changing it to no child shall be ignored and not make reasonable progress rather than all get the same schedule is something we need to have a good conversation about. and that's -- >> thank you. >> thank you. two minutes. >> yes, well, i was a teacher for 20 years and i, though i taught in the college not the k-12 level. nonetheless i know that after so many years in the classroom there are a range of teachers

from great to those that need improvement. clearly, those that need improvement require greater intervention than which exists now especially in the k-12 classroom which is 20 minutes of evaluation at the back of the classroom once a year. now, in your blueprint, the key element seems to be having an effective teacher in the classroom yet when 74 teachers were fired at central falls high school in rhode island you said that the members of the school board were showing courage and doing the right thing for the kids. now, are you saying that there was not, not even one teacher with any redeeming value? >> that was absolutely not what i was saying. and there are some phenomenal teachers there and every school struggles and you never want to see teachers fired. what i was suggesting was that schools like that that have struggled where there's a 52% dropout rate, where 7% of kids are at grade level in their math proficiency, reading better than

that but math 93% of students weren't we have to work hard together. what actually happened subsequent which i am very pleased about is the district and the union are working together on mediation and we've been actively encouraging that so i think that situation is moving in the right direction. >> okay. and how would you expect teachers to collaborate in the process? because i don't see any area in there for teacher input in the blueprint. >> there are huge areas. again, that partnership between teachers and administrators has to happen. and all of these things you're talking about, better evaluations, better assessments, has to happen with cooperation and participation of all parties. >> okay. thank you. mr. secretary, thank you very much for your time. i'm sorry we were interrupted in the middle of your testimony by the votes. we requested a view on a bipartisan, by cameral basis to make this blueprint available for us and it's now our

obligation to see if we can reduce this to legislative language. we look forward to your continued involvement and the involvement of your staff has already been done from the department with the bipartisan, bicamera working team and we may even bring you back here for an update on all of this. but thank you so very, very much for presenting the blueprint as was requested. >> thank you, mr. chairman. i echo the chairman's comments. somebody write this down today. and thank you very much for your hard work and your attendance. >> thank you, mr. secretary. the committee will stand adjourned. all members without objection all members have 14 days to submit materials for this hearing or questions to the department of education. we'll forward them.

correct this weekend on book tv, injured the wrist -- and drew lewis, when on the student nonviolent coronary -- steve forbes disagrees. on afterwards, why to much testing is causing the death of the american school system. find the entire weekend aeschylus -- schedule online. >> at the white house wednesday, president obama talked about the

passage of the measure meant to help create jobs. his remark and next. then at dennis kucinich on why he will push for health- care legislation. he said you a lesson for the measure. later, the correspondents' dinner. vice president biden is among the speakers. >> on tomorrow mornings "washington journal" republican congressmen. oregon democrat will talk about what is ahead for the health care legislation on capitol hill. after that, we will get an update on the spring collections. it starts each morning at 7:00 a.m. eastern with your calls. >> which to president died on the fourth of july in the same year? john adams and thomas jefferson

find these and other presidential fax and c-span kozo updated blog "who is buried in grant's tomb?" it is a travelogue. it is also a biography of each of these presidents. the intel and not the people at the end of their lives. a resource guide. the story of their final moments and insights about their lives. who is buried in grant's tomb is now the collector favor bookseller. we will get a 25% discount on the publisher's web site. and type an "grant tomb" at checkout. >> president obama praised the senate today for passing and $18 billion bill in decorating job. his comments came after a meeting with the irish prime minister.

i hope it'll be a series of job packages that will put people back to work across america. the bill will provide tax cuts to small businesses that are willing to begin hiring right now for the people. it will also provide significant tax breaks to businesses for investing in their business. at a time when we are starting to see an upswing, hopefully it'll help sustain. the bill will continue to improve every structure projects across congress. i also want to say to the republicans that i appreciate the willingness to work with democrats. they will get america moving again.

i hope on a series of features steps that we take to help fall businesses get financing it to put people back to work. we will see more progress on that front. >> lawmakers are making the final push to get health care legislation to the president's staff. he compel the latest from the white house on the only network that covers washington gavel to gavel. to spend. take us wherever you go online. see what house and senate members are doing via twitter. >> dennis kucinich says he will vote in favor of health-care legislation making it lifted the house. he recently said he would vote against the measure because the public option. he spoke to reporters at the

capitol for 25 minutes. >> each generation has grappled with difficult questions on how to meet the needs of our people. i believe healthcare is a civil right. each time as a nation we have reached to expand our basic rights, we witnessed the slow and painful unfolding of the democratic passion of striving, resistance, victories, opposition, and unrelated efforts. i have spent my life struggling for the working class people and for health care. i grew up understanding firsthand what it means for

families who do not needed care. i've lived in 21 different places by the time i was 17. that included a couple of cars. i understand poverty. there is a deeper meaning to what native americans call ": the body, full of spirit." i have learned with difficulty the benefits of taking charge person and my own health. i knew there a few exceptions when i needed it. i have that access to the best telepathic preposition this. -- practitioner. i receive the -- received the

benefit of vitality. healthcare is personal. as a former technician, i know that there are many people who dedicate their lives to helping improve other lives. by alison a their struggles -- i also know their struggles within the health-care system. there are others who believe healthcare is a basic right and ought to be provided. this is what i have previously advocated. i carry the banner of national health care.

i have worked to expand the health care debate beyond the current for-profit system to include a public option and amendment to free the state to pursue a single pair. the first vision of the health- care bill contains provisions which i believe maybe build support. the provisions were taken out of the bill after it passed the committee. i said i would not support the bill unless it had a strong public option and unless it protected the rights of people to pursue a single payer at the state level. it did not. i voted against the bill. i continue to oppose its oil trying to get provisions in the bill. some have speculated.

some have speculated that the may be in a position of cast a deciding vote. the president visits my district on monday. it underscores the urgency of this moment i have taken this fight further than many care to carry it, because i know the will -- know what my constituents experience on a daily basis. the people of ohio have been hard hit by an economy where weld has accelerated of ford to massive unemployment, small business the year, a lack of access to credit and the high cost of health care. i take my responsibility personally. the focus of my district office

is the surface. more often than not, it involves social work to help people survive economic perils. in the past week, it has become clear that the vote on the final bill will be very close. i take this approach with the utmost seriousness. i am aware of this historic fight. to grant american single payer health care. i've seen the financial pressures being asserted to prevent a minimal recognition of a system dominated by private insurance companies burd. i know i have to make a decision not on the bill, but i would like to see it.

my criticism of the legislation has been well reported. i do not retract those criticisms. i incorporate them into a statement. they stand as legitimate and cautionary. i have doubt about the bill. i do not think is a step toward anything i have supported in the past. this is not the bill i wanted to support even as i continue efforts to try to modify the bill. however, after careful discussion with president obama, speaker pelosi, my wife elizabeth, and close friends, i have decided to cast a vote in favor of the legislation.

if my vote is to be counted, let it count now for passage of the bill. hopefully, it to be in the direction of comprehension of health-care reform. we must include coverage for those excluded from this bill. we must free the states. we must have control over private insurance companies. the cost imposes on american families. we did provide a significant fight to complementary medicines. there is the personal responsibility of health care between diet, nutrition, and exercise. the health-care debate has been hampered by fear, myths, and partisanship. the president clearly does not advocate socialism or government takeovers of health care. the fear that this legislation

has -- it has deep roots not an ideology but in a lack of confidence, and mistrust and fear. post 9/11 has not been able to shed. this fear has so infected our policies, our economics, and our international relations, that as a nation we of the scene the electrifying potential -- we are losing the letter find potential we caught only got a glimpse of the potential of the election. the transformational potential of our cells -- are cells can still be summoned in ways that will reconnect america in hopes

for expanded opportunities for jobs, housing, education, and health care. i want to thank those who have supported me personally and politically as i struggled with this decision. i ask for your continued support. -- and our efforts to bring about meaningful change. i will renew my efforts to help the state organizations which are aimed at stirring a single paper merman -- single payer movement.

find the entire schedule at book tv.org. >> thanks, lib bism it's an exciting and historic call day in c-span's history. i'll take you back just for a

second with how this is going to be developing. the cable industry created c-span as a public service back in 1979. in 1986, they launched c-span 2 for the united states senate. shortly after that in december of 1987, c-span began a facility in a partnership with purdue university. about a decade later, we took total control of a facility that began to archive and record every single minute of c-span programming. the house and senate proceedings, the hearings, the speeches, everything you've come to know from c-span. over that time, it's developed into quite a large archive. we initially sold videotapes and then d.v.d.'s. as the internet grew and expanded, we began streaming a lot of that video. there's a team out in indiana led by dr. robert browning and 10 archivist who over the last

few months have been digitizing these archives. content starting from the early days in 1987. today we're announce hag the entire archive is available for streaming. it's fully searchable. it's a resource for a lot of people to use in a lot of different ways. we look forward to inviting our audience to browse through the arkifes, take advantage of the library and use it in a myriad of ways that they'll find it available. host: the you walk us through it? guest: sure. there's a couple ways to get to it. the easiest way is to go to cspan.org, and in the right-hand corner, you'll find a link. click on that link, go to the video library. you'll see that you can easily find lots of information. there's ways of going into the library and looking at what's been most viewed.

you can see recent programs. you can see programs that people have been sharing. when you look at these things, you'll see that it's a simple icon that you can click on to go to the video. to learn more about it in the top right-hand corner of that page, you'll see there's a blog with lots of postings on how to use the library. we think one of the easiest ways for people to do it is to do personal searches. there's been 115,000 different people that have appeared on c-span during that time. to find one of those people, you simply can go to the video library and type in their name. clearly, presidents, members of congress, everyone's in there. one search that we've done is if you want to search for supreme court justices, all the confirmation hearings since 1987 are in there. say you're interested in the chief justice. you can type in john roberts and click there. up comes the biopage for that

person. each of the 115 people have a biopage like that. you'll see chief justice roberts comes up and you'll go to his history. you can go to that and he made a speech this week, or last week at the university of alabama that made some news where he talked about the state of the union. you can go to that clip, click on it, and do what's called a text search. so maybe you're not interested in watching the entire speech from the chief justice, but you do want to see what he said about president obama and attending the state of the union speeches. you can search in the transcript and type in "union," and up will come in the transcript where that specific quote is in the speech. you can then clip that. you're seeing on the screen how you can find that exact quote, move the little -- slide those little bars across and clip the exact frame of reference that

you want. what we think is really powerful and a lot of fun with this is you can take that clip and share it in multiple ways. you can imbed that clip in your blog. you can share it via e-mail. you can see where you can share it to facebook, you can tweet that clip out. it's a great opportunity for fans of public affairs programming to come in, find what they think is valuable and relevant, important for them, something that helps drive home a point that they're advocating for, pull that clip and share it with their audience. host: who is it geared towards? guest: a lot of people. certainly educators, historians, people very involved in public affairs. certainly students with use the video library. we're finding that -- we got some blogs yesterday from jazz aficionados, who wrote in a blog the last thing they expected to find on c-span was a lot of good

information about jazz. but they found in the library clips of people talking about -- members of congress talking about their favorite jazz. or talking about jazz at the national press club and how people need to learn more about jazz. certainly people following the issues of the day with use it. for instance, health care has been such a big issue this year. we have followed the health care process, so if you want to get the most up to indict stuff, you can find the mark-up proceeding from this week. if there are 880 hours of content related to health care debate and discussion since obama became president in january of 2009 in the library. so you want to see this week's mark-up, you want to see president obama when he addresses the joint session of congress. those things are all easily searchable on there. so a tremendous resource for people following the issue of the day.

host: how about historical perspective? guest: health care is a very good example to find that. many people are referring back to the 1990's when the clintons pursued health care, and we've got a fun clip, i think, from 1993 and that discussion. >> the government-run health care system. i do share his intention to me >> the chairman's joy holding meetings on a government run health care system. i do share his intention to make the debate and legislative processes as exciting as possible. >> i am sure you will do that. >> we will do the best we can. >> you and dr. kevorkian. tonight's c-span will be coughing the tv radio correspondent dinner. are light-hearted moments captured in the video library too? guest: we think they are. one of the times where there are

a lot of light-hearted moments are in the big social dinners in washington that we cover. the white house correspondent, where big-name comedians oftentimes come in and give speeches. the political actors in this town make speeches that are oftentimes funny. we have one clip from that that we'll share with you. >> ♪ tell me what is your name >> m.c. rove >> he's rapping and chilling and showing his job he will do it without fail get out his gun because he's shooting quail this man will never stop look at him jumpling up and down ready to hop it's tell me you never saw this man move doing the dance the the karl rove dance ♪ guest: there's a special section within the video library for

tracking members of congress. you go to the video library and up on the top bar you'll find a button that says congress. you can track your member or every member of congress. when you see that on there, you'll find that it lists the people who have spoken the most on the floor of the house and senate or you can separate it by the least of the house and senate. you can watch for individual members of congress. you'll find not only their biopage, but a tremendous record taken from the congressional record of congress. the congressional record itself can be changed slightly, updated as it gets updated. this record that you can find on c-span is the exact proceeding of what happened on this house or senate floor. host: how is this funded and what's the cost, and why do this? guest: the important thing for the viewer and the user of the c-span video library is it's completely free to them. the cable industry made the commitment back in the late

1970's to have a public service channel. it grew to three channels. now it's developing with the growth of broadband and video online. the cable industry agreed with us that it's a resource that should be made available. it's important for democracy. and we've heard from the industry great pride in allowing us and encouraging us, in fact, to make this kind of content available to as wide an audience as we can to make it as searchable and user friendly as we can, to make an important contribution to the democratic process. host: if you were reading the newspaper this morning, you may have seen this ad in a variety of papers. tell us about the ad and the blog features of the website. guest: unusual for c-span, we took out ads in several major newspapers today, full-page ads announcing the launch of the video library. within it you'll see dozens of pictures of people who have appeared on the network over the years that the library has been

archiving content. if you'll go to cspanvideolibrary.org and see the blog posting up at the top, you can click and see that ad and play an interactive game and see if you can name all those people that have been in the library. the blog will help you with a lot of resources. host: peter kiley, thank you so much for talking with us [gavel sounding]

>> will the photographers please stand down? the only thing we could see is volcker. now we can see everybody.

this hearing will come to order. it is an important hearing that is relevant to the legislative task before us as members know. the senate had been considering very much the question of what the supervisory breach of the federal reserve should be. we obviously done with this in a bill that passed the house. we will now go into conference sometime in april or early may and one of the questions will be the appropriate role for the federal reserve. this is a subject which the chairman of the subcommittee on monetary policy has given a great deal of attention to. it predicts many of us have felt that the senate's initial instincts were insufficiently recognizing the importance of

the role for the federal reserve. there has been some movement and the differences are less than they were. i now believe that we're entering a range where the desire and the need for a bill the greater than any significant individual difference. i believe we are going to be able to make some movement. an important part of this is how should the supervisory role of the fed be structured. we are pleased to have the chairman and the past chairman with us to talk about this. while we are here, i want to make a couple of announcements that are relevant. i received a letter this morning from our colleague from ohio and from the ranking member asking for hearings into the information that was contained

in the examiner's report on lehman brothers. that is obviously something we should do. it is something that we address in our legislation, this whole question of off-balance sheet activity is a -- is important. we lost that week and we are doing make up the days. in april, we will be having a hearing. it will be a full committee hearing because the people involved include some people at the department. we will be having that hearing and we will proceed today with this hearing on the question of how to do the regulations. i am going to yield back the balance of my time so it will be made available to the chairman of the subcommittee and i will now recognize the ranking member but the driving force

here and the member who has put the most effort and considerable thought into this is the gentleman from north carolina. i will not turn the gavel over to him and he has the remaining å

as a holding company supervisor has been inadequate. in spite of oversight, many of the large complex banking organizations excessively leveraged and engaged in off- balance sheet transactions that helped precipitate the financial crisis. just this past week, the report of the lehman brothers examination was made public. it reports how lehman brothers used accounting gimmicks to hide their debt and mask insolvency. according to the "the new york times,"agencies were examiner's -- in its headquarters were located in lehman brothers. they were provided desks, phones, and computers. despite this intense on-site

presence, the new york fed and the sec stood idle while the bank engaged in balance sheet manipulations detailed in the report. this raises serious questions regarding the capability of the regarding the capability of the fed to supervise banks. . release informs monetary policy. it supervision does not make monetary policy this -- policy decisions better, the to do not need to be coupled. one said that the responsibilities in one institution is like asking a plumber to check the wiring in your basement. it seems that when the fed is responsible for monetary policy and bank supervision, its performance in both suffers.

macroeconomic issues cloud supervisory judgments and therefore impaired safety and soundness. there are inherent conflicts of interest that they may conducting monetary policy that heights mistakes by predicting the supervisors. an additional problem arises when the supervision of large banks is separated from small institutions. under senator dodd's proposal, the fed would supervise 40 or 50 large banks. 7500 banks or so would be under the regulatory purview of other banking agencies. if this were to happen, the fed's focus on the mega banks would disadvantage the regional and community banks. on this, you and i are in agreement that there should be

one regulator looking at all of the institutions. hr 3311, the regulatory plan would correct these problems. it would refocus the fed on its monetary policy mandate by relieving it of its regulatory and supervisory irresponsibility and reassigned to other agencies. by contrast, the regulatory reform legislation passed by the house in december represented the largest expansion of the fed's regulatory role since its creation almost 100 years ago. senator dodd has strengthened the fed even more. his regulatory reform bill empowers the fed to rikki lake systemically significant financial institutions and to -- to regulate systemically significant financial institutions. it creates a new financial

protection bureau to be housed and funded by the fed. thank you for holding this hearing. i look forward to the testimony. >> thank you. let me see if i can use some of the chairman's time and my time to frame this hearing in this way. we can kind of get a balanced view of what the folks are saying. the federal reserve has extensive authority to regulate and supervise bank holding companies that are members of the federal reserve system and foreign branches of member banks among others. last year, the house passed legislation that substantially preserved the fed's powers to supervise these institutions. the senate bill recently introduced by senator dodd was

stripped of this authority to supervise all but approximately the 40 largest financial institutions. this hearing was called to examine the potential policy implications of stripping regulatory and supervisory powers over most banks from the fed, especially potential impact this could have on the fed possibility to conduct monetary policy effectively. proponents of preserving robust fed supervision authorities cite three main points to support their positions that the fed should retain broad supervisory powers. they say first that the fed has built up over the years deep expertise in macroeconomic forecasting financial markets and payment systems which allows the effective consolidated supervision of financial institutions of all sizes and allows effective macro

supervision over the financial system. proponents of retaining the fed supervision say that this expertise would be costly and difficult, if not impossible to replicate and other agencies. the proponents say the oversight of the banking system improves its ability to carry out its central banking response abilities, including the responsibility for responding to financial crises and making informed decisions about banks speaking and lender of last resort services. in particular, proponents say that knowledge gained from the wrecked banking supervision enhances the safety and soundness of the financial system because the fed can independently evaluate the financial condition of individual institutions including the quality and value

of these institutions collateral and the overall loan portfolio. third, proponents say that the fed for keeping interest rates too low for too long in the early 2000's which some say puled and asset price bubble and the housing market and the resulting subprime morgan -- subprime mortgage crisis. some accuse the fed of turning a blind eye to predatory lending throughout the 1990's and 2000's reminded us that congress passed legislation in 1994 to counteract predatory lending but the fed did not issue final

rulings until well after the subprime crisis was out of control. other critics accuse the fed of ignoring the consumer protection role during supervisory examinations of banks and financial institutions across a wide range of financial products, including overdraft fees and credit cards and other things. perhaps the appropriate policy response lies somewhere between the proponents and critics of the fed supervision. i have tried to keep an open mind about the bowl of the fed going forward and hope to use today's hearings to get more information as we move forward to more discussions with the senate if the senate ever passes a bill. we're fortunate to have both the current chair and a former chair who are appearing today to inform us on these difficult issues and with that, i will reserve the balance of our time and recognize my counterpart,

the ranking member of the subcommittee. >> i thaink the chairman. >> markets were finding out what could be said at 2:15. they were looking for two words, whether or not they would exist. extended period. whether this process would continue for an extended period. this, to me, didn't change the power and control that a few people have over the entire economy. the economy is virtually at a standstill and immediately after the announcement, billions of dollars can be shifted. it is a system that i think is not having anything to do with the free-market capitalism. it has to do with the managed

economy and economic planning but it is a form of price- fixing. interest rates fixed by the federal reserve is price fixing and it should have no part of a free-market economy. it is the creation of credit and people making mistakes. it facilitates the deficit. congress does not want to challenge the fed because they spend a lot. without the fed, interest rates would be much higher. to me, it is a threat that those of us who believe in personal liberty and limited government. hardly this the process help the average person. unemployment rates stay up that 20%. the little guy cannot get a loan. yet wall street is doing quite well. ultimately, with all of this power, the fed is still limited by the marketplace. if they can inflate like crazy and have financial bubbles and housing bubbles, but eventually the market says it is too big and it has to be corrected. mistakes have been made. they come in and the force

deflationary. congress and the fed does everything to maintain these bubbles. it is out of control. once the change of attitude comes when that inflated money- supply decides to go into the market, prices are to win up once again and the fed will have difficulty handling that. the inflationary expectations are subjectively determined, no matter how objective you are about money-supply, you cannot predict that. we do not know what tomorrow will bring or next year. all we know is the engine is there, the machine is there, the high-powered money is there and we will have to face up to that someday. the monetary system is what breeds the risky behavior. that is what we are dealing with. we are going to be talking about how we regulate this risky behavior. you cannot touch that unless we deal with the subject of the risky behavior coming from easy

money, easy credit, artificially low interest rates and established principle from 1913 on that the federal reserve is there to be the lender of last resort. as long as the lender of last resort is there, all of the regulations in the world will not touch it and solve that problem. >> thank you. we have about one minute and 30 seconds left goes to mr. sherman. >> thank you. too big to fail is too big to exist. as we examine the power of the fed, it begs the question of the audit of the said. the fed is exempted from audits not only in the area of monetary policy but also foreign agreements. all of the efforts to defend their exclusion from all that have focused upon how it could affect monetary policy which begs the question, why is the fed demanding an exemption for a

continuation of exemption of its foreign agreements from the audit process. it supervision informs monetary policy, we have to ask why the other banks are unwilling to share information with the fed and why economic statistics are not being shared not only with the fed but with the american people. finally, as the supreme court decides that corporations can control who holds governmental posts by spending unlimited amounts of money on campaigns, at least in order to get a particular person selected for particular person selected for governmental the one exception to that is the fed regional boards, where corporations get to select who sit on these boards and who exercises governmental power without them being responsible to the voters at all.

in a democracy, every agency of governmental power should be responsible to the electorate. i yield back. >> i thank the gentleman for his statement. the chairman of the board of governors of the federal reserve, the hon. ben bernanke. and the chairman of the president's economic advisory -- recovery advisory board, former chairman of the federal reserve, the hon. paul volcker. recognise the chairman. then mr. volcker. >> thank you, chairman watt, ranking member max baucus, and other members of the committee. i am pleased to discuss the actions we're taking it to strengthen our supervisory oversight. like many central banks around the world, the federal reserve cooperates with other agencies in regulating and supervising the banking system. our specific responsibilities include oversight of 5000 bank

holding companies, including umbrellas a provision of large complex financial firms. if the supervision of 800 of the banks nationwide that are state- chartered and members of the federal reserve system, states member banks. >> will the gentleman pause for just a second. ma'am, you are going to have to take that out of here. you are breaking the rules. you are either going to have to leave or we will have to have you removed or you will have to take the sign out. [inaudible] >> this confirms too broad set of benefits to the country. because the wide range of

expertise, the federal reserve is uniquely suited to supervise large complex financial organizations and to address both safety and risks to the stability of the financial system as a whole. second, participation in the oversight of banks of all sizes significantly increase its visibility to carry out the central banking functions including making monetary policy, lending to the discount window and fostering financial stability. the financial crisis has made clear that all financial institutions that are so large an interconnected that their failure could threaten the stability of the financial system must be subject to strong and consolidated supervision. promoting the safety and soundness of individual banking administration's requires traditional skills of banking supervisors such as expertise of examining risk-management practices. we have developed such expertise. the supervision of a large

complex financial institutions and the analysis of financial risks to the system as a whole require not only traditional examination but also a number of other forms of expertise including macroeconomic analysis and forecasting, insight into regional and global economic developments, knowledge of a range of domestic and international financial markets, including money markets, capital markets, foreign exchange markets and derivative markets, and a close working knowledge of the financial infrastructure including payment systems for procuring unsettling financial instruments. in the course of carrying out central banking duties, we have developed extensive knowledge and experience. for example, staff members have expertise in macro economic forecasting and the making of monetary policy, which is important for identifying economic risks in institutions and markets. in addition, that require

indefinite market knowledge to daily per dissipation in markets to implement financial policy and to execute financial transactions. the federal reserve's extensive knowledge of payment and settlement systems has been developed through operation as some of the world's largest systems, its supervision of the settlement services and its longstanding leadership and the international committee on payment and settlement systems. no other agency can or is likely -- or is as likely to replicate the death of relative expertise that the federal reserve brings to the supervision of large, complex banking organizations in the identification and analysis of systemic risk. even as the fare reserved function enhances supervisory expertise, its involvement in supervising banks of all sizes across the country significantly improved the ability to carry out central bank responsibilities. perhaps most important, as this crisis has demonstrated, the

fare reserved's ability to identify and address diverse and hard to address threats hangs critically on the power that they have as both a bank supervisor and central bank. not only in this crisis but also in episodes such as the 1987 stock-market crash and the terrorist attacks of 9/11, the federal reserve supervisory role as essential for it to contain threats to financial stability. the federal reserve is making monetary policy also benefits from supervisory experience. the federal reserve's role as a supervisor of banks of all sizes, including community banks, offers insights into conditions and prospects across the full range of financial institutions, not just the very largest and provides useful information about the economy and financial conditions throughout the nation. such information greatly assists in the making of monetary policy. the legislation passed by the house last december which preserved the supervisory

authority that the fed to -- that the federal reserve needs to carry out its functions effectively. the federal reserve strongly supports-regulation and closing regulatory gaps -- regulatory gaps. as we await comprehensive legislation, we have been conducting an intensive self examination of our regulatory and supervisory performance and had been actively implementing improvements. we have played a key role in the international efforts to ensure that systemically critical financial institutions hold more and higher-quality capital, have enough liquidity to survive highly stressed conditions, and meet demanding standards for company-wide management. we have been taking the lead in addressing flawed competition practices by issuing proposed guidance to ensure that compensation structures provide appropriate incentives without encouraging excessive risk- taking. thus formally but equally

important we have been leading cooperative efforts by market participants and regulators to strike the strengthen the infrastructure of key markets including the market's for purchase agreements and other derivative instruments. to improve both our consolidated supervision and our ability to identify potential risks to financial systems, we have made substantial changes to our supervisory framework. so that we can better understand linkages between firms in markets that have the potential to undermine the stability of the financial system, we have adopted a more exclusively multidisciplinary approach making use of the expertise and payment systems and bank supervision which i alluded to earlier. we are also of meeting our traditional supervisory approach that focuses on firm by from examinations with greater use of horizontal reduce to identify common sources of risk in best

practices for managing those risks. the supplement and for mention from examiners, we are developing a quantitative surveillance program for large bank holding companies that will use data analysis and formal modeling to identify vulnerabilities at the firm level and for the financial sector as a whole. this analysis will be supported by the collection of more timely and detailed data from regulated firms. many of these changes draw on the successful experience of the supervisory capital assessment program, also known as stress tests, which we lead last year. representatives of primary function of supervisors will be fully integrated in the process. participating in the planning and executing of horizontal exams and consolidated supervisory activities. improvements in the supervisory framework will lead to better outcomes only if day-to-day supervision is well executed with risks identified early and

promptly mediated our internal reviews have identified areas of improvement. in the future, to facilitate swifter and more effective supervisory responses to buff the oversight and control of our supervisory function will be more centralized with shared accountability by senior board and supervisory staff and active oversight by the board of governors. supervisory concerns will be communicated to firms promptly and at a high level with more frequent involvement of boards of directors and senior officials. greater involvement of senior federal reserve officials with strong systematic follow-through will facilitate more vigorous mediation by firms but where necessary, we will increase the use of formal and informal enforcement actions to ensure prompt and effective mediation of serious issues. in summary, the federal reserve's wide range of expertise makes it uniquely suited to supervise large complex financial institutions and to help identify risk to the

financial system as a whole. moreover, the insights provided by our goal is supervising a branch of banks, including community banks, significantly increases our effectiveness in making monetary policy and posturing financial stability. we await enactment of comprehensive legislation, we have undertaken an intensive self examination of our regulatory and supervisory performance. . . we are taking the steps. thank you. r.m.b. pleased to answer questions. >> we will hear from the hon. paul volcker, chairman of the president's economic recovery advisory board and former chair of the federal reserve. >> thanks for the invitation to

address the important questions concerning the link between monetary policy and federal reserve responsibilities for the supervision and regulation of financial institutions. before addressing the specific questions you have posed, i would like to make clear my long-held view, the development sustained from years of experience in the federal reserve and treasury and private finance. monetary policy and concerns about the structure and condition of banks in the financial system more generally are inextricably intertwined. if we need further proof, consider the events of the last couple years. other agencies have legitimate interests in regulatory policy. i do insist that neither monetary policy nor the financial system will be well served if the central bank is deprived from influence in the structure of the financial

system. today conceptual and practical concerns about the extent, frequency, and repercussions of economic and financial specialist of excesses' have come to occupy our attention. the bubbles are potentially destructive of economic activity. questions arise for monetary and supervisory policies. judgment is required about if and when an official response is warranted. if so, is there a role for monetary policy or regulatory actions or both? how can those judgments be coordinated in real time in the midst of crisis in a matter of days? the practical fact is the federal reserve must be involved in those judgments and that decision making. beyond this board, responsibility for monetary policy and interest rates. the agency as relevant technical

experience growing out of working in financial markets virtually every day. the potential lender of last resort, the fed must be familiar with the condition of those to whom it lends. it participates in the basic system. domestically and internationally. there is no other official institution that has the breadth of institutional knowledge, expertise, and experience to identify the market and institutional vulnerabilities. it has the capability to act on very short notice. the federal reserve is the only agency that has financial resources at hand and amounts capable of emergency response. i believe the experience demonstrates the responsibilities of the federal reserve, with respect to maintaining economic and financial stability, require close attention to matters

beyond the confines of monetary policy, if we interpret monetary policy as influencing monetary aggregates and short- term interest rates. a recovering challenge is to take account of the attitudes and approaches of banking supervisors. as they act to stimulate or restrain bank lending and as they act to address capital standards of financial institutions. the need to keep abreast of rapidly developing activity in other financial markets, including the market for mortgages and derivatives, has been driven home by the recent crisis. none of this suggests a need for regulatory and supervisory authority to reside exclusively in the federal reserve. there may be advantages in some division of responsibilities. a single regulator may be excessively insensitive to

market -- but we don't want competition and laxity among regulators with regard to specific constituency or exposed to narrow political pressures. we are familiar with weaknesses in supervisory oversight, values to respond to financial excesses' in a timely manner, and with gaps in authority. those failings spread among all relevant agencies, not excepting the federal reserve. they need reform. i do believe the federal reserve, with the broadest economic responsibility, would receive -- with a perceived mandate for maintaining stability, with the strongest insulation against special or industry political pressures, must maintain a significant presence with real authority in regulatory and supervisory matters.

i respond to a point you raised your invitation. i do believe regulatory arbitrage and the fragmentary nature of our regulatory system contribute to the nature and extent of the financial crisis. that crisis exploded with a vengeance outside the banking system, involving investment banks, prologis insurance co., and government sponsored agencies. regulatory and supervisory agencies were not reasonably good or crutches of the extent of their responsibilities. money-market funds growing over several decades were a manifestation of regulatory arbitrage, attracting little supervise retention, they broke down under pressure, pointing to significant systemic weakness. the remarkable rise of the subprime mortgage market developed through a variety of channels had inadequate

oversight. the residential mortgages, there or weaknesses and gets in banking institutions as well, that is where the federal reserve has direct responsibility. some banks should of been closed with a more aggressive approaches. institutions owning individual banks had loopholes permitted by legislation. as implied by my earlier comments, the federal reserve, by the nature of its core responsibilities, is interested in direct operational contact with financial institutions and markets. beyond those contexts, the 12 fed banks exercise supervisory responsibilities, provide a window into banking developments and economic tendencies in all

regions of the country. in more ordinary circumstances, intelligence on the ground can forecast judgments emerging from other indicators of economic activity. when the issue is timely identification of highly speculative and destabilizing bubbles. the matter that is important and difficult. and there are implications for monetary and supervisory policy. finally, the committee has asked about the potential impact of stripping of the reserve of direct supervisory and regulatory power over banks and other financial institutions. and whether something can be learned about the practices of other nations. those are not matters that permit categorical answers for all time. the international experience varies. most countries maintain inquisitions offer a strong position for central banks on

financial supervision. in some countries there has been a formal separation. at the extreme, all formal supervisory and restore its authority over financial institutions was consolidated in the uk into what authority. without links to the central bank. the approach was considered attractive as a more efficient arrangement, avoiding agency rivalries and gaps or inconsistencies in approach. the sudden pressure of the development crisis revealed a problem in coordinating between the agency responsible for supervision, the central bank would need to take action and the treasury. the bank of england had to consider intervention with financial support without clothes and confident appraisals of the vulnerability of the effective institutions. i believe the u.k. is reviewing the need to modify their present arrangements, as a result.

for reasons i discussed earlier, i do believe it would be a grievous mistake to take the federal reserve from direct supervision of systemically important institutions. something important would be lost if the president limited responsibilities for smaller banks. the fed policy regional routes would be weaker. a useful source of information would be lost. [unintelligible] we should not lose sight of the implications for the role of united states in what is a global financial system. we must work with other banks and international artists. the u.s. does still have substantial influence in those matters, including agreement on essential elements of regulatory and supervisory policies. it is the federal reserve as much as and sometimes more than

the treasury that carries a special late in reaching the necessary understandings. that is a matter of tradition, experience, and received confidence in authority in our central bank. there's respect around the world. matters that cannot be prescribed by law or easily replaced. changes need to be made in the status quo. that is true within the federal reserve. regulatory responsibility should be more clearly focused and supported. the crisis has revealed the need for change within other agencies as well. consideration of a broader reorganization of the regulatory and supervisory arrangements is timely. at the same time i urge in your deliberations that you do recognize what will be lost. lost not just in the soundness of our national system but in corporate systems.

if the fed were stripped of its regulatory and supervisory responsibility and no longer recognized here and abroad among agencies concerned with safety and soundness of our financial institutions, let us instead strengthen what needs to be strengthened and demand high levels of confidence and performance that we have taken for granted for too long. thank you. >> i thank you both, the chair and former chair for your statements. we now recognize the members for five-minute questions. i remind members that there is a second panel of witnesses, so we want to try to stick to the five minutes. i recognize myself first for five minutes. chairman bernanke, the current system we have has a division of supervisory responsibilities between the fed, the fdic, occ,

and i guess a third agency or a fourth agency that would be consolidated under the house bill. how does that work? how have you been able to compensate for the things that you say are so critical in that framework? >> mr. chairman, i think there were some flaws at each level. there were flaws at the level of legislative structure, flaws and level of execution. we need to look at all of those. there are two main lessons from the crisis. one of them is that every systemically critical large institution needs to have a consolidated supervisor that can look at the whole company and understand the risks that are faced by that company.

many of the worst problems in the investment banks, aig, and other companies and markets were areas where there was no strong supervisor, where there was a gap. we need to fix that as we go forward. we also, i think, need to strengthen the concept of consolidated supervision. we currently have a system where each supervisor is assumed to defer to the functional regulators of each subsidiary. in some cases that is not appropriate, when a consolidated supervisor sees a problem in a subsidiary, it needs the authority to go and look at that. the other broad concern, the auditing we learned from the crisis at the highest level is the need to look at the system from a systemic prospective, not just look at each individual firm, but to look at broad risks

to the whole system. i think some of the ideas which have been advanced in the house bill and senator dodd's proposal, such as creating the systemic risk council, broadening the responsibilities of some of the regulators would help to address that problem. together with the regulations like higher capital standards, i think that would improve our oversight considerably. >> the dodd bill said the $50 billion threshold for supervision of the fed. is there any rationale for either that $50 billion threshold or any other threshold? how does this cut in terms of actual need to be able to be involved in these things to

determine or set the monetary policy? >> mr. chairman, we are quite concerned by proposals to make the fed's and regulator only at the biggest banks. it makes us essentially the too the to sell regulator. we don't want that responsibility. what a connection to main street as well as wall street. if we need to have insight into what is happening in the entire banking system to understand how regulation affects banks, to understand the status of the assets and credit problems of banks at all levels and all sizes. smaller and medium-sized banks are very valuable to us and they provide irreplaceable information both in terms of making monetary policy and in terms of us understanding the economy but also in terms of financial stability. let's not forget small institutions have been part of financial crisis in the past, including the 1930's, the thrift crisis, and other examples. if it's important to federal

reserve not just be the big institutional regulator. if we need exposure to ththe entire economy. >> german voelker, you indicated some division of supervisory and regulatory responsibility is appropriate. i a -- chairman volcker. i'm trying to get a view of what that should be if the senate bill or house bill is not necessarily ideal. >> in a matter of specific number, i don't know. if you're going to have more than one regulatory agency, which is a policy issue, and i have some sympathy for that because i have some to -- you need to have some division of responsibility. where you place that, i don't

know. i don't know how many banks are below $50 billion or how many the federal reserve maintains the smaller member banks supervision. what the fdic would have and what the occ would have. i think that's a practical and may be pretty arbitrary matter in the last judgment. i do think that we don't want to single out some institutions as too big to fail. i think we want a system in which particularly non-banking institutions can fail. that brings up many other issues in financial reform that don't rest significantly on precise quantitative amounts. >> my time has expired. i will recognize the gentleman, mr. baucus. >> german bernanke, was the new york fed aware lehman brothers was using an was usingrepo 105?

-- chairman bernanke . >> the federal reserve was not the supervisor of lehman brothers. one of the issues that we were talking about was under the existing system, an investment bank like lehman brothers would not have a consolidated supervisor. we do not have that information. we had only a couple of people in the company whose primary objective was to make sure we got paid back the money we work lending to lehman through our primary credit facility. we were not the supervisor. we would not have the authority to address accounting and disclosure issues. >> york fed reserve had run three stress tests on lehman -- your federal reserve. in the course of those tests, would you not have found out they were using this accounting gimmick? >> no, sir, these were liquidity stress tests in order to see

whether they had enough liquidity to deal with stress situations. they failed all three tests. that was information we shared with the sec and lehman brothers. >> the argument you both have used is as a lender of last resort, you must have direct access to bank data to assess creditworthiness and collateral of a would-be borrower. that the new york said loaned lehman brothers, gave the discount window with this going on, doesn't that trouble you? >> well, we assessed the value of the collateral. we gave an extra hair cut because we are concerned about the solvency of the company and we were repaid early. if that part worked fine. again, we were not charged with supervising the company.

it was a very troubled company, clearly. if we had to have some kind of provision to take a non-bank into receivership, then we would have applied that in the case of lehman brothers. >> schermthis is an example whye need reform so that an institution of that size would have official oversight. i would also hope that we have the kind reform being talked about. the issue of the fed's lending to those institutions, non- banking institutions would not be relevant, because if push came to shove and they were failing, it would come under the resolution of ardi that would have the power and resources to provide a suitable liquidation or merger of that institution, so the fed would not have to get directly involved as a lending officer. >> they should not be lending money to failing institutions? >> quite true.

we want a system so they would not be put into the dilemma. to save the rest of the market, we ought to have a system that could provide -- >> do you support our efforts to not allow the bailouts when you have seen in the last year? 13-03 cannot be used for natt nt a bailout of a non-banking financial institutions. do you agree? >> if you have the resolution of the arctic, you would not need 1303. >> you said in your testimony, indicating regulatory arrangements, responsibility a program for national markets, we should not lose sight of the implications for the role of the u.s. in what is a global economy, we must work with other nations and financial and

authorities." how about the voelker rule? if other countries don't adopt, doesn't that put us at a disadvantage? could we use capital requirements and restrictions on leveraging or restrictions coming to the discount window for cheap money? >> that question is premature. first we ought to get other countries to go along. then we would not face that kind of problem. i hope that will be the result. >> if they don't? >> i think we could still apply it in the united states and american institutions. i think it would present relatively minor problems. these activities we are talking about are a small part of the activity of very few american banks.

>> thank you. >> the gentleman's time has expired. the gentleman from pennsylvania recognized for five minutes. >> thank you very much, mr. chairman. chairman bernanke, i heard you refer to loopholes and legislative holes in things you can or cannot do. it brought to mind, as the double reserves done a critique of the legislation put together by this committee and passed in the house? and a critique of the dodd bill so that we can have a criticism as to whether or not any loopholes exist that should be covered or if not covered, what the impact would be? >> no, sir we don't have a specific critique of these individual bills. we have been clear about what we think is the right approach. i would be happy to discuss any specifics. >> could i make a request -- i appreciate the discussion and having an open discussion, but

i'm asking if you could have your experts really make the thorough reviews show so that if there are any loopholes to be identified -- there are many members of the committee that would not recognize a loophole if we walked into it, including myself. i'm sure if the expertise of the federal reserve sees them, i would like to be informed. if you could have your experts at the federal reserve review our piece of legislation that passed in the house and the dodd bill and any bill that comes out of the senate, to give a critique, so we may use that critique will go to conference to address them. >> we have been trying to provide technical assistance on each issue. we do not want to overstep our bounds and say this is good and that is bad, but we would like to help where we can.

>> that part of the legislation i am responsible for. don't worry about overstepping your bounds. >unfortunately, we do not have the voelker rule and we went through with the house side of regulatory reform. now it is included in the dodd bill. i have this open question. first, did that bill include the entire avoca ruvolcker rule? second, if you could for the record indicate why you think it is so important that we have minatomandatory provisions suchs the voelker rule? >> the chris dodd bill is a big step forward. there may be a few areas where additional clarification would be desirable.

i am out of office, so i have no reluctance to overstate my ability with my comments. i think it has to be mandatory, because i have been a regulatory. i've been a supervisor. it is very hard to take tough restrictive measures before the crisis. and after the crisis it is too late. i think in an area like this, where the rationale is quite clear, the law should say as specifically and as mandatory as possible. i think the dodd bill goes considerably in that direction as in the stand it. >> very good. in view of the fact there are so many members, i yield back the rest of my time. >> the gentleman from texas, the ranking member of the subcommittee. >> thank you, mr. chairman. i have a question for chairman

bernanke. during the early part of the decade a lot of the economists kept setting the interest rates are too low and there was a financial bubble and a housing bubble and there had to be a correction and there was in 2008. since then, many mainstream economists have more or less agreed with that assessment. we frequently hear them say interest rates were held too low too long. i think even secretary geithner made that statement. do you think they were held too low too long? >> i've given a speech on this. the bottom line is nobody knows for sure, but that the evidence is quite mixed. i would say that even if they were too low too long, the magnitude of the error was not big enough to account for the crisis. what caused the crisis was the failures in regulation.

i would fault the said. some of the failures were ours in the sense we did not do enough on mortgage regulation. so i think it was the weakness of the regulatory system, not monetary policy, that was most important. >> of course, i don't agree with that. if you assume for a minute that it was too lomg and you had perfect regulations, what is the harm done by interest rates being too low too long? do you see any damage of that being that way along time? >> one possibility, which my colleague to the left knows a lot about, is you get inflation when you keep the rates low for too long.

we want prices stable. but do you think the investor or businessman makes mistakes if interest rates are lower than the market? if there is no savings but the interest rates are low because of the newly created credit by the fed, does that not send a signal to investors and some business people? >> if interest rates are below normal levels, it's because the economy is operating at a very low level. currently we are in anything an economist would call a cradle of equilibrium. we are ines this region where a lot of people are out of work and consumption is well below normal levels. lower interest rates serve the function of increasing demand and put people back to work. >> if interest rates are at 2% or 3% instead of 6% without artificially low interest rates that there won't be a temptation for people to build too many

houses or people to try to capitalize on the fact that they are anticipating price inflation and participate in the bubble? >> interest rates are very low right now and i don't think we are building too many houses being the problem. >> in the boom part of the cycle the interest rates cause people to do things that might not be proper or best for the economy. and then when the bust comes we resort to the same policy of keeping interest rates extremely low for too long. is there any chance in a year or three years we will look back and say not only were they too low too long in the first part of the decade but also in the latter part of the decade? when prices start to go up it is too late and you have the job of reigning it in. >> it is a difficult central banking. we need to balance are dual

mandate. its maximum employment and price stability. we need to find appropriate policy that gets as close as we can to both sides of that mandate. >> the premarket people see that the dependency on regulation is just imaginary because the fault is all the mistakes being made because they have false information. price-fixing, nobody is advocating wage fixing. if you fix the price of interest rates, that's one of the economy because you're messing with the monetary system. all the sudden instead of dealing with that, we just say we need more and smarter regulations and produce of all the problems. that does not concern you at all? >> you need some system to set the money supply. i guess you are a gold standard supporter. >> not for the constitution. >> every major country currently

in the world uses a central bank, which must make some decision about the money supply, whether it is to keep them stable or move them around. it's a choice that's made. >> not good news for the investor unfortunate. >> your time has expired. the gentleman from california is recognized. >> thank you. and don't think the folks in the financial world understand the permanent damage done to our social and political institutions, done to the social contract through the wall street bailouts and prospects of future bailouts, which exists as long as we allow it to exist, the institutions we brands as too big to fail. schwith three presidential supervisors as well as various states, how can we in the future get consistent, comprehensive, and effective regulation of supervision of all banks and

similar institutions? should there not be a single body for setting out one set of rules that all the supervisors will apply consistently? >> there could be one supervisor. that is possibly the way to go. many countries have it that way. we have a complex country and financial market with its own traditions. then has led to a multiplicity of regulatory agencies. i think it's fair to say a certain amount of confusion as well. we have to do better in coordinating what they do. we have been left with extremely weak supervision outside the banking system as a matter of historic development. but let me say on the other side, and this is basically a political decision, there are some advantages of having more

than one regulator. many instances some countries find a single regulator gets pretty rigid in its bureaucracy and are legitimate complaints from other financial institutions there is too much room for innovation and flexibility and freedom. on the other hand, i don't want regulatory agencies competing with each other and liberalism. >> i agree with you on that. >> i think what this -- >> i need to interrupt you because i have two other questions. schermscherman bernanke, you hae outlined the advantages of mixing monetary policy and bank supervision. -- chairman bernanke. i want to talk about one of the perceived disadvantages.

there autocracies hate to bad headlines. they often do desperate things behind-the-scenes to avoid that big headlines from breaking. prudential regulators are going to get bad headlines if a big institution sales, particularly under some circumstances. they can prevent that failure if they could just put it off for six months, their reputations and careers would be saved. monetary policy, just cutting the interest rate by 1/4 point can save a troubled institution. point, can save the troubled institution. how can we be sure that monetary policy is not influenced by the natural human desire of banking regulators to save institutions long enough for them to move over to another department? how do we make sure that monetary policy does not meet the clear needs of bank supervisors? >> i don't think that is a very

realistic scenario. if the bank was that sick, i don't think a quarter port change would help the very much. >> every dying patient is on the borderline at some point. and there can be circumstances where it is touching go. -- touch and go. >> i don't think that is an efficient or effective way to achieve that objective. i suspect the central bank chairman would still be all round and concerned about his or her reputation with whatever problem might arrays with that interest right -- might arise from that interest rate policy. of course i'm going to squeeze in one question and you can answer on the record. why should be exempt the fed from audits of transactions for or with the central bank, the

government of a foreign country, or non-profit international financial organization? and are you willing to provide for the record a description of all such transactions from the 1990's so we can get an idea of of what the bank was doing at an international level? >> you have been invited to submit your answer to them for the record. i think you of already done it on several occasions, but do it again. >> could i comment on the previous question? i think you put your finger on that "not on my watch" syndrome. that is why it is so important to get this resolution authority enacted into law in a rigorous way so that the policy maker is not faced with something that seems to be an awful dilemma of letting an

institution fail or rescuing it. >> i assure you that the resolution of party -- resolution authority is not a bailout. >> the gentleman's time has expired. >> thank you, mr. chairman. i want it goes through this process of the fed being a prudential regulator. we have had all lot of people come in here for the last 18 months looking for the bogyman and all the calamity that has happened in the financial market. everyone says that it was not my fault. the bottom line is, on the the propose structure of the house or senate version, basically, the fed had regulatory authority over many of these entities that people are saying were part of

the problem. the question i have is, if it did not work before, how does it work now? and the second part of that is -- these large financial institutions, if you had gone into them, let's say, 18 months ago and said we were concerned about what is going on here, and they say, we have record earnings and we're making lots of money and we have good liquidity, good balance sheets, and our ratios are right in place. you want us to stop originating mortgages? you want us to slow down our securitizations activities? you want us to get out of the credit default swaps activity? how did you miss it and how would you have done a different course remark if you're not willing to do it different, then we are moving in the wrong direction. i'll start with chairman bernanke. >> that is the $64 billion

question u.s.. >> know it is the trillion dollar question. >> mistakes and problems throughout the system, and other regulators and the federal reserve, private citizens and the congress made mistakes in this crisis. we can only go forward and mix -- and fix the mistakes. we're recommending changes to the overall statutory structure to address gaps and other problems in the system, but we are also taking action are so. we're strengthening capital requirements. liquidity turned out to be a big issue in this crisis. we are strengthening that substantially. executive compensation. we have -- execution is very important so within our own supervisory system we are doing a lot of soul-searching and changes, and those changes are at the level of framework of supervision, which needs to be more systemic, so macro- potential, and we've found

situations like you described, where we were not passed or forceful enough, and we need to change our culture, our structure, and our instructions to examiners to make sure we do a better job next time. everyone has to do a better job. we are working to do a better job. there structural reasons that the central bank needs to be involved in the process. >> chairman volcker? >> you caught me with the same question. let me make a general point. with a discussion on supervision and caps and supervisory policies, supervision is a tough job. you are dealing with a very complex situation where there are known and unknown factors, and a political world where your tools are limited. you have to explain what you're doing, which is very hard in a

constructive role when things are going world. so don't put more burden on the supervisors that is necessary. but if there are structural factors that you want to promote or eliminate, do it by legislation. don't leave everything up to the supervisor. give the supervisor of very clear flame work in which the word -- a very clear framework under which to work. >> i do not disagree with that. i am a "less regulation" person. but the point is that we actually had regulation in place. we have regulators in place. there is an unreasonable expectation here that somehow we're going to fix the s -- we have bank regulators today, but we had over 100 banks fail, and

some people think, by expanding or reshuffling the deck where you're going to have a better outcome. i think we would have a much better outcome if we had people doing the job they were already supposed to be doing. >> i cannot deny that. but there were gaps and regulatory authority. one was in the investment banking area. you had gaps in the subprime mortgage, some regulatory authority but not over other parts of it. you had a big gap in the resolution authority. there was no resolution authority there to get the supervisors are reasonably effective and efficient way of closing down an institution without doing damage. that is something for the legislature. >> the gentleman's time has

expired. the gentleman from new york is recognized. >> thank you, mr. chairman. thank you for your testimony. let me ask chairman bernanke first. we've got this language in the house bill empowers regulators to deal with systemic risk. my question to you -- do you think that the language we have in the house bill is sufficiently strong enough to expedite the removal of systemic risk? there was a question, do we need something mandatory why it volcker rule. we asked mr. volcker, and i would like to get your response on that. >> i like to answer you in writing on that because it is a complicated bill. the general direction is good, but there are some areas where we think, if we had our preference, we would make some

changes. it is a complicated bill. >> i would gladly wait for you to give us a response to that. i want to see if you think that you have the authority from what we put in there, or you don't mr. volcker? >> are respond to the previous comment. this so-called volcker rule, the division between proprietary trading and hedge funds, is a provision that it is voluntary. it turns it over to the regulators and supervisors. i think it is unlikely that they will invoke that prohibition until the crisis came, and then it is too late. that's why you wanted in the legislation. -- you want it in the red coat -- you want it in legislation.

>> with the region would -- would the volcker rule -- i look forward to hearing that in writing. mr. bernanke, if you added up a cumulative working hours at the fed, could you tell me about what percentage of work is spent on bank oversight, what on consumer protection, what on monetary policy, and monitoring systemic risk? is there any way of you could tell us that? >> we have separate divisions that work in each of those areas. we're doing a lot of cross disciplinary work. i can tell you the data on the number of people in that area. i can tell you that off the top of my head. >> that would be great.

mr. volcker, when you are chair of the fed, can you tell me the fed spent the majority of its time? >> i must say, through history, i think the federal reserve activities in this area very depend on the leadership in place. specifically during my time in office, we had some big problems. we were fortunate at one point in having an extremely effective head of the supervision area and regulation area. he made a big difference in the effectiveness of the way we went about our work. i cannot emphasize the importance of having the effective people on the job and effective leadership in the organization. i have been an advocate of something and the dodd bill, having a new position in the

federal reserve, one of the governor's designated as vice- chairman of supervision. i think you need a continuing focus and a clear sense of responsibility, so that the attention of the federal reserve is less subject to the ups and downs over time. it would be built into the organization. >> i agree, but sometimes in our congressional offices, if you have to prioritize. something is more important than another, and those priorities -- in my office, i make a priority and something else might come up. that is generally the way that things were. things were. i wish to see what the chairman.