times square. the american people can be assured that our partners have all of the tools and experience they need to learn everything they can and that is what if any connection this individual has to terrorist groups. justice will be done and we will continue to do everything in our power to protect the american people. my security team will be providing more details. this is a sobering reminder of the times in which we live. . .

>> as americans and as a nation, we will not be terrorized. we will not cower in fear. we will not be intimidated. we will be vigilant. we will protect and defend the country. that is what i intend to do as president and that is what we

will do as a nation. expanding prosperity is what you worked for at the business council. i am pleased to have this opportunity to meet with the. it has been a little more than a year since i last spoke to the members of this organization. of the past year i've appreciated the advice offered by mayor -- by many members of the room. i'm here today to reiterate the importance of this partnership and the importance of seeking common ground. i recognize we are not going to agree on every single item. as i indicated to a group last night, my door is always open. i believe the success of the american economy depends not on the efforts of government but on the enterprise of the american businesses. it of the america's businesses that help us in this period of

economic crisis. the said been a tough two years for our country. i do not need to tell you this. countless businesses had to shut their doors. trillions of dollars in savings were lost. it forced young people to forgo college and entrepreneurs to given -- to give up starting a company. many people had to be let go. more than a million men and women lost their jobs. just about every day i hear from some of these people, people who are out-of-work. i hear about them from letters i receive each nigh]> every once in while i hear from children seeking to make sense of what is happening in their families, the sadness and uncertainty that they do not

fully understand. it is a reminder that what has happened is not justç an econoc problem. it is a human tragedy. we have maintained a focus on reviving the at economy in job growth. some of which are very to see some hopeful signs. when i last spoke to members of the business council, soon after jobs each month. many of the businesses in this room have resumed hiring, which is welcome news. last year, the economy was in freefall. today, the economy is growing again. in fact, we've seen the fastest turnaround in growth in nearly three decades. and while we had been seeing a steady decline in manufacturing, we learned yesterday that manufacturing

expanded in april for the ninth consecutive month -- and at the fastest pace in nearly six years. now, by no stretch of the imagination can we declare victory. not until the millions of our neighbors who are looking for work can find work. not until incomes and economic security are actually increasing for middle-class families, many who saw their income and wages flatline even during boom times in the '90s and -- over the last decade, after the '90s, rather. and not until we face the weaknesses in our economy that preceded this recession -- problems that have been allowed to fester for decades. we've been reminded of late that we can also face at any time a sudden and costly crisis that can harm our economy.

one of the discussions that we had last night was around the bp oil spill, which is going to affect the lives and livelihoods of people all along the gulf coast, from the fishing industry to the tourism industry. we are committed to preventing as much of the economic damage as possible by working to contain the impact of this potentially devastating spill. in addition, wherever possible, i would like to see the people most affected by the disaster employed in helping in the cleanup. and we will continue to explore every possible option to create jobs and support local economies in the gulf while continuing to monitor any potential effects on the national economy. but obviously this is going to be a significant challenge, and we are going to be working overtime to make sure that we mitigate its impacts. more broadly, spurring job creation and economic expansion continues to be our number one domestic priority. that's why, as i've said since the very beginning of my administration, we can't just rebuild the economy to where it was. we're going to have to rebuild

it stronger than before. we've got to rebuild it on a new foundation of lasting growth. we have to tackle structural problems from educations to energy, from our financial system to our health care system, from our trade imbalance to our fiscal imbalance that didn't just lead to two years of recession, but a decade of economic insecurity for middle-class families. now, there's a legitimate question about what the government's role can and should be in bringing about this new foundation for growth. and if you turn on cable news, you might run into folks with some strong feelings, and also some misleading claims, about the view of my administration on the subject. what has guided me throughout the last year and a half, what has informed the decisions i've made is a fundamental belief in markets that are free and open to all who are willing to work hard and pursue their talents.

i believe businesses like yours are what drive growth and create the conditions in which families and small businesses can thrive. and i believe america's greatest strength has always been society -- that it's a society that values and rewards the ingenuity of people. that doesn't relieve government of its responsibility to help foster sustained economic growth and to ensure that our markets are functioning freely. government can't light a spark in the mind of an engineer, but it can help an engineering student get loans to pay her tuition. government will seldom be the source of new and innovative products, but it can invest in basic research that isn't necessarily profitable in the near term, but that holds vast potential in the long term. government can build the infrastructure that allows

products and services to reach customers. government can create incentives -- in clean energy, for example -- that promote innovation and exports. these things are public goods that no business, no individual is going to provide on their own, but that create a favorable environment in which everybody -- companies across the country -- can open and expand. and that's why as part of this new foundation that we seek to build, we're investing in education, because our economic success depends on making sure people have the skills to match their talents. so we launched a national competition last year to improve our schools based on a simple idea, instead of funding the status quo, we'll only invest in reform. we've recently announced the first winners in what we're calling this race to the top. and across america, it's making a difference, as states are

implementing reforms to raise student achievement, to improve education in math and science, and to turn around failing schools that steal the future of too many young americans. as part of this effort, i've promised to speak at a high school commencement every year, to highlight schools that are encouraging excellence and preparing their students for college and careers. and today, in fact, after a vote to narrow down the finalists on our web site whitehouse. gov, we announced that i'm going to be speaking to graduates of kalamazoo central high school in kalamazoo, michigan. so, those of you based in michigan, you should be pleased. go, giants! we're looking forward to talking to those young people. we've also set this goal, america will once again have the highest proportion of college graduates in the world by 2020. and we're making progress towards meeting that. congress passed legislation that will make college more affordable by ending unnecessary taxpayer subsidies that go to financial intermediaries for student loans. the bill also includes one of the most significant investments in community college in history, because community colleges are a

career pathway for the children of so many working families. and last night during our discussion, one of the things -- a theme that continually came up was the fact that there are a lot of skilled jobs out there that don't necessarily require a four-year college degree, but they're not being filled, because we haven't done a good enough job on just basic math -- high school math skills, for example. we see our investment in the community colleges as a potential way to bridge that, even as we're working on improving k-12 outcomes. we are seeing rising enrollment in both two- and four-year schools across america. we want to make sure that those folks who are enrolling are getting the best education possible so they can serve effectively as part of your workforce. next, we've tackled what's been an undeniable drag on our economy, and that's the cost of health care. and i appreciate the willingness of many of the leaders in this room, including ron and angela and some folks that i spoke to

yesterday, to work with us and advise us on this issue. i believe that the passage of this legislation is good for america's businesses. in fact, just two weeks ago, 4 million small business owners found a postcard from the irs in their mailboxes. and it was actually one of those rare moments in which something from the irs was a welcome discovery. because of the reforms that were passed, millions of small business owners are eligible for a health care tax cut this year -- worth perhaps tens of thousands of dollars -- to help afford the coverage they provide to their employees. businesses will also be eligible for additional relief for providing insurance to retirees who are not yet eligible for medicare. a lot of the companies in this room can apply for this assistance starting this june. it used to be, if you worked for a big company, when you retired you could count on having health insurance until you were eligible for medicare. çbut one of the consequences of

skyrocketing health care costs is that the proportion of large firms providing insurance to its retirees has been cut in half over the past two decades. so these folks are often unable to find affordable coverage on the individual market. so this is going to be a welcome reform for many businesses that are trying to do the right thing by their retirees, and for the retirees themselves. and it will provide a bridge to when health exchanges come online in a few years. now, we're only at the beginning. many of the provisions in the health care bill have yet to be implemented. i'm pleased to say, though, that already many insurance companies are voluntarily accelerating implementation of this law. many insurance companies have decided to allow parents, for example, to add their young- adult children to their policies now, instead of waiting until next fall. some firms have rolled back exorbitant planned rate increases. and others have stopped the practice of rescission, where people are dropped from their coverage after they get sick. these steps are all greatly appreciated. they're the right thing to do. we will hold these companies

accountable to their word and to the law -- not to be vindictive, but to fulfill our responsibilities to the american people. but i think that we've seen a spirit of cooperation over the last several weeks that i'm very happy about. now, even as we seek to improve the skills of our workforce and reduce the crushing burden of health care costs on businesses and families, this alone is not going to be enough to drive the 21st century global economy. we need to ensure that our economy is fostering and rewarding innovation. and that's why we're building the infrastructure of tomorrow, investing in expanded broadband access and health information technology, clean energy facilities, the first high-speed rail network in america. that's why we've set a goal of devoting more than 3 percent of our gdp to research and development -- an amount that

exceeds the level achieved even at the height of the space race. and we've also proposed making the research and experimentation tax credit permanent -- a tax credit that helps companies like yours afford the high costs of developing new technologies and new products, because ultimately the key to our long- term prosperity is going to be sparking even greater innovation than we've already seen. and that's why, in my state of the union address, i set a goal of doubling our exports over the next five years to increase -- an increase that would support 2 million jobs. and to help meet this goal, we launched the national export initiative where the federal government will significantly ramp up its advocacy on behalf of u.s.exporters. we are substantially expanding the trade financing available to exporters, including small and medium-sized companies. and while always keeping our security needs in mind, we're going to reform our export controls to eliminate unnecessary barriers. so in sectors where we have a

huge competitive and technological advantage, we're going to be able to send more of those products to markets overseas. and we're going to pursue a more strategic and aggressive effort to open up new markets for our goods. now, we also have to recognize that the long-term economic health of our country depends on addressing the fiscal health of our government. and i know that's going to be a significant topic of discussion today. we continue to face not only the consequences of an economic and fiscal crisis, we also face a fiscal emergency that has built up over years. we have a structural deficit that is unsustainable. the day i walked in the door, the deficit stood at $1. 3 trillion, with projected deficits of $8 trillion over the next 10 years. so even as we've made massive investments to rebuild the economy in the short term -- we're going to continue to do what's necessary to spur job creation and economic growth,

but we also have to rein in these deficits in the long run. and that's why i insisted health reform not add to our national debt. in fact, it's expected to bring down the deficit by as much as $1 trillion over the next two decades. we've also restored what's called the "pay as you go" rule so that congress can't spend a dollar on either new tax cuts or new spending unless it saves a dollar elsewhere. we've gone through the budget line by line, cutting waste. and i've proposed a freeze in government spending for three years. my budget also ends loopholes and tax giveaways for oil and gas companies, as well as tax breaks for the wealthiest 2 percent of americans -- just because we can't afford them. and finally, i've appointed a bipartisan fiscal commission to take a hard look at the growing gap between what the government spends and what the government raises in revenue. now, i understand that some of

you got a briefing on this issue in preparation for today's meeting. i think you understand the choices are going to be tough. but we are making -- we are determined to make these tough choices. we're determined to put our nation on a stronger fiscal footing. because, in the end, we need an economy that's powered less by what we borrow and consume, and more by what we produce and what we build. i believe that's essential. my administration believes it's essential. and we're going to need to work with you to help get to where we need to be. now, none of these steps will matter if our financial system remains vulnerable to another crisis like the one that we've just been through. as we learned so painfully in recent years, government has an obligation to set basic, common- sense rules in the marketplace. this is not a hindrance -- it's essential to the functionings of the market. in the absence of these rules, it becomes more attractive for some to game the system than to compete and innovate honestly

within it. and this erodes trust in our markets. it makes our economy less attractive to investors from around the world. and, at worst, it can put the entire financial system in jeopardy, which serves no one. so that's why i'm working to pass a set of reforms to hold wall street accountable and protect consumers. and i want to be clear, the reforms we've proposed are in no way designed to hamstring businesses. these are changes to make sure that our markets are working in a way that is open and transparent and inoculated against the kind of massive, dangerous risks that nearly brought the whole financial sector down. and that's in the interests of every business here and in the interest of the economy as a whole. now, you're going to be hearing from my treasury secretary, tim geithner, who will speak to these issues in greater detail. but, in brief, these reforms would achieve three things. first, they'd create what we did not have before, and that is a way to protect the financial system, the broader economy, and american taxpayers in the event that a large financial firm

collapses. what we call this resolution authority will ensure that taxpayers are never again on the hook because a firm is deemed too big to fail. second, these reforms would bring new transparency to our financial markets. part of what led to this crisis was that firms like aig made huge and risky bets, using derivatives and other complicated financial instruments in ways that defied accountability, or even common sense. now, we believe that there is a legitimate role for these financial products in our economy. they can help allay risk. they can help spur investment. and there are a lot of companies that use these instruments to legitimate ends -- managing exposure to fluctuating prices or currencies. but the position of my administration on derivatives

from the beginning has been simple, we can't have a $600 trillion market operating in the dark. we want to ensure that the bulk of these trades take place on an open exchange, and the rest take place in the full light of day and in full view of those charged with oversight. the third thing that this reform will accomplish is to enact the strongest consumer financial protections ever. this financial crisis wasn't just the result of decisions made on wall street, it was the result of decisions made around kitchen tables all across america, by folks who took on mortgages and credit cards and auto loans. and while too many americans took on financial obligations that they knew they couldn't afford, millions of others were, frankly, duped. they didn't know what they were getting into. they were misled by deceptive terms and conditions buried in the fine print. and this didn't just affect these families, it hurt the entire economy. that's why we need to give consumers more protection in our financial system. with a dedicated agency setting ground rules and looking out for ordinary people in our

financial system, we're going to be able to empower consumers with clear information when they're making financial decisions. and that way, instead of competing to offer confusing products, consumers will benefit from companies that are competing the old-fashioned way, by offering better products. and i believe that unless your business model depends on bilking people, there is little to fear from these new rules. it is just going to be able to empower consumers to know what they're getting into. finally, we give investors more say and more sway in the financial system. these wall street reforms will give shareholders a voice with respect to salaries and bonuses awarded to top executives -- addressing a concern that has grown as a result of this crisis. so that's what reform will look like. i'm pleased that the filibuster was dropped in the senate and

that members on the other side of the aisle agreed to allow a debate. we expect a vigorous debate, with amendments from both sides. but make no mistake, we cannot allow these reforms to be watered down. and for those of you in the financial industry whose companies may be employing lobbyists seeking to weaken this bill, i want to urge you, as i said on wall street a couple of weeks ago, to join us rather than to fight us. that doesn't mean that there aren't going to be legitimate differences on the details of what is a complicated piece of legislation. but in its broad parameters, this proposal is a common- sense, reasonable, non- ideological approach to target the root problems that we've seen in our financial sector. and i believe these reforms are not only in the interests of the broader economy, they are in the interests of the financial industry as well, because reform will not only safeguard our system against crises, it will also make our system stronger and more competitive, instilling confidence here at home and across the globe. and i want america's financial sector to continue to be the most trusted and the most respected in the world. that requires reform. and this brings me to a final point. we face some very big challenges right now.

the only way we're going to get through them -- the only way we ever have -- is if we align the interests of workers and businesses and government around a common purpose. at a time of such economic anxiety, it's tempting and, frankly, sometimes easier, to turn against one another. so politicians can rail against wall street or against each other. businesses can fault capitol hill. and all of this back and forth makes for easy talking points, it makes for good politicalñr theater, but it doesn't solve our problems. it doesn't move us forward. it just traps us in the same debates that have held us back for a very long time.

it prevents us from tackling the challenges that we've been putting off for decades. i don't believe we can afford that kind of politics anymore. not now. i believe that we are in this together. i believe that we will succeed or we'll falter as one people. but i am confident that if we can rise above these failures of the past, then we're not only going to recover but we're going to emerge stronger than before. and because of the caliber of the leaders and businesses represented in this room, because of the ingenuity of our entrepreneurs, because of the drive and skill and talents of our people, i believe -- and i know you believe -- that our best days are still ahead of us. so, yes, these have been a very difficult two years. but the storm is receding and the skies are brightening. and america is poised to lead the world once again toward new horizons. you are going to be a part of that process, and i thank you for your leadership. thank you. may god bless america. >> the british election is may 6. c-span is covering the leaders in process. we talked to a british reporter.

>> people here are comparing him to barack obama. i have seemed obama speak. nick glegg catch phrases seemed to be -- if i may make it their appointed this." he is no barack obama. he is refreshing and a little bit different. he is very earnest. he is not so much give you a sound bite as a sound all you can eat buffet. he was talking to students at fox board -- oxford. they were achene audience. they turned out. they wanted to love him. what they got was sort of

lecture notes. he reminded me of michael dukakis who lost to george bush senior 20 years ago. dukakis used to talk to the audience as if they were taking notes, students who are writing it all down. they were not. that is why george bush who told them everything 50 times one. glegg is a bit like that. he is telling everybody every detail of what he wants. it is the get the juices flowing. >> why is he doing so well in the polls? >> because he is different. people are fed up with gordon brown and david camera. people do not seem to like him so much. he is not like tony blair. he is a little bit smooth. he is a public relations man.

>> you can watch this interview and other british election events on their website c- span.org. just go to "featured links." >> c-span, our public affairs content is available on television, radio, and online. it can also connect with this on facebook, twitter and youtube. >> marinell on the role of credit rating agencies and the financial -- more now on the role of critic regiorating agens in the financial crisis. -- lackgged considerably in fundraising.

host: we have our next guest here to talk about credit rating agencies. it is something that people have heard a lot about over the last year. these agencies and the role they play in the financial meltdown that we saw. what is a credit rating agency? guest: it is an agency that is licensed by the sec and makes valuations of the quality of investments, corporate bonds, municipal bonds, sovereign debt. they raided them like a teacher would rate a student with grades. the highest grade, aaa. that is considered a solid investment. the ratings go down the letters.

three major agencies use slightly different lettering. the investment is starting respective when you get to the los b's. -- low b's. if you want to demonstrate your a financial institution that has adequate capital to keep functioning in a bad financial situation, you are required to hold triple a rating bonds. there is a required portfolio on certain triple-a-rated bonds. they play an important role in the financial system. they are graders of the quality of investors -- investments. the credit bridgett -- the credit rating agencies evaluate the quality of sub-prime

investments. that was a problem in the sub- prime crisis. you are making a loan to someone whose creditworthiness is questionable. these loans got repackaged into mortgage-backed securities. host: those were a bunch of these sub-prime mortgages into one package. guest: exactly. then they got collateralized debt obligations. they're rated at different levels. the problem is the credit rating agencies were brought in by the bank we're trying to sell these prime investments. they use the exact same rating system for these investments that they use for highly state bonds. they made a decision that the state this of these investments would get a triple a rating.

as it moved from the loan to the mortgage-backed security, people lost track of the real financial transaction here, which was the loan was made it to somebody who did not have the credits that was normally available when you make a loan. many of these were fraudulently induce. either the people or the mortgage broker -- a bus driver was written down to have a $5,000 income. the credit rating agencies said -- $400,000 income. the credit rating agencies were responsible for some that got approved for loans that did not have the credit. they're looking at it credit 8

ratings that were supposed to be safe. host: did they give a rating just on the loan? guest: the agency is supposed to go back to the original transaction, analyze it. what angered a lot of people is that they should not have used aaa ratings, which of the listeners know indicates a very safe investment. the agency said, you do not understand. this was triple a for its sub- prime mortgage or a mortgage may to somebody who may not be able to pay it back. there was a lot of confusion in the industry. it is complicated that the people who created these collateralized debt obligations were paying the credit rating agencies for their evaluation.

that is how it has been done for many years. the agencies are paid by people to issue bonds. in this scenario, there was a hearing last week. the chairman made it clear that there were all sorts of conflicts. the banks were in negotiations over the payment for the ratings at the same time the ratings were done. there were conflicts of interest. people did not know the algorithms that for used were way out of date and too simplistic for determining the likelihood of these investments would pay off. less week, senator levin demonstrated that sometime in 2005, the three major credit ratings did not do this in a way that showed the investment

public what these investments were worth. it gave the impression that they were much safer than they were. there were working at better signals. it took them until 2006 to get them in place. they only apply to them going forward and left the old investments under the prior standard. sometime in 2007, the credit rating agencies are madly readjusting and saying what we told u.s. triple a, is not investment rating. investors found out that what was gold-plated was junk status. it is sent a shot into the system that caused the crisis itself host: you were referring to the goldman executives --

guest: it was before goldman. they brought in moody's and the three major ones. there were others that are more prominently known. he cross-examined the credit rating agency executives and said, what is going on? recent terrible signals into the economy. many bought these thinking they were buying gold plated investments. it was nothing more than junk. in 2007, 91% of these sub-prime investments dropped to junk status. almost overnight. host: on the goldman hearing that followed this, people heard about the credit rating agencies and the role they played with goldman and now this suit been filed against the firm. what is happening there?

guest: there were a couple of competing theories that led to the meltdown. one is, it does not matter how much a person who gets a mortgage gets paid. the appreciating value of the house will skyrocket. that will form something where these mortgages will be paid off. there was no risk. the credit rating agencies were initially part of that. there was no risk. even if you cannot afford your home, it would appreciate before you knew what would happen and you could extract that appreciating value to pay the mortgages. there was a competing be represented by this investor john paulson who plays an active role in the sec against coleman where he made the rational decision, this is -- against goldman for he made to the rational decision saying this is

a guess people who do not have good credit and pay their mortgages. i bet they will not pay their mortgages. he went through these collateralized debt obligations and picked out the weakest by virtue of the credit rating agencies. he looked for the junk bond status. he assembled a bunch of them. he said, even though we did not own them, and that these investments will fail. it is like trying to find insurance on somebody else's house that is about to be lit on fire. you cannot do that in the insurance industry. in is how highly -- he was able to say, i want to ensure we can invest in this. they had to find somebody to do the insurance. the claim is goldman defrauded a very small insurance company into taking the opposite side of

that bet. we will insure these houses about to go up in smoke. it pasted of its obligation to the royal bank of scotland. when paulson won his bet and these sub-prime mortgages defaulted, the ones he picked up that were read -- week, there is no capital to pay off paulson. that explains the meltdown. the american taxpayer has been the lender of last resort to people who were betting that things would fail even though they did not own them. the people that took the bet and the most prominent, aig did not have the capital to pay them off so we the taxpayer did. host: mark democratic line, philadelphia, pennsylvania. caller: i was watching cnbc regarding the financial muscle

bump. they had an interview with someone from the rating services. he was coming up with a bond rating. he said i cannot come up with this unable to do it. he had been in the business for ages. some say he cannot generate revenue for the ratings on. the credit agencies committed fraud. i am not an attorney but an accountant. if it was not criminal fraud, it was civil fraud. either they get hit with criminal fraud and wire these credit agencies not going to jail? guest: you ask some very good

questions. first, senator ben cardin has introduced legislation trying to be added to the senate financial reform package that will allow whistle-blowers within these companies to call out the credit agencies -- rating agencies and not be in a position to be fired. there were tons of emails within the company's employees said, this is not working. we are not doing the right thing. many people got fired and quit because they understood this was where people who were selling the city knows -- ceos were paying for their grades like a student paying their professor for their grades. some have been very aggressive with the way these agencies were

done. the pending senate legislation has a provision that allows people who have been defrauded to rosalyn negligence of these companies to sue these companies for damages. that is one measure that will be a controlling factor to present a common sense evaluations on these transactions. host: will these proposals be part of the financial regulation bills and the senate? guest: one part is in the legislation right now. it is considered by the senate. many think a standard could have been mapped in this environment. the house has a similar provision.

senator carden is going to offer an amendment that will protect people so they do not get fired that the this is something very dangerous to the economy. we talk about the great recession, the milk down, the bailout, the credit rating agencies must take the blame for this. host: voting starts today on amendments. they expect this to go a couple of weeks. what else in this bill is related to the credit rating agencies? guest: coleman dealt with some of these. there were various evaluations the agencies made. paulson did his own investigation and bet against them. finding someone to take the opposite end of the debt. those transactions have to be

conducted on a formal transparent exchange with all of this information going to regulators. they have the ability to say, what is this all about? this has nothing to do with the real economy. paulson has not been accused of doing anything wrong. amos betting that people would get kicked out of their houses. he wanted to find people to say their mortgages would be fine. there is a provision that says if this is a gaming transaction, go to las vegas where it is regulated. the regulators have a right to say this has no real bind to the economy. it is a threat, because the taxpayers are the bank of -- banker of last resort to the casinos that did not have enough money to pay off their bets. caller: this is going to boil

down to regulatory positions. right off the top of my head, i will throw out some people who were driven out of government. why did you leave your government position? another is elliott spitzer. we need people like this at the top who will watch out for public interest. guest: back in 1997 and 1999, we attempted to regulate what are called synthetic cbo's which were completely unregulated -- cdo's, which were completely unregulated. the $600 trillion value

worldwide, 10 times the world in gdp and there is no meaningful regulation. these derivatives. these are the things raided by the credit agencies. the senate legislation will control this if it passes by bringing them into the light, having regulators look at them. one woman -- alan greenspan, larry summers, many of the congressman were unsympathetic to what she was doing. her views have seen the light of day. there are others like sheila bear in the treasury department' and mary schapiro ad gary gensler and -- back in the

clinton administration was dubious about regulating these instruments. he has come back and has been one of the most particulates advocates within the administration for the kind of legislation working its way through congress. host: there is talk about one approaching chairman greenspan and been rejected. there is a piece yes today that i read talking about that she came up with concepts for regulating the derivatives. but she never put forth proposals for this. even that was not received well. guest: there is a pbs frontline documented in -- documentary the details this entire experience. i am sure it is on the website. in early 1998, we saw the market

was developing. at that time it was $27 trillion. we saw this market had no transparency. it did not have capital been brought to the table. people were making billions of dollars with commitment and nothing in the bank to back it up. that is like selling a stock to a bond or insurance. everybody has to have capital, but not here. we could see that this was pointed be a problem down the road. orange county had gone bankrupt in 1984. there was a scandal on wall street. one report was issued to regulate this stuff. we came along to a concept release like a white paper.

it is used by french regulators. we had a chinese menu of proposals to regulate these markets. they were just proposals. even though they were proposals, when they were issued, bob rubin and alan greenspan and arthur who had said he was wrong issued a statement saying congress should stop this woman. she is going to destroy the economy. six months later, congress stopped us. six months after that, they completely deregulated these instruments from all federal oversight and most state oversight. i told you this is nothing more than gaining. to get the market going, the

statute's pre-emptive certain things. a state cannot say, this is nothing more than gambling. it is not license. it is outlawed in our state. without the provision, this market and this meltdown would have died and early death. . this person wrote that when that concept come out -- came out, wall street went crazy. he was getting calls left and right that this was actually going to happen. guest: there was too famous incidents that happened to reduce the first was to get a call from larry summers. he said, i have 30 bankers in my office now.

this is 1990. we will have the worst economic crisis since world war ii. in 2008, we had the worst economic crisis since the great depression because she was stopped in her tracks the other concepts -- tracks. they have written a book called "13 bankers." that title comes from that conversation with larry summers. the real meeting was april 21, 1998 in the conference room of the secretary of treasury. rubin, somers, greenspan and levitt, in front of all the government regulators and white house officials, one by one took warren to task and asked her not to do this. she did it anyway and then congress stopped her in her tracks. most people believed that had we had transparency in 1998, 1999,

2000, we would have a thriving economy right now. the only reason our economy is in trouble right now is that we blew a multi-trillion dollar hole in it because the casinos didn't have the capital to pay off their bets, and now the american taxpayers had to do it. we paid. we have gone into huge deficit. one in six americans is unemployed or underemployed and much feels a sense of high economic insecurity and as we sit here today, greece, portugal, spain and italy are on the threshholds of default. the euro is in crisis. why? currency swaps and unregulated derivatives credit the fault swap. the european commission wants to ban these instruments outright. we're talking with mr. greenberger about credit rating agencies and the debate going on about financial regulation. he now serves on the financial inquiry crisis commission, which

is meeting this week, and has hearings a couple times this week. go to c-span.org for that schedule. ron on the independent line, you're next. go ahead. caller: the previous call her a similar question about has anybody been tried for fraud and i'll bring this back to 2005. i i know you're talking about the c.b.o.'s and mortgages but standard & poor's and some of the other ones gave ford and general motors junk bond status. at the time it didn't seem good but it seemed fair. in hindsight, it's totally not fair because i have a sibling that works for gmac and it was then sold 51% to cerberus and that was one money making entity general motors had. had they not done that, they might have kept it and it might not have gone bankrupt. it goes beyond the housing

market as well. while there have been many criticisms of what the credit rating agencies have done are talking about their rating of subprime mortgages which is an esoteric business they shouldn't have gotten in to begin with. senator levin's hearings pointed that out, but even in their main line of work, which is rating bonds of companies, five days before enron failed, they still were rating enron bonds as investment grade quality. the morning that lehman brothers failed, the rating agencies were still rating lehman bonds as having investment grade quality, so there is a lot of concern about this. the legislation that is pending now tries to deal with it. the s.e.c. has tried to deal with it, and in fairness, the credit rating agencies themselves have adopted reforms, but many people believe there is a funds amountal problem here,

and it's the teacher paying the professor for the grade. the people who need high grades for their investments pay the credit rating agency for that investment, and a lot of people believe that the fundamental flaw in the system that is not fully addressed by either the legislation that is pending or the s.e.c. actions. host: why doesn't the government give credit ratings ? >> i must say there are many debates about how to debate with this. one of them is that the government should do it. for some reason, that argument hasn't taken hold. i think throughout this debate on financial reform, there has sort of been a conservative view of let's keep the system as it is, but tinker with it. there is a very prominent professor at the stern school of business at n.y.u. lawrence wright who has said forget about certifying these people as being somehow knowing all. let's get a lot of competition from investment advisory services and let's get people in

here and use good common sense to rate these things, and by the way, the people who need the ratings shouldn't be able to go to credit rating agencies and say give me a letter grade. his view is that they have a burden to explain to the investing public using all these different services why their investments are solid investments. they shouldn't just use the simple thing of a triple a rating. host: battle creek, michigan on the democratic line, go ahead. caller: i'd like to know, you seem to be saying we have to reregulate -- reform the financial system, and that seems pretty obvious to me, but there is opposition from the conservatives and the traditional free marketers that you don't want to regulate, you know, you don't want to reform, you just want the free market to do whatever it is going to do. what are the chances of real reform and real regulation getting through, say, the

senate, where things seem to get bottled up? is there political will behind this? guest: there is political will behind this, but the vested interests, wall street, big fortune 500 companies, the big that goes to the floor of the senate is now written and is quite a good bill. i wouldn't say it's perfect, but it's very, very good. there are efforts as we speak to weaken it, and i think for people who care about this, they should read about it. my own personal view is that senators should be told the time has come to rein in the casino and start using money to create jobs, medical countermeasures, things that help the american public. this casino atmosphere of betting whether a market is going to go up or a market is going to go down and one of the bettors not having the capital has got to end. we need to go back to old fashioned american ingenuity and

build things and create things and not have slips of paper that represents betting obligations. host: our next call comes from vegas, michael on the republican line. go ahead. caller: good morning. first i want to say that i think c-span is probably about the only place you can hear the truth about anything. the news media seem to -- you can listen to 100 reports and you couldn't get 1/10 of the information this guy just gave people because it's just so stupid, but these gambling -- so many people in the news media go along and say this was all a set price. the truth is if you took all the subprime homes in the united states and bought them and gave them to the people, you would be talking about less than a trillion dollars. we have thrown away ten to 20 times that in this game and the problem is when mr. paulson came along, it wasn't that, you know,

he came along and had this great idea. they were all doing this. all the banks were doing. this i think most people don't know that all of this is that all the product on earth is $60 trillion and these derivatives and c.e.o.'s and credit defaults they add it up to $100 trillion. host: we'll leave it there. we're having trouble hearing you. what about the point? guest: the point is well taken. i think up until the last few weeks, most people thought the meltdown was directly related by people unable to pay their mortgages. that was the problem, but that problem was multiplied by a factor of three or four by the betting on whether people would pay the mortgages. if we didn't have the betting and the american taxpayer having to be the lender of last resort to the casinos like a.i.g.'s and merrill lynches who had to be bought by bank of america, if we

didn't have the betting, this crisis would have been a lot smaller. we wouldn't have one in six americans either unemployed or underemployed. >> host: we will go to mike in arkansas. good morning. caller: good morning. thank you for c-span. i wish we could get c-span 3 with directv but that's another story. my question fits into your criteria, i hope. i live on social security. i used to have an extremely high credit score. through some bad dealings and a loss of a home and a fire, et cetera, my credit score is now in the low 500's. i used to receive credit card offers from every bank on the planet, you know, and just junk after junk after junk. when my credit score dropped, i quit receiving all this stuff, and i got to wondering, well, somebody evidently is getting my information from the credit bureaus and how are they doing that without my authority or if

i make a loan at a bank do i sign something that says ok, we can release the information to the credit bureaus and they can just sell it to whoever they want? what is the law here and when does invasion of privacy come in? >> when you apply for a loan, you allow the person you're trying to get money from, whether it be a bank or credit card company to look at your credit card score. credit card scores is another gaming system. you can, by using certain devices, get your credit score way back up, by challenging certain transactions. that's a subject really for another day, but the point i think that you raise is a good one. we have been talking about subprime mortgages and the gambling that is built around subprime mortgages. the same instruments are built around prime mortgages, commercial real estate mortgages, credit card loans, auto loans, and this could

trigger the same house of cards that collapseed in the subprime mortgage and keep your eye on what's happening in southern europe and to the euro. greece, a week ago they needed $30 billion, two days later $60 billion and two days later $120 billion. yesterday the european union agreed to give greece $160 billion. germany is giving greece $30 billion because if greece collapses, the whole european union will collapse, and obviously, that will cause worldwide ramifications. how did this get started? currency swaps. greece bought, for example, $300 million from goldman sachs, a package that made it appear that they had no debt, so they could gain entry into the european union. greece now has a huge debt.

now the investment companies are buying credit default swaps on greece's, whether or not they will survive financially, and those people who are betting that greece will fail have enough economic power to deny greece, portugal, spain loans at commercial rates. that's why the european union has got to flood in taxpayer dollars from those countries to save greece and soon they may have to do it for spain and portugal, too. host: san antonio, mike on the democratic line. you're on the air. caller: thank you. thanks for c-span. i have a comment and a question. my comment is i think the people making all the money off of these scams knew exactly what was going on, because it doesn't seem that complicated to me, and my question is, when these people count their losses from the defaults on these loans, are they counting out, like, if you borrow 30 grand for a house and

you pay it back in 30 years you pay back 150 grand. do these people count when someone defaults on a $30,000 loan, do they count that they have lost $120,000 in equity? guest: all i can tell you is when we gave money to a.i.g. to bail a.i.g. out, that money went in the front door of a.i.g., $160 to $180 billion and out the back door to people who i believe used a.i.g. as the betting thing, that a.i.g. was betting the market would stabilize. the paulsons, the goldmans of this world were betting it would collapse. they won the bet. the paul sons and goldmans, et cetera. we paid that bet off 100 scents on the dollar. goldman sachs got at least $12.9 billion in taxpayer money that went into a.i.g. and out to them at 100 cents on the dollar, so whatever they insured, whatever trawn muchs they picked out said

these things will fail, we don't want to bet on, that but you and i paid goldman to be sure they would be able to collect their bets. by the way, if they didn't collect that bet, their balance sheet would have gone awry and they would have been in significant financial difficulty as well. just think about they had a liability or an asset, rather, of $12.9 billion. if we didn't pay a.i.g. and a.i.g. didn't pay goldman, they would have been minus $12.9 billion. host: my tweets are rated a.a.a. and i started a tweeting agency, sar cam, but there is -- sarcasm, but there is a market for the credit rating agencies. guest: for credit rating agencies there is a market but i think the whole dependence, they won't go away, but people are going to be asking, in fact, the fed even in dealing with its own assets that it has taken in, is

looking to other sources of intelligent evaluation, investment advisory services, economists and i think there is a market here for people who can provide >> timothy geithner is urging

congress to impose a $90 billion fee on the nation's largest financial institutions to recover the cost of tarp, the troubled asset relief program. it is a package of regulations and the debate on the senate floor. this is two hours. hos[captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> thomas jefferson may have gone to fouro far -- to far when

he talked about standing armies. but in this great recession, we can see that institutions greatly affect the economy. the have affected each and every american taxpayer. it has been nearly two years since the financial crisis hit. today, we convene the second of our to hearings to consider president obama's proposal. tarp helped keep the financial sector afloat, and there is a decent argument that the financial sector receives more benefits from tart than just the dollars -- from tarp than just the dollars. he explained who had received

funding and who would probably be able to pay the money back. our first witness, secretary geithner, will describe president obama's proposal. he can discuss different ways that the banks could be structured. our second panel includes a cross section from the financial sector. it is no surprise that institutions are not enthusiastic about the proposal. we look forward to learning how they think -- the specific concerns. the best way to design a tax -- we to understand who should pay the tax, and what effect it would have on small businesses and the economy.

we need to know if the banks will pass the tax on to their customers. we need to understand the effects of the bank tax on small business lending. small businesses suffered when credit dried up. we want to make sure that banks do not harm small businesses, and the banks pay back the american taxpayer. we want to learn how a bank tax will affect the economy, the ability of financial institutions to compete, and we need to learn what kinds of banks -- bank levies other countries are considering. but as consider the responsibility to bear some of the fiscal burden created by the financial crisis. i understand the best way to assess most burdens and figure out the way that is best for the american economy. senator grassley. >> thank you for a very

important hearing. first of all, i want to thank to people that i've come to be on the second panel. the president and ceo of iowa bankers, and the chairman of the cedar rapids -- he also happens to be the last chairman of the american consul of life insurers. the statute decorated tarp says that the president is supposed to compose a plan to repay tax payers for any losses from tarp. earlier this year, three years before he was supposed to, the president proposed what he called the financial crisis responsibility fee. the president's top tax official admitted that the proposal is actually an excise

tax and not a fee. in 2013, we will have a much better estimate of the projected losses than we have right now in 2010. the president said that one of the purposes of the tax is three pay tax payers for any losses. i completely agree that taxpayers should be paid back every penny of sharp losses. any losses will increase the deficit which has ballooned under this administration. therefore, to pay tax payers for any losses, any money raised would have to be used to pay down the deficit. if a tax is imposed, the money is simply spent, it does not repay taxpayers 1 cent for any losses. it is just more tax and spend, big government while the taxpayers foot the bill for washington's out of control spending. i've heard that the majority is

looking to use the money raised to spend it under the arbitrary rules. these are the same pay go rules that inspire -- expiring tax provisions do need to be paid for. that is inconsistent until you realize that it leads to more taxing and more spending with results in bigger government. i hope you, mr. secretary, will ensure us that the president means what he says, and he would repeal in the top tax that simply spends the tar tax money without paying down the deficit. looking at the park -- tarp tax proposal, gm and chrysler are responsible for about $30 billion of projected losses and not subject to the president's

proposed tax. and also, fannie and freddie are not subject to the tax. in hedge funds, like the one involved in a recent scandal are not subject. companies that did not take money are subject to a proposed tax and companies that were not eligible to take any money are subject to the proposed tax. when asked to bear the burden of the tax, they said that one of the groups that would bear the burden would be consumers. one of the purposes stated by the president was to reduce risky behavior by financial institutions. however, the cbo stated in their letter to me that the tax would not have a significant impact on

the stability of financial institutions or significantly alter the risk that government outlays will be needed to cover future losses. one area i am concerned about, the tax on small business lending. cbo stated in that same letter that it will reduce small- business lending. this comes at a time when the president and everyone else in the congress are trying to increase tax rates on small business at the end of this year. the nonpartisan joint committee has written that 47% of all flow through business and come will be hit with the president's proposed tax rate hike. i have yet to hear administration officials acknowledge this fact.

i look forward to hearing the testimony today about the proposed tax and the impact on small businesses. thank you very much, mr. chairman. >> secretary geithner, your statement will be included. make it five or six minutes. >> thank you for giving me a chance to talk to you today about the president's proposed financial crisis responsibility fee. the cost in this economic crisis has been and continues to be enormous. it has had americans harder than any downturn since the great depression, millions have lost their jobs, businesses, homes, and their savings. the loss of revenue has added a national debt. the purpose of the responsibility fee is to make

sure that the direct cost of park are paid for by financial institutions and not by the taxpayer. when your colleagues in congress gave us the authority to put out the financial fire, you included a requirement that the president put forward a plan that it recoups from the financial industry an amount equal to the shortfall in order to ensure that the program does not add to the deficit or the national debt. this is a simple and fair principle. banks, not the taxpayer, should pay for bank failures. this is a principal with ample historical precedent. congress changed the law to require the fdic who imposed a fee on bank to recoup losses from -- the same principle is adopted in both the senate and house financial reform bills that requires the industry to repay the government for any cost associated with the

resolution of a failing finance the land -- a financial institution. i want to take a minute to walk you through the key elements of the proposed approach. first, the fee would be set at a level to ensure that the costs do not add our national debt. a year ago, we estimated the cost could exceed $500 billion. we have been successful in repairing the financial system at a fraction of those estimates, and the last estimate was that the cost could be as high as $117 billion. second, we propose to assess this fee on institutions that have over $50 billion in assets, and that are eligible for the emergency programs put in place to resolve the crisis. these firms are u.s.-based, bank holding companies with certain broker-dealers. we call them primary dealers as well as companies that control

insured depositories and certain broker-dealers. only those that are eligible for the emergency programs. third, we propose the size of the fee on individual firms be determined by the proposed financial system. the combination of high levels of risky assets and high levels of leverage were key contributors to this financial crisis. under this proposal, firms that take on more risk -- managed more conservatively. there are other -- it will help discourage activities that pose the most risk to the stability of the financial system. finally, the fee is designed to limit the risk of any adverse effect on lending. it will be assessed over 10 years. it excludes 99% of u.s. banks.

i want to emphasize this point. the fee will not apply to credit unions, only the largest firms that were directly eligible for the emergency programs, firms that were not eligible for that assistance are not covered. if first -- try to pass on the effort -- the fees to borrowers, they will lose market share. the proposal would improve the competitive provision of small and medium-sized banks leading to some increase in the share of the loan market. we're working with governments around the world that consider other efforts so that there are level playing field for the firms. we believe it is a good complement for those under consideration on the senate floor. it will provide better protection for businesses, stronger limits on risk-taking.

enacting this fee now will show the american people that don't have to shoulder the direct loss of part, and it will help protect the economy from future financial failures. we recognize that there are a number of possible approaches one could take to protect the taxpayer from the cost, and we look forward to working with you and your colleagues to design a fair and sensible approach. >> thank you, mr. secretary. in designing this feat, to what extent is it designed to read to taxpayer funds, and to what degree is it designed to deter unnecessary risk? >> the purpose is to meet a legal obligation to recoup the funds.

we looked at a variety of forms of the tax levy. there is a benefit, this design is like thinking of it as a too big to fail tax, a tax on risk. the primary purpose is to meet the legal obligation to cover the fiscal loss of tarp. >> how do you define risk? >> the way this is designed, you would pay it in proportion to assets to justify risk-the capital that you hold and you're insured deposits. they can take more risk with more leverage, and you find that risk with more unstable sources of funding, not with insured deposits, and you pay more. if you are more conservatively funded, take on less leverage, you rely on deposits to fund your fending -- to fund your landing -- lending.

it will allow the established framework of u.s. regulators to apply to divide assets. there is a long establishment for doing that, and the judgment is that it does the best job of capturing risk on the balance of banks. >> these are u.s. regulations. they are imposed under u.s. law, they are, for reasons you understand, related to the importance for institutions to compete around the world. they are negotiated in a national context, but regulations often differ from and are more conservative from those that are negotiated internationally. these are regulations defined by supervisors under u.s. law. >> basically, the committee of the terminations are not

relevant. -- of the terminations -- of the terminations -- determinations are not relevant. >> they will try to bring the world to those standards. the authority to design those are under u.s. law regulations designed by supervisors, and we tried to make sure that we are pulling the world to a similar approach on capitol hill. >> the degree to which this tax is going to very, because it will vary according to what u.s. regulators say constitutes risk for the purpose of the tax. >> that is a strange, not a weakness. as we have seen, it is difficult to capture risk any balance sheet for financial institution. the fact that this framework for measuring risk in banks involved

-- evolves over time as a strength in this proposal. in an established framework, there are rules, they are publicly available, and they can disclose what the assets are. >> to what degree might risk a change the assets? that a bank might have to pay? >> if they take on more risk overtimed -- >> what about the definition changing? >> if, over time, the framework has to be a better job of capturing risk. there is capital against those risks, and as the bank takes on those risks, it would be higher than a fee that was managed more conservatively.

the regulations and determinations -- >> the virtue of this approach is to say that you pay the feat in proportion to the risk and the exposure. by capturing derivatives and complex financial problems, it captures the rest of those exposures it tries to measure the risks alongside other risks banks take. the basic principle is, the more risk, the more capital you have to hold, and the higher share of feed you have to propose. chairman, there are other ways to look at this, but by measuring it against risk, it provides the best balance -- >> the other question i have is the degree to which banks can game this. i'm no banker, but they get

pretty clever. we have seen that the last several years. there must be some ways to game this formula. >> this is an established framework. with enormous experience over time, they add that it as they try to adapt behavior to get around these risks. it is a thoroughly available, published a definition. the risk is how much capital they hold against that, and it is better than the alternatives. our judgment looking at alternatives is that they would be both less effective in providing incentive for risk- taking and would have other disadvantages. >> why this level of tax? >> the --

>> why not hire? >> the legal obligation -- >> one of the criticisms is that they give all this money to banks, and the small business -- they just bought treasurys. they paid the money back very easily because they made a lot of money. >> you are exactly right. banks benefited enormously from the actions that congress authorized. the legal obligation is to make sure that we're covering the direct cost. we proposed a fee that over 10 years, to raise enough money and to answer your direct question about how large it would be, in terms of the size of the feet, it would be roughly the same as the fee paid by banks. roughly the same dimensions.

>> thank you, mr. secretary. regarding the tax, the president has stated, my commitment is to recover every single time that the american people are owed. there is a statutory requirement that the president proposed a plan that recoups losses from tarps so that it doesn't add to the deficit or debt. in light of that, would you assure us that the president will veto any bill containing the top tax that does not go towards paying down or paying back the taxpayers? any bill that doesn't use the tax to pay down the deficit? if he can't give us those assurances, why won't you? dodge the president believes very strongly that resources raised from this he should go to cover the tarp costs and reduce the deficit. i completely agree with that

position. he strongly believes that. >> the point is, if congress would say that we want this money to be used to offset this program or to, you know, for offsets or set up a new program, it is not being used to pay down the national debt. with the president to veto a bill that wasn't used to pay down the national debt? >> for the reasons he said, he believes very strongly that the proceeds of his feet to go to reduce the debt. >> would you suggest to the president that he veto the bill? >> he feels very strongly about this, i agree with him, and i believe it is the right policy for the country. he didn't really answer my question. the statutes that created tarp requires that the president propose a plan -- a plan in 2013

instead of waiting until 2013, he proposed a tax this year, 2010. what of the cbo have a better idea in 2013 rather than 2010? >> it is a very good question, and let me try to respond. why now? we are still uncertain what the ultimate cost would be. we made the judgment now for the following reasons. this was an expensive financial crisis. it caused a lot of damage to the long-term position. we thought was responsible to make it clear now that we're proposing a way to get out of this mess and to make a substantial contribution. we thought was responsible to do it now in a time where people are looking for signals that we have the political will to start to bring down the deficits to a more sustainable position.

it will also thought it was helpful to underscore the basic principle and financial reform legislation that banks should pay to the cost of bank failures. proposing it now would add credibility that many people support on both sides of the aisle, banks should cause -- pay the cost. we think it helps reinforce the broader reforms that are designed to limit risk taking in the financial system, and by proposing a fee that is a tax on leverage or risc, we thought it would help reduce risk in the financial areas going forward. >> he still would have to admit that we are going to know more what the loss is in 2013 than we do today, and the purpose of the taxes to recoup that, and only to recoup that. no other purpose. >> as you have a knowledge, the direct cost does not capture the

full damage to our position caused by the financial crisis. nor do they really measure the benefit to the financial areas provided by emergency programs. for those reasons, we think it is responsible to propose a way to dig our way out of this whole. >> after this committee's april 20 hearing, we learned that gm took a lot out of an escrow account to reap a taxpayer loans. a letter i received from the treasury last week says that after the home repayment, $6.60 billion was left over and that this money was available for gm 's unrestricted use. it was my understanding that $6.6 billion was -- the bottom line is, the strong business

performance has put us in a performance -- in a position that we don't need these funds, referring to the cash in the escrow account. in light of the statement, why should they simply simply return -- or shouldn't they return the money to the government. taxpayers do need those funds. >> your right to point out that gm is in a much stronger financial position today than any of us expected. that has enabled them to repay a portion of the assistance provided much more quickly than anybody thought. it is also true, as i always emphasize, that we have substantial equity left in gm. we're going to work very hard to make sure we get that money back as quickly as we can. this program, as a result of the

restructuring program, gm was forced to undertake bankruptcy. this firm is emerging stronger and more quickly than any of us expected. >> senator bateman. >> thank you for being here, mr. secretary. nyu professor thomas cooley says that we should also create an ongoing charge for insuring against risky behavior. what you had described as a way to pay back the taxpayer for the tarp funds that would have the effect of discouraging risky behavior. why don't we consider both the feet that you have proposed -- the fee you have proposed for tarp outlays, and a levy to

deter risk taking at the expense of taxpayers going forward? >> there are a lot proponents to the fund. financed by a levy on financial institutions as a fund that would go to cover the future cost of bailouts. . .

that could add the moral hazard. that is the argument against it. >> that would send that the money would be put into a fund that would be specifically for this purpose. you could take the fee you are talking about as a way to pay back tarp funds and still add to that another 3fee so that the government would be more capable of doing what it had to do in the future, whether dealing with an oil spill or a hurricane or whatever -- problems the government encounters down the road. >> you are exactly right. there may be crises in the future to provide banks to help cover uncertain future costs. there are a lot of opponents to

that approach, too. we are trying to meet that narrow legal requirement to cover the tarp fund. i understand the merits of that approach. there are some risks in it, that frankly that money to get spent on other programs that would not be there to protect the government from future financial crisis. >> but it could go to reduce the deficit. you say that this is intended -- the feet are now proposing is intended to reduce the deficit. there is no reason why we are in favor of reducing the deficit and reduce it even more if we had more of a fee. >> that is exactly right. we're trying to cover the narrow requirement in law but we understand that that does not fully capture the cost of the crisis. >> part of this banking crisis, part of what has come out as we try to understand is banking

crisis -- this banking crisis is that many banks have off-balance sheet assets and liabilities. is it your intention that this fee would be part of the taxable base for these large institutions? >> yes, and that is one of the virtues of the design. unlike the conventional accounting books that does not capture those sort of things, the new deposition -- definition would capture those assets include zinc of sheet derivatives. >> how would you see this applied to insurance companies, particularly one that owns a thrift, for example? it would seem it would make sense to treat insurers differently from banks sense that has always been the

approach we have taken in the past. how would they be treated and it is? >> their many different ways to do this. -- there are many ways to do this. one is that you have to be larger than $50 billion in assets. very small numbers of countries and -- of companies in the country meet that. you have to be directly eligible for the emergency programs, and that means the treasury capital purchase program, a temporary guarantee program, and the federal reserve's primary credit facility. firms that were eligible for those programs and more above $50 billion, we think they benefited from the emergency program even if they did not take from it. some insurance companies were structured as holding companies

and own threats before the crisis -- on the threats -- thrifts before the crisis would be eligible for that. >> my time is up. >> it is great to see you here, mr. secretary. we want the finish too big to fail and other books on the left of the past couple. you look well, i do not mean that to indicate you of -- president obama scolded large financial institutions by saying, "they are suggesting that it is unfair." he said, "by some twisted logic

is more prepared for the american people to bear the cost of the bailout that -- rather than the industry that benefited from an even though they are giving themselves huge bonuses." let's talk about fairness for a moment. is it fair to apply this tax to companies to not only -- not only to companies that have repaid tarp, but the companies that have not taken money from tarp at all? i know the administration believes that they have benefited from tarp and other ways. >> the american economy benefited, all americans benefited, all financial institutions benefited, all the customer's benefit it. we thought the fairest way to do this was to apply did fee to the firms that contributed most to the crisis, and that were eligible for the emergency programs. even if you did not apply for the program, eligibility for them conveyed a substantial

financial benefit. mr. senator, i understand that it is not going to seem fair to everyone and there is no perfectly fair approach. >> it is not fair to everyone. this proposal does not apply to the companies that benefited the most, betty mae -- fannie mae, freddie mac, gm, chrysler. some of these firms have paid out bonuses to their executives have met some of the bonuses paid by the largest financial institutions. i do not want to go into those, but you can look at them. their names and dollars in those bonuses -- you do not believe that there should be an exemption -- tell me why you do not do this to fannie mae and

freddie mac and gm. >> of very good question. we thought about this very carefully. and fannie and freddie, it would be one hand of the government paying the other. we would be paying the fee. >> they are a separate entity. >> as you know when congress authorized my predecessor to put them into a form of conservatorship, that put us into the position where their gains are our games, their losses are our losses. if that were to pay for the fee, we would be paying for the it. >> you're simply saying they are vulnerable. >> no, i don't think that i am. congress did the right thing in keeping them a stable to the crisis so that we can reform them. the audit companies are a different case. i think it's fair to say -- the auto companies are different way -- a spirit they did not caused a financial crisis. there challenges were made substantially worse by the

financial crisis. not the institution that we put to bankruptcy, and we did not think it was necessary or appropriate for them to bear -- to be covered by a fee which is designed to help us make sure that we are reducing risk in the financial sector as we cover the potential loss of tarp. >> there are others out there that did not cause this problem. >> but gm and chrysler are unique in that we put them for bankruptcy. they did not cause the financial crisis. as a slightly different approach. we are not covering 99% of financial institutions in the country. of those 9000 banks and thrifts credit unions, they may have benefited and people may argue for a broader fee about our judgment was to capture the

largest that benefited the most. >> let's say there's a bank that may be approaching the threshold of $50 billion in assets. they are $49 billion and they are almost there. they're thinking about expanding into underserved areas in utah or elsewhere. in such a case, what and this tax serve as a disincentive? >> you are absolutely right. the fighting in the threshold, if you have to reduce the rest of that kind of impact. i would be happy to work with you and your colleagues to design this in a way that the threshold is sensible. for banks that take deposits to fund loans to their business customers, they would not be bearing any material fee as part of the way we design is. we would be happy to design the threshold so that it would be fair. >> thank you, senator.

next is senators that a number -- senator stabenow. >> i had some thoughts about the auto industry and welcome. i wanted to follow up on the discussion because i think it is important, the fact it you made that the auto industry did not cause the crisis. it was not there reckless effort in terms of investing that caused where we are, but the frozen credit market that affected them has that affected everyone else. and when we add to the fact that normally in a downturn, the individuals that could not get credit for vehicles, we have almost a 50% reduction in vehicle sales, which is huge. normally if there is a reduction, they can go into their markets and get all line of credit, they could get a loan, and that was not available

to them for but -- because of the frozen credit market. they were in an extremely difficult situation. it truly is apples to oranges when you talk about it not that other businesses were not in the same situation, but the reality is that in all the manufacturing, for every one job in all manufacturing, there are nine other jobs somewhere in the economy impacted. this is a fundamental part of our economy in terms of middle- class jobs and the economy as a whole, which threaten to undermine jobs in the economy even more. i also would set that they are still undergoing a very fragile recovery, and they are not out of the woods yet. we need to make sure that they are back on their feet, and frankly, that that would help us from the taxpayer standpoint as

they go into the marketplace to sell their lot of stock. i wonder if you might expand on your feelings in terms of the negative impact from a taxpayer standpoint that jeopardized as a recovery in the industry at this point, when we have yet to be fully paid and will not be fully repay until they are able to go into the marketplace. >> i like the initial rationale for including them and i would emphasize, that these firms, again, because of the extent of the restructuring that they went there as part of bankruptcy, they are in a much stronger position today than anyone expected. they are emerging stronger and more quickly than any of us would of hope. our judgment as to whether they should be covered or not had nothing to do with their current financial session. we made the judgment that because they did not cause the crisis, and because they went through restructuring, it was

not necessary or fair to ask them to be covered by this fee. it was that simple judgment. >> and if i could follow up on my colleagues to talk about community banks, because they did not cause this either and they have been hit on both sides, being told that financial regulatory system is tightening up for them, they are trying deland and others are telling them not to land, and they are in a difficult situation. businesses that did not cause this either, they find themselves in a terrible situation. i wonder if you talk -- if you could talk more about there is an analysis on the economic impact proposal as it relates to community banks and small business lending. >> as i said in my remarks, at this proposal is good for community banks. the fee does not cover community banks. it only covers these institutions that are less than 1% of the total financial

institutions. if the larger institutions try to pass on fee, and they do not have to, as the cbo says, we think that we designed this in a way that is good for small banks and community banks, and therefore could for their small business customers. >> thank you, mr. chairman. >> bank you, senator. -- thank you, senator. >> i'll like to follow up on the question that senator grassley "earlier. -- asked you earlier. you said that the tarp law requires the coup -- the administration to submit a plan to congress forces -- for recouping our losses. you failed to say that this

should come after zero in these amidst a report on tarp loises -- after omb release is a report on top will -- tarp losses in 2013. why did i think they did that rather than 2010? >> i suspect that they wanted to be confident that the financial industry was in a stronger point that the fee would come into effect, and it is in a stronger position than anyone expected. >> with they also want to know more about -- what they want to know more about how much the losses would be after three years? >> yes, we are early and we are early because we thought it was the responsible painted it. >> can you understand why a look suspicious that the administration is submitting a

plan now when the tarp losses are not fully known? can you understand why this looks like a political stunt to distract the public from a very unpopular tarp program and a transparent attempt to make it look like the administration is not in the back pocket of wall street? >> i cannot understand that. we're doing the responsible thing, which is in the face of a crisis that caused enormous damage to our fiscal position, we thought it was responsible, prudent, and reassuring to the american people to tell them how we're going to protect them from the losses. we could have waited. >> in waiting, you would've known more, exactly what the tarp losses would be? >> yes but there would banal level of uncertainty about the losses. >> balal makes you cover them. -- balal -- the law makes you

cover them. >> it's not desirable when people are worried about this country, to date are as a way out of the physical damage caused to the country. >> concerning the amount of tarp losses, it does treasury expect to experience any losses from the aig's experience? >> we published twice it -- twice a year estimates across the full range of investments that we take redella latest estimate, i think, is relatively old, down at the end of september 2009. in that estimate you will see that we still expect to be exposed to substantial risk of loss from our investment in aig. much less than we thought but some loss. >> were you at the new york fed when the aig derivative counterparties were paid off at par? part of that was from aig, which received tarp funds, and part

was from the fed. doesn't it follow that aig counterparties had not been paid off at par, at that in the infusion of taxpayer money would have been smaller, and there would have been fewer tarp losses? >> note. >> i am sorry. let me finish the question. doesn't the decision of the new york fed to pay the full value lead to a tarp loss? >> no, senator. uni have talked about this many times and i would be happy to talk about it in the future. if we had not stepped in to prevent aig fell years -- >> we have a difference of opinion. you saying one thing is not going to make any difference in what i believe. let's pass over that. answer my questions about the tarp funds. >> it would have been larger, not smaller if we had not helped aig.

a higher burden on the american people. >> time will tell. >> no, i think time will not tell. >> right now we are at a loss of aig. >> it is a fraction of what these estimates were, but i can say with complete confidence that if we had not acted the way that we acted, those losses would have been dramatically higher. >> last question. been here last appearance before this committee, several members submitted written questions for you. i understand that we just received the answers to those questions late yesterday. the you believe that three months is a reasonable period of time for members of this committee to wait for answers to their questions, and if you have not been testifying today, how much longer we would had to wait for those answers? and if we submit questions based on today's hearing, how long do we expect to wait for an answer?

>> i believe this is my 33rd time testified before the committee and congress did my time in office. >> you did not have to take the office. >> you're right. but we tried to be responsive as we can and meet those responses as we can. we have a lot of problems that we inherited and we're trying to do our best but we will try to be as responsive as we can as quickly as we can. >> thank you. >> secretary fact, continuing on the same line of -- secretary geithner, continuing on the same line, we were talking about for a payment from tarp and the fact that you view it as somewhat of $1.6 billion, and this is a proposal to death out collected between $115 billion, the

federal assistance program, it is somewhere around $10 trillion. that is what some experts are saying. every time we put more paper route, it reduces the value of the dollar. if you look at the $900 billion in, to ensure money-market funds, fannie mae and freddie mac, $550 billion for federal loans, to ensure fbi deposits, $300 billion for fha mortgages, the number here is $10 trillion. you're probably going to say that we're going to get some of that money back. the issue is -- we still do not know what the fed is doing. we do not know how many toxic assets the federal reserve has purchase. we do not know how many are going to default.

in the future. so why can we not get in -- access to that information? and if we do not get that affirmation, are we taking a stab in the dark has to the cost to the american taxpayer? >> the tarp program is subjected to an independent analysis about independent loss at least twice a year, and as you saw in my opening statement, the direct cost of that program is in a range of $100 million currently estimated overtime we also right that the government did all whole range of other things and putting out this financial fire. i wrote to the leadership of the congress a few weeks ago to provide our best sense -- updated estimates of losses to these programs, that full set of programs. those losses and actually looked very small overall as measured by independent experts.

the federal reserve programs -- i am not the one to testify on this -- but they are tens of billions of dollars to the american taxpayer, and they have already done so. >> i am glad that you brought that up. you'd think that the american taxpayers should deserve access to that information? to see exactly what is happening at the fed? >> i completely agree and the chairman of the fed has been very supportive of changes that provide more information about the risk on the fed balance sheet. there is an enormous amount of the permission available in the public domain today to allow people to make those estimates. all of those estimates show that the federal reserve will provide the american taxpayer tens of billions of dollars on those programs because it was designed carefully to protect the taxpayer. they're going to show an enormously substantial return to

the american taxpayer, as with other programs. >> i think their number is roughly $10 trillion. without information access, we do not know if you are right or not. >> the virtue of this information is in the public domain. i am sure that the chairman bid -- would be more supportive of more information in this area. i completely agree with you that the american people should have full disclosure and transparency about the commitments still outstanding and the risk on those commitments. >> i do not think that we have that today. we absolutely need it. so we will hold you at encouraging disinformation. i think some of my colleagues will work on the legislative process to get access to the affirmation. otherwise, we do not know what the american taxpayer will get rid paid for. i want to ask you one other question.

you will hear about 90 days ago and i brought up this question about access to capital for small businesses and community bankers at the time you said you -- we should take swift action to help community banks get credit. it is 90 days later and we have not seen a proposal. i think the ninth bank in my state close last friday. small businesses are not getting access to capital. where is the proposal? >> we have been working very closely with the majority leader and his colleagues in the house on tax incentives for small businesses and a small business lending facility to help small banks and an expanded program. that legislation, which has been crafted very carefully over the last five months, i think it is very close to being brought the consideration both in the house and the senate. the majority leader is working with his colleagues in the senate to make sure he can bring that to the floor quickly. i agree with you about the importance of this and at that

time we last book, we had already provided a broad outline to the proposal and we're working very hard to meet the broad concerns of the members of the senate. >> i would say that swift and deft action has not been taken and i am not seeing this proposal although we had very -- various conversations about the challenges. i would be very delighted to see the administration proposal. >> let me be clear -- we provided the proposal early this year. we worked it for five months and we shared it, we have taken a lot of consideration and comments by you and your colleagues. we think we have a strong package of programs and we would be happy to talk through it and make any suggestions about your concern. >> secretary geithner, i want to shift gears with you. we have the financial regulatory reform legislation on the senate floor. as we are holding this hearing, i like to take this opportunity to ask you about that

legislation as we deal with that on the senate floor. it has already been pointed out here in committee in this hearing that the bank tax you are proposing does not apply to fannie and freddie. neither does the bill on the floor of the senate. my question is this -- the public has focused on the taxpayer bailout of banks, automakers, and insurance companies, and we can go through the scale of the support that has been provided there. nowhere has the support been higher than with fannie and freddie. right now we're looking at estimates that ultimately they will cost the taxpayer about $381 billion, the most recent estimate. that estimate may be optimistic. of all the bailouts that we're dealing with, the problem of fannie and freddie seems not only to have been at the core of where we started this, but also is at the height of the cost to the american taxpayer.

and yet last christmas eve treasury announced it was less -- lifting the $450 billion cap on losses and we would see nothing but the full faith and credit of the taxpayer. it is not included in the legislation on the floor of the senate. can you tell me why? >> you are exactly right. we made a choice, given the complexity ahead, that we would not move immediately to propose broad reforms of the future of fannie and freddie. we decided to do this and two phases. we thought we'd get a better outcome, a more thoughtful commitment to reform if we were further ahead in the process of repairing the damage to the housing market. but we have begun a process we laid out the broad principles and objectives, we're conducting congressional hearings, we're looking at alternative proposals, and we look forward to working with you on a strong reform that will fix what is

broken in our housing and financial market. it is not just fannie and freddie. with a lot of things in the housing market that we need to reassess. many of those days contributed to this. [unintelligible] you met a lot of comments about this in the past. there are range of things we will have to change in that process. the bill does to the necessary essential things, that would leave us vulnerable in the future, and it includes the securitizations find that is helpful. but it does not attempt to take on a broader challenge now because we thought fundamentally we get a better support for ambitious reforms if we deferred repairing the very damaged housing markets. >> i understand your rationale but i do not agree. i like to spend more time with you on that. let me ask a couple of quick question. still focus in on the financial regulatory reform bill -- according to news reports,

sheila bair has urged lawmakers to the scrap section 716 of that bill which would force banks to sell off their derivatives businesses. she says that could drive this into unregulated parts of the sector. in her letter, it echoed reservations of federal reserve officials as well. there was a memo that said this would impair financial stability and be highly costly to banks and their customers. could you comment if you agree with sheila bair and federal reserve officials? >> let me emphasize that the package of reforms that relate to the derivatives markets in the bill crafted by she chairman dodd and chairman lincoln is a sweeping, very strong comprehensive set of reforms. it would bring standardized product on the clearing houses. it would force essentially clear products to be exchanged on an

exchange or five trading platform predict what the capital requirements on major swapped participants. it would give toasted the cftc to police and deter fraud and manipulation in these markets. this is the most comprehensive reforms -- a revolution for the markets as a whole. we strongly support a bill that incorporates a comprehensive set of protections and oversight over these more it -- these markets. senator dodd and senator like in a working through this provision -- senator lanincoln are working through this provision and they're working to the -- three concerns. >> you are not expressing your opinion on that today?

>> i have not taken a position on that now, but i would like to emphasize the following basic strategy that underpin this reform process. to make the system more stable, you need to make sure that we're doing a better job of limiting risk-taking by core institutions that are so important in these markets. you would not make the system more stable by taking functions that are integral and essential to banking and separating them and putting them somewhere else. that would create a less able still some -- less stable system, and that basic strategy underpins the entire approach that chairman dodd and their counterparts in the heart -- and the house have brought to the set of reforms. >> i appreciate all the good comments that you have made. i voted against tarp when it came up because i did not think that it was specified what the money would go to.

we kept hearing that it would go to toxic housing things, and it did not. and the money that has been long to the banking industry -- alone to -- loaned to the banking industry, is that where the money was lost? >> you are exactly right. investments that my predecessor made in the u.s. banking system -- and when i came into the office, he had made investments and 75% of the banking system. they are likely to result in a positive return for the american people are likely to make a positive return on the money. we have much money already replaced by private capital. we are still exposed to substantial risk of losses on investments that the previous administration largely made in aig and that the program

president bush initiated, those are the most likely source of further risk going for a brief you are right to point out that in terms of fannie and freddie, they are still supposed -- exposed to substantial risk at all. >> i appreciate that you're trying to put that back on the other in ministration, but we're talking about recouping that money, and not from those that lost the money. that is what is puzzling to me. you're assessing a tax of $50 billion or more in consolidated assets. and excluding the insurance policy reserves. there are a lot of reasons that have been cited as the impetus for the administration's proposal. is it your belief that one of the reasons is that we need to eliminate risky transactions on the part of those large financial institutions? >> know, this is to protect the

taxpayer from losses in part. that is the legal obligation. you can do that a lot of different ways. we decided to recommend to the congress of form of a fee that would seem fair to was, making sure that it was paid in proportion effectively to the risk that you took. if you're conservatively managed, if you paid less. you would pay more with more risk. that seemed a fair proposition. >> i am told that the riskiest loans are those that go to small business. is it the administration's proposal to force these people to avoid these high risk loans? >> i don't think that -- i apologize. for the reason that i said, you pay in proportion to the risk that you tabret the more risky things that are funded and less stable way carry all larger potential burden. this applies to less than 1% of

american and financial institution. for that reason, it is very unlikely to have any impact on the ability of small businesses to get credit at affordable rates from the american financial systems. >> i have some serious concerns about the unintended a potentially devastating effects of the consumer financial protection bureau having on consumers, small businesses, and the general health of the economy. in addition to this, the administration and some members of the senate are pushing to add another burden to debate that will punish consumers, the bank tax, the topic of today's hearing. given the push to add this into the reform bill, how will the traditional tax impact capital reserve for lenders who would be required to increase capital reserves to reduce leverage, and hold a percentage of all loans on the books? >> i think it will have no negative effect on consumers and

their access to credit or small businesses for the reasons that i said. it applies to only 1% of american financial institutions. i think they can afford and handle the burden. you're right to say this can substitute for the additional efforts that are part of the reform proposal to make sure every put in place more conservative leverage requirements, liquidity requirements on the institutions. they are important but i do not believe this carries any significant risk, making it harder for americans to get credit at reasonable rates for the simple reason that it leaves untouched 99% of american financial institutions. >> with that statement, if you are sure that it will not negatively impact consumer credit and availability? >> i am very confident that it does that have the risk. -- that it does not have that risk. if they try to pass it on to the

consumers, then they list -- or risk losing that business to other banks. 99% of those banks are left out. >> i have a question that will follow up on that letter in writing. thank you, mr. chairman. >> mr. secretary, thank you for being here today. there has been some concern expressed about the scope of the proposal and the fact that it covers institutions beyond banks. i want to get parochial, if i can, for a moment. we've heard from some institutions in massachusetts that are concerned that they're covered by the fee, because a small amount of their assets are in a thrift or with a broker- dealer. there is a successful property and casualty insurer. it does not -- its sells auto, homeowners and other property

casualty property -- policies. it does have a small broker- dealer in a small section, and it is limited to product offerings for mutual fund shares, variable annuities, variable life insurance. the broker-dealer does not provide any kind of investment advice to investment companies or insurance companies. it does not buyer sells securities. it does not hold customers' securities are funds. and because of the limited activities as a broker-dealer, it is exempt from securities investor protection and it generates less than $1 million in revenue per year, based on assets that are tied to all retail activity that goes back more than a decade. the question is -- since you have roughly less than 1003%,

but that the included in the fee? >> it would not be covered because the broker-dealer is not a primary dealer. we included primary dealers because they are eligible for the primary dealer credit facility. it would not apply to other institutions that did not own primary dealers or his broker- dealer was not a primary dealer. >> and that would be a clear delineation. >> yes. >> a mutual fund company has a thrift and they did not do any banking activities. they take no customer deposits, made no loans, but they need to have a thrift because they have to customize their 401(k) programs.

the insured depositors are use slope -- solely for trust purposes and not for any commercial investment. is that institution covered by the fee? >> we have not quite figured out how to solve that particular problem. there are limited number of companies large enough to be potentially captured who on what we called depositary institutions but they do not take deposits, really. they have on that institution for trust purposes. -- they have to own that institution for truck purposes. this was not designed to capture them. the board defect we need to clarify that, and should we perhaps just prophylactic leaaly exclude them? >> we would be happy to work with you and your colleagues to

do that. should be clear in a lot that the regulations provide, it should be crystal clear who is covered and who is not. what we're trying to hold to his "i said at the beginning. the firms that were above $50 billion -- will not touch mutual funds at all, but were above $50 billion and were eligible directly for the emergency programs, we think it's a matter of principle they should be covered. i agree with you that we have to clarify about coverage. >> that would depend also on what kind of assets you count. >> and to make it clear, you would not count the mitchell funds. >> if we could continue that dialogue, i know that you will. one last quick question -- in response to ranking member grassley, the cbo indicated that the proposal was likely to increase the availability of credit to small businesses.

can you speak to that for men at -- for a minute? i am hearing from small businesses that they have suffered enough. >> i do not have that report in front of me. let me describe again what our attempted and -- our attempt is. it only covers a small fraction of the american financial system and leaves out most of the institutions to provide most of the credit to small businesses. for that reason alone, we think it will have limited risk of any adverse effect on small businesses. the firms covered what have a choice about how they pay for these costs. they can reduce compensation, they can lower their dividend payments, or they could try to pass it on to the customers. if they try to do that, that would face the risk that they would lose that business because the other more than 99% of the american financial system not

covered by it would be able to come in and take that business away. >> and i know that my time is almost up. you already said that. i am concerned that however works in practice, it may not be that clean-cut. and small businesses may be impacted. i do not know exactly and i want to analyze how cdo came to that conclusion. -- cdbo came to that conclusion. >> we would be happy to work with you to make sure that it is assigned in a way to give us reassurance that it does not carry that risk. >> thank you, mr. chairman. to follow up on my question, mr. secretary, there is a concern from people that will be testifying subsequent to you that it clearly could be an effect. although it applies to only 1%

of the institutions, they hold a disproportionate amount of the assets. if the fdic insures deposits, they may try for those deposits as a way to avoid that tax liability. that is going to come into play for competition for those deposits. that could affect the banks. there could be a potential spillover, not to mention the fact that the overall impact on the economy, there's no way to excess that at that point. isn't that true? it could aggravate the lending supply and the credits applied to small businesses. although it is 1%, it is a true impact because of the size of these institutions that hold a considerable amount of the assets in this country. >> i agree with you and because

of the concerns, we propose to design that the in exactly this way. i would be happy to work with you to meet this obligation in a way that is fair and does not have that impact if you have to look at the alternatives. the alternative ways of doing this would carry greater risks. it would not be fair -- but we would be happy to work with you to limit its risk because we want to make sure we're not making it harder for small banks and small businesses. i quoted in my opening statement that conclusion is said that this is likely to increase market share for small and medium-size bank. that is not the intent of this proposal but that would be a positive effect. the lawyers on what basis did they make that decision? >> only on the basis that it covers a small fraction of the firms in the financial system. if they try to pass on the shared these calls, this is a modest fee.

this is a very small, berries modest fee -- very modest fee. their risk losing customers. that should balance the risk that you cited. in putting the fee on risk, you help reinforce the broad objectives that we have a limiting risk in the system taken by large institutions. that is the benefit of the street -- and a strength, not a weakness, of the proposal. >> that is something we have to be reassured of in terms of the unintended consequences. most especially between the small business sector. they hold 70% of all the assets in this country. that is an issue. we have to be concerned about the potential for spillover. >> i agree about that important objective in designing this in a way that reduces the risk.

i think that our proposal does that. one thing about our financial system -- we have 9000 banks and our country, they only provide half the credit to businesses that businesses rely on, that the economy relies on a whole. the rest of that is provided by the broader capital market. only a very tiny number of the banks to provide that credit are covered by the speed. it is a much smaller share of overall credit provided to the american economy. >> the follow up on some of the questions that have been raised with respect to small business lending and the availability of credit to small businesses, which clearly is a dire situation. nfib released a survey back in mid april that i think is an indication -- if you look at these charts and the optimism and the out given time to expand

-- these are all 25-year lows. that is significant from the standpoint of job creation. we've had to you had a meeting last year, but on this committee, and in your department. the question is -- when? it has been five funds and another the administration has had initiatives out there. why it would not coalesced around an agreement on the small business jobs program? it is really dire. i think the death of the despair within the small business sector and among the american people in terms of jobs, when you think about the longevity of the unemployed now, it began long ago with our respect people are now unemployed, 40% are unemployed for more than six months. that is significant.

when i look at these charts -- this indicates confidence is about as low as it has ever been. that is what they said. i think we all concur -- when we visit main street in our respective states, what are we doing about it? i think this has been a very lethargic effort when it comes to small businesses. everyone talks about it but nothing is being done about it. that is why there is a desperation across the american landscape, and it is affecting on main street. i do not see this impetus to get this done. >> center, we felt very strongly about this, -- senator, we feel very strongly about this. we have a strong range of programs. we have a small business lending

facility that would give capital to community banks across the country. they can use that capital to expand lending. we have programs to the sba that we think will be very helpful, and a special program for states to give the resources to support state programs that are directing to that purpose. i agree that it is time and the senate has been busy. i wish it had not taken this long but it is something the senate had to back on. it requires legislation. it should command strong bipartisan support. >> i hope that there is some energized initiatives on all sides here. we can talk about jobs, jobs, jobs, but it is not materializing. that is why you see a 9.7% unemployment rate remaining static for three consecutive months. not to mention the people who are out there who are unemployed for such a significant period of

time. so when can we expect some capitals blowing from the lending facility? that is something you have been arranging a treasury. for many months now. >> when enacted in legislation, it would be very quick. but quick this program in the market that you can have, -- i think it is the quickest way and it would have the highest return. the potential costs are very modest, and of course we will propose way to cover those costs to be fully deficit neutral. it is a good program, it is time for it, and we would welcome your support. >> senator we're working up with small business legislation with you and senator kerry very quickly.

>> sorry, tom, but i would be delighted to go ahead. i am next on the list and now would be more than honored to address the honorable secretary. and i thank the chair. mr. secretary, thank you for coming. i know you are an extremely busy man. despite your very vigorous assertions, i still have serious concerns that have been brought up by all of my colleagues about this bank tax and its potential impact on consumers and small business. it's the reason i am so terribly concerned, because in kansas we have 66,000 small businesses and they employ over half of our employees. whatever happens or what ever could happen is a big deal.

i understand that taxes targeted at the largest financial institutions and you have certainly stress that. that is where the money is. i am convinced that this tax will ultimately harm small businesses through higher costs for borrowing or reduced access to credit or that the tax will not be passed on and paid for by consumers. i am not going to ask you to respond again because you have done that. i hope your assertions are correct. by some estimates, the bank tax could remove up to $1 trillion in spending. do have concerns the remaining this capital from the system, reducing lending to consumers and small businesses come out will reduce the economic recovery? >> i do not have concerns and if i did we would not have proposed this. i just want to make the following observation. i understand why the institution

that do not want to pay this tax do not want to pay it. and i understand that in making arguments against it, they will threaten grave economic damages to small businesses if they are forced to pay this tax. but we have a legal obligation to cover of a cost of tarp. we have to propose a way that is fair. we are open to suggestions to doing it. but i cannot actually imagine other proposals that would carry less risk of damage to the landing in this country. it is only less than 1% of the institutions -- the vast bulk are not covered by this tax. their competitive position would be improved by this. if there are other suggestions in no way that is more fair, we would be open to them. >> if it does happen, rest assured this committee will be

eager to suggest various ways to you. i don't know about any threats that anyone has been making. that is the subject of another hearing. what happens down the road for tarp? it is set to expire in october for any tarp-related programs that will continue to operate beyond this? >> know, we are putting this program out of its misery as quickly as we can. we're going to return hundreds of billions of dollars to the congress, and used. much lower cost, saving the american taxpayer hundreds of billions of dollars, and that will provide resources to help reduce our long-term debt. >> there is the home of affordable modification program i keep thinking about, $50 billion. what exposure risks does this expose the u.s. taxpayer? if we keep going with hamp, that

is the acronym. everything has to be an acronym. >> it is a terrible acronym, i agree with you. it is a very good program but it will cost taxpayers money. if we ultimately commit the $50 billion that we're prepared to commit, then all of that money will be at risk of loss. >> does that come from the tarp program? >> yes. >> down the road there is another $50 billion worth of exposure. >> it is an existing program that we put in place more than a year ago. we said we would not spend more than $50 billion. that money would be at risk of loss. but this program is providing a very substantial benefit in helping stabilize house prices and helping right now more than a million americans they and their homes with much lower monthly payments. >> in testimony before the committee, neil barofsky

outlined the losses and tarps -- in tarp. we've talked about this a little bit. any plans to recover these losses from those tarp recipients? if so, how would that be accomplished? >> these companies are going through wrenching difficult restructuring plans that are designed to help us recover as much of those investments as possible. i think that ultimately we are going to recover a substantial fraction of those investments, much lower -than expected. they have much higher risk of loss but even end pointing out this being lower than we feared, there still substantial risk of loss, and every six

months from now until any investment is back, it will provide estimates of what the losses are. >> that is why some of our committee members want to wait until 2013. at any rate, i am over time and i would like to submit a question for the record to the secretary. .

mine understanding that most if not all of the banks have bought back their preferred stock. in a number of instances, they will be able to exercise warrants. this involves may be $1.5 billion net gain to the treasury. can you explain how this works? >> we have had roughly $200

billion come back from these banks. all of the major banks with over $20 billion in dividends and proceeds from the sale of warrants. independent analysts look for the return for the taxpayer and this is a very high return. we were very effected in stabilizing the system. when i came into office, my predecessor had investments in banks representing 3/4 of the entire american banking system. we came in and forced banks to get private capital to be paid the american taxpayer so we got the money back at a substantial return. >> the money that was not received, some have not bought back their preferred stock.

have we executed warrants? >> no, on we have a substantial number that have stock outstanding. the additional terms, they have five years before the payment went out. >> it goes up from 5%-9%. we have substantial repayment ahead of us and warrant proceeds. the broad numbers are the most important ones. we have more than 200 billion backing potential dividends. if you look at the fed programs, other treasury programs, those have the characteristics of showing substantial positive returns. the ultimate measure is how quickly do we bring down the

costs of borrowing. the cost of credit to businesses across the country is a fraction of what it was when we came into crisis. even recognizing how difficult it is for businesses across the country. >> talk to us about aig, they sold a large number of assets they recently sold one of their foreign units for maybe $35 billion. do i understand that money has gone to the fed? is there further obligation that they have to the said? >> those transactions have not yet been concluded but when they do they will return roughly $50 billion to the american taxpayer. of course, an aig is undertaking

a series of other transactions that will make sure that we get as much of those transactions back as possible. what is important to emphasize is that the part of a i.t. that took on the enormous risks that brought the firms to the edge of collapse, we have been successful in bringing the fund's down dramatically -- the risk down dramatically. we have been able to step in, reduce the risk, sell the businesses as much as we could. >> we have major reform bills on the floor that have provisions obviously involving taxes and regulation. i am interested in the transparency to american consumers and institutions.

do you believe that a buyer has a right to know that their banker is selling them a product that they are betting against? >> i think it is very important . . r requirements and stronger obligations on institutions that sell products to their companies. we would be happy to work with you on any proposals to make sure we are achieving that objection. >> i filed an amendment on this, you has banks trying to sell products to clients, products that if the banks are betting against without telling the

client that the bank is betting against the product. i would like you to say yes or no weather you think the buyer has a right to now that a product is being sold to them that the bank is betting against. >> i have an almost perfect record, i generally do not endorse them. and i would say the following, i completely agree that firms should have access to information about not just the risky in the investments that any conflicts that might apply in those contexts. >> you share the objectives that the buyer has a right to know. on the question of the buyer having the right to know that a

bank is selling them something they are betting against, you think that they have a right to know. >> on the basic principle that the buyer should have access to information they need to make an informed decision about the risk they're taking, absolutely. >> clearly, access involves knowing that a bank is actually betting against them. people are shocked about this proposition. i happen to think that this is pretty complicated. that is why we give the oversight board a lot of discretion in writing the rules but this is a fundamental in passing the test in respect to basic fairness. i hope that we can work this out. we have done a lot of work together. one other question on the reform package. i think that there is a sense

when you look at the housing bubble, the bad loans, the shoddy oversight, all of the elements of the financial calamity that the country has suffered, there has not been a sense of accountability and oversight needed. under the legislation, you would be chair of the financial oversight council. i would like to ask whether you would be willing to report to the congress and certify each year that their rules of the road on wall street are sufficient to protect the financial stability of the economy. i think it would be helpful to incorporate some kind of certification requirement that would come from you on this issue. >> i agree .

we should also have a judgment whether the protections are adequate. >> i am trying to sort out how they will deal with this. part of this looks like it could impose a unilateral fee on some of our financial institution. >> this is designed, you would

have less c m less risk. you could adapt. we are working closely with other countries where u.s. firms compete with other foreign banks. >> thank you. i want to talk directly about the financial crisis responsibility for the fee payable. we are debating comprehensive financial reform.

and we've set out to rescue financial institutions on the brink of collapse or risk another depression choice but to tell where we can and should prevention any more taxpayer bailout but we need to close the book on last one so people are that we mean what he said. can we can make sure that the taxpayers get every time, real thing: to the legislation. -- to every time that they've paid into the legislation. this is something that we said at the time. this is a piece of legislation that required the president to submit a legislative proposal that recoups from the financial industry and amount equal to the shortfall in order to insure that it does not add to the

national debt. some argue that it should be proportionate to what each bank got. i sat there when many of these major companies called up and said unless you do this, we will be gone. every company should be grateful that this happened and not quibble if they should do this or that. the financial crisis responsibility sends a message to taxpayers that we mean what we say. when the law requires them to pick up the tab for rescuing the economy created by the problems of the financial institution, we follow through and get our money back. there are legitimate details as to the specifics of the plan. the first thing, i think it makes common sense to put this

in the banking bill, in the regulatory reform bill. that is not the majority opinion. i think it makes sense >> i agree with everything you just said about the rationale for the sea have to get it passed as well we lead to the majority. we are open to any suggestion. >> you would not say, i thought that they preferred it to be in the bill. >> of course, we would like it to become law. we want to work with you to make sure that we could in place with the best design possible as quickly as we can. i think that this is a good case of doing it as financial reform.

>> thank you. >> as you noted, the current estimates of the losses are going down, it is 109 billion to 117 billion parent of the purpose of this is to be repaid not simply to impose a new tax. if the losses keep getting lower, would you recommend that the program and early after every nickel and dime is repaid? >> you are right that the current costs are estimated between 100-117. we have built-in some recognition. that is a question that we have to work with you all on to figure out what is fair and

just. we want to reassure people that we will be responsible in repairing the fiscal damage. we think it is sensible to say it is 90 billion over 10. >> what about the inverse? >> that is an interesting question. because the chart did not cover the fiscal loss, we think that it should be raised 90 over 10. >> thank you. >> i was glancing at an article which outlines the imf suggesting that the poorest countries contribute to. it looks like some kind of reserve fund.

it seems that it would be structured on income, profits, bonus payments. and what is our government position on those negotiations >> in analyzing a range of possible approaches to cover the cost, it made two recommendations. they proposed a fee very much like ours to cover the cost of the crisis had. they also suggested that the government would like to consider putting a broader tax on profits against the potential

contingency. our judgment is that we have an obligation to cover the costs of this crisis and we want to meet navigation. the best way to do this is what we have proposed. we did look at a broader profit tax and financial transaction taxes. from we concluded that this was the best made to meet that obligation. >> is there a risk based proposal? >> the imf made two recommendations we are trying to

need a more limited objective which is to cover the tarp. >> we will be enacting laws that will prevent this catastrophe from happening again. you think about all of this, what are some of the areas that we need to focus on to minimize the recurrence of this kind of meltdown? >> the four essential things we have to do in these plans are to protect consumers against the kind of abuse they faced, to limit risk and leverage by the

major institutions whether they look like a yankee or wells fargo or citigroup or lehman groubrothers or whoever can tell whether they look like aig -- whether they look like aig, citigroup, lehman brothers. we want to make sure that we can put them through a formal bankruptcy without the taxpayer being exposed to loss. we think that this is essential to deal with the cause of this crisis and to make our country less vulnerable to future crises. we will face some risk of crisis in the future. with these reforms, we can dramatically reduce the risk and make sure that if people make those mistakes again, they will

not cause this kind of catastrophic damage. >> you said that the tax will cover derivatives off of the balance sheet. how much are the derivatives hall off the balance sheet. is there a footnote reference? how much are they held a fine institution even though they are off the balance sheet? >> the virtue is that they have to disclose every quarter the

risk they have whether it is in derivatives or other types of fancy products. whether they have risk or exposure to those products. they have to have more capital against those risks. >> what about those institutions not covered by the sea? >> what the senate is considering would require those kind of disclosure requirements across the american financial system. >> so, we will not see a lot of off balance sheet problems? >> what happened in our system is people engaged in borrowing money short and taking risks and lending the money than they were able to operate outside of the constraints of regulation. this bill will fix that problem

and make sure that those institutions, regardless of whether they are exposed, they will come within a set of constraints. >> how will these be shown on the balance sheet? >> they will have to disclose the economic risks. this will bring about a very important set of reforms to make sure that that stuff comes out of the dark and is exposed properly, standardized products are essentially cleared. they put the exchange where there is the price recovery. >> what about non standardized? >> there is an important benefit in hedging products for companies that make things across the country.

we preserve the capacity to do that but you have to disclose transparency on those products and that the firms that hold those commitments to hold firm on those. you cannot do this without the capital to meet those commitments. >> how will that be shown on the balance sheet? they will have to show every quarter the risk in the assets whether it is on balance sheet and off the balance sheet. they will have to disclose those>> all right. >> i meant to say enron, not exxon can tel.

there has been virtually no discussion and i take this to be the house proposal could tel. you very much do not favor taxes on banks and income. >> i would not summarily dismiss. we are open on how to do this on a way that is fair and sensible. this would have the additional benefit of not just cover the

loss but also limonene the risk and leverage. the fee we propose would have that benefit. >> would this reduce the american competitiveness? >> we have a legal obligation to cut these costs and we want to do this in a way that minimizes the risk of loss to competitiveness. we want to encourage businesses to put in place a similar fee. i think that is probably true, i cannot be sure that the level playing field objective is best served by a tax on risk. quarks i think new zealand, australia, canada already torpedoed this effort. they will make sure that they stay competitive.

i think that they see some of the intellectual dishonesty of trying to lessen risks. taxation has nothing to do with the risk. gm's filing states that the taxpayers loan and interest rate is 7% and ran in 2015. the filings also lists a loan to gm. they still owe their auto union health plan. in light of the statement that they of the -- that they don't need the escrow fund, can they

use this so that way we are not subsidizing their debt? >> we will be guided by what we think is the best way to recover these investments as quickly as we can with the lease amount of loss -- with the least amount of loss to the american taxpayer. the fdic does incorporate the concept of risk based pricing. this is in proportion to the risks they're taking. this is a fundamentally sensible principle.

this is already in practice in the u.s.. many countries would like to replicate that practice. we have a good chance of getting support. we have an obligation to do what is necessary and appropriate for the american taxpayers. >> if you can pay off a 7% on out there, there's a difference for 27% lawn and a 9%.

you testified last week before the appropriations committee that you had not seen the gm at. in that ed, the ceo claims they have repaid their government on. you know that the taxpayers loaned gm over $19 million. that loan was certainly not repaid in full, have you seen that advertisements since your testimony was the same misleading advertisement? can >> i am not seen that advertisement. we want to make sure that they are not in the position -- who want to make sure they are in the position of running their companies. we have made it clear to lay out the full scope of our investments in these companies. we still retain a substantial share of equity in these companies which we hope to reduce and will reduce overtime.

those investments carry some significant risk of loss. it was president bush and my predecessors who made the judgment to rescue these companies. our obligation was to finish the job. we wanted to do this in a way that puts them in a much better position and we face a much lower risk of loss because these plans were so ambitious. we are very encouraged by the improvement that you have seen in these companies and across the american economy. >> thank you, mr. chairman. thank you, mr. secretary. we thank you for taking the time to come here. thank you very much for taking the time. >> a pleasure to do it, happy to be here. of course i will respond toóó

>> i've made a ligs of some of the purposes i heard here this morning. it could be an additional tax, an over tax to overpay the tarp losses. it's clearly a premature tax. it is a proposal of a back door regular la torry sceem. we support additional and higher capitols but not through a taxing system. the industry's obligation to

pay the tarp was settled by the stablization act. it requires the administration to present three years from now depinning 2013. this program i included in my written testimony is clearly stated. section 134 says upon scompiration of the five-year period, director shall schmidt a report on the net amount on any case where there's a sort fall that recoups that short fall from that service industry we don't know the total size of the loss. it's countier productive for a

economy to take money out of the economy now >> costs are "highly uncertain and depend on economic continues the treasury department also said that the treasury currently estimates that the programs aimed at stabilizing the bank treatment will aim the profit. total bank investments in fy

2009 initially projected to cost are now expected to earn a profit. you reduce lending by a rufle thumb and thus further damage the economy. we'll schmidt additional suggestion that's can and should be done for congress to

schmidt the lending in the round table opinion. that is the single most urgent action congress should be taking action now. i've included some specifics in my testimony. >> thank you. >> thank you members of the committee. i'm president and ceo of the iowa's banker's association.

iowa banks are weathering the economic fall out from the crisis which they did not contribute to the senate is working on regular la torry

reform. it's important and necessary. many work has been learned from the last few years. we should take steps and better manage risk and develop a government housing policy that doesn't result in an undo risk taking. most of all, we should not burden the risk taking. the obama institution or tarp specifically financing. much of our industry has been

challenged by much of our industries, and depleted capitol levels. the tax fee on top of the spiraling cost on top of the insurance fund will further deplete resources to fuel the economy. congressional budget office confirmed the cost of the fee would ultimately be born by fees and institutions, customers and investors, the ceo would also impact the available of small services. we should avoid any policy that dampens job available at this critical toim. in addition, setting a tax sets a very bad precedent. our industry would be much

better protected and consumers better served rather than through tax policy. it's clear, the american taxpayers would not incur loss rather through tarp. although losses are projected in non-bank tarp investments, even these may subsite as the economy improves and we approach a loss assessment date

thank you for the invitation to testify today. >> thank you. my name is james and i do appreciate the opportunity to be here. this is no question >> proponents to implement these would not change. this is particularly true of the tarp, which is the purpose of the troubled assets becoming

a ready source of funds for a non-bank. it's the non-banking part of tarp where the losses are concentrated. the cbo acknowledge that for the most part, the firms paying the fee would not be those directly responsibly for losses realized by the tarp. had the tarp been limited to the banking industry, this would be no losses on that pro

gram, president obama acknowledged this last november when he said "assistance to banks, one thought to cost untold billions is on track to reap billions of profit" the treasury has already received over 20 billion and has earned over an 8.5% return already. it's a very good return by any measure. besides the unfairness. tax would be significant unintended consequences. the pow possess add tax means that 90 billion to 117 billion cannot be used directly for lending ultimately, it's the

owners and baroers often financed by small community banks that end up paying for the tax. there is a broader issue that worries the banks.

it is too soon to know the extent of the lozzes from aig and auto companies. jo given the downward revisions is premature. implementing such a tax now would likely lead to a great are withdraw in such a matter of time particularly given the state of this economy. it's countiered to the efforts of getting the economy going.

>> thank you for the opportunity to present your views. happy to answer any questions. >> thank you. my name is pat bared, i live and work in cedar rapids, iowa. i have spent over 32 years at my company and the life insurance company jofment we represent over 300 legal reserve life insurance member companies in the u.s. representing over 90% of the assets and promeyums. you should know that as chairman from october 2008 until october 2009, which is generally acknowledged as the most difficult of times in the history of life insurance. that experience history bagage,

i don't know but i've got it. >> at the outset, it's important for you to know that while i intend to be very responsive and open, there is still a lack of clarity in this bill as regards how it i am pkts the life insurance industry. to that end, some clarity was provided with the second's comments earlier. had we had the benefit of those comments, i think the remarks probably would have been different. you'll have to give me a little bit of a give on that. before any new tax is impossed, it's important to know and identify what this tax is. releasing the first description of that proposal. at that time, two reasons for

the tax. first the expect the short falls, it's been suggested that life insurancers directly and indirectly, we agree that that industry did benefit from the government's extraordinary action. that argument can be said about many companies, businesses and individuals and industries within this country. however, our industry did not cause this crisis as emphasized, those causing should pay and not those that did not. we all benefited from having a stabilizing financial system. we did not believe life insurance should be identified and recoup the funds. our industry was more of a victim.

aig is a very unique financial group with many different businesses including in part regulated life insurance companies. these businesses constituted large part much more so than any other life insurance group

in the u.s. it was these other financial activities that fell outside and resulted in the role in the financial crisis. these should not and cannot be used as the befrpbl mark for the industry. i have a question to the fundamental fairness within the life insurance industry. this this proposal, insurers are to be included only if the assets should skeed the billion. some insurers may own a bank, theft or broker dealer, most often are very small parts of the total business and for example, in my own company, while we don't own a bank or a thrift, we do ex-ploy broker

dealers for variable insurance products. the total as ets is 1/10 of 1%. the entire aegon would be subject to this tax. like i heard that perhaps certain broker dealers are to be excluded from this. this was new to us today. please take that into consideration. other life insurance may own thrifts. if those are immaterial, we think that should be noted. it should also be noted that we are concerned this bank tax could cause competitive dis torsions on proposing a tax or meet the $50 billion size requirement the joint committee

recognizes these differences and notes among other thing that's those life insurancers will be at a competitive disadvantage as a result. we all understand and participate the action taken to

all aspects of economy. as the senate reviews the senate proposal as the secretary invited you to do, you really need to understand that the life insurance business is fundamentally different. within a risky practice my pe a risk mitigator. we urge you to carefully consider whether it's appropriate police officer impose this tax on our industry and whether our industry benefited or it is worth the potential disruption on resulting unintended consequences or finally other a tax design can be applied at all for the very business of life insurance. thank you for the opportunity to be here.

it is not going to deal with the riskyness of the business at all or discipline whatsoever. let's hear your comment on my question about taxing insurance companies based on the rickiness of their assets. >> i think it is no doubt possible to find some way of measuring risk of assets relative to our liabilities. it's i am pobbling to divorce risk without considering assets and liabilities together. it is possible but in no way can you use a bank model to go

after an insurance company and actually tax it based upon its risk profile. they do not work together. >> you heard me express my opening comments. you heard several members of the committee talk about the possible impact of the tarp tax facting small business lending

in addition, so in addition to any potential tax burden, we would retax which also takes dollars out that would be available for lending. the combination may be a problem. >> how can we help small business. everybody wants to figure out a way to give smaws businesses a break.

jo our group believes that taking actions is the most important thing congress should be doing today and this summer, we regret that this has not been a sense of urgency. we work both with the treasury and with senator warner in particular on a company toll assistance plan that would provide for an enhanced reserve. it's an extra reserve to enhance small business lending.

we believe with a fairly small amount of money, this could provide up to $50 billion in a business amount of lending. they have those funds in place but they are very small funding. they provided 11 specific recommendations of step that's could be taken today by the sba to increase involvement. and third, i must say our companies have taken the step to increase the small business lending. jp morgan chase, $4 billion. u.s. bank is committed to a second, third and fourth look to every small business loan to try to get it right.

we have set up commission for small business owners to a place where they can obtain or find ways to obtain additional lending. we think it's one of the leading issues of the day. >> certainlyly an improving economy helps the small business environment. we are starting to see that happen. businesses are buying from other businesses sch is ab important step. the enhancements you made to the guarantee and fee reduction changes. >> you hear a lot of that too in montana.

we've identified two dozens and ended up making it for difficult with the needs. that's our frustration with this tax. think of all of these not made with a $9 million tax capitol.

i think there's many things. investors are likely to take losses. these stocks are widely held. i was shocked to know that in the day that this was announced by the administration, the largest of banks lost $18 billion in capitol. that's the first impact. it will affect personnel. it mean staff layoff in these banks.

>> thank you. you have all been very, very helpful >> the british election is may 6, c-span is covering the leaders, issues and prospects.

>> it is absolutely loved here. the fact that if you are dangerously sick, someone will look after you and you don't have to pay the bills, that is so fantastic to so many people. another thing for goten is that we do have the nhs, anyone can have private insurance if they want. a small example, my father who is 91 years old. he broke his hip and went to an nhs recovery for four wokes and

was completely healed. you won't have a single voter attacking it. >> a very high proporg of people have their medical treatment. >> a personal reason. he had a severely disabled son that died almost a year ago. gordon brown had a similar situation when he had a firstborn child that lived ten days and was totally unable to sustain herself. there is complete support. the changes are a good way of

putting it. n spending, we have a good period of rapid spending. over all spending constrains and cuts. spending on health will grow. jo can you watch this interview and other british election events on our website on c-span .org. click on the 2010 british elections page. >> i am glad the only person whose rating that fell more than mine is here tonight. great to see you, jay. search it, watch it, clip it and share it on line at the c-span video library. watch what you want, when you want. >> now homeland security second

and mexican interior secretary talk about border security. the brookings institute in washington host this event. it's a little more than an hour. >> i want to welcome our guests and the discussion we'll have this afternoon. as we meet today, the discussion of immigration has been ignited in our country. that debait raises questions as

to how we protect our borders and beyond. secretary napolitano has been busy dealing with the a testimonied possibling in time square and the response to the new immigration law in her former home state of arizona. shortly after resuming office, she asked for a review. already well acquainted having previously served as the u.s. attorney in arizona and most recently as governor from that state. she lead the new strategy. a little more than a year old, this strategy emfieses border security. the goals of this tratgi are to

interact illegal smuggling of goods while supporting these efforts with more effective technology and infrastructure our close relationship with mexico and others taking place everyday means trade security and immigration are a great importance to both countries

>> a friend described her job the head of the plague, political voice lense and you could add low custodies, frogs and anything else that comes to find. for those of you that don't know fernando gomez mont. i asked my's ant to do some research. she handed me some papers sand said, this is one tough guy. she said, the federal government does not dialogue, negotiation or reach deal was any other organization. there is no other alternative but to schmidt to the law. i want to turn first to secretary napolitano welcome

secretary. jo thank you ej. again, my apologizes tore being late. the goal we seek is to have a safe boarder patrol. the joint interest in breaking up the drug car tell in mexico,

which are a violent crime plague in mexico but also have finger tips that reach well within every community in the united states. only by working together are we really going to achieve toes two goals. security and the 20th crenltry border. the united states has and will continue to fund training and funding and other programs through the initiative. we will continue to work with the administration on operational partnerships that make sense and fit into the over all strategy aimed within security and the border regions. we have ex-spanded law

enforcement more than anything i have ever seen before. i bim the u.s. attorney in 1993, i've lived in a boardered state almost my entire life. i grew up in new mexico. after law school rkt i went to arizona. this region is vital. it's something that deserves our mutual attention at all times. wreff entered into historic issues in sharing intell against and felony history information about those being repate reated to mexico. this was not being done before and egs stab lishing the cross border network to be shared on a real time basis. we engaged in a joint

operation, basically the bus companies that transport illegal immigrants and others between the border and we were able to repate reate those back. also working on the issue of the border region what does

that mean? it means that these big land ports people working up from the south and making sure things go as smunally as possible. also harmonizing some of the trade documents. all of which add costs and delay all of which are huge. in both of these areas, security and creating a 21st century fworder in trade, commerce and tour ix.

that is a strength that is really new and reener guysed with this partnership. thank you. it is an honor to appear with you in this institute which has been known for the seriousness of the invest depation and projection of the thinking of american society. >> we have to recognize one thing. we have let the times that we thought a secure brder was a demand of the government. a secure border is needed for poge sides of the border. we are suffering the defects of a border in which arm controls

are filling the voy lense process. we believe finding out the common ground of our responsibility in order to avoid the yim inal prktiss in which is the best way to approach the common responsibility. i have to say though i'm younger than janet, i'm glad we have a level of cooperation on bonal sides, recognizing the need for cooperation and each side of the border in order to reach a common goal that is a secure border that facilitates freight and illegal immigration and is able to fight the dynamics seated from bonal sides of the border. where he believe in this

endeavor, we believe on the side of nationality, there's human right issues we have to preserve and defend because we are both demo cra tick nations that believe in values that should be kept and preserved. we believe that through the law enforcement. we are working in our agencies and in the cooperation that certainlyly in our intensities. we believe this is a positive experience and that the only an best way in which wole obtain a secure border by which we can

can build on progress for bonal nations. jo thank you. in addition to all of the information we have in this room, there is a whole lot of elephants in the room. you just came back from an important meeting in the white house. this was the to o'work of a lot of good law enforcement by the new york police department, the f.b.i. in particular, cusms