karzai earlier today. also acting minister of the director of sscurity and then side planning for the kabulhan conference. we also talked about the parliamentary elections. i know, jazz, and a. i think that they did. >> all three of those? >> yes. and the president karzai meeting, he was with general mcchrystal and ambassador eikenberry. >> did he take part in the meeting with karzai? >> i think that that was a separate meeting of the security council. susan rice was in that meeting. >> they were in the same room

with karzai? can you tell us about the atmosphere there? >> my understanding is that prior to the meeting, general mcchrystal reached out to both ambassador holbrooke and his apologies for the article. >> what does this building make of the comments that have been so widely discussed? >> i think our focus is on the ongoing strategy. as robert gibbs just said, all members of the national security team feel that general mcchrystal has made us sit in it -- a significant mistake. he will be coming back to rescheduled meeting but thee president on afghan and pakistan policy. >> what does the secretary make,

if anything, that she appears to be the only one on the senior national security team that comes out looking good from the mcchrystal comments? >> she as every member thinks that german crystals at all. she presented the presideet with her best advice on the strategy options. she has read the article and she offers no particular comment. she has noo spoken to me about it. >> given the fact that so much of the strategy is on the civilian-military integration, both working hand-in-hand to clear the area and also build up and bring in the government, what does it say about the fact3 commander on the ground there has such a negative impression of his civilian counterpart and can barely looked at him?

>> look, this is a very strong team. they do work effectively together. they are focused on both the military and civilian components of our strategy. that is why ambassador holbrooke is there this week. that is why ambassador eikenberry works on a daily basis with general mcchrystal and his team. everyone is focused on their respective asset -- aspects of implementing the strategy in doing the best we can in marjah, kandahar, and other places to help them improve their capacity. and any time in a significant team of heavyweights, you will have personality and we do not want this to distract us from our focus on the mission. >> you said that they were focused on the civilian and military, but your strategy is

to work hand in glove. can they do that? you think he is weakening our hand? >> from the department standpoint, here we have assembled an integrated policy team focused on the civilian component of the afghan strategy. ambassador holbrooke has immediately available to him a range of military officials, international officials, state department, usaid, advisors from outside the government. this is what characterizes the teamwork. we're not going to get distracted by this one article. it has not -- whatever attitudes are reflected in that article have not inhibited us from continuing to focus and steps that -- since december on+ implementing the president's strategy in afghanistan. >> so the ambassadors think that they can work together with

general mcchrystal to implement the strategy? >> we are focused on our lane, the ciiilian component of the strategy. the president is going to have a meeting with general mcchrystal tomorrow. the secretary will be attending the national security team meeting. as we review progress and issues on both the afghan side of the ledger and the pakistan side of the ledger, we are focused on the substance and the strategy, and we will let the other issues take the wrong course. >> late this afternoon, president obama briefly mentioned his meeting with geeeral mcchrystal on wednesday. >> general mcchrystal is on his way here. i am going to meet with him. secretary gates will be meeting with him as well. i think it is clear that the article in which he and his team appeared showed poor judgment.

i also want to make sure that i talk to him directly before i make aay final decisions. that is, but let me make one last point about thhs. even as general mcchrystal is on his way here, i want everyone to keep in mind what our central focus is, and that is success in making sure that al qaeda and its affiliates cannot attack the united states and its allies. and we've got young men and women there who are making enormous sacrifices, families back home who are making enormous sacrifices. and so whatever decision i make with respect to general mcchrystal or any other aspect of afghan policy is determined

entirely on how to make sure3 justifies the enormous courage and sacrifice that those men and women are making over there and ultimately make. i know secretary gates feels the exact same way. all right? thank you. >> you can read the "rolling stone" aaticle online by going to c-span featured links. the article entitled "the run general to be called to the white house on wednesday for a one-on-one meeting with president obama. in a few moments, house majority leader steny hoyer says that taxes may have to be raised to control the deficit. in 45 minutes, the treasury secretary tim geithner testifies about 75% of the tarp money being repaid. is briefing on the gulf oil spill.

>> starting monday, watch the confirmation hearing for supreme court nominee elean kagan. watched replays every night on c-span2. get c-span/this book, "the supreme court." it provides unique insight about the court. it is available on hardcover and as an e-book. >> of a couple of live events to tell you about tomorrow on our compaaion network c-span3. interior secretary ken salazar is on capitol hill to testify about the reorganization of the minerals management service. that is at 11:00 a.m. eastern. at 1:00 p.m. eastern, they continued to work on the financial regulation bill. [applause] >> thank you very much.

i'm appreciative of that introductionn they're setting up more chairs over here if you want to come over here. i will wait while you transition from my left to your right. depending on what your perspective is. i want to say how pleased i am to be here. i am particularly pleased to be here with you. bob and i have worked together. bhatt dixie, the leader of the coalition, an extraordinary gap. and david walker, i congratulate him on the work that he has been doing not only in its present position but in his prior position, where he brought it clear and honest analysis to some of the issues that were concerning our country, particularly from the fiscal standpoint. this month, a gallup poll asked americans to name the greatest threats facing our country.

two answers tied for the top choice. one was terrorism. the other was debtt this is a remarkable moment in our political history. a time when our creeping fiscal danger of barn $9 trillion of publicly held debt troubles americans as much as the prospect of the most brutal attacks on our country. with an ever, americans understand the danger of debt -- a staanant economy, all hoobled government, and a weak national defense. more than ever, it is possible to imaaine a government with nothing left to spend on educating our children, on securing our borders, on conducting the ggoundbreaking research necessaryyfor our health and economic growwh. more than ever, it is impossible to imagine that -- it is possible to imagine a government of, by, and for interest payments and entitlements. debt is a part of the political

landscape now. ted will not be ignored, but -- because of there is one thing we understand in washington, it is political incentives and imperatives. the real question is how we respond to those incentives. phere is the easy way -- clip slogans about spending, solutions that are more about winning political power than confronting the scope of the problem, and answers borrowed from decades-old dogma instead of from a hard look at the reality. and then there are he correct ways. the correct way starts by recognizing that our problem is structural -- the product of a generation worth of easy decisions. our problem is nnt about the short-term. so when the heritage foundation wrote in response to my last fiscal speech, that "is congress is out of control spending which is causing major deficits," that kind of language makes for good attack ads, but it has little

basissin reality. it ignores the effect of massive, regressive tax cuts, to debt-financed wars, a catastrophic recession, rapidly escalating entitlement costs, and that 2008 emergency response that both republicans and democratic economists agreed was necessary to stave off coleco -- collapse. and if out-of-control spending refers to the recovery act and other jobs programs that are responsible for more than 2 million jobs and only small fraction of our deficit, i would ask wwat the alternatives were. one alternative was to do nothing. economists noo know, in millions more out of work, gdp growth up to four points lower than it has been, and even deeper recession, lower revenues, and as a result, bigger deficits. another alternative was to make

tax cuts an even larger portion of the recovery act, 33% of which was already comprised of tax cuts for families and businesses. of fact little known to taxpayers. but whether we are spending or cutting taxes, creating jobs in a recession means adding to the deficit in the short term. it is what every industrialized country did in the face of global recession, and it would have been a dereliction of duty not to do so. it is an excellent measure of someone's seriousness to see whether they point their figure -pit so-called out-of-control spending in this congress, or whether they face the real danger to our future -- the structural deficit. all were reacting to short-term deficits while we're still feeling the effects of recession will send our econnmy back into a tailspin in my opinion, ut even more americans out of work, and increase the

very deficits we're trying to reduce. it is the mistake president roosevelt and congress made in 1937 when we prematurely cut off recovery from the depression, and is a mistake we must not repeat. for the sake of millions of americans who are stopped struggling, job creation must obey congress's top priority. the american ublic says that and we believe that in the congress. but we have seen resistance to more justifiable efforts to create jobs with unpaid spending, and even to keep teachers at work educating our which justified, about our deficit. and many members of congress agree with the "washington post ," when it argued in an editorial just this week -- "we would find the stimulus-now, spinach-later argument more creddble if its advocates gave some hint of where the long-term

built-tightening will take place." i agree. an excellent way to build -psupport for the job creation e still need is making credible ann detailed plans to tackle the long-term debt. so now was the time to start talking about the solution to a structural deficit, one we will be ready to put in place oncee the economy is fully recovered. unfortunately, we can blame our long-term deficit on politics that are almost universally popular. we are lying to ourselves and our children, however, if we say we can maintain our current levels of entitlement spending, defense spending, and taxation without bankrupting our country. it would be easy for a cynic to say that we will never touch those policies until a crisis forces our hand. some would say, of course, that the crisis ii at hand.

in any event, we must prove that cynicism wrong. this congress restored the pay- as-you-go law, which prevents us from forcing our children to pay tomorrow for the programs we like today. under president clinton, paygo helped turn historic deficits into our record $5.6 trillion 10-year surplus, and combined with economic growth, it can move our budget in the same direction. now, jim, i'm going to take questions at the end of my speech. let me say that i did not know you're going to do it. let me say some people you did not mention. john boehner said, how does this crrate new jobs? there's no real stimulus here. dick armey "it is not a recipe for more jobs, all of this for the hall profits of deficit reductions for lower interest

and has been pointed out by jim, economist armey was wrong on all countss combined with economic growth, it can move our budget in the same direction again. some have criticized paygo o!or exempting the extensions of current policy on middle income tax cuts, the estate tax, the alternative minimum tax, and the doc fix that helps seniors see their medicare doctors. i understand that criticism, but -- but it neglects the fact that a paygo law without those exemptions would simply be waived again and again and would become toothless. congress has to face current -- strong political pressure to go even further than the current policy exemptions in statutory paygo allow. simply enforcing paygo as it now stands, let alone taking paygo

further, will continue to face strong challenges from both sides of the aisle. it is essential that we move from the attempt -- from the temporary extensions to permanent solutions, but we cannot consider those solutions without taking into account all long-term fiscal challenges. firm -- permanent solutions for the estate tax, amt, and the doc fix it should be devvloped in the context of he broader budget agreement that i will discuss shortly. and as the house and senate debate what to do with the expiring bush tax cuts in the coming weeks, we need to have a serious discussion about their implications for our fiscal outlook, including whether we can afford to permanently extend them before have a real plan for long-term deficit reduction. at a minimum, the house will not extend the tax cuts benefiting taxpayers of incomes above $250,000, despite some ssggestions n the senate that -pthey be exxended along with al other bush tax cuts.

as cbo director doug elmendorf recently warned, extending all of the bush tax cuts without making any other changes in policy would put us on a path toward a publicly held debt equal to 90% of gdp by the end of the decade, and unsustainable dangerous debt. territory, he said, that is unfamiliir to us and to most developed countries in recent years. democrats have also been wrongly criticized for not sticking to paygo's promise. paygo often means sayinggno to policies we like, and for that very reason these decisions on often reported. they are like the dog that did not work. they are all the bills that never see the light of day because we cannot find offsets for them. they are the decisions committees make to scale back the policies they want to fit within the savings that they can

find. as majority leader, i see the impact of paygo every day, in ways that are not always apparent to others. every day members come to me and to other leaders with bills they want to bring tt the floor, and every day i ask, how are you going to pay for it? every day we say no to more spending. for instance, in the american jobs, closing tax loopholes, and preventing outsourcing act, we found offsets for many items that were iiitially advocated as deficit spending -- including agricultural disaster relief and tanf supplemental grants, because paygo requires us to. another example of the power of paygo is the way that the bush and obama administration's preated health legislation. president bush let paygo lapse and then signed a prescription drug bill that is -- that added an astounding $7 trillion to

our long-term unfunded liabilities. but president obama refused to finance his health reform bill with debt. and as a result, the congressional budget office tells us thaa it will significantly reduce our future deficit. some claim that those savings are imaginary. i know my good friend dave walker has some concerrs about them and i think they are correct concerned because we're concerned that congress will cave to pressure and revoke the bills cost-cutting provisions. that is a risk that we must avoid. but the people making that argument are also the very same people bringing the political pressure we're supposed toobe afraid of. they are the same people who complained about out-of-control spending, and then turned around with the false and demagogic claim that we were cutting their medicare benefits. critics of health care reform simply cannot make both of those attacks and remain, i think,

-pintellectually honest. the house also passed two important bills to reform defense procurement. one to cut unnecessary spending from weapons acquisition, which president obama has signed, and one to cut it from contracting, which is awaiting action in the our defense leaders including secretary gates have repeatedly pointed out that paying for programs we do not need only makes our country weaker in the long run. our defense spending cannot be above careful scrutiny and pnalysis of alternatives. in an important speech last month, secretary gates drew from the legacy of president eisenhower who held that the united states could only be as military strong as it was economically dynamic and fiscally sound. [unintelligible] i am going to answer questions at the end. he went on to lead, the proverbial wall had been brought to our back. as a result, all the parts of

our defense establishes must, and i quote him again, "take a hard, unsparing look at how they operate." any conversation about the deficit that leaves out defense spending is seriously flawed before it begins. now the easy way of cutting debt would point to all of these steps and declare victory. the correct way, however, would be to it meant that we have barely begun. that is why the house is working to adopt a budget enforcement resolution written by chairman john spratt which will set limits on discretionary spending that require further cuts below the president's budget, reinforce our commitment to paygo, direct committees to identify reforms to eliminate waste, duplication, and inefficiencies within our jurisdiction, and endorse the goals of the president's bipartisan fiscal commission, and reiterate the commitment to vote on the commission's recommendations. this budget enforcement resolutionnwill enforce fiscal

discipline in the near term works on a long-term plan to get our country back to fiscal health. it is not possible to debate and budget until we have considered the bipartisan commissions deficit reduction plan which is expectee in december. i believe that congress muut take up and vote on the plan. to share sacrifices fairly, and to be politically viable, the commission's proposal can only have, in my view, one form -- an agreement that cuts spending and looks to revenues hen the economy recovers. on the spending side, we could and should consider a higher retirement age, or one pegged to life span -- more progressive social security and medicare3 net for the americans who need it the most. we also need thh in-depth scrutiny offdefense spending that i have alluded to it that

secretary gates has demanded. he has urged congress to stop funding additional c-17 cargo planes and an extra engine for the f-35 joint strike fighter to fight the rapid cost inflation and escalation of military benefits, to ones -- to cut unnecessary weapons systems, and to trim the overhead thaa makes up more than 40% of the defense budget. whill his prooosals have met with controversy, i wish more of us in public life were as honest about hard budget choices as secretary gates has been. i am also glad that chairmaa ike skelton is directing the house armed ssrvices committee to scrutinize the defense budget for cost savings. the savingg in front of us deserve a careful look and a thhrough debate, but that there that if we cannot decide what we can afford to do without today, we will be forred to make much

more draconian cuts in the years to come. of course, we must conduct such a review with the intent of maintaining -- and i emphasize -- a strong and sufficient armed force to deter and defeat aay enemy that puts our nation and our people at risk.+ we can and must do both. raising revenue is part of the deficit solution. when president clinton did so in 1993, he faced predictions of disaster, which gm has reaa you and i reiterate, but he helped to unleash historic prosperity and budget surpluses from our country, and he did it without raising spending. i am glad that president obama has made clear that everything, revenues included, should be on the commission's table. i am also glad that some of my colleagues in congress are talking seriously about simplifyiig the tax code to raise revenue more fairly and

efficiently and increase economic productivity by cutting time lost on tax preparation. why am i so sure that a spending-and-revenue compromise is the only plan that has a chance for succeeding? because a spending-only plan has been on the table for more than two years. is republican congressman paul ryan's roadmap, and it was introduced originally in may 2008. even though i strongly oppose some of its severe medicare cuts for seniors, i have praised and continued to praised congressman ryan for being the only one in his party to offer a solution equal to the problem. but what ave we heard from his own party? crickets for two years. the republican party has run away from paul ryan's plan, even though you expected to rush to embrace a proposal based on spending cuts. as the caao institute's michael

tanner observed last month, and i quote, "the right and road mmp is a test, and right now the republican party is failing." nevertheless, i am still hopeful that we can reach a balanced solution -- in large part, because we have a history of success to draw from. in the 1980's, president reagan and speaker o'neill agreed -- to agree on social security reform. reagan and chairman dan rostenkowski agreed on tax reform. in 1990, the first president bush agreed with congressional -pdemocrats on a compromise to raise thh top marginal tax rate and cut spending. three years later, brennan clinton enacted a similar spending and revenue agreement, even though republicans unanimously said no. spending fell from 22% of gdp to 18%, revenues rose from 17%

to 21%, and the reagan-bush deficits were eliminated. president clinton and speaker gingrich also took our country in a more fiscally responsible direction by agreeing on the reauthorization of paygo. so let's not pretend that what i am proposing cannot be done. it was done within a lifetime of every member of congress. now? there two political factors we ought to worry about. one is superficiality -- the eagerness of so many to blast spending in the abstract without offering solutions that come close to measuring up to the size of our challenge. consider it the republican you cut program. they have an attractive new website on which thee solicit votes for ideas to cut paper-

thin slices of the budget. i agree that every dollar counts. this consideration is not without some merit, even when w3 debt, which was the size of the first youcut winner. but unlike their budget leader paul ryan, this partisan gimmick is emblematic of the way most republicans have behaved in the sound policy.oundbites, not we have hard choices and fiscal discipline to face, and pretending that a series of small items will even put a deet innthe real problem is just the false impression of real action. where were the fans when the house voted to pay for what it buys? there a wall. -- they were awol.

and where will they be when it comes time for the politically painful vote that has the power to reverse our slide into debt? hopefully they will have the right -- the courage to do the this set the political factor we have to struggle with is the legacy of the supply-side dogma. conservative economics used to be in touch with fiscal reality. remember that even reagan raised taxes in 1982, 1183, and 1984. today ronald reagan would be kicked out of the republican party.+ he and bob bennett might have a partnership. conservatives abandoned tte first president bush after the suucessful 1990 budggt agreement that was part of the reason we got the surplus, the budget agreement in 1990, the bill of 1993, and the 97-98 agreement to reauthorize and continue paygo. for the same reason, anti-tax

tax crusader grover norquist said this about the possibility of a budget compromise. "at some point cooversations about unicorns are tedious, because they do not exist in the real world. budget deals where they actually restrain spending and raise taxes are unicorns." i'll only say that a budget agreement is entirely possible between two parties thaa look at reality as it is, not to the prism of 30-year-old ideologies that lead to defeatist falsehoods like "budget deals do not exist." as i pointed out to you, they have existed to good effect. the good news is that after three decades some on the right are rralizing what supply-side has accomplished in reality.

the administrations most committed to regressive tax cuts -- the reagan administration and the bush ii administration -- left onservatives with bigger government and left all of us deeper in red ink. as kevin williamson wrote in an influential walarticle in the "national review," "task has denied that is out of the spending pickle, and the growth is not going to make the debt irrelevant. you cannot starve the beast if the chinese and the bond markets keep lending him bon-bons by the time." even alan greenspan, who rationalized large tax cuts to avoid the supposed danger of paying down the debt too quickly, and does anybody remember that deep concern that we had about paying down the debt too quickly? well, the certain -- the bush administration certainly saved us from that lternative.

they acknowledged in the "wall street journal" this month that that policy helped wipe out the surplus and led to higher interest rates. that is the kind of honesty we all need to show if we want to head off a crisis. and slowly but surely, that honesty is spreading to congress. this month, senator george voinovich candidly so that republicans cannot sign norquist's anti-tax pledge and take on the debt at the same time. that was not a democrat. that is the steny hoyer. that was senator george voinovich of ohio. interestingly enough, what do governors have to do? they have to make real decisions because their decisions have senator voinovich was absolutely correct. that pledge is inconsistent with the oath of office that they took when they became members of the united states senate.

that is what george voinovich concluded and i agree with him. and it is becauseei take my own oath so seriously that i take our common danger so seriously so i want to end with this image. there two clocks. one of them is counting down the time to our debt crisis. the other can wake us up to see are such a wage and as it is, not as we wanted to be or as our ideologies saa it should be. and the kind of country that our children, that my three daughters and my three grandchildren, and my own brother will inherit, and what they will live in -- growing or stagnant, on the rise or in decline -- depends on which clock goes off first. we can keep making easy choices and hoping that the ccisis

clock just keeps ticking. but sooner or later, if that is what we choose, there will be a time when we find that we ave hardly any choices left at all. we must have the courage to avoid that alternative. i want to congratulate third wave for the leadership that they have shown. i want to congratulate those of you in this audience who continue to raise your voices and make sure that we make the hard choices so that when my children and my grandchildren and my great granddaughter has heard national security, has her natural disaster, has her health crisis, he and they have the money and the ability to that is as much a moral issue as an intellectual issue.

but as hope they look back on our generation and say, of and what they were up to the task." thank you very much. [inaudible] >> of leader holier has a few questions from the audit. >> i appreciate the comments [inaudible] >> your continuing to escalate the war and on the taliban off the hook with the emergency supplementals. how could those have slipped your mind? >> your assertion that they have slipped my mind is incorrect. having said that, frankly,

members of our caucus, david obey in particular, has indicated that they are not slipping our mind but we ought to consider that. expenditures cannot be off the table. no expenditure should be off the table beccuse ww know that a decade from now or three decades, as much as we hope for catastrophes not happening, and national security problems not happening, history shows is thaa we need to be prepared. one way we need to be prepared issto be fiscally sound in our treatment today of those issues. frankly, president bush and those in the white house concluded that the efforts internationally. costas, as you recall, $60 billion. we are now in excess of $1 trillion in iraq and afghanistan combined, and certainly they

need to be computed within the context of paying for things. in fact, as you know, and their people in the united states and republicans in the united states senate and democrats who oppose talking about that objective. i think that that needs to be on the table. >> let's go over here in the front. [inaudible] >> iithink the administration at present is very concerned about the deficit. the president has taken three very concrete, direct steps. first of all, he made it very ccear early on that he was for reinstating statutory paygo. we support that and work toward it. he also indicated that he was in favor of a commission. we could not get that done statute torelll.

ironically, because many of the republicans who said they supported it and some democrats -- the republicans who had told judd gregg some they supported it, and of not supporting it. we did not get a commission -- a formal commission appointed which would have statutory authority. the president did what he could do by executive order to create the commission. thirdly, which as you know to reach a substannive recommendation, we support those recommendations and the united states senate. i hope united states senate deals with them. and that they pass them, the speaker and i say that we will put those recommendations on before the house of reppesentatives, which i expect before the end of the year. thirdly, the president sent down to the congress a budget that

was as freezing non-defense discretionary spending. fiscal discipline and thistle -- fiscal responsibility is a critical part of thiss administration. whether or not mr. orszag is the director of omb arr not, i think the policy of the administration will pursue this goal -- fiscally responsible alternatives. >> you worked on deeming resolution? to what extent has there been completion about spending levels between the wings of the party? and what other extraneous items will be on that one? >> we're close to reaching agreement on levels that can be supported. and i'm hopeful that that is the

case and i hope that we will pass a budget and resolution before we break for the july 4 break. >> why is it that a lot of discussions, there seems to be something which is overlooked, the fact that wall street has created a huge burden on the government? i think it has been a clear impediment but paulson that the treasury, and geithner continues the bailout. i find it quite distasteful that one of the immediate things that we say needs to be cut are entitlements, when clearly wall street could use some austerity if we're going to have a surplus, there has to be an economic recovery, which means systemic regulations in the system. and i think we need to return to things like glass-steagall, one3

to get through. >> let me say that we're pursuing vigorously regulatory reform. i expect that to be on the floor prior to us leaving before the july 4 break. i'm very hopeful that we will have very significant regulatory reform packages sent to the president. it is clear -- my iew is that that to date -- the two major phases of the bush administration with fiscal+ irresponsibility and regulatory neglect. we saw that in the financial community. we are now seeing and what the oil spill. -- seeing it with the oil spill, which is in part due to extraordinary negllgence of bp and as well the netherlands --

the negligent -- the negligence of regulators that failed to act. i want to talk about the pattern of regulatory neglect that have talked about over the last 30 years, about how government with the problem and ought to get out of the way. those who had that promise now are saying that government should get into the way and make sure that regulations that have been dopted or if we need more, are being enforced. [inaudible] do you think that that is accurate? >> paul olcker was in my office last week. we were talking about regulatory reform, not the budget for the deficit, for said -- per se.

we discuss the issues of debt level, a debt load that a ccuntry could carry with that danger. his observation was that he was not sure where that number was, butthe was sure that we were gettinggpretty close to it, and we needed to exercise the ddscipline that i have discussed. what we did not get into your specific question, i do not think there is any doubt that paul volcker shares the view with many economists -- and let me make it very clear, i think i said this in the speech but i don't want anyone confused by this -- in the short term, we cannot stimulate and the press at the same time. that is not only counterintuitive, but i think it will not work. and therefore in the short term, i still think we need as i said in my speech to ensure the growth of our economy. as they said the of the day, and

many agree, you will not solve that that is a problem if you do not have a growing economy, period. no matter what we do, you cannot cut yourself to a balanced budget. you're going have to have a growing economy. if that is true, that is essential and on -- a sine que non. we set the environment to explode our economy. that will release revenues. that is the key. i personally believe the recovery and reinvestment act was absolutely critical step to take. had we not taken it, this deficit level might be higher, not lower. >> right here. >> dave logan, brookings institution. in a report by a goldman sachs,

they found that the vast majority of this book consolidations consisted mainly of spending cuts in addition to some tax revenue hikes. but those physical ponsolidations happen almost unilaterally after a change oo government. what your thoughts on this congress and this administration's courage to step in and make some cuts that may be lmost universally viewed as an unheallhy or unwanted? >> let me say, i do not want the parts words with you. -- to parse woods with you. frankly, walcott's are certainly appropriate, and as we look at cuts, what is critical is restraint. of growth, which cbo says this

is the raw, this is the level of growth, this is where we will be. my view is that we need to restrain significantly some of the growth of our spending. secondly, whether that is entitlements or defense or other areas of our buuget. secondly, let me say this. i had been in congress for 30 years. this is my 30th year. i guess 29 years and two months. i have served 20 of those years with a republican president. every year that i have served with a republican year, every year, without fail, there's been a budget deficit of significance. only bill clinton -- nobody in this room that i look around was alive when another president

had four yeers of surplus. is hat a trail will slowly to -- solely to bill clinton? it is not. we had grooth. in the 1990's we went past the world pretty quickly. we have our entrepreneurs private-sector growth. if we'll look at a president, the only person who can stop spending in its tracks, only the president. i cannot stop spending in the track. people voting with me, i can do it. in the case of the senate, you need 60, 59 other centers -- senators but n with him. but the president and stop spending and its track. no president and that 30 years i have been in congress has had

veto overridden on an appropriation bill to spend more money. if the bill -- the only bill i remember being overridden was ronald reagan, when he sent back in 1983 of bills it -- which it you're not spenddng enough on defense. that was overridden pretty handily. >> let's take one my question back here. -- one last question back here. >> good to address [unintelligible] raising the retirement age? >> how did you preface that?

[unintelligible] >> lower income people? thank you, i'm sorry. as i said, in my speech, i hope that you got that, was i think we need to make sure that those who are in most needed are protected. as we look at entitlement programs, we also look at entitlement programs in he context of assuring those most in need of the entitlement help getting at. that is why talk about in terms of progressivity, which is controversial and i understand that. some people said doonot say and i said it. there you go. in any event, i agree with your premise in making sure that those most in need are affected

positively by and talk about its are not adversely affected by any reforms. let me thank third way for giving me this opportunity. ann thank you for being here and covering this issue in the sense that it is a real, important issue that must be dealt with now. and for those of you who are advocates of ddaling with this challenge now, whether in the private sector, academia, or any other court. thank you all very much. >> in just a few moments, treasury secrettry timothy geithner testifies thht nearly 75% of tarp money has been repaid. and a little more than two hours, admiral thad allen's of

briefing on the gulf oil spill. after that, reaction to a "rolling stone" profile of general stanley mcchrystal in which he criticized president obama and other in ministration official. our coverage includes the white house briefing and president obama's commons late this afternoon. one all washington journal" tomorrow morning, we llok at the future of afghanistan commanded stanley mcchrystal. he is meeting with president obama wednesday about his criticism of the administration in a magazine article. our guest is james kitfield of the of the national journal." more from john shattuck, a member of the energy and commerce committee. and then we will be joined by ed schultz to talk about his book, "killer politics." washington journal is live on c- ppan every day at 7:00 a.m.

eastern. >> c-span -- our public affairs content is available on you can also connect with us on twitter, facebook, and youtube. sign up for schedule alert e- mails at c-span.org. >> treasury secretary geithner testified tuesday to a nearly 75% of tarp funds alone that the banks have been repaid. panel for the fourth time. this is a little more than two hours. >> the hearing of the congressional oversight panel is called to order. we appreciate you coming here to

testify for the fourth time. since your last appearance here, the panel has issued six more reports, bringing our total to 20. our latest report has covered a great deal of territory, from the government's intervention in specific companies such as aig, and its broader efforts to shore up entire markets such as small business lending and housing. the first of our reports reflects your ambitions. has launched at least a dozen distinct programs to address different aspects of the financial crisis. it seems clear that these efforts have had an important impact. markets have calmed greatly since the turbulent fall of 2008. but the size and scope of these programs also reflects the variety of severe strains on our financial system. about 3000 banks, six of our largest financial institutions, are dangerously exposed to the faltering commercial real estate

market. many more banks still have not digested the toxic assets and mortgages on their balance sheets and are facing new demands to pay off bad mortgages they sold to fannie and freddie. the financial problees of these banks are straining their ability to lend to the small businesses that might otherwise be driving an economic recovery and reducing unemployment. and finally it seems clear that treasuries efforts to deal with mortgage foreclosures is not working. as part's in date approaches, this panel must know whether treasury has carefully monitored the financial ystem tim assess potential risks. we must always of our way -- we must also evaluate whether treasury has diligently meassred the impact of its efforts, using credible metrics to evaluate the success or failure of its programs. has treasury administered tarp with the highest possible degree oo transparency and accountability?

reasonabll people may approve or disapprove of your plan to stop foreclosures, but no one should be measured against a clear benchmark for success. it treasury has provided no such benchmark. reasonable people may define a "financial stability" in different ways, but everyone agrees that we can best gauge that stability by rigorously meaauringgthe conditions of our banks. the treasury has refused to call for additional stress tests in our financiaa system. about how to help small businesses gain access to loans, but no one doubts that the -psolution must begin with a clr understanding of the problem. if treasury has gathered only sparse data on the small business credit crunch. so the plant -- so the point is blunt -- without more candid data on bank stability, commercial real estate, small business lending and home mortgage foreclosure efforts, the shape and depth of the risk facing our economy remain

hidden. and without more willingness to separate programs that have worked from those that have not, it is not possible to build the best defenses. the problems in commercial real estate, small business spending, and home mortgage foreclosure grow more urgent by the day. in only three months your office will lose the capacity to substitute better programs for those that have failed or to develop new programs to deal with coming risks. i will be very glad to see tarp end. but i realize that time is running out to make certain that we have used this money to assure the stability of our financial system. time is also running out to make certain that tarp money is also used to help families and small businesses the way it was so quickly used to help wall street. before we proceed with the secretary's testimony, all alike offer my colleagues on the panel an opportunity to make their own opening remarks.

mr. mcwatters? >> thank you, professor one. i very much appreciate the atttndance of the secretary now look for during your testimony. it is my hope that secretary geithner will assist the panel interesting question, including the following -- is treasury contemplating the allocation of additional tarp funds to any new programs? or the allocation of additional tarp funds to any existing programs? his treasury contemplating the allocation of tarp funds to any financial or non-financial institutions such as aig, citigroup, chrysler, gm, or gmac? will the taxpayers group -- received repayment in full in cash of their investments in these institutions? what is treasury's exit strategy but these institutions as well as the other part

recipients? as tarp enshrined into our law the concept of too big to fail? have they installed an implicit guarantee from our federal government? will the pending financial reform legislation ratify and standard?e implicit guarantee . treasury yet again allocate additional funds to goldman sachs, citigroup, bank of america, and a group of other significant firms if they notified treasury today that they were experiencing a severe liquidity and solvency crisis? how would the answer change if the date approached treasury and the new york fed after the financial legislation is enacted? would the ftse liquidate these

institutions -- would these institutions be liquidated? is this not what we were told with respect to goldman, aig, citigroup, bank of america, among others, that simply certain institutions were too big to fail, and couud not be permitted to liquidate? is a resoluion of 0 included in the pending inancial reform legislation -- is the resolution included in the pending financial reform legislation, dressed up? aig was regulated by approximately 400 regulators. most professionaas completely missed the best systemic risks that were percolating. how will the addition of a

systemic regulator proposed under the pending financcal reform legislation help to solve this problemm where did treachery, the fdic, the sec, and the cftc expect to find these super-regulators who are competent to call out systemic risk that others have missed? even though systemic regulators have timely call about risk, how will they convince other regulators, the global financial -- the global financial community and congress that the worries are significant and could be a great cost to taxpayers and the financial community? why it former federal reserve chairman paul volcker in an interview state that the resolution authority provided in the proposed financial package is a "workable proposition for

anything short of the biggest banks." does chairman volcker believe it will be all but impossible to liquidate in an effective manner? does he believe that tarp, too, will be required? why did treasury released a press release and pine that the tarp program has been profitable, -- implling that the tarp program has been profitable, even though the congressional budget office expects taxpayers to lose approximately $109 billion. why it haddwhitaker implied that gm has replaced all of its tarp funds, even the taxpayers have yet to receive payments in cash?

the congressional budgettaxpayel lose $34 billion of the tarp- fund investments in gm, chrysler, and gmac. thank you, mr. secretary, for joy in the. and look forward to our disk of -- discussion. >> thank you. damon silvers. >> i wish to express my appreciation to secretary geithner for his willinnness to appear before this panel and a regular basis. today, i think the treasury department and secretary geithner deserves consideeable credit for the overall performance of the assets the government has acquired through tarp. as my colleague, mr. waters, pointed out in a different tone, the cost of -- mr. mcwatters pointed out in a different tone,

the cost of tarp continues to fall. while it is hard to know exactl% the full cost, the public should be aware that the real cost of tarp is not at this $0.700 billion, or even the three and a billion dollars that it was thought to be. it is falling pretty consistently. however, there remain three significant questions that have been with us since the inception of tarp. the first is, is tarp workkng to achieve economic goals, reviving credit markets, stabilizing the economic system, and providing relief to homeowners facing foreclosure? projections of long-term -- digit unemployment suggest that we might not have prepared our credit system or are will housing market. are we continuing to manage

tarp's assets effectively? i am here, particularly addressing aig, citigroup -- i am accused from -- i am recused from ottawa. -- auto. i am particularly mindful of the lessons of our panel's detailed eexmination of the collapse of aig in our june report. that report is a powerful brief for the wisdom of keeping government-insured liabilities away from highly risky assets, and for the need of a strong resolution of 40, and need which you have championed much to the

public's benefit. it is a challenge to evaluate tarp in two different metrics, which are both important. tarp is literally a set of investments in the financial institutions and certain other firms. the second is really the purpose of tarp, which was to ensure the financial system did not take our economy down. we have moved from an environment where the threat was a cute, too, i believe, where the threats are chronic. that is what i hope to take up today, in addition to the other two subject to i'm mentioned. again, my thanks to the secretary for appearing before

us. i look forward to a testament. >> thank you. dr. troske. >> thank you. i would like to start by thanking the treasury secretary dieter for appearing before us. as the newest member of the panel, i am looking forward to hearing your thoughts about the crisisswe have been through, and what we couud expect going forward. i would like to focus on why financial markets have not paid eight -- not behaved, as i believe they shouldhave if they were a well-functioning competitive market pared their -- market. there are several aspects that i find that both surprising and confusing. i would not have expected to see the events if they truly were a

ppa well-functioning, competitie market. while i have not closely studied the sector, you, secretary geithner, have played a key role in dealing with the crisis, and try to understand in preventing a similar crisis. i feel one of the purposes is the effect of tarp on limiting the financial crisis. and the aspect -- one aspect of the financial crisis that i find confusing is the existence of too big to fail firms. the argument has beennmade repeatedly that the government had to bailout firms because the standard bailout process is slow and destructive. had they been able to enter, it would have resulttd in enormous disruption. numerous companies, both large and small, havv entered

bankruptcy. the participants should have been well awwre. they should have faced incceasingly higher costs of capital because of the cost of potential bankruptcy rest. by imposing higher costs, there would have been a limit placed. instead, it appears that the large financial firms face both -- face lower costs than smaller firms. this allows them to purchase riskier assets. in a well-functioning market, they should not have occurred. another aspect that i found surprising was that while the market was sending clear signals that the mortgage-backed securities were risky, as basic

financial theory teaches us that there is no such thing as a free lunch. it is a formulation of something mothers tell their children. if something seems too good to be true, it is. unfortunately, they ignored that. since these securities were earning an above-market returns risk, people purchasing them should have realized that the historic returns were not supportable. over time, people learned these assets were risky. many of these assets are now worth much less than what was paid for them. in addition, managers seem to have done a poor job of

assessing the risks, yet few of them have been penalized. they're essentially purchasing boxes with residential mortgages, boxes that were stamped by the rating agencies. they through the boxes in the corner, and what it to cash dividend payments. it is not apparent that they opened any boxes to see if there was an accurate representation of what was that -- stamped on the box. in other sectors, these managers would be out of the job. in the financial sector, they seemed to still be working. this is hard to understandd. this all leads me to conclude that it is not a well functioning, competitive market i'm trying to understand why th-

government h. the government has long backed.+ >> thank you, dr. troske. superintendent neiman. >> thank you for being here, again to speak to the public on important issues. it has been over one year since our first hearing with you in april of 2009. it is sticking to take stock on where we stand in comparison. first, it goes without saying that progress has been made in restoring financial stability. although difficult challenges remain, the crisis levels of last year have receded, and capital markets are beginning to function more normally. second, a significant amount of tarp funds had been successfully

repaid. this is impressive, as many banks have been able to privately raise capital and increase earnings in a market that is constrained by recession. finally, many of the causes of the crisis that put many taxpayers on the hook on -- in the first place, are being addressed in congress, as we speak. however, in other areas, needed- change has not come as quickll as desired. unfortunately, these are some of the very areas where americans are hit the hardest. i may be the virtual broken record on foreclosure prevention. it is clear that families have auctions at work. i am equally concerned -- particularly concerned that there are more families whose trial modification has been canceled rather then converted to long-term further, i think we

all believe small business lending is key. we continue to hear the viable small businesses are unable to access the credit they need. this was a recurring theme. the house recently approved a fund that will provide capital to regional banks that are at the heart of small-business lending. %%our like to explore small business access and other lending issues with you this morning. finally, with a financial reform work near completion, the united states finds itself in a uniquu and precarious position. as you are more aware than anyone, there are challenges we face in the global community between balancing our role as a leader of financial reform with the future of our international

coopetitiveness. time permitting, i would like to discuss this challenge with you so the public can gain your perspective. i look for to your testimony. >> thank you, uperintendent neiman. secretary geithner, i would like to recognize you for five minutes. secretary geithner. >> thank you. thank you members of the panel. as you know, in the fall of 2008, as we confronted the worst financial crisis this country has seen in more than 70 years, congress and the previous%% administration mobilized extraordinary financial response. their accion started the process of stabilizing a system that was on the verge of collapse. when president obama came into

office, he took the necessary steps to start to finish the job, to start to save the economy from what could have been a second great depression. lasttdecember, outlined an exit strategy. i want to update you briefly on the progress and the ultimate cost. first, because of the actions we took, alongside actions of the federal reserve and the recovery act, the economy is growing again, exports are rising, manufacturing output is rebounding, businesses are investing, and so far, this year, the economy has treated half of 1 million jobs in the private sector. economy is in a much stronger position to the cost of credit for homeowners,,consumers, and businesses has fallen considerably rates for all those up -- of all loans, for which it considerably.

rates for auto loans, for example, are considerably lower. second, we are now in the process of ending our emergency programs and recouping our investments. as you know, we have shut down most of the programs that characterized that initial phase of the of emergency response -- the capital purchase program, treasury's guarantee foor money markets, and the federal reserve has wound down the vast majority of its lending programs. all of those programs are on course for significant profit for the taxpayer. more than half has been repaid. when president obama took office nearly $240 billion had been invested into our nation put the banking system. today, we have recovered -- recovered three-quarters of that

money, and we are making progress getting out of aig, gm and chrysler. third, the overall cost of car continues to fall. last august, we projected potential losses at 340 billion -- $340 million. it is expected to fall further. the present is expected to impose the fee to insure that the largest institutions bear the cost, that way the american people would not have to pay one penny of their hard-earned dollars to cover the losses we might still face. we are on track to shut this program out as scheduled, and we expect to do so without using

hundreds of billion dollars of authority. we will return it to devote to the medium and long-term needs of the country. it is important to recognize that they did what they were supposed to do. there is no job growth without economic growth. no economic growth without access to credit, and no access to credit without a stable functioning system. ourremergency plan started that process. the damage caused is still in affecting the lives of millions of american families and thousands of businesses across the country. those struggling to find a job,% making mortgage payment, or divans their jobs or education -- or advance their jobs or education. we will continue to promote and

maintain stability in the housing market and imppove access to credit for families and small businesses. that is why we are working with congress, and are quite close to getting congress to adopt a small business leending facilit. we are urging the congress to enact quickly to -- to act quickly to enact financial reform. taxpayers should never again be asked to bail out a financial system crisis. the house and senate are close to enacting the strongest set of reforms we have seen since the great depression. i would be happy to talk about those in more detail. it is time to provide clarity and detail. that will help make sure this financial system does a better job of meeting the needs of main

street business and families. it will help restore confidence that our financial system will be a source of stability, not3 you began ith excellent%% questions. i will be happy too spend some time with you walking to the challenges ahead. >> thank you, mr. secretary. the point about the accomplishments of tarp is quite .ignificant your emphasis on the mportance of a stable, functional financial system is what i would like to talk about. we have made an enormous progress. tarp oversight is where the problems still lie. in just over three months, treasury will no longer be able to initiate or redesign programs. what we do not not -- what we do not now, we cannot do in the future.%%

i wanted to start with small bankss this panel has written about the upcoming troubles in the %%commercial real estate. about halffof tte $1.40 trillion loans held by banks will be held by -- will be held under water. that will make lending almost impossible. about 3000 oo the 8000 intermediate and small banks have portfolios that are heavily concentrated in commercial real estate. we estimate that banks could be facing a $200 billion or $300 billion in losses on these loans. it means that hundreds or%% thousands of more -- more small banks could capsize. what is treasury doing to prepare for this coming problems? and do we need to be reworking any of our programs?%- >> that is an excellent

question. we will be living for a long time with a lasting effect of this crisis. the damage was extraordinary. it reacced car and brought pcross the country. %f you are in the real-estate business, parts of the country that have been exceptionally high unemployment rate, if you run your business on access to credit that washed out, it is still an enormous the challenging envvronment. you are right to point out that small banks came into this crisis, much more conservatively managed and their wall street competitors, but many got into a position where they had an exceptionally, regrettably, and unacceptable high levels of exposure. they face difficult adjustment ahead. we have a set of programs stiil in place. that will last beyond the

expiration of tarp. my view is that the most effective thing which could do for the credit problem still facing small businesses and small banks is for congress to enact this set of credit programs for small businesses. the way these programs are designed, they do two important things. they provide a modest amount of additional resourcessto states across the country that have programs in place to provide support to small banks and small businesses, but, alongside that, we propose a new lending facility that small banks will be able to access. the more they increase lending, the lower the rate they pay on those investments. >> mr. secretary, if i could stop you there -- emphasized --

i want to emphasize a different part of the question. the question is that 3000 of our 8000 banks across the country have heavy concentrations in commercial real estate as i read the new initiative on small business lending, that is money that is not designed to go into banks to help them repair balance sheets. it is money to go to healthy banks that do not face the serious problems. the question i want to sk, and press on, is when you talk about the stability of the american banking system, we have a 3000 banks at serious risk that they might not survive. what is treasury doing about that, or is the answer, we will let them go?

>> as you know, i cannot associate myself with your basic numbers. that is an issue where the fdic's basic framework is the most reliable resource we have had. >> so we are all clear, the numbers come from the bank's examiners. they're not numbers we%- generated. >> i am a great about the challenges, i just did not want my agreemmnt to be about the numbers. we have a very elaborate the country for dealing with the challenges facing our nation of 9000 community banks. that process was designed in th% wake of a series of past crises. that gives it government the

ability to help%those banks manage through, and help facilitate the restructuring ahead those banks that are uuder pressure have a lot of options. they can raise capital. they can shrink lending. you also have to point out that the programs we designed from the beginning are only available for banks that we believe would be viable. these are important programs because they will help the banks face less need for shrinking balance sheet. >> i am over. i just want to make sure that there is no reason to change anything, we will stay steady on the same course? >> i am a very careful, pragmatic person, and i am open to any%ideas, but, at this

stage, i believe that the programs we have within the tarp, and the existing programs with the fdic and the new small- business lending initiative is the best mix of solutions that we have found. >> thank you, mr. secretary. mr. mcwatters. >> i will start with an easy question. a soft ball over the plate. does the administration plan to test congress to extend tarp beyond october, 2010? >> no. this hearing should be a eulogy for tarp. we're working very hard to put this program to rest, put it out of its misery. it will not solve all of the problems facing the country.

it was not designed to. we will not use it that way. we use it carefully. it has come the essential thing weedesigned it to do. -- it has done the essential thing we decided to do. you said one thing in your opening stateeent that i wanted to correct. you referred to a press release where we implied the overall programs would be profitable current we have never done that. we were explicit that the latest cost estimates were in the hundred billion dollar rangee for the bank piece of the program -- for many americans the program was defined by the incredible act of the commitment of the united states putting capital in banks that represented three-quarters of our nation that was a focus of the deep outrage where we had to put money in the hands of

destitution that played an important role in the crisis. it is hard -- and every estimate that i have seen, they will return a positive investment for the american taxpayer. every time we said that, i always make clear to say, and% our numbers always show, we still face a substantial risk of loss on a range of other programs, including the ones we inherited from the previous administration i want to make sure that we never made that mistake, and i will never make that mistake. we are still exposed to substantial risk. >> but, but export sort of curious -- but the metrics were sort of curious. to a lot of people it looks like you're trying to say there was safe for the million-dollar

profit, when at the end of the day, there is it $500 billion loss. >> one of the important things about the way we have done these programs is%thaa we put out p+regular estimates, including y independent analysts, of the potential costs. it is hard to find any country and around the world that has explicitly identified and provided regularrindependent estimates of the ultimate cost the taxpayer. i am committed to that. judgments. life is uncertain. these programs will cost a fraction of what the critics feared and what the architectss of the program thought was likelyy a very small fraction. the best way to measure this is to look at the projected costs relative to, for example, the crisis in the 1990's, which was

simple to solve, still more%- devastating for the communitiis effected, but dramatically higher costs from a much smaller crisis. >> at the end of the day, $105 billion is a lot of money. >> a absolutely. -pthat is why we're working so hard to bring those costs down. >> let me as to the. is treasury contemplated the allocation of funds to any new programs before october 3?%- >> at this stage, we are not contemplating any new programs using this authority. we have an obligation of care and prudence. we are very relucttnt to do things unless we think there is a very, very high return on the taxpayer's investment. we think this is a set of programs today thht strikes that balance.

>> how about additional tarp funds to existing programs? >> no. we have no plans of adding to the current estimates that we have put out. again, first of all, for perspective, most americans think we went and spent $700 billion, and we will never see again. in fact, we actually put out half of that, we got more than half of that back already, and we have substantially reduced the estimates that we started with about how much these programs would ultimately commit to. >> ok. my time is up. >> mr. silvers. >> mr. secretary, i hope i conveyed in my opening remarks my sense that the analysis you went through is ethically correct, and i think you and your team are to be commended for getting where we have gotten. with that introduction, i want

to shift to the question of the interaction of tarp with a larger. i will ask our staff to give us an updated loan level measure. as our chair noted, we think%% there is some deficiencies. my question is this -- given ttat datt, at a time when i think the administration's view is that we re unit and economy modd, it appears that the private credit system s acting assa light on the growth of the economy. that would appear not to be what we are trying to get at. can you give us an analysis of that and what steps you thinn need to be taken to address it? >> it is a complicated

questionn and it is gephardt of heart of any evaluation. at the if you look at most measures of the cost of credit of overall financial conditions, they do not suggest he the finaacial system today is a source of weakness for the overall economy. in fact, i would say the opposite there is not a chance that this economy would have started to grow again n the second quarter of next -- of%% last year, and this early a return into a the economy started to add jobs again, without the dramatic actions we talk, however unpppular to bring down the costs of the fed and stabilize the system. this is not something we can know for certain. it is absolutely the case in the housing market.

in the context of small businesses that were unlucky in their banks. i do not think that on the available evidence today, you could say that the financial sector itself is operating as a significant drag on the i will finish quite quickly. one of the reasons we decided we decided -- was wanted to make for that the system would be able to finance recovery. i think we are in a good position to achieve that outcome, a notch in thereeis still a lot of damage out there. >> -- acknowledging the there is still a lot of damage out there. >> i do not think you are confronting what i askeddhead- on. i do not disagree with you that we could have been much worse.

the situation in 2008 and 2009 is significantly worse than today. my concern is that the situation today is not what it should be at this moment of economic recovery in terms of the behavior of the private credit system. that is not so much in housing. it is clear we have a private credit system in housing at the moment. it is more on the business side, where the job growth needs to come from. that bbings us back to my opening statement about a chronic problem replacing an acute one. >> the best measure we have about whether the financial system is a constraint on growth is what is the price of a loan? if you look to the price of municipal borrowing mortgages, business credit, in almost any sector, there are very low.

another example is if you look at the balance sheet, how much cash bbsinesses have on hand across the american economy, the business secttr as a whole has very, very strong balance sheets and is sittiig on a lot of cash. i completely agree with you about the basic risk. we did not want to have a recovery constrained by credit that is too tight, and it is still too tight in significant parts of the economy. on those measures i would say i do not believv we face the risk of a chronic, although i don't think i would use that word, but we are continuing to make sure that the economy is growing as fast as we can. >> i think most economists would say that the fact that businesses are sitting on a lot of cash is not necessarily a good thing in relation to our

recovery. >> that i would agree with, but as a measure of financial had once, it is a good measure. -- head winds, it is a good measure. we still have roughly 8 million americans out of work. people are still living with a basic level off financial insecurity that they had not experienced in decades. you are absolutely right about that.. we are still at the early stage of fixing what was broken in this economy. p+>> the chair was kind enough o give each of us the same time she talked, so i'm going to use -- what i am pushing on is if you look of those reserves in cash, i believe they are weighted toward the companies that have access to markets where the recovery has been more -pdramatic. if that is not so, i would appreciate hearing about that.

our reports suggest that if we have to deal with the banks as your soorce of credit, you have a much tougher situation as a business person. the testimony we have heard from small business people is that the bank might post a rate outt the window, but it is not available to them at hat rate. that feels like a serious problem turned >> i agree. that is why we have asked congress to enact legislation that would help mitigate that problem. i would say that on your basic question about whether on the available evidence you ave a financial system today that is a source of restraint, i do not believe that would be a fair evaluation. in parts of the country, in particular sectors, that is the case. it would be surprising if it was

not the case appeared >> thank you, mr. secreeary. dr. troske. >> thank you. i'd like to start off by getting your thoughts or having you respond to concerns expressed by many that the large financial institutions and their creditors, for them, the federal government has publicized profits, and privatized rest. >> you are absolutely right. market discipline failed. the market failed to constrain risk-taking by financial institutions. that had two causes. one was classic moral hazard risk -- the expectation that the

goveenment would insulate private creditors from losses. that was acute and conspicuous .n the case of the gse's the crisis had another cause that was much more powerful in a moment. the market had financed a huge growth in leverage in a set of institutions that were allowed to operateeoutside of the constraints of capital leverage. for example, in many of our investment banks, in a vast range of non-banks and venture companies, some of which call themselves thrifts, those institutions were able to%% operate without a history of% goverrment support. that is not something you can attribute to moral hazard. that was a classic act of judgmenn that we might face a

recession with a huge losses. -- with acute losses. we have a set of reforms that will address that risk? this is important. those institutions, that essentially operate like banks, whatever you call them, and take risks like banks, are important to the functioning economy. we will constrain their risk- taking. whether you call them aig, goldman sachs, or j.p. morgan, we will constrain the leverage and risk that the take on. if they get to a pooition where they could not survive on their own, we will step in and dismember them safely. we will minimize the risk of loss to the taxpayer, and make sure they can be broken up in a quasi bank like mechanism.

that is what this does. the absence of tools is what forced us to take those exceptionally offensive measures in the fall of 2008 and the first half of 2009 it to put up >> the example of long-term capital management will be one where that was not a bank,,and the government came into backstop. they did arrange a rrscue that would lead one to think that that is what the government is quick to do for the other ffrms. rescuing became an expected normm there are zerro entities out%% there, presummbly credit holders' equity holders that are supposed to be regulating these firms.

the creditors, who did not experienced the upside, were the ones that had the most to lose. it is not a large stretch to think that they were failing in that role because they felt they were a point to beeguaranteed a return regardless of what happened. >> i think you're right that all financial systems have this risk of moral hazard, this expectation in the extreme event that it is+ possible the government will act. that is the job of oversight, policy, and government, to make sure that because of that risk, you have tough, well-design constraints on leverage that are enforced across the system ahead of the crisis none of us run the system, and no country runs the system on the expectation that market discipline alone is adequate to constrained rest- taking. all companies -- all countries restraint risk.

some do better than others in some parts of the system, but did it partly -- poorly in large parts of our system. that is what we need to change appeared . >> you mentioned the systemic risk regulator, or whatever you% want to cut. under the current system, we're supposed to be assessing systemic risk to the economy. you would know more about it than me. what is the difference between what we are setting up going forward -- because it is the same players -- what powers to have that were differrnt than they have currently? >> that is annexcellent ppint. we are not we to design a system that depends on the foresight and isdom of officials sitting in washington in those agencies to come in and preamp --

preempt, act preemptively to diffuse future crises he's. we hope that will happen, but that does not the promise. what we are doing is making sure there are clear, public, and forcible constraints on the types of risks that could imperil a system. we think that is the most realistic way to make sure the system runs with much greater cushions against future sources of lost stocks and distress. i agree very much with the promise of the -- the premise of the question where if we designed the system to work only if regulators are pre-emptive, that is not the reform we are supporting. i grieved for skepticism. -- i agree with your

skepticism. >> ultimately, if the government is faced with another crisis in which several institutions are facing simultaneously -- is there anything that will prevent them from enacting a tarp two? nothing that i have seen what%- change anything from what happened in the past. >> excellent system. that issthe system we had. that is what put the government in the outrageous situation of having to commit an extraordinary amount of resources. that was necessary given the system we have pared the reforms that are not -- that are on the verge of enactment help to fix that problem.

did did not have the ability to constrain risk taking because they did not call themselves banks. it fixes that problem. it also make sure that if in the end, and individual firm gets itself in the mess, we will be able to let them fail, ensure they fell, dismember them safely, and not give them a chance to operate again, putting them out offtheir misery without the taxpayer being forced to uxor these losses, or -- absorber these losses, or left with the liability. you want to be able to make sure you can draw a line around that fire. that is what this reform does.

>> mr. secretary. thank you. >> too wet. -- thank you. >> thank you. superintendent neiman.%- >> in the treasury report from just yesterday,%trial modifications nearly tripled from march to may. the number of families that have received permanent modifications has now surpassed -- been surpassed by the number that has been pushed out of the program.+ it is deeply troubling that the homeowners relied and trusted this government program, that they might be left out of the -- left out in the cold. over 70% of those individuals have been making timely payments for six months or more. first, we need to really understand why these hundreds of

thousands of modifications were canceled. . .

and therefore we are in a position today where we are, as you said, canceling some of those modifications. more than two-thirds of the people in those progrrms that have canceled modifications are benefiting from other modificationn programs that bans offer that we are not that helps him for a little bit -- that helps to temper a little bit some of these consequences. we're devoting these scarce resources to people who are able to prove their eligibility for the benefit.

>> what kind of verify ability or compliance can we provide?3 about the arguments being lost and errors being made in processing documentations. how can we be assured that servicers are acting properly. -- properly? >> i think servicers have done a terrible job of making sure they are doing everythinn they can to meet the needs of their customers who are facing the poosibility of losing their home, and most importantly, there's financial security. they still have some distance to go to try to make up for that. it is a series of bbsic -- how should i say it? mistakes, inadequacies. what we try to do is to simplify and reduce document burdens. we have put out.

each of public metrics of performance so that people can judge themselves -- we have put out very detailed public metrics of performance of the people can judge themselves who is doing a good job. and we continue to put as much pressure on them as we can to improve their crops -- their quality of service. >> you have said that the majority of those who dropped out of the program were offered these proppietary modifications by the servicer. but isn't it true that the true test will be whether the bar work is better off? p+until we see the statistics - about the borrower is better off? until we see those stattssics, isn't there a question whether those are truly sustainable? unlike the situation two years ago before the government poured

out this basic system for standard modifications, most did not meet that test. they left the ball as dead as coming in. but since then, the government has raised he standard of those modification programs. >> do you expect that the public will be seeing any data? has the treasury requested, even if on a voluntary basis, some of those key elements of of the modifications? >> we are continuing to do that and we're happy to be responsive about what we think is achievable in other areas. >> another thing we are surprised to find, with his grounders -- with its grounder -- scrogginbar were short in thm

is been that there about -- they are loved with the inadequacies in the rogram -- the other thing we are surprised to find it with borrowers in this program is that they are left with the inadequacies of the program. one element, a provision that i think would be extremely helpful and have been calling for a while for, would be an extreme measure with the treasury. i would hope what administrative reports we -- but administration supporter we woold see sommthing like what senator menken has been working on. >> we have been working

alongside the excellent people of huddy, led by sean donovan. -- excellent people of hudd, led by sean donovan. >> have a process that people can reach out to treasury would be very important, in my opinion. thank you. >> mr. secretary, i want to go back to this question about a stable functional financial systems. we talked about these potentially dangerous concentrations in commercial reaa estate. i want to look at the top end. six of the 19 stress tested banks hold real-estate loans that are a big percentage of their capital. %ith the commercial real estate losses, because of the way they are set up, they're likely to be

much larger in 2011, 2012, and on into 2013. how can we be confident about the stability of these financial institutions without rerunning the stress tests to account for leeding troubles in commercial real estate lending? >> as i said, these loans and law sets -- losses and assets are board to be a challenge -- are going to be a chaalenge. i think it is fair to say that actual losses on the books -- again, this is qustion that weelook at all the time on a regular basis. based on what we have seen so far, the losses are better than

what we have projected. therefore, the capital is even better than what we thought we had achieved. >> we know the loss is on commercial real estate. those are coming up in 2011, 2012 and 2013 for a major reset. i'm glad that you think the numbers look better than in 2010. are you runninn in many stress test? >> -- a mini-stress test? >> what our supervisors have done is put in place a much higher level of disclosure on the u.s. bank system of detains. you are seeing countries move to

adopt the basic framework. the virtue of this approach was, we pushed a lot more capital into finances at the early stage. the best way to look abroad whether the market is judging relative to potential risks -- and i think again, a relative to expectations, it is still better. but there are challenges ahead. >> let me try this again with second loans. big banks are still carrying second liens on their books. many analysts who believe a large portion of these should be written off. as of march 1, 2010, theefour largest banks held $434 billion in second mortgages anddhad%- total capital of only $505+ billion. do you have any concerns about

what this means? now we are mooing from commercial real estate on to second mortgages. >> of course, banks have on their balance shets still -- even though they can produce assets to some extent -- they still have challenges. how much they will win against -- how much assets are they holding against the challenges? the general sense is the projected losses are less than they expected, and therefore, more capital is now held against those assets than we thhught would be their year ago. >> let me try one more. the fannie and freddie are pushing mortgages backe to these financial institutions because

they say the mortgages sold to penny and freddie are not of the quality that they were represented. fannie does not disclose po requested -- danny does not disclose requested by? -- fannie does not disclose requested buybacks. are there requests from these larger institutions to buy back these mortgages? >> i think the major banks of the company -- country now old a cap of the larger risks.%% and that goes to reach of the things that you pointed out, each of the potential sources of lost still ahead. again, this is still an unknown.

we want to be conservative in making these assessments, as we+ were a year ago. our supervisors will continue on a regular basis -- one of you%- said in your opening remarks that rew do not contemplate stress tests along this -- that we do not contemplate stress test along this basis. i hope we do. aggregator lee, quarterly, difficult challenges and assessments -- regularly, quarterly, and difficult challenges and assessments. carta are you saying that will be ongoing or quarterly? >> -- >> are you saying that will be ongoing or quarterly? >> both. >> you have said that there will not be a new tayy are p program.

-- t.a.r.p. program. that no money going to gmac. but we do not anticipate at this stage putting more money into those existing programs or to the institutions. >> in the same way that would apply to chrysler and gm. >> on the underside of your question, we are now on a path to exit those companies much more quickly at a much lower estimate of losses than we anticipated. at gm, we are drink -- bringing down the risk dramatically. we will continue as aggressively as began to get the government out of those investments -- as we can to get the government out of those investments.

those are commitments that we inherited. we are tryinn to reduce them as quickly as we can. and fdot low a risk as we can. >> -- and at as low a risk to the taxpayers as began. >> if one of these institutions came to your office and said, we are experiencing liquidity crisis, would you advance the money -- a them money? >> i do not ever has to as questions because that this kind of impossible. if financial reform is in place, then we have a very well- designed process. and instead of emergency measures than we have in place in the fall of 2008, we would -- i would assume we would make

better choices. you're talking about the 12 weeks remaining in this program? >> yes. >> our job and my responsibility is to be+ sure the we are safeguarding the basic strength of the american financial's system. again, our system because of the actions of we took is still in a much larger -- noa much better position than we were. >> if financial reform is in place, the same people come to you and say, ttere is a systemic and regulator. the systemic regulator is supposed to look into a crystal ball and see stuff. >> i will say it again. we are not designed a financial reform program and -- we are

not designing a financial reform program that looks into this and -- we are born to force the system to run with less leverage, less risk of finding, less exposure to cash risk, and that is the best protection we have against systemic financial crisis. >> the problem with that is that aig was not a mystery to people. most people under -- on wall street understood that aig was writing trillions of dollars in credit and billions of dollars in mortgage-backed securities. the problem was that even though people recognized it, they did not recognize that as risky behavior. >> i do not agree with that. i think this crisis is littered with people feeling to see

risks that cause catastrophic damage. %%aig is a more simple failure. there was nobody responsibll with the authority and capacity to restrain risk taking by that iistitution. as you said, there were tens of billions across the country, but none of them were responsible for onsidering the risk that aig took on and i was ahead mistake eesy to avoid. -- and that was a mistake easy to avoid. >> you are saying there is one mooe. >> we're not adding regulators. we are reducing the number in our system. all we're oing, quite frankly, is making sure that the people whose job it is to manage financial stability for the country have the authority to constrain risk thinking -- risk

taking when it could cause damage. that is what caused the crisis. aig is the perfect example, but not the only example. you could look oo bear stearns or merrill lynch or a whole rrft of companies that were taking on systemic risk. nobody have the tools or respond slowly toconstrain those risks ahead of time. and when they mess up, we did not have the choice to let those failures happen without catastrophic damage. the great virtue of capital constrained leverage is to recognize the fact that we live in an inherently uncertain world. %o one will know with confidence what the response is oo the probability is. neilon thing you can do is to force these inssitutions -- the

only thing you can do is to force these institutions to run with less risk. that is an effective tool of concerning risks. -- restrrining risks. >> if you define risk appropriately and you enforce the rules appropriately. >> again, we think the basic lesson of this crisis is possible, objectively measurable set constraints on leverage. banks should fund more conservatively. they should not be exposed to the possibility that overnight, people will withdraw tens of billions dollars and put huge pressure on the system.

i do not know any credible argument that there is a more effective basic tool then capital constraints on the equity funding as a safeguard. it will not prevent irms from failing. we will create a system where firms can still fail. that is an important part of the system. but i do not know of any other alternative. i do not know any other feature that does not begin with well- designed, measurable risk taking. they will not keep companies from taking risks, but they will protect the system. " i'm not sure that with -- >> on not sure that with more regulators -- i am not sure that with more regulators that problems will not come from the

investment and banking community. they will derive new typs of instrumens that 10 r 15 years ago we did not see. >> maybe we agree more than you think. but again, the future of our system was not that aig was crawling with the supervisors with the authority to restrain and control risk taking. are right.s present, then you changing the deck chairs -- it is important is it institutions take risks that play this fundamental role in our system need to be subject to conservative restraints on the system. aig was not. we will make sure it is. >> thank you, mr. secretary. mr. silver's? >> i cannot resist continuing

this line of discussion. mr. secretary, i think that your fundamental of observations about this set of questions are all absolutely correct. our reportt on aig showed a two fundamental things. one was that the lines of business that we lead -- had led to aig. the unregulated numbers is just an in-depth vacation of thee% impact of aig was just a global -- was an indication of the fact that aig was just a global firm. as a panel, we may disagree with where you did with the choices you had. but it is very clear that the%% choices that you diddnot have -% in your current role of the bank

of n.y., of the treasury. you did not have the ability to pick and choose with the systemic crisis. i would take it a little further from there, though. and we learned as a panel, and it is reflected in our report on the day -- on aig, what a powerful force they exertd on the torrez is available during the crisis. in particular -- on the choices available during the crisis. in particular, those tied to the regulated guaranteed subsidiaries of aig. that is, the insurance companies pupport were tied together by credit rating agencies and the

firm. that seems to me a powerful argument that making sure in the future that those that have guarantees behind them are also tied up with risky lines of business. derivatives, proprietary funds,- hedge funds and the like. does, -- the irst is the vocal world. the notion that we ought to say+ banking companies can outdo proprietary trading, cannot invest in hedge funds, -- cannot do proprietary trading, can on invest in hedge funds because there is a problem. it essentially requires that%% derivvtives dealers not be

within a bank holding commanies, barack and leased -- bt at least there be somebody at the banking lobby -- bank holding companies. could you explain the position today? >> members of the committee, including chairman lincoln and chairman daud,,or carefully going through theese provvsions to be sure we come to an appropriate balance perido. we want to follow our key objectives. one is, as you said, the banks are unable to take risks like proprietary trading. or if they use derivatives for proprietary trading, they could imperil the stability of the bank, or allow them to benefit

from the access to the safety net that the bank enjoys and extend the benefit of those activities that we do not believe are essentiil for baking. the other thing to point out -- for banking. the the thing to point out is that an essential part of banking is helping customers hedge their risks, whether those are. we want to make sure that the banks are able to hedge their risks. i think it will come to a very good balance. this bill will do an excellent -- an exceptionally important thing, bring restraint to the derivatives market. we would still present enormous

risks if we were unable to enact these reforms. >> there are reports being made with respect to both measures i indicated. to essentially weaken them. you spoke a moment about the area in section 17 of derivatives. can you speak to the question of whether banks will be allowed to put meaningful amounts of capital into these and defense experts are not goinn to comment on the etails -- into these hedge funds??% >> i'm not going to comment on the details. i am very confident that this bill will do the necessary

>> i would just observe, and my time has expired, but i would just observe thaa when you're talking about hedged investments under a bank logo, that a diminutive exception could easily blow up the capiial structure. it would seem to me that the lesson of our aig report would be to not allow that. >> we are not going to create risk. we also do not want to support the basic balance of risk taking that we saw in the system. there was no capacity to restrain those risks and abbas not a good outcome for the system. >>zuj] -- and a that was not a d outcome for the system.

>> i would likee+ to hear your rationale for why liquidity was invested innthis part of the banking system, what the goals were from this program. >> i'm sorry, for the -- ? >> the use of the small funds for the non-banks. >> excellent question. the first just dreaded everything that we did in the crisis. -- guided everything that we did in the crisis. we made sure that credits that did not exist at that time would be open again to american businesses and families. without that, there would be no recovery. for that reason, small banks, as you know, get about half their credit -- small businesses get about half their credit from

small banks. for that reason, it seemed fair to make sure that they have the samee+ access to the poor -- to the capital programs. for the reason of fairness and the pragmatic reason that they play a role in these businesses, we thought it was important that they have access as the major institutions did. >> staying with the smaller banking sector, -- and i did not reaa the panel's report. it eems like many of these banks -- and small banks also made decisions with these programs leading them to scramble to get out of the program. this is something to be -- that+

is important to be able to do in a financial crisis. looking forward, if we ever have another ffnancial crisis, have these programs impaired our ability to inject liquidity into the system given no reluctance -- given the reluctance of the banks to participate in this current program? >> i hope so. the central challenge that you face in designing reforms or the financial system -- the government will be there%% to protect your future. that is where these bills are so important, because they give us the tools to definitively all of those expectations. that is very important because of the things we had to do in the crisis. >> i guess, the difference between injecting liquidity into

the system and sort of providing for failing institttions, i think it is he to inject liquidity into the system. >> i completely agree that the necessary part of the tools in the financial crisis are those that the system can find. without that, the the system will crash, and our system almost did. and that gambert 2008, we work ppon the verge of a crash -- in september 2008, we were on the verge of a crash that the banking system had not seen since the great depression. we need to make sure that the government has the funding needs -- meets the funding needs of all solvent into -iistitutio.

but in doing that, you have to%% make sure that people do not make judgments on how much risk they take on the assumption that the government will be there again if they are in prudent in their judgments. that is the classic, vital challenge of getting reform. >> let me turn to the housing market,,which was mentioned before. almost 30 years between 1965 and 1995 tte housing is tree was stable. starting in 1995, it grew dramatically for a variety of reasons. my own view on the how to market is that we return to a rate of 65% of houses are people who own their own homes. honassuming we get back to a rae

that is sustainable, we wouldn't a better program the one in which you design people into and a corporate housing program? >> i think you are describing the objectives that exactly shaped this program, which is why it got so much criticism.%% our program was designed exactty as you said, to make sure for those americans who can afford to stay in their home, but they have the option to do that. but this program is not designed to be sustained at a level that would be imprudent.

>> i would like to come out to your recent remarks about communnty and regional banks as a key source for credit or small businesses. much of the public focus and our prior reports have been focused on the largest t.a.r.p. recipients that were part of the stress test. our july reports that we're working on at the moment are a unique window into the performance and health spof hundreds and to assess the bank's program. to help n assessing we have to have clear goals. one thing you just said about accessing capital to large

banks, do you want to expand oo that? opposed to too large to fail? >> one of our basic strategy is% is to make sure that we are safeguarding the bases security of many americans and we have a financial system that is able to meet those objectives. as you said, we have 9000 banks, not 12,000 and, not 24,000 banks. most small businesses get most of their credit from small banks. the drugs we have bout 2700 %-mmunity banks -- >> we have about 2700 community banks participating in the program. >> exactly. we have assets remaining in bank's federal $10 million or

below in assets, we did that for the simple reason of fairness because they showed the same access that we gave the major institutions. we thought it would be important to make sure there was access to credit on affordable terms. it is a simple process. as you said, it is still a challenge for many of those banks and, therefore, many of their customers. >> would be the -- what would be the goals involved in the, how they utilize the capitol? >> if you compare small banks that to occur t.a.r.p. capitol as opposed to those who did not,

the spaull bank is lending at about twice the rate as those that -- the small bank is running at about twice the rate as those that would not take capital. and of course, for many banks, access to t.a.r.p. capital meant that they did not need to do any lending. having said that, fundamentally, this program did not meet our objectives because as many of you have pointed out, because of concern about the conditions that mightt+ come with the futu. %- have banks that did not want to be subjected to either to the

sigma or the fear of conditions, which is why we have legislation pending before the congress that has been pending for six months. it has very carefully funded programs to help banks get through this. when compared to the whole range of alternatives, this seemed like the best process for a set of constraints. >> we have a program in new york days at the fed.member from your it is comprised of member banks that not only provide equity, acts as an lending consortium tt small businesses. it makks loans that the individual funding banks may not

have made. we are for it to you as a suggestion. maybe consider it at the national level. because we're nottonly looking attloans passed up by a particular banks, but also the lending. i do not think it is clear under blf that the banks are lending under the consortium. >> if you look at the state+ option provided to the small businnss facility, that optioo is provided to executive programs. again, the virtue in the will we

designed this is that if you increase lending, the dividends and go down. that is a great incentive, but also, providing assistance to states across the country that have those programs. we are in a sense, enhancing a greater diversity of programs as well. %- thank you. >> i was surprised by your answer about the metric for success on the home mortgage foreclosure gramm. -- foreclosure program. but i want to come back to this. over the 15 mmnths that the program has been in effect there have been 330,000 so-called modifications. about two-thirds of those are going to fail. aad that means over 15 months -- and correct me if you have a better estimate -- but over 15

months, that means the hemp program is permanent modifications. that is about 186,000 every month that are newly possed the faults and foreclosures. i'm caught in the question of what is your metric for success here? >> let's step back and look at the basic strategy that the president put in place alongside the fed. first, we put down a floor on mortgage prices. we made t more possible that millions of americans would be able to refinance the world to take advantage of lower interest rates. the courts are unfamiliar with -- >> i am familiar with what

you have done overall. the problem is that what -- more than 1 million families this year will lose their homes to foreclosure. hampstead is it. >>. -phamp -- what's hamp hamp doesy to make sure that a set of foreclosure have the chance to do that. and again, the members are -- the numbers are 1.1 million will try for modiffcations and

1.1 million will see modifications. >> as superintendent neeman said, we will find out what the consequences are of that. one of the early modification programs acttally got people in more trouble. it raised overall payments and got them in more trouble than they started out with. what do you have to show for it? >> we have 1.2 million americans that have a reduction in their payments, had a chance, therefore, to keep their homes.+ >> and passed up other argentines that they might have had to deal with their foreclosures. -- paat of other opportunities that they might have had to deal with their foreclosures. and the ppint is that they've lost their homes. what is it to say that a family

-- how do we decide when the program is working? >> you ook at its results family by family, foreclosure by foreclosure, a change in monthly payments by change in monthly payments. in looking at that, these programs could not have been designed responsibly to try to prevent a set of foreclosures that were probably unavoidable. >> help me with the metric. arr you saying preventiig one foreclosure would have been enough for $60 billion? >> zeyno. did you have an estimate when you start of this? >> the virtue of the program

that we have laid out is that we have given everyone detailed numbers they can look at. >> you say we designnd the program from the beginning and in effect you are saying, not to save everyone. i understand that. you have designed around servicers. servicers have done a terrible job. you havee designed it around3 we economy of hundreds left to prevent thousands of foreclosures. -- we only have hundreds left to prevent thousands of foreclosures. >> these proggams will outlast the expiry of charge.

as you have seen, we have added to this basic framework oo loan modifications games a series of programs. we will keep working on that. i will never stand before this body or any other body and over going to do. -- and over-claim for what this- program is going to do. >> we must stop. i am running over and it is not fair to my colleagues. mr. make walters. >> mr. secretaay, if you could turn back the last quarterrof 2008, what changes would you make to the t.a.r.p. and be said? what did you learn from your

experience? >> the best i can tell you is that the forms we proposed for managing the future, we're doing is giving that enaated in past -- and passed so that we can again tell the american people thht we have a reasonable chance of preventing this from happening again. that is what i am working on at the moment. the basic framework in the reform bill for rescue programs is much better. >> y unanimous vote of the battlpanel, it was a four-vote .

the government's failed to exhaust all options before committing $787 billion in t.a.r.p. funds to help aig. throughout its rescue of aig, the government failed to address perceived conflicts of interest. even at this late stage, it remains unclear whether taxpayers will be repaid in full. i think it is only fair that you be permitted to respond. >> i do not agree with those conclusions, except perhaps the fourth.

which says, and i say all the time that the carrot is still exposed to risk with aig. -- the government is still exposed to risk with aig. ppthis hamp in the peak -- this mess inn the hamp in the peak of the crisis, this has come darnell a tiny fish -- come down now a tiny bit because we have been so careful in managing the risks we're going to be continually selling off the risk to minimize lost and we are working hard to make sure that ppthere are a set of financial

reforms to make that happen. the basic package of these protections will be in a position to both prevent and better manage mistakes like that. >> on a slightly different, but i think related note, when does the administration returned fannie and freddie to the private sector? >> i'm not sure when it is framed quite that way, but let me answer it this way. we are deep into a process of examining what set of reforms should replace the current system that we have in the housing and finance market. those required -- those would require somethiig well beyond phe basic problems then

prevented the gst's. -- the gse's. i have said publicly that we expect to recommend senate broad reforms sometimes -- sometime next month. a and i would point out that thh losses that we still face in these institutions are losses that we inherited. at our assistance, they have put in place much more conservative underwriiing standards. they're bringing down risk and restitution quite significantly. institutions today are being run much more conservatively, as you might expect. i think we're going to find -- i

hope we will find broad support in the congress. this is the kind of reform that these institutions and the housing market needs. >> thank you. my time is up. >> i want to take you back to a fellow panelist who cited home ownership levels from 1965 to 1995 as something that we ought to be aspiring to. and your response is that is exactly where reward -- where we are trying to get to. i will give you a chance to mooify your answer. from 1965 to 1995, the flight number give assistance to economies of color.

but cannot be we go back to. -- that cannot be what we goo+ back to. i want to talk about the shift in foreclosures, which i think is evident iran the question of people's ability to pay. it cannot be -- is evident around the question of people's ability to pay. it cannot be that of people cannot find employment that they should be thrown out of their rooms. >> our policies are not designed to sustain home ownership ates at a level that we think is not sustainable. it cannot be our objective. i think it is true that we need

to not just need the needs, but play keep huge role in -- play a huge role in the financing in the system. as you have pointed out, there or big gains in access -- those big gains in access to credit that our system generated also came with fraud and abuse. that happened on because of the present regulation, but because a systemm that did not provide protections. we do know that we have a whole range of incentives across the american financial system that were designed to encourage hooe ownership.

it is important to recognize in our broad housing policies, and this would be true for the housing and gse arket, we will try to make sure that americans have access to affordable hoosing programs, but not sustain an investment level in housing that was part of this basic question. having said that, i have from your second question. >> unemployment. >> thank you for doing that. we have done a continuous series of innovations from the beginning of this program. we're going to design programs that will directly help the unemployed reduce the payments

on their homes, but also we will also work to encourage much less in the program. we will announce a range of programs to help the unemployedd in their states 3 ranne of other types of innovative programs at the state level -- through a range of other types of innovative programs at the state level. as you said, unlike the early stages of the foreclosure crisis, the principal driver that we see is unemployment. >> two responses. one is, i think there is an issue of relationship of scale to the problem. the scale is simply inadequate. i think we have models in pennsylvania.

you have three months. i hope your thinking about that. i did so of the data is contrary to what some of my colleagues would say -- i think some of the data is contrary to what some of my colleagues would say. starting in iran in 2002, 2003, we saw an -- starting in 2002, 2003, we saw a set of unsustainable practices begin to take control. >> that is one good way to think about it, but you also left you think about -- you also have to think about the credii crisis. roughly 8 mmllion haveelost their jobs in this credit crisis.

>> i would like to clarify the miserly do not believe that we should have a process -- that i certainly do not believe that we should process in which people find as the rooms when they lose their income. should be homeless. i think it is important to% recognize that not everyone needs to own a home. by think renting is a perfectly viable option. people need to pick what best fits their financial situation. maybe programs that help move people out of a situation that may be is not a cooporate into one that is a of corporate, even if it is not -- that maybe is not appropriate into one that

is inappropriate, even if it is %ot owning their own home, ppespecially as it is designed n the way that they did to keep people in their homes is not that effective. maybe you could comment on that. . . . and the other was not to provide basic protection against predation, fraud, and abuse in the credit markets. those were devastating in the consequences. we are still living with the

consequences of that and for a long period of time. a fundamental part of washington is to make sure that we're repairing those mistakes and helping people who were damaged by those mistakes have a chance to repair their lives in that context. and that is a responsible for a good news. recognize that we cannot help everyone, and different solutions will be a proper for different people, and we have a lot of challenges ahead, but those two mistakes are things we need to make sure we fix and i am confident we will do that. >> and to build on some of the comments that have been made, you think the federal government should be involved in this in the future, it in financing in the market market? does the federal governnent have any particular advantage over the private sector which would suggest we need the federal

government to maintain that? >> an excellent question. i do not want to alter the basic framework for laid out and i'll say it this way. i think that there will be a good policy case for the government to promote the objectives of access to reasonable housing options for low-income americans. that is an important objective. i believe in that objective. we want to make sure that. doing this going forward. i believe it is likely that we will determine that will be in a proper role for the government to provide some form of guarantee to help make sure that the broader financial houssng markets are able to provide credit to housing in recessionary downturn. that is a very important basis. we will have that debate when we talk about reform. but having looked at a variety of to for models, will likely to conclude that there will be a reasonable case for retaining a for providing the kind of basic

guarantee. how to do that is a challenge. we want to make sure that when you do that, ferns paper that guarantee and that provides a guarantee, with adequate capitaa and risk. i do what -- i do not want at do anything that i said in the past about this. it is something we're looking at in context of reform. >> you seem to be much more positive about the effectiveness pf tarp in the american public. could you point to me why you think that is? what is -- what are you aware of that the american public is not? >> i think the american public was left with the impression that the government of the united states came in and wrote checks for $700 billion to our nation's largest financial institutions and that they will never see that money again. and that nitial perception created by criticism of the program hardened, and it has been a challenge as you on this committee have found,

particularly those who were there from the beginning. the reality is very different. has said, we've only put out about half f that -- as i have said, we've only put out half of that authority. this administration did not quite a single check to our nation's largest bank. we wrote $700 billion of debt to small community banks across the country, and as i said, it is generating a very substantial return to the american people, and we're going to return hundreds of billions of dollars of authority to washington to help reduce our federal deficit and meet our long-term needs. those are the facts and realities of this program. and you compare that record, not just against the expectations of the critics, not just against the eepectations of the architect, but the experience of this countryyin past crises, with the spirits of any other coontry in the crisis, it is a remarkably effective program. the highest returns on the use

of a dollar of tax payer money than i think almost anything the government has done in this crisis. >> mr. secretary, this is your time. i still want to give a superintendent question -- time for questions. >> of acknowledging that, we're going to be living with the aftershocks for a long time. we are in the beginning of repairing that basic damage and it will take more time. e. we are still in the beginning basic damage at more 's going to take time. mr. secretary. superintendent neiman. p> in my opening statement, you know, congress' finalizing will hhve eform that implications for decades, both nationally and internationally. to see the u.s. on regulatory reform. i've heard from foreign

government fficials that they e very much pleased that ahead. ving they are probably not saying it asspublicly as they should. i'm particularly very proud of -- significantt areas of the world, things like the volcker rule, executive pay and risk. however, we all know that these also -- these issues acting as a first mover do raise issues around global competitiveness, regulatory arbitrage and regulatory gaps around the world. would you mind sharing with us would apply ou when determining the u.s. must leaddand when the u.s. must lead in global concert? >> we are trying to do so together. e are trying to fix the things but at the ssme time we laid out our basic objectives of reform. negotiated inttrnationally a broad consensus on the set of broad objectives internationally that would

parallel the basic strategy we adopted here. the g-20 e when leaderssmeet in toronto on saturday and sunday they -- a remarkable commitment across the major economies thrrugh that set of basic principles for providing better oversight, better transparency and disclosure, better protectioos against risk takkng on a more even standard and across the major markets. we could have decided to move place high standards here and pull the world to these standards over time. we decided to move together. now, we have a very difficult challenge ahead in negotiating a new set off capital standards for the globally active baaks critical ill be the test of our capacity. again, to pull the world to a higher standard. but we come to that with a remarkably strong position because we were able to move so quickly in the united states to recapitalize our syst