intermediatery had provided protection to other clients. as the housing market detire yor rated, gold mab sax began to mark down the value. we believe our marks reflectd the realistic value that the market was placing on these securities, and the price at which we and others were willing to trade. the marketdowns resulted in collateral calls to a.i.g. consistent with our mutual agreement. because a.i.g. disputed some of these calls we spent a considerable sum to ensure against the risk that a.i.g. would not pay us. . .

when a pattern of losses occurs in the business, we attempt to reduce our risk. we have reviewed every rmbs and cbo that we wrote from december, 2006, until today. we underwrote approximately $14.5 billion. at the end of june, 2007, we held approximately $2.4 billion of bonds against those cdo's. we bought about 1% of the total amount under written. in the same time, the firm underwrote nearly $47 billion of rmbs. we held about $2.40 billion of in june, 2007.

during the financial crisis, goldman sachs lost $1.2 billion in its residential-mortgage related business. we did not bet against the clients and the numbers underscore that fact. we regret that we did not do many things better, like having less exposure to less-leveraged loans, causing us $5 billion in losses, and of course we wish we had seen, more practically, the effects of the housing bubble. we believe that the most important conclusion from a review of the crisis is that the system and the institution needed more capital, liquidity, transparency, and better risk management. mr. chairman, thank you again for the opportunity to appear before you today. i look forward to answering your questions. >> thank you very much, mr. cohn. we will begin our question

period. i will begin the questioning, followed by the vice commissioner and the chairman. i do want to pick up on some information request and put these on the public record. first of all, i would knowledge, as our staff would, since we issued subpoenas, we have been provided both before and after cigna didn't information. there are additional items i would like to -- a significant information. there are additional items i would like to request. we would like to get this as soon as possible. we asked for information as complete as possible on the basis for the marx made -- marks you made, particularly with cdo's.nshi to the we like to get the basis for the

marxian made -- the marks you made from 2007 till 2008, particularly with respect to a ig -- aig. you provided information about the marks given in respect to the bear stearns asset management funds. we do not believe what you have provided is complete, and we would like to follow up. can we have your commitment that we can get the information so that we can understand how you mark to market? >> absolutely. >> thank you. secondly, we have requested information, because you have stated many times that you were fully hedged against events at aig. clearly, goldman did purchase credit defaults what protection -- default swap protection. you never invited the counterparties from whom -you from- at -- you have provided

us the counterparties from whom you purchased that protection. there may have been up production -- a purchase of $100 million that is not broken into specific amounts. since the company stated it was fully hedged, we're interested at the level of cds protection that existed pre-essentially, federal reserve loan. we want to understand the nature of your hedging, so if it was full hedging, shadow hedging, and to the counterparties work. -- who the counterparties were. can we get that information? >> yes. >> this is my time to alleviate some of your burden. for revenues and profits from derivatives trading as a

business. i know that your aid he did not have the derivatives business, so to speak -- you have said you do not have a derivatives business, so to speak. it seems to me that, from a management perspective, you have to be able to cut your revenues and operations in many different ways -- horizontal and, vertically, diagonally. maybe there has been a miscommunication. is it possible to get the reports that would indicate the size and nature of the revenue and profit from derivatives dealing? >> we would not have management reports that break it down that way. we looked at our risk aggregate. whether you look at cash security or a derivative of that cash security, it is the same underlying risk, and therefore we manage it in one pocket. >> you have no breakdowns in which you can segregate out your

derivatives activities and the cash flows that come from that activity from your other activities? you might have an underlying security and you might have derivatives and you do not separate that in any way shape or form -- way, shape, or form? >> we do not. we look at our net delta, is what i would call it. if you are long 100 shares of stock, your long 100 shares. if you're long one of the money option, it is 50 dealt a -- 50 shares. with those two positions, you would be long 50 -- 150 shares. we look at that as 150 share risk. if the market moves 5% up or down, what is the risk parameter? it is virtually impossible to separate those, because the same underlying factors will determine the profit-loss, which you used to show the risk. >> what about revenues across

from profit-loss? fees, incomes? >> we can break out the underwriting fees. >> i am doing this for the benefit of the commission. i do not want to use all my time. we want to pursue this matter. the best way is to have a more full some discussion to see how you do break it down. it seems like you are a pretty smart guy. you have a lot of management ability to see how different divisions are performing and what the spreads are. we would like to pursue this discussion. >> we're happy to work or your staff and give them as much transparency as we have. we can dig and dig, but we will not find that report. >> there are items in our inquiries that are ongoing. let me jump right into what i would like to address today. i do not know what you heard the previous session with the aig folks. >> some of it. >> i do want to pursue what

people did in the marketplace and why they didn' it, and the relationship between aig and goldman sachs and the valuation of the cds book, as well as the collateral with respect to that book. at a certain level, i am looking, not for whodunit, but trying to understand to build this bomb, who might have built bomb shelters, and when the fit -- and when and who lit the fuse. you were clearly very active in the creation of mortgage-backed securities from synthetic cdo's and on. you did about 48 synthetic cdo's, 3500 trenches that were 2007, by your own account, you were very

active in cdo and rmbs issuance. you're very familiar with this market. my understanding is that mr. cohn and mr. broderick's interviews did stipulate that the creation of synthetic products was possibly inflating the ball. -- the bubble. i want to focus on the other side of this equation -- the protection you were buying from and to understand how this worked. it was an over-the-counter market. it was opaque. there appeared to be destruction and the market. it was very hard to get price discovery. -- there appeared to be a disruption in the market. it was very hard to get price discovery. i would like to hear the chronology of your december from december, 2006, to get

closer to home, to begin to reposition yourself, a chronology that starts there and really marches through the collateral calls you made to aig, their responses, the postings that were made, and a chronology that includes the production you bought against aig. if you look at a chronology -- and i think you are aware of this -- goldman sachs was first going in the door asking for collateral and was by far the most aggressive in terms of the time frame and the amount asked for -- timeframe and the amount asked for. you were 27% of the cds book. you had posted a large percentage of the collateral. you then have 40% of the collateral calls and 27% of the total book. a -- you were way ahead.

euromarks were consistently -- your marks were consistently below the rest of the market. does the setting of marks move the market? according to some accounts, you were not short. -- net short. did you have reasons to move the market down? was this a straight up business negotiation? was there a discovery channel, a cheetah hunting down a member of the herd? the calls against aig or the first dominoes in a chain -- were the first domino's in the chain -- dominoes in the chain. you made your decision in december, 2006, to reposition

ourselves closer to home, to reduce some prime risk -- subprime risk, to start marking the inventory. in march, 2007, you said, there is no established trading market for the securities in one of the wolf cdo's., you're in the process of making big marks down. in may, you send it to the bear stearns asset management group, marks at 50% to 60%. others were in the 90%. the sheer amount is stunning. goldman's prices

were "ridiculous." saying that goldman was "not budging and acting irrationally with iraq that collateral call was pulled down significantly based on bids -- not budging and acting irrationally." that collateral call was pulled down significantly based on bids. you were marking significantly below the market. why is this? what do you know about the market that everyone else does not know that puts you in the position of marking the securities at significantly lower levels and making these calls? chairman into levy's -- chairman, let me start. we had collected more collateral than anyone else. you should reference the different trading documents.

i am not sure all of the counterparties have the ability to call for collateral. aig was a highly-rated counterparty. they did not like to sign to be a zero-way -- to sign two-way agreements. >> we of a company that accelerates there's -- we have a company that accelerates theirs after yours. >> why were our marks where they were? if you look at our trading agreements with aig, it clearly states that our marks are to be determined by fair value, not fundamental. our determination is where things are transacting, based

on other relevant transactions going on and on the market. until there is some transaction that equates, it is difficult to mark the books. what was happening, you went through a time where you had increased volatility. what normally happens then is bid offers widen, because people are unsure of the real volume. eventually, some trades start taking place. as more trades take place, the market tends to converge around an area of value. as trades took place, we used to those actual, real, allied trades as references points to as reference points. >> you are telling me you had

actual trades, not just episodic, substantiating the market? >> yes. >> we would like to have that provided to us. we are seeing that it was a disruptive market with no real trading value. if you heard the earlier testimony today, when goldman first make its collateral call, it was revised from $1.8 billion to $1.2 billion -- >> it was revised, and then they paid us the money. >> they paid 450 billion -- $450 million. according to your colleagues, when they spoke in september, he had said that goldman "did not cover ourselves." he said, the market is starting

to come your way, implying that you had a position in market. as an implicit admission that the initial collateral calls were too low. if someone is a net short, as you work, someone is not long, -- as you were, someone is net long -- were you at all motivated to begin pressing prices down? >> no. we had transactions on the other side. we were paying the equal and opposite margent to our clients on the other side. we sat in the middle of buyers and sellers. we had one set of books. we collected on those and paid on those. to the extent we were moving them up or down, it was money in the door growing right back out the door to the other side --

going right back out the door to the other side. >> let me explore this little more. there are three additional documents i would like to enter into the record which were provided and cleared by your counsel. there is a memo that ultimately flights -- floats up to mr. it is on the very day that you are making the collateral call to aig. "the extent of collateral calls being generated overnight is embarrassing for the firm. we need to focus on developing a process for ensuring accuracy for all marks, especially those which we and sent to clients. -- we incent to clients." there seems to be a lot of

have it, s aig would to encourage them to make a collateral call, but they do not do that. the dispute your marks. the first document start with an e-mail to david lehman dated july 22. the second is from lehman. it is about aioi insurance. they are objecting to your march -- this is july 31 -- saying goldman's marks are twice as bad as the second-worst dealers and in all positions super senior. it sounds like getting the margin call out of them will be difficult. he also said, are margin call based on our mtm was totally

accepted. -- totally on excepted -- unaccepted. this comes to you, mr. broderick, indicating that they were contesting marks. in this non-traded market, i am trying to understand what you are doing. are you pushing prices down? >> we are not pushing prices down through marks, the market is. we were prepared, openly prepared, to trade at those marks. >> do you? >> we have. >> i am not saying you withheld this information, but we want to see the actual basis for that time period. i am going to stop at the moment. i will return to this subject,

but i want to leave time for the other commissioners. mr. vice chairman. >> thank you. i did not ask the last panel of they would answer questions in writing. i am sure they will. i will not been negligent with you fellows. obviously, we're going to have additional questions. i would very much like you to respond in the positive to my question of, if we get questions to you in writing, would you get them back to us? >> yes. >> she cannot record -- >> yes. >> thank you. my ascension is there will not be a subpoena necessary to follow up on that -- my assumption is there will not be a subpoena necessary to follow up on that.

i thought we were engaged in business the way your reputation indicates. you're going to do what you were going to do until we could prompt you. it was a business relationship. we were not getting answers, so we issued a subpoena. you're now being responsive. those are the ground rules that we operate by. i do not think you heard of that debt -- i do not think you heard the first panel of economists. we talked to them about the housing market in derivatives. i want to shift to a broader question because you guys are big in almost feel -- almost every field you go into and you are good at what you do. if you think there is any validity to the statement of one of our panel members -- i asked

him, what did you think was the fundamental or principal cause of the financial crisis? he focused very directly on the government's desire to get people into their own homes. you can look at the community reinvestment act. both republican and democratic administrations attempted to get people into their own homes through fannie mae and freddie mac. his statement was, the government went to wall street and asked them to lend to more people. wall street responded, so you want us to lend to people with lower credit quality? watch us. in terms of having an opportunity to move vigorously in our particular area -- a

particular area, i would assume he would answer yes to the question, did goldman help facilitate that mark to market? you have to wind up with structure. i am trying to figure out where you were looking at opportunities. you're chairman came before us makeaid comiyour job was to markets. i assume you looked at this opportunity in your field and came up with some ideas to make markets like cds's and cdo's. what was your mindset? were those necessary devices? were they the best ones available? i do not know what are your business and how it operates. were there other ways to do it? were those the best way to get into the business of what we

want up getting in over our heads on? >> our business is pretty fundamental. we are a client facilitator. we have clients that we interact with all over the world. they come to us on a real-time basis all over the world, trying to buy or sell certain risk, assets, or securities. we respond to what they want. >> one thing is that they help create markets by getting people to want something they did not know they wanted. are you engaged on creating markets on that basis at all? do you, with an idea to see if people -- do you come up with an idea to see if people like it? >> we're not that smart to anticipate what people want. >> i will put that statement in the category with the apology. >> we do respect what our

clients want. when a client calls me and says, i have long mortgage exposure, i need to find a way to go short, please, work with me. we will then work with the client. that is how our business evolves over time. we facilitate our client franchise. >> so you start with something more fundamental -- the cdo's and cds's. did they come to do with the idea of synthetic cbo's, or did you come up with that idea? how did you get into a synthetic cdo's? >> i do not know the precise moment that was created. the half-life of cceativity in the financial-services industry is about 30 seconds. the moment you published a transaction, because there are underwritings that you have to publish, the entire world gets to see. >> i was not interested in

getting someone an award for getting first -- for being the first. you were into it. >> we did it for reasons that our client france has demanded us to be there -- franchise demanded us to be there. >> for you guys not being very clever, you made a lot of money. in looking at earlier groups , whichaig and you guys others will also talk about in that more narrow relationship. you have lot of clients. one of your concerns would be to make sure you spread risk over as broad a bases as possible -- basis as possible. would you describe the relationship between goldman and aig as concentrating more risk than you would otherwise have liked?

you play tennis with who shows up at the court sometimes. >> it is impossible for me to say what aig add on the other side. -they were an. - had on the other side. there were an important client. they wanted more and more involvement in this market. >> we were facilitating our custom made -- if you were facilitating your customers. >> gas. --yes. >> the ig looks -- a i g -- aig looked like the perfect customer. they were the largest in this space. from looking at them as a suitable and appropriate

counterparty, they really ticked all the boxes. they were among the highest- rated corporates around. they appeared to have on question expertise, tremendous financial strength, huge and appropriate interest in this space, backed by a long history of treating in it. it was, from an assessment of or proper counterparties, they looked like the right type of entity to do a substantial amount of business with. >> i do not think it ever got an answer in terms of the suggestion that this was basically government -- bipartisan -- moving people into homes and people were accommodating map with new nivkh inventions -- with new inventions. we saw the quality move from

some money down to no money down. there was some indication of income you could cover it, then no documentation was necessary. you kept generating these documents based on mortgages that continued to look worse than we had ever seen before, but for some reason ratings companies were giving them high ratings. i am getting back to the whole question of -- or stated goal as chairman -- your bowl as chairman was stated to be making markets and making things happen. would it be fair for me to look at this relationship that we wound up getting into as come to a certain extent, a market promoted by government, and that you were more than willing to cooperate in that, supporting a government-supported structure

that eventually collapsed? >> there is some truth to that, but it is not the whole truth. >> some truth is the best answer i have had in a long time. let's focus on the some not the whole. the s-o-m-e. >> there was a social agenda to increase homeownership in the united states. many of the bodies that were out there to promote homeownership, including the agencies, work, by statute, lowering -- were, by statute, lowering their standards to except new kinds of loans. it was an opportunity to get into the subprime market. >> your ability to assist them in creating profits -- products and getting people to participate -- was there ever a discussion that this was a positive social policy that we

ought to work with and makes sure the oath itself up -- make sure they get soaked up into the system? >> the market -- the mortgage originators were looking to sell products. it started looking differently than what we were used to. we went to the traditional buyers of mortgages and said, are you interested in buying this? what if the price -- what is the price, the yield, the discount you need to commit capital? we intermediate between the originator of the loan and the ultimate buyer of the loan. >> do you not try to sell? you are not there just as a facilitator? if you had these products to sell, did you ever refer to them in terms of the rating companies, in terms of triple a and other descriptions?

>> there were always ratings agency descriptors involved, but more important than those was the actual price. the prevailing price would give you a much clearer picture of what the market would think about hte real -- the real value. >> i will reserve my time. i have to go back at you a little bit. i understand the shtick you go through in terms of who you are and what you do. if you have traders making what, flipbooks showing people can have, that is basically selling and advertising and attempting to get people to except something that you have created an offered and can make money on, is it not? >> we think we can make money,

but the evolution of a flip book, was a client inquiry. when a client inquires to us, can you created xyz -- create xyz for us -- we make a decision, if they take that piece, are we ppepared to take the rest and redistribute? >> i understand. i have been successfully elected 16 times. you ask me something, i can give you an answer it exactly the way i want it. i better understand that i need to have issued a subpoena to get information. >> since you raised it, i want finish it up. i want to pick up on something. for the record, i know other commissioners will deal with this, the idea that the cdo help

meet the housing goal is still not explain to me. i do not see how it created more capital to create more housing opportunity. the way i look at it is that a bomb went off. you were not the sole partisans. goldman did participate in building the bomb, which ultimately blew up. clearly, you did that. it is not disputed that you build the bomb shelter, starting in december, 2006. looking at the market, you decided it was time to protect yourself. what i am trying to get to is, how did this cascade of events began? was it the underlying, poor quality of the subprime loans in the market? or was it come in fact, activities -- or was it, in fact come activities of the people in the market? -- in fact, activities of the

people in the market? if you look at august 16 and this e-mail, gs is aggressively marking down as the types that they do not own so as to cause maximum pain to their competitors. bonds of timber 11, there is an e-mail -- on september 11, there is an e-mail. they received marks from gs but sg disputed them with gs. if you go on, there is a november 1 e-mail that said, the collateral calls was -- call was spurred by gs calling them. the allegation is that you told them to get in there and make a

call. when people ask you the question -- how would you tell me you did not drive prices down? what objective evidence can i look at to understand this market to see whether the pricing was fair or whether it was just a struggle between big financial institutions who had a very distinct market position? >> to me, it is simple. actual trades and the fact that we were willing -- aggressively willing to liquidate our portfolio back to their clients at those marks. >> the proof will be in the pudding. i think the trail of marks and transactions -- whether it was liquid or episodic -- it will be really revealing. >> tomorrow, c-span errors highlight from the first three days of elena kagan's -- airs highlights from the first three days of elena kagan's confirmation hearings. we will hear from her on a number of subjects including

abortion and treatment of enemy combatants. that is tomorrow morning at 10:35 on c-span. on thursday, wisconsin representative paul ryan, ranking member of the budget committee, talked about the federal deficit at this event hosted by the american enterprise institute. this is 90 minutes. >> thank you very much. i am kevin hassett. we're thrilled that you could join us today at an event that will begin with an address from mr. ryan, congressman from the first district of wisconsin. we will then follow up with a panel where bill gale from the brookings institute, andrew biggs, and norm ornstein will

discuss mr. ryan's remarks and budget issues. paul ryan is a congressman from the first district of wisconsin and is ranking member for the republicans on the budget committee, a member of the ways and means committee, and one of the few congressmen who is as comfortable around nerds like us as he is in political circles. mr. ryan -- many of us think of him as the thought-leader in the party. his remarks are always food for thought for those of us assembled. mr. ryan will speak. we will have to run for a vote. the plot is not taking for that. i will hand it off -- the bell is ticking for that. i will hand it off.

>> i will give an abridged version. i can make it to the floor fast. we just got this yesterday. this is the cdo long-term budget outlook. it is pretty scary. our economy is going off a fiscal cliff. we will have our own debt crisis of we do not get the situation under control. the legislation really -- received very little attention. it was designed to prevent high premium increases for seniors. i want read a quote from steny

hoyer at the time. "if we cannot get a handle on entitlements, we will be spending nothing more than money on entitlements and payment on the national debt. we have to buck up our courage and judgment and say that if we tried to take care of everybody, we will not be able to take care of those who need us most." i could not have said it better. that bill -- 406-18. steny hoyer was one of the five democrats and i was one of the 13 republicans who voted against that measure. that rare moment of small bipartisanship is the reason why i have hope and is why i believe there is a growing consensus that something has to give on these entitlement programs. the numbers are irrefutable. the numbers are very clear. the public debt exceeds the size

of our economy in 2023. the cbo model that measures the economy breaks and cannot estimate what would happen to the economy of our debt levels get as high as they are projected to get. when my kids are now my age, the size of government will be double -- a deficit will be double what it is today, the tax burden will be crushing, in the interest-rate will be so high that you cannot have a standard of living or growing economy. clearly, something has to give. steny has made some comments that make a lot of sense. he has been talking about things like means testing the eligibility age. he has been talking about have an honest -- having an honest debate about health care reform and raising the eligibility age for future retirees. this should be encouraged. the fear that i have is that,

when it comes to entitlements policy, both sides could rip each other apart, demagogue the issue, and result in a political but solaces -- political paralysis. i tried to get out of this rut by offering my own plan -- the road map for america's future, which as two motives. show us that we can do it. put a real plan with real numbers, certified by the actuaries at the entitlement programs. we want to pay off our national debt, fulfill the obligations of our retirement and social security, and get the engine of american prosperity back up and running. as on the pathway of growth, higher standards of living -- guest on the pathway of growth, higher standards of living -- to get us on the pathway of close, fire standards of living. we want to show and encourage

others to come up with their own plans. i'm not suggesting a have all of the answers. this is how i would fix these. what i am trying to do is get people did not agree with the way we fix things to come up with their own plans. unfortunately, we have had nothing appeared where we are is the budget committee -- which is supposed to write the budget resolution every year, for the first time since the modern budget gap was put in place in 1974 -- we're not even doing a budget. was that the first bell or the 10 minutes? it tells me how much time i have left. we're not even during a budget this year. we're not having restraint. we're not saying how much the spending will be done within the confines or constrictions of how we get toward a debt-free nation and preempt a debt crisis. that is a mistake. we ought to come together in areas where we can find bipartisan agreement. steny hoyer has put some of those things out there. we have honest disagreement,

let's debate them. we ought to be raising taxes on middle-incomers. we ought to go farther down the path of this kind of health care reform. i disagree with that honestly. i disagree respectfully. we should not go down the path of raising taxes on middle- incomers or businesses, because it will cost us jobs, competitiveness, and will send a signal to the job creators and innovators and entrepreneurs, that the price of taking a risk is much higher. we should not have the government control our health care center. it was a plan for health care rationing. the only way to get the debt from exploding is to address health care. the way that this new health care law addreeses health care is too deeply and systematically ration care for everybody in america if we go down this path. i have very honest disagreement

on this way of doing health care reform and this method of balancing the budget. what i would argue is that there are two paths ahead of us. that is the differenceethat lies between the two schools of thought we've seen. on the one that is austerity. on the other path is prosperity. i want to put a plan out there for prosperity. if you took a look at the details of the road map, it is a plan that will surely get a demagogue this fall. these programs that you organize your lives around will be there. not only will they be there, but we will finance and guarantee them. if you're 54 and below, like i in most of you are, you ought to know those programs are not going to be there for you. there is no ith the government and finance these benefits for you when you retire. does it not make sense to change

these programs so that there sustainable and solvent and can actually be depended on? let's stop giving people the false impression that these things are going to be there like they're currently design. why do we not change these programs so that they are actually something we can depend on? by doing it now, you give people plenty of time to prepare. if you do it now, you do not have to hurt those who are depending on the programs today. that is a prosperity plan that is a get ahead of the problem plan. the alternative is, go down the path that the cbo has said is disastrous. keep kicking the road -- the can down the road. cut benefits for seniors, raise taxes. that is where europe is now. that is will look like -- is what it will look like. it will slow down our economy.

at the end of the day, it is basically a choice of two pads for america. do we want an opportunity society with a safety net where we're pushing prosperity to its limits, extending the economic growth of the system to more and more people, recline in the american idea of incentivizing entrepreneurship, hard work, production, achievement, and growing our economy? or are we going toward the european welfare state? those are the choice is ahead of us. at the end of the day, this is not a mathematical exercise. it is a cultural decision for who we are and what kind of country we want to be. do we want a system that says we'll have a safety net to take care of people who cannot take care of themselves? we'll have a safety net that helps people down on their luck, but not a hammock that old people into complacency -- that

lulls people into gleason c. that is not who we are. it is not to we have been or who we should be. unfortunately, it is the path we are on right now. if we allow the political demagoguery to continue, that is exactly where we will end up. we're close to the tipping point. we're reaching the point where we have more takers than makers. i have read some great books, and i know that americans do not want that kind of system. americans want and entrepreneurialism society. they believe the morality of the free market society. no matter where you are from, you can be whoever you want to be. the only limit is your own effort and talent. that is what makes this country

great -- the incentive for people to make the most of their lives and reach their full potential is something we pride ourselves on. we do not want to lose that. at the end of the day, what is the consequence of entitlement reform, of this long-term budget outlook? what is america to be in the 21st century? are we going to be a country that manages our decline? or we going to be a country like we were in the past -- are we going to be a country like we were in the past where we take and fix the problems we see so that the next generation is more prosperous? we know the future has a lower standard of living, less prosperity, fewer jobs, fewer opportunities. that is not the future that we want for this country. it is not what we have ever passed on from one generation to the next in this country. is this generation of leaders in

washington, in our state capitals, in the country, going to see and address that problem and get beyond the political demagoguery to actually solve these problems so that we can maintain the legacy of leaving the nation better off? that is what it takes. i want to open these comments by saying -- when you have people like steny hoyer saying we need to tackle this problem, offering some constructive ideas on how to fix this -- we need to take advantage of that and work on those ideas. when you have honest disagreements on things like health care and tax policy, let's have a real debate about those and bring those to the american people to give them a choice. which kind of society and country do they want? that is what we are trying to achieve by putting ideas out there. this ought to be about a battle of ideas. it should not be a battle of 30- second spots trying to win any election by trying to tap into fear and anger.

that is the political paralysis we're in. that is the poisonous debate we have had. as one of the 13 republicans, i would like to reach out to those five democrats like steny hoyer, and hopefully build on that minority to fix the problem. i probably better go. i will have time for questions until you yank me. yeah. >> hey. tomorrow [inaudible] we're want to lose 100,000 jobs in june. yet at a speech in wisconsin, president obama said that passing cap and trade legislation [inaudible] he proposed the $2 billion plan for high-speed rail.

we have to do something about the problems we have today. >> this is ministers and economic policy -- this administration's economic policy is completely backwards. there was a great of bed yesterday -- a great op-ed yesterday that said the high- speed rail in wisconsin is a boondoggle. we manufacture things. it is pretty cold in the winter in wisconsin. it is a job-killer where we come from. they denied this financing plan for 1000 jobs because it was going to manufacture mining equipment for coal in india. that coal plant is going to occur, but not with wisconsin jobs.

they will be foreign. receiving the consequences of wrongheaded economic policy -- we are seeing the consequences of wrongheaded economic policy. it is the speech of a campaigner-in-chief. i would have preferred to see him speak in a constructive way about how we come together to change the job situation and the economy. red state, blue state, united states -- that is using strong- man arguments to try to defeat and vanquish your political opponents by ascribing views to them that they do not actually have. that is not constructive. unfortunately, our economic policy is completely backwards. we have a wave of tax increases in 2011 and 2013 with fed reserve tightening sometime in

the future. there will be a credit crunch. we have more regulatory uncertainty coming. what it all does to investors, entrepreneurs, businesses, is it tells them, you know what? i'm going to sit on my hands, because the future is too uncertain. it will cost me too much if i create jobs. we're distinguishing our economic recovery -- extinguishing our economic recovery. in the 1981 recession, we had 9% growth for a few quarters. we have slow an anemic growth now, which means we will not have jobs. you need to create 250,000 jobs for five years -- per month for five years to get back to pre- recession levels. we could get those jobs back. we're not doing what we need to

do to get real job creation. all we're getting is political demagoguery and partisanship, not real economic policy that would create jobs. unfortunately, what is beyond this is more ideology than economics. we have to change that. >> your plan for debt consolidation seems to consist mostly of fiscal austerity, spending cuts, and you have said you disagree with tax increases on the middle class. do you think the entire debt consolidation can be accomplished via spending cuts? >> absolutely. yes. i asked ben bernanke about that. he said, of course. if you look at the tax reform i propose, it makes american firms more competitive, incentivizes them to build more things in america, turn the export engine back on, turns the economy

around, give small businesses incentives to grow and create jobs. it is a growth plan. the road map to austerity is the opposite. if you are near retirement, nothing is going to happen. if you are younger, things have to change. i want to replicate the benefits i have as a congressman. i want to replicate the health care system i have as a congressman, which gives me and my family more control over my retirement and health care benefits. i think that is the best way to go for future generations. according to cbo and the actuaries, that would solve the problem. you wipe out the unfunded liabilities. the debt will go down. you give us more breathing space in the credit markets. you shall the and world that america is back in business and is turning on its prosperity and economic machines like it has in the past. that is a prosperity plan, not

austerity. thank you mary much. -- very much. [applause] >> go ahead and come up. we will bring the panel forward. the first speaker is bill gale. many of you know bill is an economist at brookings. he is very accurate. he knows how terrible the budget is likely to become. he is a leading authority on budget issues. the budget arithmetic that we

see, while accurate, do not necessarily give us the accurate view of what is likely to happen. bill's work is decisive in giving us a clearer view of what the future might hold. after bill is andrew biggs of aei who will talk about what we might do about it, given the circumstances we described. after that, we have norm ornstein of aei, who will talk about whether we think that might actually happen and what the political circumstances might be that could make it happen. .

here is the situation. we have a huge short-term deficits, medium-term deficits, and long-term deficits. there are big deficits as far as the eye can see. the reason we divide it up is that i want to make the case that those are three different sets of issues. the deficits in the short term are from the downturn in the economy and earlier policies.

i am one of the majority of the economists who think the stimulus package is a good idea and we needed to do that. i am not particularly worried about the short-term deficit. i think it is helping. if we did not have the medium- term and long term, we would not be worried about the short-term. over the next 10 years, if and when the economy recovers, we have the fundamental imbalance between taxes and spending that will have to be addressed on the tax side. in the long term after this decade into the 2020's and so on, we have rapid increases in medicare and medicaid. that is what andrew is going to talk about. that is a separate issue from the imbalances we have over the next decade. i want to talk through that. we are not the only one with the school concerns. the states are in bad shape.

the piigs countries are in bad shape as well. in washington, everything starts with the cbo baseline. it actually looks good. deficits are 10% of gdp. it drops rapidly down to about 2.5% of gdp by 2014. it goes along a low level for the rest of the decade. that would be a great outcome if we thought the cbo baseline was a forecast of likely outcomes. it is not. the baseline assumes that congress does nothing for the next 10 years. it does not enact any tax changes or spending laws. it just lets current law play out the way the law says it is going to. all taxes that is supposed to expire are allowed to expire.

discretionary spending stays constant in real terms. the pay in medicare, the cuts actually happened and so on. i want to emphasize that nobody -- this is not 80% of people -- literally nobody thinks the cbo baseline is an accurate rendition of what is likely to happen. i also want to emphasize that that is not an insult to cbo. they're doing what they're supposed to do. they are putting out a base line that says here is what is happening if nothing is changed. if you should pass new laws, it will show the changes relative to the baseline. >> you are good now. just speak louder for people in the room. >> would it be easier if i stood up? ok, i will speak up. if you missed what i said so

far, basically, the situation sucks. [laughter] when i have done over the last decade is try to estimate a more realistic option. we call this extended policy. you can think of this as business as usual. we assume that congresses the next 10 years will act more or less like the congresses of the last 10 years. they will extend the test -- tax cuts. they will have tax cuts for the amt to reduce that. we let spending grow with inflation and population. we make adjustments to the defense projections. we assume that the doc pay cuts will not happen since they have never happened. no one thinks that actually will

happen. these are not huge changes. they are relatively conservative in terms of assuming deviations from the baseline. these conservative changes make an enormous difference in the outlook. the deficit falls to five in 2013. the deficit rises to almost 7 by the end of the decade. that is a big concern because the deficits are big but also because that is happening with the economy going along at full employment. from 2014 until 2020, everything is fine in the economy. except that the deficit is getting largeer. after 2020, everything gets worse. even in the next 10 years, we are on a path that shows we are unsustainable. if we add in obama policy, it is kind of right in the middle.

the administration wants to say the relative to extended policy, they are doing well. the issues relative to baseline our that they are increasing deficits dramatically. deficits are rising over the second half of the decade when the economy has recovered. that is the real indication that this is not going to last. i do not have to vote so i will ignore that thing. this is kind of a fund graf. -- this is kind of a fund graph. it says that we expected to hit zero. that is not a misprint. we expect it to run out of -- we expected to run out of federal debt as of 2008. alan greenspan testified you cannot have that because you could not do open market operations and run federal

policy. he was changing his mind after opposing tax cuts for eight years, he was now supporting tax cuts in the bush administration because of this. you will hear a lot of bad news today. let's be clear. we are a can-do country. we had a concern about running out of federal debt. we solved that problem. [laughter] we can move on to the next one. this shows the actual debt projector. on top, it shows you what happened under the obama budget. by the end of the decade, the debt is 90% of the economy. early in the next decade, the debt hits 100% of the economy. that is where we're headed under current obama policy. my favorite single statistic is that net interest will be 4% of gdp. that is the highest level ever, even after world war ii to.

interest rates were lower than than they are expected to be now. that is where we are headed. i think these are based on relatively conservative economic assumptions. they are based on fairly strong political assumptions. pay-go is assumed to be in affect the whole decade. the cuts in health care are supposed to actually occur. the stimulus package is allowed to expire, if cedras -- etc. these are fairly optimistic projections. that is another way to say it could be a lot worse than this. what should we do? we have this dilemma right now. we want to create economic recovery, but we also want to impose fiscal discipline on the budget. that pushes in opposite ways.

expansionary fiscal policy could help the economy now, but it hurts the budget deficit. a disciplinary policy would help the deficit but hurt the economy. my view is that the economy is more important than the budget. we have to get the economy in order first and worry bout the budget next. i am in favor of expanding the stimulus now, combined with medium-term fiscal discipline. i would argue that the combination of those two at the same time is going to make each of the more effective than if we did only one of them. if you have stimulus but no fiscal discipline, then you worry about investors getting worried and freaking out and raising interest rates and cutting off the stimulus. having the discipline their in future helps the stimulus now. likewise if you just have discipline now, you will hurt the economy. if you add the stimulus now, you

will help the economy now. that will help fiscal discipline. i think doing both at the same time is better than doing either stimulus now or discipline later. there is this false choice about do we stimulate or cut back. the answer is that we do both. we do the stimulus now and we cut back later. that would help. a couple of comments about the next 10 years. if you want to cut spending, we need to address spending issues as part of it absolutely. you have to confront the fact that 70% of federal spending in a typical year comes from five things. the military, social security, medicare, medicaid, and net interest. people can cry all the what about foreign aid, welfare, the department of education, epa, or whatever. you can eliminate all those

things and would not make a dent in the deficit. these five items are the big money items. by the end of the decade, they're expected to be upwards of 80% of federal spending. they're lower than 70% right now because of the stimulus package. if you want to make a dent in federal spending, you have to go after these five things. when you think about what you can do, your options are limited quickly. net interest, we can default. that would cut net interest payments. the whole exercise is to avoid doing that. medicare and medicaid, we just enacted the enormous reform. it will take time to implement it. i do not feel like there is any appetite on the hill for going back after health care reform now. warren comment about that. my sense is that we're done with health care reform for the next couple of years at least. social security, all the plans grandfather in people who are 55

and older. even if we enacted one my now, we would not see the diamond to 2018. we would only save a little bit on the incoming retirees. we will not save much in social security for the next 10 years unless we're serious about cutting benefits for current retirees. let me just note that these forecasts are based on the obama military projections, not the baseline. the obama forecast is lower than the baseline. that is why i put it in here. there are already cuts in the military budget. i am sure we can find more. it has to be on top of anything the administration has already pulled out. it will be difficult to cut spending much over the next 10 years even if you cut everything else the government does. that will account for about 5.6% of gdp by the end of the decade.

even if you cut it by 1/10, a fairly large, he would be saving half a percentage point in the deficit. we're talking about deficits of 7% of output by then. you are talking about deficits of up to 6.5%. you still have the same concern even if you had enormous cuts in other spending. you have to go after those big five some help. that makes it very difficult in the next decade. it also makes it essential in the decades after that. on the tax side let me mention two issues and a third issue as well. one is tax expenditures. i do not think jacking up rates is the right way to go. it will not get as the money we need. it will create economic issues. there are a host of tax expenditures that are special subsidies. taking them out would make the system less regressive, raise

revenue, gives better incentives overall. tax expenditures are a huge category. a second category is energy taxes. we need to have a clear discussion about carbon taxes. rep ryan said they would lose jobs in wisconsin if we tax carbon. let's be clear. the way of life based on consuming carbon is destroying the planet. we have to change. it is like someone who is 300 pounds saying they will not give up cake and ice cream because those of the things they love the most. guess what, it is killing the person. consuming conventional energy is or will be doing the same thing to our society. we need to raise the cost of consuming conventional energy.

that may be through a carbon tax or a cap-and-trade system. it is undeniable that the right path is to raise the cost. i would be interested to reactions from other economists about that. another way to do that is a gas tax. a gas tax can raise an enormous amount of money. european countries have them of up to $5 per gallon. i am not proposing that. each dollar can raise a fourth of 1% of gdp in revenue. the $3 gas tax is a simple way to do that. i know there will be political objections. as ryan said, if you cannot just say you do not like this or that. you have to compare it to something else. i will put that out there. if you do not like it, tell me another way to raise to% of gdp

in revenue. the last one should be a viable option within the next decade. let me turn it over to in troop who will continue the conversation. thank you. >> >> i will talk about the long term. we're broke in the short term and even more. in the long term. i will not talk into much detail about specifics. there are three main questions. these are not designed to be comprehensive. the idea is to touch on three points that are interesting and may have been neglected or misunderstood.

what is driving long-term budget deficits? what about tax cuts? whether the best ways to fix the long-term deficit? i will run through the three of those in turn. the first question about what is driving the long-term deficit, it is not the recession, the park, the bailouts, or all the things happening today. you can summarize the long-term budget problems in one word. that is "entitlement." the budget will be more or less balanced over the long term without that. it may be big and wasteful, but it will not bankrupt us. with social security and medicaid and the rising costs, we are seriously out of whack in terms of our long-term budget. getting more specific, here we go. there are two forces driving rising entitlement spending.

the quick summary is that more beneficiaries getting higher benefits per beneficiary. the first force is the population aging. blogger lifespans, lower birthrates. that means more people collecting benefits and fewer workers paying into the systems to support them. that drives up the costs of the programs relative to the size of the economy. the second factor is health care inflation were rising spending per person. costs for medicare and medicaid would increese even if he did not have population aging boosting the number of beneficiaries. the policy response you choose will depend on which you think is more important. if you think aging is the most important, he will focus on things like raising the retirement age, increasing the savings rate. things like that will help ameliorate the effect of an

aging population. if you think the real problem is rising per-capita health costs, you will take a different route. the administration has argued that was rising per person costs that were the real deficit threat. they said the aging was relatively small potatoes. the congressional health care plan had the idea that you would increase federal control over private sector health care to bend the costs or reduce the growth of per-capita health spending. those savings would leak into medicare and medicaid anddhelp to reduce costs there. the president liked to say that health care reform is entitlement reform. frank reforming private, he would reduce the cost for medicaid and medicare. -- by reforming private care, you would reduce the costs for medicaid and medicare. one problem is that aging is the biggest driver of cost over any time frame that matters.

this chart shows the relative contributions of the aging population and per-capita health care costs to total entitlement spending over the next 25 years. it shows that around 2/3 of the increase in total entitlement spending is effectively 2/3 of the increase in long-term deficits. it is simply from population aging. only 1/3 is driven by rising health care costs. if you bend the costs or even if health care reform is successful in reducing the growth of spending per person, it will not do that much to fix the long- term problem. the light blue widgets the top of the chart will shrink somewhat. the big leawedge will not fall y much. the deficits are driven by the age-related entitlements. those will bankrupt us even if we did not have the problem of

rising costs per capita. the narrative the administration pushed reminded me of the scene in the butch cassidy movie. they are running away. they're looking to jump over an enormous waterfall. the sundance kid says he cannot swim. cassidy says not to worry, the fall will probably kill you. the idea is that you are worrying about a smaller problem down the road when you have on more immediate problem that might do you in. i am hopeful that when the fiscal commission reports, we can start getting serious about entitlement reform to make the tough choices. the problem is we spend a year and half of discussion and political effort attacking a problem that is not the biggest one we are facing over the next couple of decades. my second question is how much of the long-term deficit is due

to tax cuts? some like to argue that the big problem is that tax cuts are starving the government of revenue. obama says the tax cuts will cost three times as much as it will cost to fix social security of the next 75 years. this is like the comedian who was asked about his wife's and he replied "compared to what." it really matters what you are comparing things to. i would argue that the baseline by which the tax cuts are seen as a budgetary problem is one that does not match up with the common-sense view of what it means to cut taxes. i pulled this chart from the cbo data from the long-term budget outlook that came out yesterday. i think it will show what i mean. the red line on the left shows personal income tax revenues as a percentage of gdp from 1970 through 2009.

the average level was 8.2%. i added the blue line across the chart to show the historic level of taxation. cbo calculates three possible paths for tax revenue comparisons. the green line shows what happens if we allow all of the bush tax cuts to expire at all income levels. the purple line assumes we make the tax cuts permanent but the alternative tax cuts deeply into the middle class. the light blue line shows what happens if we make the bush tax cuts permanent and index the amt to keep it from expanding. we have three possible paths for income tax revenue. the of one thing in common. they are all going up. they all but taxes far above what americans are used to pain. we will be exceeding tax rates by 33%.

we are exceeding tax levels but up to 51% later. this is bracket creep and a bias towards higher taxation. the federal tax brackets are indexed only to increase at inflation. incomes tend to rise 1% faster than that each year. a larger share of people's income lies in higher tax brackets and is taxed at a higher rate. even if you do not change the form of tax brackets, the percentages people pay, the average tax rate that people pay will rise and rise automatically over time. a lot of books like to believe their future budget deficits are a result of the federal government being starved for income due to tax cuts. there is not any evidence for that. we might argue that we want or need higher taxes. i have a lot of respect for steady lawyer steadysteny hoyer.

we're already working off the baseline of significant increases in income taxes for high and low taxpayers alike. i can live with that. when we say we need increased taxes above the increase we have built into the baseline, that is where i get uncomfortable. a final question of closing the long-term budget gap. i will not give a detailed answer today. i do not think i could today. i will talk about the choices we face. we should not be indifferent to raising taxes and cutting spending. the simple answer is we have to do one or a combination. the budget does not care. the budget cares about if you match spending with revenues. the research i am currently doing with kevin is looking at whether one approach is more

likely to succeed than another. we're looking at how other countries try to reduce their deficits and which countries and met the were successful. -- and which countries and methods were successful. we started out with budget data on 24 countries ranging from 1970 to 2005. we isolated instances where they made large but reductions in the budget deficit. the idea was to weed out cases where the deficit might have fallen by chance because the economy grew unusually fast in a given year. these deliver reductions are referred to as fiscal consolidation. -- these deliberate reductions are referred to as this consolidation. we wanted to know which consolidations were able to make the reductions stick. we looked at changes in the ratio of debt to gdp five years after the consolidation took place.

if the ratio fell significantly, 5%, we would call the consolidation successful. if it did not, we called it an successful. -- unsuccessful. our preliminary estimates are not sensitive to the way we are defining these things. we could have said this consolidation is an improvement of 1% of gdp. we could have defined success of improvement of the ratio of 4%. those parameters are not really important. you will get similar results however you run the numbers. these are preliminary results but worth taking a look at. of the 35 years with that, we found 56 instances of consolidation. those are examples where countries deliberately reduced their budget deficits by 2% of gdp or more. 14 of these were judged

successful. they managed to retain the savings and reduce the debt to gdp ratio after five years by more than five percentage points. the other 42 consolidations were unsuccessful. they were unable to make those savings stick long term. what made the successful attempts different? a key difference is the successful efforts rely principally on reducing spending. those that relied mostly on raising taxes tended to fail. successful fiscal consolidations were about 60% based on spending reductions and 40% based on tax increases. other successful consolidations were almost entirely based on raising taxes. about 90% of initial success.

they focused on reducing social transfers spending or entitlement. the focus on reducing the size and cost of the government work force. this tended to be most successful. these results are not particularly controversial. others have reached similar conclusions. the imf stated that this will consolidations that focus on the expenditures and transfers of government wages are more likely to succeed in reducing the public debt ratio than tax-based consolidation. the oecd concluded that an emphasis on utting expenditures is associated with overall consolidations and increased the chances of stabilization. the harvard economist found in a significant number of cases that budget balancing based on spending cuts provided immediate

stimulus to the economy. this counterintuitive from a traditional economic standpoint where fiscal consolidation pulls demand and might hurt growth in the short run. it makes some sense if we believe financial markets and the public might have increased confidence in the economy if they believe the government is truly committed to getting on top of the financial problem. that is one reason why focus on government pay and social transfer programs might be most successful. those are very tough nuts to crack. if the government shows it is willing to attack these are problems, people get more confidence that the government is truly serious about balancing the books. i think that is a good message to close on. budget deficits are looming in the economy remains weak. the economy needs confidence that things are getting better. one sure way to do that is to put the federal budget back on a sustainable path.

the message i take from this is that we know more less the right path to take. we need now courage and leadership to start the process of moving down that road. i will pass it over to norman ornstein to tell us how much courage and leadership we have. >> i would add to the other message. the situation sucks, and you are screwed. [laughter] it looks as if revenues stayed pretty much the same and would go up. when i looked at my cbo projection or examination of revenues, starting in 2000, we went down towards 15. these were individual income tax cuts. if you keep all the tax cuts in

place, does that mean revenue goes up? >> most of the cuts were on the income tax side. a lot of the of the revenue would be coming from payroll taxes. that declined slightly relative to gdp because of factors of how they are projecting them. i do not know what plays out on the corporate tax end of things. >> why did revenues go down from over 20% of gdp to 15% of gdp in the first five years after the tax cuts were implemented? >> the recession probably. >> we did not have much of a recession than. >> this is something i have studied. over time, if you shift the income distribution to the higher marginal tax rates. in the beginning, the real growth does not have much chance to do that. in comes grow -- the incomes

grow. you are kidding middle-class people to higher rates over time. -- you are kicking middle-class people to higher rates over time. the gdp in income will grow. if the immediate income goes from 38,000 to $70,000, those people will be in higher income brackets. [unintelligible] >> and prospers. let me start with an observation in the short run. i fear that we may see 1937 all over again. when the roosevelt administration came in in 1933, it pursued a set of policies known as keynesian and began to bring this out of the whole we

were in. we had 10.8% growth in 1934. i was not enough to get us out. we had growth in 1935 and 1936. as we hit 1937, some signs of small but real inflation emerged. the fed tightened. the treasury secretary convinced roosevelt that it was time to return to fiscal discipline and balance the budget. we also have tax increases because the social security program implemented the payroll tax before it began to pay out any significant amount of benefits. the result is that we went back into the ditch over the procession. it took the second world war to pull us out. i look at an economy that remains soft. it is a different kind of recession than the last one. it is no wonder we're not having enormous job growth given the

roots behind this. i think we needed a sharp stimulus. if i had been able to do it, it would have been larger. given where europe is and will be no one else providing a substantial engine of growth, there is a real chance that we could hit the double dip that will be serious. that would make our long term fiscal projections even more dire. we would struggle even longer before we have the economic growth that we hope will bring us out. in an ideal world, we would see a real commitment to serious restraint beginning in 2012. that would deal with some of the medium and long-term problems that bill and andrew have talked about. there would be a commitment to having enough of a stimulus to make sure that we avoid disaster now. given the response to president

obama's called for further stimulus and the lack of enthusiasm in the european situation, the need for that becomes greater but it is unlikely. in a well-functioning political system figuring out when you will make the said way and how you were going to do it and then being able to do it would be extremely tough. it is mind-boggling to think about how we can do it in a thoroughly dysfunctional political system. it is driven far more by ideological division and partisan rancor. it has come across the board. the system is driven now by the permanent campaign and the desire for political leverage that makes focusing on most of these issues almost radioactive.

you can see the difficulty that might be there even in a better functioning political system when paul lauded the 13 republicans and five democrats who took the courageous stand. that meant that there were 417 members of the house of representatives who shunned it almost completely. you could see it as well and the fact that his plan, an extraordinarily courageous plan, does not have a lot of his own party members flocking to it as much as anything out of a fear that they will all be charged with in the medicare and privatizing social security. the rhetorical charges come on all sides. that is true when we talk about health care and rationing. i would add as a foottote that rationing in the health care system is already going on in

our health care system. when my insurer tells me i cannot get lipitor unless i want to pay a huge premium and pushes me to a generic at a much lower cost or tells me i cannot continue cutting edge procedure, that rationing is being done by the insurers rather than others. as you look at injures projections on aging -- andrew's projections on ag ing, people are living longer. they're not just living longer. they want to live appropriately a robust life. they want to have recreation. they want to be able to play tennis into their 90s. they want to have sex. they want to do other things that add to the cost and burden on the system. every health care system will have to find ways.

even called by another name, but it is rationing. none of the people like or want to accept. the degree to which we have this function in the political system i would view as exhibit a. when we had a real deficit commission that might have some teeth proposed in a bipartisan fashion by fiscal conservative republican of new hampshire and the conservative of north dakota and came up for a vote in the senate, seven of the original sponsors of the commission -- would force an up or down vote just like we do with closing military bases. seven of the original sponsors

voted against their own bill. there are two reasons. one is that president obama supported the idea. they were not going to support obama supported. the second one was that even on a broad bipartisan basis, this commission might propose some tax increases. senator mccain said not only would he not vote for it, he would not serve on it because it might do the dirty deed. if that does not tell you the difficulty we have in this political process, i do not know what does. we ended up with a presidential commission on fiscal responsibility and reform. it has a terrific set of members from across the aisle. it has terrific shares including alan simpson, the go to guy when it comes to doing something good in the public interest. even if 14 of the 18 members agreed on a plan as required,

the likelihood that we could make it happen and get the votes for it is something that would leave me skeptical in this environment. i believe as paul ryan said that this will require tough choices across the board by people who have strongly held views. i also believe as you look at the cbo projections -- either set, but the second set includes some of these realistic things. not all of the bush tax cuts will be allowed to expire. we are going to pay doctors what we do now year by year. in the budget law as we have it, we only do year by year. some things may be less realistic although we do not know.

the bill then none of the cost- cutting measures in the health care plan that passed that may or may not work. -- they built in none of the cost-cutting measures in the health care plan that passed the mayor may not work. we will move to 19% of gdp and stay around that level. we're on a path of having spending go to 27% of gdp. we can bring that down. we have got to bring that down. realistically we will not bring it down to 21% given that we have the aging population with people who are living longer. the fastest growing age group is over 85. within that is the over 100 group. that is a dilemma for willard scott and whether he has enough time to recognize all of the people over 100. if we're going to fulfil our social contract as we have noted it and let people live longer and reasonably well, it will be

extremely costly. we can bring it down but not that much. revenues have to be a part of this. making them reasonably good revenues, things that tax what we want to discourage and do not tax what we want to encourage. in my ideal world, we would substitute a carbon tax of some sort for a good portion of the payroll tax. we could stop taxing jobs and substitute a form of consumption tax for a portion of the income tax. especially in difficult times if you want to do a tax cut, if you can increase consumption when you want, it is a very efficient way to go. that requires function in the political system. we're not likely to get it whatever happens in november and january. the likely reaction of republicans as they pick up

large numbers of seats is that it worked great and they will double down on the way things have been going. finding the exquisite balance between the short term needs to avoid economic catastrophe now with the long term needs to avoid even worse economic have to be later is not -- economic catastrophe later is not likely to happen now. >> thank you very much, norm. i tinkered with some wires. it sounds like we're not buzzing as badly as before. one thing i think we have observed in other countries is that the consolidations tend to happen in a crisis, like what we're seeing increased today.

bill i wonder if you think the u.s. is so big that kind of crisis cannot happen. we could just keep going with the huge decades -- deficits for decades before capital markets punish us. do you think a crisis could occur? norm, i wonder if we might think of the commission as the preparation for the, they tell us what to do we finally have the gumption to do it. >> i am not of the belief that [unintelligible] the crisis has been triggered by fiscal policy in the u.s. let me take a step back. there is a line in the ernest hemingway novel opens with the sun also rises" were one character asks the other how he lost his wealth.

the man says two boys, gradually and suddenly. i think we should be much more worried about the gradual scenario than the seventh scenario. the gradual scenario is that we have these deficits. they eat away at our available savings. the reduced amount of capital stock. they increase our indebtedness to other countries. you are creating this huge mortgage on our future that takes the form of increased payments that we owe the rest of the world and reduces the ability of workers to accumulate capital and get skills. that is a real concern. that will destroy economic growth over time. even if there is not any huge one time outflow of capital or a crisis or interest rates get jacked up. the reason i do not think there will be one of those here triggered by fiscal policy is,

where is the money going to go? if you want a safe return over the next 10 years in the world economy, i do not know where you would put your money better than u.s. treasury bonds right now. i cannot see people taking off to put money into the euro, for example. i am not so worried about the crisis scenario in economic terms. i am worried about the gradual scenario. the imf put out a study recently that had the implication that having the debt to gdp ratio go from 40% to 90% as forecast for the united states over the next decade would reduce the growth rate by 0.75% tim. that is an enormous change in the growth rate of the economy. it is hard to move the growth rate by one.

with most policies. we're talking about 0.75%. that is 3/4 of one point. that is a remarkable reduction in growth. that will increase the debt to gdp ratio further and so on. in economic terms, i am worried about the gradual scenario. that is worse for the political system. the reason we are in this situation is because every time congress looks at it, they decide to put it off another year. there is never an end date were they have to deal with these things. social security reform in the early 1980's, fund was literally running out of cash. they had to do something in the next six months. there is nothing like that coming up for us. the economics are bad. they are bad in a way that makes

the politics worse. on that bright note, i will hand it over to norm to wrap it up. >> i would hope that at minimum, we could get a commission that could agree on a tough plan with common sense that at least would be on the shelf when you could pull it down. i am skeptical about that. it is not just the pressures that come from each party trying to destroy the other, although that is there. a lot of democrats to take an election defeat will want to go back to accusing republicans of wanting to destroy medicare and social security. republicans will accuse democrats of being socialists and only wanting tax increases. if you had a plan where you got concessions on both sides were some of the republicans agreed that part of the plan would have to be a tax increase, they are afraid of their fate.

they are afraid they will be the targets in primaries the next time around. that is for most of them were the real ability is, in the nomination process. for democrats to bite the bullet and agree to do difficult things on medicare and social security, they will be targets on their own left. getting the 14 votes even for a plan that cannot make it through congress may be a daunting task. most members of the commission are members of congress. >> i do not think there is anyone in town who understands the political process better. if nothing requires immediate action, you are guessing we will grow 3/4 of the points lower and should get used to it. >> i think it is more likely we will make changes at the

margins. i could imagine that we could come back and do something on social security simply because it is a fairly easy problem to fix. we came this close in the late 1990's. if it were not for the impeachment process against bill clinton, we would have been there. when we lost the opportunity, we lost it for a very long time. one could imagine that. one could imagine moving forward with additional changes in medicare and medicaid. one thing that makes me nervous is that the failure to nominate someone for medicare and medicaid services until recently put that into the political mix. don berlich is extraordinarily well qualified to move administratively to make changes in the growth path of those programs. i am skeptical he will be confirmed. you have a lot of people with

political interest in not having him confirmed and not having the program work. we may still see legislative changes. they will not be enough to do anything that would get as close to making up for the 3/4 of a percent. >> built mentioned some things -- bill mentioned some things that republicans might not object to. if you were to put some limits for the state and local income tax deduction and not lift the marginal tax rate but broaden the base, you could generate a lot of extra revenue. if you were to allow the cap on the payroll tax to grow a little faster without actually lifting the tax it would not be marked as a tax increase that people would not decide. do you think there is enough

action in the space to get the revenue that we need? other non-marginal rates out there that generate enough revenue? >> the social security tax cap rises would average wage growth each year. because of the changes in distribution of earnings, it is declining relative to the total earning high -- pie. that is one reason why we needed -- would get a total decline in gdp. if you index that to keep the percentage of total earnings covered by the payroll tax, that might be acceptable to some. it would give extra revenues at the time you need them and further in the future. i personally think it is a good idea.

think how much we are losing on mortgage deductions and employer health care. we see what happened with the health care exemption during the last debate. it is a tough thing to do. i will hand it off to bill. >> i think there is a lot of potential for revenue increases that do not increase in income- tax raaes and for revenue increases that increase the tax rates on things we want to increase it on. the most obvious candid it is conventional energy consumption. the other can of it is overall consumption by a value-added tax. one thing that has to be fixed that no one wants to address in the budget situation is that the national rate of consumption has to fall. we usually say that the rate of savings needs to rise. consumption needs to fall. one way to do that is to tax it. that would be a value added tax.

i think taxes on conventional energy would not only have a good energy and geopolitical influences but could also be a significant revenue source. there is a lot of money in the tax expenditures and income tax. >> another measure of where we are is a really good plan proposed that seems to be getting an attraction. that is because no one wants to take it taxes now. it is also because it was the health care plan they did that resulted in bennett's demise. a lot of people do not want to attach themselves to anything that smacks of bipartisanship. >> we will now open it up to

questions from the floor. >> i am interested in hearing your response in saying that we can accomplish our deficit reduction goals on the spending side successful plans have not relied on taxes, the majority and relied on taxes as a substantial portion of the total package. >> you do find up to limit the scope consolidations that reply -- rely more on spending tend to be more successful than those that rely more on taxes. the most successful

consolidation might be based on more than 60% spending cuts and less than 40% tax increases. it is not a linear relationship with the most successful consolidations were 100% spending. there is a mix there. getting back to more practical issues of the mix of taxes and spending we want to have, if you want to have entitlement programs to accomplish what we think of as their goals, preventing old people from being in poverty and going without health care, you can do that at a much lower cost than what we are currently spending. a huge chunk of social security and medicare outlays are for people were pretty high income. in theory, they could provide for themselves by saving over the course of their lives. the divide on entitlements is

not whether we will tax low income people. the divide is whether we want higher taxes on high-income people to provide benefits for high income people. i would tend to say no. because of the political dynamics, others would say yes. i think we have to make fundamental choices going forward about how we view the purposes of these programs. >> is this on? you have got to be careful. it is a really good question. i am glad you raised the issue. rep ryan said we could do it all the spending side. as a matter of arithmetic, there is no doubt that is an accurate statement. you can cut spending. ben bernanke said that we could do it on the spending side. as a matter of arithmetic, that is not controversial.

we could do it all on the tax side. it is interesting that the mix of 6640 does not strike me as an unreasonable aggregate combination -- the mix of 60/40 does not strike me as an unreasonable aggregate combination. we need to put everything on the table. the only way an agreement will last is if it is perceived as fair. . .

we need to -- this is going to be painful. it is going to be a little bit of everything. the other thing to think about is, if spending programs, especially retirement, and help low and middle income households. if you want higher income households to share in the the burden of this, it is going to have to be on the tax side. medicare and social security are just not big enough factors in high income household economic situations. i think, for that reason, it needs to be both on the tax and the spending side.

>> [inaudible]

>> that is a really good question. first of all, i said stimulate now not spend it now. i think temporary tax relief could play an important role, especially on the business side. one way to address the concern that you mentioned is to explicitly state in the legislation that we are doing this until the unemployment rate hit 6% or some number, some sort appear -- some sort of a sliding scale, so that you are agreeing not just on the impact now but the past. that would then feed very nicely into shaping what a medium-term

fiscal dissident package would look like. granted, it is probably -- fiscal discipline package would look like. granted, it is probably an heroic thing to expect, but it has the feel of the right solution. how we implement that is -- well, we will assign that enormous since he is not here -- to norm since he is not here. >> we can act well ahead of time to get on top of the issues. as an example, with social security, the last reform passed in 1983 raised the retirement age to 67. it didn't start until 2000. it doesn't finish until 2020. when retirement started rising in 2000, nobody said anything.

i did a radio show yesterday talking about the retirement age, and the host of the show did not know that it had increased at all. that might not be optimal policy. the point is, when people have a lot of warning, it is not so hard to do. people are saying that we cannot cut social security during a recession. that is true. nobody is thinking of doing that. what we're saying is that over the long term we will reduce the growth rate of these programs so that they will be smaller whether you are in an expansion or a depression. >> we have time for one more question. >> [inaudible]

>> one of the reasons -- there are many reasons to focus on tax and spend it tears as opposed to rate increases. the reason -- tax and expenditures as opposed to rate increases. the reason to avoid that is that people will find a way to avoid the rate increase. they will find loopholes, deductions, credits, special allowances, etc. my preferred approach is what happened in 1986, which is clean out the tax base, get a broad, consistent base, and that will raise revenues without necessarily imposing much in

terms of rate increases. it will raise the effective rate, which is the same as raising revenues. but i would like to see us attacking the based first, and then think about raising rates only after that. >> thank you for coming. you have been a good crowd. [applause] [captioning performed by national capttoning institute] [captions copyright national cable satellite corp. 2010] >> on "newsmakers," the chairman of the energy and natural

resources committee talked about the oil spill, offshore drilling, and gas regulation. that is tomorrow at 10:00 a.m. eastern on c-span. >> the c-span video library has every c-span program since 1987. includesknow that every author has appeared on a book tv? the c-span video library is book tv your way. >> the joint economic committee met friday to hear testimony from the commissioner from the bureau of labor statistics on unemployment numbers for june and national employment trends. this is one hour and 10 minutes.

>> the meeting will come to order. i would like to recognize myself for my opening statement. in june, the economy added 83,000 private sector jobs, the sixth straight month of employment gains in the private sector. you can see that the light blue is gains of jobs in the private sector. the red is when president bush was in office. as you see, down in the valley, at a low point, we lost over 779,000 jobs last month that president bush was in office. since president obama took office, it has been a zigzag, but we are moving in the right direction, and we are gaining private sector jobs. since the beginning of this

year, the economy has added 593 jobs in the private sector. as expected, the june report also showed a sharp decline in temporary cennus workers, government workers, causing total payrolls to decline for the first time this year. additionally, the june employment report showed that the unemployment rate went down to 9.5%, and the number of unemployed workers declined by 350,000. although the overall unemployment rate has declined from its peak in november, not all demographic groups are seeing the same trend in unemployment rates. for example, the unemployment rate for african-american workers continues to rise, although the current unemployment rate of 15.4% is lower than the peak of 16.5%.

although the unemployment rate for women showed little change in the first five months of 2010, the unemployment rate for women declined in june to 8.3%. we have made real progress in the last year. last june, this country lost 452,000 private-sector jobs. while these job gains are not as robust as earlier this year, the trend is definitely in the right direction. the policies that democrats in congress quickly put into place over the last year are working. in addition to overall private sector job gains, there were gains across many sectors in our economy. manufacturing employment has risen for six months in a row, after falling for three straight years. consumer spending has risen every month since october of

2009. surveys of both the service sector and the manufacturing sector showed that the growth is expected to continue. but we have to be patient. the path to recovery is never in a straight line. for the millions of workers who lost their jobs, it will take time for them to become employed again. we also have to be vigilant. the rrcovery is still fragile, and our economy is still vulnerable. in fact cappella nobel -- been fact, -- in fact, paul krugman believes we are still on the verge of another great depression. he believes that if we emphasized the need for belt- tightening when the real problem is in adequate spending, we will head into a new recession. i am disheartened that the

session has failed to extend unemployment benefits, despite the fact that there are still 14.6 million unemployed workers bearing the brunt of the worst economic crisis since the great depression. as a result, an estimated 1.7 million unemployed orders will lose benefits by the end of next week. some members of congress do not want to extend unemployment benefits because they believe these benefits create a disincentive for people to seek work. as this report shows -- this is a report that was developed and released recently by the majority staff -- the evidence is very clear. these benefits do not inh ibit job seekers from vigorously seeking work. instead, they provide an enormous benefit to society by

stimulating the economy as well as prevvnting workers from dropping out of the labor force. every dollar that an unemployed worker gets, he or she plows right back into the economy, because they need to. that helps us to reduce the deficit. that helps us keep our economy moving. even former fee chairman alan greenspan expressed strong support for extensions of unemployment benefits after the first bush recession. in a hearing in may of 2003, chairman greenspan stated, "when you are in a time of job weakness, there is not a choice on the part of people whether or not they are employed or unemployed, then obviously, you want to be temporarily generous ." in may of 2003, we had fewer

than three unemployed workers for every opening, and the unemployment rate was 6.1%. the most recent data shows that there are five unemployed workers for every opening, and the unemployment rate is 9.5%. extending these benefits provide more than a needed stimulus to the economy and a social safety net for people who are out of work, it is also fiscally prudent as well. disabled workers to become discouraged and drop out of the labour force or enter the social security disability insurance program, which is much more expensive than unemployment insurance benefits. we all know that unemployment benefits stimulate the economy. every dollar in unemployment benefits multiplies to create over $1.60 in economic activity. at a hearing before this

committee in february, the director of the nonpartisan congressional budget office testified that extending these benefits is one of the most effective and efficient ways to stimulate the economy. surely it is obvious that getting the economy to grow and getting people back to work are crucial to getting our deficit under control. moreover, this will be the first time since 1959 that the government will allow unemployed benefits to expire when the national unemployment rate was over 7%. it is time for all members of congress to put the american people first. i yield back the balance of my time and yield to my colleague. >> thank you. happy fourth of july. i hope you enjoy the holiday. i join in welcoming dr. hall before the committee this morning.

today's report is more disappointing news for american workers and their families. the total non-payroll employment decreased. even after excluding the layoffs of the temporary census workers, private-sector payroll job growth remains anemic at 83,000. at this slow pace, it will take much of the decade to return to normal employment levels. while the employment rate fell to 9.5%, it fell for the wrong reasons. the number of discouraged and other marginally attached workers who have stopped seeking jobs rose to two 0.6 million, an all-time high. 6.8 million american workers have remained unemployed for six months or longer. in january of last year, president obama promised the

democrats' economic program would restore commons and genseric the u.s. economy. last month, the consumer confidence index fell dramatically. consumer confidence is unflagging -- is lagging, because families are frightened by deficit as far as the eye can see. as for john starting the economy, two of the administration's top economists predicted that if we were to pass the stimulus bill, the unemployment rate would stay below 8%. democrats in congress did enact the american recovery and investment act last year, but this stimulus has fallen far short of the important projections. the growth of real gdp slowed by more than one/two -- 1/2 by the end of the first quarter of this

year. economic growth may be sluggish for the remainder of this year and next. americans do not see an economy in recovery. they see a white house and seemingly incapable of protecting our beaches or getting people back to work. this anemic economic performance after the recession began in 2007 is in sharp contrast to the robust economic growth that benefited american workers and their families after the 1981/1982 recession. the obama recovery is 1/3 the recovery of the reagan recovery. president reagan's economic policies were a tailwind, accelerating real economic growth. president reagan pursued large reductions in marginal tax rates, deregulation and trade opening.

combined with the disinflationary monetary policies under paul volcker and alan greenspan, reagan laid the foundation for two decades of prosperity. in contrast, president obama and congressional democrats have pursued largely anti-growth policy that have hindered this recovery. businesses are slow to hire because they fear higher taxes. they fear of regulation, and a dysfunctional washington that is ideologically driven and increasingly anti-business. president obama and this congress have given of entrepreneur is a reason to worry. businesses are not reluctant -- businesses are not reluctant to hire because they're waiting to see what president obama will do for them, they are reluctant because they are waiting to see what president obama will do to them. the reputation of the u.s.

government is in jeopardy for the first time since the treasury secretary alexander hamilton resurrected the finances of the united states after the revolutionary war and put us on the road to becoming an economic superpower. the congressional budget office predicts that federal spending will grow to 25.2% of gdp, far above the post-war average of 90.5%. a structural budget deficit in excess of 4% of gdp will persist through the next decade. consequently, federally held public debt will rise to 9% of gdp by the end of 2020. in the long-term outlook, the congressional budget office projects that under this the schools and area, which keeps current policies in space, -- in place, and uncontrolled spending will cause the federal deficit to explode to nearly 10 times america posted gdp by the end

of fiscal year 2084. president obama and congressional democrats pursuing reckless and fiscal policies that are clearly unsustainable the but the united states in a debt crisis similar to greece. we are putting the future of our children and grandchildren in great jeopardy. no one will be around to bail us out. dr. hall, i look forward to hearing your testimony. >> it is so easy to take a look at these reports every month enand have a spirit of fear as opposed to hope. i have chosen hope.

when i think about from where become -- whence we come, as this chart tells us very clearly, back in january of 2009, we were in deep, deep trouble. president obama came in with a patient, and our economic system, in deep trouble, and he put it in intensive care. he took the situation and turned it around. i do not know how many people have ever been in intensive care, but it takes time to heal. i do believe that our country has come a long way. is it where we want it to be taxed no. -- is it where we want it to be?

no. i wished that we could wave a magic wand. i wish the people in my district who cannot find jobs could find them. but the fact remains that we have come a long way, and we do have a long way to go. i have often said that in these hearings when we hear our jobs reports on a monthly basis, the question becomes, as so often, when do we root for the home team? when do we acknowledge progress? when to give this president, this administration, this congress credit for what we are accomplishing? we must keep in mind that 60% of the gdp is consumer spending. my good friend mr. brady is absolutely right. it is about confidence. but the fact remains that one of the things to get that confidence going is going back

to what the chairwoman talk about in most of her speech this morning. we have got to get people employed, but we also have to make sure that those who are not employed and cannot find jobs, through no fault of their own, have some kind of way of making it from day to day. sometimes i listened to my colleagues on the other side and i wonder, what do you say -- and maybe they have never been in those situations where a person just could ot find a job. what do you say to the person who cannot find a job? just go and died? just get lost? no empathy, no nothing. through no fault of their own? i am hoping too, madam chair, that the senate will act. i think it is very sad that we believe for a 4th of a july

vacation, and when the fireworks are going off and people are having fun, there will be a lot of people throughout our country who will not be able to -- they are not trying to get it down, as i have often said, to disney world. they're just trying to get to an amusement park. they're not trying to eat steak. they're trying to get a hamburger. these are people just trying to live their lives, people who were doing fine a few years ago, doing fine before the country was put in intensive care through no fault of their own. doing fine while others were getting -- at aig and other big firms, were getting big bonuses of millions of dollars for running our country into the gutter. so, again, one of the things that we did not talk about yet this morning is that a lot of people at the beginning of this week were saying, of, this guy

is going to fall -- oh, the sky is going to fall. i heard it all week. not a mumbling fact now about the fact that the unemployment rate is down to 9.5%. hello. reading for the home team. we still have a lot -- rooting for the home team. we still have a lot to do, but the chairman is right, we are going into the right direction. i think there is a lot we can do to work with the president to speed that process up. i do is hope as opposed to a fear. with that, madam chair, i yield back. >> thank you. i would now like to introduce dr. keith hall. the commissioner for labor statistics for the department of labour.

that is an independent, national statistical agency that collects, processes, analyzes and disseminates the central statistical data to the american public, the united states congress, other federal agencies, state and local governments, business and labor. dr. hall has also served as chief economist for the white house council of economic advisers. prior to that he was the chief economist for the u.s. department of commerce. dr. paul also spent 10 years at the united states international -- dr. hall also spent 10 years at the united states international trade commission. we're pleased to have you with us. >> non-foreign payroll employment fell in june and the unemployment rate edged down.

the decline in unemployment reflects a large drop in the number of -- the decline in employment reflects a large drop in the number of temporary census workers. there were modest increases in several private sector industries. over the month, federal government employment declined sharply pared the number of temporary census workers dropped by two hundred 25,000, leaving 339,000 temporary workers on the census payroll. in the private sector, temporary orkers were gree continues to grow. amusements, gambling, recreation gained 28,000 jobs,

while transportation and warehousing employment was up by 15,000. mining employment continue to trend up. the industry has gained 56,000 jobs since october 2009. manufacturing also trended up in june. the industry has added a hundred and 36,000 jobs so far this year. hours worked declined in june, offsetting the increase in may. employment and health care edged up in june. construction employment fell by 22,000. special trade contractors contributed to most of the decline. trying -- turning to measures from the survey of households, the unemployment rate edged down to 9.5%. of the 14.6 million unemployed individuals, about 6.8 million

have been jobless for 27 weeks or more. in comparison, 1.3 million persons who are unemployed for -- who were unemployed for it 27 weeks or more when the recession began. among the employed, there were 8.6 million individuals working part time who would prefer full- time work. in summary, payroll employment fell as modest growth in the private sector was offset by the loss of temporary census workers. my colleagues and i would now be glad to answer your questions. >> what are the bright spots in

this month's jobs report, and are there any particularly encouraging areas that you can report to us in this month's report? >> the biggest bright spot is the drop in the unemployment rate from 9.7% to 9.5%. although job growth was not strong, it has been growing for six straight months. in context, that is a positive sign. manufacturing employment continues to grow, again, not strongly, but it has grown now for six straight months. that is also a good sign. temporary help work continues to add jobs, and that continues to be a good sign for future growth, generally. there was not strong growth in

any portion of the economy, but there was not strong job loss either. >> what sectors are experiencing more job creation than the job loss? >> manufacturing is. retail trade declined a little bit this month, but over the prior six months it has started to grow in modest amounts. of course, a temporary help services i mentioned as well. education and health services continues to grow. leisure and hospitality has grown for the last six months and in june as well. >> are there any other sectors that are showing signs that they might have job growth, that are giving indications that they are getting stronger? >> no industries are losing jobs

strongly. everything is either a hovering around little job growth or is growing a little bit. i would say that the biggest indication is the temporary help services. that is the strongest indication that workers are being brought back. >> as you said, we are trending in the right direction. are there any further indicators that overall job gains will continue in the coming months, besides that temporary help and the six month in job gains in manufacturing? >> one more encouraging thing, although this month work hours declined and that is not a good sign, but prior to that, there had been a pretty steady rise in work hours. that is generally a good sign. >> i would like to ask you about the gulf region. have you done any analysis on

the impact of the disaster on jobs in that region? are you tracking that? >> we are starting to do some tabulations on that. we are probably not going to be able to simply identify what has been the effect of the oil spill, but we will have some tabulations that will show you the area that could be affected. in terms of the overall job impact, this is probably going to be a tricky thing to estimate because you get a job to boost from the cleanup and activities like that, and of course you have tourism and such along the beaches that will be impacted. but we do have some pretty good data on that, and i think that as more data becomes available, people will be able to suss out some of these things. >> when will that be available? >> it will be available in the next few months. the best data we have will not be available for quite awhile, the payroll jobs that we sample right now.

at some point we are going to do a census of all of those. we do that every year. that will give us a detailed information, but that will not be for probably anooher year. >> thank you. mr. brady. >> i cannot believe you just said that a bright spot is that the unemployment rate fell. do you realize that is because the 650 two thousand americans gave up looking for work? >> absolutely. >> so if next month another 600,000 people give up looking for work, should we organize some parade to cheer it? it seems to me that that is not good news going forward. the second quarter i think all of us were kind of optimistic about. it started out strong. i do not see any payroll job growth by industry that in at this month's report, that is a

statistically significant. do you? >> no, i do not. i would certainly agree that we have not yet seen strong, sustained job growth, and that is clearly something we are going to need to see at some point to start lowering the unemployment rate further. >> i think companies are hopeful that their customers or clients will start demanding, have that confidence. consumers will have confidence. companies will have confidence to make investing in hiring decisions, but that is not happening. i do think it is the policies of washington that are holding this recovery back. i would like to point out, and i agree that the unemployment benefits that have lapsed, the that is a tragedy, but i would point out that democrats have no one to blame but themselves. this is not a surprise. we have known this deadline for month. they hold a super majority in the house and the senate, and they hold the white house.

i guess other than blaming george bush, i think they have to look into the mirror for those who will not be getting help this month. but i think most people do are on unemployment are looking hard for work, are struggling to find it, and what they really want are jobs. this reportttoday is not very encouraging news for them. one concern i have, and the chairwoman raise the issue correctly, the impact of the gulf oil spill. clearly, it is going to have an impact on tourism along the beaches. tourist season is pretty short. shrimping and oyster season is very short. every week counts and matters, and i think we will see some real impacts from that going forward in the future months. have you been able to estimate another equally important blow to our economy, the drilling

moratorium, the six month drilling moratorium on 33 deepwater wells? the federal courts have stayed that moratorium, but secretary salazar has said that they will find a way to reinstate it. i had breakfast last week with a woman who was laid off during the drilling moratorium. there are almost 50,000 jobs directly related to those rigs in the gulf coast. thousands of businesses, many mid size and small businesses, say they cannot survive six months without revenue. have you had a chance to study the impact of shutting down our energy exploration in the gulf for a six month period. it was just announced this week that rigs leaving for africa or

the middle east will not be returning for at least a year. companies are employing workers in areas that are allowing energy exploration. do you have any sense of what the economic impact of the moratorium will be? >> we do not yet. if you like, i could follow up. >> when do you think the impact startthe spell will c showing up in your report. i know that this week, for example, there was a tiny gain in tourism areas. do you think we will start seeing that impact in the next month pose a report or the following one? >> -- next month's report or the following one? >> in context of 130 million

payroll jobs, teasing out of that sort of impact is very difficult. i think we have the right sort of data that someone could take a look at that and try to make some estimates, but to be honest, it will not be easy. it is not because it is not unfair, but it is very hard. >> you have to isolate it. thank you very much. >> i need to respond to my good friend and colleague. there is a lot of revisionist history going on. blaming democrats for the loss of jobs is absolutely factually incorrect. we see clearly in this chart, in the red white and blue, for the fourth of july, clearly, president bush not only inherited a surplus, but we see throughout his administration, we continued to lose jobs in a downward trend.

the last month he was in office, this country lost over 779,000 jobs. that is an undisputed fact. with president obama and the democratic policies, we have started trending in the right direction. now, it is true that recoveries never move in a straight line. there has not been a straight line up that chart, but it shows progress and that we are moving into the right direction. it shows that we have gained private sector jobs, the truest indicator of an economic recovery. that is the light blue. we are trending in the right direction because of the efforts and the recovery act and stabilizing our economy. the recovery will take time, but we need to stay vigilant. we need to continue working. we need to continue helping our people find jobs, and i can

assure you that the democrats will not stop until every american who wants a job can get one. i now recognize my good friend and colleague mr. cummings, who has been a very creative leader in creating jobs and helping small businesses. >> and thank you very much. mr. brady said that when democrats look into the mirror we should blame ourselves for the plight of our many constituents who are out of work. i just want to be very clear that when i look in the mirror, i feel good about the fact that just yesterday i voted to try to help my constituents get unemployment benefits while the other side of the aisle voted against that. i do not know what kind of mirror you want me to look into, but that is the kind of marriage i look into. i do not want to get into the want toame, but i do make the picture clear. you were asked about the gulf

coast. i have been there twice and i am getting ready to go again. there are 33 wells we are talking about here, affected by the moratorium. when we see the damage that has been done to our environment. when we see it that gentlemen who were tragically killed, as a matter of fact, one of them, his father was with us yesterday, and then we see all of the damage done to our environment, six months to try to get this thing straight so that it doesn't happen again seems to be a small price. we do understand that it affects people. i have talked to folks on both sides of that issue, but the fact still remains that tens of billions of dollars of damage has already been done. lives have been lost. we have to figure out how to

bring a balance, and i think the president is doing the right thing. let me ask you this. another thing mr. brady talked about which, and i heard some people on cnbc talking about it on my way here, they were saying that, i think it was last month, we had an increase in the number of jobs, but yet still, the rate -- and i am not talking about this report a last one, the rate stayed the same. is that right? >> yes. >> stayed the same. they were saying that we have a situation where, if you're going to live and die by the rate, 9.5% or 9.7% or whatever, there are certain variables that come with that, but that the overall picture is still that we are going in the right direction. in other words, we are not living backwards. is that a fair statement? i am not trying to put words in

your mouth. >> that is a their statement. the discussion is -- the data is showing improvement over several months. >> the temporary job thing. talk about every month, and you say that that is something significant. at what point would you expect andsee that temporary proje prediction, that is that temporary job protection, turning to some permanent jobs? >> it is not clear. it is trending well and continuing to show growth, but the taxes varies sometimes. -- axis varies sometimes.

with the private sector, it is a reflection of the fact, probably the fact, that establishments are more likely to bring back temporary help workers first before they bring back permanent workers. that is why it tends to be a leading indicator. it is perhaps an indicator of some uncertainty, that they are bringing back temporary folks instead of permanent hires. >> but at least they're going in the direction of increasing something. >> that is correct. >> there was an article yesterday that said that employment in the manufacturing sector is on the rise, and in fact, it said, the report today shows an increase in 9000 jobs in may. is that accurate? >> that is accurate. >> what is the significance of that? >> per se the ball,

manufacturing has not shown sustained -- first of all, manufacturing has not shown sustained job growth in a long time ticket after the last recession -- and a long time. after the last recession, manufacturing jobs did not come back. so this is a good sign. >> at our hearing in may, we talked about a commoent dr. kruger made before the treasury department that the recovery was fragile, but moving in the right direction. he said that for most recoveries, the driver of new

job creation has always historically been a small and medium-sized businesses, but in this recovery, it has been a larger businesses. i would like to ask you, do you have any numbers on small and medium-sized companies, and therir hiring patterns? we have created a number of incentives and support for small businesses to help them gain access to credit, to provide tax relief for hiring new, unemployed workers. i would like to hear, since this is such an important part of our economy, what is the status of that? >> first, let me put this in context a little bit. in the last recession and in previous recessions, the job loss was somewhat confined to large firms. this recession there has been much more lost in a small and

medium-sized firms began in the past recessions. that has been notable. now, in this recovery, this early stage of the recovery, hopefully, large establishments have had job growth since about september, but the medium and small have not. they have been lagging in the recovery. our data is not up-to-date on that, but we should be getting new data on that sin. that is the early indication perry >. >> since small businesses are such an important driver of our economy, would it be possible for you to provide us with that information? >> that is a tabulation we have not always done, but we could make an effort to update the for you. it is a little bit of a difficult thing for us because

the sample size is not very large. that is why we do not do it very often. but we will see what we can do. >> could you put this recovery in context, the first six months of 2010? we now have six months of employment data. i would like to see if you could put it in context of -- setting aside the temporary census jobs that we lost -- how would you characterize, overall, the job growth in the first six months of 2010? >> in the past six months, we have averaged about 100,000 jobs per month. that is not strong, sustained growth, but it is growth. that has actually been fairly typical. the last two recessions -- the

one i have been struck by is that the labor market, once it hit its trough -- the last recession we had job growth that was about the same for the first six months. >> so, is this a labor market in a freefall, or would you characterize it as one consistent with the early stages of prior economic recoveries? >> i would say is consistent with recoveries from the last

two recessions? >> do you see anything in this is information that is a potential pitfall or a problem we could see into the future? >> we are at a point, as in past recessions, where we have some job growth, but it is not strong or sustained. i think the biggest risk is just a high risk of things not improving quickly. >> this recovery is certainly not consistent with the recovery of 1981, 1982, where job growth was three times better than the economy -- than the president obama recovery. i will take comfort in telling people in the gulf coast losing their jobs due to the drilling

moratorium that they are "a small price to pay" for this over reactionary and politically advantageous policy-making here in washington. what is frustrating is that this democratic congress has had control over the gulf for three years and done nothing to reform it. the obama administration itself approved british petroleum's operational waivers on a well. they approved plans that turned out to be awful. they have failed to support our local governments and communities in protecting the marshes and beaches, that is why you see them on television every day pleading for help. now, by instilling this drilling moratorium, they are insisting on turning an environmental catastrophe into an economic catastrophe.

i am not just talking about 50,000 direct jobs that will be lost because of the moratorium, or the two billion dollars in wages that will be taken from the economy, i am talking about thousands of small and medium- sized businesses to simply will not survive this. what is frustrating is that 24 lawmakers on both sides of the aisle have sent a letter to secretary salazar recommending a pass toward -- a path forward that considers the safety and security of the gulf but would allow drilling to go forward. it would pose almost no risk at all, save 75% of the jobs, avoid an energy supply problem in 2011 and 2012.

we are hopeful that maybe the small people, the small price to pay, folks who are going to suffer, can get some relief under this white house. maybe congress could delay their unemployment checks as well. commissioner, jobs claims are up again last week. construction has stalled out. no industry, as you just said a moment ago, none of the job growth here is significant at all. now, there are worries from europe. there are concerned about manufacturing slowdown throughout the world. the debt is keeping consumers at bay. the savings rate continues to go up. people are banking their money rather than buying. i too am looking for optimistic signs in these numbers.

but i just do not see what i think we are all hoping for. we need at least 250,000 private sector workers each month. that is just to start working off the unemployment rate in a sustainable way. is that correct? >> that would be strong, sustained growth. >> so, lowering the unemployment rate, not by workers giving up, which is what happened this month, but by workers going back to work, we need at least twice the job growth rate in the private sector than we got this month. is that correct? >> to make a strong move downward in the unemployment rate, we need something like that. >> i think that ought to be what we are shooting for.

we need to add private sector cannot government jobs to the payroll at so that people can have some -- private sector, not a government jobs to the payroll so that people can have some hope. >> the chairlady was asking you, commissioner, a few monthinutes ago, about medium and small businesses. in my district we just had the federal reserve come and talk to some small business folks about two or three weeks ago because the federal reserve was trying to get a feel for what problems they were experiencing. what we heard over and over again from these small business people was that they could not get access to capital.

they said they had a lot of opportunities to do certain jobs, but then the banks were not lending, and they could not get access to capital. i was just wondering, when you go through -- the chairlady was asking about certain information that is not in your report. do you ever have data as to why certain things like that happen? >> we do not. >> you do not even draw conclusions, do you? >> no. >> that is certainly significant. if you do not have the money, it is hard to do what you have to do. we have been pushing pretty hard on this side of the aisle getting banks to do more to open up the door so that people can get the capital. one of the things that is interesting to as i listen to you, i cannot help but think

about years ago when i was learning to ride a bike. remember, the chain had to catch, but if the chain did not catch, you were not going anywhere fast. it sounds like what we have here is, we are moving in the right direction, but we need a catch or a push to get us moving even faster, but once that happens, it seems, it is listening to what you're saying -- just listening to what you're saying, we may see that motion the senses into another level of progress. in the past, has that been the case? you were talking to the chairlady about how this compares to 2003. . .

what have you seen in the past with regard to getting beyond that six months? is there anything different about this recession, a situation which would cause you to have less optimism or more pessimism? >> it is true that in the past couple of recessions, there was at some point, it became sustained. the biggest concern i would have going forward is that this has been a very severe recession. ideally, we have even stronger job growth the last couple of recessions to recover from those jobs, and it is going to take a while to recover those jobs.

we do need a stronger job growth than we have had the last couple of expansions to get back the jobs. >> those other recessions, were they associated with anything like the problems that we have had with regard to wall street? >> both of those recessions were mild recessions and relatively short recession. this is neither mild nor short. >> i will repeat what i said. president obama came into this situation having to put a patient in intensive care, not just critical care, but intensive care. it is taking awhile to get out of that. it is a slow process.

we would like to get better quicker. the fact remains, for every person out there, -- when i go back to my district, there'll be people that say, i am looking for a job. we're looking in the right direction. i want to make it even faster. >> i agree with my good friend and colleague that what we want in this country is robust private sector job creation. i believe that trying to create 300,000 private sector jobs a month is a very daunting job given the fact that the former president, president bush, created roughly that much during his entire eight years in office. for the fourth of july, red white and blue, we were losing

over 779,000 jobs a month. it takes a long time to recover, but we are trending in the right direction. we are digging ourselves out of this deep valley. i would like to ask you a few questions on reports that the commission produced and the impact on them -- we found that african-americans have been disproportionately hurt by long- term unemployment. have you seen any recent signs that the uration of unemployment is shortening for african-americans? >> no, i haven't. >> and in a may report that we issued for working mothers, one out of three working mothers was the sole breadwinner for her

family. you noted in your last implement hearing that it is women with children who lost their jobs during this recession. i am concerned how they are fearing. how did they fare during the june numbers? >> i don't have that data really handy. we don't have that data yet. i would be happy to follow up for the june numbers. it lags. >> in an airport, the joint economic committee issued on the younger workers, we found that these workers were experiencing the highest unemployment in history for younger workers. did things get any better for younger workers? >> not significantly, no.

>> we also released a report on the impact of recession on hispanic workers. the report concluded that the driver of unemployment and geography, latino workers were over represented among construction employment. going into the downturn, you're more likely to live in regions that were hit hard by the housing burst and housing bubble states such as nevada, arizona, florida, california. what has happened to construction employment in the first half of 2010? is it experiencing job gains at the same rate as some of the other sectors? >> no, we have been losing about 20,000 jobs a month in construction still. >> d.c. any evidence that this will expand in the near future and will reach the levels seen

before the housing market collapsed? >> no, i think that obviously, the thing you want to see first is a pickup in new-home construction. we haven't yet seen a big pickup in that. hysterically, it takes a while once the housing starts start to pick up. there are not good signs on that yet. >> with the latino community, we felt we need to provide looking at policies, not only with skills, but with the ability to move to areas where the economy is better, particularly in the construction trade. we have been working on trying to improve that. my time has expired. >> i hate being outnumbered on this committee. it makes for a tough friday morning.

i do think president bush apologize for the united states losing its soccer game the other day. chicago not winning the olympics bid, avatar not winning the best motion picture of the year, and democrats not passing unemployment benefits for those who are out of work. let's talk about that because it has a real impact on our economy. it is skyrocketing. $1.50 trillion, independent congressional budget office tells a terrifying tale. we have had economists before us telling us that when that reaches a certain level, it creates a very strong drag on the economy, we are at 83% of gdp for all that.

62% in the publicly held debt. it will skyrocket over the next decade, and that puts us already, right now, we are below greece, italy, and portugal. but other european countries that are in trouble, and budget deficit, we trail only greece and ireland. we're almost at 10%. this debt will increase as far as the eye can see. the only thing being considered at this point are increasing taxes on families, small businesses, capital dividends, and on companies that are trying to sell around the globe. commissioner, that creates higher interest payments for a

budget, puts a strain on their. it puts a strain on companies' borrowing as well. it tends to drag down the economy. at what point -- can you estimate how much our economy is hurting as a result of the debt that we are accumulating, what that would do to our economy? >> that is not my garden. i am focused on the labour market. >> you are a wise man. can we talk a little about where you see trends going? construction has stalled for several months now, manufacturing has been stalled as well. a few jobs we did see did seem to be in services, temporary services. a small amount in recreation and

tourism. are there any significant trends in the numbers this month that we can be looking to? >> i don't want to speculate too much going for, but the truth we have already seen is the one we have mentioned, we have had job growth and manufacturing, it continues to have jobs and education and health services. those of been the real trends pretty much all this year. >> my good friend and colleague, you mentioned a deficit that is a concern that we have. the federal budget deficit was $941 billion through the first eight months of the fiscal year 2010. $51 billion less than the record shortfall recorded over the same time last year.

both revenues and outlays are down. the debt is now -- we do have a strong debt. the total debt for the federal government was $13 trillion. the federal government paid roughly $152 billion, 1% of gdp. we're not in comparison with greece. we need to focus on it. but to compare our economy at this point with others is factually inaccurate. and now, mr. cummings is recognized for five minutes. >> the health-care industry, i think he said that they have increased jobs? has that been a steady situation? one of the things that have been trying to encourage, many of my constituents, to look towards

those fields that seem to be on the upward trend and seem to be providing jobs and a steady way. the reports are that a lot of companies now are doing more with less, and therefore, will not be replacing people in the same job. people have to be retrained. if there are people that are looking at this right now, if there are areas where you see a trend with regard to jobs either increasing or not losing, seeming to have a steady stability or growth, what would those areas be? >> of the area that most jumps out is, in fact, health care. they have steadily added jobs

throughout the whole recession. that is a remarkable thing when you consider how many jobs we are losing while there are growing. going forward, the demographics of the american population are going to encourage job growth in health-care industry. >> when you look at the health- care industry, is there a break down? is it general health care? is it to various types of health care? is this health care in general? >> we have some breakdowns in the various categories. >> can you give me an idea of what some of them might be? in other words, i want people watching this to be able to get an idea of what might be -- we have some people who have been out of jobs for a long time and they are trying to figure out where they go from here. possibly going to community college or going back for some type of training.

i want to give them some sense of hope. we have heard a lot of fear from mr. brady this morning, but i want to give some hope. >> it includes offices of physicians, home health-care services, that sector added about 7400 jobs this month. that was a major part of the job growth in health care this month. hospitals have been losing jobs this past month, there is also nursing and residential care facilities that have been adding jobs. social assistance is often worked in the health care as well. that has continued to add jobs. >> are there any other areas that might fall into that

category, staying steady or increasing jobs? >> one of the things -- i don't have the numbbrs in my mind very quickly, but we produced some long-term forecasts on occupations and industry growth. we have just released some last year and really give you an idea in great detail about the industry's we would expect three replacement or just growing industries. there are a number of areas, mostly services industries. service providing industries have quite a bit of promise. >> in the tourism industry and restaurants, how are they doing? >> they are doing ok. they have gone up and down, they don't have a really clear pattern. we did it had -- or we did have growth this month, and i think i have a break down.

>> the reason that i mentioned it is because it might show some confidence on the part of consumers if they are doing things that they might otherwise it was so concerned about finances that they probably would not -- i am trying to figure out -- >> that makes logical sense. i have kind of looked at that and i have not seen a really clear pattern. it doesn't seem to reflect so well consumer confidence like you think it might. >> if the president called do after we are finished here and said, what's your summary, what would you say? >> i would say that this is not a strong report. but the prior six months have been encouraging. we did have a drop in the unemployment rate, we did have some job growth, and the past

six months have had some job growth. >> thank you very much, commissioner paul and a staff for being here today. i think my colleagues. the last six months, the data clearly shows that the labor markets have begun to turn around and is trending in the right direction. without a doubt, job creation will be at the top of our to do list. it will remain there until americans across america are back to work. i would like to wish everyone a safe and happy independence day. thank you very much. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010]

>> president obama also spoke on the june unemployment figures, saying the economy is headed in the right direction, but not fast enough to satisfy him are many americans. this is about five minutes. >> the morning. how are you? >> good morning, everybody. before i depart, i would like to say a quick word about the state of our economy. this morning we received the june employment report. it reflected the planned phase- out of 225,000 temporary census

jobs, but it also showed the sixth straight month of job growth in the private sector. all totaled, our economy has created nearly 600,000 private sector drugs this year. that is a sharp turnaround -- private-sector jobs this year. a sharp turnaround from the first time -- this time last year. make no mistake, we are headed in the right direction. as i was reminded on a trip to racine, wisconsin, earlier this week, we are not headed there fast enough for a lot of americans. we are not headed there fast enough for me, either. recession does a hole about 8 million jobs the. we have continued to fight head winds and a volatile global market. we still a great deal more to do to repair the economy and get the american people back to work. that is why we are continuing a relentless effort across multiple fronts to keep this

recovery moving. today i would like to make a quick announcement regarding new infrastructure investments under the recovery act. investments that will create private-sector drugs and make america more competitive. secretary lot and secretary vilsack have joined the year-to- date to announce that the part of commerce and agriculture will invest in 66 new projects across america that will finally bring reliable broadband internet service to communities that currently have little or no access. in the short term, we expect these projects to create about 5000 construction and installation jobs around the country. once we emerge from the immediate crisis, the long-term economic gains for communities that have been left behind in the digital age will be a measurable. all told, these investments will benefit tens of millions of americans. more than 685,000 businesses, 900 health care facilities, and

2400 schools around -- across the country. studies have shown that when communities adopt broadband access, it can lead to hundreds of thousands of new jobs. broadband can remove the geographic barriers between patients and their doctors. it can connect our kids to the digital skills 21st century education requires for the jobs of the future. and it can prepare america to run on clean energy by helping us upgrade to smarter, stronger, more secure electrical grids. so we are investing in our people and we are investing in their future. we are competing aggressively to make sure that jobs and industries and the markets of tomorrow take root right here in the united states. we are moving forward, and every american who is looking for work, i promise we will keep on doing everything that we can. i will do everything in my power to help our economy create jobs and opportunities for all people.

sunday is the fourth of july, and if that date reminds of of anything, it is that america has never backed down from a challenge. we have faced our share of tough times before, but in such moments, we do not flinch. we dig deeper, innovate, we compete, and we win. that is then our dna. that will be what brings us through these tough times toward a brighter day. so i want to say have before the july to everybody. i want our troops overseas to know that we are thinking of your bravery and grateful for your service. thank you very much, everybody.

>> on newsmakers, then use -- center jeff bingaman on the oil spill in the gulf of mexico, and all of -- offshore drilling and gas regulation. that is tomorrow at 10:00 a.m. and 6:00 p.m. eastern on c-span. >> learn more about the nation's highest court from those who have served on the bench. read c-span's latest book, the supreme court, candid conversations with all the justices, active and retired, providing unique insight about the court. now available in hardcover and also as an e-book. >> now, treasury official kenneth feinberg on the federal government oversight of executive pay. one year ago, he was appointed as a special and a straighter to oversee executive compensation of financial firms and

automakers that receive large government bailouts. just last week, it was announced he will be stepping down from this position later this summer to focus on his new appointment as administrator of the $20 billion bp gulf oil compensation fund. he talked about these issues at a forum hosted by american university's washington law college. it is about 55 minutes. >> let me get started and welcome everybody. i am the director of the summer institute on law and government at the american university washington college of law, where we are doing a couple of weeks of exciting and timely programming on law and government related issues. as part of that program, we have had a number of different lecturers and speakers, classes are a variety of subjects, and in line with that, it is a great privilege and an honors to have ken feinberg with us today. i have known him for -- probably

neither of us wants to disclose, but it is more than 30 years, when i was a boston globe reporter in the washington bureau and he was working for senator edward kennedy on his legislative staff in the 1970's. ken is here obviously for a very different reason. his career in the last two decades really disproves the assumption that lawyers go into law because they cannot do math. in fact, ken has done exactly the opposite and made a career at of working with rather important numbers, most visibly, i think the administration of the september 11 claims fund, but he has had numerous other experiences with similar kinds of funds. he was also the administrator

for the virginia tech fund, and even before september 11 had been involved in a variety of mass torts claim funds, asbestos, and a variety of other cases in which she has really developed a reputation for being able to figure out how to take the combination of complex litigation, widespread personal injury claims, and pools of compensation money and figure out how to administer all of that's in a fair handed and even-handed way. that has led to his two most recent assignments, one prior to a couple of weeks ago. he had come to be known as the executive pay czar for the obama

administration. assistant treasury secretary for special compensation in at the issues related to executive compensation of various entities being funded through bailout funds and t.a.r.p. funds and so on, and whether there was a need to limit that compensation. and then i think not surprisingly, in light of his record, the president turned to ken about a week ago to be the administrator of the bp oil spill claims fund. the money that bp agreed to put up in its meeting with president obama at the white house, that fund will now be administered by ken to figure out how to basically try to rectify the horrible damage that's taking place in the gulf. so we're really absolutely

thrilled to have ken here to talk about his expertise in this area. he's been to the gulf already a couple of times, just in the week that he's had this assignment, and just came back, i think yesterday. and so we look forward to his comments. he's going to make remarks for a few minutes. and then we'll open it up to questions. he's got a conference call at 1:00, so we need to get him out of here by about five minutes to 1:00. ken? >> i want to thank steve. i'm here because of steve. steve, he's right, we go back many, many years. to when he was a beat reporter here in washington for the globe, and i was working on the senate judiciary committee staff with then steven, now justice brier, david boyce, myself, and steve would walk in and talk to all three of us in the same office and tell us what's right and wrong about what we're doing. so i've learned not to say no to steve. i'm also under a lot of pressure

today. professor metcalf's here, an old friend. very wise man, who will be, i'm sure, checking off what i do right and wrong today, as part of my oral exam. and i'm pleased to see him here. a valuable addition obviously to this group. now, you may wonder, how is it possible to bring together in 20 minutes and discuss at the same time my role in agent orange or the 9/11 victim compensation fund, my role as the treasury department's special master for t.a.r.p., executive compensation, my role in designing, implementing and administering this new gulf coast claims facility. what's the common denominator. well, there is a common denominator, to tell you the

truth. there is. and the common denominator is, the creativity of the law. the malleable abilities of the law, coming up with creative ways to solve pro track tiff public interest problems. the law is as malleable and as flexible as the policy makers and lawyers make it. and if there's one common denominator in all that i've done over the last 25 years, it is that occasionally, occasionally the conventional approach to solving legal problems breaks down. there's got to be a better way. and the better way is a very

innovative agent orange class action settlement, a statutory alternative to the conventional tort system, the 9/11 victim compensation fund, a private alternative mechanism to divert people out of the tort system into a private self-sustaining charitable distribution fund. the virginia tech hope memorial fund. a statutory way to try and rein in outrageous executive salaries without getting embroiled in a long lawsuit about what is appropriate and not appropriate when it comes to regulating private pay, the pay czar legislation, the t.a.r.p.

legislation, and now a voluntary compact, rather unique, between a public entity, the administration, and a private entity, bp, resulting in the creation of a rather unprecedented, totally independent, but private claims facility designed to resolve bp-related claims. the damage. so steve's right, i mean, i've been fortunate enough over the last 25 years to be at the cutting edge of designing, implementing, administering these creative alternatives to conventional ways of thinking.

and the one common denominator is that creativity. what's very interesting, i think, is retrospectively, every one of those creative alternatives has worked. and has resulted in cabinizing conventional litigation. bp, the verdict's out. but i am confident that with bp, we will develop over the next few weeks an infrastructure, a protocol, rules for the totally voluntary submission of claims which will cabinize the claims, resolve them, and provide damage awards to eligible claimants in

lieu of lawsuits in federal and state courts throughout the gulf. now, how do you go about solving these problems. what are some of the basic bedrock principles that govern these solutions, whether it be statutory pay, statutory 9/11, voluntary private compacts like the hoke spirit memorial fund, judicially imposed plans like agent orange, or this rather unique bp public/private partnership. the principles, i think, are fairly clear. one, no-fault. these facilities, these alternatives will not work if

there is going to be a lengthy legal debate over who's at fault. instead, these are no-fault regiments. nothing unique about that. in 50 states for 100 years they've had no-fault regiments called worker's comp. but that's point number one. let's not point fingers of blame. let's assume blame. let's acknowledge wrong. and move forward with a compensatory resolution. two, let's assure efficiency. speed. one of the great considerations for entering any of these programs is the speed at which

compensation is delivered or determined. in the pay czar example, we promulgated 2009 compensation retroactively within three months for all of 2009. and in 2010, we got out our compensation decisions in 60 days. speed. in contrast to the lengthy inefficiency of the legal system. speed. three, streamline corroboration and proof. let's avoid in this creative alternatives lengthy discovery and depositions. let's avoid trial-like pretrial discovery. instead, consistent with speed, let's resolve claims efficiently

and swiftly on a summarized, abbreviated, but nonetheless corroborative record that is submitted to the facility. four, in these alternatives to the tort system, let's not even talk about or consider punitive damages. these are all compensatory damage vehicles designed to right the wrong by distributing money that will make the claimant whole from her or his compensatory loss. punishment? no. the tradeoff for admitting wrong in terms of the willingness to pay is that there will be no piling on with punitive damages

or other excessive, or additional damage claims. five, or next, in all of these procedures, every one of them, make sure that you implement procedural due process as part of this process. the best example, of course, is the 9/11 victim compensation fund, where every single claimant who entered that program voluntarily had an opportunity to be heard. every one. not all wanted it. only half, i think, wanted it. but those half were given a full and fair opportunity to be heard. so, too, in all of these other funds, to one degree or another, you are not merely a cog in the claims machine. you have an opportunity for

tailored consideration of your own claim. even with the pay czar claims. before i rendered decisions as to what appropriate compensation should be, i invited each and every company, all seven, bank of america, citigroup, chrysler, chrysler financial, gm, gmac, and aig, all seven were invited. come to washington, come to the treasury, make your case. procedural due process, so that everybody knows they have a vested, fair stake in the outcome. it's enormously important in ratifying the credibility of

these tort -- or these litigation alternatives. do not underestimate that importance. that's sort of the common benchmarks for all of these programs. there's been a great deal written about all of them, but the interesting feature is how they pose a creative alternative to the conventional tort system, or the conventional complex litigation system. now, those are the common -- the similarities. there's another very important similarity in all of these alternatives. and that is, i can assure you that in every one of these cases, as different as they may be on the substantive merits, agent orange defoliant, deranged

gunman at uva. corporate big wigs, masters of the universe who don't get it when it comes to appropriate pay during the time of a severe recession, but all of these cases involve another common element, and that is, human emotion. the degree to which the claimant or the target of what i'm do in confronts anger, frustration, disappointment, uncertainty, which feeds a reaction on the part of the individual that requires what i'm doing, or what my designees are doing, requires them to be psychiatrists as well as lawyers.

as well as economists, statisticians, sociologists. these problems, these national problems require you to get inside the head of the people you're trying to deal with. and it makes it very emotional and very, very difficult. so that is sort of how you can, i think, under the rubrick of law and government, link all of these problems. to creative solutions. now, in the next -- in the last ten minutes before i take questions, let me focus on two examples of creativity. the federal legislation creating the special master for t.a.r.p.,

executive compensation, the pay czar, on the one hand, and my current work as the administrator of the gulf coast claims facility arising out of the bp spill on the other hand. now, what are some of the problems that arise in deciding pay? well, let's look at a couple of issues that i thought were rather interesting. i would have thought, when i took on that assignment, which i still have, by the way, for another month, the pay czar legislation. i would have thought that there would have been a tremendous degree of adverse criticism. mr. feinberg, it is none of the government's business in setting private pay. it is philosophically

ill-advised and inconsistent with our free market heritage. i got none of that. virtually no criticism. why is that? two reasons. first, i only have legal statutory authority over seven companies. and it's to those seven companies only over the top 25 of those 75 people. if you're going to be critical of government intervention in the free market, look elsewhere. i'm a side show. i have very limited mandatory jurisdiction. i have more advisory jurisdiction. but very limited mandatory jurisdiction. it's not worth the candle to take me on. train your free market sicts of regulatory reform or regulatory reform or what the s.e.c. or the

federal reserve are doing. why bother with feinberg who's sort of an afterthought in the legal structure. of executive pay. but there's a secondary important reason besides the limited jurisdiction that i have. and that is, that after all, i'm viewed as a surrogate for the taxpayer. those seven companies only survived because of citizen taxpayer money that was loaned them. i represent the creditors of these seven companies. the creditors who own the company. and since the american people bailed out these seven companies, surely the view is the american people should have a say in what these executives of these seven companies make for a living. that argument, i must say, that i'm acting really on behalf of

the creditors of those seven companies, and no others, looms large, i think, in blunting any philosophical criticism about government involvement in the private marketplace. i don't hear a lot from the kato institute. i don't hear a lot from republicans in red states. most of whom were opposed to t.a.r.p. to begin with. and certainly don't mind feinberg influencing pay, especially since the law says, once the corporation repays the taxpay taxpayer, they're out. that's our primary objective, repay. so seven companies at the beginning is now down to four companies. bank of america, citigroup and chrysler financial are out. leaving the other four. so that's sort of -- that

program, i doubt very much if this t.a.r.p. law and my reining in pay, i don't very much think it will ever be repeated. it's sort of a one-off. the other example that raises some interesting issues is the bp gulf coast claim facility. now, here, very interesting. bp has voluntarily contributed $20 billion to deal with claims arising out of the spill. bp has also told the administration, if $20 billion is not enough, it will replenish the fund beyond $20 billion. so the bp claims facility, which is independent, i am beholding

to neither the administration nor bp, by agreement i can do it on my own, and exercise sound discretion in distributing the funds. so the challenge with the bp facility is going to be, well, it's all well and good to creatively set up this wonderful alternative mechanism to litigation. what is your definition of an eligible claim under the fund. some claims are easy. mr. feinberg, i'm a fisherman, i can't fish. the oil -- the fishing beds are closed because of oil. i can't fish. pay me my economic loss. that's an easy claim. it gets a little more difficult if you try and pay the loss in one lump to cover present and

future loss, in trying to figure out what constitutes a future claim. i mean, the oil is still spilling. that's rather problematic. that's a rather murky crystal ball. but that's a relatively simple claim where there are two issues -- we're all lawyers here -- analytically there are two issues. am i eligible to file a claim? clearly, yes, in my hypothetical, you're a fisherman. second, what is the value of my claim? ah, that's more problematic. particularly if the oil has not stopped spilling. so you don't know whether in the next month the oil will reach the fishing grounds, or will pollute certain other grounds, thereby maximizing the damages.

eligibility will will, calculation of apardon, two quite separate issues. you can be eligible, and get nothing. if you're not eligible, you get nothing. the second interesting question that i'll have to confront in bp is eligibility for indirect ripple claims. mr. feinberg, i own kincaid seafood restaurant here in washington. we serve this fabulous dish, louisiana oysters. i can't get louisiana oysters. people can't order louisiana oysters. they've stopped coming to my restaurant, and my custom of

volume is down 10%. pay me. now, what do you do about that claim? well, you say no. but think about it. i mean, it's an attenuated claim, no question. and if you pay that claim, you might as well pay every restaurant in the united states to come up with a claim. how do you rationalize a principle that will say some claims are eligible -- we've still got to calculate -- but some claims are ineligible. how do you do that? well, actually, congress provided me some guidance in the 9/11 fund, when the question was, how do you pay physical injury claims arising out of the terrorist attacks? and the law in 9/11 said, special master, in administering these claims, in determining the eligibility, look to state tort

law of the residents of the victim. would the law of the victim's residence allow that claim? well, i may do the same thing with bp, with the independent claims facility. i may say, you've brought a business interruption claim from washington, d.c. how likely is it that the courts of washington, d.c., the superior court, or maritime law, or the pollution control act law, or other applicable law, how likely is it that that restaurant will have a valid claim? i venture to say virtually nil. somehow you have to cabinize the causal approximate cause relationship to the claim and come up with a principled way, because if it's not just

principals pled, because if it's just feinberg whim, that won't sell, it won't work. there's got to be a principals pled way to do it. that's a principled way. you can't have a restaurant in louisiana under state law getting paid, and the very same restaurant in florida not getting paid. you've got to come up with -- understand the law, and have some sort of common denominator. but that's the way it works. so in 25, 26 minutes, i've tried to lay out how the law in government can work to the to find creative alternatives to the tort system, or litigation, designed to do justice, designed to provide a much more efficient alternative, and yet one that although avoiding findings of

fault compensates in an equitiable, fair, systematic way. and that's sort of the summary. and now we still have about 20 minutes for questions. and steve promised me that this would be the type of audience where we would get some good questions. so fire away. >> if you have a question, please come to the microphones, in either aisle. so we can capture the questions. >> thanks a lot. i'm gary edles, and i teach administrative law. when you describe due process, the requirements of due process, put more flesh on the bone. what do you actually do in the various contexts that you're discussing so that people feel they have had their fair opportunity to present their case? >> very good question. the first rule, face-to-face hearing, if you want it.

just like in court. the right, even though it's an administrative process to come in and be heard. we did that in agent orange, we did that in virginia tech, we did that in 9/11. the opportunity, if you wanted, voluntarily, to meet your decision maker and have a vested stake in the process. that testimony is under oath, with a transcript, and goes a long way in giving the claimant a vested interest in the process. second, the right to appeal, administratively. if you don't like the result of your claim, you have the right to appeal administratively to another individual, or a group, to get a second bite at the apple. third, the right to be -- to have counsel, if you want counsel. or if you don't want a lawyer,

bring an accountant, priest, rabbi, your brother, bring whoever you want to represent you or to help you. transparency, openness, decisions not rendered in the dead of night, procedural protectio protections. the administrator is a fiduci y fiduciary, to try within the confines of the law, or the rules, to maximize your award. those are some of the time-honored principles. if you take professor's course in administrative law, there will be a whole section on administrative due process and what's required. and we try and follow those prescriptions.

>> megan mckinney, alumni. i actually studied your t.a.r.p. legislation. and i was wondering what the initial reactions were to proposals for reduced big compensation? what the executives' reactions were to that? and also to the vested stakeholder, you know, the increased stakeholder that they had to take? >> they didn't like it. wall street executives came to me and said, ken, you must give us under the law -- and they were right -- competitive compensation. otherwise, we'll lose these people, and they're irreplaceable.

the graveyards aae filled with irreplaceable people. that's first. secondly, they told me that if these individuals leave, they're not going to go across the street to a domestic competitor, they're going to go to europe. they're goinggto go to china. everybody's going to go work in china. and these were the arguments made. we looked at the data. we tried to hire to help us independent compensation consultants. well, you couldn't find any independent -- so we hired the next best thing, academics, and we developed models. and you're right, the model that we used in most cases was, cash compensation, base cash salary, under $500,000 per year, no guaranteed incentives. you've got to earn it. the remainder of your

compensation in stock, but stock that can't be transferred, except a third after one year, a third after two years, a third after three. long-term integration between the total comp of the individual and the company where he or she works. now, we think that was the formula. it worked pretty well. wall street doesn't like it. they went along. they had to, under the law. but we thought it was the best way to go. tying individual comp to company performance over the long term in the form of stock. i think it's worked pretty well. and 85% of the individuals whose pay we set in 2009 are still there in 2010. >> just a follow-up question. i also agree that i think it's a pretty reasonable compensation. i wondered if you noticed any voluntary option in the industry outside? >> any voluntary -- >> option of the

recommendations? >> well, there's been some voluntary adoption, especially in companies that are in the crosshairs, goldman, morgan. it's too early to hell how long -- i mean, i think there's been some small degree of acquiescence or ratification of what we're doing. whether that will continue when the american people's memory fades, remains to be seen. but when it comes to reining in executive pay, voluntary adoption of my principles or prescriptions is nowhere near as important as the legislation that's about to become law, reform, governance reform, the new transparency rules promulgated by the s.e.c., the new rules promulgated by the federal reserve, those much more pervasive reforms i think will have more of a say in executive pay than what i'm doing.

>> i'm gary nelson, professor at the school. you mentioned the difficulty in calculating the present damages and the unknown future. don't you have a similar dimension in claimants as you may have the fishermen today who's fine, but in trouble next week, or next year? how do you account for that? >> absolutely right. you have to sit down and offer that fisherman, mr. fisherman, you have shown us economic loss models that give you now $83,000. we're going to tender a check to you, not only for the economic loss that you've suffered to date, but what we think is a fair projection of what you'll suffer in the future. and we'll give you not $83,000, but $149,000.

and in return, we want a full release so that you can't come back later and claim $149,000 should have been $249,000, or $149,000 was only $99,000. not that you'll come back, but bp will come back. but the challenge is to come up with a prospective prediction of economic loss which is relatively fair and corroborated. the safety valve, of course, is that if the claimant fishermen is not convinced of that $149,000, or thinks that it is too low, or thinks that it requires him or her to be too uncertain, don't take it. don't take it. and instead, opt into the litigation system.

my goal is to minimize the number of people who think that the litigation system will give them more of an upside. i venture to say in my opinion, the litigation system is even more uncertain than my crystal ball analysis of what's a total economic loss. so that is a fundamental -- you pose a fundamental question that will challenge the ability to make the facility work. >> i guess i would just follow up on that in your answer. how -- given that this is -- you acknowledge it's still much of an emerging disaster, there are wetlands that are not yet destroyed, they may be destroyed, how do you make those calculations? it's a different kind of projection. >> that's true. you ccnnot do that prospectively until the oil stops. i mean, mr. feinberg, i have an oyster bed, and i don't know my

damage total yet, because the oil hasn't hit the oyster bed yet. i know i've lost some business because i can't get my oysters to market. but once the oil stops, hopefully i will able to get my oysters to market unless in the interim the oil, which is still spilling, reaches the oyster bed. so steve's right, you can't do this type of economic forecasting, as long as it's an ongoing tort. you've got to wait. what you can do in the interim while it's an ongoing tort provide emergency payments without a release to keep people in business. i completely agree with that. >> as best as you can estimate at this point, if the oil stopped gushing five minutes from now, do you think that $20

million will be adequate to compensate people? >> i have no idea. i really don't have any idea, until we see the nature of the claims. it's one thing for the press and the media to discuss all of these claims, all of these claims. i keep explaining to people in the gulf -- and steve's right, i've been back there constantly -- if you don't file a claim, there's nothing i can do. don't assume that everybody will file a claim. i've learned over the years that there are human nature barriers to filing a claim. oh, it's too complicated. i don't really have a claim. it's not the fault of the spill. i don't know. i procrastinate. i mean, before i ajudge the $20

billion will not be enough, i want to know how many claims, how many eligible claims, what the calculation of loss is, have claimants with valid claims mitigated. kincaid's, you can go and get shrimp from somewhere else, or oysters. it doesn't have to be from the gulf, or that part of the gulf. i mean, i don't mean to be glib when i say i don't know if $20 billion's enough. many in the media assume it's not. i don't know. i'll wait and see what the claims look like, what the corroboration is. i've been down in louisiana where, you know, there are going to be claims where someone comes in and says, mr. feinberg, i can't work. the ship is dry docked because i can't go out and fish. so i need money.

well, let me see your irs, or your wage forms, or -- this is a cash business. well, i know that. i mean, there's nothing illegal about a cash business, but let me see some corroboration. oh, i'll be back. i mean, you've got to -- i'm just giving this as an example. now, maybe that person will come in with an affidavit, or a notary -- a notarized statement from a priest in the neighborhood, or the mayor, or the sheriff. saying, mr. feinberg, we vouch for this man, he did earn this or that. there's a lot of ways tof corroborate. it doesn't have to be the party of the first part of the law school. there are different ways to corroborate. but there's got to be something. you've got to worry about fraud. so you don't divert good money away from eligible claim asants

people who aren't entitled. that's some of the challenge here. we'll see. >> ken, we've already been hearing reports in the news about the health effect on workers of the chemicals being put on the oil. is that part of the mandate? or is that a downstream issue that you're not even dealing with? >> no, no, that's part of the mandate, injury, death, they can come in as the families. but as the physical injury claims, they're mostly respiratory, or dermatological, i got it on my hands, on my gloves. there are about 850, i think, physical injury claims that have to be dealt with. but corroborate, show us your medicals. and i mean, how sick are you? i'm disabled. you are? okay. if you're disabled. where's your social security disability? where's your worker's comp

disability? i mean, show me that you're disabled. corroboration is absolutely necessary to make sure that eligible claimants get adequate compensation. and that will be a challenge here, no doubt. >> i'm curious about what you say about punitive damages. and about possible replenishment of the fund. is there any indication from bp that you're comfortable stating publicly as to whether that possibility of replenishment is reflective of a determination and award of punitive damages in the litigation realm of things? i would imagine that that might logically have an impact on bp's thinking. >> i think, as i've said, punitive damages in the fund, out of the question.

will punitive damage awards in the traditional court system impact bp's ability to pay -- replenish the fund? it may very well. i haven't heard anything about that. i think it's very, very pemature. one question, as you know, dan, about punitive damages, you're going to have one punitive damage decision, or consecutive punitive damage decisions by lawyers in different jurisdictions, and that's another question. all of that is downstream. my simple answer so far is to professor metcalf, no, there's been no discussions along those lines. i doubt that it will be on my watch. i am not dealing with the litigation. i'm dealing with the facility, so i'm not worried about that. but i hear the implication of your question, yes. >> that the potential claimant with whom you deal, where you're saying $149,000 is a fair deal,

and the claimant is physically gambling as to whether there will be more outside of the compensation system. that claimant may have to take into account the possibility of a punitive damage award outside of that -- >> may be. right. >> thanks. >> in your initiative as one-off of the tort or court process, i wonder if you could speak more broadly of the implications of these one-off systems. >> i don't think they influence it much at all. i'm asked all the time, are these one-off claims facilities the wave of the future. absolutely not. i think that the american -- first of all, i think the american legal system works pretty well and i think the american tort system works pretty well.

there are relatively rare circumstances where, whether it's the volume of claims, the quality of the claims, the need for swifter justice, that's where these claims facilities come into play. i mean, steve says that, you know, this is sort of a niche of mine. yeah, it's a niche. five of these over the last 25 years. they're not exactly commonplace. i remember after the 9/11 fund, the asbestos industry came to me and said, now, having seen how 9/11 works, can you set up a similar facility for all the asbestos claims? i said, sure, i can. but i have two questions. one, who's going to pay for it, and how much is everybody going to get? in the 9/11 fund, the american taxpayer foot the bill. in the bp oil spill, bp's

footing the bill. asbestos industry, you want to set up a bp type claims facility, who's paying for it? you? the employer? the manufacturer? the insurer? you can't get your act together for 30 years over those issues. and how much are you going to pay in a no-fault system where speed is essential? well, do you really expect to pay the same as if you win in court, after seven years of litigation? there's a trade-off. the inability to find deep pockets to fund these alternatives and the inability of lawyers to agree on what the amount ought to be to eligible claimants, makes these one-off programs one off. finally i must say there is a new book out about the