on how the use of oil this person's is affecting the environment and wildlife in the gulf of mexico. in a little more than an hour, the senate banking committee confirmation hearing for several nominees to serve on the federal reserve board of governors. after that, or about the senate passage of the financial regulations bill. obama talked about the bill this afternoon. you'll also see some of the senate debate from leaders of the banking committee. senators chris dodd and richard shelby. the senate judiciary committee votes on the supreme court nomination of elena kagan next thursday. members were scheduled to consider the nomination this week, but committee republicans asked for a week's delay. live coverage on c-span 3 at 10:00 a.m. eastern. . .

>> good morning, everybody. we have been advised by the floor that there will be of vote on financial reform legislation. so while we are awaiting the arrival of lisa jackson, i am going to move ahead with the hearing. we are so pleased that dr. barry

robinson is here from noaa. when he concludes, hopefully ms. jackson is here. if not, we will go forward to hearing our very able administrator from epa, whom i traveled to the golf with. this hearing will mel come to order. it is the official hearing of the commerce -- in this hearing will come to order. the purpose of the hearing is to determine what is it that we dispersants.is perso what is the impact is having on people, on real life, and on communities. what do we know it? -- what is the impact is having on people, on marine life, and on communities. we are going to look at, are

there things we are going to need to add in the appropriations committee to the noaa budget or encourage it at epa and others to see what we do. our number one concern is the safety of the american people save. when catastrophe affects them, what is the consequences of that catastrophe? we salute our president for being compassionately involved in this issue. having talked with him and having trouble to the gulf of mexico with ms. jackson, we know the administration is committed to not only stopping we leak, but make suring sure contain the negative consequences of the lake. today is day 86 of the national catastrophe. the world is waiting to see if the new cap will stop testing.

i'm holding this hearing it to examine the use of oil dispersants in response to the spill. as of july 13, bp had used one. million gallons of dispersant and the golulf. we need to know, what does that mean? has that been good? has that been bad, or is the information out there that we need to pursue? what we do know is that dispersants are are chemicals that break up oil slicks into small particles. dispersants break up oil slicks into small particles. the tool that has been advised to prevent oil from washing up on the shore to so negatively impact habat and wildlife and the beaches and public health. we know that dispersants break up in small droplets, and that

they sink in the water, and that they become invisible. now, when they become invisible, they are eaten up by tiny microbes and that is then part of the food chain and gee, what does that mean? and what does being invisible mean? because its invisible, it cannot be overlooked and underevaluated. i am concerned, because i feel and i believe, and my reading verifies that we don't know enough about the impact of dispersants and dispersed oil when people, marine life and air quality. i am very concerned and my question is, should we ban them? should we take a time out from using them? what are the short and long-term consequences of using them? i have been a member of congress for some time, and there are those who say that well, that is a liability, and i want to turn that experience into an asset, so i believe that whatever i am told, i want to trust, but verify. i believe that often we are told

don't worry, honey, we will take care of you and i won't hurt. we only then find out that a very good product that we thought was a good product turns out to have vile consequences. i don't want dispersants to be the agent orange of this oil spill. and i want to be assured on behalf of the american people that this is okay to use, and okay to use in the amous that we are talking about. so, there are questions about how does it move? where will it go? do we clean it up? is it toxic? does it create dead zones and questions that have been raised in the public domain and people sitting at the table, both really well known and well respected scientists, and those who have been adcate. so, wh happens to the food chain? the use of dispersants in the

deepwater horizon spill in this magnitude is unprecedented. in exxon "valdez," we used 250,000 barrels, and by comparison deep water, the biggest oil spill in history now uses 35,000 to 60,000 brrels a day. wow. so, we used more in ten days than the whole valdez experience. responders tried to use these dispersants at the valdez spill, but only used 4,000. bp has used 1.8 million gallons. such a use of dispersants seems to be an unchartered territory. dispersants have never been used underwater like this. so, i'm here to listen to those people that have been confirmed by the senate to tell us the truth, and we encourageyou, today, speak truth to power. speak truth about what you know. speak truth about what you don't know.

don't pull any punches and owing bothf you, as i do, i know that you won't. i would really ask on behalf of the people and those watching c-span, don't use an acronyms that we told bp we would use the rt and then go back to refer the rnc and dnc and keep the politics out of it. we are not going to talk bt it like that. do like the vice president says, straight talk and plain talk and that is what the people want and what i want. let's really put our questions, our concerns and the good news we know out in the sunshine. we have to learn from the lessons past, and one of which is that we need to know early on so we don't have to go find out the negative consequences later. when i went to the gulf, senator

harden and i went to the gulf and we were told that the beaches was safe and the seafood was safe and that our people were safe. well, that is the where we are now. so i am now going to turn our testimony over to our witnesses. i want to, befe i turn to both miss jackson and mr. robinson is to say why some people are not here. my very good friend and colleague, a mn of tan of the g senator shelby is on the floor, because that is now when we are moving the financial reg and this hearing was scheduled well in advance to comply with the committee rules, so senator shelby is here represented by his staff. he will submit questions in writing, and you know he is a man that is duty-driven in terms of protecting the people of the gulf. alabama is one of the states affected, so he will try to join us.

so, the second issue is that we invited a scientist from alabama to testify, dr. schiff and again a seasoned scientist from the gulf, from the university of alabama. regrettably, dr. schiff fell and broke his ankle and he is unae to travel. we wanted you to know that we also invited him, and he will be submitting testimony for this record. so, we are going to do long distance. we didn't want to get into videoconferencing and so on with the votes. and the other is that we invited the nalco company. can i have the paper so i can explicitly read who they are. the nalco company represents the chemical industries that manufacture dispersan.

they declined to participate in the hearing. i want the record to show that in addition to government officials, those who work in the advocacy community, and we also wanted those who represent the chemical industry, because i do believe in better living through chemist chemistry, also declined to participate. i want the record to show that the nalco did decline, that its board of directors is made up of bp, monsanto and lockheed, and i'm sorry that they didn't come, because i think that they do a lot of good things, and there are questions that we have. but, it is america, and we are not goiing to subpoena them for ishearing, but we might subpoe them for another hearing and i reserve that right.

now though, i really would like to turn to who we do know and who is at the table, and who the american people cot on. i want to ask dr. -- masters? i remember on the trip to the gulf, you said you were a chemistry person and a woman of the bayou. lisa jackson. >> thank you, and good morn, chairman. thank you for having me and i do look forward and seeing rankk member shelby and other members if they can join us. thanyou for inviting me to talk about dispersants and epa's role. epa is the only acronymly use for environmental protection agency in responding t the deepwater horizon rig explosion. i want to start by expressing my condolences to those families who lost members of their family in the explosion we owe them our very best. as we know efforts by bp to stop

the oil release continu today. while the environmental disaster that the gulf of mexico is facing right now has no easy answers, epa is committed to doing the job, protecting the communities the natural environment and human health from the spill, itself, as well as any concerns resulting from the response to the spill. additionally at the president's direction, i have personally traveled to the gulf, the region i did grow up and still consider my hometown, new orleans, six times over the past few months. i will be leaving for my seventh trip right after this hearing. the united states coast guard is the national incident coordinator and has the primary responsibility of managing the response effort, b epa has a large role in providing technical and scientific assistan to the coast guard as the response continues. since the crisis began, epa has more than 200 staff working on the emergency response including scientists, engineers and contractors and other experts throughout the country. in in addition to the role of assisting the cocoast guard in

the management of waste generated from the spill,we are performing rigorous testing of air, water and sediment, and this is to ensure that communities are protected as we respond to the bp spill. all of this information is being made public at www.epa.gov/bpspill as quickly we can compile it. epa has a role with dispersants which are chemicals applied to the oil the break it down into small droplets. ideally, the dispersed oil mixes into the water column and is naturally diluted and into microcoppic organisms. there is popular media saying that the microbes are thriving in the gulf. these e available for spill response in cleanup efforts, but decisions for the use are made by the coast guard as the federal on scene coordinator for this response. in the use of dispersants we are faced with environmental

tradeoffs. the long term effects on aquatic life are largely unknown and we must ensure that the dispersants used are as nontoxic as possible. to date, bp has used as you said almost 1.8 million gallons of dispersant, a volume never used before in the united states. the coast guard was first asked by bp shortly after the spill to authorize use of the dispersants, and the technique was to prevent it from reaching the surface, and reach the shorelines and theest wa estuard the nurseries. the data was to monitor the dispersants, and then the data was analyze and swed that effectiveness could be approved and monitored on a daily basis and it was by labs at university of louisiana labs.

and we would want to continue to be effective and monitor the impact. after the monitoring system was in place, the coast gua conditionally granted use of the dispersants after it made clear that it reserved the right to halt the use of subsidy dispersant if we determined at in time if impact of the environment outweighed the benefit of dispersing the oil. there is good news. the good news is that we have not seen significant environmental impacts from the use of dispersants so far. dissolved oxygen levels remain at acceptable levels which is a good indicator for overall aquatic life in the site of the spill. results of water monitoring do not sh dispersants on or near the shoreline. yesterday, the state of louisiana re-opened some state waters to fishing after tests showed no presence of oil or dispersants. the coast guard and epa issued a directive to bp on may 26th,

instructing bp to apply no more than 15,000 gallons of dispersants per day and to halt the surface application unless coitions on the ground limited the use of other methods of dealing with the oil. skimming, anburning. since that directive was issued on may 26th, we have seen the total daily volume of dispersants used fall by 72% from their peak levels. we also ordered bp to work with federal government scientists to identify less toxic alternatives and two weeks ago epa released the first round of scientific testing of these alternative dispersants. the good news there is that none of the currently authorized dispersants show endocrine disrupting activity and appears that the products have the similar impacts on the aquatic life tested. we await additional rounds of scientific testing which we expect in e near future. madame chairman, we are in a situation with no perfect solution. as we emerge from the response, i believe that we need to revisit the contingency plans

and the product schedules that preauthorize dispersant use. ed a disally, we need future studies on the impact of the dispersants on human health an in particular the environment. as a new orleans native, i know the importance of the environment to the economy and the culture of the gulf coast, and we have a great deal of rebuilding to do, and i enurge that we do everything in our power to ensure a strong recovery and future for the gulf. because as we know efforts by bp to test the new cap continue today. we will all know more in coming hours and days. i remain hopeful that the flow of oil will slow or it will be stopped completely. and with any significant reduction in the flow of oil there should be a significant reduction in the amount of dispersant used, further reduction. the people of the gulf prefer collection of oil in lieu of dispersant use. so ask that bp live up to

that request. i welcome your questions at ts time a that concludes my testimony. >> thank you, ms. jackson. we turn to dr. larry robinson, the leader in science at the national -- from noaa. we want to thank dr. robinson for being here. i had an extensive conversation with dr. la krshchucco and i kne is on travel and rather than delay the hearing we felt that dr. robinson would invariably represent her and we ask you to proceed. >> thank you. okay. thank you, and all of the members of the committee for the opportunity to testifyon the national oceanic and atmospheric administration's role on the deepwater horizon oil spill

response and use of dispersants. i am the assistant secretary of commerce for oceans and atmosphere. i appreciate the opportunity to discuss the critical roles that noaa sves in the oil spills and portance of our contributions to protect and restore natural resources and communities and economies affecteded by this tragic event. the deepwater horizon spill is a stark reminder that large oil spills occur and we must rebill and maintain our response capacity. when a oil spill occurs, there are no good outcomes. once oil has spilled, responders may use a variety of oil spill countermeasures toreduce the adverse effects of spilled oil on the environment. for the deep horizon spill, the unified command's posture has been to fight the oil offshore and reduce the amount of oil that comes ashore using a variety of countermeasures, including dispersants.

chemical dispersants can be an effective tooln the response strategy, but like all methods involve tradeoffs in terms of effectiveness and potential for collateral impacts. consideration of what we have learned from both research and real world experience s factored into the decision-making on the use of dispersants for this spill. research on the effectiveness and effects of the dispersants and dispersed oil has been under way for more than three decades, but vital gaps still exist. one area of focus has been on determining the toxicity of long-term effects of the dispersants, and dispersed oil on sensitive marine life. it is now clear that the effect of the dispersed oil declined rapidly in concentration of ocean mixes and degrades faster than untreated surface oil or shoreline oil. the effects of the dispersed oil on marine life depends on

concentration and duration of exposure of organisms to the dispersed oil. the sea surface, early life stages of fish, shell fish are much more sensitive to juveniles than adults on the dispersed oil. there are no data on the toxicity of the oil to deep sea marine life at any stage, so we have to extrapolate based on existing knowledge. however, at both the surface and sub-surface, modeling and monitoring is confirming that the dispersed oil concentrations decline rapidly with distance from the well head as it mixes with sea water and moves with the currents away from the treated areas. noaa has been conducting chemical analysis of the seafood collecte after the deepwater horizon. that is fin fish and oysters for polycarbons or phs, madame

chairman t measure the uptake, and these compounds by oil on marine species. to date, none of the seafood samples analyzed for these compounds have concentrations that exceed the epa and fda guidelines ensuring that the seafood is reaching the marketplace is safe to eat. to help support additional research, the administration has requested supplemental funds to support dispersant research associated with the deepwater horizon oil spill. if appropriated the $2 million requested by the president will low noaa along with the epa and the department of interior to support research to begin to provide a better understanding of this short and long-term implications to the environment and the human health associated with the spill and the application and surface and undersea applications of

dispersants. the dynamic nature of the deepwater horizon oil spill has created many questions. for these questions, noaa has launched a one-stop-shop response to the oil spill questions. originally designated r the respondents, www.geoplatform.gov shows that all oil shorelines and other positions of research ships be put into one interactive match. this public site is to facilitate transparency and communication and coordination among a variety of users from federal, state and local responders to local community leaders and the public at large. as the response of the spill ntinues the unified command will continually re-evaluate the

response strategies, actions and planning. noaa will continue to provide scientific support to the unied command. i would like to ensure you that we will not relent in our efforts to protect the livelihoods of gulf coast residents d mitigate the environmental impacts of this spill. in conjunction with other federal agencies we will continue to monitor the use of dispersants and as new information is generated we will appropriately advice the unified command. thank you for allowing me to testify on noaa's response efforts and i'm happy to answer any questions that you might have. >> thank you very much, dr. robinson. the impact of this oil spill is not only in the gulf states. and the consequences ofissues, safety, like safety of the seafood and the food goes far and wide. we, in the state of maryland, rely heavily on our friends in

the gulf for oysters, for the well-known and yummy gulf shrimp, and not regrettably, but they are a good supplement to our wonderful chesapeake bay blue crabs. we need to know that seafood is safe, and the american public needs to know that the seafood is safe for the simple reason that we want them to continue to feel comfortable buying gulf products so that the economic consequences is not multiplied where first of all they have closed the fishing areas, and that i have closed the beaches, but they have closed the fishing areas and then people say, well, i'm not going the buy it, because i worry about it. one, we need to insure the safety and then we need good publ information about that. i want to come back to that, but i want to go right to this idea

of the unified command and who does what. i have been concerned about the ified command, because it soundsto me, like when i heard it, it sounded so cool and command and control and decisive and quit-witted and swift of boat and foot. but when i got, there it was a committee. and it was a committee of koord nays or the and i'm not knocking it, because the enormity of this is something that also quite stunning to see. all of the boats and all that is affeed and the vastness of 7,000 miles of gulf coast shoreline, but who -- ms. jackson, when you make your recommendations, is it the coast guard and this unified command call the shots. are you advisory to the coast guard or could you, or do you have the power to ban or limit

the use of dispersants or any other product that you would deem scientifically based would have a negative consequence? what power do you have to act? >> the flashl incident commander is retired admiral thad allen and the federal on-scene coordinator has rotated. it is currently admiral z and i can't pronounce the last name, and so we will call him admiral z. but it is a succession of admirals, but they are the final decision-makers in any chain of command, there is a pyramid and they are at the top reporting directly to secretary napolitano and the president. that said, as head of the environmental protection agency, i have made my opinions and views and scientific concerns known on aange of issues during this response, and admiral allen has been very receptive, very receptive to understanding that there are dimensions to this response that

are environmental, not simply about the operational day-to-day fighti of the oil. >> so, can you ban dispersants and limit their use or does he have to give the approval? >> i think it is is a matterf untested law as to whether epa, and there is no permit that epa has given to allow the use of dispersants, so i would not know and i'm not an attorney, but -- >> no, but you are the head of epa, so if you said, admiral allen, this, we are now heading into a danger zone, or flashing yellow light, so significant, better be safe than sorry, that i want to ban or limit the use of dispersants, could you have the power to act unilaterally. >> i do believe i do, chairman, but i want my lawyers to get you a answer in writing. >> but that is a answer you

needed to kn fromay one, ms. jackson, because every one of us here at the table are coastal senators, and i have to tell you that we love the coast guard and they are operational peoe, and they do search and rescue and they have the authority to clean up a limited oil spill if it would occur god forbid in the bay, and there are lakes, et cetera, but the coast guard are not scientists. they are not scientists, but they are under the department of homeland security, which means they are protectors, so how would they know whether your idea was od or not when you are the idea basis, and mr. green science combined with you are the repository of scientific knowledge in these fields. >> part of the reason i am hesitating is twofold. number o, it has not been tested, and i have not had to walk into admiral allen's office even figuratively and say, that i think that you need to stop. he has yet to sagree when i

have been forceful in saying th we need to do something. that why we have directives and one more thing, chairman, there is a -- >> notice, i'm not being critical of you and we are walking a public policy areas where we need to really tighten up so we don't skrup. screw up. >> i absolutely agree. you started with the idea of the unified command and one of the public policy decision has to be how do you operate on the ground which is to work in a large org sooigs and ensure there is a chain of sxhand that ecommand t the federal government, and that is something to discuss. i think that unified command makes sense on a smaller spill, but on something like this, there needs to be additional clarify. but i want to acknowledge the role of noaa because they are scientific advisers to the coast guard. >> i presume they are scientific advisers to you? i mean, don't you talk to each

other? >> constantly. >> the way i saw you in action that day -- >> yeah. >> but i wasimpressed with that aspect of it. >> yes, ma'am, but they are also, they have a legal role to advise the coast guard on science, because they have a trust responsibility to the ocean and the atmosphere. >> i will come back with senatosenator s who have lived through oil spill and the valdez, and i want to make sure my colleagues have time to ask questions. again, we are not bashing anybody, but here as i understand it, epa had concerns about the amount of dispersants being use and the amount that was being used to end also were concerd enough to direct bp to stop using them on the surface. am i correct? >> that is right. >> and that you then gave that

vice to admiral allen? is that correct? >> essentially, yes. >> then what happened? did they begin to limit their use, and then who monitors that? and it says in my reporting data that it was limited by 72%, decline. was that for one day or has that been persistent, and then why did you ask them to limit it if everybody felt this was okay? so, my question was did you ask that dispersants be limited? why did you ask that? and when you ask that, who paid attention or didn't pay attention to you, and tn who ensures the compliance with the unified command's directive. >> thank you, chairman. a couple of things. yes, i remain and we remain at epa concerneabout the volume of dispersant used as of date.

as we have all noted, ts is the largest volume kwoo uused i country. it has been used for 15 years, but it is the volume, and any person whether they have a chemistry degree or not remain concern, and certainly, remain concern about that, and we have had many, many concerns about that. i did express concerns to admiral allen and the result was a dirtive, directing bp, cosined by the coast guard and epa to use no more than 15,000 gallons of dispersants in t subsea a to use spraying, aerial spraying of the chemical for lack of a better term, as a last resort. the day that directive was issued or the day before and don't quote me on dates, bp had gotten up to 70,000 gallons of chemical used in one day. that was an alarming number. >> yes, and to go to our friends in the where we should have had lessons learned from the valdez which was a horrific experience

for our neighbors in alaska, they used 250,000 gallonfor the whole spill. >> yes, chairman. i want to compare and contrast with respect to the senator who knows her state well, but i do want to talk about e valdez incident and now, because there are very important scientific issues here. principally, the gulf of mexico iso prince william sound, and of course, prince william sound is no lf of mexico. we are talking about a different climate and different type of crude, and we are talking about a -- >> talk about the valdez with her. let me finish with mine, and i don't mean to cut u off, but we have a vote at 11:00, so here is my question. so, why did you tell them to limit it? were you that concerned about the unknown factors of dispsant? why did you tell them to limit the use? >> absolutely. because there are scientific

unknowns. we had to make decisions that are a series of tradeoffs and basically in common language, it wa either nothing or in moderation. and in my best judgment was that it should be in moderation, but we should not say no, you may not use the dispersant, because at the time, we were risking that which wehave all seen on tv which is large amounts of oil at the surface which got by the skimmers and got by the burners and would end up in the marshes where they do the most damage and in the shallows. that tradeoff is not easy. every single thing being done out at sea comes at cost. burning has air pollution risks and wildlife risks and skimming has wildlife risks, but the simple question was, do you say no or do you say in moderation. >> so you said in moderation, and i am going to ask you to submit in the record what you think additional research needs to bdone and what needs to be

done in as we move forward in our appropriations. if i might, colleagues, i want to go to mr. robinson, because, does or does not noaa have a protocol to evaluate the safety of seafood? >> yes, ma'am, we do. the first step we take is very conservative with regard to the fisheries closures. we look for any visible evidence of oil, and we project whether the oil y go in the next couple of days, and so the first strategy is to limit the possible take of fish from any areas that have been impacted by the oil. the next thing that we do in partnership with other federal colleagues at fda, epa and the states is that we develop a fairly comprehensive seafood safety protocol. we have actually taken samples from the gulf area to analyze them not only for oil, but for

some of thestituents of oil, and the polysaccharides that i mentioned erlier that are toxic to human beings. thus far, we have not found any evidence of these contaminants in any of the species that we have taken outside of the contaminated area. so, so this is a fairly comprehensive set of protocols that we have done, and i want to emphasize in collaboration with our colleagues in other federal agencies that includes the states who are trustees as well. i want to point out, however, that our jurisdiction is outside of the three-mile area. off of the coast. >> and whose jurisdiction is within the three miles? >> that is the states. >> and then who certifies the states? >> the states have -- >> in the level of competency to test for this? >> the states work withhe fda.

>> work with, but who -- does fda in the saying, because it has got to be a noaa and fda safety on the seafood. >> that is crect. so fda works onp the stapts to ensure that the fish does not reach the marketplace that is taken with them the three-mile limit that is contaminated with any of these products, and we provide any assistance they need. >> we will come back to you, i know that i have been taking time, and i want to turn to senator who has lived all of the geography regardless of it. senator makowsky. >> i want to get to the seafood effort, and the coordination between what is happening with the state level at three miles and what noaa is doing, because the fish could care a less where

the three-mile marker is, and then how we market our products. we want to be able to ascertain that yes, in fact, our seafood is safe regardless of where it comes from. >> that is correct. >> and so the word that gets out about the safety of our seafood and the process that has gone through and whether it is the fda working with the states or noaa that the assurance is given, because ki tei can tell s far away as alaska with the salmon, our seafood is impacted as what is going on in the gulf as i'm sure that senator mikulski's seafood is in this area of the gulf. so to people, seafood is seafood, and if it is not safe, that will impact all of us. i want to ask you, dr. jackson,

where we have come since the valdez, and i know that prince william sound is not the same conditions as the gulf of mexico, but it is different spill and different climate, but one thing that seems to strike me as commonality here is 20 years ago when the exxon "valdez," we weren't certain how safe these dispersants were. we were concerned about their use then and now 20 years later, we are concerned abt the use of dispersants or certainly the volume of the dispersants used, as we are dealing with the impact of the deepwater horizon. can you tell me how much study epa has actually conducted since the exxon "valdez" in terms of use of dispersants and not only their usage in an environment like prince william sound, but how do you make sure that we

really understand in the various conditions that are out there that the levels that are being used are appropriate? give me some backgrod on the research here. >> thank you, senator. there has been significant research not only by epa on dispersants since the exxon "valdez" incent in the '90s and that being said, i will be clear at the outset, it is not enough research. we will get for you for the record a list of the varying studies. some were done from the national academy of sciences which is one from the 2005-2006 era -- >> all of the conditions -- >> that is looking at the coastal southern louisiana conditions and there have been studies set up by the institute after the "valdez" and woods hole has done a variety of work, and there is a annual conrence that noaa has and larry knows the name of, and dr. robinson

will, but dispersants are routinely subjects of research papers and after every oil spill, and sadly, there are small incidents that are not infrequent, and there is a look at what happened wi the dispersant part of the reasons they are not used in the gulf region for example within three miles or near shore is a result of the people's belief that as you get closer to the shallower waters, it is not use it. there is a significant body of tests. >> is there in your opinion enough evidence to suggest that it is in fact not worth it when you get that much closer into shore? i mean, are we defining the dispersants in and of themselves pollutants? >> theispersants are considered -- i'm not sure -- close to shore, i would defer to the research out there and the experts, but i believe there is more than ample reason not to

want to use them near shore in part because of the reason they are affected is they degrade quickly, but you need to give them time to degrade in the deep ocean so they won't show up. our samples are showing up negative for dispersants near shore, and that's presumably because they are breaking down in the time it takes for the material to reach the shoreline. we don't see it in air. we don't see it in water, so something is happening. >> the research that has been done prior to deepwater horizon, has the research been focused equally on the volumes used? or are we just talking about the various products? how much has been done o volume and safety there? >> well, we will get your response for the record, senator, but i'm not personally aware of any research on volume or upper limit, and another crucial piece of research gap is on this sub-sea dispersant. >> because this is the first time we have seen it applied

directly at the source of the spill, is that correct? >> that is right, senator. >> and so, we have not yet done that level of research, whether it is noaar any other agency, but you are suggesting to me that we have not done that research anywhere? >> that is correct, senator. >> is that equally true of internationally? have the norwegians or anyone done research out there or a source done out there beyond the national research done? >> there was some limited testing i believe in europe, and we will get you that information for the reco as well, senator. is not certainly the body of research that you would want in dealing with this matter, obviously, because this is an unprecedented event, and we had to look at that research and then design a program to try to deal with fact that we were dealing with unknowns here. >> well, i think thate do recognize that this is unprecedented, but we also recognize that we have been

operating in offshore conditions for decades now. we look to dispersants as a means of responding in the event of these terribly tragic accidents, and i think that in order to put, to put the issue somewhat at ease, it is clear that we need to do the sufficient testing, not in all areas, where we are concerned of course of what goes on not only in the gulf of alaska area, but as we look to explore and develop even further north. those are different conditions altogether. we need to know, we need to have that assurance that in fact these dispersants do what we hope they do, and do not add additional risk when we are dealing with the spill. thank you, madam chairman. >> as we turn to senator lo

lautenberg, i would like to point that the research council had published a in 2005 when oil spill dispersants and it was a compilation of the work that had been done primarily in the '90s and earl 2000. in 2001, a lot of our thinking shifted. this is a good document but it ends in 2005. the work was done primarily in the 1990s. they have a question that goes like this, better information is needed to determine the window of opportunity and percentage effectiveness of dispersant application for different oil types, different oil types in different environmental conditions. then it goes on to say we know something and what we know is based on '96, '97, tet cetera.

so we have some research. but that's the nature of research, you always need new and better. i would kpend to you and your staff this really the executive branch. we're an acommittee, we're an appropriations committee, you're the ones with the research to be poring over this and also then see what else we know, but senator lautenberg who has been a staunch dwerefender of the co and we were happy to join with him in telling the president we don't want offshore drilling and a real champion of the environment. >> thank y very much, chairman, despite my tardy arrival, i had an tunt to listen to our most competent chairman remind us about what we've got to do to make sure that what we're putting in the water is more dangerous or as dangerous

in part as the oil spill. and it's interesting as we talk about the safety, i think subliminally there are questions about the efficiency of this material. and i don't know whether that question has been fully answered, but i'm announcing that i will soon introduce the safe dispersants act. the bill requires long-term testing approval and disclosure of all gredients in dispersants before they can be used in response to a spill. i am one of those who still is opposed to offshore drilling in the atlantic, but for areas where drilling continues, the law's got to require robust testing and disclosureof all chemicals and dispersants. and so i want to -- i'm glad,

happy to see you, these two expert witnesses, lisa jackson has new jersey flowing through her veins and that makes her a better student and a better expert on what kind of things we have to worry about were we get to our coastline. current law requires only a minimal safety testing of dispersants. and while you, m. jackson, have taken steps to go beyond what the law requires, do we need changes in the law to mandate a more complete range of tests that would better protect the health of workers, residentand marine life? >> yes, sir. i believe we do. i also believe the law would give us critical transparency and openness protections that right now epa cannot provide by law. >> so it's very obvious at least

to me and i'm sure to my colleagues thats law ought to be changed to give the public the right to know about health and environmental effects, chemicals in the dispersants. the one thing, there's an old expression about what you know can hurt you. he, what i come away with is what we don't know can hurt us. we've got to step up to this and do our work in advance and not be relying on catchup to find out whether or not these dispersants, the chemicals therein, are threatening to human health and the environment. on may 20, epa ordered bp to find dispersants that's less toxic than the one it was using. bp refused and to this day continues the same material.

now, a, how can bp simply ignore the directive? and does epa have enough muscle, enough strengthn law to get to issue a command that says hey, you've got only a limited time to continue the use of these without responding? what's the situation there, ms. jackson? >> well, sir, i think it's obvious that bp has always favored the use of dispersants. they don't necessarily think they should be limit and i they like the one they've chosen. i think their answer was design to throw concern on all dispersants so we would have to acknowledge that which is a truth and brought out in this hearing which is that we need more research and information on all dispersandispersants, that only a bp problem.

that is something that i think needs to come out of this issue. so, yes, we clearly have the authority to order them to switch or to order them to use dispersants at a much lower volume. they are doing that. they haven't sprayed in i think five or six days, they have not sprayed dispersant. that's through constant management of operational process. but we need more information and one of the things i certainly hope comes out of this is information not only on what's in the chemicals but different and better testing so that we, dr. robinson and his staff and my staff don't have to try to run models to come up with judgment calls on the fly. >> well, as you heard me say, next week i'm gng to be introducing the what we're calling a safe dispersant act. it requires long-term testing,

approval, disposal of all ingredient and dispersant before it can be used and response to a spill. do you think that this might be a sensible course to track? and to get on with that? >> yes, senator, we will review the actual bill, i think you sent it over maybe yesterday. we will look at the language but the intent and principles you've outlined line up well with the greater transparency, additional testing, hopefully a move to less toxic dispersants. dispersants are much less toxic, that same nes reports clutds they should be a first response use but there are ctical questions about volume, how they're apply and we should be able to get even less toxic dispersants. >> and with the regional

character of the weather and stream flows, et cetera. thanks very much, madam chairman >> well, thank you for your leadership, senator lautenberg. we look forward to looking at that legislation and perhaps being joined as an early co-sponsor with you, your rk early on on particular superfund cleanup and others is actually legendary and you've made a difference and you've got a real expertise and we look forward to woing with you. >> thank you. >> what i would like, before the vote begins, i will have a question from senator shelby. and it's this -- i'll come back to that. bu i really have a question for both of you. ssons learned from other countries. and particularly those that are our allies that share our values around safety and efficacy,

whether it's someone pharmaceuticals or dispersants. the uk, as i understand it, banned dispersants. that gave me pause. and in fact, it gave me heartburn that the uk would ban it, a nation surrounded by water, and if the uk banned it, why want we banning it? and when we got into this because they're surrounded by oceans, too, they've had their share of oil spills up on the north slope. so what is your response to it? do they kno something we don't know? you did note the uk banned it? >> yes, chairman. the uk took correxit.

it was due to rocky shore tests which primarily deals with whether or not the surfactant causes mussels and clams to lose adhesion ona rocky shore. they think it's useful on heavy fuel oil. they're looking at a test protocol to look at whether they should be allowing its use offshore. weon't have a rocky shore issue here because we don't have allow this to be used anywhere near the shoreline. it's being used out, the closest it's been used is 30 miles from shore. so it is fair to say that they had concerns. but i just want to be clear to the people of the gulf it wasn't because of toxicity, if there were toxicity issues, that would be different t had to do with the shoreline impact on a rocky shore, which obviously is different here as well. >> well, i appreciate that clarification. dr. robinson, has noaa reviewed

the way other countries are using dispersants and the effect on marine life and the safety of seafood. >> our scientists have scoured the literature to look at the what's known about the impacts of dispersants on those trusted resources that we are required to protect in this region and around the country. but in spite of that, madam senator, we are just as concerned about the gaps that administrator jackson has pointed out as well as those of you here in the senate and we really welcome the opportunity that we're provided by the $2 million the president has proposed to begin, to begin a more comprehensive research program into the long-term impacts of dispersants in these and other systems.

so in spite of what -- >> so do other countries ban the use of dispersants because of their concern about the impact on seafood? why don't we go to nato countries or eu countries or countries that are our allies like japan? >> well, i don't know comprehensively what all of those countries do. >> well, i'd like to know. that's the noaa job, i would hope that you would look. did you look there? >> well, we are bound by the all producing act -- >> the all producing act won't allow to you find out what another country does that is willing to fight and die alongside of us in afghanistan. >> right. what we've done in with our colleagues around the world is to try to get a better sense of not only the regulatory framework they work in but what is the impact these types of compounds are having on the valued resources. so, yes, senator, we are quite

interested in learning more about what they -- >> dr. robinson, i want you more than interested. circumstance i need noaa on the edge of their chair. i need a sense of urgency here. we're going to fund the research. we have a sense of urgency. we need you to have that urgency. >> right. >> i'd like a list from you meaning from noaa by next week on what do nato nations and those that are part of our strategic alliance like japan so we know thr value and scientif capability, what is their listing on the usef dispersants. i'd like it from the epa perspective and the noaa perspective. and i would like that by this time next week. >> we'll get that information to you, senator. >> madam chairman, thank you. just very quickly, one last question for you, dr. robinson. with the testing that noaa has

done on the issue of dispersants in this seafood, have you detected anything that is noticeable or reportable inhe seafood that you've been testing? >> our seafood tests are more all -- it's what is dispersed on our protocols are not specifically looking at dispersants or the byproducts of dispersants themselves. >> are you intending to do that? >> i think that would be an excellent thing to consider because we're learned from this situation that there are other potentials here, perhaps even from accumulationf dispersants and their byproducts into seafood. so that's something we have on our list of things that we would like to know more about. >> is fda testing this? we were earlier about the fda role within three miles of our shores, are they testing for dispersants in our seafood.

>> i don't think the protocols, presently call for the testing of seafood, with regard to seafood safety with regard to dispersants or byproducts, it's really the oil that we're -- and the oil biprukts that we are looking for in seafood at the moment. >> so how can we give the consumer the assurance that the seafood that is coming from the gulf in these waters is safe for consumption? >> the evidence that we presently have is that the dispersants are broken down rather quickly and biodegrade fairly quikly, we don't know for absolute certainty that there are no traces of dispersants in seafood. our tests, however, looking at the more toxic agents in seafood focus on the oil and at oil byproducts. >> i understand. that but it seems to me we've got an issue here where we're not certain.

i mean the administrator was not able to tell me with certainty whether or not we considered these dispersants as pollutants. if they get into that food chain at whatever level, are we testing for this? it sounds like at this point in time, no,e're looking for the oil products on thefish. that's one thing most certainly but it would seem to me as we do the research on the effecti effectiveness of these dispersants and the trade-off, you have to consider the impact to our fisheries to mariculture as a whole when we're looking at this. i want to be able to give a level of assurance to people that whether you are eating wild alaska salmon from prince william sound or whether you're eating it from taking it from the gulf that the dispersants have not had an impact on the safety of that. so if we are not testing for

that, i would certainly hope that we be doing that now, yesterday. that that is something again a level of assurance we ed to be le to provide the consumer and give them that certainty that these dispersants, even though yes, the purpose of them is to disperse the oil quickly, if you disperse the oil butt we've replaced it with another substance that has toxicity levels that impact that seafood, that's something that we all need to beoncerned about. administrator? >> thank you, senator. i did want to follow up on your poinbecause you're right, what we have done is we've shared the formulations of the dispersant, although they're confidential business information, the manufacturer has made sure we share that with fda and noaa as well as the state of louisiana and other states who have asked

for it so they can look at their own testing. we're testing water and sediment, but one other thing we've done is look at the bioaccumulation potential of all the constituents that are in the dispersants. so dispersants are -- the vast volume is actually oil, petroleum, it's actually in a petroleum base. then you have other chemicals add in. the other chemicals, so that's why pollutant is higher but there are chemicals in there and they can pollute in high enough concentrations. they don't stick around by the looks that we've done. now those are not field studies, those are looking at bioaccumulation potential through peer reviewed modeling. the thing that sticks around is the oil. so it's why certainly one of the things i looked at in the decision making process of whether to take dispersants off the table entirely rather than use them in moderation is are

they worsey is the cure worse than the disease? they are not. they are much less toxic and the constituents that are added to th are not nearly as bad as the oil. so i think not getting into seafood safety, one of the reasons i've seen noaa and fda say they want to first make sure there's no oil there is because the constituent in the dispersant that's most likely to stick around would be the same stuff that's in the crude itself. is that fair? >> that's fair. >> i appreciate that explanation. again, i think what it's going to get down to, this is going to be critical for the economic recovery in the gulf where you've got shrimpers and oystermen and people who rely on afood for their industry, those fish, those shrimp may be absolutely safe but as long as the public believes -- >> that's right. >> that they have been tainted that market does not come back, those shrimpers may be out there in their boats, they're on the water, collecting their shrimp

and no one going to buy them. so we've got to be working together then, if in fact we've demonstrated there is clearly that level of safety, how do we market this? how do we give that level of consumer assurance? and i think this is where we're going to wsh wsh we ne-- we nee noaa and the fda and they need to come out and unequivocally state things are safe but it's going to impact all of our s seafood markets around the country. we need to get that word out and we need you to help us make that case. >> senator, we want to work with you on this. we are a seafood dependent state. it's important to our our business people, our restaurants, people who sell seafood, people who are the

wholesale dealers. this is big business and it's big business but it's small business that did is it. my whole sale seafood processing. so this doesn't have to be the first hearing because we're also the commerce department, once we have the validation of our science, we're going to talk to secretary locke. if we can promote -- if commerce department can spend money to improve exports, we can spend money to help our brothers and sisters in the gulf and all of us who are seafood dependent for our onomy to ensure that we're going to do this. let's all work together, let have like a working group and to do this. i'm going to temporarily recess this hearing so that we can go vote. i'm going to excuse the administrative witnesses. i know you're heading to the

gulf. madam administrator. before i recess i want to read a question from senator shelby. he is quite concerd about hurrica hurricanes and hurricane preparation. he's concerned that what is gog on in the gulf, any reaction to the hurricane and preparation will have to address booms, the anchors holding the booms, cleanup crews, et cetera. if oil dispersants wash ashore, what will that be in impact? i'm going to read the question, share it with you and i think in the interest of senator shelby would like that answer in writing for him, which is can you tell us the status of the emergency plan for the gulf if a hurricanehits, when do the agency plan to advise the local communities on what they need to do, they haven't heard anything. since contamination could exist in the surge waters, what

agencies will be on the site, on site to make the call for the safety of residents an property owne and people in the seafood industry? you call them fishermen, we call we call them working americans. and the hurricane surge or tidal waters, we need to know what's going don to be the cleanup of water and eye. and the related damage. so we want you to have this question in writing, i'll ask my staff to share it. senator shelby wanted so much to be here and he might be able to come back for the second half. we're going to recess this. we've got homework from you. but i want to say something about the worker bees in the gulf. having been there, i was impressed at how hard everybody was working. and how whether it was the noaa people, fish and wildlife, the epa people on the ground and so on. so i'm going to say hats off to

our federal response and working with the community. but i think we, in washington, have to really pick it up and i think this unified command has got to get a little bit more juice. i really do. i am distressed about the changing admirals on the scene. okay? admiral allen has served the nation with distinction. he's the unified command commander. but the admiral on the ground has got to be on the ground or on the water. and that's a separate topic, we'll take that up with the president. but right now, we need you. you know, you're operational in one sense, but you are the science, you are the science of the united states of america. and they'reounting on you, we're counting on you. so we look forward to it. as we get ready to mark up our bill next week, that's why we

need these lists, so omb can vet and this one can cogitate and science advisers can review. but through the administrator of epa and you, dr. robinson, i am asking for those lists, we don't have time for a lot of bureaucratic vetti, screwing around, okay? we have a sense of urgency. and i know you do, too, but sometimes our own processes get in our way. and so, this committee is temporarily recessed. i'm going to go vote, come back, hopefullother members will. and at that time, we're going to take testimony from the louisiana bucket brigade and the environmental working group to get the view from the ngos. i thank you and i thank our executive branch witnesses

[captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> for a snapshot of washington and congress, the c-span congressional directory, all ledger fingertips. order online at c- span.org/store. >> in a few moments, the senate banking committee confirmation hearing for several nominees to serve on the federal reserve board of governors. in an hour-and-a-half, more about the senate passage of the

financial regulations bill. president obama talked about the bill this afternoon. you'll also see some of the senate debate from leaders of the banking committee. senators christopher dodd and richard shelby. after that, we will be our the hearing on the use of oil dispersants and how it is affecting the york -- affecting the wildlife and environment the the gulf of mexico. a couple of light begins to tell you about tomorrow morning. our coverage of the annual eagle forum college leadership summit continues on c-span2 at 9:00 eastern. and remarks from hana jiles, who did undercover reporting on the group acorn. a brookings institution forum on security cooperation with israel. speakers include andrew shapiro, assistant secretary of state for political military affairs. >> with congress back to work,

we have added a new feature to the c-span video library, built search. you can watch video of the debates from the house and senate floor. just click the congress tab, and you will see bill search right on the page. major surge as general or specific as you like. the c-span video library, washington your way. >> the senate banking committee heard from president obama's nominees to the federal reserve board this morning. the day after the fed released an economic forecast that lower expectations for growth this year. if the senate confirms all three nominees, the federal reserve board will have all seven members for the first time since early 2006. this is an hour and a half pricks >> the committee will come to order. let me welcome all who are here. i would be remiss if i did not begin my remarks by welcoming the former chairman of this committee.

any point you want to come up here and sit in this chair, you are welcome to it. paul and i love to tell the story, several years ago now i was sitting in the chair that tim johnson since then and chairman sarbanes was sitting in this chair with a gavel in his hand. there was a rather chaotic hearing monday. i cannot remember the subject matter, what the room was exploding with chaos of one kind or another. paul had already made the decision to retire from a very distinguished career in the united states congress. i would never forget this moment. he took his right arm and put around my shoulder. with his left hand, swept across the room and said just think, in six months, all of this is yours. i am going to break tradition a little bit here. these are busy days, and we have very distinguished friends and colleagues here.

we will make some opening statements and then the three distinguished nominees will proceed. paul, we are not in session so you do not have to worry about committee votes. you have to vote, and paul does not. diane, go ahead. >> thank you very much, mr. chairman, senator shelby, senator reid. it is a great pleasure for me to be here to express my strong support for dr. janet yellen, obama's nominee for vice chairman of the federal reserve. and i know dr. yellen.

she has dedicated her life to studying the complex field of economics. her background makes for a strong candidate at a time when the country is recovering from the economic crisis. she graduated from brown in 1967 summa cum laude. she began her teaching career as an assistant professor at harvard, where she taught from 1971 to 1976. from 1977 to 1978 she served as economist at the federal reserve board of governors. in 1971 she moved onto another teaching position, this time at the london school of economics. in 1980, she began as an assistant professor at the university of california berkeley and she has been there ever since. today, she is professor emeritus of business and economics. why she has been awarded teacher of the year at uc-berkeley's

school of business. during her time at berkeley and elsewhere, dr. yellen has published numerous research works, included the noted waiting for work, study of unemployment, completed with her husband, a nobel prize-winning economist who is here with janet today. her work has been published in the journal of economics, business economics, and the brookings papers on economic policy, among other publications. she has also held a number of other academic and advisory positions. these include serving as a research associate in monetary economics at the national bureau of economic research, a member of the guys report on economic activity at brookings, and an adviser to the congressional budget office. her research is focused on unemployment, monetary policy, an international trade. this combination of expertise

will be beneficial as she weighs issues with our rising debt and high unemployment levels. we resist talking about that on the side, waiting for my colleagues. from 1994 to 1997, dr. yellen set on the board of governors of the federal reserve. there she focused on consumer credit and small-business lending, to areas vital to our current recovery. in 1997 she left the federal reserve to chair the council of economic advisers during the clinton administration. in 2004, she has led the federal reserve regional district from san francisco. in this post, she has closely monitored the regional economy and provided bible in put it on the direction of federal reserve -- provided valuable contents. she has received numerous awards

and commendations including the wilbur cross medal from yale in 1997, fellowships at the yale corporation and the national academy of arts and sciences, the marie and sydney raw award for national economic service by the women's economic round table, an honorary doctor of laws from brown. her substantial resume speaks for itself. her confirmation would add another professionally trained economist to the federal reserve board. this is important, because with the vice chairman's departure, chairman bernanke would be the board's only trained economist. bottom line, janet yellen has the depth of knowledge and experience required to make important decisions that could possibly have a strong, positive, and profound impact on our economy. i heartily recommend her to this committee. >> center, thank you very much.

>> if i could be excused, i would appreciate it. >> you are excused. thank you for coming. senator kerry has an opening statement which i will include in the record, a gracious statement about your remarkable qualifications as well to assume this position. i will put that in the record, but i want to thank you very much for being here as well. let me turn to my two colleagues. >> thank you very much. first, let me thank and welcome all three of the nominees for the federal reserve board of governors. we very much appreciate your willingness to serve our nation during this very difficult time. we also welcome your families, because we know this is a joint effort that will require sacrifices of the family. we thank you very much for your willingness to step forward on these very important responsibility. i am particularly pleased, along with my colleague senator sarbanes to introduce to the

committee sarah bloom raskin. we are very proud of her service and proud that she is willing to put her name forward for the federal reserve board of governors. she is joined by her husband, jamie, who is a state senator of maryland with a very distinguished career, and their three children. sarin is a 1986 graduate of harvard law school. she graduated magna cum laude in economics and a 5 beta kappa. she has done an outstanding job of improving consumer protection and supporting banks for the challenges of the financial crisis. she has been praised by the maryland bankers association and the maryland consumer rights coalition for her fair, balanced approach to regulation in our state. that is no easy task to get both the bankers in the consumers to

believe that you are doing the right thing, and i applaud her for her balanced leadership in our state of maryland. her leadership has been significant in working on foreclosure britain during the financial crisis, improving legislation related to pay day lending abuses, and stopping unscrupulous debt collection agencies. these skills will serve her well in regard to the federal reserve board of governors. she has spent much of her career in public service, including serving as banking counsel to the senate banking committee under senator sarbanes, worked at the federal reserve bank of new york and served on the joint economic committee in congress. as a member of the federal reserve, i am certain she will continue our commitment of keeping our banks second sound. rededication and work ethic are tremendous asset to our nation during this critical times. i wholeheartedly recommend her confirmation to the committee. >> thank you very much.

senator mikulski was unable to be here this morning but sent a very strong statement in support of your nomination as well. i will include that in the record as well. >> i am pleased to be back with you, my good friend senator shelby, senator corker, senator gregg, and jack reed. we used to sit up there and conspire together, i have to admit. i am pleased to join with the senators in very strong support of sarah bloom raskin to go on the federal reserve board. this is a terrific appointment. it really comes at the right time, given the responsibilities that the fed is assuming in the legislation and

many of the responsibilities it already has. i will not repeat the biographical statement that senator card and made, but i just want to make a few quick observations. sarah has been an outstanding commissioner of financial regulation for the state of maryland over the last three years. in the 1990's, she served for five years, roughly five years on the staff of the banking committee. she was an outstanding member of the staff, very measured in her judgment, extremely hard working, very smart, and very able to deal with people across the board. she was part of a terrific staff, including kathy casey,

who went from the committee staff to the sec and is serving there now with distinction. i want to take just a moment of the committee's time to quote from some letters that have come in in support of sarah, because i think it gives you some sense of the breadth of support for her. the conference of state bank supervisors has written to chairman dodd and ranking member shelby. i will just quote one paragraph from this. as maryland banking commissioner, commissioner raskin has played a hands-on role as a banking and financial service regulator during a challenging time. the conference of state bank supervisors and its membership have benefited from her leadership role as a member of

our board of directors and as chair of our legislative committee. additionally, she chaired our regulatory restructuring task force. commissioner raskin also was appointed the federal financial institutions examination council state liaison committee, where she has effectively represented state banking regulators in joint efforts with the federal banking agencies on a broad range of regulatory and supervisory issues. she has assumed in a three-year time an important leadership role within the conference of state bank supervisors. i think that speaks well to her talent and her abilities. the president and ceo of the conference of state bank supervisors closes his letter saying commissioner raskin enjoys a apple personal and professional support of her

fellow commissioners across the country. we hope the committee and the full senate will act quickly in confirming her. the independent community bankers whom we of course all know and with whom we have interacted on a range of issues over the years, camden fine has written to the committee, " ms. rashkin's service has given her practical understanding of the operational concerns of community bankers as they can serve their communities and live with the do comply with regulatory demands. she appreciates the vital role that community banking place in the economic life of small and mid-sized communities. she serves on the board of the conference of state bank supervisors, chairs the federal legislative committee, the

regulatory restructuring task force. i hope ms raskin can be confirmed quickly so that the board may have the benefit of her experience as they navigate the remainder of the economic recovery." finally, a statement by kathleen murphy, the president of maryland bankers association. she says in part, "commissioner raskin and been accessible to the association of member banks on a variety of important issues. she has worked with the association and the industry to assume numerous changes that have made the state banking charter stronger and more competitive. her belief in a buyer for the state banking system as well as her experience with the federal reserve bank of new york, the u.s. senate banking committee, have led her to assuming the

chairmanship of the legislative committee of the conference of state banks. in addition, as my colleague pointed out, sarah got the award as consumer advocate of the year from the maryland consumer rights coalition. she has obviously shown an ability to come up with some very practical solutions to some very difficult problems. mr. chairman and senator shelby and other members of the committee, i simply close with this observation. we depended on sarah very much when she was on the staff of the committee. she was really one of our very top people. she brought terrific analytical abilities to work. she had measured and good judgment. she had the capacity to work

very well with others. i think she is going to be a very important addition to the federal reserve board, and i really commend her to you in a very strong and unqualified manner. >> senator, we thank you very much for your recommendation. all of us who have been here for a little while remember sarah very much as a part of the committee staff. welcome back to the other side of the table. we are delighted to have you with us. i want to take a few minutes for some opening comments. i will turn to senator shelby for any opening comments he may have, and then i will ask any of my colleagues if they want to make the opening statements and then if we want to swear in our witnesses and proceed with some questioning for them. senator sarbanes, thank you very much for coming by this morning.

none of us could ever plan these things this way, but obviously the coincidence of having the three nominees here this morning and at some point later today, we will be voting on the financial regulatory reform bill. it is all coming together, ironically in some ways, of having the three of you here. it is a critical part of getting back on our feet again and how well the federal reserve is able to act in dealing with these issues. we are considering five very highly qualified nominees. two others we will be considering later it this morning on the panel. the first panel has three candidates. one has been nominated to a four-year term as vice president of the board. the first will serve as the export-import bank of the united states and the other for the federal finance housing agency. the committee considers the day the nominations of three federal

reserve board governors. these positions are extraordinarily important because of the critical role of federal reserve plays in our economy through the exercise of monetary policy, supervision of financial institutions, oversight of the payment system, or as lender of last resort. under the financial reform legislation, the federal reserve supervisor punches will be significantly enhanced. it will be incumbent on the federal reserve to establish a set of robust standards including capital liquidity to govern the activities of the nation's large, interconnected banking organizations. federal reserve is charged with overseeing the functioning of these complex organizations and addressing the top of excessive

risk-taking that led this country to the verge of economic collapse. as we've seen during the financial crisis, the federal reserve's role as lender of last resort is pivotal in eliminating threats to our financial system. while other financial reform legislation imposes new conditions on the federal reserve's emergency lending authority, conditions senator shelby i worked on together, the fed will retain the awesome power to put billions of dollars of taxpayer money on the line. much depends on how well the fed carries out its varied responsibilities in terms of performance, the fed's track record, i will say it has been mixed. in my opinion, the fed managed the crisis superbly, it clearly fell down on the job during the time before the financial crisis. the fed had authority that if use, could have prevented the serious deterioration in mortgage underwriting standards. the abuse of fraudulent lending practices.

in my view, the fed declined to exercise authority until after hundreds of billions of dollars of unsuitable mortgages had been originated, securitized, and distributed to important financial institutions. the fed had supervisory authority over bank holding companies. large bank holding companies were allowed to accumulate significant, leveraged exposures. the losses they suffered and the housing price bubble burst, helping create a financial crisis from which we have yet to recover. because of these values, the first draft of our financial reform bill created a new consumer financial protection agency and a consolidated banking supervisor. that draft contemplated removing all of the fed's authority in areas where had performed poorly, leaving it the responsibility primarily over

monetary policy. of the last year or so of legislation, it became clear that the political will of the congress was to retain and strengthen the fed's supervisory role. the federal reserve would be part of the potential oversight committee and function as an early-warning system responsible for spotting a mitigating threats to overall financial stability. the fed will have responsibility for devising an imposing heightened capital liquidity and other standards for large bank holding companies and designated non-bank financial companies. it will help enforce the paul volcker rule which prohibits proprietary trading and limits investing in hedge funds and private debt refunds at banks and bank holding companies. it will have a role in supervising systemically important financial utilities such as clearing houses that are important to the stability of the payment system. moreover, the fed will continue to play a very key role in helping the economy recover from the effects of the financial crisis. while the economy is growing, it

is not growing fast enough to help millions of americans who lost their jobs as a result of this crisis. civilian unemployment rate declined from may to june. it remains far too high. business investment demand as measured by data on fixed nonresidential investment remains subdued because of excess capital -- excess capacity. while the headline price indices continue to increase about 2%, you are on your other measures suggest we are moving toward price deflation. in may the core cpi increased by just 0.9%. is evident the economy is going to need all the help the fed can provide over the coming years. put simply, the federal reserve is at the forefront of maintaining financial stability. congress is in trusting the federal reserve with tremendous responsibilities. all of which the fed had sought

in this process. now the fed must get up and use these new powers to serve the greater good of our nation. we have before us today a slate of very accomplished candidates. i mean that very sincerely. i sat on this committee for 30 years and i cannot think of another panel as qualified as this panel is to take on these responsibilities. i cannot think enough for your willingness to do so and to step up and go through the arduous tasks in front of us. our job is to assess the test of serving on the federal reserve board at this time. i apologize in advance, i will be in and out on this process this morning because we are going to be considering on the floor the financial regulatory reform bill as well, so i need to be there as well. i will be coming back and forth. tim johnson and jack reed and others will step in as well and

be here for this process. again, i thank all three of you. i notice that two of you had the benefit of a connecticut education. the third has a daughter named grace, so you are in pretty good stead with me at beginning of the process. i have a daughter named grace as well. with that i will turn to senator shelby. >> the chairman -- the federal reserve faces some of the greatest challenges it has ever confronted. economies highly vulnerable and there's little clarity with respect to the best way forward. the banking system struggles to emerge from the financial crisis and hundreds of institutions will likely fail before we recover fully. during the crisis, the fed created massive new liabilities and balloon its balance sheet from $850 billion to more than $2.30 trillion. earlier this year, the fed talked mostly about a strategy for removing its extraordinary support measures.

lately, as the economy seems to have hit another soft pass, discussion at the fed has been a mixed bag. some fear inflation, while others fear deflation. some talk of an five -- unwinding the fed's massive holdings while others talk about even more asset purchases, further ballooning the fed's balance sheet. the nominees for positions on the federal reserve board, if approved, will face difficult and important decision for the american economy. while there are before us three talented and experienced candidates, i believe that some inquiry is in order to determine whether their qualifications are aligned with the positions for which they have been nominated. the work of the federal reserve is highly specialized and demands the best qualified and most capable people in the country that we can produce. i will be interested to learn today if the nominees before us meet that standard. i will also want to be assured that these nominees will work to

increase the board's transparency, both to the public and to congress. many of my colleagues believe that the fed's relationship with congress need some mending. the fed in the recent crisis was overly opaque and not receptive to providing information to congress or the public. the fed often seems more interested in seeking additional power and authority, even though it failed to use its current authorities in the run-up of the crisis, a lot of us believe. ironically, despite its recent paris, the fed could soon be rewarded with expanded -- despite its recent failures, it could soon be rewarded with expanded powers. i want to hear what lessons have been learned and how the nominees intend to learn -- it is those lessons as members of the board. a believe they should identify what they learned about monetary policy, transparency, accountability, and financial regulation during the recent

crisis. i also want to learn where each of the nominees would draw the line between monetary and fiscal policy, a distinction that was blurred by the fed during the recent crisis. finally, each nominee should share their views on credit channelling by the federal reserve to preferred -- i believe it amounts to the fed picking winners and losers. our second panel includes the president's nominee to be the inspector general of the federal housing finance administration. while we welcome this nomination, i would like to point out that nearly two years after passage of pse legislation, we still have not received a nominee to head the federal housing finance administration. both are in conservatorship, being run by the federal housing finance the medication. taxpayers have already lost $150

billion and counting from the bailout of these organizations. two years would be much too long under normal circumstances, but under the current circumstances, i think it is inexcusable. by law, the federal housing finance administration is supposed to put the failed mortgage lenders into a safe and sound condition and preserve their value. to accomplish this goal, the federal housing finance and restoration acts on all the powers of the shareholders, directors, and officers of the entities. consequently, only the inspector general is examining the practices of the conservative. i look forward to hearing later on about the plans for providing the committee and the american people with long overdue oversight as it relates to the conservatorship of fannie mae and freddie mac.

>> i want to welcome the nominees. you have extraordinary plea talented nominees with long years of experience. mr. simon is an expert in economics from yale university it is mr. diamond. ms. raskin is a graduate of yale law school. we are you are at a critical moment, and there those who suggest that things are coming along and we have to start focusing on the great give it away from support of the economy -- a great pivot away from support of the economy. the fed for many reasons is the most significant actor in this situation.

continuing to support policies that will put people back to work, with some encouraging news today. claims seem to have fallen much more than expected, so that is a good sign. we have been increasing jobs over the last several months. until we have a solid growth in employment that is sustainable and recognized by people not here on wall street but on main street, then we have not done the job. so i urge you in on your deliberations to keep that thought for most in mind. there are also some areas of innovation -- i have been suggesting a work share plan in which unemployment funds are used to help of business maintain partial employment if they maintain benefits. chairman bernanke has embraced the principle. several states including oklahoma have adopted it. so there are innovative ways we can make our funds go further and help more people. i hope we do that.

as we have all discussed, with the new dog-rain bill that is just about to be passed, significant -- the new dodd- frank bill. there'll be a vice chairman for supervision on the federal reserve board whose charge will be to look carefully at the regulatory arrangements in place. now as one of the chief voice is on a proposed financial oversight council, this person and the board will be extraordinarily important. you are coming on to the federal reserve board at a critical moment, and i am very confident because of your skill and dedication that you will do a superb job. one final point. i think these confirmation proceedings are interesting. i am sure you find them interesting. it does in a very strong message that through the senate, you ultimately are accountable to the people of the united states.

i would like to send that same message to the individuals who operate at the federal reserve bank of new york, is that is one of the most significant regulatory positions in the country. i will continue to pursue that effort. >> i inquired -- i presume there is someone from the administration in the audience. the idea originally was to have -- there is a vacancy and we ought to get it filled. it is good to have you here this morning. >> is good to be here to participate in this hearing with a few people i think are exceptional. i appreciate the president's choices here and i appreciate

your willingness to serve. it is nice to have folks of talent and ability coming into the responsibility of the job of the federal reserve. as we look forward over the next three, five, 10 years, the federal reserve's role is going to become even more critical. regrettably, this country is on a track to fiscal insolvency under the present spending activities of the congress and the debt which we are adding. really, the only stabilizing force right now is the federal reserve, because the congress is totally irresponsible. your role is going to become more and more important. we cannot correct our fears, but at least you can point them out, and hopefully maintain the stability of the currency while we try to sort out problems of domestic fiscal policy. this is going to be one of the most critical periods in history

of the federal reserve over the next 5-10 years. i appreciate that talented people like your cells are going to be there. >> i am going to ask of river witnesses to rise. -- i am going to ask all three of our witnesses to rise. >> i appreciate the three nominees, and i echo the comments about how happy we are over the president's appointments and the quality of appointments, and your willingness to do public service. i want to briefly mention two things that are not necessarily historically in a well-defined part of the fed's job description. one is manufacturing. 30 years ago, about one-third of our gdp was manufacturing. about 11% was financial-

services. today those numbers are almost flipped, and we know what happened in a lot of ways. we obviously know what happened in the financial crisis. we also know what happened to particularly small town and medium-sized industrial town america in those cities of 20,000 to 50,000 in the midwest and all over, where a plant closes or two plants close, and the devastation to the town is long-lasting. the young people that get educations leave those communities because we do not offer them the kind of job opportunities in so many ways. i would hope that, and i think if you look in a historical context, what happens when a country turns to financial- services and away from making things, and whether that is agriculture or transportation or manufacturing, look what happens to the middle class. look what happens to the long- term prosperity of the nation. i hope you will consider that in

your deliberations. the other thing i wanted to mention is, and i have noticed this during the debate on the unemployment insurance bill. i go to the senate for almost every day and read letters from constituents, many of whom have been employed for 25 years often with the same employer. they paid into unemployment for years, have been laid off for a year and a half, are losing their job skills, in many ways. we have been reading more and more about that. i mention that because i think many people in your position and my position to of a lot about numbers. 90,000 in ohio will lose an employment if we don't act next week. if you cite all the numbers we do, we do not often enough put a human face on what we do. i hope that you find a way in the generally insulated jobs you have and that we have, of putting a face on the kinds of human suffering that you see

come across your desk in the form of statistics. i know that is a challenge sometimes. i know the president gets 10 letters a day that he reads from people around the country. i encourage you to find ways to do that, so that as you formulate public policy, it really is more than just numbers and statistics and theories and practices and all of that. i think it will serve our country well. i know that many of you, from my conversations with you, you have that proclivity anyway. i hope you will find a way to drive home even more in the months ahead. i wish you well in this hearing and wish you well as to assume your jobs, which i assume that you will. >> thank you very much. my apologies again. now i will ask you to stand and raise your right hand, if you will. i'll ask you, do you swear or affirm the testimony you are

about to give is the truth, the whole truth, and nothing but the truth, so help you god, and the appeared to agree and testify before any duly constituted committee of the united states? i thank all three of you. let me begin with you, dr. yellen, do you have any family members here at all that you like to recognize? very good. that to have you with us. >> my wife and my son. >> very good. >> my husband and my three teenagers. my parents are here from connecticut. >> very smart to bring those hear from connecticut. [inaudible] [laughter]

>> you have done very well. zogby did not miss anyone. -- i hope you did not miss anyone. what we are going to do is begin with you, dr. yellen, in the opening statements. normally i aske that people try to restrain their remarks to five minutes apiece, but having read your statements, i would urge you to speak for five minutes apiece. they are rather brief statements. we will begin with you, and let me just say to my colleagues as well, for the purpose of the record here, any statements that members of this committee have will be included in the record, and any additional questions they do not get to ask you this morning will also be included. we would ask the nominees as quickly as you possibly can to respond to those questions.

i believe it will be the appetite of this committee to want to move along as quickly as we can, recognizing we have a short amount of time left in this session of congress. i believe it will be the desire to want to move these nominees along barring something we are not familiar with. we ask to be as responsive as you can as quickly as you can. thank you once again. delighted to have you back here with, and again, i cannot begin to thank you -- i love reading over your publications and the work you have done with your husband. some very interesting subject matter and topics. i would be very interested in going over and reading some of it. thank you very much. >> chairman dodd, senator shelby, and members of the committee, i am honored to appear before u.s. president obama's nominee to serve as a member and vice chair of the board of governors of the federal reserve system.

if i am confirmed to these positions, i look forward to working with this committee in the coming years. i am wholeheartedly committed to pursuing the federal reserve's congressional reman dated goals of maximum employment and stability and to strengthening our program of supervision and regulation, building on the lessons learned during the financial crisis. we must work together and in cooperation with central banks and governments around the world to mitigate a systemic risk in the financial and payment systems so that our country never again suffers such a devastating episode of financial instability. we have learned a harsh lesson about the dire consequences of financial crisis has for ordinary americans in the form of lost jobs, lost homes, lost

well, and lost businesses. those of us charged with overseeing the financial system should always keep this human cost in mind. i have served since 2004 as president and chief executive officer of the federal reserve bank of san francisco. before that, from 1994 through 1997 as a member of the federal reserve board. for this service i have gained experience that everyone of the federal reserve areas of responsibility, including monetary policy, banking supervision and regulation, consumer and community affairs, and the operation of the payment system. i believe this extensive background equips me to work under chairman bernanke as the leader of the federal reserve system as we strive to carry out the missions congress has assigned us. over the next few years, the fed must craft policies that ensure

that our economy accelerates its progress along the recovery path it has begun to trace. with unemployment still painfully high, job creation must be a high priority of monetary policy. but we must also avoid any threats to price stability. that means that when the appropriate time comes, we must withdraw the extraordinary monetary accommodation now in place in the careful -- in a careful and deliberate fashion. i approach going forward as in the past will be to bring a thoughtful and independent voice to the federal open market committee, deliberations on monetary policy, drawing on the insides of business and community leaders throughout the country and thoroughly analyzing macroeconomics trends that affect the economic outlook and the risks to our forecast.

in my view, congress has wisely granted the federal reserve the freedom to make independent monetary policy decisions in pursuit of congressionally mandated goals, based on a forward-looking perspective and the best judgments of the federal open market committee participants. i believe that experience in the united states and around the globe demonstrates that central bank independence in monetary policy produces clearer it societal benefits. . .

they are evaluating the policy decision. when i am committed to enhancing the transparency. it is essential to accountability and democratic legitimacy. >> to be nominated by president obama, to be a member of the federal reserve system.

i am grateful to this committee for scheduling this hearing. if i am confirmed by the senate, i will work to the best of my abilities to fulfill the responsibilities of this office panetta to office. his responsibilities have always been significant. the experience of the recent financial crisis have underlined the multiple jobs the fed has been working to fill the dole mandate of high employment and price stability. the fed will have major work to do to fulfill the tasks. i would be honored and pleased to be able to be part of the process of responding to this challenge. i studied both mathematics and economics as an undergraduate at yale university. i received my ph.d. in economics from the massachusetts

institute of technology in june 1963. since then, i have been a faculty member at the university of california berkeley and since 1966 at mit. have taught and done research in economics the built my primary focus in both teaching and research has been economic theory, particularly macro- economics, search theory, and public finance. within the public finance, my primary focus has been on taxes, pensions, and social insurance, particularly social security. i have done a theoretical analyses and policy analyses. i've also done research and other areas including behavior of economics and law and economics. i took classes at harvard law school as part of my preparation for doing research and law and economics. i believe in being well grounded

in a subject when doing research for policy analysis. in addition to macroeconomics public fennec, i have taught money and finance. i have gained a wide knowledge of a variety of economic topics as well as detailed knowledge in my area of expertise. as a consequence, i have considerable awareness of the development of economic analyses of monetary policy and the impact on both inflation and employment as well as studies of the determinants of financial crises. a central theme in my research career has been how the economy deals with risk, both of the individual level and risks that affect the entire economy. and all of my central research

areas, i have thought about and written about the risks in the economy and how markets and government can combine to make the economy function better for the people there. if confirmed, this should be very helpful as part of the process of addressing our heightened awareness of the dangers of systemic risk. my background in behavior of economics and law and economics give me high awareness of the issues involved and in increasing financial literacy. if confirmed, i would welcome the opportunity to help address the important issues that have been raised by the financial crisis as well as the longstanding issues and concerns that the federal reserve faces, bringing my research experience and expertise to bear on these of a cold and important issues.

thank you. >> senators johnston, shelby, and brown. as former banking counsel, i cannot express what an honor it is to appear for you today. and never did one day i'll be here as a nominee to the federal reserve board. maybe i didn't dream it at some point. i certainly never believed it. senator sarbanes has been an extraordinary a mentor to me and to show me how one can be committed both to the public interest and to one's family at the same time. it is a great and humbling honor to be nominated by president obama to the federal reserve board. i am very grateful. if confirmed, i will participate in the essential and difficult

work of restraining inflation and maintaining price stability, maximizing sustainable employment and economic ac, and trying to harmonize these goals. this is a challenging moment for the federal reserve. every member knows that even though the worst of the crisis is over, it remained a precarious time for far too many of our families and businesses. the fed must do its part to restore the underlying strength and vibrancy of the american economy. i have worked day and night to counter the devastating effect on our communities of the national bank and liquidity crisis, the spikes of home foreclosures, and high unemployment and underemployment. at the same time, i have worked to revise and replace

ineffectual and counterproductive state regulations that do not with the government properly on the side economic progress for our people. if i am confirmed, my experience working through this crisis at the state level will deeply inform my actions as a member of the federal reserve board. the proper conduct of monetary policy by our central bank is essential to calling in the waves of financial instability that could involve so many of our communities and households. over the course of the last generation, the federal reserve has achieve price stability and successfully entered long-term inflationary expectation. this achievement is critical to our economic strength. it remains a central institutional objective that i subscribe to wholeheartedly. it is only a partial victory when many american households continue to face the perils of unemployment and many small

businesses struggle with weakened consumer demand and reduce access to credit. we need to strengthen this recovery by expanding the foundation. this means that in addition to maintaining stable inflation expectations and keeping a vigilant eye on the emergence of new volvos, the fed must seem to fill the other part of the statutory mandate by addressing unemployment, which has pervasive social costs. in my state, i have seen these costs and a loss of productive capacity, weakened housing market, increased strain on state and local resources and services, and the nervous reluctance on the part of many businesses and banks to invest and make loans. the fed must work for a broad and sustained recovery that not only controls inflation but facilitate growth.

i know that there is a lot of hard work to do at the fed. if you choose to confirm me, i will bring all of the experience, knowledge, and commitment i have gained over the course of my career to the task of filling congress's statutory expectations. i will maintain the standards of professionalism and independent i've always tried to uphold a my career added to my mind are exemplified by the work of the committee. thank you for the honor of hearing me today. i will be happy to respond to any and all questions he may have today verbally or probably in writing throughout this process and throughout my tenure at the fed if i am fortunate enough to be confirmed. >> thank you. in light of the fact that senator shelby has to other places, i defer to him. >> i want to follow senator dodd

to the floor and see what he is saying. [laughter] but we must go. i have questions for each one if you. i will start with you. the fed'12s district, your responsibility, has experienced a large number of been failures, 65 institutions at an estimated loss of around $28 billion i have been told since 2004. your district experienced failures of important firms with national implications. the housing sector in your district displayed excesses' in the run-up to the crisis regarding your tenure as president, i have two questions. what role do you believe a breakdown in regulatory oversight played in the failure of the institutions in your district? were you raising any warning flags with respect to

speculative excesses or lax monetary policy? >> the first question was the breakdown predicted -- >> what role do you believe that a breakdown in regulatory oversight played in the failure of the institutions in your district? >> working with other regulators i think that our regulatory oversight was careful and appropriate. >> excuse me. you said it was careful and appropriate. most believe it was blacks and inappropriate. >> in the institution that have failed, they are community banks with high exposure to commercial real estate.

as early as 2001, people in the federal reserve system and and i think where i the forefront of focusing on high concentrations in real-estate. we monitored this carefully through out the first everything i ever received from my thinking supervision. san francisco is on commercial real estate. i pinpointed as vulnerability. this really is what is driving problems.

i would say the regulatory response with insufficient. i believe guidance came out in 2006. they stated ithat banks with hih exposures needed to carefully manage the risks. what may have learned in hindsight is that it was very hard for all of the regulators involved to take away the punch bowl in a timely way. as the supervisors in the field, it is not good for its banks to demand a high of

capital demand. this is the pitfall. i hope they going forward, one thing we have learned is that there is a need for all of us to act in a timely way to take away the punch bowl and to require more stringent capital requirements. >> thank you. commissioner rask then, in testimony before the congressional oversight panel, you said in the run-up to the financial crisis both wall street in monetary policy were spiking the punch bowl. those were your words. i presume they you believe the

monetary policy was to lose for too long prior to this crisis. at what point would you have changed course? what do you base your judgment on? what have you learned? what has the fed learned? >> i think there have been a number of lessons learned. there is clearly a lot of blame to go around for their in terms of the federal reserve, i think the federal reserve has been subject to a substantial and justified criticism regarding the run up. i believe there were failures on the regulatory and monetary policy side. from the regulatory perspective, i think there is not a sufficient focus given to the importance of capital.

the importance of building capital during good times. we know how difficult it is to finding times and not so good. i also think there was inappropriate treatment. as we now know, the assets should have been more adequately capitalized. they were not. there is quite a bit of misjudgment. there are lots of lessons there that are worth repeating and correcting. from the monetary policy side, which also mentioned, i thin the extent of the bubble that was developing was not appropriately monitored.

for those of us on the ground level, we saw a number of disturbing trends. clearly, there were signs. there were signs of predatory behavior set for fuelling this a bubble. it would have been good if the federal reserve board have been able to see some of the determinant of that bubble. >> thank you. professor diamond, in an interview of macroeconomics dynamics in 2007, you stated the following. " i am a card-carrying behavioral a autonomous. i think that matters in micro and macro." do you believe that behavior economics can be applied to the regulatory functions of the federal reserve? if so, in what ways?

should you? should we? >> i think it is very important. the clearest example and something i learned in the background information that the fed has given me is a disclosure with financial contracts. they told me that their attitude toward disclosure had been to basically make sure everything was disclosed in the sense that a lawyer could see it was accurate. they learned the lesson. now they were focusing on disclosure in a way that the person in beijing in a financial contract -- engaging in a financial contract could understand what it was going to do.

behavioral economics draws heavily on cognitive psychology. coveted psychology is very aware of the difficulty for inexperienced people interpreting complicated elements. this is one of the things i also stated when i was taking classes at harvard law school. the issue of contracts that are hard to understand or not available for negotiation. it is very important. >> i have a number of questions i like to submit to the record with i have to go to the floor. thank you. >> what do each of you believe will be the greatest challenge for the fed while implementing the wall street reform legislation?

>> thank you. we have enormous responsibilities that will be given to us under this legislation. the first challenge will be to improve our supervision, particularly of the largest and most complex the bankholding company is based on an what happened in this crisis and the lessons that we have learned. that is something that is already taking place, partly building on what we have learned from i think the very successful stress tests of the 19 largest blinking -- banking organizations last year. think what we learned is taking

an approach to bank supervision of that involves horizontal, simultaneous reviews of a large work using multi-disciplinary team this including economists, we learned a great deal about true situation in large banking organizations. this is a strategy and tool we are employing on a systemwide basis mahouto ramp up our supervision. going forward, we are being asked in this bill, appropriately so, to raise capital standards and liquidity standards for these institutions to take account of

their impact on financial stability as well as to improve our understanding of the risks in the financial system and how they can impact these institutions. we are working very hard to make that improvement. it create an oversight council in which the federal reserve is expected to work collaborative lee with other regulators to assess and monitor and a potential threat to financial stability that may occur anywhere in the financial system. these are among the challenges i see for us. >> do you have any additional

insight? >> yes, i do. if you look over the last two decades, we have seen an astonishing change. it has produced a vast array of new instruments. we will also seen an enormous growth in hedge funds, institutions engaging in using the new instruments. going forward, we will see more change. that is the way the world goes production it is important that

we not ask the simple question how could we have prevented the last crisis and put in place the ? rather we monitor how things are evolving and how regulation and consultation and discussion with financial players can adapt to the changing circumstance. this is not the same old crisis but a brand new crisis. >> do you have anything to add? >> i could add a bit. as you rightly observed, in commending the legislation will be a huge challenge. -- implementing the legislation will be a huge challenge. the fed will have to step up to

the plate to put in place and enhanced consolidated supervisory plan for our largest institutions and the institutions that are deemed to be systemically significant. when we talk about consolidated supervision, it is something quite robust. it is a set of regulatory measures that include capital leverage, corporate government, internal controls, proper risk management systems. these are all items that are extremely complicated for even the most complicated institutions i think the work really cannot be underestimated. i think there will be quite a bit of organizational work that will need to be done internal of the federal reserve to make this done correctly. >> senator. >> thank you very much.

thank you to the panel. i want to start with a general issue and see if any of you have got to like to share. there is an ongoing debate in washington about deficit reduction verses' monetary and fiscal stimulus. in essence, it could be reduced to have used tear to make sure you do not have a greek like debt crisis? on the other stide, you do not end up like a japan like recession. any thought on the relevance of the experience of the two nations' stoc are in sight of he should manage our way to a healthier economy? i will begin. i think we have an outlook at this time where we seem to be in recovery but the recovery is

not proceeding at a pace that is sufficient to bring down unemployment very rapidly. it is clear that it is appropriate long-term. it is clear that it is appropriate for us to be asking what to do. as congress considers the option for further fiscal stimulus now, which is natural given the outlook, i would emphasize that it is very important and congress will have more flexibility to move in the short term to support the economy is simultaneously it can put in place and show credibility on taking the measures that are necessary to attack a long-term deficit, which i think is widely understood to be an

unsustainable situation that requires a painful policy action. it simultaneously congress were able to put in place meaningful measures that would phase in over time to address medium and longer-term deficit issues, i believe that would create greater scope in the shorter- term for congress to also contemplate actions to address short-term weakness in the economy. >> thank you. >> i think your reference to japan actually is noteworthy, because there are a couple of lessons there that we need to keep in mind. one is having to do it the fact that japan's recovery was probably slower than one -- than they would have liked. it had something to do with not

having a strong, robust resurgence of a cleansing. the banking sector stayed weak there for a number of years. that is something we want to keep in mind, especially of we have not yet seen an uptick in bank lending. it is something we would like to see spur growth. i think that is one possible lesson of japan. the other being the general nature of that recovery orrin hatch the -- the recovery. . .

what you are hearing, by the way, it is not dissimilar to and whatear in maryland' regulators are here across the country. bank lending is not where it should be. part of it has to do with the lack of robust demand. you will hear a lot about -- a

lot of in a boat -- an adult about how there are not enough borrowers. we also hear stories about credit-worthy borrowers. they have credible cash flows. the bankers did not have to be dependent on the week collateral coming from real- estate. there is cash flow here. these are borrowers that can sustain new loans. why does borrowers are not able to get loans is a challenge. i think we need to do some work on that. significantly, banks lending to small businesses is a critical factor in spurring employment. the notion of getting this right will also have good consequences for employment. >> does anybody else want to jump in on that conversation? >> the federal reserve has just

concluded before-on sessions we have had around the country in which we tried to bring together lenders, small-business owners, and others to understand exactly what the problems are and all the various items that sarah mentioned in her answer. this is a complex situation. one of the things we are aware of is that as supervisors we need to be very careful not to be discouraging lending that is sound, carefully underwritten, and will be profitable. we certainly hear frequently the complaint that banks are afraid to -- that they will be criticized for loans that they make. the regulators have jointly

issued guidance to supervisors emphasizing that small-business lending that is safe and sound is not only important to our communities and growing out of this recession, but is also important for profitability and the health of the institution. we have emphasized training. we have tried to train our examiners. these are tough situations where they have to make judgment calls. we do not want to inadvertently stifel small-business lending that would be very important to an economic recovery. >> thank you very much. my time has expired. i appreciate your engagement. >> senator corker? >> thank you very much. i wish you well at the fed.

i am one of those folks who thinks that the fed has to function at a very high level for our country. i know you spent a lot of time in bank regulation and -- the fed has a number of people who already do that. here in the senate, each of us has to sort of figure out how we are going to make our mark to hopefully make a stronger institution. there are a number of people who do what you do already and i was curious as you move to the fed board, joining people who have similar backgrounds and many ways, what is it to-you plan to do at the fed to make the mark on the governance? >> it is a very thoughtful question. i do agree that the staff at the

fed is really exemplary as far as i been able to interact with them. they are a very impressive group of professionals, both economists and examiners. the mix like to add to is a perspective that comes out of the work by have been doing at a very local level. as the state banking commissioner, i have really been able to see a lot of be spillover effects having to do with the crisis and also problems related to the run-up to the crisis. i am not sure her that all of those perspectives have been sufficiently incorporated into both the monetary policy side of the fed and the regulatory side. one thing that we needed to do in maryland was to act very quickly to reform our laws.

some of those laws were not at all fit for what the situation was developing. other laws and to be put in place. i think that the ability to react nimbly is important and the ability to react -- to move those observations into the more macro picture. i think that is pretty -- critical to the fed. >> we're getting ready to pass some legislation in the next 35 minutes regardless of what your testimony is, that will happen. in any 2300-page bill, there are provisions in it. i am not going to say this is the worst that -- worst bill that has ever been created, but i do look at it as a tremendous of missed opportunity. based on the comments that you just made, i wonder if there were things you would have liked

to see in the legislation that you would have liked to have seen in this legislation that you think might have caused our country to deal with some of those things that you saw in the run-up to the crisis that we just went through. >this is your last chance. >> the legislation is obviously the product of a lot of hard work. i know that there has been a lot of very good mines put to the task of trying to put in place a system of reforms that can almost assure that we do not have a situation like this crisis happen again. to be completely candid, i think that one piece that we still need to tackle is gse reform.

that is a piece that was not addressed in the legislation. it is something that i think still needs to be on the forefront of the congress. >> that is very astute. [laughter] i will come back to you in just a minute. thank you to -- to live for your testimony. mr. diamond, when we met i looked over your resume and you have read more books and i've probably read in my lifetime. you are very well educated and i would not want to enter into a debate with the what many of the topics that you have mastered. i look at your background and i think, this guy would be awesome to run the social security administration or he would be great official at treasury. not to be critical, i wish i knew as much as you do on those topics. i am sort of wondering what the hook was -- he is going to

defend. you obviously think you are going to be a great -- what is it that those of us should think is the contribution you will make on the board of governors? >> in my opening remarks, i talked about working at how the economy would be -- handles risks throughout the economy. obviously, i have written heavily on how pension systems adapt to risk. but the questions that were raised by this crisis, the credit questions that the existing knowledge of the regulators and the academic

community had done some on but not a great deal, we are now painfully aware of issues on how risk gets generated and how risks in one place effect all sorts of other places, systemic risk. my background is to think about those things. what i have started doing is reading the parts of the academic literature. some of it goes back decades. on how interactions can happen. what i hope to be able to do is explore how the regulatory structure will pay more attention to the interactions which go from an individual bank risk to systemic risk and i think that requires the kind of background and the nature of economic equilibrium that i bring to it because the

structure of the kinds of questions and regulations and much of the economic analysis simply does not engage with this. we now know how important it is. the opportunity to work on something that important in an environment as good for a learning about the economy as the fed would just be a wonderful opportunity for me. i would hope to be very helpful at it. >> thank you. i was out of the room for a moment and i know senator shelby asked you about supervision. she seemed to indicate in your testimony that to sell a lot of problems and felt the fed should have responded or could have responded a little more nimbly and talked a little bit about that a minute ago. you are on -- you were head of the fed in san francisco. you had a pretty large

calamities out there. i know you addressed commercial real-estate earlier. there is a huge bubble out there in residential real estate. as you look back, do you wish there were actions that you had taken or the fed had taken as it relates to the residential side? i know you are still focused on commercial. i agree with you, that is still a problem here in our system. but do you wish there were actions that the fed had taken as it relates to housing in your part of the country? >> i think we were monitoring housing prices very carefully and became concerned by 2005 that there might well be a bubble in the housing market. i think personally, i gave speeches in 2005 warning of that possibility.

this is something that we were attentive to and i think tried to evaluate what the risks would be coming out of that. i think we failed completely to understand the complexity of what the impact of a decline in -- a national decline in housing prices would be in the financial system. we saw a number of different things and we failed to connect the dots. while we thought about risk coming from a housing price decline, we fail to understand just how serious mortgage standards have declined, what had happened with the complexity of securitization, and the risks that were building in the financial system around and that -- around to that.

i think we missed critical elements of its that caused the crisis to be as severe as it was. looking back on it, certainly, i wish that regulators, including the fed, had taken more significant steps earlier to appreciate what the risks were in the underwriting, to understand mortgages that were being originated and packaged and sold into the market or there was a clear deterioration in its underwriting standards. i think we should have focused, i wish we had focused more on the system aggressed that that was causing rather than being as focused as we were on safety and soundness of banks,

particularly if failure to focus on systemic risk. i am pleased that this bill directs us to consider in our supervision of consolidated supervision of bank holding companies, the risk that activities can post to the broader financial system. on the underwriting side, i believe we should have taken more significant steps to curtail that center. >> mr. chairman, i know my time is out since nobody -- can i keep going since nobody is here? >> the second panel is coming up. we must get out of here by 11:00 to vote. >> can i ask to more questions? >> 1 short one. >> that is a shame. i know we have the votes at

11:00, but i think there is a lot that can be gained. >> you may submit your questions. >> ok. let me ask one simple question. i would love to hear from -- about gse's. we are pressing forward trying down thestand gse's road. i think we missed a great opportunity to do that now. i wanted to pass a iraq -- an amendment to require every person who purchase a home to have a minimum 5% down payment. many countries that have not had the problems that we have had had a 15% down payment on average and still have the same hauler ship -- homeownership

rates. if that one requirement would have kept us from having the type of double that you had out in california might have kept us from having many of the problems that we have now. >> sarah, i have not had a chance to think through the details of that proposal. >> a 5% down payment. >> i would say that there were certainly mortgages that created problems that did have down payments at that level. they became problematic, so i think it is an interesting proposal and i do think underwriting standards should have been tougher, but there were a range of practices of their -- there that really

created problems. >> thank you. i think -- i think each of you for your testimony. i wish we had more time. i look forward to working with you. i understand the time constraints that you are working under and i appreciate the leeway. >> i want to thank our first panel again. i want to congratulate you on your nominations. i will now call up our second panel. >> dissidents a day passes the financial regulations overhaul bill 62-39. the bill's supporters say buys restricting certain lending practices and expanding consumer protection, it will prevent another economic meltdown. president obama talked about the bill when he returned to washington from michigan.

>> good afternoon. with today's votes in the senate, the united states congress has now passed a wall street reform bill that will bring greater economic security to families and businesses across the country. it was clear from the moment it began that this suggestion was not the result of your typical economic downturn. it was a result of recklessness and irresponsibility in certain corners of wall street that infected the entire economy. it cost millions of americans their jobs and millions more their hard-earned savings. it is why businesses cannot get credit and my family's had not been able to see appreciation in their home values. the values of their homes have plummeted. even before the financial crisis

that led to this recession, i spoke on wall street about the need for common sense reforms to protect consumers and our economy as a whole. the crisis came in only underscored the need for the kind of reform the senate passed today. reform that will protect consumers when they take out a mortgage or sign up for a credit card. reform that will prevent the kind of shadowy deals that led to this crisis. reform that will never again put taxpayers on the hook for wall street's mistakes. therefore -- the reform that was passed today will accomplish these goals. it is a bill that was made possible by the tireless efforts of chairman chris dodd and congressmen and chairman barney frank. as well as the leadership of harry reid and nancy pelosi. i am extraordinarily grateful for their determination in the face of a massive lobbying effort from the financial

industry and i am also grateful to all these members of congress to step on the side of reform, including three republican senators who put politics aside to vote for this bill. the financial industry is so central to our nation's ability to grow and to prosper and to compete and innovate. this reform will foster that innovation and not hamper. it is designed to make sure that everybody follows the same set of rules, so that firms compete on price and quality, not contracts. a command account -- accountability and responsibility. it provides r&d to everyone from bankers to farmers to business owners to consumers. unless your business won't -- a model depends on cutting corners, you have nothing to fear from this reform. for all those americans who are wondering what wall street reform means for you, here is

what you should expect. if you have never applied for a credit card, a student loan, a mortgage, you know the feeling of signing your name to pages of barely understandable fine print. it is a big step for most families. it's filled with unnecessary confusion and apprehension. many americans are simply do it into hidden fees and monthly can not afford by companies to know exactly what they're doing. those days will soon end. from now on, every american will be empowered with a clear and concise information you need to make decisions -- financial decisions that are best for you. this bill will crack down on the unscrupulous mortgage lenders. it will give students to take out college loans clearer information to make sure lenders

do not cheat the system. it will ensure that every american receives a free credit score if they are denied a loan. all told, this reform puts in place the strongest consumer financial protection in history. it creates a new consumer watchdog to enforce those protections. because of this reform, the american people will never again be asked to foot the bill for wall street's mistakes. there'll be no more tax payer funded bailout. if the large financial institutions should fail, this reform gives us the ability to wind it down without endangering the broader economy. there'll be new rules to end the perception that any firm is too big to fail. so that we do not have another lehman brothers or aig. the kind of complex and backroom deals will finally be brought into the light of day. from now on, shareholders and other executives can note that

shareholders will have greater say. they can reward success instead of failure. they can help change the perverse incentives that encourage reckless risk-taking. wall street reform will bring greater security to folks on main street. the families were looking to buy their first homes or send their kids to college, to taxpayers and should not have to pay for somebody else's mistakes, to small businesses, community banks and credit unions to play by the rules, to shareholders and investors who want to see their companies grow and thrive. already, the republican leader in the house has called for a repeal of this reform. i would suggest that america cannot afford to go backwards. i think that is how most americans feel as well. we cannot afford another financial crisis just as you're digging out from the last one. when i took office, we cannot

simply rebuild its economy on the same at built -- same pile of sand. we need to rebuild on a firmer, stronger foundation for economic growth. that is why we invested in renewable energy that is currently creating new jobs all across america. that is why we are reforming our education system. that is why we pass health reform so that it will lower costs for families and businesses. that is why i am about to sign wall street reform into law, to protect consumers and with the foundation for a stronger financial system. one that is innovative, creative, competitive, and are less prone to panic and collapse. this is how we will ultimately build an economy that is stronger and more prosperous than it was before and one that provides opportunity for all americans.

thank you very much. >> are you encouraged that the oil had stopped flowing in the gulf? >> we're still in the testing phase. a lot more to say about it tomorrow. -- i will have more to say about it tomorrow. >> president obama talking about the senate passing the financial regulations bill today. debate on the measure included comments from banking committee leaders. this is a half-hour. objection. mr. shelby: madam president, i rise today to offer some remarks on the dodd-frank regulation conference report which is now before the senate. madam president, nearly two years ago, the financial crisis exposed massive deficiencies in the structure and the culture of our financial regulatory system. years of technological advances,

product development, and the advent of global capital markets rendered the system ill-suited to achieve its mission in the modern economy. madam president, decades of insulation from accountability distracted regulators from focusing on that mission. instead of acting to preserve safe and sound markets, the regulators primarily became focused on expanding the scope of their bureaucratic reach. and after the crisis which cost trillions of dollars and millions of jobs, it was clear that significant reform was necessary. but despite broad agreement on the need for reform, the majority decided it would rather move forward with a partisan bill. the result is a 2,300-page legislative monster i believe before us that expands the scope and the power of ineffective

bureaucracies. it creates vast new bureaucracies with little accountability and seriously i believe undermines the competitiveness of the american economy. unfortunately, the bill does very little to make our financial system safer. therefore, i will oppose the dodd-frank bill and urge my colleagues to do the same. madam president, this was not a preordained outcome. it is the direct result of the decisions made by the obama administration. had they sincerely wanted to produce a bipartisan bill, i have no doubt that we could have crafted a strong bill that would have garnered 80 or more votes in the senate. if the american people haven't noticed by now, that is how -- not how things work under the democratic rule. unfortunately, madam president, thear