ryanavent and then the taliban on afghanistan.

host: we will go to your phone calls in just a minute, but here is dick armey -- here is the peace in "the wall street journal." they say that the tea party movement has blossomed into a powerful social phenomenon because it is not directed by any one political agenda. stay true to principle. the assertive and respectful. add value and don't take credit

for other people's work. our community is built on the trader principle, we associate by mutual consent, to further shared goals of fiscal responsibility and constitutionally limited government. it goes on to say this --

the website for this contract is the contract.org, and they break down the 10 principles that would like to see from candidates to sign this contract. we put them up on the screen. protect the constitution, reject capt. trade, demand a balanced budget. there are five more. first phone call from georgia. joe on the republican line. what do you think about this hostile takeover of the gop? car you with us? -- joe, are you with us? we will move on to add water,

maryland, on the independence line. what do you think this morning about the tea party manifesto and dick armey saying there will be a hostile takeover of the gop? caller: i think it is a good thing. i do believe that washington is inherently corrupt and has sold the country out and long time ago. my issue has to do with, if we did not believe in the constitution anymore. and this is part of the problem. we have people in washington that are basically in a lot of cases, good people, however, you cannot get against the money machine. and this is what the biggest problem is. and this is where the corruption comes from. we have a banking system that has taken over washington, d.c., and they dictate everything that has happened. we have a country or a government that is by the banks,

for the banks, and ultimately it comes back down to the federal reserve, which, in my opinion, if people would just read about hoeing and how the federal reserve act was created, i think people would really start asking some serious, serious questions about how the system works because in this last election, you know, and this bailout for the banks, it should be crystal clear for every person that list in this country that this country run only by big banks and also they run the economy as well. host: let me let you and our other viewers know that we are continuing our series this week, looking at the new financial regulation bill. today at 9:15 a.m. east coast time, we will look at the impact of the slot on banks. joining us is james chessen,

chief economist at the american bankers association. let us go back to joe in georgia on the republican line. guest: thank you very much. i was the chairman of tom gray's campaign and we put together, the tea party people and a small business people, and i am all for the tea party. i have spoken to many groups. in fact, i of part of a radio show that actually goes all over the world. host: do you agree with the strategy of a hostile takeover of the gop? what does it mean? guest: it is not going to be hostile. another congressman i was with, one of the top leaders, we will have a very friendly -- it is a merger. a merger of the gop and a small business people and the tea party people. and i think it is going to be the most powerful political force in american history. allegheny in his radio show, we are working on making it happen all across the country. i am really fired up. i am so fired up i cannot sleep

that night about the merger of the tea party and the gop, less government -- host: why are dick armey and -- writing this morning it will be a hostile takeover? guest: greta, i don't like to use the word hostile. i was right in this campaign when we elected tom gray, who i think will be president -- he put together a group. it is not hostile. in a coalition that won for him, we had a lot of gop and tea party people and we worked together great. it was a love and. it was not hostile. i love dick armey but i did not call him hostile. down here in georgia, we are doing it peacefully and just having a lot of fun. no animosity whatsoever. very friendly. host: and it's on the democratic line from san vernon b. now, california -- emmitt on the democratic line. guest: the problem with this

country is not the tea party. the problem with this country is that we don't all nothing. host: we don't own anything, that is what you say? caller: we don't own the food, the oil, we don't own nothing. host: all right. we will go to josh from uniontown, pennsylvania. republican line. caller: i just wanted to call and and tied together your first caller's point just about the federal reserve. mentioning that is the only power that is in washington. ron paul wrote the bills to audit the fed. they are still in committee. i am sure there is no movement. he was the part of the tea party -- if you look at the grass- roots campaign. the political points, but we should and the federal reserve.

host: missouri. bob, democratic line. good morning. what do you think? caller i don't know about the this hostile takeover artist of the gop. it would seem to me they would be able to find out exactly who the leaders of the tea party are. if they keep saying that there are not any leaders. that this is spontaneous. imagine this scenario. mom and pop are sitting around a coffee table one morning and they say, i am mad, let us make a couple of signs and go up to the national mall. it sounds like a good idea, but it is too far to drive. i've got an idea. let us go to the bus station because i am quite sure because somebody has already arranged for bus transportation to take us up there. ,e don't know who paid for that and we don't care and nobody

else managed to find out who it arranged for and the logistics of getting people there and arranging for permits. there should be a name. somebody had to pay for it. these people did not go there, here is my $20 for a ride, and where we are going to eat, and these restaurants know there are several busloads coming in. to say that there was no leadership, that this all happened spontaneously is disingenuous at best. and somebody should have been able to find this out from the get go. host: who do you think is the head of this, bob? caller i don't know. but they are making every effort they can to make sure they are not found out. host: mississippi. ron on the independent line. what do you think this morning of this tea party manifesto?

caller: big army is behind it and republican money is behind it. part of a neocon right. have they ever put their but on the line for this country? everybody here, i lost my job in 1982 because ronald reagan started shipping jobs offshore. this is all started by the republicans. i came home from vietnam and got a job at general motors and 50 years later i lose my job and it was all because -- 15 years later i lose my job and it was all because of ronald reagan. host: where do you see similarities between ronald reagan and the tea party? caller: it is a neo con right taking off. host: republican, al, you are the next phone call. caller: i had to take issue with

what the gentleman from the military said earlier. we almost pulled off a coup here in georgia last week. but she became 2500 votes short of a 17-year washington, d.c., fixture of nathan deal, one of the most corrupt members of congress. the tea party came ashore and i did not think you can reconcile differences between a thin deal and the tea party. host: what do you mean by that? reconcile differences? caller: i do not think d.c., professional politicians, being consistent with the tea party movement which is back to a limited government and limited spending when nathan deal never saw a spending bill he did not like. host: have you been to the website? caller: not yet. i will visit there.

host: you have not heard about it? caller: sure. it could do you consider yourself a member of the tea party? caller: i do. host: why? caller: i think the republican party has failed the conservative side of america address that way and got very far away from the constitution, balanced budgets, and the sorts of things that i as a fiscal conservative like to see happening in government. host: is the tea party movement were to overtake the republican party, what would be the republican party's new brand? caller: new brands, i think it would be true constitutionalism and not corrosion that has happened under bush and balanced budgets instead of insane deficits that we have -- the awful budget warfare we got under bush. and return to financial sanity. host: what do you do?

caller: an accountant. host: order you? caller: 58. host: have you always lived in georgia? caller: yes. host: clearwater, florida. arlene, democratic line. caller: i have a question for you to baggers, a year ago you had done not then but -- at the town hall meeting screaming to get your hands off of medicare and social security and now you are lining up like good little sheep behind the gop. everybody knows they just want to end medicare and social security. could you be any dumber? thank you. host: in washington state today, vote totals for clues about the general election. democrats fighting to all two seats in washington. open third district, patty murray's senate seat.

the dramatics of the senate race is all in the vote total. the very unique primary -- the democratic senatorial campaign committee released a memo monday saying it expects rossi to take at least 46% of the vote, despite facing upstart challenge is from former professional football player didier and inventor paul akers joined forces with rossi late in the campaign. hardly cause trouble for the primary prospect, democrats believe the two conservatives forced rossi to move to the right, potentially dangerous place to be in the state prison -- president obama 1. lowering murray's expectations, expecting her to finish in the low 40's. the thinking goes -- either way,

the vote total below 45% could set off some alarms within the party. the last poll in the race taken late july by a democratic firm polled her at 47 percent and the three republicans totaling 47% with rossi taking 33%. on third congressional district race -- open the but moderate seat ripe for republican backing. since being elected to congress and 1998 was never elected with less than 55% however george w. bush carried the district by two points in 2000 and 2004 and obama won it by seven points in 2008. it says that attempting to hold a seat for democrats is a businessman and former state house majority leader running against democratic controlled washington, d.c. his campaign theme, give them had to. fayetteville, north carolina. a line for tea party members.

what do you make of this tea party manifesto? the piece written by dick armey calling for a hostile takeover. caller: excuse me. good morning. i think republican party certainly has severe problems about appealing to the broad conservative base that they were supposed to represent. we remember it was the gang of 14, the republicans in the bush administration, who were able to stop almost everything he did, and those were republicans. we, as conservatives, don't feel that the republican party truly represents a constitutional government. i have been reluctant since

becoming involved with the tea party to contribute money or support the republicans without question anymore. host: let me bounce this off of you. an e-mail from one of the beer wars. week -- from one of the viewers. caller: i don't think that the insurgency accusation is correct. i think what you are seeing is a true grass-roots movement of americans, concerned americans, all across the country that truly believe that our country is being subverted through republicans not being responsible, elections being stolen, through illegal voters

being encouraged and placed on us. it is interesting when i was on the bus going to washington, d.c., on 9/12 we were asking ourselves -- a group of six buses from north carolina, that we were asking ourselves, here we are, do you think they will hear us this time. when we were coming back, we were asking the same thing. the general consensus of opinion was, no, it they would not hear us and, no, they would not report us and that is exactly what happened. i will be in d.c. for glenn beck's thing, and i will be back there again for the next 9/12. we have a strong organization here in fayetteville, in north carolina and those people are the ones who put together the trip to washington, d.c., it was not anybody secretly funding or

anyone secretly organizing it. it takes concerned citizens all across to make these things happen. host: can you tell us what you do? caller: retired military. host: how old are you? caller: i am 69. host: would you say that a lot of the tea party members that you know in your area are of your age group? caller: i think most of them are young prepared a lot of them are in their 40's. i think i am the exception. i know on 9/12, there were a lot of people there who were my age but mostly in their 30's and 40's. host: another e-mail from a viewer. you can email us, journal@c- span.org. some other news on the primaries and wyoming. they will be picking their

governor in that state. cnn.com reports republicans are hoping to reclaim the governor's mansion. seven republicans are competing for the gop nomination, while five democrats are running for the parties not. a mason- three weeks before the election shows in the race for the gop nomination, state auditor, former u.s. attorney -- 27-24 but believe it was inside the margin of error. since then, son of former u.s. senator alan simpson, received 17% in the same gop survey. norfolk, connecticut, bill on the republican line. it caller: thank you for c-span. the only place where at least a few people call in and you can hear the truth. i am a former politician from connecticut. some people may recognize my name -- my voice, even. but i am not worried about it.

people who understand that the tea party, i believe, was created by freedom works and dick armey, who are the establishment. what you have to realize is politics is all perception. it may only be 50 to 100 people, and the targeting all this publicity, mainly to throw people off track. it is to forget about wall street. the biggest farce that ever happened to us. with all the money we had stolen and bailed out from wall street. but people were starting to go to the presidents of the homes of wall street, aig, are around connecticut and the lower end and that is why something had to be done by the establishment part because -- politicians. both parties are in bed. something had to be done to take the people away from that and now this group, what they want to do, they want to use the tea party. there are really some good people in the tea party but they don't understand what is going.

any third party is going to be taken over by the major parties. they will send people in of from either party to go it up. it did not happen with ross perot because it was all his money involved. so, with anyone else trying, it was put up or shut up. but i really think they will use the tea party to try to take social security away. with the media being the fourth branch of government, you've got to ask these questions, why did cia tenent get the medal of freedom, highest award, when he was considered ruining the iraq war with intelligence. the media never pick that up, because it is establishment. host: new tell our viewers what kind of republican were you were you in office, more a moderate republican, and what you think happens to moderate

republicans if there is a tea party takeover or more influence from the tea party? caller: moderate republicans. some of them like the so-called liberal democrats, i guess, in either party are disgusted. i think they have to rally people to vote. to get fear and everything. what they did -- ok, of both parties do, is the democrats tried to play the race card to get everybody excited and the republicans tried to overdue -- they always go back to 9/11 and try to use that for everything. last election was you voted, people did not realize they voted for it, you voted for either you hated a grumpy old man, voted against a woman or you voted against a man of color.

it is all to get people in emotional and not get to the facts. they've got to get out of wall street. the wall street people should be arrested. the military industrial complex is feeding from the trough. none of these issues are being addressed, and i don't care anymore what party. i just want a good future for everybody. host: bill, we will leave it there. other news. former senator ted stevens will lie in repose and alaska. the funeral is set wednesday. former congressman dan rostenkowski's funeral is today. for more information about both of those issues, programs, go to our web site, c-span.org. you can find more details there. in other headlines, front page of "the times-picayune" --

front-page of "the financial times" this morning, a story about mortgages. that is today in washington. go to c-span.org for our coverage. they will look at fannie and freddie also during this

holding conference today. some other news this morning about the economy, the front page of "the wall street journal," below the fold. if you read a little bit more in the story, polls show people disagree on which steps to take but do agree that tough steps need to be taken. back to your phone calls about the tea party manifesto. a book out this morning about the tea party. illinois. ted on independent line. calling for a hostile takeover. caller: i would like to say bill, the republican there, he stole a little of my thunder and he is becoming closer to be an independent like me. there is no takeover. this is a republican board. every time a party is out of office it find some way to reinvent itself. if it happens when the democrats were out of office and now

happening when the republicans are out of office. the bottom line is they keep coming down here and messing with us independents. they think we are stupid. all we are simply doing is getting people back they lose during presidency. these people who are saying, i am tea party. you should start asking them, what was your party affiliation before he became tea party. and i think you will find it very interesting pattern. host: all right. in more news this morning, about the mosque in new york, ground zero. "the new york times" this morning, the editorial. the constitution and the mosque. that is a "the new york times" editorial. "the washington post" also weighs in.

now he is in it, president obama needs to lead it. senator harry reid, giving his statement on the building of the mosque. the associated press reports this morning that he opposes the mosque plan, has gone against president obama. a statement from the spokesman -- the first amendment protects freedom of religion and senator reid respect that and thinks the mosque should be built someplace else. that is an "the new york post" this morning. front-page of "the daily news," puts it like this. orlando, florida. linda, republican line. caller: i wanted to ask a favor first. i have been wanting to call about this for a while. i wish the host there would -- i am not sure, correct, or at least educate your callers that

the word tea bagger is an offense of sexual term. i know you don't allow people to use words like the n-word -- i know the word tea bagger does not have a history, but it is not the correct term. host: we have asked for this conversation, and a matter what the topic is, to be settled and to believe that the name calling somewhere else. we don't want it on this show. call in with your opinions and comments but keep the conversation civil. orlando, florida. tea party member. caller: i can only speak for myself. i cannot speak for all of them. i know a lot of them who have a lot of similar ideas as i do. i want to respond to some of the

callers. basically the way i look at it is, we only have a two-party system. third parties have never worked. so, i have to look at the two parties. i can't work within the democratic party because of their platform is for progress of government programs to solve our problems and i just don't agree with that because government is an expenditure paid for by the taxpayers. it does not produce anything. we have to pay for it all. i believe more in the limited government, where people are given the right atmosphere where they can succeed or fail. it therefore i turned to the republican party. it has problems. a lot of problems. and we are trying to change it from within. i know one of the callers suggested that ronald reagan exported jobs. i have a real issue with that. if you go back and read his

winds of freedom speech -- where the middle class would rise up around the world and create world peace if we got rid of the tariffs, that is a real progressive democratic idea and not a republican conservative idea. and the results of those actions, is our middle class was destroyed and the jobs are gone. that is where we are. i suppose things like george h. w. bush's national standardization for education which is a local issue. it does not fall into the powers of the federal government. and his son, who turned a military action into a war without congressional approval for war, military action, turned it into an all out war that is still not over, never funded it, just put it on the credit card, put in medicare prescription -- these are progressive things. i think the final thing that

made people snap was tarp was everybody called up their congressmen and senators and said no to tarp and they voted for it anyway. all of these republicans are voting for it. you have a republican president saying it was the right thing to do. sang mitt romney it is the right thing to do. that was the final straw. of the last thing i want to say, there are a lot of republican politicians who claim they belong to the tea party who do not. all of you have to do is pay attention to what they are sick -- saying. you look at people like sarah palin, marco rubio -- he is using the argument about the balanced budget amendment. they say that argument all the time. it could you put sarah palin in that category. you do not think she is part -- host: you do not think sarah palin is part of the movement? caller: no. sarah palin is an opportunist.

a true politician and an opportunist. she is not part of the movement at all. the people who are part of the movement are ron paul, that is your guy. host: "usa today," washington wiseman going home. lee hamilton. frequent guest of this show and member of the 9/11 commission is going back to indiana, saying he has watched politics change over the years. that is today's "usa today," if you want to read more. also in the papers, some of the headlines. this is "the washington post" frontpage. u.s. loses window into russian arms. because the start treaty expired, the for the first time in 15 years u.s. officials lost the ability to inspect rushes long-range nuclear. next to that store, on the front page, afghan rebels security contractors.

it says the afghan president karzai once companies out and calls for a four month deadline. the u.s. caused the deadline very challenging. that is the front page of "the washington post." also this morning, we want to show you below the fold of "the financial times." bp raised $5 billion in loans to boost liquidity. that is "the financial times cause of this morning. in a widow, ky. bill on the democratic line. good morning. ta. er: good morning, greg te i have been liberal than for 15 minutes -- on hold for 50 minutes. hard to keep your train of thought. last few callers, are pretty much agree. let me put it this way, out of a

population of over 300 million people, i think that the media has a lot to do with this simply because if you look at the totality of the tea party movement, probably been from what you see in a total, of all the time you have seen and heard of them, maybe 10 million to 15 million at absolute positive most. it is the media that perpetuates this idea that they are taking over anything. you can't have that few people to be able to have as much clout -- the same way with sarah palin. she has become a rich person for quitting and simply because the media grabs hold of a thing, they latch onto it, they run it, and they tried to sensationalize it and we as the american people fall prey and we go along with it, too.

speaking the same talking points you hear on msnbc, fox, cnn, all day long, you hear the same thing. it is a bit of almost brainwashing. host: an update on the oil spill in the gulf and the drilling moratorium. front page of "the new york times." >> to that is also a story about pakistan. -- next to that is a story about pakistan. bloomington, illinois. georgia, republican minded caller: in response to the comments from the german -- gentleman from connecticut, former republican, and the gentleman from rockford responded. the bankers did engage in much

excess, and hopefully it will be corrected by this new bill, the only major legislation the current administration is gone through aside from obamacare. but back to the tea party and a german from rockford, if my memory serves me correctly, -- gentlemen from rockford, if my memory serves me correctly, 1980 former congressman john anderson ran for president, highly respected, made me think of him. prosecutor, longtime state's attorney. he did not win. he ran a good race. but i believe it was the same year, my memory serves correctly, that ronald reagan was elected president. i do think that what happened, confirms what the gentleman from rockford said a while ago, these movements result in many voters going back to their or regional

inclination's or party membership such as republicans, because i think many independents who supported john anderson were really just republicans. moderate republicans. thinking republican, not a liberal republican. dick armey, i have respect for him. i followed him for many years. i do think that dick armey and some of the folks in the tea party, like some people in the cato institute in washington take for granted the support of the social conservatives and do so at their peril and mitch daniels, well intentioned, but the same inkling in that he wants to have a truce on the social issues. we are not going to let a social issues trees. if the tea party members will remember that, they will be even more successful than they will otherwise. host: the caller referred to dick armey. he writes and "the wall street

journal" that the movement is not seeking a junior partnership with the republican party, it is aiming for a hostile takeover. the two are out with a new book today. there are calling on tea party candidates and republican candidates to sign their contract from america. it is on their website, thecontract.org. if the goods have their website, 10 different book points -- south carolina, democratic line. good morning. caller: i was just looking at the things.

passing and all of the above energy policy. i don't know what to say. there are some of the problems faced in this country. -- the caller who said sarah palin was a comte -- opportunist, red and the money. just as dick armey. they tried to delegitimize clinton during his turn. i am sure there are any answers. in two wars. host: calling from the democratic line. are you motivated to vote for democrats? caller: i think there will be a surprise and south carolina. nikki haley is running for governor. down her home district -- not speaking to the press.

i think there will be a surprise. they are basically trying to run -- i do not know she represents south carolina now is, whenever it means. i think there will be surprises around the country. i do not think it is republican and democrat. i agree with the caller, i did not think it is fair to call them tea baggers, because it carries a negative connotation. i just think the wrongheaded. host: "the new york times" this morning says michael bloomberg, picking joe suspect -- sestak. the gop reveals its midterm blueprint in politico this morning. readying a 20 million tv ad,

aimed at a handful of powerful, long serving. some of the incumbents' they are looking at is budget committee chairman john spratt, representative chet edwards of the appropriations committee. alan grayson -- while democrats reserve ad time in 60 races to date, the vast majority -- designed to protect vulnerable incumbents and republicans on the other hand investing almost entirely offensive effort. got to turn your television down. "washington post," appeals court puts gay marriage is on hold.

bill, have returned a television down? caller: i have been an independent for quite a few years. i am retired military. vietnam vet, all that good stuff. on this mosque building on ground zero, i think it is outrageous. people are slapping the new york state, new york city people in the face. i don't agree with that at all. host: all right. cleveland, ohio. a democrat line. last phone call on the tea party manifesto. what do you think? caller: i would like to say that i think the tea party really does have not just manifesto that it put on-line, they really have other things they are not saying. if they were really for what they are saying on a manifesto, they would have been doing something when george bush was an office because george bush

was the one who took our surplus and turned it into a deficit. he was the one who went to war for reasons that were lies, and our deficit went completely out of control it and still is, the corruption in washington is what they all need to be concerned with because no matter what we think they want them to do they do what is in their best interests and not is what -- what is in their best interests. it's all right, karen. we will leave it there. the headline broke yesterday that china is becoming the second largest economy in the world. that is what we will turn our attention to next. we will be right back. and i think it is important

every florida in know that i am a person stands up for the principles of the state of florida. i will not be part of the culture of corruption, bribery. i will fight only for the people of florida. >> campaign 2010 and c-span video library makes it easy to follow the election cycle, debate, rallies, victory and concession speeches. all free on your computer, any time. >> book tv in primetime continues tonight with a focus on campaigns and elections. david -- recounts the presidential race of 1960 and how it shaped the next three presidencies. senate historian don richey on the 1930 -- 1932 race between fdr and herbert hoover and kenneth ackerman on campaign and subsequent assassination of america's 20th president, james garfield. primetime, all this week on c- span2. >> the c-span network, provide coverage of politics, public affairs, nonfiction books, and american history. it is all available to you on

television, radio, on line, and on social media networking site. find our content any time through c-span's video library. and we take c-span on the road with our digital bus, mobile contact judy content vehicle. it is washington your way, the c-span network. not available and more than 100 million homes. created by cable and provided as a public service. >> "washington journal" continues. host: ryan avent is online editor for "the economist." here is the headline, china is becoming or has become the second-largest economy in the world, surpassing japan. coming out from the latest statistics. let me put it up on the screen for our viewers. second quarter gdp -- that is what everyone was looking at. the united states second quarter gdp, three-point $5 trillion. china, $1.33 trillion. japan, $1.28 trillion.

what do they matter and what they mean? guest: culmination of a long process of growth for china that has been good for the chinese people but also created tensions in the world. it has finally led to the point where they surpassed japan as the second largest economy in the world. the win back and forth the last few quarters, but economists think they finally cemented their place. it tells us a couple of things. it tells us a tiny -- in this time the global recovery is fairly uncertain, china is one of the bright spots in their growth has not been a lot to maintain the global recovery. a little bit about japan, one of the reasons they have fallen back as they have done real reporting -- prepared second quarter economy has slowed down pretty sharply and that is a concern for people in the u.s. because we signs are economy is slowing as well and signs we may face sort of the long-term deflationary and stagnation japan is seeing.

there is a worry that we may see more of ourselves in japan and china. host: going back to china and is becoming possibly the second largest economy, what does it mean specifically for consumers, american consumers? guest: i think what it will eventually mean is china will be a very large market for consumers. rich nations want to buy a lot of american products, american films, use ipod's and stuff like that. in the long term really is something to be happy about. i think one of the concerns runout is at the moment we buy more from china than they buy from us. we have a large trade deficit. there is a sense of what the economy weak, their growth is coming at our expense. that is not necessarily true. there are a lot of factors that lead to those gaps. but it is certainly the perception and i think creates a lot of tension that we see in washington, and could conceivably lead to trade war issues that would ultimately be bad for consumers, raise prices

and stuff like that. host: another part of the story that came out yesterday, in this story and was often noted about per capital -- per-capita gross domestic product. in the united states, per- capita, 46,000, which means person gross domestic product. japan, 32,600. china, around 6600. what does that say? guest: i think it gives us a sense of perspective of what chinese growth has meant and what it will mean for the future. after 30 years of growth, they reached a point where they say they now have $6,600 of output per person compared to 46,000 in the u.s.. essentially they mean that it is much poorer than us. they have a large economy but a lot is due to the fact that they have so many people. so, i have a long way to go to catch up. i think what is often lost in the conversation, china is still a relatively poor country and that will affect the outlook toward growth.

the need to maintain growth. it should give us a sense of confidence in the fact that we do not need to worry necessarily as much as people often do about china's rise. host: some noted in the story yesterday that this idea that china could catch up is not exactly realistic. some put the figure at about 2030, the year 2013 when china could conceivably ketchup to the united states. guest: they would have to maintain a very rapid growth rate the next 15 or 20 years. that is the go to do. we have seen how hard it is to maintain 2% to 3% growth in the u.s. and china's authoritarian government has a different variable. it is not clear whether they are going to maintain the institutions they have now, whether there is going to be trouble, their struggle to move toward democracy. and so it will be a challenge to maintain the rapid growth rate. host: they have had rapid growth rate over the last decade or so,

around 10% year after year. guest: that's true. but then one of the other issues that go along is that growth has been built on this relationship with the u.s., where u.s. consumers are taking on a lot of debt to buy consumer goods and there is a mutual dependence between the u.s. and china. and obviously there is a sense u.s. consumers cannot afford to do that. we need to borrow less and save more and that will affect the ability of china to rely on exports. host: companies looking at these figures and saw the headline yesterday, what are they thinking, american companies? guest: i think they think their opportunities they need to look into. at the same time, they will be very aware of the continued trade gap. it also be talking to people in washington about issues related to currencies, exchange rate, and what can be done to improve the competitiveness. host: that is a headline coming out of china, that they agreed to allow their currencies to float somewhat.

what is the status of that? guest: in 2008, as the global economy was spinning, china fixed its currency against the u.s. and maintain its trade advantage. that angered a lot of people in the u.s., particularly exporters. china has come into a lot of pressure to do something about it, to allow the currency to float and rise against the dollar. in june they said they would do that. ahead of the g-27, the one it to smooth the way in washington and the agreed to allow their currencies to float. it has not moved very much. in the last week so it has given back a lot of the gains they -- previously had. there is a sense when you have the deficit figures combined with the fact there really has not been much progress on the currency issue, that is a really going to raise a lot of eyebrows in washington and create the suggestion that maybe more needs to be done. host: if it has not move that much, is it because the chinese government is doing something, not allowing it to float as much

as it should? what does it mean for china's growth of the war to allow it to slow more? guest: china intervenes a lot in the currency markets. they buy a lot of currencies, maintain the level of the currencies against of this, especially the dollar. what we are seeing is essentially they had undone some of the efforts they did earlier in the summer. i think one reason they are doing that is they are concerned about the strength of their recovery and the global recovery. they had issues with the big housing bobbled. they are concerned that the export markets like europe, america, japan, are slowing down. there is concern that they may really fall back into lower growth rate. one thing they're looking to do -- the concern is that the yuan, if their currency would increase a lot more, it would create huge problems for exporting firms which employs a lot of people. host: if that were to happen, what would it mean for u.s.

businesses trying to export into their country? guest: it would be good. a weaker dollar would make their goods cheaper in china. that is axle is something they would like to see. there is a potential, though, of a double edged sure -- sward. china's economy would also be weaker. so it is hard to see which in fact would come out on top. host: what would it mean for u.s. consumers trying to buy cheaper chinese goods? guest: the prices would go up. they would be more expensive as the dollar did weaken. some sense among economists that is something that needs to happen. to encourage households to save more. host: how much would they go up? ipad's, ipod's, would they go up exponentially? guest: not exponentially. there is really limit how much china could allow the currency to appreciate, and we would see smaller changes. it is also harder to tell because there are complex supply chains.

where does ipod come from? it's probably see diagrams, apart from all over the world. one possibility is production would move from china to another low-cost market and we would not see much of a change at all. it obviously would not help the trade deficit. it just importing from somewhere else. host: talking to ryan avent from "the economist, what online editor. virginia beach, virginia. caller: i am wondering if anyone is thinking about how japan got into the front range of nations. they followed a model that was not our own. look at what they did, from 1945 until 1985, my god, they got into the front ranks. they could be number one. it didn't happen. president nixon and gave them of the shock of their life back in the 1970's when he did

something that the currency that made it so the japanese yen, ext. -- instead of being 360 to the dollar, in 22 220 in a period of time. that is where we are right now with the chinese currency. of course, they are going to want to hold the bat and their favor as long as they can. and even if or when it does appreciate vis a vis the dollar, what will happen then? to make japan fall apart -- that the not happened. i did not think a serious revaluation would make china weaker. last thing i want to say is, what about if there had never been a chairman mao? we know he put his country in a straight jacket. i think maybe if that had not

happened, china by now would already have been number one for years. that is all i want to say. thank you. host: do you want to add to that? guest: makes a couple of good points. the first is -- i guess i will take the second point. when of the reasons why china was able to grow so rapidly these recent years because they had been held down so much in the early years of the communist regime. taking off the shackles allow them to do catch up growth. the example of japan is a good one for a couple of reasons. for one thing, obviously we all remember there was a lot of concern that japan's economy -- they stumbled on a model that was much better than the american economic model and that was going to lead them to take over the world economy. obviously that did not happen. in one sense, it is a lesson we should not be as worried about. the other thing the caller mentioned is japan's currency

rose quite a bit against the dollar under pressure of u.s. government and it did not change -- they continue to export more to us. there should be some sort of a sense that maybe exchange rates are not the entire factor determining the balance of trade. host: "the wall street journal" lead editorial, talking about japan as no. 3. giving us a historical perspective, as the caller mentioned earlier, about japan and the lost decade and the policies they took after they had their recession and comparing that to what china is doing now. they conclude by saying americans can take comfort that at least through 2008, the u.s. had retained its global economic standing even as the other nations rose and fell. the u.s. remains far and away the world's largest economy, but china is gaining. the way to avoid japan's fate is to avoid the same policy mistakes, which means returning to the policies of the 1980's

that revived the u.s. after the last great recession. can you give our viewers a little bit about what were the policies of the 1980's that, according to "the wall street journal" revived the u.s.? guest: i think the policies they had a mine where deregulation, tax cuts, and things like that. certainly there is an argument those things are important for growth. i think one thing "the economist was what is looking at as an of or in fact, what happened to japan when they had a huge property bubble that burst and their banks were in a lot of trouble and they faced falling prices and deflationary and had essentially a lost decade, two decades now, where growth has been very slow. .

the second largest economy yesterday. bloomfield hills, michigan. robert. independent line. caller: this is a very -- i find

that pap is being -- c-span is being very educational. i don't think we have to fear china. i think the problem we have is with our own mix. we have to fear things right here at home. when i was growing up as a kid there were millions of chinese starving to death. change kaoeu shebg and we are talking about facts now. he brought the chinese nation into competition with the west. we rebuilt germany and japan but china continued to go their way in rebuilding their country to be competitive with the west. i think what has happened now, we have a great educated and

intelligent president who knows what is happening. he is on top of the issues. and i think that the fact that we have obama, who is looking forward, continues to look forward and prepares for the future, i don't think china will ever overtake us. but there is a security problem. because if they continue to come after us and we continue to go backwards our mosque and these nonsensical things and china continues the way they are going, it is a security problem because our navy, who is the main strength, will be threatened. it just takes a strong, educated person who will not be ruled by mob mentality. host: ryan, i don't think you can speak to military and security concerns, but can you talk about china's influence,

its government's influence in their own economy? what are they subsidizing? what sort of government policies do they have? guest: quite a lot. it is true that since the time of the 1960's and 1970's china's economy has liberalized a lot. but relative to most developed nations there is a lot of state influence. most large companies are state controlled. there are subsidies for various goods, gas and things like that the prices are heavily controlled. the government has a lot of involvement in the banking system and tells them how much lending they need to do. and they are messing with the currency which effects the cost and things that producers make. so, one of the difficult transitions china faces is how to undo a lot of controls and what the government is willing to undo. they have had a lot of success in loosening their ties over the economy, but there is a question

about how much more. host: what would that mean for the u.s. economy? guest: i think it would be good for the u.s. economy. we have a lot of faith in the market and its ability to do things, and i think there is a sense it would be good for china's producers in terms of their competitiveness, the goods, what they can offer to the global economy. it would be very good for chinese workers. to touch on one point the caller made, when there is time of economic uncertainty that leads to fears that can contribute to military concerns but also to things like a desire for trade protection and we would like to avoid that. one way is to ensure that wealth continues to grow in china and the united states. host: the president was in wisconsin yesterday at a battery company that received funding from the federal government stimulus funding to get on the ground to create this new manufacturing sector, the green

technology. some have said that the united states needs to continue to invest with public funding for these types of industries because and india is way ahead of us. can you speak to that? guest: it is an interesting debate. how much should we emulate the things being done in emerging markets. i think the answer is not easy to say. there are certain things the u.s. government could do to support many manufacturing industries and green technology. we could fund research. we could approve a carbon price or regulate carbon and that would drive incentives for more innovation. the risk is in looking at chinese growth rates and saying the government support for industry has accomplished that. we look a.t some things where government was in support of ethanol and it ended up

negatively affecting food prices and increasing emissions so it is hard to do this well and i'm not sure that is the u.s. strength. it is more setting guidelines and letting the market do work. host: the "wall street journal" second editorial is about this idea of investing in these technical companies. they say perhaps z.b.b. energy the company president obama was visiting will eventually prove to be the google of the battery business but then google didn't need taxpayer help. the obama administration would argue these subsidies for private commercial companies are worth it if only one company pays off. for the company that does the reward will be private. for those that fail the losers will be the taxpayers. shreveport, new york, democratic line. caller: thank you for c-span. my comment is that the young man needs to stop lying to the american people about how we are going to bounce back. when i go into the stores or my

children go into the stores to shop, everything that we pick up, everything that we buy is made in china. the only way america is going to come out of the dilemma that they are in is to start manufacturing and putting their people back to work. host: do you buy those products? caller: well, i try not to. i'm looking for what is to be made in america. host: even if it is more expensive? caller: yes, even if it is more expense sieve, because you will -- expensive because you have to learn to budget your money. as long as america is producing and manufacturing our economy will stay number one of the but if we don't manufacture goods, we will become a third world country and that will happen in the next five years. we don't have to war with china. we don't have to go to war with japan. they are going to destroy us economically.

we are seeing it happen now. host: what about the argument that some make that some countries should do what they are good at and all countries should do what they are good at. china is good at manufacturing actual products that you buy. the united states is good at expo exporting our intellectual properties, movies. things like that. services. financial industry services. caller: remember, the the united states was good in everything. we produced everything. but we are allowing our people to suffer on account of greed. host: do you want to jump in guest: she echos a popular concern which is back in the 1960's and 1970's the u.s. had a strong manufacturing sector and employed a lot of people and paid good wages and much of that has come undone in recent decades. i think people see that and say this is the source of a lot of the difficulties the middle class has had with stagnating

wages. i understand that fear. i'm not sure that it is exactly right. one of the things we have seen is that even when manufacturing output in the u.s. has grown employment has fallen. there have been strides in technology and automation and the economy manufactures and exports $500 billion of goods a year. so it is not like we are out of the business of making things. we just don't employ many people to do it any more and that will be difficult to undo whatever happens with china because it is technology that is at work. the who is what needs to be done to find good jobs for people who formerly would have worked in manufactured. there are god jobs but we have -- good jobs but we have not always done the things to prepare them. host: as far as some information earlier on the international trade administration website, the u.s. is still the largest manufacturer in the world, around $12 million i think is the figure that i saw.

guest: it would be quite a bit. rh quite sure but the.s. e is still a strong producer of goods as well as ideas. it is simply that the labor component isn't there like it used to be. host: i saw one figure earlier when we have done previous segments that manufacturing jobs in the 1970's were around 17 million and that now around 11 million in recent years. paris, arkansas, frank, republican line. go ahead. caller: good morning. can you hear this all right? host: we can. caller: we appreciate c-span very much. this conversation as well. putting the spotlight on china is a good thing. china has suffered tremendously throughout history under occupation by the nazis then later the opium wars and british and all of that.

but china has gotten a bum rap out of that. we are thrilled to see the standard of living go up for the chinese people. there are 50 different cultures leg in china -- living in china. right now we have been reading where the chinese have become a real threat to our american medical system, the a.m.a. specifically big pharma. big pharma with their pharmaceuticals are in competition with china in something called annuinutrasuit. their medicine comes from phy phytochemicals or plant derived chemicals and their medicines are healing and our chemicals are killing. if you want to look further go to jojitre everyone s.info and

you can learn about the war between big pharma and petrochemicals in china. host: the producer of "washington journal" let me know the 12 million is the amount of people employed in manufacturing here in the country and the u.s. produces about $1.6 trillion in manufactu manufactured products, about 18% of the world manufactured goods. we will go on to caribou, maine, jim, on the independent line. jim, good morning. caller: the caller or two ago mentioned about manufacturing, and i wanted to bring up to the gentleman if he thinks that government spending produces manufacturing or government spending produces jobs, which it does not. it takes away from the private sector. that seems to be what is being shown to us.

i wanted your comments on that, and about the weaker dollar comme comment. host: we will let you go, jill. you sound busy. go ahead. guest: i think that the issue of whether government spending can create jobs has been one that has been a contentious one. there are times when the economy is running at full speed and excessive government borrowing can push up interest rates and that can crowd out private investment and be bad for economic growth. if you look at the early 1990's when there was discussion about balancing the budget that led to a subsequent period of prosperity it was mainly about the crowding out of investors and bringing down interest rates. when the economy is not at full speed i think the government borrowing is not going to be crowding out a lot of investment. at this point banks are doing almost no investment and a lot

of firms are telling us it is a short pall in demand and that is related to the problems of jobs with an unemployment rate of nearly 10%. if the government steps in and helps to guarantee public services that help people maintain their economic they will continue to spend and that will provide some support for the economy. i think that the caller is right saying ultimately we are going to need the private sector to pick up demand. we won't get a sustainable recovery until then. host: we will be talking with the representative of the american bankers association around 9:15 a.m. when we continue our series this week looking at the new financial regulation bill. today the discussion is about its impact on banks. detroit, charlie, democratic line. you are next. caller: good morning. thank you for taking my call. guest: good morning.

host: i want to talk about the g.d.p. and per capita relation to the one, two and three economies. in relation to the exchange rates bloated currencies and the u.s. dollar, british pound and swiss franc and euro, the reason why this happened was after the world war ii most of the countries that were colonies department have any -- didn't have any means to manipulate their currency. in the late 1960's, when the world standard is being gradually devalued, the western democracies had decided to keep the other former colonies' currencies totally undervalued and keep the western currencies

overvalued and bloated to keep the standard of living improving in the western democracies. since 1935, about 80% of the americans and most europeans' standard of living has been brought up because of this disparity of currencies. host: ryan asrepvent? guest: i think there is something to what he is saying with western countries specially the united states, britain and euro stone enjoy the benefits of a reserve currency. it makes it more stable. because the value is constantly being supported by people buying it for safety reasons, that holds up the value which increases securely purchasing power. the down side is that has led to serious imbalances. the excessive spending, ability

to borrow cheaply which is related to that has encouraged us to accumulate a lot of debt. so there is some extent the reserve currency is sort of a double edged sword and not necessarily good over the long term. but we have seen a rising emerging market like china express in creating a neutral reserve currency or increasing the extent to which their currencies are used as reserves. host: how much lobbying power does a country like china have in that debate? guest: their influence increases with the size of their economy and they are getting support from a number of other countries that have found themselves plowing reserves in the dollar and worried about what will happen to the value of the dollar down the road. brazil and other countries are taking their side in this battle. host: houston, steve, independent line. good morning. caller: thank you. hi, ryan and greta. y yes, i wonder why aren't we

charging to protect the seas? we could charge japan. we could charge the asian countries to protect our open seas and -- well, what we say are open seas -- and then that would bring greater revenue to the united states of america. i think that is a good idea and i think it needs to be explored. also, the governor of texas. host: we will go on to canton, ohio. caller: i have a comment and question. for decades since the 1970's forward with nixon's ping upon diplomacy, when china started sending graduate students to the united states to m.i.t., cal tech, et cetera, i believe there's been a great deal of

industrial espionage when these students have gone on to our technology industries as interns and surreptitious ly passed som of our best ideas, industrial secrets, back to china free of charge. my question is, why are we afraid of a trade war with china be it with tariffs, et cetera, when we are running such a trade deficit with china? guest: it is a good question. a lot of people think that what we need probably is to get tough with china and take a hard stand on imports. i think there are a couple of things that are worrisome about that. to the extent there are structural issues in the united states holding back our economy and it is lagging investment in education, infrastructure, excessive borrowing, these are not going away because we've brought it out of imports from other countries. the other risk is that typically trade wars tend not to be good

for the general state of the geopolitical world. they imply essentially a zero sum world where what is good for us is bad for you and that leads to conflicts and wouldn't be good for the global recovery. financial markets would hate it. so, i think for a number of reasons the desire it avoid conflict and maintain a global recovery and the fact it probably wouldn't help that much. host: there is a tweet from a viewer who says the chinese leadership fears domestic instability. any signs of conflict between business, government and populace. guest: it is interesting. this year we have seen an increasingly active labor movement in in china which is something that we really haven't seen based on the state control of the government before and they have been demanding higher wages, better working conditions. i think it is good did -- we should view this as a before sign. works should get more of the gains and that will increase their ability to buy our products.

the question is, how comfortable is the chinese government going to be in allowing this? do they feel it is a threat to political control? is there a risk it might lead to democratization. i think that is an unknown. so while we look at it as a good thing it adds to the uncertainty of what will happen with the chinese political system. host: milwaukee, wisconsin, william, democratic line. good morning. caller: good morning, greta. good morning, ryan. host: go ahead. we can hear you. caller: i'm sorry, good morning. i would like to first try to debunk what i think is a m misperception as far as global spending. we have always had a tremendous amount of global spending. when we look at appropriations deals that is a global spending thing. and it has created tremendous amounts of jobs. just the average soldier, what

have you. the other thing is how we use the word stimulus as opposed to circulation. when roosevelt was president, his public works plan pretty much put money back in in circulation. so if the banks are not free to invest the only option is the government to spend money. that is pretty much all i have to say. host: ryan, do you have a response? guest: i think that the stimulus is kind of a difficult concept and not everyone understand what is it manassas. i think a lot of people confuse it for the bailout and it probably could use reframing. essentially, the government is picking up the slack. host: did china and japan do the same thinking this year? guest: they did. china especially had a massive stimulus program in infrastructure and got a lot of attention in terms of road

building, trains, things like thatment and apparently it was very successful. now, china went into this with a better fiscal position than the u.s. so that freed their hands. but there is no sign the u.s. is having trouble borrowing. host: pontiac, illinois. ron, republican line. caller: i have a question concerning china's energy future. as i understand it, china has more wind mills than any other country on earth, but most of them, because of the inherent resistance in the wiring, are not hooked up because they can't transmit it to where the use point is. likewise, i understand that china is building one coal fired power plant a week. given that china is energy dependent, i was hoping you could comment on about china's energy use going forward and where they are going to get the

energy from. host: ryan, that is a pretty specific question. i know that not your expertise. guest: not completely but the question of how china will fuel their economy going forward is the question of how we are going to fuel our economy is huge. there are limited oil reserves. there is a lot of coal but if we burn it we will have serious-kilometer issues. so -- serious climate changes the so the chinese government is looking at ways to explore alternative sources and wind is one of them and they are investing in other capacities. i think that is an avenue where cooperation could help us both out. host: cheryl, independent line, gafney, south carolina. go ahead. caller: i wanted to give in information to the lady that called earlier. she is interested in american products. she can go to americansworking.com and they are dedicated to promoting products still made in the united states. and i would pay more money for

items made in the united states. host: we go to doris in chicago on the democratic line. caller: good morning. these corporations are un-american that move those to china. they took jobs from a democratic country, us, and sent them and put them in a communist country to boost their ability to control the world. i mean, they have no allegiance, no alliances. and right now they are shipping all of the white collar jobs to india but india is a democratic country. but i don't understand how these corporations can consider themselves to be based in this country and dismissing the workers and putting everybody out of work. why are they propping up a communist country. can you answer that?

guest: i think the companies are focused on the bottom line, which is sort of like it or not the way they tend to work. there is some question about whether we have policies that subsidize the behavior we may want to get rid of but in general companies will focus on profits. host: do the companies consider themselves a global company rather than a u.s. company? guest: i think most of them probably do. and they look -- you look at g.m., they see the chinese market as being not a place to produce things but to sell things. a lot of their financial future will depend on the wealth of the chinese worker. and i think that is something a little frightening to contemplate but we need to look at it as promising for us. a lot of these companies as they create jobs in china they create jobs here. there is plenty of economic pie to go around. host: next is penny republican lien north carolinament help me with the name of your town.

caller: chincopin. old indian word for small acorn. host: all right. caller: i would like to say about the manufacturing, as the woman that called earlier, the problem with the manufacturing jobs in the united states is all of the e.p.a. regulations and it is so strict it is not allowed in our country to violate the environmental laws and it goes to china and they violate it and it is the same air, same world. isn't it like our own selves that have causeded the problem with the strict regulations? guest: thank probably plays some role. there are looser regulations in emerging markets and when we

talk about climate regulations if we've tight rules here that will send jobs elsewhere. that is why it is so important to work closely with china and encourage them to come to the table with us and negotiate environmental rules that will be mutually beneficial. host: columbia, tennessee, will, independent line. caller: good morning, c-span. i appreciate this opportunity. i appreciate c-span for all of it does for the american citizen giving us the open window and transparency of the three branches of our government. but i would like to make a couple of comments and ask a questi question. during world war ii we have seen america, the most humanitarian country in the world, go out and give both resources and people as well as materials. in japan in world war ii, they took most every bit of that from

1935 up to 1941 when they bombed pearl harbor, they took all the resources they could and used that in their manufacturing for a war against america. i don't know why america -- it is my wisdom we should have, in looking back at our history and see what is going on in china and american relationships today. here we have a communist country allying along with russians and the russians are using the iranians to provide tell supplies and materials and china is supplying north korea with supplies and materials and here we are a democracy that is giving aid to a country that can turn that same type of backlash that happened in world war ii against us in the future. another thing i want to ask the guest, why is a corporation like

wal-mart going to china, getting all of their exports, bringing them to america and wal-mart has already put all the small business people out of work and they now have all of the -- did you ever go to wal-mart, you go in there, over 80% of the stuff brought in wal-mart to sell has china written all over it. host: ryan avent. guest: this is a concern people have that you see jobs disappearing and at the same time when you go into stores a lot of the low cost gods that make it easier to get by come from china. one thing we observed in the 1990's is people were able to get ahead because goods were very cheap due to china's rise. there are benefits and costs. the main thing to focus on is what do we need do to prepare americans. >> ryan avent the online

economics editor for the economist.com. appreciate your time. we will take a break. when we come back we will turn our attention to taliban x, the next generation of taliban fighters in afghanistan with sarah carter of the washington examiner. first a news update from c-span radio. >> violence in baghdad today. 60 people were killed and more than 100 wounded after a suicide bomber blew himself up in a crowd of army recruits. iraq's military is blaming al qaeda in iraq for the attack. in afghanistan, president karzai has formalized a decree giving contractors a four-month deadline to disband. it says the contractors will have to either join the afghan police force or cease operations. there is exception for firms working for embassies, international organizations and all nongovernmental entities. tape has surfaced of a 9/11

person being interrogated in morocco. it was under a desk in the c.i.a. kourbt terrorism center. the two tapes and one audio tape are believe toed only remaining recordings made in the foreign prison system. the c.i.a. destroyed the 92 other interrogation videos. those are the latest headlines on c-span radio. >> it is important every floridianing know i will be the person that stood up for the principles of florida. i won't be part of the culture, construction, special interests. i will-foot for the people of florida. >> it is campaign 2010 and the c-span video library makes it easy to follow the election cycle, debates, rallies, victory and concession speeches all free on your computer any time. >> "washington journal" continues. host: sarah carter is the national security correspondent for the washington examiner here

to talk about her story earlier this month. taliban x, the next generation of terrorists. who are these people? guest: these are the young, unfortunately profit stricken, war ridden children of afghanistan who have grown up in this generation from the last or 10 years of war, now in their 20's, only seeing this war and violen violence. what has shapd that a lot of them -- what has happened is a lot of them spent a lot time in displaced people camps in pakistan and along the border between averages and pakistan where they have been recruit bid the taliban and other factions and they have molded them into this new taliban, a group of young people that are willing to create suicide, which was different than the past generations of the taliban. they were fighters but it is not

common for the afghan people to accept this type of wahhabiism which is the saudi, arab law that falls into i will sacrifice my life for something greater than myself for god. afghans have always been willing to fight. they are fierce fighters, tribal people. they are willing to give their levers to fight for their country. i have known a lot who fought the soviets and they said if i could have given my life in jihad i would have fighting. but not committing fesurveyed. and i think -- not committing suicide. i think what others in intelligence overseas and in europe are saying is there is this new breed that is blossoming in afghanistan and this is something we should be concerned about. this is something we should take a hard look at and see what is happening. because it is a trend that could get worse in the upcoming years.

i think we have seen just in the last year, just this year alone an increase in violence and increase in suicide attacks that we had not seen in in the past. host: what is the appeal for this new generation of taliban? guest: i spent a lot of time in afghanistan and i was fortunate enough that i had an opportunity to spend a lot of time with the afghan people, not just behind the wire with our troops, which i think is fabulous and i love being there with them and telling their stories. but really being outside the wire and spending time with the tribes and spending tile from the north valleys to the eastern front and even in the south. one of the things that you start to realize is how strong and resilient the afghan people are. but also the tragedy there is that in their own resilience they can't -- there is poverty,

the war, the inability to have hope in the future, for these young people it is so much to bear sometimes that they need something to believe in. unfortunately, in their quest to believe in something, to find some hope, to find some maplace they are recruited by very savvy, i call them like their savvy speakers, they are the imams, the people running the talib taliban. host: older generation. guest: older generation. and from pakistan groups connected to al qaeda like the hakani network, terrorist organizations that tell them, look, your life doesn't have to mean nothing. give your life to something m e more. and they recruit the young men, women, children, sometimes the children don't even know what they are going to do. sometimes they are strapped with

bombs and they are told wild taleless of this -- tales of this beautiful life in heaven where they will have milk and honey and wonderful people serving them and they will be with god. so they don't really have a concept of what is going to happen to them. host: when you say children, how old? guest: as young as 13. when i was in afghanistan in 2008, there was a child as young as anyone years old that was -- as young as 9 years old strapped with bombs and fortunately they were able to disconnect the wir wires. he was basically going to touch his hands together and that would be the charge. and he was running towards u.s. forces and afghanistan forces. they were able to stop that and disconnected him and they were able to save his life. but this manipulation, this recruitment, you have unskwraeded people -- uneducated people living for their lives in villages and tribal situations.

they have lost some of the young men and women have lost their family members. they have been living in camps. they are struck with poverty. they don't have hope for the future. so all of this combination of elements gives an opportunity for these types of people, those leaders of the terrorist organizations, to recruit them, to brainwash them, to get them to commit this martyrdom. >> are they lured by ideology, money or a combination? a combination. you brought up a good point. there was a child in eastern afghanistan 14 a young teenager who decided not to go through with the bombing and turned himself in. and what he had said was that he did it because his family needed money and they were willing to pay him a good amount of money so he could get the money to his mother.

in the end he couldn't do it. it just would not r wasn't in him. so there is hope. not every afghan child or every afghan 20-something will do this. but a good majority they are seeing within the groups are. they are joining, becoming fighte fighters. it is not just like the 30-something. after the fall of the soviets and then we saw the rise of the taliban and then particularly after the u.s. invaded afghanistan at the beginning of the war nine years ago, you know, that neo-taliban that grew o out. they were leaders. they were fighters. they were planting i.e.d.'s. they were negotiating deals with people in pakistan. but you didn't see a common thread of suicide killings. you didn't see that there. now, particularly now they are noticing that trend on the rise with young afghans.

host: is it the taliban or some iteration of that or al qaeda? guest: i believe it is some iteration of that. i believe what you have here is afghan taliban, a connection between the groups. the nexus. it is not that one is working for the other but there is a strong nexus between the groups and that is so the ideology spills over. new forms of fighting spill over. they share ideas. so, these ideas, when you think of afghanistan taliban you think of mullah omar the leader of the afghanistan taliban. and basically he is kind of disappeared. he is off the map now but he is there. he sends messages into afghanistan but he is hiding in pakistan. he is not there with a bomb trapped to hills. he is not going to do that. but he will utilize the young to do that for him. host: when you are on the ground talking to our u.s. soldiers and

nato forces what are they doing about this? guest: this is very difficult for a nato soldier and u.s. soldiers. we have to think of the big picture. the majority of troops killed in afghanistan are killed by i.e.d., suicide bombers. in host i remember when i was there a week before i got there there were two or they suicide bombers that rushed the gates. they try to protect their forward operating bases as best they can. when they are on a mission i think they are very aware of what can happen. you are not in control always in a war and that is why we've death. i think the thing they are concerned about most now is what has happened the last year is the resurgence of the taliban and new particularly the resummer skrepbs of this new little element of the taliban. so you have to remain very

aware. host: a resurgence combined with the strategy that you have to be aware of civilians and careful of the moves they make? guest: that's right. one thing that is so frustrating for our troops, and being out there with them and being on missions i can see it first hand and it is different than sitting at the department of defense with a press briefing. when you are with the troops you see things through their eyes. the rules of engagement they have to deal with. believe me when i tell you this. every troop -- and i have not met one yet, and i have met a lot of guys out on missions -- they have such respect for the work that they do and the people of afghanistan. i have seen those men, young guess, you know, excited that they are meeting the kids in the village. even if they are looking for insurgents. i have never seen them treat

people with disrespect. that is my experience with our american troops. but what is frustrating is they have to balance out the strenuous rules of engagement where they can't go in a village at night and conduct raids. they have to withhold fire because they are afraid that possibly a civilian will be killed and they may be blamed. all of this puts them in danger and puts their lives in danger. so there is an enormous sense of frustration. they understand their mission and they want to complete their mission. but they are very frustrated because a lot of times they feel like we arrested, we picked up five taliban detainees. we know they were connected to a bombing that killed some of our buddies and an i.e.d. on a road that killed some of our guys. we watched them die and bleed to death. we go after the guys, we don't kill them. we pick them up. bring them back to base and two weeks later those detain decrees

are released. host: do they understand though that those rules of engagement help to lessen the taliban's argument, the recruitment argument? guest: yes, that is a very important point. there is that side to it where i think that -- i was talking to some afghan friends about this. the taliban, especially the older ones that remember the soviets, expected the u.s. to go in and start bombing villages and attacking from every corner and when we didn't do that it kind of took away from their p.r. campaign. when we were backing away from -- when we didn't have the enormous amount of civilian casualties. let's talk about civilian casualties. although the taliban throws that out there consistently as part of their propaganda campaign to recruit more insurgents, the u.

tphfp u.n. recently sent out numbers and 80% whatever they are saying are civilian casualties this year, over 1,200, of that taliban just the other day said the taliban is responsible for civilian casualties in averages. the road side bombs are killing civilians at a high rate. you also have right now just this week, just yesterday, the taliban stoned a couple to death. the first time since the fall of the taliban in nine years. they publicly stoned in front of 150 or so men a young woman and man because they were going to elope and get married and the man was married. this is how the taliban operate. host: the story in "new york times" and other papers this morning taliban in bold display own the stoning death of a young couple.

our callers are lining up to talk to you so let's get to you. reggie on the democratic line in spring hill, florida. you are on the air with sarah carter. caller: i have listened to your conversation and there is a lot going on over there that definitely is causing our country a lot of money and so forth. the taliban and afghan people are very poor and we have been spending billions to operate over there running this war and i'm trying to figure out where are they getting their money? it costs money for weapons and ammunition and to build i.e.d.'s. and they have been operating nine years, 10 years. host: where do they get their money? guest: this is a really great question and the source is funded from wealthy donors in the middle east, u.a.e., the

gulf, saudi arabia. a lot of drug money, narcotics. heroin in afghanistan. they are able to move that opium and process it to heroin and sell it on the european market. this is a group that is not only ideological but it is a group that is also very well meshed into a criminal element. so, you are dealing here with a very -- a convergence of both religion and criminality. and this is how the taliban and groups like that and the hakani network and al qaeda and all of these groups in south asia how they build their funding and how they move weapons. and also we have to think about other players. there are other actors involved here. iran is another example.

if you talk to folks in south asia and defense side as well, they will say, you know, they get aid from pakistan, from elements in pakistan and from people in iran. so, you are looking at a convergence of issues in south asia. this is a very strong geopolitical problem and one that is very difficult for this administration and the past administrations to find resolution to. so not only are you dealing with a very strong afghanistan community and problem in afghanistan, but an enormous global problem when you are dealing with terrorism and funding. host: a viewer tweets can you say poppy? guest: poppy, yes. host: it is part resource? guest: that is a great point. can you say poppy? we have a saying in kabul, you know, we pass by the poppy palaces.

there is an enormous amount of drug money being raised in afghanistan. that is a whole other problem in itself. and not just looking at it from the perspective of like just the taliban, but a lot of people have their money in the pot here. corruption plentiful it afghanist afghanistan. from the centralized government down to the local level. it is probably one of the greatest challenges that general patraeus will face, in my opinion, in the next six months. not only does he have to find some success, but he has to be able to kind of rein in this corruption. and unfortunately for him it is going to be an enormous task pause we all know -- because we all know and we have read the stories about corruption in afghanistan. now we have president hamid karzai saying that he is going

to ask for all private contractors to be removed from the country the next four months, that he wants his afghan army and afghan police forces to take care of security in the region when he himself did not have his own people many years and had private contractors. so there are a lot of issues here that are going to come into play and it is going to be up to the command, patraeus and others, to try to find some resolution to this. because once we talk about drugs and talk about the taliban and how they are functioning and making money and how they are surviving, in pakistan and in other areas of south asia and particularly in afghanistan, and we mix all of this up together, it is a pot that is brewing that is not getting better. host: we are talking about the next generation of taliban with

sara carter. troy from baltimore. caller: good morning, ladies. my question is all of this stuff that is going on over there for the taliban and it seems like what i hear on the news and read in papers and hear from other people that came back, it is like these people are so poor and with the poppy fields being over there and it just seems like it is breeding heat, you know, like breeding heat -- not heat but hate, excuse me -- a little nervous here. anyway, i just wish that people would sit down and try to understand where they are coming from and hopefully become like a whole nation just to be as one. not -- they have their different point of views but these people have been, with the soviet union being there and it is a lot more

deeper than what it seems to be to me, what i'm getting out of it. i think this time and where we are at in society i feel people should be able to sit down and talk instead of going out trying to push the point of views on someone else but there is a lot of misunderstanding. host: we will combine that with the next call. chris on the republican line in chicago. caller: how do you feel about the speech obama gave on the ground zero mosque and do you think it undermines the war on terror? guest: i'm a reporter. i'm not one to say whether it undermines it or not. but -- host: what are your sources saying about the mosque issue and what that does to national security? guest: i can definitely talk about that. the sources that i have been talking to are extremely

frustrated. they, first of all, don't know who is actually funding this mosque completely. they are frustrated with the state department, that the state department has sent the imam who is in charge of the mosque, paying for his tour in the persian gulf. it is something the state department does every year but at this point people see it as a fund-raising effort for the mosque. there is an enormous sense of frustration that there is not a lot of understanding for the 9/11 families. a lot of people say it is nine years ago, we haven't been attacked since then. but there has to be some kind f of, i guess they are saying, some kind of empathy toward these families and what they have been through and the losses that they have suffered. and the loss that america suffered. so, it is important that wae no target one group of people in in this country. and there is freedom of religion and we are able to express

ourselves the way we see fit under our law. but i think that there had to be more a sense of empathy toward the familiesment i think that is what they are saying. people pushed forward with it without realizing what it would do to those new yorkers that were offended by it. i think that is where it sand right now. as far as what the president said, the president said what he said and how things evolve from there are the stories that we tell. host: "new york times" editorial today and "washington post" editorial are about this whole mosque debate. both papers weighing in and saying that the president needs to lead on this and his first statements were correct on the issue. loretta, democratic line, cleveland, ohio. caller: good morning, ladies. my issue is that we should not even thereby and if we play our cards right there will not be a next generation of taliban.

host: let's take that point, loretta. there is the draw-down that is supposed to happen in july 2011. what about her point about the next generation of taliban and how they are going to be impacted by the reduction in troops and resources in afghanistan? guest: i think from the very first time that it was announced that president obama announced the draw-down there were a lot of people frustrated by giving a date. there was also the other side that said we needed to have some kind of resolution, some kind of draw-down. but the date itself has been used by the taliban, this i can tell you because i know it, as a propaganda mental for recruitment. and the taliban wants to be back in power. mind you, they have no problem waiting us out. they are patient and they will wait us out. and unfortunately we have seen a resurgence of taliban that we

didn't see in the early years after the invasion. we are seeing that now. so, i think that these are -- this is a very difficult subject because if away draw down in july of 2011, according to the people that i have spoken with, if we do not have the resources there to stop this, if we do not give general patraeus what he needs to win and win is a really strange word because what winning entails may not be what everyone thinks. but to dismantle the taliban and dismantle some of these groups so that the afghanistan people themselves can get on their own feet. what we could see in in afghanistan is a resurgence of the taliban, a new safe haven for terrorist organizations and a problem that will come back to haunt us in the future. host: how many times have you been to afghanistan and when do you plan to go back? guest: i will be head back to south asia for my fifth time this year. the i will be back in the coming months and be there more than a

month. host: tacoma washington, reed, republican line. caller: i would like to thank your guest for going to a war zone and providing this information to us. miss, i certainly hope if you go back you stay safe. guest: thank you. caller: i would like to say i wish americans could understand that if you watch c-span you will see both conservatives and democrats alike are saying fundamentally 95% the same thing. that is, get out. i entirely agree with the last democratic caller. the lady said we have no reason to be there. we don't. and what i think is if you thought about the perspective of foreign troops, forget where they are from and what label they have, just the fact that foreign troops are walking through your streets. i know what i would do as a red-blooded american male. you could sput a scarf around me and call me anything you want but i will dedicate my life to making sure foreign soldiers do not walk our streets and dictate

anything. so that is why you have to look at it fully and understand we are not fighting for anything in afghanistan other than the war machine. guest: tphra is a point that -- that is a point we hear often. a legitimate point. a lot of people feel that way. there are two different sides to this. what i can say to you is that in afghanistan not all of the afghan people and a great majority of them want peace, they don't want to see the taliban back. in the south that is a little different when you are dealing with the tribes. but some of them say is the u.s. just going to pack and leave? is everyone going to walk away? the women are terror fade. you go in tkwul -- kabul, you see women going to school. you see progress. you see people feeling better, not completely and unfortunately

we have lost a lot of our psychological operations war which is mainly our ability to tell them, give them the message and get them to believe it. i think that is why we are seeing a lot of recruitment by the taliban. there is a sense of mistrust and distrust in the u.s.a. and nato and afghanistan people feel they are going to be deserted. and they said to me and this is from a lot of the tomorrow command thars fought the soviets, we felt america walked away from us then. are you going to walk away from us again? this is a very touchy subject in afghanistan and it is very difficult. i can't answer that question. i'm not a general, i'm not the president. it is not my decision. .

guest: i think the idea of winning has changed drastically quite -- from nine years ago to today. well afghanistan be stable in the next two or three years? probably not. will there still be problems? yeah, afghanistan is going to face a number of problems.

winning to our military, at this point i believe, and from the folks i have spoken to, and tales eliminating al qaeda or limiting the ability for insurgency groups to take hold again in afghanistan. i believe there has to be, in their opinion, some point where they realize the afghan people have to pick themselves up by their own bootstraps and actually take charge of their own country. once they get to some point where they believe that centralized government or some form of centralized government or maybe a tribal government, i mean, there is a debate about that, and we have eliminated the threat or al qaeda will once again find a safe haven there, i think to the u.s. that is a form

of winning. we are not there yet. the things that general patraeus has been discussing publicly where he is probably going to ask for more time. i think the patraeus believes that a resolution can be found in afghanistan, is given the right resources. host: how much time? what are your sources saying ?hat he will ask for des guest: i do not know. i think that he believes that a drawdown is feasible next year. and if he believes it is not feasible, then he is going to request from the president, the congress more time. the son and i have talked to a lot of analysts about because this happened with the soviets. -- this is something i have talked to a lot of analysts

about because this happen with the soviets. it could happen again. but our situation is a lot different than it was during the soviet occupation. host: let me add this. if your e-mail and wanted to -- eight viewer e-mails and wanted to add some light to the process . guest: we could go back all the way to the 1800's. i was in a village last year -- and is viewer brings up a very good point. there was a story about a woman in mehwan and the afghan tribes were fighting the british. there was even an old fortress that i saw was the left there. a young lady stood up to the afghan tribe in mehwan -- this

was a pashtun tribe. and she said, i'm going to put clothing on like a man and i'm going to go out there and fight the british myself if the men of my village do not want to fight. they were so shocked by her statements that the men grabbed their weapons and when to fight the british and fought the british and the one -- and they won. she is buried in a cemetery in the village. there is a heroic woman afghanistan as well in that story. but we could go back to the line that was drawn between afghanistan and pakistan and the travel regions and the fighting with the soviets. -- the tribal regions and the fighting with the soviets. afghanistan has had a lot of bloodshed and the people are resilient and the land itself is resilience, but it does not mean the people want to live their lives in a war.

and it does not mean that we have to except the fact that it will become a place where terrorism will once again take received. host: we will go to angela in baltimore, go ahead. caller: thank you for taking my call. i'm a first-time caller. my question is, how different would afghanistan look 10 years from now? and if there would not be a difference, why would we stay there and lose american blood? and the second thing is, if people want freedom, they have to be ready to pay the price for it. why are we paying for their freedom with american lives? let's get out of there. the lumber america stays in afghanistan, the more -- the longer america stays in afghanistan, the more the taliban will be able to frame the message of americans hating. let's just come back home. enough is enough.

host: sarah carter, the other part of the equation is pakistan. in the "washington post" article you talk about a pakistan's role. what is the dark? guest: -- what is this about? guest: it is about the recruiting out of the younger generation now. the afghan people aren't as influence sobel -- influence the bowl. they have training camps. they work with foreign troops, their own foreign insurgency, people from syria, chechnya,

there are uzbeks, arabs from saudi arabia, persian gulf, probably yemen. according to my afghan sources, they are seeing a resurgence, a steady increase in the foreign fighters in afghanistan. this could probably answer some of the questions as to why they are recruiting more and more young people. we have trainers' out there, people teaching a strict sharia. host: what is that? guest: basically, it is spread out of this idea that martyrdom is okay -- it is bred out of this idea the modem is ok. it is okay to kill your enemy. -- a and it is spread out of this idea that martyrdom is ok. it is okay to kill your enemy. this is not a peaceful way of practicing islam.

but those teachers are actually kind of indoctrinate the younger group and the denver generations into this ideology of giving of their lives -- the younger generations into this ideology of giving their lives. it becomes much bigger than afghanistan. like the previous caller said, why don't we just pulled out? maybe we could. we do not know what the future holds. what does the future hold for afghanistan? what does that old 10 years from now? that will be interesting to see. like i said earlier, you have a bubble there. south asia is the pinnacle of what is happening in the world. and were afghan goes will affect the future of this world as well. if we leave now, we have resolved the issues enough so that it does not come back to haunt us in the future? that is the question that our commanders are asking.

will we be dragged into it again? will something happen again? and the afghan people, you know, we are there. we have to establish our presence there. and it is true -- you know, other callers have said that the afghan people are frustrated. if they were to receive foreign fighters margin down their streets, they would be frustrated, too. -- marching down their streets, they would be frustrated, too. it is a little bit different there. in certain areas there begging us not to leave. they are terrified. others want us to go. just leave, now. that has to do with the idea that they want to be alone, they want to live in their tribal societies the way they always have and they do not want to be affected by the outside world. it is a difficult situation. host: we have about five minutes

left. tony on the republican line in alexandria, go ahead. caller: two comments. the war in afghanistan is not winnable. there is no scenario that has anything to do with a win. it is just except -- unacceptable damage on bases with surgical strikes whether it is afghanistan or pakistan and not continue this ridiculous nation-building. the other thing closer to home is this, we should build a mosque in norah man and -- in lower manhattan just as soon as we are allowed to build a synagogue in tehran. until then, there should be no mosque in lower manhattan. host: we will go to joe on the democratic line in amsterdam,

new york. caller: i would rather not be held up to the same standard as saudi arabia and iran as far as religious freedom goes and where we build a religious institutions. my second comment refers to afghanistan. i would like someone to explain to me how the threat from afghanistan is going to upset threaten our fragile democratic constitution -- institutions that have only been around for 200 years and have never faced a threat as extreme as the taliban and i guess our country is going to crumble as soon as the taliban comes to power and we leave afghanistan. i would like someone to explain that to me without any hypothetical situations about how you are positive that they are going to fall into the arms of islamic radicals as in as we leave and start developing nuclear weapons. guest: do we give hypothetical is in that?

-- how do we not give hypotheticals and dad? you're asking me to answer a question that has not happened. afghanistan has the neighbor, pakistan, was very fragile. i've traveled to pakistan many times. and i'm very familiar with the leaders there. i have spoken with them. very very new nation. the taliban, your right, could it threaten our entire democracy and cause us to crumble? no, but have we been attacked? yes. has your been attacked by al qaeda and other extremist? -- has europe been attacked by al qaeda and other extremist? yes. we may not watch our government crumble, but we cannot walk away from the fact that there are people and groups out there that wish us harm and they will not stop until they do again, strike again.

whether that be here or whether that be there. howdahs afghanistan played a role in that? f. kenneth -- how does afghanistan play a role in that? afghanistan was a safe haven. i think we are seeing a resurgence in somalia and in other areas where we are seeing al qaeda training camps in parts of the african continent, the ticket of the somalia and yemen. this is a global problem -- particularly somalia and yemen. this is a global problem. host: before we get to this last fall, you grow up in saudi arabia. how does this impact will you cover? guest: i spent my formidable years -- for mobile years -- i spent my formative years in saudi arabia. my father was american and my mother was an immigrant. she was from cuba.

and she is an american citizen. if she was alive today she would broglie just say, tell them i'm an american. -- she would probably just say, tell them i'm an american. she was very proud of her country. as a kid i spent a lot of time living among the people in saudi arabia. i have a great admiration for the region. it helped formulate my life and who i am and my interest in that part of the world. i come from a lot of different perspectives here. host: what was your family doing there? guest: my father worked for a defense contractor, working on airplanes. he was there until we moved back at when i was in high school. i have a great admiration for that part of the world because i do understand it and it is history, and also, it is future.

when i travel to places like afghanistan and i spend time with the people, it is because i truly care. and i believe as a writer, that we need to bring those stories back. whether it be our u.s. troops on the ground and the pain and suffering and the success that they have achieved or the people of afghanistan and iran lives and what they have been dealing with over the last nine years. to me, i'd definitely played a role in everything i do today. a of --t's try to make to give one more phone call. can you make it quickly, cassandra in pasadena? caller: to the dollar by neuza holding people hostage and say, if they do not -- if you do not load these people up, we are going to killed -- if you do not load these people of, we're going to kill your family?

also in afghanistan, we're not trying to take over their country. we are trying to help them establish their own country. host: let's talk about this with the generation x, the new generation. guest: i have not seen holding hostage. i did see that young children were sometimes kidnapped for a suicide schools, or their parents would sometimes take them off to the suicide schools. there was an extraordinary problem with that last year, or the year before last, according to the people in pakistan that i have spoken with in the intelligence area. you are right about the case that they were taking young children. and in afghanistan, what we see more of is that recruitment

comes from the ideological top, more of a brainwashing, more of a change in your belief system. these kids grow up hearing about this and they believe that martyrdom is the way to god. that is what is happening in afghanistan. we definitely saw a lot of holding of children in pakistan. host: sarah carter, the "washington post" national correspondent. thanks for being your. coming up, we will turn our attention to the financial regulation bill and its impact on banks. >> it is 9:18 a.m. eastern time. more on the taliban afghanistan this morning. u.s. army colonel rafah widell torrez with the international assistance force says afghan security forces have killed a taliban official with direct ties to the people responsible

for the recent kidnapping and murder of u.s. sailors. the petty officers were killed in july. in nearby pakistan, the floods that began three weeks the norah a -- three weeks ago have affected more than 20 million people. the world bank said today it will redirect $900 million of its existing loans to pakistan to help in the recovery. meanwhile, authorities warn that these swollen in does river will seek -- will overflow its banks again in the coming days. construction of new homes edged up slightly last month, but applications for building permits fell to the lowest point in more than a year. wholesale prices rose in july for the first time in four months on higher food costs. the rise matched economists' forecasts, according to a survey by thompson reuters. those are some of the latest headlines on c-span radio.

>> "book tv" and prime time continues tonight. "book tv"is in prime time all this week on c-span2. >> "washington journal" continues. host: the washington journal summer series continues this week with a look of the legislation that was signed last month into law. the whole week will be looking at different aspects of it. on monday it was the financial regulation and government power. today, we will turn our attention to banks.

wednesday will look at consumers and thursday will take a look at investors and friday we will wrap up with looking at how to prevent a future financial crisis. james chessen is here to talk about the impact on banks. mr. chessen, if i could just begin with a part of the law that deals with banks and mortgages and how about will be impacted. it requires lenders to retain at least 5% of loans that are securitized. can you explain that? what is the impact for banks? guest: part of the idea is that if banks have some skin in the game they will be able to manage that better. the practical consequence, though, is when you think about a lot of small community banks that are making mortgage loans, their model is really to sell it to fanny or freddie to try to get it off their books. it has an added complication to

have a process that. and all those things that go into the business model that they have, how they do their mortgages, what they retain, the capital they have to will against that. the concept is very simple. make sure that you have the equity involved, some reasons to wonder right to 12. the practice of implementation is a little bit more -- to underwrite well. the practice of implementation is a little bit more complicated. host: you look at these loans that they have repackaged. they make them into some kind of security. but that day -- but then they ensure they know what is in these packages. they can say to a were the investor, yes, we know what is in these packages. guest: it is not just banks that are making loans and it is not just mortgage loans. and it is not just the largest banks that are compiling the loans or the wall street firms that are taking these to package and resell to consumers.

a lot of these are your main street banks in local communities. they have underwritten these things the same way for decades and decades and the problem, really, has been in this current crisis a lot of these mortgage loans were made from non-bank for loners -- lenders. it is a bit shocking to think that 30% of the industry has existed in the banking industry for more than 100 years. and you do not have that kind of staying power without treating your customer's right, having a long-term approach, whether it is mortgages or other types of lending. the first thing to understand is where the problems were. if the vast majority of banks in small communities have nothing to do with these problems. but they are caught -- they're caught in this next and will have additional requirements and it definitely affects their ability to make loans in this community.

-- in their community. host: stricter penalties on a borrowers paying off alone early and lenders must feel to ensure of the borrower's ability to repay their loans. can you talk about this? guest: initially with a lot of non-bank providers, they would make it for two years and then it would reprice after those two years. there were often node -- there were often offered very low interest rates. what we have all discovered, of course, is that works great, but house prices were appreciating like crazy and people were flipping arms and making a great deal of money. and of course, those products are our favor. no one is interested in offering those products. and in fact, community banks were not offering those. host: if you want to get a

mortgage, what do you have to have today they did not have to have three years ago when it comes to this provision and making sure that borrowers have the ability to replay those loans -- repay those loans? guest: the big thing now, frankly, is that you have got to come in with a lot more of your own money at stake. if there are a lot of loans being made aware of of our work is only putting 1% or 2% and sometimes no money down. now it really is, how much money are you putting in to protect that deal? host: consumers are required to show proof, pay stubs, bank account statements, tax forms, to prove that they can afford the loan. the final point i want to talk about when it comes to mortgages and is the improve transparency of compensation for loan officers and mortgage brokers. how does that work and how does

the law change this? guest: there have always been concerned about -- concerns about what the broker was taking, the fees related to them, getting borrowers into higher-priced loans when they could have qualified for a lower loan. there are more restrictions on that now. and that is a good thing. consumers need to understand what the transaction is that they are undertaking. what is the feed that they're paying? whether it is a bank or eight -- what is the fee of off that they are paying? whether it is a bank or a non- paying off broker. host: there is a story today in the "wall street journal."

guest: and i think that is exactly what we are talking about, trying to get incentive payments to put somebody into a higher across home when they could have afforded -- into a higher-cost home when they could have afforded something else. i think that needs to change. the customer needs to know what the -- needs to know the product they are getting. these are roles that were being undertaken outside of the deal that was just passed. these are things that the regulators have been the key about for some time. host: yes, these are new rules that have come out from the federal reserve separate from the legislation pitiful also said on monday, --

why wasn't this information given before? why would it take a role for banks to let customers know that their loan is about to change? guest: there were a lot of disclosures and the question is, what was really understood by the borrower? go back a couple of years and think about the mind-set of some one who was interested in the two-year adjustable rate and then they'd read prices. many people off one to that because they thought their monthly payment was going to be lower. -- many people wanted that because they thought their monthly payment was going to be a lawyer. or someone was going to flip again did not plan to keep it for more than two years. people were trying to take advantage and had no intention of keeping in the mortgage. but as you know, things change very quickly and when the

market prices fell, it was difficult to get out of those loans and that became the problem for the stepped-up trade off, which was initially very attractive to many borrowers, was unaffordable. now disclosures are required to make sure that the borrower understands when the rate will adjust, what the conditions are under which it will and can they afford that? host: by the way, in washington this morning at our around 9:00 a.m. eastern time it started, a housing conference. sean donovan is speaking out. this is live coverage on c- span2. you can go there to listen in on that. treasury secretary geithner is there with a lot of industry executives as well. if those go to ohio, gary, democratic line, your first purified -- you are first.

caller: i think our government has made it too difficult to get loans. the biggest factor in this failure is fear. when this happens, it causes layoffs and production closures. this causes even more layoffs and less spending and more layoffs. this causes 20% of -- the media causes 20% of [unintelligible] host: we were breaking up there. guest: i think there is a tremendous amount of uncertainty out there today. some of it has been greeted by the laws that have been passed. we are facing probably 5000 pages of new regulation.

it is very hard to deal with that. and businesses as well, they're dealing with health care costs that are unknown and uncertain about what that will mean. they are facing deregulation, tax increases. all of these are affecting the ability and willingness of businesses to expand and hire workers. there is a level of uncertainty that exists out there. until we get over that, we will have real problems. i agree, the cycle is very difficult to break. host: in addition, here is the headline in the "washington journal post -- off the washington journal." guest: businesses are not borrowing at this point. they're being very careful. they are hoarding cash. their word about what is going to happen over the next three to six months. they are not interested in

borrowing and in some cases they may now be a good idea to borrow. if you do not want businesses taking on -- you do not want this this is taking on the circumstances they cannot afford to pay for. host: just a few years ago, someone who may have been credit worthy would not be a good risk today. charles, independent line, you are the next phone call, go ahead. caller: i'm so happy that they did away with the office of the thrift. they were a disgrace. i am a korean war veteran, service connected to my and i wanted to buy this piece of property and a five star banc dance around. my credit rating was over 850.

i could have bought this property and paid cash for it. i never did get my mortgage 3 the flag star banc. -- through the flagstar bank. my son was coming back from afghanistan and he had to move his arm -- his family from the army post. i filed my complaint with the office of thrift. host: let's talk about that. it has now been eliminated. what does that mean for banks? guest: what it means is that it will be a change for the regulation. obviously, there has -- have been a lot of banks regulated by the office of thrift supervision and they function quite well. many of them were thrift charters. if they had a long history of being dedicated -- they had a

long history of being dedicated to finance. and they got pulled into this whole mess even though they were good banks making good loans. the good thing is, what the bill did was preserve the thrift charter. it said four institutions that have a long history of making loans, they will be able to continue to do that. host: what was the vocal role -- volcker rule? guest: tries to separate out proprietary trading with banks. it also sets of complications for the hedge fund. this is going to be a major rule making change. it is hard to separate out the function of what banks do,

particularly those that are making markets. it gets very complicated as to what really is the interest of that institution and what is the interest of the customer. another thing related to the volcker rule, what will foreign countries do? if other countries do not adopt the same types of rules, this business and the taxes paid on that income flow to other countries. we are not alone in what we do in the u.s., whether it is capital, the vocal role -- volcker wolf. it really depends on the good -- the competitive aspect. host: year is an article from the "washington post."

in the meantime, what does that mean for banks? guest: there is uncertainty. you do not know what the rules are going to, or what they are one to be. the of the thing is comfort if you are an employee working in those banks working in those kinds of transactions, you might say, i'm going to go overseas and work there because there are few rules. if i'm going to leave the bank because i want to protect my job. there's a tremendous amount of uncertainty about what will happen and what that means for jobs and what that means for international competitiveness. host: as we go to the next phone call, i want to show our viewers more banking authority over derivative spirit

david on the democratic line in washington, go ahead. caller: you financial people so discussed me in so many ways. i am an engineer. a former farm boy. i saw this coming years ago. where were you when these mortgage brokers for making these fraudulent loans? why were you honest bankers, which there is not such a thing -- but why were you honest bankers not doing something about it? guest: i think you have raised a very interesting point, which is, there are banks, and then there are non-banks that were making a lot of loans. and even the administration has admitted that a large percentage of those loans that were made were made outside the banking

industry. if i understand your frustration about this, -- i understand your frustration about this, and all lot of institutions were providing products that we know today were not the best products. but most of those were made from outside the banking industry. i think we tend to think of the economy as large global banks or wall street banks, and of course, we get vilified throughout that. but there are 8 million banks in this country. most of them are the banks you see on the corner, those on main street. these are banks that have provided services to their communities for decades. i am understand your frustration. if i think -- i wish things were different today. but it worries me when i see thousands and thousands of quality banks, bankers who are dedicated to their communities who get lumped into the box and criticize when they are doing very good things for their

community. if they were as much a victim in this off as others who have suffered -- and they were as much a victim in this as others who have suffered. host: the volcker role requires banks to spin off only their -- the new regulation requires banks to spin-off only their riskiest investigationinvestmen. how does that differ form of the vocal role? -- the blogger rule? guest: this is talking about how swaps are traded. these are swaps that a bank would use to make its interest. banks have to manage that risk by using swaps one of the things that it did was try to have

knowledge of their very genuine reasons for swaps to manage the account of a customer. and then there are more unusual products like the credit defaults swap that would of had different roles because they are a different type of animal here. we do not know how all of this will turn out, but the logic is to carry the transactions through exchanges, for the most part, but to none bind the bank -- and do not buy the bank from using that as an instrument as they have been fortunate -- do not buy into the bank from using that as an instrument as they have been for decades and decades. host: let's go to john. caller: a lot of this stems of from fannie and freddie. the government doing things they should not be, and even frustration on the part of the media. i paid attention and i realized

within one year that we had to get out of this, we had to refinance. if so many people in these situations were almost demanding loans. if they were turned down, they were furious. that did not get played at all. it was all the evil banks, which is going to make it difficult to refinance. host: the issue of fannie and fretting is one that will be discussed at today's housing conference. -- fannie and freddie is one that will be discussed at today's housing conference. what about the banking associations opinion about fannie and freddie? what will happen to them and will be the impact on regular banks? >> certainly -- guest: certainly, fannie and freddie had a being of benefit -- had a big impact in this problem.

the problem was that they had shareholders that it expected higher returns and fannie and freddie were stretching those out to get those returns in buying these riskier products and it has turned are to be a problem. there is not a way to resolve fannie and freddie head because they play such an important role and -- fannie and freddie yet because they play such an important role. fannie and freddie her playing that role and something needs to happen to those. they have played an important function, but that role has to be changed in the future. host: should we ended? guest: i do not think that is possible right now. part of that is because they are the primary source for the secondary market. you would not have low interest

rates on mortgages if there was not a secondary market to sell those in and spread the risk of cross investors around the world. the problem is we have too much risk and it was not rated reisch by the rating agencies and i was a problem. but it still will play a very important role in keeping with mortgage rates as low as possible. host: let's go to droll. caller: it is interesting. you sort of stole my thunder. i was going to ask, how would he reform fannie and freddie. host: i think we just answered that. but go on to stephany. caller: i can i let the banks off the yoke. -- i cannot let the banks of hook.f the

countrywide and they're deceptive lending practices, who got away with it somehow. and most of the been big-big banks -- i believe it was stated 65% of the mortgages were held by big banks. these financial regulations are very mild. 5%, you have to retain 5% of the mortgages and you are crying about that? guest: i understand the frustration that you have. again, i come back to the notion of a let's ninth group everybody into the same bucket. -- let's not group everybody into the same bucket. there are some good roles here. some deal with risk and how you resolve them.

making sure you can resolve these institutions. one of the good things is that there are strong roles here, but do not apply those to the banks , but to the non-banks that made many of these problems. there were a whole lot of people that have responsibility in this. and yes, we share some of their responsibility, but let's not dumped everybody into that category. there is a tremendous amount of high-quality banks that had nothing to do with this problem. they're not caught in his big net of new regulations, and there is a fine balance now. if those regulations, as good as they may be, that may mean let -- that may mean less lending that can take place, higher prices, not availability of product. we need to be sure there is

approach so that banks can continue to make good quality loans in their communities and that customers feel they have services and products they can count on. host: when it comes to bank capital standards, the law requires tougher capital standards. can you explain what those are? and it restricts trust preferred securities. best: they're going to higher standards than before. some of that as a consequence of many of the investment bank's, not the retail banks on the street corner. they were leveraging that and when problems occurred, they did not have the capital to cover those losses. it is a good thing that capital will go up. you mentioned trust preferred. the concern there is that many banks relied on that as a form

of capital. it is very hard to raise capital to be able to make loans. capital is what supports everything alone that is made by a bank. is the protection against those loans had i do not get repaid. interestingly enough, $1 of capital can support up to $10 of loans in this economy. capital standards need to be raised, and everyone agrees with that. but it is a balance because the greater capital they need tools, that means less credit for the community. -- the greater the capital they need to hold, that means less credit for the community. host: this next one puts an end to start. rp.an end to tal

guest: one of the things that i think is missed in all the coverage here is that banks, the t bank card farp is very profitable -- the bank part off tarp is very profitable to the government. if it had been limited to just banks, the government would be making a lot of money on this deal at rates of return that we have not been seen in the stock markets or bonds or whatever. what happened was that tarp got expanded and covers the car companies, covers aig, covers the modification of loan programs. host: fannie and freddie? guest: fannie and freddie were not part of the tarp program, but obviously, they had other relief from the government.

it was probably the best investment that the government could have made for taxpayers of all of the plans that have been made. host: let's go to cape cod. good morning. caller: i did have experience in 2004, 2005 as an officer delian mortgages. -- dealing in of mortgages. this is the solution of the mess that we are in -- the problem is, how do you get this through the proper hands of someone that can actually read it? guest: i'm not sure what that answer is.

obviously, there are a lot of bank regulators here in washington. and you have the sec. i'm not sure what your plan involves. if i would just suggest to write to those agencies and they have the responsibility to look at your suggestions. you might have the right answer. host: what about class stiegel? guest: that was more investment securities. and it was really the volcker was a leader in saying that you need to do something with the concept of service -- of separating out certain aspects of commercial banking. that was what was trying to address those concerns. host: greg from alabama on the

democratic line. caller: i just have a comment. none of you get what is wrong with america. what is wrong with america is that we do not manufacture nothing. everybody has lost their job and we are at the end of the road and deal answer is to bring manufacturing back to america. that is what made america great for f. if when ronald reagan said we are going to get out of manufacturing and go to a service economy, that doomed america. and i was not the bank's fault. -- that was not the bank's fault. if the problem is we do not make anything here anymore. host: ok, we will go to john in north carolina. caller: i want to say to your guest that i empathize with him as far as his side of the banking industry, which really

did not have much to do with what is going on carriveau i have reserved -- what is going on. if i have researched this subject -- i have researched this subject and the repeal of -- of the glass- stegal act come i do not understand why they do not just put these dead connect back into place. guest: what has happened in the last 20 or 30 years is that the financial system has become more complicated. it has become global. there are individuals and businesses that want to use securities, transactions, they want to use the swaps. that is where ththe volcker rule

is trying to come back so that there is understanding and disclosure on those types of products. we have a very complicated global financial system now and the laws are tricky. as an economist, one thing i know is that if you make one change one place, it affects many other parts of this economy and it is understanding those links that is terribly important. host: connie, go-ahead. caller: my question is about the home off modification plan. i was approved last year by washington mutual, which is my regional bank. and they called me and said i was going to get my papers with the modified plan, which was very affordable. if i was so happy.

and then i waited and waited, and then of course, chase took over. and then they said it was covered -- and then they said it was coming in february. when they said it come life was a different plan and there was double my payments. but now, i waited and waited again and now they are sending e. a foreclosure dat [crying] what do i do? host: i'm sorry, connie, we had a difficult time understanding you had the end. guest: i understand your frustration and made people are having difficulty dealing with the company that they are dealing with. and washington mutual is a company that has failed. and many providers of those risking mortgages, non-banks,

and even some of the banks, have no longer exists. it is the healthy banks that have been trying to pick up those modifications. my advice to you is to be aggressive and try to reach out to those lenders and make sure your voice is heard. there are others in your community that may be able to help. it is a very frustrating situation as some of these institutions have failed. host: next call from georgia. caller: i'm calling in reference to the number of failed banks here in georgia. it seems in reading in the "of lana -- atlanta constitution" that the problem was fraudulent practices. can you comment on that?

i know that as far as i'm concerned, there had to be some kind of regulation. and i do agree with most of the banking policies that have derived from this. guest: i do not know all the details of the failures in georgia. there've been 110 failures this year. i can tell you that there are rules when a bank is established. they have to have capital that is adequate to meet their needs. there are a lot of rules about insider trading. it cannot just be a service to the friends of the people that are running the bank. if there are a lot of rules and restrictions associated with that. i think what happened in georgia has is what is happening -- as what has happened in other parts of the country, california and nevada

and florida, there was a big buildup of the housing market. and the banks were anxious to fulfill those needs and the economy has collapsed. it has made it very difficult to continue. banks only go out of business because the people they made loans to do not repay them. host: sean on the independent line. caller: i just have a couple of comments and one is, the thought of every one of owning a home and no down payments, home equity of loans over and above the balance, and then they have their hand out again for mortgage loan modification -- meaning principle. think they should go through

and anyone 95% of the mortgage purchase price does not qualify. host: what does that mean? what was he talking about? guest: i think the german was talking about the restrictions in terms of gatt -- the gentleman was talking about the restrictions in terms of capital. there is certain amount of equity that needs to be put in before most loans are made. the difficulty i think that the caller is bringing up is, because home prices have come down, it has meant that people that even had 10% down or even 20% down originally may have the current value of their home has less than what they were co -- evenss than what they knoowe

if they put money down. and i would agree, there were people who put very little money down and it was the banks that to of the majority of the risk. that has created a lot of problems for our you can refinance the loan purify host: in -- refinance that loan. host: in the "financial times" the morning it says tougthat in average congressional district, borrowers are more than three months behind on the payments are at 9.3%, compared to 10% at the time of the election 2008. where is this headed? guest: obviously, there are still problems with foreclosures, the real-estate market problems. if the incentives that the government put in place have -- the incentives that the government put in place have run