wachovia. we knew the market was concerned about some of these institutions, and we knew that if something happened to disturb or give less confidence to various counterparties at wachovia, it could impact other large institutions with which we may have to deal right after a situation at wachovia, and ultimately, it frees up the funding markets. >> so, you saw wachovia as being indicative. there were others out there that looked like it. >> they had similar circumstances. >> you did not make the same decision with washington mutual. why not? >> with washington mutual, the structure and the liability structure was quite different than that of wachovia.

they did not have the same for a deposit exposure, the same wholesale funding exposure, the sizable broker-dealer, the holding company, they did not deal in complex, structured products. so to measure the impact at washington mutual, which while large, was really a large thrift that had a simple funding structure and it was a far easier to calibrate the collateral impact of that institution. >> and you did not feel the same concern that there were the other large thrifts structured like washington mutual that would come under attack? >> no, because essentially it was the largest, and we had dealt with some of the weakest ones already. and again, because of the structure of their funding, they are not as sensitive to the funding market that wachoivvia

was. >> mr. alvarez, the federal reserve to do the same conclusion for the same reasons? >> for the same reasons. many of the things you outlined. i presented it in more detail in my testimony. i believe the commission has the memo we used to analyze the wachovia situation. it was the context. the economic situation was important to making judgments about systemic risk of individual institutions, the scale. wachovia was the third largest institution by deposit, so incredibly large and interconnected. we looked at measures of the interconnectedness, how -- to the extent we could, where the commercial paper was placed and the effect of not being able to pay might have on other institutions. some of its other large exposures to different markets

and a different institutions. the fact that it was well- capitalized, considered well- capitalized. the market did not seem to see the failure of it coming. unlike wamu where the market saw it that they died over a period of time. a lot of folks prepared for that. >> so do you agree that there should have been no intervention with wamu? >> yes we agree. >> there are some who assert that the failure of wamu triggered a run on wachovia? >> the day after wamu failed, two events occurred. that was also the date the legislation failed. both of those things had a pretty dramatic effect on wachovia. the question is not so much whether it had a bad effect on

wachovia, but if we had aided in wamu, would that have changed circumstances with wachovia? it is not clear that if we provided assistance to washington mutual, that would prevent the problems at wachovia. >> i will reserve the balance of my time. i will come back later. >> mr. chairman? >> i want to follow up on that one comment. it does strike me dead in this crisis, -- it does strike me in this crisis that intervention by the government's is so big into the system that the two systems that were not saved, lehman and mau wamu, triggered panic in the

system. in this instance, wamu is not saved and the run begins a that afternoon, the next day on washington mutual. which brings me back to my original point which is it seems to meet that is so big into the system that the focus should have bent, in the past and in the future, on as the problem is growing, the risks are growing, the scale is growing, that is where the focus needs to be. because when you get to the tail end and there is panic, there appears to be no viable response by rescue. >> yes, sir, the more challenging situation, the fewer options you have. another way to think about it which is constant with the situation at wachovia was that as things became more challenging, some of the planned alternatives became more difficult to execute.

so, yes, sir, i think that prevention and a more better diagnostic approach in the advanced certainly gives you more option melody on choices. >> it seems to me that if you are going to have banks that are too big to fail, you need regulators that are tough enough to handle those banks of enormous scale. >next would be senator graham. >> thank you, mr. chairman. it seems to me the key question is will there continue to be the political support to do what has been done in the past few months, which is to intervene at the time of all to the crisis? second, if that is suspect, that continuing political support, what are the fundamental ways it to avoid reaching that point of extremist?

there are many candidates this fall for congress who are running on a platform of no more bailouts. not to support programs like tarp, should they be elected to congress. whether there will be a majority for us or not is unknown, but that voice is certainly going to be louder in the next congress than it has been in the present congress. so, if you assume that it is going to be more difficult to come to the assistance, and if the consequences of not coming to the assistance are as catastrophic as we have described, then it seems to me it puts a particular premium on figuring out how to avoid getting to that extreme. there are at least a couple of options. one is that those institutions that have the characteristics,

whether they are size, complexity, interconnectedness, similarity, the herd effect, should they be restrained, somewhat like the sherman antitrust act was used to restrain the growth of large industrial conglomerates at the end of the 19th and throughout the 20's century? or can we have a regulatory system that will be engaged at an early end of stage with these large, complex institutions to avoid them getting into extrem ist? what is your sense as it is it possible to control these organizations of this size and complexity in their current

form or will necessitate fundamentally changing the system which has allowed these enormous institutions to revolve? i will start with mr. steele. >> thank you, senator. i think you provided two choices. and i believe that my perspective would be to support the second one. and that is that we can develop the right tools, capabilities so as to do a better job of regulating, managing these important institutions. i believe that the idea of a size limitation or an interconnected limitation or in importance limitation is less realistic. there are benefits that come from having larger institutions in terms of product offerings, economies of scale and things

like that. and the global nature of the world is such that many of the competitors have these characteristics. so my view would be to favor the second of the alternatives you suggested. i alluded earlier to whether it is a systemic perspective with regard to all of these institutions or whether it is the idea of living wills or planning in advance with the regulators, how to wind down would occur and what are the stress points. whether it is a matter of regulators having learned from the past and doing a better job going forward. that would be my instinct, sir, to the question. >> mr. alvarez? >> i agree with mr. steele. in one of your early points, it will take regulators with strong backbone going for. we are not going to be able to stop crises from occurring. on the other hand, we can prepare ourselves better for it

and lessen the impact, hopefully, and one of the ways to deal with that is by having strong regulation of the large institutions that are complex to make sure they assess the risk and do with the risk, they are prepared for the risk and a better way than they have been in the past. also, we are going to try an experiment now. i think the federal reserve has not bend itself happy with being in the middle of providing assistance with large institutions. my chairman has said that providing alone to aig was one of the worst experiences of his life. congress has reassessed the tools. we will not be providing that kind of assistance any more. that sends a message to the industry itself that the idea that the federal reserve will be able to stand behind you and provide liquidity if you get into trouble is no longer present. now you have to confront, as management, you have to

confront the likelihood expectation, a new resolution will be in your future. it does require a lot of strong work on the front end and a different look on the back end. . .

to avoid getting in extreme trouble. i will invite comment on the public. ed the ones and i think will be most useful will be the enhanced capital standards, the enhanced risk standards. provisions of having to do with the so-called balkan rule. having to do with exposures onion depository institutions and their affiliates. we will also be making the ruling on our lending authority. all of those, i think, will be of prime interest going forward. >> excuse me. mr. steel was commenting that

when you're at the treasury in 2007 that you became concerned there were warning signals. did i hear that correct? what were some warning signals before 2007? in 2006, the rate of acceleration of home prices started to slow, and by the end of 2006, they were declining home prices, foreclosures started to go up in 2006. several of the a subprime originators went bankrupt in 2006. those would all seem to be early warning signals that some steps needed to be taken of where we were going to be in the emergency room pretty soon. and the fact that they were not taken, i think, got us to the

emergency room in 2008. why rhythms' indicators not enough to get the treasury activated? >> you need to wrap up. >> certainly, especially in hindsight, there were signs that housing was having some unusual activity, and that we were having challenges star to appear. i can tell you that at that time, in 2006, up early 2007, it was not our view that the prices would fall as much as they later did. it was these subsequent significant decline in the asset prices that i think added fuel to the situation. and so maybe we should have -- or treasury should have or i should have -- seymour things coming. but at that time it did not seem to have the trajectory that

would take it as far, to be as pernicious as it turned out to be. far as it did. >> no more bailouts, will this cause the treasury and other regulatory and supervisory groups to take a look at what is going on in order to reduce the chances? >> i hope this would be the case. a day think that we have some some other perspectives on what those preventive steps would be. there are positions by

regulators, a systemic regulation in regards to wisc, those are all the right types of things that i think it be beneficial. >> thank you. >> my questions are about to the other firm we are talking about in the next panel. i was very interested. i would like to ask you about this situation. your explanation before was there helpful about secure vs unsecured loan. collateral is one form of security. the difference between the bear stearns situation is that there

were as buyers available and security. i have heard numerous people say that the fed chose not to act in the case of lehman brothers. there is an implication halt and that there was an option for the fed to go into bankruptcy and they chose not to do this. in your opinion, was there a viable legal option? >> there was no merger partner that came forward to acquire the men as there had been in bear stearns. there was a very big difference. if the federal reserve was

linked to lehman without adequate collateral and other security, this hearing and all others would have been about how we wasted taxpayers' money. i don't think that we would have been repaid. from my perspective, there was not a legal option. >> when you said the chairman, you were referring to the chairman of the federal reserve >> in his written testimony, a couple of things stand down. he said that lehman had adequate collateral. could you give your opinion or

your understanding on these points? >> quite frankly believe on that monday, let me separate the two things. there is a broker dealer. this was a sizable portion. we did in fact lend to the broker dealer for the week afterwards as it was going towards bankruptcy and the bankruptcy court sold the dealer. we only needed a small amount of funding. the parent of lehman brothers in order to operate needs a guarantee of all of its obligations going forward. it's liquidity had tremendously diminished. it might have had capital but to the assets was declining

rapidly. there were a few people willing to deal with the company on any basis that did not involve massive amounts of collateral. the third parties for not finding the institution. i can understand that management would have a different point of view. they had a plan to save the company and wanted additional capital. we could not take that risk. >> i want to follow up on the distinction between whether or not they were solvent or liquid. i interest and that everyone is losing confidence.

people had been that information -- people had a lot of information. where their assets greater than the value of their liabilities? everyone talks about everyone else losing confidence. when you look at the balance sheet, where they softened? >> i am a lawyer as opposed to an accountant. >> can you give us something in writing that describes what the fed was thinking in regards to the solvency?

can you asked -- tell us what lehman brother asked the government to do that they did not do? they are granting an exemption over section 23 of the federal reserve act. the third is a ban on naked short-selling. >> the notion of lehman becoming a bank holding company in is something explored to the early part of the summer. it has benefits and costs. one of them is a provision by the federal reserve and all of the regulatory burden by that. lehman brothers was not certain of the benefits. they were afraid that it would

look like a gimmick. in fact, the substance of the change to becoming a bank holding company are very different. they gain no additional access. what today to -- this is similar to bank holding companies that are around today. this was not enough of a benefit to. >> you are saying that they decided not to pursue it because their testimony says they were not permitted to become a bank holding company. >> there was never an application filed by lehman

brothers. there were preliminary talks. they would not be able to pass muster. this is clearly a judgment. management has to look at the cost. lehman brothers is able to transfer some assets into the bank. they had an industrial loan company. one of the issues around 23 a are the quality of the assets

being transferred to the bank, will they put the bank at risk? this is a direct taxpayer exposure. the agencies were very careful about allowing institutions to transfer risky assets into the bank. it is hard to believe that they would have gained enough liquidity from lehman brothers into the bank to have prevented the failure of lehman brothers. >> the conclusion is in the end lehman brothers was forced into bankruptcy not because they neglected to act responsibly or seek solutions to the crisis but because of a decision based on flawed information not to provide them with the support given to each of their competitors and other non- financial firms in the ensuing

days. >> i think i can agree with the first half but not the second half. they try to very hard to save the company. they have a plan that they were in the process of implementing that failed which would have downsized the company selling off a bunch of assets and raising more capital. management was trying very hard. i think they failed not because the government was not willing to help them but because they were a victim of the circumstances and the economy and some bad decisions that they had made and they did not have time to get out of these. >> because of a decision based on flawed information, i believe that is a decision by the

government, d you agree with that? >> i'm not sure what he is referring to. >> mr. chairman. >> if you provided you with lunch, would that be enough inducement to stay around for the second panel? you don't have to answer the one but it is obvious that we will not be able to ask for follow-up on any number of questions. what all of you be willing to respond back to us in writing if we send you some questions that we arrive at in writing after this hearing? >> almost certainly. >> thank you.

>> one of the things that was raised, what i want to do at this point is it will be the subject of a subsequent panel. this is a chronology that has been selected by our staff. you can enter this into the record. i think it shows a relatively complex picture. a legal opinion was offered through financial assistance. what you see in this chronology is say recognition of the

problems that arise if it were to go bankrupt. there are tools and authorities available. you also see political concerns about the bailout. this is a complex situation we are trying to deal with. it looks as though there were a number of considerations -- political, financial. is that a fair statement? i never see consideration, for example, and never see the fed is saying that they cannot do it.

>> you have experts this afternoon and i will defer to them. we were doing contingency planning all through to thousand 8 and all kinds of institutions and learn how to think about these problems. we very seldom had much time to act could tel. many times, the scenarios that you have dreamt up in the summer are not available and don't work. so, we had a few of those. it is not surprising to me as the person who has to write memos that on a weekend like lehman, we would not have been

able to write the credit memos that you would like to see. h>> i am not sure what your question this. hwe have heard there are other options. it was a busy weekend. >> we can do it deceptive but i did not see in the course of two-three months any expression about any legal bar. >> is there a question about the legality or the analysis of the fed of whether or not there was sufficient collateral? >> or whether this was a more complex decision. >> i did not mean to leave the

impression that this was not a complex decision. >> there are questions why we cannot do this, legal authority. what we see an absence in this chronology is any focus on the legal bar and the inadequacy of the collateral. maybe that came over the weekend? >> i am not sure i understand the other variables because at least my experiences if you don't have a legal option, you don't worry about the other consequences, that is not legal, what else can we do? >> whether the legal constraint was the bar here or a number of considerations that went from political to financial to strategic.

>> we are hearing from the general counsel that it was his judgment that it was illegal. are you judging whether this was right at the time? >> i think i'm questioning whether this is the totality of the decision. in the 2009 decision seems to give the fed enormous latitude. what were all the factors that went into that decision. i want to put a timely statement. a investigation and the action

that was taken by treasury, it was concluded that there was legitimate argument that this constitutes overstepping by the ministry of action. i consider those pretty strong terms. some folk were considering going on some of the box. >> i have a series of questions to ask what can get some clarity. it appears as though there is not list of rules or criteria if you determine whether aid firm will pose a risk to the system

if they fell. that is not only based on the intrinsic characteristics but also the environment. would that be fair? also the ability to be able to govern situations where firms may fail. volume curious what would have been different if you apply the rules that we had today when we're looking at situations like wachovia. how would your body of knowledge be different?

>> of one important piece is for our corporation to reach in the institution to be able to address them accountable. a lot of institutions have risky business activities that take place across multiple entities. this is broker-dealer operations. the ability to address an entity in total is from a practical standpoint something you can actually implement far easier in a complex institution than dealing with a specific entity which is very difficult to decouple from a holding company structure. there are pieces having to deal with the ability of having --

produced by an entity to understand how they can be broken up. also for us to be able to set up some resolution planning behind a living will that provide a few things such as up-front time information and some influence over these structures. >> how would this have been different? >> we had a brokerage dealer outside of wachovia. tsk the ability to understand the interconnectedness and the

insurer institution and to the various counterparties. under our qualified financial contract, we would be able to get an understanding of all of the relationships and the financial contracts ahead of time and understand the magnitude of these various contracts which would be a tremendous help. also looking at the structure and understanding the ability to work the holding company through the bankruptcy code as well as the insured in to entit. >> it would have been easier as you would along? >> i think we would have made

much more informed decisions. >> thank you. >> some of the handcuffs would have been taken off on our supervision and we would have had more enhanced capital risk and management and this is something that we would explore and this is something which we hope to be a useful tool. i think the greater effect would be in the other institutions that we have been mentioning today. those institutions would have been subject to higher capital requirements, or liquidity, and better supervision. hopefully, we would not have gotten into this cycle that some

of the commissioners have been worried about and starting to help an institution such as bear stearns and create a moral hazard that goes along with providing government assistance and the expectations that the craze for other institutions. if we can break that cycle, we will end the too big to fail. this is more natural to deal with it wachovia and hopefully last stress. >> some of the other firms would have been in a better financial position or what have not failed? >> if not, they would have been put into liquidation. >> can you talk up by that situation at wachovia? with the company's situation have been dramatically different from what you can see?

rol>> if we take the prism thats been suggested as part of a new regulation certain some parts would have been constructed on how they run their business. in particular, those things i prescribed as good health type activities -- stronger regulation, more engage regulators and supervisors, living will for planning for resolution. it is very difficult and early to say with specificity what differences might have been given the fact us of any of the world's related to this legislation had not yet been written.

i find that a bit of a leap that is uncomfortable but there's no question that a more robust supervisory regime and a tighter lands on capital would be useful. >> thank you. >> we have heard a great deal about how interconnections among financial institutions played a role in the government's decision to rescue institutions or provide extraordinary government assistance.

all of our largest commercial bank holding companies and investment banks were among the world's largest over the derivatives. at the time, they received extraordinary government assistance. there were millions and millions of these transactions in existence in may 2008. they had over 680 trillion dollars.

what we wanted to know if the juror dispositions played any role in your agencies consideration of whether they should be rescued. maybe we should start with mr. alvarez. >> most certainly, aig, the derivative suit were a key factor in measuring the risks to the institution and the interconnectedness of the institution. this is one of the things that we looked at to understand their exposure and whether their failure would have ramifications broadly in the system. with a i.t. in particular, they

had a sizable but of all unhedged exposure which pose a tremendous risk to them. this was one of the sources of their financial difficulties. there was interconnections throughout the world. this is a big indicator of the risks. >> did they have information on the inner connectivity of all of these institutions? >> they will make great strides to remedy. >> how will they do this? >> they will create a 40 in the

federal reserve to collect information about derivatives exposures. this also requires more clearing of the derivatives of the central counterparties and strongly organized strongl counterparties. bac >> is this an issue the fdic looks to win at considering

systemic risk, but also in the process of resolution of a failing institution? >> it is extremely important. i think one of the most important pieces is transparency with the distribution of the contracts. it will ensure our ability to understand the characteristics. it is very important. >> how does the fdic handled the derivatives portfolio of a commercial banks when it fails -- of a commercial bank when it fails? and the fdic undertakes resolution? >> not an area i directly

handle. the fdic has to look at financial contracts and determine within a very short window, 24 hours, whether they want to keep the contract or not. it is our ability to understand the position of the contract and whether its is advantageous to the receiver or not. it is very important. >> the over-the-counter derivatives were deregulated in 2000, with the commodity futures modernization act. i am sure that made it more difficult for the agency is to have an understanding of the marketplace and to have information about exposure is of various institutions. mr. alvares, in your discussions

with commission staff, you talked about the role regulations played in the marketplace, and perhaps in making the market place more fragile and exposed to the kind of crisis we have. do you think that the deregulation was a factor? do. there was a strong press for the regulation through the late 90's. this weakened the resolve of the regulator and the attention paid by institutions to the risk management that the institution should have had. the regulatory burden is important to watch. this is something that agencies need to be mindful of,

particularly as it relates to a small institution. i think that our resolve was weakened at other institutions which was a mistake. >> i would like to place in the record the transcript of the interview with our staff from mr. alvarez on march 23rd, 2010. >> thank you. >> thank you for coming in and thank you for your service to our country over many years, especially through the difficult times. we have not discussed the decision to rescue bear stearns.

this was the original sin because everything changed after they were rescued. another thing is, participants in the market thought that all large firms would be rescued. hough companies probably did not believe they had to raise as much capital as they might need it because they probably did not have to dilute their shareholders because the government would rescue them hom. to the reserve fund did not think they had to eliminate the commercial paper that they held in lehman brothers because lehman brothers would be rescued and they would not have to suffer that loss. buyers probably thought that

they weren't title to get some government support. foit was thought that lehman brothers would be rescued and they were likely to drive a harder bargain. the decision on bear stearns was exceedingly important in analyzing this entire process. mr. alvarez, mr. steele, you were probably involved in that. i would like to get your socks. one of the things that flows from bear stearns is the question of moral hazard. for when you are giving consideration on whether to rescue bear stearns, was any thought given to the question of moral hazard and what that would do to the market in the future?

since now regulators are expected to consider systemic issues when they examine or are otherwise supervising financial institutions, i would like you to give us some indication of what you think a systemic risk is and how apart from the circumstances at the moment you would be able to define systemic risk. if i may, can i start with you, mr. alvarez. fo>> yes, there was some consideration. there are some things that made the decision at bear stearns and each of the decisions. this is very difficult for the

governors and the board. they wanted to be a support for everyone. that is one of the reasons that you can see. secretary paulson said there would be no government assistance in part trying to negate the moral hazard. this is one of the reasons that the chairman of the fed, chairman bernanke, began calling for a resolution regime. he needed and felt that we needed a more certain way to pass on losses to the shareholders to replace management and to try a different avenue. moral hazard is something that we are worried about in all of

our situations. >> if i can interrupt, why did you decide given the consequences for moral hazard to which you were so sensitive to rescue bear stearns? >> we thought that if we did not provide assistance to allow a merger, we look at that a little bit differently than a rescue. if bear stearns had failed, the cost to the system would have been much greater than the cost of the moral hazard. >> how did you make that decision? what costs were you considering and how can you add up all of those costs? >> there is no serious number

that you can add up and be certain about it. in early 2008, the financial system was under severe stress. there was the various indicators of market activity. they were showing that markets were closing. funding was becoming shorter and shorter. chairman cox testified that while the rules are based on the idea of liquidity based on collateralized borrowing, it never occurred that there could be borrowing or even collateral not be sufficient. that is the problem that the broker dealers found themselves in. we were worried about a collapse of lehman, goldman, merrill lynch, all white in a row and

the consequences. >> you were able to assess those as very likely to occur? >> we were very worried that they would occur, we thought that the loan that we provided in connection with an acquisition of bear stearns would be repaid so the taxpayer would not actually take any losses. it was a tool that congress gave us to deal with these situations. we had a tool and we did not use it and there was a horrible effect and the federal reserve stood by. we decided to provide the credit. >> mr. steele, can you provide any further information about what was in your mind?

? well, i think you are correct to suggest as you did in your opening comments that this in a way set us on a path that became increasingly challenging to manage their had been introduced earlier that year for the government to get involved with weaker financial institutions which we had chosen not to respond to. the markets work and they recapitalize the themselves. this was difficult for me, as you suggest, i had spent almost three decades in the securities industry and i viewed that the firms were different then depository institutions and that

over my career i had seen people be successful and people be unsuccessful and the freedom to fail was part of the dynamic that characterize this segment of the financial-services industry. i think we drew a distinction again, maybe this is too fine but this is with a different service that facilitating a merger with a loan that we fully expected to be repaid, the fed fully expected to be repaid was appropriate given the dynamics and if my memory is correct, the price was 126 cents 3/8.

the idea that this was done without any pain, the company would change management and management from bear stearns would leave, the shareholders would pay a significant price. so, the bridging to bear stearns with this loan seemed to be appropriate. >> with all respect, the issue is not money, this is the moral hazard consequences going ahead with bear stearns. the government was going to be paid back. this is not as significant as the fact that the creditors were actually rescued and would from that point not have a completely different attitude towards what the government was going to do in the future. >> there's no question at that point is correct and fair and i did not say in my answer, certainly we discussed this issue, given the benefit of

hindsight and all of the other things that happen, then you have to progress this perspective to think about this. >> we appreciate all of what you do for our country. what is clear is that there appears to be nor formulaic approach in dealing with too big to fail. there is no standard approach by which you can calculate or determine whether an entity faulted in that category. this is very judgmental. this is also clear from not just comments made by you but by chairmen shapiro was that this was in fact a huge failure and supervision where in fact had some things been done on the

front end, we might have mitigated the crisis we are suffering through as a country yet at least two of you have said that the dodd frank act has the potential to change the world. this will make things much better for our country the next time around, so why in our we as the commissioners or american people to believe that supervisory failures will not occur the next time around if the bill may set some foundation for what regulations will be put in place but we will fail once again to implement those regulations in practice. there are those failures which are the result of regulators not doing their job well enough and

and there is all of us to realize that we could do our job better and you want to do our job better but there are also supervisor regulatory and statutory caps, there are things that we could do -- there are things that we could not do no matter how much we wanted to do them. this plus a bunch of holds. this authorizes the regulators to look at all systemically important institutions, that authority did not exist for, this authorizes us to take a systemic approach to supervision before we were constrained to taking a mike review of the safety and soundness of a particular institution so it takes off some handcuffs that were put on during the the period of regulatory burden reduction to keep them from doing too much. all of those are important

improvements to our ability to do a better job on a supervisory front. i agree that there's no way to be certain that the regulators will get everything right or do our jobs perfectly going forward so there has to be changes in management of the institutions, they are focused on their own risk management and how they deal with it. they will have to deal with the better. investors have to do a better job of paying attention of what they invest in there is blame to go all the way around and while we deserve our part and will deal with our part, for us to deal with the crisis more successfully going forward, everyone will have to do a better job than we did leading up to 2007.

>> there are systemic issues in which the individual agency did not necessarily have a clear perspective. this recognizes that as they got more large and complex, this is not just an insured institution but you are looking at having to address this and it addresses the issue of the fact that given the size of these institutions, there is upfront work that needs to be done with regard to establishing a living will process. >> no one would like to be the person who turned the lights out on the party and there was a big party going on here and what changes have to happen in the management of the regulatory organization such that they're willing to step up and turn the lights on.

>> it is very hard to identified bobbles when they are happening. there was a debate about whether there had been a repeal of the business cycle or whether there was an increase for some amount of time or whether there was an end. given the difficulty in identifying when the punch bowl needs to be pulled away, the most important thing we can do is to try not to set the conditions for the creations of a bubble.

we want institutions to understand how to reduce risks and making sure that they understand not just how the risk affects them that how this affects others in the market that they are dealing with. as an example, the origination and distribution model was from a very narrow point of view. the bank supervisor was looking at safety and soundness of a very good approach because they were originating mortgages but they were not taken on the risks of those mortgages and their son them to investors who understood the risk and dealt with the risk. as it turned out, they did not understand the risk. while the institution originated was not taken on risks directly, they were creating weakness in the system that reverberated back in the institution itself. being able to have a system queue up risk allows us to take steps to address those types of

models and hopefully identify them in advance and have underwriting standards in this case improved and perhaps take steps for investors to pay more attention to the risk. this allows a different perspective and hopefully this allows us to reduce the conditions for baubles so they will not be as large. there's not anything we can do to identify everything or prevent them all for to prevent a crisis but we can certainly do more than we could before. >> i don't think i have anything ad. i think would be on optimistic that we would have regulation that would be perfect and that we will not catch anything. the idea of planning in advance

and then to do as much as you can do have the institutions take on more responsibility you have lots of responsibility by lots of different parties that was not discharged as we would wish. basically, this goes with regulators, management, individuals and with congress. they are all examples where everyone could have been more perceptive and more honest and more for thinking about these things. >> i like the position of taking away the punch bowl because if you turn out the lights, there were a lot of things going on in the dark.

[laughter] >> i think we are at the appointed hour. i would like to think this panel. are there any additional comments? . . . >> this question is for mr. corston. we have looked at citi and at that time it looked like a pretty weak institution in 2008. it did not seem to improve much between -- after two dozen 8. the question that is bothering me is, the fdic approved the idea of citi, which was near

insolvency, to pick up another institution that was also weak in the form of wachovia. i do not understand how that decision could have been made. what was in the minds of the people at the fdic who unanimously agreed to do that, to take an already large and seemingly confused institution like citi and graft on to get another institution that the market had concluded was, if not insolvent, at least in seriously illiquid conditions. can you explain that? >> when you look at wachovia and look at citi, citi had a largely

wholesale funding structure. what wachovia had was a fairly decent retail franchise, with some wholesale funding and some bad to gauge -- baggage that would have gone with it. the thought was to incorporate the two would allow to stabilize some of the funding structure that -- at wachovia and add some funding structure at citi, so it was taking some institutions that were having financial weakens, but there were synergies that they could grow off of and build strength within them. certainly, your concerns are very welcome. >> thank you. >> to conclude, when we said we should take a punch bowl away and it would be the regulators who took away, we met you were supposed to dump it out -- we meant you were supposed to dump it out and not continue the

regulation. that was a question that we would be very concerned about. you are relieved of it by treasury, irs, making a decision, which i think was frankly outside the bounds. i think i said that. said that. >> yes, you did. >> thank you very much. we will come back here at 12:25. we are a little behind schedule. we are close enough to catch up. [captioning performed by national captioning institute] [captions copyright national [captions copyright national cable satellite corp. 2010]

[captioning performed by national captioning institute] >> "washington journal" summer series continues. tomorrow, a look at the science of polling. see it at 7:00 p.m. eastern. "book tv primetime" tonight. lawrence sullivan on scientists that have different views on climate change. tonight on c-span2. >> join our conversation on the right american revolution, and

the importance of historical study. depth," sunday, at noon eastern on the east -- on c- span2. the leaders of israel and the palestinian authority met today for the first time in two years. they agreed to a series of peace talks. they were torn by hillary clinton and george mitchell. the event took place this morning before the start of multilateral talks.

>> good morning. i want to thank all of you for joining us today. as we launch negotiations -- [inaudible] i know the decision to sit at this table was not easy. we understand the suspicion and skepticism that so many feel, borne out of years of conflict and frustrated hope, that tragic act of terror on tuesday, and the terrorist shooting yesterday are yet additional reminders of the human cost of this conflict. but by being here today, you

each have taken an important step toward freeing your people from the shackles of a history we cannot change. also, moving toward a future of peace and did it -- and dignity that only you can create. says thank you. thank you for your courage and your commitment. i also want to recognize the support of each -- of egypt and jordan, which have long been crucial partners for peace. and we appreciate the support of the arab league for the vision of a comprehensive peace embodied in these talks. i also wish to thank former prime minister tony blair, the special representative of the quartet, for his leadership and effort. mr. blair's work is critical to

the success of these peace efforts. as we have said all along, progress on this track must go hand in hand with progress in negotiations. and let me also, as represented by this overwhelming turnout of representatives of the press from across the world, express our gratitude to many friends and allies who have worked so hard for progress toward our shared goals. to those who criticize this process, he stand on the sidelines and say no, i ask you to join us in this effort. as president obama said yesterday, we hear often from those voices in the region who

insist that this is a top priority, and yet do very little to support the work that would actually bring about a palestinian state. now is the opportunity to start contributing to progress. for our part, the united states has pledged its full support for these talks, and we will be an active and sustained partner. -- sustaining partner. we believe, prime minister and mr. president, that you can succeed, and we understand that this is in the national security interest of the united states that you do so. but we cannot and we will not impose a solution. only you can make the decisions necessary to reach an agreement and secure a peaceful future for the israeli and palestinian

people. for many of us in this room, this is not the first trip to the negotiating table. i look around and i see veterans from all three of us. we have been here before, and we know how to the called the road ahead will be. there undoubtedly will be obstacles and setbacks. those who oppose the cause of peace will try in every way possible to sabotages this process, as we have already seen this week. but those of you here today, especially the veterans who are here today, you have returned because you have seen the cost of continued conflict. you know that your people deserve the benefits of peace. the court issues at the center of these negotiations --

territory security, a jerusalem, sediments -- will get no easier if we wait, nor will they resolve themselves. success will take patience, persistence, and leadership. the true test of these the gratian's will not be their first day and it will not be their last day. it will be all the long days in the middle when the past -- when the path toward peace seems hidden. we are convinced that if you move forward in good faith and did not waver in your commitment to succeed on behalf of your people, we can resolve all the court issues within one year. you have taken the first step. you have both embraced the idea of a two-state solution, which is the only path toward a just,

lasting peace that ensures security and dignity for both israelis and palestinians. i fervently believe that the two men sitting on either side of me, that you are the leaders who can make this long-cherished dream in reality. and we will do everything possible to help you. this is a time for pulled leadership and a time for statesmen who have the courage to make difficult decisions. mr. prime minister, mr. president, you have the opportunity to end this conflict and the decades of enmity out between your peoples once and for all. and i want to conclude by just saying a few words directly to the people of the region. your leaders may be sitting at

the negotiating table, but you are the ones who will ultimately decide the future. you hold the future of your families, your communities, your people, this region in your hands. for the efforts here to succeed, we need your support and your patience. today, as ever, people half to rally to the cause of peace, and peas needs champions on every street corner and around every kitchen table. i understand very well disappointments of the past. i share them. but i also know we had it within an hour power today -- within

our power today to move forward with a different kind of future, and we cannot do this without you. let me turn to the prime minister, who will make his remarks, followed by the president. >> thank you madame secretary. i want to thank you and president obama for the many efforts that you had invested to bring us to this moment. my friend, senator mitchell, thank you for your consistent effort for you and your staff's efforts to bring a lasting and durable peace to our region.

president abbas, as i said yesterday in our meeting at the white house, with the president of the united states, the president of egypt, and the king of jordan, i see in you a partner for peace. together we can lead to our people to an historic future that can put an end to claims and to conflicts. this will not be easy. a true peace, a lasting peace, would be achieved only with mutual and painful concessions from both sides.

from the israeli side, from the palestinian side. from my side and from your side. but the people of israel and i as their prime minister are prepared to walk this road and to go along way in the short -- to go a long way in a short time, to achieve a genuine peace that will bring our people security, prosperity, and good neighbors, good neighbors. to shape a different reality between us. that is going to involve serious negotiations, because there are many issues in contention, the core issues that you outlined, madame secretary, are things we

have disagreements on, but we passed to get from this agreement to agreement. a big task. two years ago,, or rather a year ago, in a speech i gave at the university in israel, i tried to outline the two pillars of peace that i think will enable us to resolve all the outstanding issues. and these are legitimacy and security. just as you expect us to be ready to recognize a palestinian state as the nation's state of the palestinian people, we expect you to be prepared to recognize israel as the nation state of the jewish people.

there are more than a million non-jews living in israel, and it would have full civil rights. there is no contradiction between a nation state that guarantees the national rights of the majority and guaranteeing the civil rights, the full equality, of the minority. i think this mutual recognition between us is indispensable to clarifying to our two people our two peoples, that the conflict between us is over. i said to you yesterday that a real peace must take into account the genuine security needs of esther camara -- of israel, and they have changed.

he spoke about the veterans who have gathered here at this table, we have been her before. we fashioned a hepburn agreement and and other agreement -- the hebron agreement and another agreement 12 years ago. we have had the rise of iran and its properties and missile warfare. a peace agreement must take into account security arrangements against these are real threats that have been directed against my country, threats that have been realized with rockets that have been fired on our territory, and terrorist attacks that go unabated. president abbas, i am fully aware and i respect your people's desire for sovereignty.

i am convinced it is possible to reconcile that desire with israel's needs for security. we anticipate difficult days before we achieve a much-desired peace. the last two days have been difficult. they were exceedingly difficult for my people and for me. blood has been shed. the blood of innocents. four innocent israelis gunned down brutally, two people wounded, seven new orphans. president abbas, he condemned this killing. that is important. no less important is to find the killers.

and equally, to make sure that we can stop other killers. they seek to kill our peoples, kill our states, kill our peace. so achieving security a must. security is the foundation of peace. without it, peace will unravel. with it, peace can be stable and enduring. president abbas, history has given us a rare opportunity to end the conflict between our peoples, a conflict that has been lasting for almost a century. it is an unprecedented

opportunity to and this conflict. there have been some examples in history, but not many, but we face such a test. to end the bloodshed to secure a future of promise and hope for our children and grandchildren. in the first book of the bible, the book of genesis, there is a story of how two brothers in conflict, brothers, isaac and ishmael, joined together to bury their father, abraham, our father, the father of our two peoples. isaac, the father of the hebrew nation, ishmael, the father of the arab nations.

joined together in a moment of pain and mutual respect, to bury abraham in have braun -- in hebron. i can only pray, and i know millions around the world, millions of israelis and millions of palestinians and many other millions around the world, pray that the pain that we have experienced, you and us in the last hundred years of conflict , will he night us not only in a moment of peace around a table of pace -- of peace here in washington, but will enable us to leave here and to forge a durable, lasting peace for generations.

shalom, salaam, peace. >> in the name of god, madame secretary clinton, mr. prime minister netanyahu, ladies and gentlemen, let me in the first place once again extend my thanks to president barack obama and his secretary clinton and to senator george mitchell and their teams for the

unrelenting effort they exerted during the last months. in order to renounce the negotiations between the palestinian authority and the israeli government. ladies and gentlemen, now that we are launching these negotiations today, we know how hard the hurdles and obstacles we're facing, and we will face during these negotiations. negotiations that should within a year lead to an agreement that will bring the peace, a just peace, of international legality between our two peoples. what is encouraging and is giving us confidence is the road is clear in front of us in order

to reach peace. the road of international law is represented by the national security council and the general assembly of the united nations, the quartet, and the positions of the european union, and all these positions clearly for us represent international agreement on the goals of the negotiations. , are notd gentlemen com starting from scratch because we had many rounds of negotiations between the plo and the israeli government, and we studied all horizons and we also find it and determine all the pending issues. we will work on all the final status issues -- security,

borders, and also releasing detainees -- and in order to create the state of palestine that lives side by side with the state of israel in order to end the conflict and a historic demands in the middle east and to bring peace and security for the two people at all the peoples of the region. once again, we want to state our commitment to find on all our engagements, including security and ending incitements, and we call on their israeli government to work forward with this commitment to end all settlement activity and to lift the embargo over the as s-chip -- on bet gallup -- on the gaza strip.

you know, ladies and gentlemen, we have security practices that are still being built, but we are doing everything expected from them. mr. they weaken that the operations. we did not only condemned them, but we also followed on the perpetrators as we were able to find the car that was used and to our rest those -- a rest -- arrest those who sold and bought the car. we consider that security is -- the both of us, and we cannot allow for anyone do anything that would undermine your

security and our security. and we therefore not only condemn, but we keep on working seriously. \ herrity is fundamental and very sensitive. ladies and gentleman, once again i want to state today what i said at the white house meeting yesterday in front of president obama, and we do believe that their participation represented [unintelligible] these two states, alongside the other arab states, do believe that peace is a vital interests, not only for the palestinians for the israelis, but for all

peoples in the region and for the united states, as president obama when he said the creation of a palestinian state is a vital national american interest. the plo participate in these negotiations with good intentions and seriousness and is adamant about bringing a just peace [unintelligible] a fair solution [unintelligible] we're attached to the international resolutions. we did not want anything above, and we do not want anything [unintelligible] we want to have at a new era in our region, one that brings peace, justice, security, and prosperity for all. and let me say here that in

1993, on the night of september of this year, we signed, mr. prime minister, what is called a document of mutual recognition between us and israel. between former president arafat and yitzhak rabin, and these documents were signed. and in these documents we showed that our intentions are good. [unintelligible] in camp david, also commitments were required from us. and when we came back with president clinton, we carried on

with all our commitments because we respect our commitments and our agreements. therefore, we start from here to wish a peace that would and the conflict, that we meet all the demands and start a new era israelis and the palestinian people. thank you, an may peace be among you. >> i want to thank the members of their respective teams who are here and both delegations. the people sitting here have worked very hard for many years, and have traveled a long way to be here, and we are grateful for their commitments as well. today, president obama and i, senator mitchell, and our entire team are prepared to do whatever we can to help you succeed.

we believe in you, and we support you. so again, let me thank you for being here, and now this time to get to work. take you all very much. -- thank you all very much.

>> george mitchell said israelis and palestinians believe they can conclude peace talks within one year. the bastard mitchell spoke to reporters shortly after a meeting with netanyahu, abbas,

and secretary clinton. this is just under half an hour. >> good afternoon, and welcome to the department of state. today we have successfully launched direct negotiations between the united states, israel, and the palestinian authority in pursuit of the final agreement, final settlements, and a just peace, to states living side-by-side. george mitchell will give a statement and answer a few of your questions, but we still have meetings go on with the parties, and he will have to return upstairs rapidly to rejoin the negotiations. here is a goat -- here is senator mitchell. >> good afternoon, ladies and

gentlemen. the parties have just concluded the first round of trilateral talks. the meeting lasted about an hour and a half. it began with a plenary session involving the full u.s.-israeli- palestinian delegations on the eighth floor of the state department and then broke to a smaller meeting in the secretary of state's personal office involving prominent -- prime minister that the not too, president abbas, secretary clinton, and myself. prime minister netanyahu and president abbas then went into a separate meeting for an eighth direct discussion. that meeting is still going on right now. in the trilateral meeting, there was a long and productive

discussion on a range of issues. president abbas and prime minister netanyahu expressed their intent to approach these negotiations in good faith and with a seriousness of purpose. they also agreed that for these negotiations to succeed, they must be kept private and treated with the utmost sensitivity. so what i and they are able to disclose to you today in the future will be limited. but i will now describe some of the key items that were addressed in the trilateral meeting. both prime minister netanyahu and president abbas condemned all forms of violence that target innocent civilians and pledged to work together to

maintain security. they reiterated their common goal of two states for to people's, and to a solution to the conflict that resolve all issues, ends all claims, and establishes a viable state of palestine alongside a secure state israel. president abbas and prime minister netanyahu agreed that these negotiations can be completed within one year and that the name of the negotiations is resolve all court issues. the parties agreed that a logical next step would be to begin working on achieving a framework agreement for permanent status. the purpose of a framework agreement would be to establish the fundamental compromises necessary to enable them to flesh out and complete a

comprehensive treaty that will end the conflict and establish a lasting peace between israel and the palestinians. the parties agreed that in their actions and statements they will work to create an atmosphere of trust that will be conducive to reaching a final agreement. they agreed to meet again on september 14 and 15 in the region and roughly two weeks thereafter. every two weeks thereafter. of course, continued interactions at other levels between the parties and also yet others involving the united states will take place between those meetings. in fact, a preference -- preparatory trilateral meeting in order to plan for that second meeting in the reading has

already begun in another location in this building and will continue here and in the region between now and september 14 as is necessary. as both president obama and secretary of state clinton have said, the united states pledges its full support to the parties in these talks. we will be an active and sustained partner to route. we will -- throughout. we will put our full weight behind these negotiations and will stand by the parties as they make the decisions necessary to is you or -- to secure a better future. as we saw this week, there are those who will use violence to derail peace talks. there will be difficult days and many obstacles along the way. we recognize that this is not an

easy task. but as the president told the leaders, we expect to continue until our job is complete and successful. with that, i will be pleased to take some of your questions. >> i would like to know what was the personal relationship? it seemed like they were distant. did they interact or develop a bond together? >> the relationship was cordial. as you know, these men have known each other for a long time. this is not the first meeting between them. they are not in any way strangers, politically or personally.

>> thank you. obama yesterday talked about some progress when asked, and i appreciate the fact that you do not want to diebold the details. today the prime minister talked about the jewishness of the state. the you think these issues -- since they launched the negotiations today, the think this could be an issue that could be [unintelligible] for the peace process. >> thank you, i believe very strongly, deeply and personally that this conflict can be resolved and these negotiations can produce a final agreement

that enables the at establishment of a palestinian state and peace and security for all peoples. secondly, it is of course self- evident that the reason for a negotiant it is that there are differences, the differences are many, they are deep, they are serious, and it will take serious good-faith negotiations, sincerity on both sides, and willingness to make difficult concessions on both sides if that agreement is to be reached. but i do not think that any human problem can be solved if one begins by reviewing the problems as insurmountable, as

suggesting that the mountains are too high and the rivers are too wide, so let's not undertake a journey. there has to be a sincerity and a seriousness of purpose combined with a realistic appraisal of the difficulties, but a determination to overcome them. i believe that exists. i believe these two leaders, president abbas and prime minister netanyahu, are committed to doing what it takes to achieve the right result. >> you remember from your life on capitol hill the phrase whenever a tough addition was going on, nothing is agreed to until everything is agreed to. will that be the approach for this process, and will you be reluctant to talk about anything that is agreed upon until everything is agreed upon?

the second question is discuss the framework. is the deadline for the pri -- for the framework one of the year, or much earlier and a one- year still governs the entire solution to all remaining issues? >> in terms of process, that and other questions will be resolved by the party's. you cannot separate process from substance in these discussions. there is an interaction that affects both, and we have made it clear that these issues are to be determined by the parties. we have had extensive discussions with them on that on those issues, and those will continue. our goal is to resolve all of the core issues within one year. and the parties themselves have suggested and agreed that the logical way to proceed to tackle

them is to try to reach a framework agreement first. and as i said -- and i think this ought to meet clear because it is -- there has been a good bit of misunderstanding or not a full meeting of minds publicly regarding a framework agreement. a framework agreement is not an interim agreement. it is more detailed than a declaration of principles, but it is less than a full-fledged treaty. its purpose is to establish the compromises necessary to enable the parties to then fleshed out and complete a comprehensive agreement that will end the conflict and establish a lasting peace. >> thank you.

you mentioned the number of issues talked about talks -- today, but can you mentioned that settlement was among them, and the plan to be in the region for the talks that will take place on the 14th and 15th? you said the u.s. will be a part of the talks. you plan to be there? can you tell us where they are going to be? >> as i said at the outset, what i will be able to disclose to you and the parties will disclose will be limited, and so you have given me the first opportunity to invoke the principle with respect to the first part of your question, for which i thank you. [laughter] secondly, but secretary clinton and i will be at the meeting in the region on september 14 and 15, and one of the subjects now being discussed in the

trilateral preparatory meeting that is ongoing in another room in this building, to which i must go in a few moments, is that subject. a determination has not yet been made. that will be made i believe in the near future well in advance of the meeting. >> abc news. i would like to take another crack addict. i understand and appreciate that you cannot get into specifics, but i'm curious whether you could say anything about the scope of today's talks, whether they involve any substantive discussions on any of the court issues or whether this is strictly to lay out a plan for the coming year. thank you. >> as i mentioned in my response to major's questions, i cannot think one can neatly

characterized process and substance as though they are two separate things in these matters. they do interact and relate to. you cannot discuss a process issue in any meaningful way without some relations to the substance that is being to be discussed -- that is ready to be discussed. that gives me a chance to say for the second time that i will not be able to get into the substance. but there were discussions that text on the subject of substance, although i do not want to suggest that the meeting was such that there was a detailed and extended discussion or debate on a specific substantive issue.

>> netanyahu talked-about recognizing a palestinian claim that the -- is that something that you have noticed? is that something that the americans have been encouraging? >> we have encouraged the party ies to be par y' positive in our outlooks, other words, and their actions. any realistic appraisal of the situation, including the recent history, by which remain the last two decades, makes clear that there are very serious differences between the parties.

there are many difficulties that lie ahead. that is in terms of the substance of the issues, the impact on their domestic politics, the needs and interests of their societies. we have not, of course, attempted to prescribe what they can or should say about any issue. these are independent and extremely able leaders representing the interest of their societies. what we have sought to convey in a new role conversations that i have had -- in innumerable conversations that i have had with both leaders is president obama's conviction that, despite all of the difficulties, near term, long term political

substantive, personal and otherwise, the paramount goal of making the lives of their citizens more safe, more secure, more prosperous, more full can best be achieved by a meaningful and lasting peace between the parties and in the region. the alternative to that poses difficulties and dangers far greater to the individuals, to the leaders, to their societies than those risks than they run in an effort to reach an agreement that brings about their lasting peace. any realistic evaluation of the self-interest of the people of israel and the palace -- and the

palestinian people must conclude that they are far better off living side-by-side as in two states in peace and security than in a continuation of the current situation. >> prime minister netanyahu mentioned iran this morning. would that not make things more difficult to close the gap between the two parties? >> in every aspect of him a lot, including your personal life and mine, the world is much different today than it was 10 years ago and vastly different than it was 20 years ago. that is certainly true of the middle east. it is an area of rapid change,

of many conflicting currents that historians and analysts have described far better than i could in any change we have here. obviously, the actions and policies of the current government of iran have an effect in the region and in the wider world. they influence what is occurring here. in my judgment, they add another argument to those which i have already made and that many others have made as to why this conflict should be resolved. it is in the interest of the people involved. in this respect, the worst comprehensive peace is direct.

when president obama announced my appointment, he specifically identified comprehensive peace as the objective of u.s. policy in the region. israel and the palestinians, israel and syria, israel and lebanon, israel at peace with all of its neighbors in normal relations. obviously, one of the factors that makes that desirable, in my judgment, necessary for all of these parties is, in part, reactions and policies that have been taken. yes, it is a factor. even if it did not exist, there would be a compelling reason for peace between israelis and palestinians. but that is an additional

factor. >> peace negotiations between the parties have taken place several times in the past. what is secretary clinton doing differently than her predecessors, including president clinton? >> although my comment on that is not constrained by the agreement which i've earlier described, there are other constraining factors which come into play. [laughter] since i was not a part of the immediately preceding administration -- although i did serve at the request of president clinton as chairman of

an international commission in 2000-2001 following the eruption of the second fought, -- second fata, first, we cannot be deterred by the fact that negotiations did not succeed. it must continue with steny prior efforts of failure -- it must continue despite prior efforts. with respect to past efforts, we think that the best approach is to carefully review them as we have done and to try to draw the best lessons out of each

one, not be bound by any particular practice or process or procedure, and always try to keep in mind the dynamic changes in the region that have occurred in what is, in historical terms, a very short time. our view is that this is an effort that will try to learn from the lessons of the past, take the best and bring them forward, but not be bound by any level or category or previous process. everything should be judged on the basis of what it will do to a dance -- to advance and achieve the goal of peace in the region. one obvious difference is that president obama is the only

president in recent times, to my knowledge, to have established this as a high priority. immediately upon taking office, to have acted immediately at that time -- there have been very well written books and it is clear in a couple of instances that time ran out. indeed, the authors of several of these books used exactly those words to describe it -- they ran out of time in the end. this president, i believe, will succeed. as he said yesterday, neither success or failure is predetermined or guaranteed. but it will not be because time ran out at the end. that is a vast difference.

i have a high opinion of the men and women who served in these tasks in the past. i know most of them personally. i do not think you can attribute inability to achieve a result to their individual or collective feelings. they are the product of the difficulty and what many regard the impact ability of the problems and issues -- the impractability of the problems and issues. the most obvious difficulties that lie ahead for both sides comes if they do not reach agreements. you have to remember that these

leaders must weigh two things. the difficulties they face in getting the agreement and the difficulties they will face if they do not get an agreement. we believe it is a very powerful argument, a few subject these careful and reasoned analysis, the difficulties will be much greater and have a much more profound impact on their societies. thank you all very much. it has been a pleasure to see you. i look forward to reporting to you on a regular basis. >> searched the term "mideast

peace" and you will get 1700 programs and more than 8000 transcripts, including an early mike wallace interview. they are all free online. it is washington and the world your way. >> the summer series continues this week, turning to issues including electoral politics. tomorrow, the science of polling. see it all on "washington journal" at 7:00 a.m. eastern. >> join our conversation on the american revolution, the making of the constitution, and the importance of historical study sunday with borden would -- with gordon wood. that is at noon eastern on c- span 2.

>> topics at today's white house briefing includes the middle east peace talks at the state department and the demonstrations academic -- economic agenda. -- and the administration's economic agenda. economic agenda. >> let me begin with one statement on hurricane role. the president is monitoring the preparations for the storm as it heads the coast. it could approach the coast of north carolina but late tonight or early tomorrow morning. the president signed a pre- landfall state of emergency.

fema has already moved teams and supplies into states along the east coast to provide support and resources as needed. and resources as needed. as you know, the president was provided with an update and fema is in close contact with the governors up and down the eastern seaboard to ensure they have the support they need should the storm makes landfall but it tonight or tomorrow. i do expect the president will speak with the fema administrator again today. administrator again today. >> [unintelligible] >> as you well know, the talks are ongoing. we expect that, in the next hour or so, senator mitchell, our special envoy for middle east

peace, will conduct a briefing on what has transpired today. the president was encouraged in his meetings yesterday by the very serious attitude that each of the leaders brought about these talks and about a long- term lasting peace for the middle east. all view this as a tremendously important opportunity. i think you saw the pictures last evening and the powerful statements that were made by the leaders in the middle east. i would also say that the president reminds everyone that there are still deep divisions. there are still years of mistrust to overcome. that is not going to be wiped

away in mind -- in one meeting or in one day. we understand that. the failure to try is not something the president wants to do. do. >> one of those deep divisions is hamas. do they have plans for dealing with them? >> i'd prefer questions about what transpired today in the talks until senator mitchell has a chance to answer some of those questions. questions. >> christie romer said yesterday that the only sure why -- surefire way that the government can ensure aggregate demand is

investment. that seems to set the stage for another stimulus. >> let me be brought in my answer. let's go back to what the president said and what i said on monday. the actions and the steps that this administration has taken in the last two years, first and foremost, the president and the team are looking at ideas and he enumerated some of those parameters. he included infrastructure. in terms of cutting taxes, there is a bill pending before the united states senate that the president spoke on on many occasions. if you look at -- if you go back to a year ago, outside of the

recovery act, we pursued legislation that enabled cash for clunkers. the president spoke in december last year about targeted measures that could be taken to help the recovery. those included the bipartisan those included the bipartisan hire tax. we have expanded -- we have given states more money to insure that things like teachers and firefighters were not laid off. we continued unemployment insurance. we will continue to look at and take steps that are targeted in nature to help continue the recovery and create an environment where the private sector is adding jobs. >> we are all aware of that. dr. romer seems to be saying

that a lot more spending needs to come. >> i do not think -- the point of what the president said is that there are ideas that are being looked at. the idea that a big new stimulus plan is not in the offer. >> what does the president to expect out of the jobless numbers tomorrow? can the economic team come up with some of those new ideas that you talked about? >> let me take the second question first. those meetings and those discussions continue to take place. i am not going to get ahead of any of the ultimate decisions.

it is not helpful for me to speculate on the jobs numbers. i say this to the benefit of anybody that is watching. i do not know the numbers. i will not know the numbers. anything that is set in the next several minutes has nothing to do with my knowledge about the numbers. i do that because everybody gets nervous that, if i make a comment, somehow i knew the number. >> there is an oil production platform in the gulf that is on fire. does that prove that any of the same problems of the bp ratig would promote the moratorium? >> i am told that this is a production platform about 100 miles off the coast. i am told the depth of water is about 340 feet. so this is not a deepwater

facility. as i a understand it, the well was not an active production -- was not in active production. the coast guard has said in a statement they released is that they responded to the preliminary report of a fire on board an oil platform in the gulf. the initial report we got was that 13 persons were on the platform. they are accounted for. one is injured. he is on his way out of that area. two local coast guard aircraft were enroute. one helicopter was on the scene. we will continue to gather information as we respond. we have response assets ready for deployment should we receive reports of pollution in the water. >> is the president convinced that the inspection of race in

the gulf -- of rigs in the gulf is moving fast enough? >> we had taken a series of steps after the bp incident. that was primarily around deepwater drilling. let me not go too much further than what i have. if the situation warrants, we will update that. the president was in a meeting on the situation. i do not know if he has been notified. john brennan who is in the meeting does know about it. it is a national security meeting. i do not know if john had a chance to discuss that with the president. >> [unintelligible] >> i do not know who is on the scene. the production facility is located in federal waters.

i do not know who the highest- ranking person is. >> on the middle east peace talks, what does the president see as his role? would the president be the one new attends or is he stepping back now? >> i do not want to make any scheduling pronouncements. secretary clinton is conducting and is believed to be on these cds today. george mitchell has spent a lot of time in the region, as has the secretary. we have said this from the very beginning. one of the very first things the president did upon walking into the oval office that very first

fall morning was make calls into the region. i think this is true historically. when we are actively involved and engaged, there is a better chance for peace. that has been president obama's viewpoint and the whole team's viewpoint. i cannot speak to what our involvement would be at different points in this. obviously, over the past many months, we have been actively involved and engaged and we will continue to be involved and actively engaged. as the best way to make as the best way to make progress, we have always felt that it is to sit at that table and have direct talks. >> does the presidency this

scenario different way than previous administration because of more stability in the west bank or because of the potential usual threat from iran becoming nuclear? how does he see this different from the previous administration? >> i think the president felt that the meetings yesterday were productive and believed that each of the leaders was genuine and serious about seeking peace. at the same time, we understand that this is something that has eluded generations. we are mindful of that. we will stay engaged. we will do what is necessary. we hope that each side will continue to take the steps necessary to build confidence and make these talks productive. >> does he believed the mutual

threat by a nuclear iran is bringing the two sides together? >> we have always maintained that peace was in the best interest of these entities, regardless of anything else in the middle east. i think that was true when the president first came in. it is true in his actions today. >> the number of members of congress that have gone through the floor, why do you think that is? why has the president not to dunmore during the recess in august to shore them up -- not done more during the recess in august to shore them up? the democrats' numbers have nosedived. nosedived. >> we are -- the president will

continue to make a very active case for the steps that the administration has taken. >> he did not do much. >> the president has been fairly active in both campaigning and raising money. with the president is helping the democratic national committee do is something that it has never done in supporting senate and congressional candidates. it is something he will continue to do. [unintelligible] >> >> -- >> [unintelligible] >> the level of support. >> prototype -- productivity is down and labor cost is up. what does that tell you about the state of the recovery? the state of the recovery? >> let me give you an answer

that is not based on the employment report today. employment report today. we are in a markedly different and better position than we were a year-and-a-half ago. our economy is expanding. we have created about 600,000 private-sector jobs throughout the course of this year. there is no question that the trajectory of that recovery, based on events particularly in greece, have changed that trajectory from where we were at some point in the spring. we have to continually be mindful that, of whatever steps

-- be mindful of whatever steps might be necessary to continue that recovery. >> [unintelligible] >> those are some of the discussions that the economic team has been having. >> you said fema is moving teams along the east coast. >> let me get you a comprehensive list. we will send it around to you. >> you said you are considering a range of things in the economy to move things around. time is of the essence. how soon will you move them out? >> obviously, they're still doing meetings and discussions on this. >> would you agree that it is

something you would rather do sooner rather than later or piece by piece? >> the final decisions will have to be made before having an understanding to talk about it. >> can you talk about what your strategy is in terms of the economy, the balance to convey confidence? >> i think you heard the president said in his speech to the nation in iraq -- to the nation about iraq that we are a special country. we are in charge of our own destiny. i think you heard the president over the past many weeks talk about the steps we have taken and the fact that, if you look at where we were at the end of 2008 and the first quarter or so of 2009, we have made some

important progress. there is important progress yet to make. that is why the president continues to look at ideas that might help create an environment for more private sector hiring. that is why we will continue to look at and make investments that are important in creating the jobs of the future. i think you will hear the president talk about a combination of that, expressing confidence that we are headed in the right direction, albeit not as quickly as everyone would like to see. >> should people say right now or should they spend because the economy is strong? economy is strong? >> i am not one to get into individual purchasing decisions. the president would say that we are making progress and that our

economy is stronger than it has been in a while. we have to continue to be mindful of it and make progress on making that -- making this recovery that ione that is even stronger. the deaths of this is unlike anything we have experienced since the great depression. we have a great hole to fill. >> gm put off its ipo. did the white house have anything to do with its timing? >> the white house is not involved in and is not going to discuss an ipo based on regulators watching what people do and say around the ipo.

>> congress will be backed in washington in a weekend half. the fight -- besides the small- business bill, what must the president do before they are all back out and campaigning? >> i know you caveat it by assuming small business. what this town does a lot is, i know what you are doing now, but what are you going to do next? small businesses have delayed their hiring decisions. they have delayed their expansion decisions. they have delayed their investment decisions, waiting to see what the senate will do on the small business bill. 60% of the job losses come from

small businesses. there are concrete steps that we can and should take when congress comes back to change that. obviously, the president is mindful of the tax cuts for the middle class that expire at the end of the year. the president will fight to ensure those middle-class tax cuts are protected. that is something we will obviously have a fairly robust a discussion on, not just in the remaining weeks of congress, but throughout the election, and maybe after the election. >> nancy pelosi is worried that the white house will cave to pressures from some moderate democrats to extend all tax cuts for another year.

>> i like that you are my nancy pelosi go-between. [laughter] the president believes that tax cuts for those in the middle class should be maintained. they should be kept. the money that would be spent to keep those tax breaks for people that make more than $250,000 a year -- the majority of the monies that would be spent next year on maintaining those tax cuts are for people that make more than $1 million a year. that is a statistical fact. if the republicans are bent on spending an additional $35

billion, i think there are many economists -- the congressional budget office has looked at many ways that would affect the economy. extending tax cuts for the wealthiest, those that are making that $1 million, is the least similar to wait to impact our economy. we are focused, first and foremost and only on extending tax cuts for the middle class. >> you have a bunch of openings. >> you have a bunch of openings. the consumer protection agency -- >> i am sorry, that cea fate is not going to work out. >> to you have any time in on it? >> i did not expect that ca and

consumer would be down this week -- that cea and consumer would be done this week. i do not have a timeline for those two openings. those two openings. >> can you say what the nsc meeting is about today? >> serious and massive security issues. i do not want to get everybody nervous. it is something that the president does fairly regularly. >> president obama said that there could be patriots on both sides of the iraq issue. does he believe there could be patriots on both sides of the health care issue, government spending, taxes, and the like? >> sure. inherently, your question is that -- the president is not going to question the patriotism of those who have a different

viewpoint. they may have policy differences, but, based on those disagreements, the president would not make the argument that somebody is more or less patriotic based on having his position on an issue. >> the politics, the games -- ing, that's certainly >> [unintelligible] >> can he have it both ways? >> let's take with the president said on monday about small business. the president asked the republican party to end the blockade on necessary aid for small business. what i think is undeniable is that they have held up that bill. if the republicans are proud of holding up that bill, they should not have a problem with

the president mentioning it. it is not different from -- is different from -- it is different from questioning their patriotism for holding up that bill. >> de you have an opinion on the new oval office decor? [laughter] >> i have not heard him give a review on the reviews. >> the color scheme? >> that is not something that i was consulted on stylistic way. [laughter] do not read anything into my suit. >> [unintelligible] >> i heard burton said that first. >> the rig explosion today is in

shallow waters. will that have an impact on the deep water drilling moratorium? >> not that i know of. obviously, we're still trying to gather information about the events that are happening at that site right now. obviously, there is a process. the department of interior has won the crown of the deep water moratorium. it is hard to match those two issues by the fact that we do not know a ton at the moment. >> is it possible that -- >> it is possible that brennan told him at the end of the meeting. but i do not know that yet. >> the investigation into deep water horizon, is it possible that could be brought out to raise concerns? >> i will go back and get as much of an update as we can get

throughout the day. at this point, based on what we know, i do not want to marry those two. >> the white house said they hoped to fill dr. robert's vacancy by the end of the day. with the jobs report tomorrow and the economic team working to come up with new measures, is this not all significant that there is a void in the economic team? >> we have a pretty full and robust team that will meet with the president in about 15 minutes. as soon as we have an announcement on a cea replacement, we will let you know. >> will there be interim replacement? >> no.

>> larry summers is going to china next week. what is the agenda? what is the purpose of it? >> i think we will put out some stuff on that in a little bit. let me wait for that. let me wait for that. >> use of the there are no big stimulus plans, but the the economic team is looking for new ideas. has the president come to any conclusion whether any new policy issues, other than the ones in the senate, could affect the economy sooner or later? >> when i say inherent in the first part of the question, we are mindful of targeted measures

that can and should be taken in order to continue a trajectory of recovery. those meetings are on going in identifying and looking at a whole host of those ideas. >> these meetings are ongoing and the economy has been stalling for a while and you have a very short timeframe. is there not some sense of urgency about getting new targeted initiatives? >> there has been a sense of urgency about the economy since the moment we walked in here. we have had to and we have taken some extraordinary steps to ensure that a recession did not become the greanext great depression. depression. we are mindful that we do not want to see -- this is not a

purely academic shorexercise. purely academic shorexercise. i anticipate that some of those decisions will be made. >> you said that, if the republicans were hell bent on spending $35 billion, there are targeted ways to do that than a stimulus or extending the tax cuts for the rich. how open is the president to a payroll tax colonnade for employers? >> obviously, the team is looking at a whole host of issues. i do not think it makes sense to give what those are. >> the president, and is he going to make any statements to more about the economic -- about

the unemployment number? >> i think so. >> [unintelligible] >> like to? >> democrats on the hill who feel like the president is concerned with foreign policy, comments about the economy, etc. >> i do not know who you have talked to. this president has been focused on dealing with the economic problems that we faced a moment we walked in here. we faced a housing crisis, a crisis in the financial stability, 8 million jobs lost, the economy contracting for years. while productivity was up, paychecks were not. we have made progress on

producing -- on reducing foreclosures. we have gone from an economy that was expanding to one that is -- that was contracting to one that is expanding. we have taken necessary steps, many of them extraordinary, in changing the direction of our economy. the president will continue to dedicate more time to that than anything else on his schedule. because the president is giving a speech on iraq, that does not mean the president is not dealing with the economy. when there is something to deal with in foreign policy or in the economy, it does not mean he is not dealing with something internationally. what comes with this job is -- i have only worked here since the

20th of january, 2009. i have yet to be here and had somebody britney at the door and say, "-- somebody greet me at the door and say, "good news, there is only one problem." >> has the president looked at the numbers? there is a pretty dramatic slowdown in the recovery. we need something dramatic. >> i think the president continues to ask the economic team for what ideas they believe can help the economy now. the economic growth trajectory is not what it was in the spring. that is what the president has asked folks to look at.

some of the measures we see, if you were to open the paper today you were to open the paper today and look at car sales compared to -- gm car sales were down 29%. that is compared to last year when cash for clunkers were there. what we woulthe president has ko speed and up-to-date with economic data. showed a change inw growth. you look at something like yesterday, without divining

everything that happens in the stock market, a pretty big rally fueled largely on the manufacturing index. unemployment has a rate that folks have not seen since the early 1980's. >> that sounds like a no. the data does not require something dramatic. >> again, i do not anticipate something that rivals the extraordinary measures that the president has already taken. president has already taken. >> using to be laying the ground for modest changes. -- you seem to be laying the ground for modest changes. if you do it only for one year, it cost $70 million. >> are you talking for the upper and? >> over all. >> if you break out one year --

if you were to extend the upper if you were to extend the upper tax cuts, it would be $35 billion. >> [unintelligible] >> i would not get into a hypothetical . the president does not support -- into a hypothetical like that. the president does not support tax cuts for the rich. they are concerned about spending. but it does not carry over to tax cuts for met those who make $1 million a year. the president thinks that we should focus our tax relief on the middle-class. we cannot afford to make reckless economic decisions to extend tax cuts for people who are not asking for them and did not need them.

even if you did what to do something like that, there are far more stimulus of ways to impact the economy. >> when you mentioned the new higher incentives, that expired. would you be in favor of an additional extension to that? >> again, the team is looking at a range of ideas. >> the president mentioned that the economic recovery is his central preoccupation. how can americans know that that is his primary concern? and in terms of how he pretoria -- he prioritizes his time, can he show americans that? >> having been here since the beginning, there's no issue

that the president has not spent more time on the economy than on housing, than on stimulus. >> but when the americans see the president travel abroad or the president travel abroad or go on vacation, my to they draw conclusions -- might they not draw conclusions? >> i think everybody would say that getting our policy right in

afghanistan is very important. it is of concern to many in this country. when the president was undergoing 13 different two-hour to three-hour meetings on that, the notion that that is the only thing he was doing -- i can hardly wait for the day that there is only one problem, there is only one meeting, there's only one topic. it is not true today. the president will come from the situation room. i think the schedule says he will eat lunch. he should do it. then he goes into an economic meeting. it is hard for me to crack into words -- to craft into words exactly what he is doing. domestically, the president is

commander in chief and has to make decisions about our foreign policy. having been here from the beginning, there is not an issue were set of issues that the president has spent more times on then dealing with an economic issue that we walked into on january 20, 2001. -- january 20, 2009. i have not looked at the block ahead. let me go do that. i honestly do not know the answer. >> [unintelligible] >> let me go look at the blocks. >> in august, the numbers went up from 18 for it 4% -- 18.4%.

is that included in what the president is trying to do to get people back to work? >> again, what you have seen happen in this economy is that productivity has increased, temporary work has increased, employers have taken the steps of cutting hours, but not necessarily adding additional full-time workers. there are any number people that, in the monthly employment survey, would be included in a group of people that would like to work more it they could. that is what you typically hear on a daylight tomorrow unemployment number and an under-employment number.

those who would like to have additional work, but cannot find it. obviously, those are just as much a focus as those -- inherent in dealing with either of those two groups is greater full-time employment. that is certainly what the president and the team are looking for. >> the production platform in the gulf, why justice is involved? i endorsed and justice is looking into it -- i understand justice is looking into it. justice is looking into it. >> i will go back and see if there is justice involvement. >> [unintelligible]

>> i do not want to make any broad statements on today's incident. i said i would go back and look and get a better and more full of state throughout the day and see what is going on. >> i want to return to these subjects about the process. has the president been involved with -- in contact with leaders of other arab countries? >> i can get the exact date of that. >> that would be really helpful. >> what is today? it would have happened earlier in the week.

if i am not mistaken, monday was the 31st, right? i believe that they spoke on air force one on monday. >> presumably, he will have talks with george mitchell again. again. do you expect on nine telephone calls? -- do you expect on going telephone calls? >> let me get back to you after he has talked with senator mitchell. obviously, both secretary clinton and senator mitchell have been deeply involved in this. let me include with their activity might be as well. activity might be as well. c-span