will be watching. >> we have focused on the house side. but on the dod d-frank side. now the new senate will have a number of tea party senators. what do you think will happen with the politics of the fed? >> i expect there will be a great deal of criticism about the fed. one thing you have to remember, the reason independent center banks were created was to give politicians to have something to complain about. the barriers to making substantial changes are extre extremely high. the legal framework gets of fed a great deal of latitude. unless congress wants to change

the law, it's hard to see much more noise coming from the house. >> his goal is immediate trance appearance. >> he actually deserves a lot of credit in what he has been pushing. he has been, the creator of this audit of the fed movement that brought out the transparency of the financial crisis loans. that is ron paul and bernie sanders. in transparency. he has some bit of a success story. i'm doubtful he will get to the point he wants. we will be able to go and see another in realtime or to have congressional auditors any in and take apart the policy decisions. that's really not important. you should be looking at the end

results of the fed and design whether the fed is meeting its goals and mandates. there's a lot you can say about that with inflation and unemployment. >> it's interesting he was not very keen on the hawkins reform. if you listen to senate hearings it give twin mandate to the fed because a great source of conversation. does this surprise you, he was not, no so keen on the end results of that? >> what you have to understand, ron paul's world view is very, very different from the current framework. the proposal to change the mandate is actually quite a minor tweak within the existing framework. it wouldn't really meet the

criteria that ron paul is looking at. the fed sees balancing inflation and unemployment on the other side. very much two sides on the same thing. it would be a problem for the fed or opposed by the fed. >> we have just one minute left. i guess to use that to look ata the larger financial services committee with the leadership of mr. bacchus. >> this is really an opportunity to go back to debate of how many regulate of the economy and the financial system. can you debate whether there's too much or too little coming into the financial crisis. this will be a test of whether it makes sense to pull back and ron paul is very much a libertarian and believes we should pull back that regulation. this will be the test to see if there's traction on this

>> mr. hardy. anything to add on what your sources tell you? >> no. afraid not. >> we are just about out of time. so we will use that as a thank-you. this very busy week of congress. they are struggling to get to closure to look to the new congress in the area of financial services. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> this "newsmakers" with ron paul airs again later today at 6:00 p.m. eastern on c span. >> tonight, supreme court justice kagan.

this interview took place in her chambers in the supreme court. >> i think i became a lawyer for all the wrong reasons. when i was a law school dean. i told me don't go to law school because you don't know what else to do. that's why i went to law school. i wasn't sure what else i wanted to do. i heard these things about keeping your options open and the degree you can use for anything. i wasn't at all sure i wanted to practice law when i started law school. but i thought, well, what could be wrong with having a law degree and then deciding. when i got to law school. what i was amazed to find. i absolutely loved law school and studying law. in a way that i don't think i loved any other part of my academic experience. i had been a good student and didn't feel that passion for a student matter. i liked thinking about law and i

liked that law was something which is both an intellectual challenge and had real-world challenges. you could think about what you were learning to make people's lives better. i found it endlessly interesting and challenging. in the end, i think i went to law school for wrong reasons, but was glad i got there. >> the full interview airs this evening and 12:30 on c-span. now tim geithner activities on the tarp program. he told the tarp over sight panela the final cost of the $700 billion program is expected to be about $25 billion. he all takes questions on a

program under tarp to help homeowners. this is two rs. [gavel] [inaudible] >> we appreciate your willingness to come down here and help us. >> we appreciate your willingness to come down here and talk to us. 2008. stock market was plummets, employment was plummets, home values were plummeting. i can remember turning on the television and flipping btween news channel and seeing anchor after anchor looking frank and scared and frightened and confused. the american financial system, the envy of the world was never supposed t collapse in that way. today we know that the panic ended. and you played a key role in that turn aroun as the panel stated in the past, the trouble asset relief program provided critical support to the financial maet in a time whn the market confdence was in

free fall. combined with the recovery act to our markets and economy. the congressional budget office recently estited at the end of the day, t.a.r.p. will cost $35 million. i noticed you use the same thing in your opening system. astronomical sum. far less than we expected. it's work issue to protect the banking system, private citizens to help build the road to recovery. thanks to their shared effort, the economy is in a etter place today than when t.a.r.p. was enacted. but -- it's a big but, we must not forget the pain that continuesto plague no many americans. 15 million americans still cannot find a job. as many as 13 million familie will lose their home and foreclosure. the panic of 2008 has subsided. but it's been replaced by the annoying pain of callused men and women who can't find work.

the t.a.r.p. was never intended to the the complete solution to the these problems. even though, your authority to make major change in the t.a.r.p., even though your authority has change, you can still make steps to help strengthen the economy. for example, they laid out a series of steps the treasury can take to help americans keep their home. make it easier for modification, by allowing online. helping them sliding backward from foreclosure. these steps only make a modest interest. they illustrate a larger point. although the legacy has been determined, details remain. they are important. in fact, mr. secretary, you can decide them. $50 in auto, $50 billion in banks, and $30 billion to

prevent foreclosures. that'sa weighty obligation. i look forwd to hearing you describe how you will handle it. i hope we can use today's hearings to focus on the remaining opportunty to reshape t.a.r.p. and strengthen the economy. we'll start with mr. mcwatters. >> thank you, senator. welcome, mr. secretary. although the congressional budget office has recently revised it's estimated subsidy cost of the t.a.r.p. downward to only $25 million, such metrics should not serve as the sole determinant of the success or failure of the program. we should remain mindful that the t.a.r.p.'s overall contribution to the rescue of the u.s. economy was relatively modest when compared along with multihundred billion bailout of fannie mae and freddie mac, the multitrillion of the federal reserve and fcid as well as the efforts of the private sector capital market participates.

it is particularly difficult to label the t.a.r.p. or any other government-sponsored program aimed at securing financial security an unqualified success when the unemployment rate nears 10%. the combined unemployment and underemployment rate equals 17% and millions of american families are struggling to modify the mortgage loans, so as to avoid foreclosure. it is cold comfort to the individuals and famils that the too big to fail financial institutions, aided by the t.a.r.p. and other government-sponsored programs are recording near record earnings. in order to better assess the t.a.r.p. or offer the following recap of the issued rais by the panel and the individuals members over the past year, professor troske and i noticed in the 2010 oversight report that the repayment by t.a.r.p. recipient of advances received is a mid leading measure of the effectiveness of t.a.r. and

therefore should not serve as the standard by which the t.a.r.p. is jged. the unlimited bailout of fannie mae and freddie mac by treasury and the purchase of $1.25 trillion of gse guaranteed mortgage-backed securities and the secondary market by the federal reserve under it's first quantitative easing program no doubt benefited t.a.r.p. recipients and other financial institutions. [no audio] from the tarp recipients

themselves to the taxpayers. costs should be thoroughly evaluated when considering the tarp. the panel offered this. the government's action in recueing a.i. g and no shared sacrifice among a. i g's changed the relationship between the government and the country's players. the treasure would committee taxpayer pay any price to prevent the collapse of american's financial situation and ensure repayment to the creditors for doing business with them. with them. as long as this remains the case, the rescue the

marketplace will linger. the panel offered the following observations in it's november 2010 report. again quoting treasury is claimed that based upon evidence today, mortgage-related problems currently pose no danger to the financial system. -- >> with respect to camp and treasury's over programs, the panel offers the following observations in the december 2010 report which was released two days ago. again, quoting, while hamp's most dramatic shortcoming has been the poor results in preventing foreclosures, the program has other significant flaws. for example, despite repeating urging, they failed to collect and analyze data that would explain hamp's short comings and does not have data from many of

hamp's add on programs. furth, treasury has refused to specify meaningful goals which to measure the progress, while the program's sole goal to prevent three to four million disclosures has been redefined and watered down. treasury also failed to hold loan ervices accountable when they lost borrower paperwork or reform loan modifications. in concluding, it's critical to note that although t.a.r.p. has played a meaningful rolein the economy clsing days -- [no audio] >> thank you, mr. chairman.

good morning. i would like to bgin by thanking secretarygeithn the news just keeps getting better and better. recently as my fellow panelists have noted. the total cost of tarp will be $25 billion. congressional budget office estimated the total cost will be $35 million. less than 1/10 of the estimates. certain individual investments which were entered into on terms that were clearly unfavorable of the taxpayers in light of the risk involved, such as the

preferred stock purchase and asset guarantees at citigroup has been managed to reduce profits. but there is another and frankly more important way of looking at t.a.r.p.. t.a.r.p. cannot be held solely accountable for the u.s. or economy. oversight of t.a.r.p. requires that we look at two critical areas of economy that t.a..p. was designed to address. the availability of credit to the real economy and the state of the foreclosure crisis. frankly on both fronts, the news is grim. witnesses have testified before our panels that we can expect between eight and13 million families to face foreclosure before the crisis is over.

millions more than we have experienced already. -- >> like but not limited to the gse. but business lending is hard to come by other than those that can access the credit marts. bank holding have over $1 trillion, while business lending remains agnant. unemployment levels today are above thos projected as the worse-case scenario in the t.a.r.p. bank stress test undertaken in the spring of 2009. asset eflation, banks that won't take normal lending rsk, these are the signs of a financial system that remains unhealthy. i continue to believe that we made a fundamental mistake in our management of the financial

crisis but not restructuring the major banks. but not following our own nation's approach to similar crisis in the past, we started down the path that japan took in the 1990s and with are reaping the same outcomes. sluggish and uncertain recovery, banks that can't restructure bad loans, and won't lend to businesses to create job. because our financial crisis involves home mortgages, the decision to make preserving the banks our highest policy goal is much not just a weak economy, but the unprecedented human tragedy of millions of foreclosures. in the end, at worst, bank stockholders were die -- diluted. millions and millions of families were affected. i hope we will be able to explain t.a.r.p. and mortgage crisis with secretary geithner, and explore issues of systemic risk and overall help of our

economy. i look forward to the testimony and thank you for appearing before us. >> thank you. >> thank you, senator kaufman. mr. secretary, i would like to thank you for agreeing again to appear before the panel. your testimony is helpful as we carry out the oversight responsibily, and i'm confident that this trend will continue. during my time on the panel, i have become more and more concerned about the public's perception of t.a.r.p. and the impact it has on the government's ability to adopt similar measures during any future financial crisis. as we indicated in our september report, the consensus among academic economistsand other experts that we consulted was that t.a.r.p. played an important roll of helping to end the financial crisis. despite the consensus among the experts, it's fair to say to the general public, t.a.r.p. is one of the most bill if id pieces of legislation enacted on the part

of former wall street executives to bailout current wall street executives. i would ask the large part of the public's view can be traced back to the way it was proposed, th congress asking for $7 billion with almost no oversight as well as how it was complementing. -- implemented. changing the focus as one that began to purchase equity. i would also argue that the previous administration's decision to classify general motor motors and chrysler as firms to use t.a.r.p. money affects. i a focus on the public's decision. in trying to over come t.a.r.p., you e forced to deal with the actions. however, there are a number of actions that treasury could and should be taking to help turn up the perception.

one important way that any government can show these programs are effective is to periodically have independent researchers conduct thorough and rigorous evaluation of the programs. this is true whether the program is designed to retrain displaced workers, rescue banks and financial crisis, or to assist struggling homeowners. when performing this type of analysis, the government needs to colect comprehensive data on both program participates and nonparticipates in order to have a meaningful campaignson group. yet, despite the panels repeated urging, for treasury to expand significantly the data collection efforts it does not appear that treasury has made comprehensive data collection for t.a.r.p. programs a priority. i would again urge you to do so and also urge you to make the data available to outside researchers. only by facing the steps will we obtain the credible research that is so vital in evaluating a program and convincing the public is t.a.r.p. is an

effective manner. i would also suggest that we again to recognize there aretwo parts of ta.r.p.. one the set of programs designed to assist financial institutions in the midst of the financial crisis. the other programs that were largely directed at stimulating the economy. and their september report makes clear, there's a much broader about the former than the latter programs. we need to take a careful look at how much money should have been allocated to t.a.r.p.. changes to t.a.r.p. in the legislation idicate that congess felt in retrospect we cod have been gotten by with $450 billion other than the original $700 billion. i would guess that careful analysis may have been beter part of alternative legislation. in my opinion, making this distinction wouldhelp generate more support for what i consider the more key components of t.a.r.p. that we would certainly like to have at our disposal

during future crises. as they pointed out in written comments for the panel for september report, theproper cost-benefit analysis thus needs to price the risk taxpayers took during the financial crises. how much did the government earn or lose fter the fact can yield an extremelymisguided measure of the true cost, especially as a guide to future policy responses. i would add to the statement, that focusing on the accounting of this single program al failed to take into account the myriad of other government programs which provided significant assistance to banks. again, i'm not questioning the wisdom of these programs. it's cler. i believe it is clear by providing additional support for large financial institutions that receive t.a.r.p. funds, the programs made it possible and allowed some of the cost of t.a.r.p. to be shifted to other less scrutinized government

programs. ielieve at a level, the amican people recognize the cost of putting so much money at risk and the ability to shift cost to cost programs, therefore the public remains justifiably skeptical if t.a.r.p. was a success because of most of the money that will be paid back. that's why we need a more comprehensive evaluation and the bailout if we are ever going to convince the american people that any part of t.a.r.p. can be considered a success. mr. secretary, the panel wrap up the oversight responsibilities in the coming months. i believe these are the issues that we are going to be grapplin with most. what parts ae successful and how can we demonstrate the effectiveness. i am confident that your testimony today and future testimony will be great assistance in our efforts. i look forward to your comments today. i thank you again for appearing before us. >> thank you, mr. troske. mr. neiman.

>> thank you. additionally the small business lending fund was not established and $00 billion of losses were expected from the t.a.r.p. program. in the past six months, the regime is being implemented. the projected cost of t.a.r.p. is lower. given these development and that t.a.r.p. successfully prevented a depression, it might be fair to expect a public perception of t.a.r.p. could be -- have improved. and for the administration to get due credit for it's management of the program that it inherited. a public perception remains negative, perhaps because first impressions continue to linger. the reason probably has more deep rooted element. many people simply feel their lives have not gotten better during this period.

even as the financial system has stabilized and banks have returned to profitability. the government must continue to work to finally build t.a.r.p.'s unchecked boxes naely to encourage bank lending and to prevent needless foreclosures. it's my hope to discuss the two areas today. specifically with regard to foreclosures, we must hold mortgage services fully accountable for the nonhamp mortgage modifications they put homeowners into. they mustbe helpful and sustainable. nonhamp out number hamp modifications by three to one. me importantly, looking forward, i believe dodd-frank vision of effective cfpb must be realized in the foreclosure area. in order to protect homeowners, the cfpb has been empowered to write mortgage rules. this must include national

standards for mortgage services who are critical players i the foreclosure crisis. no such national standards exist today. some states like new york have comprehensive service or regulations in place that can serve as a model at the federal level. regardless, cfpb cannot tackle mortgage services alone. the new agency will need the cooperation of the states and the federal banking regulators to enforce any new rules. hopefully together in new era of cooperative federalism. with regard to small business lending fund to be successful. but loans supply is not the only reason that bank lending is down. other reasons must be integrad into the collective solutions such as loan demand, underwriting standards, regulation, and uncertainties. finally, i think nearly two years after the establishment of this oversight body, it should be highlighted you will be

valuable and available to the panel. we have an important oversight job on behalf of congress and the american public. you have appeared before us five times publicly and seven times privately. your openness has helped us to do our job. i thank you and look forward to our discussion this morning. >> thank you. i have to comment that each five panelist made up their rmarks separately. i mean as i was sitting and thinking about how incredible it is that five people come up with testimony that's similar. really we all say the same thank. thank you for coming today. we are interested in your statement. >> thank you, mr. chairman, and all of you. i agree with most of you what said, not all. but we'll have a chance to talk about the concerns and i'll be open about the challenges that we face going forward. i want to provide as you suggested a broad overview of the impact of the programs on

the economy and financial system and the channels that we face ahead. i thn also very important to recognize in the beginning that it's very hard to separate the impact of t.a.r.p. itself on the economy and the financial system from the combined impact of the broad strategies discovered and embraced. as you know, that strategy detailed and included very createive programs by the reserve and fdic, and tax incentives and investments that game in the recovery act, the support for fannie and freddie that was required to avoid a collapse none of them would hav as effective without overall package. the monitory program doesn't work. tarp would not be as instrumental. i think it's important to recognize the shock that caused this great recession was larger

and more powerful and dangerous in the view of economic history than the shock that precipitated the great depression. iet, despite that, two years after tarp was first passed by the congress, the economy has been growing for 18 months. : recessions. household wealth has improved very, very substantily over th period of time. the tax package that was approved by the senate yesterday and based on the comments made by the house leadership, both the republicans and democrats likely to pass the house this afternoon, provides a powerful package of support for working class familiesfamilies very powerful packages for businesses which we believe and most of congress believe will add substantially to our prospects and more people back to work in

the coming two years. i think it's fair to say that the worse prt, the most dangerous part of the financial storm has passed us. but the crisis has left a huge amount of damage in the wake. millions and millions of americans are still out of work and at risk of losing their homes. unemployment remains at average 10% and much higher and it's going to take years, not monthmonths of -- not months, years. including t.a.r.p., but not limited to t.a.r.p., were not designed and cannot solve all of the problems and cannot soft -- solve all of the damage. they did what they were designed to do, protect the value of america's savings to restore a measure of civility to the financial system at the edge of collapse, reopen access, and restart economic growth. and these programs did so much more powerfully, and much more

effectively, and much more cheaply, and much more quickly than i think really anyone including their architects thought was possible two years years. and you can see independent evidence. mark published the programs, and said without the programs, the economy would have been fallen 3.5%, and unemployment would be about 16%. we'd be risk of downward spiral of inflation. no one knows for sure. if you look at the shock that have caused the great depression and how that crisis turned out for the count, against the evidence that was provided in the brief period of time, i think you'd sayit's a very good record so far, acknowledging that, the damage caused by the crisis is overwhelming still and

it could take years, years to repair the damage. now let me just review some of the other basic estimates that we use to judge where we were today. as many of you pointed out, these programs achieved to the objectives at a fraction of the cost that any observer predicted even as recently as 3, 6, 9, 12 months ago. the cbo estimates whiwe rely on said t.a.r.p. itself will cost $350 million. those estimates are now around 25. they are too high in my judgment. ultimately, they will be lower. the most important thing to point out is that the investment programs in t.a.r.p. means the combined investments we put in banks in aig. the support of other markets and the automobile industry. those investments together will show a positive return. the losses will be limited to the amount we spend in our housing programs, the investment

programs in t.a.r.p. will show a positive return. not a negative return, the taxpayers will earn a positive return on those investments. now if you look more broadly, as many of you suggested at the combined cost of everything the fed did, everything the fdic did, the losses that we still face because of what fannie and freddie did before the crisis and t.a.r.p. together on reasonable estimates about the future, those can be less than 1% of gdp, which is less than 1/3 of the cost of the savings and loan crisis which as you know was a much milder, much more limited financial crisis. and you if look at the cost of crises across many countries over time, the direct financial cost of the program, including the gse, the fed, and thes programs, it's likely to be a small fraction of what we hae seen anywhere in history over the period of time. now we are moving very, very

aggressively to exit from the government's investments from the guaranteed programs from the emergency crisis response as quickly as possible. we are way ahead of surgery in achieving the objectives. you know, we have been recovered in the very subsantial fraction of the investment banks. when i came into office, the government innovated. they needed to do it. it was a necessary thing to do. they had invested in banks that represented about 3/4 of the entire american banking system. our remaining investments today are in banks only 10% of the americ bank system. that's happened in just over 20 months. as you know, we're - and i'm happy to go through this in a more detailed, we are along the road to the exit from the automobile industry, from aig, and, of course, all of the nation's banks. now as many f you said, a key test of crisis response is are you leaving the system stronger

stronger before the crisis? in contrast, the american financial system is much stronger than it was before the crisis. there's a very strong financial system, the weakness parts no longer exist. the remaining institutions had to pass a very rigorous test for market liability. they had much stronger capital provisions than beore the crisis, and much higher than is true for the international competitors. and the dodd-frank bill gives us tools for oversight for crisis prevention, crisis resolution to limit moral hazard rsk that will be the model for the world going forward and address the critical weaknesses that help cause the crisis. for those reasons, because the system is in a much stronger system than today. if growth in the future, economic growth in te future proves weaker than we would ope, it will not be because of the remaining channels in the

financial system. it'll be because this was the crisis caused by millions and millions of peole taking on too much debt. and it takes time to grow out of this crisis. it will not be because of the financial system is providing a constrain on access to credit on the scale that will limit future growth. mr. chairman, can i make a few final remarks. >> yeah. >> we face a lot of challenges ahead. i'll list what they are. obviously, they are housing small banks, access to credit for small businesses in particular, the challenge that you refer to, mr. chairman, of winding down prudently, carefully to protect the taxpayers interest in what is the set of investments in the system, implementing dodd-frank, and layingout a broad reform from the season in the housing finance system. that's a lot of work.

overwhelmingly thogh, how to get the economy growing. that's the ost important thing we can do for housing for small banks for access to credit more generally. that's going to have to be the focus of the congress' effort. i want to conclude briefly with two final remarks. it's very important -- you have been gracious. it's important to step back and give credit to my predecessor, henry paulson to the federal reserve board and staff. the minimal of the new york fed, chairman sheila bair, and i want to list them for you. lee sachs, irv allison, and matt ker. they designed a complicated set of programs in a short period of time for which there had been no president which is the huge knowledge as a much more

successful than almost anybody expected. of course, they did the necessary thing. i want toconclude by just acknowledging how important the work of this panel and the overnight bodies that were established to look at what we were doing. i think one the great strengths of our country is that we subject the judgment of public officials to very difficult rigorous, independent oversight. i don't agree with all the judgments that you have made, or the judgments that it's been faced with. but you have -- you play a necessary function. it's part f rebuilding confidence and public institutions in the united states. we have been very careful where you've made recommendation that we were confident. we have adopted those recommendation. we will, of course, continue to do that as we go forward. i welcome a chance to talk about these things with you, and look forward to respond to some of the observations. >> thank you, mr. secretary,

written testimony and member of the house is discussing the $25 billion number. are you comfort? >> i think it's high. it's uncertain. it depends on what happened to the eonomy and financial markets. butbased on the things you can observe today, whether there's a market crisis for investment, and based on what's reasonable about the trajectorof our housing programs, i suspect the number will be high. >> you talked in the panels too about how well things are doing and the information system corporation and things like that. what do we do to finish this out and do the best we can. october 3, limited modifications. what's your thoughts on what you can do in the rest of the t.a.r.p. to get the banksbanks start lending more money? >> charge contribution to the financial -- to the remaining counsel is largely over.

we have authority still to continue this set of housing programs to make sure they reach as many people as we can. beyond that, t.a.r.p.'s contribution will be very limited. the principal thing we can do to help banks, make sure we are doing as much as we can. the burden for that is going to fall on the new small business lending facility that congress passed in september of last year. >> i mean, you basically say that t.a.r.p., there's the fact that banks aren't -- have all of the hours on hand and i want to use something that has to be dealt with in a different way rather than on the t.a.r.p.. >> you know, i think this is an important thing to look at. what matters in crisis response is to get credit flwing again. because it's the oxygen that economies require to to cover. how could you measure how effective they were? the only real measure is what

happened to the price of credit. how much it cost for a business to borrow -- for a person to send a kid to college, for municipal government cost them a mortgage. and all of those measures is a cost of credit. as you know, we're at panic levels in the fall of '08, and panic levels in the early of $09. if you look at how much banks are lending, lending volumes are lower than they were before the crisis. but that is necessary no surprise because this was a crisis brought on by the reality that pple had borrowed too much. when the economy shrinks, the actual outstanding volume of loans is going to fall. but the test of whether credit is more available or not has to be mentioned in the price of credit. >> i got it. i understand. that's a major objective of t.a.r.p.. they talked about eception. when i traveled around, i tak to the people that go to banks. people not just in the home

business, everyone is like the banks won't lend me the money. now again, they say many tmes it's the regulators. i don't think it's the regulators. they don't want to lend the money. i agree with most of it, all of it, t.a.r.p., you did not feel there's any really -- again -- that's a good enough answer. how about now the other problem that we have, again, is not -- people are out there not having jobs. earnings are rough, and corporations on their balance sheet in cash. they go to the point of actually, you know, buying back their stock. and they are saying, hey, man, this is like lending me a cake. my point is there anything that you can do under t.a.r.p.. the reason that i raise it, everyone here, all six of us, we

have talked about t.a.r.p., successes, we've all said the same thing. the problem that we have out there now people don't have jobs and people can't borrow money. so maybe it's perfect -- the perfect answer is no. i'm just saying when you look at the corporation and where they are structured, is there anything that you can think of because it's important? >> i think the most important things for the government for the policy now is to put in place things that will hel raise the rate of economic growth and speed the path of getting more americans back to work. but t.a.r.p. itself now has done what it had to do. which is to get the markets to reopen for credit. but the burden for achieving a more rapid pace of growth, getting more investment back to working in the united states is going to have to come through other policy instruments. >> mr. mcwatters, i'm sorry. >> thank you, senator. mr. secretary, when you consider

the potential legal and economic consequences in the falling five things, i'll read them, one is the foreclosure documentation irregularities, the signing problem, the failure of some securitization trust and others to obtain the notes to properly assign mortgages and trust that's required by local law. the challenges presented by the mortgage electronic registration, the exercise put by securitization trust as well. number five is the following wrongful foreclosures suits in other legal actions. are you concerned that any of the largest financial institions will experience a solvency, liquidity, or capital crisis as a result of these items? >> no, i think they will pose very substantial problems to the system still. i should acknowledge because of

the seriousness of the problems, we have a task forc chaired by myself and mr. donovan that includes 11 agencies, bank supervisors, fha, the department of justice, and the ftc tha's undertaking a look at all of those concerns so we can get a better handle on the potential risk. more importantly to fix them and make sure that people are disadvantaged by the mess are provided some relief and make sure that looking forward homeowners still at risk are given a better chance to stay in a home they can afford and make sure we fix the system for the future. verysubstantial challenges still. the task force is likely to be in a better position to provide evaluation of where we are, and what's next some time in the first quarter, i hope early in the first quarter. but do you foresee having to implement a program to purchase

distressed or troubled loans from the financial institutions themselves? >> i do not. >> okay. as far as you can tell now, no t.a.r.p. ii. >> no. >> okay. what about rating agencies? do youbelieve that rating agencies themselves may take a different prspective and what's these particularly put in rights and exercisd and judgments come down, the judgments may very well be large. do you think that rating agencies will react properly, over react, downgrade stock? >> i would never want to predict that rating agencies would act appropriately. by the nature, because the future is uncertain and is complicated, are, you know, -- not to be unfair, react slow and

late these things. i wouldn't make any judgment on whether they are going to be wise or early or late on those things. >> okay. >> so to recap, there maybe some systemic consequences but they do not rise to the level of needing t.a.r.p. ii or across the board repurchase progm. >> i didn't use the work systemic, i said they will present serious challenges to the system as they have for a long time. we are not first inning of the housing crisis. this started and peaked at the end of the 2006. and it's going to take some time still for for -- for investors, d rating agencies. the markets finding it's way now to feel more comfortable on the risk. it's going to take a little bit more time. >> do you anticipate the federal reserve may use t.a.r.p. and the funds to puchase some of these disstressedded as off of the

books of the financial institutions as much as the fed did in i? >> i'm very careful not to talk about that anymore. i respect the tradition is the secretary of treasury shouldn't talk about monetary policy. direct it to them. shouldn't go further. you should direct the question them. >> okay. my concern is in the opening remarks. that we in the fed was able to purchase the $250 billion of government for mortgage-backed securities was because of the bailout. fannie mae and frddie mac left to fail, they could have been did done qe i but would have been purchased a market place below face. >> can i respond to that? :

>> when you look at the overall cost of the crisis, you have to look at two things. one is the direct cost of the programs, fed, fdic, fannie freddie, t.a.r.p., money guarantee fund, ect.. you have to look at the economic cost too, and the overall of co revenues, unemployment insurance and things like that, but on the that broad measure of direct financial cost including the interventions of fannie and freddie, the overall costs will be incredibly small in comparison to almost any experience we can look at in the united states or around the world even in much less damaging crisis and that's bcause of the effectiveness of the overall response. >> okay. i agree, all factors should be considered, but sometimes those factors are not mentioned in the sound bites. that's all. >> thank you. >> thank you, mr. chairman, before i ask my first question,

i think you mischaracterized my opening remarks making me more of a critic than i am. >> i didt mean to. >> i think it's clearly stronger. i think it's nonetheless weak. now, mr. secretary, in our last hearing, your colleague appeared before us a gave me concern about the policy on foreclosures. i think i took that concern more out on her than perhaps was warranted than given it may be more warranted to be taken out on you. >> i welcome that, and she's excellent at what she's doing, but she can take it too. >> mr. secretary, i concur with your judgment on phyllis, but i wanted to raise these matters with you directly. in her testimony, ms. caldwell stated in foreclosures, slowing

them down "may exert downward progress both in the short and long run." mr. secretary, i'd like you to respond to the simple question which is in the view of administration. do more foreclosures equal lower housing prices or higher housing prices? >> can i ask you a question first? >> sure. >> just for context. do you support a compulsory moratorium? >> do i? i personally support a moratorium as part of a lger solution. i think by itself, and here we may agree, i think by itself a moratorium is not an answer. like any kind of delay, it doesn't get you where you need to go. i have felt for years going back to 2007 as we mentioned, that a moratorium wld be a helpful incentive for the parties to

reach private solutions, but the question is, i'm happy to answer your question. it's my turn to ask questions. which way do housing prices go, up or down? >> well, i don't think that's quite the way to think about it. you're right. if you could prevent or if you can slow the pace of avoidable foreclosures as we did affectively through these programs, that was one factor that contributed bringing a measure of stability in house prices when most people thought house prices would fall 20-30%. that's not the right question right now. the right question is would a broad comprehensive mori tomorrow yum -- >> that's not the question i asked because actually i don't se the moratorium as -- the moratorium is a subset of a basic question that i think the

administration's statements over the last few months have clouded which is are foreclosures good for our country or not? >> no, they are not good for the country. >> and are they not goodor the country because they raise or lower housing prices? >> again, let me try it this way. if you were to stop foreclosures from happening and suspend the process nationally for an indefinite period of time. that could hurt house prices. people were unwilling to buy and people sitting in neighborhoods in homes where at the een center of the foreclosure prices might se prices fall further because it's a much longer time to work through this process,o there is a reasonable -- >> mr. secretary, isn't that only true at the end of the day everybody gets foreclosured on? >> no, that's not true at all. let me say what i think the

right approach is. i think that, and we have made this very clear and i think we'll be successful in achieving this. we did not believe that banks should move to initiate a foreclosure process or continue it if they cannot be certain that or have the legal basis for doing so, and if they have not given that home owner every opportunity to participate in a mortgage modification program. now, that approach -- >> but, mr. secretary, that approach appears to me founded on a belief that foreclosures all other things being equal, more foreclosures are bad for the economy. i don't understand whyhe answer is not simply yes. they are bad, and one of the reasons they are bad is because they lower housing prices, and if i might refer to the testimony again, in her testimony she said that 25% of current home sales are out of foreclosure. that would appear to be a poe tent downward force on housing prices. do you disagree?

>> i disagree with your assessment in the merits of that approach. yes. >> you disagree with the notn that 20% of the total sales in the housing market is foreclosures? housing prices are down. how can you disagree with that? >> that's not the right way to think about that. >> i don't understand why this administration can't answer the question of whether foreclosures drive prices up or down. it seems to me you're covering for something, and my time has expired. >> mr. chairman, you know, you're asking an interesting economic financial question, it's a question for economists. you know both sides of the argument. it's clear on one se and understand your position on it. the question we face though 1 what is the most effective responsible thing we can do as a country to make sure the people at risk of losing their home but have a chance of staying in their home, have the chance to do so. that's the basic objective.

now, we have a lot of other things to worry about too, cleaning up this necessary for the future, but our overwhelming occupation now is what can we do to make sure we help people stay in their homes and make sure we get through the damage remaining at least risk to the innocent who suffered so much in this crisis. >> we'll take that up in the next round. >> thank you, mr. silvers. >> mr. secretary, so in my opening statements i read a quote from professor ken on how a proper assessment would be conducted that needs to price the risk taxpayers took during the financial crisis, so begin that, i guess i'd like to get your thoughts on what the professor said, the importance of understanding we put a lot -- the entire financial, you know,

all of the financial risk,ou put a lot of taxpayer money at risk, and how do we assess that and think about that as a cost? >> i have a huge amount of respect for the professor, and of course what he said is right. you have to measure return against risk, and there is is a very thoughtful set of questions one should ask whether we price this investments appropriately, and oking ju at the financiareturn independent of that is not a fair way to evaluate whether we got that balance exactly right, but i believe we did, and let me tell you the basic theory on the approach we offered some evidence for that suggestion, and this is not -- it's oversimplifying a little bit, but in a financial panic, in a financial crisis, what you want to do where you have to make energy assistance available, you have to price it below the cost of credit in the market of that time because credit is not available.

this would be below that, but it has to be more expensive than credit would cost in nmal conditions, and the virtue of doing it that way is as things normalize, you're more easily to wean the dependents of the market from the programs because your investments will then become extensive relative to the market. there's no perfect place between those two things, but you can't say because we price our investments below the cost of credit available in a market at a time of a financial panic, that we underpriced those investments. that's not a fair way to evaluate or a sensible way to run a financial emergency, and in this case, i think, we passed what, you know, what the central banks call classic lender last resort doctrine, and the best test of that is how quickly we've been able to get out of the investments, how quickly, for example. the feds proam were wound down

and the emergency guarantee programs. they proved to be expensive as growth started recovery and credit market started to reopen. >> next, i certainly, i guess i agree with you certainly that the study is the most comprehensive study out there on the impact of the financial crisis. i guess my own reaction is i consider that to be very disappointing begin th i would -- given that i feel it's a fairly short study, a 9-page paper. i usually make students write much longer papers. it's hard to see how in nine pages you can do a fair job of evaluating this complex situation. i think they provide little documentation of the method they use, they make fairly strong assumptions and consider what i feel to be a faulty methodology,

and so in my opinion, we need a much more comprehensive -- we need more comprehensive studies, and again, i think part of that is going to be a function of the information that's out there that is made available. in my opening statements and as we've said a number of time, we pushed treasury to provide more data and many data and collect more data, the most recent report continues that. i guess, you know, give me your thoughts about -- your efforts to do that and to do a comprehensive or to allow a comprehensive analysis of the financial situation to be done. >> i completely agree a necessary condition for people to evaluate is better data. we've been fair on the programs and you can judge the market impact very easily, and i'm happy to continue to look at ways to get more data out there.

the financial reform legislation does establish within the treasury and office of financial research wit very brord authority to improve the overall data availability to markets going forward, and again, m happy to look at other ways to get better data out there. there's much more out there than there was before we came in on all these programs that provides a rich body of evidence to evaluate their effectiveness, but i'd be happy to do better. >> my time a up. thank you. >> thank you. mr. secretary, as you can tell in my opening statement, i spend a lot of time focusing on the nonhit modifications, the mods performed by banks and services outside of the program. six months ago when you were here, we discuss the the same topic, and you agreed thisas an important part, and i think because of the additional

information that the treasury has shared since that time, we now know it's even more important. in fact, 70% of the difications are now in nonhamp mods three to one. do you agree that -- what's your assessment? ar these the way forwar are they sustainable, and what's your assessment on these proprior tear modifications? >> i spent time for this hearing on these questions. how much do we know about those mods and the quality is not so great so far, but i think the general sense of my colleagues is that the majority of those modifications are lowering monthly payments quite substantially, and the -- one of the most valuable things we did in setting an industry standard for modifications is give a bar people couldn't sort

of drive practice too, but i would like more data on that, and we'll look at ways to do that. >> you're right. eng the information coming out about reduction and modification payments is out there, but isn't the heart of the issue the stainability and the length of the modifications under hamp. those modify cases are five year and then set to the low rates of tod. we doamentd know the information -- we don't know the information. >> i agree. the three measures to look at are what is the magnitude of the repayment reduction, how long is it in place, and what is left in terms of the remaining balance of obligations after the modification period expires, and, again, as i said, we'll look for ways to get better information out there to asees those -- assess those programs. >> the hamp monthly reports have been improving month after month

and now have greater information distinguishing the performance by servicer. last weekn the "new york times" a big story focused on large servicers, nonhamp modifications and highlighting the differences so in the cases of borrowers who were denied a hamp modification only 14%, for example, received a nonhamp mod, bfa, but over 40% received a nonhamp mod at wells fargo. how do we explain these differences? >> i don't actually know. it's a very good question. i'm happy to pursue that with my colleagues to give you a better sense. >> yeah, to the extent that this type of data, and we had the same discussion with phyllis caldll saying a lot of this informion is held by supervisors, and to the same

extent that this data has been voluntarily provided with respect to the hamp mods and i think the information with the to with respect to the nonhamp mods would be helpful to the program. >> as you noted one of the things we've done is put out very detailed metrics of individual servicers under hamp, but under a whole range of other measures and if there are other ways we can improve the quali of information out there, that would be good, and it's valuable not because it gives a cnce to look at it, but it changes behavior. >> yeah. >> it serves as a conscious. >> i think what i read in the times article may be misinterpreted. it doesn't mean wells is three times better, but the portfolio itself has characteristics that may drive those. we talked about in the past also

a need for a performance mortgage system, similar to the origination side. do you have a, you know, a view as to the need at this point? do these types of data needs demonstrate the need for a national reporting requirements for reference data? >> well, i completely agree that we can do a much better job with much better data that's out there for the world at large, and again, i happy to look for ways can do that. >> thank you. >> thank you. looking forward, and you know, trying to figure out what to do in the remaining days and in your written testimony you talked about the second lien program and unemployment program. the second lien is a major promise. we have a servicer as a second lien, and a bank as a first lien, and the servicer won't want to make a modification. it's been around for awhile now, and based on the data we see,

it's not what we all would like to see. i think i can say everybody. do you have any thoughts on getting this second leenl program up and running and moving? >> it took a very long time to get up and running and only been in place for a very short period of time, but i think it's very promising in the sense it achieves the simple em -- imperative. if the first is modified, the second has to be modified. we have the capacity to do that and now better incentives to do that so i think it's very promising, but it will take time tovaluate that. >> do you have any idea on how much money is in that program? >> i thought you would ask me new estimates on what we spend. >> i look at this as a way, i think the panel does too, that this is b problem. i also realize this is extremely complex problem and getting up to speed will take a long time. is there anything we can do or

you or anybody to get this program to be all it can be? >> we're doing everything we can with a tremendous talented group of people who are on this all the time. we'd like the reenforcement, and the more we shine a light on pempers the better we can do. on the cost investment, i don't know how much we'llpend on this, and we're in the process of another reevaluation on how much we'll spend across the programs. we aren't in a position to reveal that until the budget, but you'll have a chance to look at it then. >> good. right now, it's not budgeted for money because there's no incentives, yet clearly, we start on the hamp program, we were not beginning to have unemployed, but that shows the difficulty of the program. now, when you have someone to look at the debt on income ratio and people who needs modifications the reason is because they are unemployed. a second lien prram is really

key to making this whole thing work. what are your thoughts about the unemployment program? >> i agree. servicers are required 20 provide a three month fore barns. that comes later in the individual and comes months five to eight in their period of unemployment, so it has more value than people think. the other program we have, of course, is the programs with a variety of housing agencies providing resources to help them run programs to help the unemployed, and you made that point that the principle factor which is driving foreclosures today is not what was at the heart of foreclosures of being in a crisis which is as you know a set of broader lending practices. now it's really about unemployment and that's why it's important to emphasize that the most important thing that will affect housing prices and the number of foreclosures and lay lowing people to --

allowing people to stay in their home is what the government can do to get the unemployment rate down quickly. >> t.a.r.p. is ramping down and hamp is ramping down. do you have any thoughts on the programs and this is an important issue and so much has been learned on this. is there some suggestions you could come forward, you don't have to right at the table, but i think this is a subject of leslation, you know, a new program funded, this is still a probm, and said it and i agree this is a program years out and it's key to the recovery, and, you know, we've learned a lot in the t.a.r.p. program, but now we're not making modifications. if you have thoughts, i'd like those, but also a statement on paper. >> i'd be happy to think about that, come back to you a enmy colleagues can talk about that in detail. i think it's important to recognize.

the -- there have been a lot of capable people spending a lot of time looking at broad different strategies to address the housing crisis, and there are people in this room and people around the country who have suggested much more dramatic departures of approach in the past. this would all require legislation and some require substantial additional resources, be -- but i think the fundamental question is really a different question which how many people do you think you can reach? the principle gap between the roughly 5 million americans today that are late in their loans and the numberf people likely to get a modification ultimately is really about the following, and just looking at those numbers in broad terms. of that 5 million, roughly 2 million are now potential

variable for hamp and the modification programs. the other 3 million americans late on loans fall into different categories, but many of them are individuals who took out loans for houses that are expensive, above $625,000 or whosemortgage burden today is below their income meaning they can stay in their house or were investors who had a second home. now, that's not all the 3 million. some of that 3 million is from loans with services who don't participate in our program, some it is a people who there's no economic case for helping them stay in their home. it's better to help them through other ways, but thinking in a dramatic approach to reach millions of americans, you have to decide whether you want to extend the benefits of the programs using taxpayer's money to the class of the americans

who fall into those categories, and that's something weooked at very carefully. we did not think this that was a reasonable policy choice and not a good use of money because a substantial fraction of those people were investors who were in a second home or an expensive home or who can't clearly afford to meet their payments. >> there's still, you talk about 3 million people out there who are not in that situation who need help who we've learned about how to deal and the services and second liens, we learned about the unemployed, we've learned about all these thgs to get those 3 million, and they are extremely important to whether we're going to deal with what everybody on the panel here said how are we going to get out of this and if hoing doesn't start being more productive, we're in deep trouble. there's a combination of people that kind moral obligation to

help who are not subprime people, people who do it right, got unemployed through no fault of their own, about to go belly up, we have an obligation to help those people morally, but what makes it binding is t do it economically to get the economy moving and move on to the next step. no one, you know, my mother had a safe nothin worthwhile in life is easy. this is very, very, very difficult, but it's also very, very, ry important. >> i agree with that. our work is not done. the government's work is not done. the damage is still profound and it's going to take a long period of time, and again, the most important thing for governments to understand in financial crisis is you have to keep at it, keep working on it. you can't stop -- >> right. >> you can't stop too early, and as y know in looking at the foreclosures at risk still and unemployment at 10%, we have a lot of work to do as a country.

>> one of the things to do is to put it together so next time this happens, god forbid, and some way to have an approach to deal with the whole thing, but in interim, we're still here as you said in a deep hole, and, you know, anything that we can use from what you've learned and wh you people learned from hamp, we shouldn't just, you know,say, okay, it's now april 3rd, good-bye in terms of anything. >> we're going to be at this for a longer period of time than that. >> as you said, there's lots of things hamp can't do. i'm sorry for taking so much time. >> thank yu, senator. mr. secretary, in your opening statements you said that the financial institution were basically stronger today than they were a few years ago, that they have stockpiled around a trillion dollars and excess reserves earning 25 basispoints

so approaching the question of lending, it's not a question of insufficiency of supply. there's a trillion dollars they can loan tomorrow if they wanted to, so there has to be a problem with demand. why is there a problem with demand? i mean, from my perspective over the last two years there's been a great amount of uncertainty interjected into the economy to people who sit around their offices drinking bad coffee out of cups who really make decisions on hiring one person or two people at a time has simply said, you know, i think we'll hold off on that decision. what's going to change in that perspective over the next six months to a year? >> i think the principle source of uncertainty remaining is uncertainty about what is going to be the pace of growth and demand for someone's products? as principally a question about how fast is our economy in the

global economy going to grow, there is more uncertainty about that than is typical because of the scale of the damage caused by the crisis, and the basic shoal -- shock provided in the confidence in the depths of the panic. those scars last a long time. that's understandable. people are still economically secure today in terms an they were at any time really in generations in this country because the crisis was so severe. that's going to take time to heal, but it is healing. the best measure of getting better again is what's happening to the underlying pace of the demand? what's happening to forecast of demand? those show gradual healing, and looking at how companies are behaving, is suggests optimism. i'll give u some measures of that. as i said, the private sector job growth is faster, stronger than have been in the last two

recoveries, and business investment spending in equipment and in software ran at a rate of about 20% for six mnths of this year, about 12-15% in the third quarter, and still looks quite strong, so businesses are spending again because they want to make sure they have the ability to participate in the recovery that's coming, and that's encouraging, and again, that's going to take a little bit of time to heal still, but i'd say the best thing to say is gradual healing, gradual healing in confidence, but ultimately, what's going to generate more confidence is just the reality of growth getting gradually stronger. >> okay. thank you. november17th, the federal reserve announced another round of stress tests, but for reasons i'm not sure i fully understand that the stress tests are kept secret and will not be disclosed. i doubt that you made that decision, but can you comment on

it? i guess i'm troubled that somehow transparency in this is not complete. >> well, i think as you know, i am a very strong advocate and principle architect of the decision in early 2009 to force our major institutions to go through the stress test and disclose the results in enough detail so investors could assess on their own whether they were realistic, and that was a remarkably affective approach because the firms raised capital earlier, and if you contrast that experience with what europe is still going through, you can see the benefits of having a very detailed level of disclosure on conservative assumptions about potential losses. it's a vry good strategy, and i'm very confident that a regular part of risk management in the future in the system will be regular public disclosure of stress tests by major institutions. i can't speak about what the fed

announced recently, but i'm very confident looking forward we as a country will go through regular publicly disclosed stress tests of our major institutions. >> yes, i know though, but every day we read in the papers about rides, lawsuits, signing, and a lot of these stress tests, i think, were initiated based on that. i ink it would be helpful to disclose. let me ask another quick question. do you believe that fannie mae and freddie mac should ride down in the participation in the fda's short refinance program? >> there are, you know, we have a principle reduction program in our treasury housing programs, and we, a the fha's what's called in shorthand, short program, both those things we think have a lot of benefits and

we can use a pretty good economic case for fannie and freddie to participate in those programs, and we're in the process of talking to the fha about those, about the merits of those programs, about their concerns, a i can't say at this point whether they're likely to adopt them or not. again, we want to understand their concerns, and they have a different set of objectives and in some ways different constraints, but i'm hopeful they find a way to participate in as many as these programs a possible. >> okay, ieed to finish up. if you are successful in helping them, and i think they are pressured, what is your objective cost of doing this, riding down those loans? >> there's two ways to think about the costs in this. remember, fannie and freddie an the government own all the risk today, so if you do things that improve the odds that house prices will be higher in the

future, that defaults will be lower in the future, then you're going to improve the overall quality of the portfolio and entities of government. think about the financial imp cases of the program through the broader prism which we do and we want to encourage the individual agencies to do that as well. >> okay. my time is up. thank you. >> thank you mr. silvers. >> i appreciate your answers to the questions. i found both the ma crow part and the financial answer to the gse issues, i think you're spot on. i'd like to follow-up more on the question that my colleague raised about nonhamp modifications. first, let me ask you this. cbo as part of the $25 billion number is projecting on the a $12 billion expenditure out of a potential 7 a 5 --

75. do you agree with that? >> i think it's bad news, but think it's low. it's too low, too pessimistic. what we set aside was more like 45 or 50. they expect we spend 12. that's too low. but we're going through an assessment, and we'll share that with in the sometime in the first quarter. >> you're not satisfied with the type of overall impact that projection would appear to presume? >> look, my obligation is to make sure the programs reach as measure people as possible, and the more people we retch, the more we will be spending. -- i think it's a good use of the limited resources we have in the country because of the returns in helping the country in the housing crisis areery high overall. >> i want to say one thing in response to the question about how you evaluate risk and return these things, and i think it's

straightforward. you have to look at, you know, we got a 20% return on some programs relative to what risk, but, we're the government. we're not an investment, not a hedge fund, not a vulture fund, and the impact of the funds should be what did you do to overall growth access to credit as a whole. when you think about the return of the taxpayer, the most important return is not the financial return to the treasury and up vestments, but about the broad impact. >> no, in fact, mr. secretary, your remarks are helpful to me. i wanted to ask you about that precise issue in relationship to the term you used several times around foreclosure -- mortgage modifications which is the question of what the homeowner can afford. can exactly do you mean by that term? do you mean what the homeowner can afford consistent with what?

because if -- to be more precise about this we know what the -- it may be that there's a gap between what the homeowner can afford and what a financial institution views as the point at which they would start to lose money on the mod. why don't we think of the gap in light of what you just said about the larger negative foreclosures which is what i was trying to get at in my earlier questions. >> well, no perfect answer to this. ed standard use in the -- the standard we use in the programs is we want people's payments to be reduced to 31% of income. why? because on a bunch of evidence, that's something that suggests people can sustain over time. >> that's not what i'm asking. i know what the number is, but when that number supports a payment that's here, right, and the npv model, the model that

supports the bank, shows a number here that the people can't afford. that's a gap in the bank's interest and homeowners' interest. in that gap means that you go to foreclosure, then all that negative stuff on our economy you described earlier happens. now, in order to close that gap, yove got to take a hit to principle, right, and the bank takes a hit if they don't like, is that -- it seems like we're basically saying when that gap opens up, we basically let the bank make the call. am i right about that? why does that make sense? why shouldn't we be askinghe banks to take something of a hit so we get more of across our whole real estate market better outcomes? >> it's a very good question, and you're right that part of the difference between the number of people we've reached

through permanent modifications and those we haven't is because it's relatively small amount of people where the npv return is negative. let's think about what you're suggesng. i think to decide that we're going to take the taxpayer's money so that people can afford to stay in a home that is really beyond their capacity to afford because we want to avoid the broader negative consequences, clat raj damage -- collateral damage. >> yeah, but i wasn't asking about the taxpayer's money. i was asking about t bank's money. >> this is a broader question that your chairman raised earlier is we do not have the legal authority to compel certain types of performance by banks in this stuff.

now, congress had decided to give it to us, i suspect they uld not, they could, but that option is not an option available to us at this time. >> mr. secretary, i mean, i disagree with your characterization of the leverage around the question which i think is implied by your statement about not having legal authority. i think the web of rips that -- relationships that exist with the gse's fed, and the like give you a fair amount of ability to open that question up. i want to take you one last place with the chairman's permission. given the fact this is a difficult problem and what is clearly a matter of numbers, the increasing reliance of nonhamp mods across the market to drive the mods, i'm puzzled by when i read, and maybe i read incorrectly, the treasury's opposition to having the state

agencies among the uses of the money that they've gotten from hamp use that money to help homeowners get counsel so they can then have a better shot of negotiating mods. >> you're referring to legal aid? >> yeah. >> that's a good question. we spend a lot of time looking at this, and of course, we do provide resources to help homeowners decide eel jilt for the programs and participate in the programs. the question congress raised is can we use this authority to help provide more financial assistance to legal aid itself, and the way the laws of the land are written, we cannot legally use t.a.r.p. or hamp resources for that purpose. there's some amendments pending before the congress and legislation pending that would change that. >> how did you come to that conclusion? >> very carefully. >> under whose advice? >> we consulted with a broad

range of lawyers across the government, and i'm confident their judgment is right, and that's recognized -- >> the reports you -- >> that's not true. we would never do that. we have lawyers at the treasury and justice department. >>you did not ask -- it's a false report that you asked a particular law firm, give me a moment, find the name of it. it's a -- it's just false that you asked -- i think i n help you. >> what's the name? >> i have no idea. i'm sure we asked people across like you'd expect us to do. but the judgment we rely on is the judgment of the respse of the people in the executive branch, and i think that legal judgment is the correct judgment although i'm not a lawyer. >> the letter from your counsel

says that legal aid services are not necessarily or essential to the implementation of a modification program. is that the core of your finding? >> no. i don't think you're reporting the letter in full. >> i'm not. that would take a long time. >> i'd have to read the letter again, but can i make a simpler legal argument? >> i want you to address -- >> congress by statute authorizes and provides funding for a particular function of government, then the geral judgment of lawyers is we cannot use another source of funds to supplement or enhance that separate -- this is understandable judgment by lawyers. >> wasn't that particular authorization passed after the decision not to fund? >> i don't believe that's the case, but i'd be happy to respond in writing to anymore question about the legal basis for it. i want to say that i think you were right that there's a very good public policy case for

using resources to help people take advantage of government programs, manage through a very complicated difficult modificati process. there's a good case for doing that, and i've been very, very supportive for more government resources for counseling for legal aid generally, and where we had the authority to do that, we have made funds available, but there's a legal constraint touse t.a.r.p. on legal aid directly that law would have to be changed to rely on. >> mr. secretary, it puzzles me when hedge funds get money, i believe they pay for lawyers, and it puzzles me a vast amount of t.a.r.p. money has been expended on legal counsel for the benefit obviously of the government. it seems as though lawyers are understood to necessary and essential component of all the transactions that t.a.r.p. and hamp -- that t.a.r.p. undertakes except

when homeowners need lawyers. >> that puzzled me too when i was first cononted with it, but i'm very confident the judgment our lawyers made is the right one. >> i appreciate your engagement with me on that. thank you. >> thank you. >> mr. secretary, switching gears here and talking about cars here for a little bit. sos you're aware in december of 2008, the decision was made to use t.a.r.p. funds to provide financial support to the general motors and chrysler. would you have done that? would you have reached the same decision if you had been secretary at the time? >> it was not my decision to make a you implied, but i was aware of the merits of the choice at the time, and i thought what my predecessor did

what was the right thing. >> i guess essentially this was to avoid going into bankruptcy which i think that was the alternative at the time. you've alluded to the estimate that a million jobs would have been lt through bankruptcy, so firms as large or larger than general motors have gone through bankruptcy as did lehman brothers, and our economy survived, so would the world really -- would the world today really have looked much different had general motors and chrysler gone through bankruptcy in 2008? how different would the unemployment picre be, and tell me why whether you think that's true and what you base that decision on? whatre your thoughts on why it would look different? what's different. >> look, market economies require failure. they don't work unless you allow firms to be failed when they cannot make things people want

to buy. in normal recessions even, not just in normal expansions, bankruptcy is an essential part of the functioning of an economy, but everything is different when you are in a financial crisis like what we faced in the great depression or what we face in this basic crisis, and in those circumstances, bankruptcy itself cannot provide an affective way to protect the economy from the failure of major financial institutions or even in the auto case, the failure of a concentrated number of major oviders, and i think that -- see, you have to think about those two different worlds. in a crisis you have to do things you would never do in a normal recession or certainly wouldn't do in an expansion. bankruptcy never works without there being a source of lending better in position of financing

because companies need to fund to go through that, and in a financial crisis, there will be no source of debtor position financing on a significant scale, and so in some ces, the government has to step in to provide that temporary financing, andhat matters most in the auto case is if you do that,ou have to do it on the condition that you bring about a restructuring to allow the fund to reemerge profitable and that's what the auto piece of the strategy was able to achieve. unemployment would have been much higher, millions more jobs lost if we had not gone through that, and i thought that was a very well designed use of government resources in an acute crisis. >> let's talk about gamc a bit and the exit plan. the government's plan with general motors shows a lack and the management team discussed publicly the idea of a 2011ipo.

given that the company is reported three consecutive quarters of profits, what is the metable for an ipo? >> quickly as possible. if you look at what we've done across the board, and we're way ahead of anybody's expectations, we're going to move as quickly as we can to replace the government's investments with private capital, take the firms public, and exit as quickly as we can, and we're working hard with the board of gmac to achieve that outcome. i don't know how quickly, but it's going to be mu sooner than we thought six months ago. >> change subjects again and talk about executive compensation. when mr. feinberg testified before our panel, he stated that is the culture of pay on wall stre has not changed in the wake of t.a.r.p., i think our work has not been successful, and it's not -- and if it's not being followed, it is a problem.

do you agree with him? >> if that were t case, i would agree with that. >> do you think that's not the case? >> very good question and a good time to be asking that question, and i guess i would say the following. we did two things over the last six months or so, # one in the dodd-frank reform act and another enactment for enforcing to bring about very substantial changes in compensation practice looking forward. first was a requirement for disclosure and give shareholders the right to vote on compensation packages, and the second is a set of standards on e design of compensation incentives at the federal reserve and bank supervisors are responsible for enforcing, and we'll know more about the results in the early part of next year. to date what you can say is there's been a subsntial shift in compensation so there'sless in cash -- less in cash, me in equity,

invests over time, more at risk of being clawed back if firms don't perform as well as people have hoped. that's very good, but i would say you cannot say today, and i would not claim we've seen enough change yet in the structure of compensation, and that's important to achieve because as you know, those incentives were so skewed to encouraging risk taking that they played a material role, i think, in what caused the crisis itself. >> thank you. >> thank you. mr. secretary, i think you may have anticipated my questioning around servicer performance because you may have preempted me by characterizing this as dismal in the last exchange, but i do believe it deserves further discussion. in fact, speaking pelosi who appointed me to the panel made public a letter that she sent

along with other members of the delegation, to the department of justice, to the fed, and to the occ, a letter that describes in 20 pages excruciating detail of examples of real stories from homeowners in deals with servicers. it demonstrates their frustrations and clearly despite a good faith effort on the part of the homeowners, failures by the servicers. you know, it highlights areas to respond in a timely manner, the timeliness of proceeding with foreclosures while at the same time proceeding with modifications as well as a continual evidence of losing and misplacing documentations. do we need national standards for mortgage loan servicers? >> i think we do.

there are a number of states including new york that have models out there. we over two years ago have put them in place, not only a registration of mortgage servicers, but one of the most comprehensive in the country that poses duty of care, specic rules of conduct with fair dealing with customers, with homeowners in requiring modification, requiring trained personnel, and requiring a data reporting requirements. is this something that could serve as a model at the federal lel? >> i think it could. i'm not familiar in detail with new york, but i know a number of people think very highly of it. we'll look at that model and others, but i think you're making the right point. >> in your efforts to stand up in the ktpb, do you see this as an early priority, one of the areas that's a mandated statutories for rule making?

>> i'm not quite sure how early that will come realistically, and as you know, we're focused overwhelmingly on that we're fixing the problems in performance and making sure we reach as many people as we can in terms of modification programs, but it will be a very important priority. as you know, we have a whole set of complicated work on defines new underwriting standards, defining what the residential qualified mortgage, what should be the basic future of the housing finances, and more generally, looking at these things together, not that we want to take too much time, but we have some time. we got this terribly wrong as a country. we want to make sure we get it right, and we'll do everything we can to get a durle set of fixes. >> how do we proceed to avoid a 50 stateroceedings down the road requesting data from servicer in 50 different formats. does this not have to be

priority? >> it will be, i just don't know yet. i can't be honest with you yet in if it's something 'll have a proposal in six or 12 months. i just can't tell you, but it's absolutely important, and we'll look at the model in new york and other states in the best way to proceed. >> with respect to the cfpb, do you sigh a new era of cooperation, my reference to a cooperative federalism between states and the agencies? >> i think we do. u know, we'll going to have a test of that in how we deal with these broad set of mortgage documentation problems that have been the subject of many of your earlier comments where we have a broad task force of agencies looking atthis and working closely can the states and a standing mechanism called the financial fraud task force working closely athe counsel established by law to give financial stability gets a seat at the table with insurance and

banking regulators. we're a country and we have a national financial system, and so if we're going to do a better job in the future of preventing crisis, we have to make sure these entities are working together. >> thank you, my time expired. >> thank you. just a big question. what's the current systemic risk of assets in bank how do you see it? >> i believe that the u.s. banking system has a very substantial amount of capital on their books today in the form of common equity against the assets they hold and the risks their taking, and i am much more confident today that we made the right judgments in forcing that much capitalism earlier, and that will give a reasonable process of coming out of this

stronger. i think what matters is the capital relative to the potential exposures sti, but firms are working down those assets, and most measures you see of performance of those assets now are improving and have been improving for some time even in mortgages. >> the financial system may be stroer, but we still have more concentration in the banking system. what's your opinion on dodd-frank, and what's happening more and more people are saying discussions in the hearings here and everything else, assume we're in trouble if a bank fails. what's your feeling on increasing concentration of the big banks? >> of course you're right that the system is more concentrated today than it was before the crisis, and that's an unavoidable consequence in a crisis. >> exactly. >> we still have roughly 8-9,000 banks. that's a great strength. we want to preserve that.

>> we got a few banks that are extremely big. >> we do, but not to underestimate the consequence, but they are much smaller of our country that is true of any other country too. look at canada, u.k., western europe, japan, even our largest banks are aller relative to the size of the economy that is true to that as a whole. if you look at the top 50 of the world, the u.s. banks are in the dwieshed on that list in terms of size. that's not to say that's not a big -- >> aren't they so closely aligned with the government? >> we would not want to be like them. >> exactly. the resolution sport these are still banks -- >> you know, the most important things that dodd-frank did were to give us the authority -- >> right. >> to force the large institutions to held much more

capital pong risk to the system as a whole. we have achieved that give us the authority to apply those requirements for capital, restraints on leverage that our banks, like aig or investment banks or range of other institutions that we're not regulated as banks before, and add you said, resolutions authority which is like a bankruptcy authority r banks so that in the event in the future, a bank like that makes mistakes that caus it to fail, the government can step in and unwind them, butt them out of their -- put them out of their misery, break them up without risk in the economy as a whole. i think we're in a better position in the future to prevent crisis of these magnitude and manage them care fry. we'll have crisis in the future, but the reform bill to the credit of the architects in congress today will help us fix the fundamental failures that caused this crisis.

>> but as you said earlier, when you're in a situation of financial crisis, bankruptcy is something you really want to avoid. >> you can't have liquid dation being a institution. >> it's better to do it when it's not? >> that's right. >> thank you. .. to force those institutions to

hold capital against those potential losses and because of that, because we brought a level of disclosure and reality to those balance sheets, those firms on balance were able to go raise a very substantial amount of capital from private investors and that's the best measure of the risks banks face looking forward. >> so if those assets are moved to market, it would not be a problem? >> the major banks in this country have the capacity to manage the remaining risks they face in their balance sheets that they took on in the crisis. >> fair enough. that's all for me. >> the firm i was looking at was squyers and dempsey. you did not ask their advice?

>> i am sure we have asked lots of people for advice. the question is, on whose judgment and what quality of judgment do we make those decisions? i am accountable for those judgments. >> mr. secretary, i would appreciate knowing whether or not you asked that firm for advice. >> happy to pursue that. >> secondly, this is much in the vein of the chair and mr. mcwatters' question. there is a lot of numbers in their banking system. i feel like i understand it and that is the value of second mortgages on the books of wells fargo. and there is about $100 billion on its books and that number hasn't changed very much over the last two years. that makes me wonder a lot about, a, the fact that that number is there and the size of wells' first mortgage servicing

portfolio makes me wonder about two things. one is, does that number bear any relationship to economic reality per mr. mcwatters' question and more broadly, do similar numbers on the balance sheets of the other major banks bear any relationship to the economic reality, and b, if you take that number and the putback risk number, and the continuing inability of at least this panel to understand what the underlying holdings in toxic first mortgage assets are, going back to our august 2009 report, take those three things and add them up. they seem to represent a threat to the capital levels of the four large banks. you seem to be quite confident they don't. can you explain why? i mean with respect to the picture as a whole. >> there is no certainty about these judgments. they're all -- they depend a lot

on what is going to be the path of the economy in the future. what we helped do and this is a necessary thing for any system to function is put enough disclosure in the market about the composition of those assets, their quality, the losses you may face on them, how they're performing, so individuals across our financial marketplace can judge for themselves whether the capital the banks hold is sufficient against those losses. again i would say the judgment i am reflecting is the broad judgment of most people that these banks all hold very substantial amounts of capital against the risks they still hold, they took on in the crisis. but you can look at extraordinary detail every quarter if not more frequently about how that stuff is performing and make your own judgments about how it's likely to perform in the future. >> if i might be allowed one final comment, mr. chairman, do you then feel -- do you disagree

-- the thing that haunts me about those numbers in relation to the question of the strength of our banks is that when you take that and connect it to mortgage modifications, and there seems to be a very fundamental question there, which is are we in a zero sum game between the strength of those banks and our ability to modify mortgages and thus both the well-being of the american public and strength of our housing markets? i clearly tell that you don't believe we are in a zero sum game but the evidence strongly suggests we are. can you explain why you think we are not? >> i think it's a fundamental question, i agree. there is a broad perception you share that the principal barrier to reaching people we should be able to reach through modifications is weakness in some ways among the nation's

major banks. >> i am trying to say -- i am sorry. >> maybe we should pursue this in more detail, but you have to come back and look at what is the source of the difference between people reached through modifications today and those who are not, and as i said earlier, it's principally about how we define eligibility, not about the incentives problems banks face. >> thank you. >> mr. secretary, i want to return to a comment you made or expand a little on a comment you made about risk taking. i guess i would argue that major part of the excessive risk taking was a result of a perception too big to fail, which after a certain point firms simply didn't worry about what the left tail of the distribution looked like. and so i guess do you think we -- have we put situations in

place that are pushing firms that are going to require firms to actually start thinking about what the left tail of the likelihood of an extremely bad loss? >> the two sources of financial crises classically are moral hazard, the perception the government will insulate you from the consequence of your mistakes and a fundamental uncertainty or optimism about how dark the future might be. the technical term, how adverse the tail is in the extreme event. i think in this crisis both were at work. moral hazard was the central part of what went wrong with the g.s.e.'s but the failures across the system maybe were not principally about moral hazard. they were a much more systematic failure of people to anticipate what might happen in the event we had a deep recession, where house prices fell substantially because that was not in the memory of most people alive

today. most people ran their banks, their businesses, their personal finances on an expectation that house prices would not fall. house prices fell dramatically and that failure to anticipate and plan for the potential adverse risk was fundamental to that. in part the moral hazard made that worse, but the failures were much more systemic from that. how do we fix that? we will never fix that completely, but what the bill does is allow us to constrain risk taking with constraints on leverage to offset moral hazard risk and set up a system where in the event these large institutions are at the risk of failure again, we cannot save them. all we can do is dismember them safely, break them up with less collateral damage and that will help reduce the expectation in the market that is pervasive in any financial system, that in the future when there is raveg of failure, the government will

insulate the firm from the consequence. we are in a much better position to reduce that risk going forward. >> one final question just building on that. until that actually happens, until we see that situation and we see businesses see how the government is going to deal with that, do you think that -- do we need to see that before they start believing that that's the case or you think they actually have started spoppeding to it with just -- responding to it with just on the belief that now everything has changed? >> you can't run the system on the hope that they behave or market discipline works that way. you have to be -- you have to do two things. you have to constrain risk taking, force firms to hold more capital against the risk of a very deep shock. that's a function of government. the government failed to do that. you have to do that as well as make sure you have the ability to let firms fail without causing collateral damage. the reform bill gives us those two authorities. that's fundamental. again we are going to have crises in the future and how

they are managed in the future will depend on the overall cost of them. but we are in a much better position to prevent them being this severe than we were before. >> thank you. you also have to anticipate where problems may develop with particular firms. >> yes. right, i think that you want -- you want people running institutions, running the central bank, running supervision that have that capacity to anticipate, but you have to recognize the reality that we don't know what the future is. >> it is one of the three things -- >> one of the key things. fundamentally you have to make sure your system is strong enough to compensate for the failures of individuals to anticipate, because that will happen, and that's why capital is so fundamental. >> i know. it's a three-legged stool. as you said, when you get it a bankruptcy, it's a totally different deal if you are in the middle of a crisis than if you are not. thank you. >> two quick questions.

mr. secretary, we both mentioned in our opening statements the unfinished work in bank lending. over 50% of the loans to small businesses are made by banks under $10 billion even though those banks only hold 20% of all bank assets. could you give us an update on the status of the implementation of the small business lending fund? >> we are working hard to put out a terms sheet very quickly so we can get capital to banks on a large scale as quickly as we can, and we are very close to being able to do that. >> could you be more specific? >> soon. as soon as possible. >> and then finally, in june when you were here and talking about the fund, you were relatively optimistic about bank participation. what is your assessment today on bank participation? will the structure of that program as you envision it overcome the tarp stigma that

was -- >> i hope so, but i can't tell for sure. there are two types of deterrents, discouragement for banks to participate. one is the stigma that it's a sign of weakness. it's hard to correct because people aren't getting capital from the government. the other source of deterps was the fear of -- deterrence was the fear of conditions that would make the instantaneous not attractive. that was the principal reason why a relatively small amount of purchases went to small businesses, why hundreds of banks withdrew their applications. i think we fixed that problem. >> that's the kerp we are hearing -- concern we are hearing. i think of it as two buckets, those banks already in the tarp and will they do this as a refi where the banks are not in the tarp program and the question they have and i appreciate your assessment is will that loan demand be there for them to utilize that capital? >> the question what is going to happen to loan demand is an

excellent question. i think it's worth noting that if you look at the balance sheets of the american private sector, nonfinancial corporate sector, it's not just the big firms. people have a lot of cash. that's not -- that's the averages mask a lot of differences and lots of small businesses are not sitting on a lot of cash, but what happens to loan demand will depind on not just how quickly the economy recovers but how quickly people start to work through those balances of cash they accumulated before the crisis and many built up in the early stages of recovery. >> thank you. i just want to say that we have four months more to go. in light of the problem out there, the problems out there which you talked about, we are looking forward to working with you right up to the very end to do what we can to see if we can get one more person employed and one more person into a house without a foreclosure. i want to thank you for your service and for your testimony

here today. the record will reflect we opened for one week so the panel may accept comments. this hearing is adjourned. >> thank you. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2009] >> supreme court justice elena kagan in her first tv interview since joining the court. she talks about why she wanted

to become an attorney. the interview took place in her temporary chambers in the supreme court. >> i think i became a lawyer for all the wrong reasons. i was a law school dean and when i was a law school dean, i used to tell people all the time don't go to law school because you don't know what else to do. but the truth is that's why i went to law school because i wasn't quite sure i wanted to do and i believed all these things about the law keeping your options open and i wasn't at all sure that i wanted to practice law when i started law school. but i thought, well, what could be wrong with having a law degree? and i got to law school and what i was amazed to find was that i absolutely loved law school and studying law in a way that i don't think that i had loved any other part of my academic experience. i had always been a good student, but i hadn't ever felt that kind of just passion for a

subject matter. so i liked thinking about law. i liked that law was something which was both an intellectual challenge and puzzle but also had very real world consequences, so that you could really think about using what you were learning in order to make the world a better place, in order to make people's lives better. so i found it endlessly interesting and challenging and in the end, i think i went to law school for the wrong reasons, but i was very glad i got there. >> the whole interview with supreme court justice kagan occurs this evening at 6:30 eastern on c-span. ? >> a look at chaleppings facing the obama administration. this is about 45 minutes. washington journal continues.

elcome the author ofwo books. triangulation is a loaded word at this point because there are a lot of democrats who are fearful that president obama is going to go too far right in making deals with republicans and we saw the anger particularly among house democrats and a lot of liberal activists over this bill. so the question is what posture will the president take as he tries to navigate through the shoals of a difficult political

environment. >> a week ago friday, the president and former president bill clinton walked to the podium. this is how it's depicketed this morning. the caption take your child to work day. the press secretary said they had no indication until after the meeting that president obama wanted president clinton to go to the briefing room. it continues to get some -- a lot of political buzz in this town. what is that all about? >> it was an extraordinary moment for starters to see the two of them there in the briefing room and then to have the incumbent president hand off to the former president to deal with the debate and the discussion over the tax bill. we know their history has been difficult with bill clinton as he has repeatedly said try to defeat braum for the -- barack

obama for the democratic nomination. they had some very difficult moments. they had more or less patched things up and bill clinton has become a significant asset for the administration in some of these fights. but to see them there in the briefing room and the story i heard was exactly that, that they popped into the area where roberts gibbs office saying how do we unlock the door, we want to go to the briefing room and say a few words to the press. robert gibbs said, well, give me a few minutes. i think i can rustle up some reporters for you. host: 4:30 on a friday afternoon. guest: there was a christmas party for that afternoon and one that evening. so the last thing people were expecting was to see either barack obama or bill clinton in the briefing room and certainly no one anticipated that former president clinton was going to take questions for half an hour

and he did. i wrote that that the next morning, it was almost as if he had never left the building and it looked like he was not going to leave the podium for a while. robert gibbs kept calling last question. reporters smartly continued to ask questions and president clinton clearly wanted to answer them. it was a remarkable moment. host: speaking of former presidents, former president george w. bush's book number one this week in the bestseller list. surprise you? guest: no, i think there is still such interest in the bush presidency. there is no question he remains a divisive figure, but a person who presided over as tumultuous a period as he did is likely to get a lot of readers for a book about what he did and why he did it and the justifications he offers for it. host: last week you wrote, the gains were made but the democrats can fix california. it's almost as if you write that

california was the great exception in the republican wave. the wave stopped just before nevada, and of course now the -- what was once the youngest governor in the country, now the oldest governor in the country, jerry brown dealing a multibillion-dollar state budget deficit. guest: california, if we weren't all as fixated on washington, california would be the big story in the country because of the fiscal problems and because of its size and importance in this country. but to have jerry brown returning as governor, 36 years after he was first elected, i remember when he was elected in 1974. a number of presidential campaigns later, he comes back to preside over a state that is in great decline, that is struggling financially, struggling economically, and a political system in sacramento that is regarded about as highly as the congress of the united

states is here in washington. he gets sworn in on january 3, and i know there will be a lot of people out there wondering just how he is going to be able to deal with this crisis that the state has faced. host: political reporting that the democratic campaign committee has begun the recruitment process for 2012. guest: no campaign season ends without the other beginning the next morning. i think we are seeing that in both house races and senate races. their primary is shaping up already and candidates getting ready to run. i think the irony is it's almost as if the house campaigns and the senate campaigns are starting even before the 2012 presidential campaign is starting. one change we are seeing this time is that the presidential campaign is going to start a little bit later and a little bit slower than we have been used to, particularly when you think back to the 2008 election. we already had candidates

formally in the race and we also had then-senator obama and then-senator clinton nearing the starting gate. the major candidates for the republican nomination aren't likely to get into this until spring and even some of the darker horses are taking more time. host: in this town, cnn announcing it's partnering with w murks r for a spring debate in new hampshire. politico and msnbc a debate in california at the reagan brear. fox news channel with a debate in south carolina. yesterday cnn announcing that they're putting together a tea party debate for the press dngs campaign. -- presidential campaign. guest: and the iowa debate. host: that's right. will all these debates happen? guest: not if we don't get candidates. i can't recall a time in which

more debates have been scheduled without one single candidate being in the race. by the time most of these debates are scheduled, there will be candidates. will all of those debates take place? i don't know. we had so many debates in 2008 that i think we began to suffer from some debate fatigue, and i think the candidates will be a little bit more resistant this time to doing every debate that is thrown out there. but i think it is a measure of how anxious and eager the media is for this campaign to start at a time when the candidates have decided i don't think i really have to get into it before january 1 or february 1 or even march 1 of next year. >> your colleague ron brownstein writes in the cover story of the national journal is the populist channel, culturally conservative, the managers connect more easily with college

educated republicans who tend to be more socially moderate and very concerned about the economy and the parallels, sarah pailen versus mitt romney. >> it's a terrific piece. ron is a friend and we wrote a book together and he is one of the smartest political reporters in this town. he is particularly good as this piece shows at looking through the demographics of presidential politics. what he has discovered is that within the republican party, there is a potential schism or likely schism between sort of upscale republicans and middle-class or downscale republicans, and that as the republican party has broadened out over the last 20 years, that schism has become more evident and mitt romney and sarah palin typify the two poles of that in their styles and approaches and their lakely voter support groups. >> let me ask you about speaker nancy pelosi. she will be the democratic

leader in the next congress. a profile of her in "the baltimore sun," she grew up in baltimore, her dad the former mayor. what changes do you think we will see in the next congress with john boehner taking over the speakership, no change in the leadership in the u.s. senate and nancy pelosi relegated to minority status? >> i think we are in for a very contentious period. even though i think what we saw -- what we are seeing in the lame duck session gives us some hints. the president clearly is prepared to make some deals with republicans, where and when he can, i think he feels that that is certainly in his political interest and probably also believes it's in the country's interest to do these things. i think one of the messages that the white house took out of an election that in so many ways was very bad for democrats and the president is that there is a significant part of the

population, particularly among independent voters, who want to see the two parties get things done, the gridlock in washington and the partisanship and bickering turns off a lot of people and they want to see some action. so i think that is what is going to motivate the president. but as we saw over the text bill, nancy pelosi and a lot of democrats in the house are very fearful that the president is going to make deals that they think are anathema to the principles of the democratic party. >> she was not at the white house friday. >> nor was senator reid, very conspicuous in their absence. >> scheduling conflicts? >> yes, i am sure that's probably right. it was highly unusual for them not to be there for the signing of a bill of that significance. i think what it did was it signaled the now significant gap that does exist between house

democratses and the white house. i think there is still a great deal of respect for the speaker and soon to be minority leader of the house, but there is no question that their agendas are different, that their twins sis are different. i think the president and white house are much more focused or i should say much less focused on the liberal base of the party and more focused on the center of the electorate. the danger of that is you need an energized base, and the president can only go so far in irritating the house democrats or the base of the party. so he's got a tricky job to do if he is trying to cut deals with the republicans on one hand and keep his base energized at the same time. >> if you just joined us or listening on c-span radio, our conversation is with dan bold of "the washington post." he wrote a book after the 1994

midterm election and after the 2008 presidential election one of our viewers saying doesn't it seem that nancy pelosi is the clear leader of the democratic party? >> no. i think the president of the united states is the clear leader of the democratic party. she certainly speaks for an important part of the democratic party. but i think that -- i can't recall an instance in which a congressional leader has eclipsed the president in leading the party. there are always tensions within political parties. we see it in the republican party, in the tea party versus the establishment, and we see it now in the democratic party between the liberal base and president over some issues, not all issues by the way, but that tension is going to play out, but at the same time the interest of both nancy pelosi and president obama is to maximize the democrats'

possibility of winning elections in 2012. the president feels the better he does as a candidate for re-election, the better the whole party will do. there will be disagreements about what is the best way to get there, but in the end, they are going to be allied even if they disagree in some of these debates. >> his piece on friday calling the president the comeback kid. >> yes, somebody had -- maybe it was e.j. dionne. i saw it on the website. these are two columns in a row he has written complimentary of the president who for the last two years he has hit hard over a variety of things. but he believes that the tax deal that the president cut was one in which the president got far more out of it than did the republicans. he wrote that column a couple of

weeks ago and now as the signing was about to take place as the passage was happening, he was essentially saying if in fact he wins re-election in 2012, we will look back to the day the announcement was made as the beginning of his comeback. so i think we have a little ways to go before we know the degree to which that comeback, quote-unquote, is really taking root. host: sean is joining us from phoenix. good morning. caller: good morning. how are you doing? host: fine, thank you. caller: about obama, the only thing you got to say is mr. obama, i am not really for the republicans or democrats or independent. obama is trying to do his job right. next thing you hear, obama is not and the americans -- he is a socialist. he is just like teddy roosevelt,

a socialist. having trouble understanding what the hell you guys are calling names up there. who is an american president? was he democrat? republican? or what? none of the above. he is a commander in chief of the united states. what he needs to do -- host: thank you for your call. let me bring you back to your comment yesterday. what the message was in the midterm election. guest: there were a number of messages, steve. we have talked about them since before the election. one is that the economy has created in this country a sourness on the part of a lot of the public. they are dissatisfied and for good reason. when you have an unemployment rate as high as it has been for as long as it has been, there is no question that people are going to be unhappy and a lot of people don't believe that the

federal government, whether it's the president of the united states or the congress or both, have dealt effectively with that economic crisis. what a lot of people have seen is money going to banks, financial institutions, auto industries, they see executives getting bonuses and they say what have you done for the middle class or the working class? so that's one of the messages that came out. great unhappiness over the economy. i think a second message that came out was unhappiness over the policies that president obama put in place to try to deal with these things. and particularly among conservatives and some independents, the feeling that we were throwing money at a problem and as a result of that, we were creating sizable debt for children and grandchildren in future generations, and that that size, scope, reach of government, however you want to define it, became an element of the midterm election. i think the third element was what i spoke about a minute ago,

is this question of washington is broken, that the two parties can't get along, that they spend much more time fighting among themselves than worrying about the good of the country. and so all of that became part of the mix throughout the course of the year and frankly we could see this coming for a long time. this was not a surprise outcome. but i think that what we have seen particularly in postelection polling is that while it was a defeat for the democrats and a setback for president obama, it was not necessarily a full throated endorsement of a republican agenda, and i think as a result of that, both president obama and the new republican leadership in the house have some proving that they still have to do. >> have you been following the no labels group, george will writes about it this morning, they met in manhattan, basically saying they need to find a middle ground to solve the nation's problems? >> yes. he is dismissive of it as is frank rich in his op-ed piece.

both of them writing, one from a conservative and the other from a liberal perspective. we have seen this at various times in the past, this effort to try to bring at least some harmony, some comity to our political debate. i don't know whether the new labels group will have any real effect on that or not. it's put together by people of good faith, i think. but it is a difficult thing to pull off. it is, as john glenn once said, trying to radicalize the sensible center. we have watched different groups try to create bipartisanship to create forums in which two parties could work together. on an individual basis, we see this happening. we see people from different sides coming together on some particular issues. but i think at this point in the

country, we are a very polarized political country. the republican party and the democratic party of today are so homogenous compared to what they used to be. the most liberal republican in the house of representatives is i believe probably more conservative than the most conservative democrat in the house of representatives, and that's not the way it used to be. so you have in a sense the country having sorted itself out into two camps, liberal and conservative and then some centrists in the middle, independent voters who tend to slide back and forth. so while this group has i think good ambitions, how do you actually put that into practice and how you convince people in the capitol up there or during political campaigns to lower the temperatures is a much more difficult thing. host: we will see some of that as we get the census information in this week and the redistricting process begins next year. barry is joining us from

tennessee, our live with republicans with dan balz. good morning. caller: good morning. i am grandson of a genocide survivor. obama promised he was going to support it, but instead he started flip-flopping and the support nancy pelosi going to put 252 h.r. on the floor today, do you think he is going to be able to stop it or do you think the congress will pass this resolution for hopefully finish this thing for the last time? host: are you following this issue? guest: i have not followed it closely. i saw some email traffic about it on friday. i would be surprised if they get this resolved.

host: can you speak to john boehner's meeting with the new republican governors that were here earlier in the morning and republicans try to coordinate attacks on public employees and privatize government, subsidize businesses. the largeer issue is what they're trying to get from governors. guest: one is the relationship between congressional republicans and republican governors. i think that's a potentially important one. if you think back to 1994 when the republicans won the house and senate in that landslide election, they had in the states a group of republican governors who had already been enacting essentially activist essentially activist conservative domestic policy.