assistance grants program to put an end to homelessness. the budget proposes $2.2 billion for this program. that is an increase of approximately $330 million over the previous fiscal year. it is however important that we focus on what works, and one of the models that i have seen work in the state of maine is that housing first model for aiding those who are homeless. we need we need better data to focus on all housing programs. this is proving its effectiveness through the florence house, a home for homeless women in portland. in addition to programs that effectively support the homeless, there is support for affordable rental housing. the budget proposes more than 19 billion for the rental

assistance program of which 1.6 billion is available for the administrative costs. that has an increase in direct response to some public housing agencies are having a difficult time administering their voucher programs and have actually turned it down, the vouchers as a result. that is very troubling. we don't want to overpay them for their expenses but they need to have sufficient expensive to run the program -- expenses to efficiently run the program. i also want to discuss the section 8 of voucher program, a recent number of stories revealed cases of code violations and other poor conditions in oxford county, maine. the local fire chief was so

upset that he wrote a letter to my office asking for my help. how does the application of the funds for nationwide and to make sure that these are not supporting substandard property. i just want to share briefly with my colleagues and the people from hud here and the inspector general. hud was paying $600 a month for properties that had septic rats.s, bras

it is appalling that people were forced to live in such horrible conditions. the welfare and safety of tenants must be safeguarded in federally-subsidized properties and it must represent value to the tenant and the taxpayer. i have pressed inspector general to audit to the oversight and the authority administration of the program. it is clearly critical that federally subsidized property complies with all health, safety, and quality standards and i want to commend the secretary for taking my concerns seriously and for asking the house and authority for corrective action plans. i am very pleased that the ig has stepped in and is investigating this problem. i want to echo senator mary's

concerns about the federal housing administration which plays such a critical role in an affordable home ownership. the decline in the housing market over the past several years havhas had a tremendous impact on communities throughout the nation as well as the economy as a whole. i and a stand that hud has taken steps to increase federal reserve's, it is troubling that the ratio is below the congressionally mandated level of 2%. i am optimistic that we will hear some good news as a result of the settlements but that is still of concern. i want to discuss what can be done to insure the greater use of wood pellet heating systems in maine that have not qualified

for the insistence of the program -- for assistance in the program. these are alternative to fossil fuels. this pot of the program supports the economic growth strategy of committees nationwide and enables the investments in their long-term economic growth. it is programs like these that help to build a foundation for future prosperity. these are some of the issues before our subcommittee and i look forward to working very closely with you next year. >> with that, we will turn it over to you, secretary donovan.

"thank you for the opportunity to be here. i would like to discuss how the dutch proposal is essential to creating housing in communities built to last and will directly supports 700,000 jobs. we followed four principles, the first is to continue our support for the housing market while bringing capital back. the critical support fha provided will provide funds for refinancing products. we have taken the most significant steps in fha history to reduce risks a to the taxpayer and reform the instructor. this project to add an

additional $8.1 billion. we have additional opinion changes that will increase receipts to the budget. we have also taken significant steps to increase accountability for lenders and have continued to seek expanded authority the legislation that will enable us to protect the fund. fha will receive $9 million to compensate for losses associated with loans. with the current market share declining since 2009, these reforms will help private capital return while ensuring that this remains a vital source of financing.

this is 44.8 billion in gross but authority, because of the fha, the cost to the taxpayer is only 35.3 5 billion, more than meeting our deficit reduction targets while allowing us to have oversight of our core programs. the second principle is to andtect current residencts improve the programs that serve them. the average family earns $10,200 per year as indian and more than half are elderly or disabled. that is why 83% of our budget keeps these residents in their homes. -- the average family earns $10,200 per year as income.

we redoubled our efforts to minimize these increases not just for this year but in the years to come. working with your colleagues to an act section 8 reform legislation that would save $1 billion over the next five years and also help those in smaller areas to better serve the poor. this has improved oversight of market read studies, capping subsidy increases, and excess reserves. even so, protecting certain families require us to make choices we have not -- we would not have made in a different environment. this allows us to have the same number of families but it requires us to provide less than five months in funding. even though the budget maintains our chip -- hi chip exemptions

-- hardship exemptions. that is where our third principle come to continuing those that leverage private dollars to create jobs is important. the twist and his program, we are helping public and private partners to ensure that our children are prepared for the 21st century. as the president said, if we're going to compete with china and india, we cannot leave anyone on the sidelines. likewise, this challenge trinity's to gravely use resources to help them -- this challenge is to reduc-- a fedex has traded over 3000 jobs and companies are poised to

create another 1500. at a time when the fiscal environment has required us to make tough choices, dollar for dollar, the most effective job graders and our budget, these leveraged limited resources even more smartly and effectively. -- the most effective job creators in our budget. for example, it provides flexibility to better manage in this fiscal environment and to hold our partners accountable for the funding they receive. it continues our transportation initiatives. we are continuing the next generation man answering system and will have monitorig a cost-cutting technical assistance initiative. research allows us to have increase investment in programs we know will work like permanent housing and rapid housing and to

end homelessness and to save money. that is why even in this difficult environment, as both of you have championed, we have proposed additional funding for homeless assistance grants and the program for homeless veterans making sure that we can and chronic veteran homelessness by 2015. despite tough choices, is a budget allows us to budget more families and it recognized that the recovery is essential to our broader economic recovery. every american should get a fair shot and do their fair share and play by the same rules. thank you for having me here today. >> thank you very much, mr. secretary. let me begin by asking you about the status of the mutual mortgage insurance fund. given the seriousness of this crisis, it is not surprising that fha has sustained significant losses and they

covered the unexpected losses. i was concerned when the budget stated that $680 million would be needed to cover fha losses in fiscal year 2012. the premium is expected to increase the position but i wanted you to update us on the financial conditions. >> as you correctly stated, the information that was in the budget was allocated on the day that it was published. we were waiting to make the increases until the outcome of the settlement. with at the $900 million that i describe it that is a result of our work to recover four bad loans in the settlement and in

addition, the premium increases that we have announced this week, we do expect that the fund will remain positive this year. in addition, because of the steps we have taken, the fund will probably be in a stronger position when the next act for a steady in the fall. we do expect that it will put out these changes that will put us in a better position in the fall. we have to be vigilant and we will take these suddenly. we will continue to be vigilant and watch carefully to be sure that we have additional steps that we need to take. >> we need to look at the

opportunities. >> specifically, for the estimate this year, the only thing that will affect that number is the premium increases and so implementing those very quickly is critical and the levels of loan volume that we have. our estimates are that it would take volumes that are more than 20% below expectations to threats in the fund through the estimate this year. for next year, as we go to do thenew actuarial study o, most important thing is the house prices. there will be a 4% reduction and our base case predicted a decrease.

this was before the premium increases that we have implemented. it would take a much larger decline in house prices, much larger than the 4% to put the fund in a negative position next year. >> can you tell me how this would affect those who try to access credit. >> congress made the decision to include the increase in our single-family program as part of the bill that extended the payroll tax deduction. in addition, we included a 75 basis point increase. the 10 basis points equates to $9 a month and the up-front premium is about $5 a month for rrower.ical bar oo

the only place for that is bigger is for jumbo loans. we thought it was put it to include a bigger increase. for them, because the average size of the loan is much larger, the increases would be significantly larger. >> the joint settlement represents not only a significant monetary award but they also sent a message to the program participants that there are consequences to not following the rules. the settlements with two lenders were announced and most of the losses stem from the issue that was implemented in 2009. it is important to prevent the recovery losses. are there additional measures that fha can do to improve the outlook for the more risky loans? >> there are.

let me complement our inspector general and this team for the remarkable work to lead to the settlements. they have partnered very closely with us to make those recoveries. those are very important steps and i want to complement the team. the additional steps that we can take, there are a number that require legislative change. i am happy to say we're working with your closely on the authorizing side as well as members of the house. this would allow us to step up our enforcement and those built on the recent regulations which will allow us to hold lenders accountable for those loans. >> we all think that this is a

current outsize role that is not sustainable. it still remains difficult for qualified americans to get a mortgage today. if the fha steps to quickly, this could have some serious consequences not only for the economy but for the solvency of the fund. i want to ask you how you found the need for the fha to provide access to credit and also private capital to return to the market. >> you have asked the 64 tralee dollar question. this is what keeps me up at night. this is exactly the key question that we have to balance. -- you have asked the 64 trillion dollar question. if we were to take steps to increase our premiums to quickly, to take steps that would hurt the market recovery,

we would actually hurt the fha fund and taxpayers because our own investment will perform much worse. in the steps that we have taken, what is the effect for the average homeowner. we felt that $14 a month on average was acceptable, particularly given that we have record low interest rates. we feel that the biggest barrier holding back lending, it is not the pricing that is the biggest barrier, it would be if we went too quickly on raising our premium. the biggest challenge is the uncertainty out there in terms of how we will enforce our rules. we have to make clear what the rules will be and that is why our rule clarifies it is important and that is why there needs to be a clear policy that will allow fannie and freddie lenders to know what to expect

it to this had a clear set of service in standards. the market can move forward with greater certainty. again, this is always hard to get that balance perfectly. this is a critically important balance and i thank you and the ranking member for your understanding. >> i appreciate that. thank you. >> i want to go back to an issue that senator murray touched on. i am concerned by the proposal to find thousands of project- based contracts for less than 12 months. the reason i am concerned is that short funding these contracts may create a perverse

incentive for landlords not to invest in a maintenance, to cut expenses, to reserve because of the risk of whether or not the full appropriation or the remainder is that are going to come through. i am troubled that some owners may decide to leave the program altogether rather than take that risk. i know this had to be a difficult decision and it was clearly budget-driven, but how is hud going to mitigate these risks to the program and to the residence? >> thank you for recognizing this issue. this was one of the most difficult decisions we made in the budget. having run the programs, it was particularly difficult because i

know the impact. there are two real risks. one is operational that we will not be able to mechanically get the contracts funded with the short funding. that happened in the past when these contracts were short funded. i can assure you that we have worked very hard to make sure that as the operational processes our improved. we have not had the same kind of issues that might spring up with a short funding. we have also taken a lot of steps to make sure that we have the process in place to monitor the physical conditions of the unit. will this lead to a decrease maintenance, we have new ranking and reporting that we do on these units, we have quality control throughout the process that we have stepped out. these are all critical to make

sure that the kind of affect your talking about does not happen. the other is the uncertainty around funding. that is one where frankly because there is private capital that supports these units, it is critical that we not create too much uncertainty are around these programs. i think that that is one of the risks here. what is very important is that we work together to make very clear, as congress has always done, that the funding is available. we signed contracts knowing that they are dependent upon appropriations each year and the markets had been confident that that funding will be there. we want to make clear that we will do everything we can on our side to continue this funding and make sure it is available in subsequent years. >> let me now turn to the issue that i mentioned in my opening statement about the living

conditions in some of the hud- subsidized units in maine. i am concerned not only because taxpayers should not be paying for these but the health and the safety of the people living there is clearly at risk. something dramatically went wrong with the oversight and inspection process. i am also troubled last year when we learned of the outright fraud in some of the public housing agencies, i believe one in philadelphia in particular, was found to have fraud. what investments is hud making in this budget to ensure that you have quality-control, internal controls, at a very

close relationship with 80 ir -- with the ig to make sure that we're not wasting taxpayer dollars that are not safe for the tenants or outright fraud where people are stealing money that belongs to the taxpayers? >> but first, let me just think you for your directness and your focus on these problems. both you and senator murray. where there are issues, where we have made mistakes. clearly, there were mistakes made. you have been direct and held us accountable to correct those. i hope you will agree that when we discover these problems, we worked very closely with you. we are taking steps specifically in maine that i think will lead

to better management going forward. the contracts have been rescinded and those are being brought back in-house to improve the inspections there. we had a very specific plan that we are monitoring for other quality control and things within the main house and authority to make sure those are better. what lessons can we learn more broadly for the work that we are doing across the country? there are really three things. one, we have to make better use of our existing resources, staff, and our partnerships to improve oversight. in our budget, we have proposed shifting public housing staff into field offices to increase direct oversight. we have also made sure that we are utilizing our enforcement center which previously did not work as closely with public

housing authorities. just in 2011 and so far in 2012, we have reviewed 140 public housing agencies across the country. that is a better use of existing resources. second, we have to do better with coordinating our inspection systems. we have one inspection system using react for our units, we have a separate system for voucher units. what we have started now is a private to use the inspections for quality-control and oversight. -- what we have started now is to have inspections for quality- control. that is something that we plan to expand and potentially in the future to merge those systems so we have a single set of strong standards for inspections all across our program. the third thing, with your help, the investments we're making in

information technology. right now, we don't have the ability to look at the photographs that are taking on those inspections. there is nothing that replaces actually seen with your own eyes what happens. this will allow us to download and if you anything taken with the digital photographs that were taken by the inspectors. this has been one of the two biggest priorities you have had a you have held as accountable to invest in those through our informational technology. we cannot agree more that that is a tstep we have to take. >> i want to salute you and the inspector general for your responsiveness to the problems in maine and across the country. it is amazing that you don't

download some photographs. even i can do that. this is clearly a feasible step that should be taken. one very quick point, another thing that i think the department needs to look at is that if you have a bad actors out there, you have available to you suspension and environment tools tools where you can prohibit an individual or even an agency from being involved in your programs for a period of time. and i would encourage you to make more use of those tools in in egregious cases. >> thank you. >> we will follow up with information on all the different steps. those first pieces of the next

generation management system are going into place this year. it is within a few months that we will have the photograph a capability that i talked about. >> people know they're going to be accountable and then makes a huge difference. i appreciate that and i echo senator collins' concerns. you mentioned in your opening remarks that the programs that directly supports the mission of providing housing to low income americans, most of them who are elderly or disobeyed but -- disabled, 82% of the budget, when we have difficult challenges, constraint resources, this program's pace -- place a lot of pressure on the budget. the largest of those is the tenet based rental program, which uses section 8 vouchers. and this year's budget, the

funding request to renew those existing vouchers is essentially flat. the budget assumes savings associated with programmatic changes, but it does not to please -- but it does not appear to be sufficient. i wanted to ask you how you maintain existing vouchers portfolios without those? >> two things i would say about this. you all have been very focused on this for a number of years, how do we balance making sure we protect every family with bending the cost curve of the rules on these programs. -- of the renewals on these programs. we're proposing a series of steps that would allow us to serve the same number of people and keep the cost relatively

flat. some of those are truces we could agree are ones -- are choices that we could agree on, and we will need to discuss with the committee and get your views on whether some of those make sense. specifically in the tenant base program, there are only $200 million in savings we're proposing to achieve. the single biggest is to change our income targeting in rural communities to make sure more of the working poor can be eligible for vouchers. it is part of the old section 8 reform act where we are hopeful it will pass in the house in the coming weeks and that we would be able to implement. there is broad support for those, but we also have made a proposed changes in the medical expense deductions as well as the minimum rents that would

allow us to service a number of people. we maintain our commitment to serve all families there, but it required taking a number of steps to lower costs next year, to keep those flat. also allow us and have lower renewal costs. the other thing i would say briefly is an important piece here is what it takes to manage these programs. we have been very concerned that we have two housing authorities that turned back vouchers. i've never seen that before. kenya announcement the idea that they say they cannot serve -- can you imagine the idea that they say they cannot serve any more homeless veterans? we had housing at 30 -- authorities that decided to turn back their broader voucher programs because they were concerned about the inability to fund those.

last year's budget made the decision to fund the admin fees at over 70% in terms of the overall need. we are proposing a significant increase to get above 80%, but we think even with the difficult choices we're making, there are still risks the housing authorities would not have enough. particularly that line item of fees is a critical piece we need to discuss this year. >> let me ask you about that. it's as prioritized funding for section 8 fees which have been cut evidently in recent years. they find the basic operations. you have struggled with the adulteresses as you put this together, but can you explain -- you have struggled with the difficult choices as to put this together, but can you explain?

>> the concerns i have had about at the number of housing authorities that have made the decision not to serve additional veterans, number of authorities just in january alone have determined that they did not want to continue with their voucher programs, were critical in terms of that decision. let me give you the precise numbers of what has been happening to admin fees. first of all, in 2012, it was a that we estimated for the budget. for 2013, what we're proposing is an 81% proration. in 2010, to give you an example, it was a 90% proration.

even the 81% represents a reduction if you go back a few years, and that leads to concerns i mentioned that even at 81% we were balancing difficult decisions. i have concerns at will not be enough for some housing authorities. i would also point out it represents a significant increase in absolute dollars from where we were last year, and i am looking here for the exact number of what that is to make sure. let me get back to you in a moment. >> ok, i have a couple more questions. >> thank you, madam chairman. i am going to ask one more question because i have been called to the senate floor, and submit the rest for the record. this one is one that i referred

to in my opening statement, and it is extremely important to the state of maine. maine is the most heavily dependent of any state in the nation on home heating oil, and when you see the spike in the oil prices that we have seen this year and the cutbacks in the low income heating assistance program, it is causing tremendous hardship for so many of our families in maine. it is also very difficult because maine has the oldest housing stock in the nation, and there are a lot of homes that are poorly insulated and would benefit from weatherize asian projects, and that is something we ought to invest more in as well. the large swings in will have caused many of our residents to look to alternatives, and the

wood pellet boiler industry is growing rapidly in maine, and it has the potential to help out these families, to allow them to convert from oil, but also to create thousands of new jobs in our state. wood pallet manufacturing, boiler technology, and pallet delivery systems have progressed dramatically since the days when you had to scoop pellets from small banks into a small stove every couple of hours. now the industry has developed boilers that not even require any human intervention during the day. there are automatic feeds of pellets. hud has been slow to consider wood pellet boiler systems as an alternative to conventional sources. the recent this is important is

for purposes of qualifying for fha programs, you have to have a conventional primary heating source. i wondered if you could tell me if hud is looking at including ps new good appellate boilers -- these new wood pellet boilers, so that families will not lose their eligibility per fha? >> that me thank you for raising this issue, and putting it on our radar screens. as a talked about with the blackberry, there are moments when the federal government can be a little bit behind the cutting edge in terms of new technologies. i am happy to report not that we are looking at this, but just

yesterday we updated our frequently asked questions on our website, tell all our lenders that would pellet -- llet systems are meetified as long as they nee qualifications. not only are we considering it, but we have considered it and made the decision that you are right that we should include these in our programs. thank you for bringing it to our attention. >> that is absolutely great news, and i thank you so much for your willingness to look at that. if eight technology has changed so dramatically -- a technology has changed surge dramatically, that will be a lot of good news for homeowners in maine. >> thank you. >> mr. secretary, your budget

assumes savings assisted with to changes to the rental assistance account, including 10 at page 6 section 8. many of those measurements require legislative changes which in rolfe -- which involve rulemaking. what would happen to your savings estimates if all those proposed reforms are not enacted, or they are enacted late in the fiscal year? >> to get back on the specific number i was looking for before, the increase we are proposing on fees is to under $25 million. it is a substantial increase and one we thought even in a tough environment was absolutely critical. we think it is the minimum necessary to try to get more confidence that housing authorities will be able to administer the programs.

, on your question about legislative authority, i'm happy to say we are working closely with colleagues in the house on the committee and in the senate, and i am optimistic about getting that legislation pass. the large majority of those changes would not require extensive rule making. there are few that would require rulemaking. they are around the old programs, but a large majority of them we could introduce through notice. if we get it passed, we can be prepared for 2013 to implement them and get the savings projected. if the legislation does not pass, that would he stop us from being able to achieve some but not all the savings. we have a share that we could achieve without legislation, and

i will be happy to follow up with specific analysis that shows you precisely what we could do on a regulatory basis of the $900 million will propose and over the major programs. a significant a share of this we could do without any legislative change. >> if these changes were able be done at the first of the year, some of the proposals have been heard to harm owners and tenants. i am concerned that raising minimum rents and increasing medical deductions for tenants to put a burden on some of these tenants in tough economic times. can you talk about the impact you might see there? >> i would be happy to, and let me recognize these are not

decisions we would make in anything but very difficult fiscal times, making very difficult choices. along with a project based rental assistance decision, the funding we talked about earlier, this minimum rent increase was the single most difficult decision and the budget. what is critical is that we need to clarify and make sure there is a very strong exception policy for anyone where the heart ship of that increased rent would result. -- hardship of that increase rent would result. we are clarifying that and strengthening that policy, but there is no question that the impact of this will have some real consequences for families that are struggling. we have analyzed fully in which

programs what percentage of families would be affected by this, the average rent increases that would come out of this, the impact of the minimum rent is about $150 million across all programs, and we would be happy to share with you the specific impact it has for the various projects and programs, what impacts those would be. >> i would appreciate that. i want to acknowledge your leadership in developing homelessness plans and fostering coordination across departments. we're making progress there. i was asking about the homelessness prevention program which was funded in the recovery act and designed to help homeless families, but funding for that program ends this year. emergency solution grant program allows this to be continued on a

much smaller scale. can you talk about what the outcomes have been for this? >> absolutely, i am so glad you asked about it. you asked about the hpr program. without relief ship we would never have made progress on reducing veterans homelessness . 18% fewer slid on the streets -- that is a huge accomplishment, and your -- a huge difference. we're concerned about the ending of hprp, and we're concerned because it has been so effected. -- effective. one of the best things about it, 75% of the folks in has reached, are homeless families who have

been the hardest to reach. to have bwe been able reach these families? for farm less money than we expected, which have been able to save lives -- for far less money than we expected, which have been able to stabilize families. that allows us to serve far more people, and the most exciting thing about it is it has started to reorient many local responses to homelessness. when you see rapid housing in particular is a very beneficial step, this can be beneficial with a small amount of money. by continuing to invest in in through a grant, and one of the reasons we proposed the three -- the $330 million increase this year, we have to continue to invest, we have to grow the

investment. it is never going to be as much as we had it in hprp. washington has been a leader in this, and shifting resources, taking them out of shelters, shifting them for medicaid funding going to emergency rooms and putting them into rapid rehousing lowering costs overall. which increased investment as well as local investments, which will continue to see focused investment. we're nervous about that. you have been supported it. it is something i saw a locally in new york. it was something we were willing to shift our funding into and that is something we want to encourage at the local level. >> i will be following that very closely. thank you so much for your

accommodation today, and we will leave the record open for anyone who would like to ask additional questions, but i appreciate the tremendous work of you and your entire staff on an issue that has been at the forefront of our nation, but sometimes nobody pays attention to the programs. they really are in essential in getting people back on track. this hearing is adjourned until march 8 at 10:00 a.m.. [captions copyright national cable satellite corp. 2012] [captioning performed by national captioning institute] >> tonight the president holds

the 100th fund-raiser of his election campaign. he has four events tonight and they're expected to raise $500 million. we'll have live coverage at 8:20 p.m. eastern on c-span. >> if you had set in 2006 the world would be begging for the united states to use force began in the middle east, which in three and a half years, everybody would have said you are crazy. >> robert kagan serves on secretary of state clinton's for an advisory board. >> there was a lot of continuity in american foreign policy, a broad consensus. what you're seeing here is a consensus that exists in the foreign policy committee, and there is an lot of overlap with the two parties. >> more sunday night at 8:00

eastern. >> ben bernanke called on congress to avoid tax increases and spending cuts set to take effect in 2013. he testified before the senate banking committee, and the prospects for the u.s. economy and monetary policy. this is an hour and 45 minutes. >> i call this hearing to order. today i welcome chairman bernanke back to this committee to deserve the semiannual monetary report to congress. there is reason to be optimistic about our nation's economic recovery. the economy has expanded for 10

straight quarters and private sector employment has increased for 23 straight months. private employers added 2.1 million jobs last year, the most since 2005. there are also reasons to be concerned. the european debt crisis and the continuing track of the housing market on the broader economy. this committee has paid close attention to these issues and held numerous hearings. while i remain hopeful that we are moving in the right direction, we must continue to monitor the situation closely. on housing, there are a number of policy proposals that should be considered to improve the housing market. i want to thank the governor for her fought for -- hurt

thoughtful testimony on tuesday and for her paper on options to improve the housing market. an additional challenge, the sharp increase in oil prices, has the potential to impede the economic recovery. americans continue to grapple with higher fuel costs when they fuel up their cars or heat their homes. it is important that all markets are closely monitored -- supply disruption, and i look forward to hearing the fed's views on how raising oil prices affect consumer spending and affects economic growth. i appreciate all the fed has done to encourage economic recovery. i look forward to hearing more from you on the recent actions and possible future actions to protect our economy.

economists have also had a poor role to making sure the economy continues to grow house. this week, the full senate continues to consider the transportation bill. this includes the bipartisan effort of this committee to update the nation's public transportation infrastructure and create jobs. , i am also hopeful that the senate can find consensus on capital formation initiatives, the topic of another hearing next week before this committee, to promote job creation while protecting investors. for so many americans in search of work, it is not too late for bipartisan action to create jobs and promote sustainable growth. i look forward to your views, chairman bernanke come on these and other steps congress can

take to at improve the nation's economy. to preserve time for questions come up opening statements will be limited today chairman and ranking member. i would like to remind my colleagues that the record will be open for the next seven days for additional statements and other materials. i now turn to the ranking member shelby. >> thank you, mr. chairman. since there federal reserve took unprecedented actions in response to the financial crisis, there has been a growing recognition that the fed needs to become more transparent. there was a time when central bankers met behind closed doors and stubbornly refused to inform the public of their decisions. those days are clearly over. the public now rightly demands that policy makers of not only explain their decisions, but also be accountable for their actions. this is especially true in the

federal reserve, which now exercises even greater authority over the american economy and the lives of every american. to his credit, chairman bernanke has long recognized the need to modernize the fed. in his first confirmation hearing before this committee, he stated he believed making the fed more transparent would " increase democratic accountability, promote constructive dialogue between policy makers and in for outsiders, and reduce uncertainty in financial markets and help anchor public expectations." during his last appearance, i noted that he has taken some important steps to improve the transparency of the fomc, including holding press conferences. since then, the fomc has taken

another step to improve transparency by adopting an inflation goal of 2%. this is a significant event in the history of the federal reserve. as the chairman has stated, and explicit target could reduce the public's uncertainty about monetary policy and more effectively anchor inflation expectations. while the fed -- while the fed was establishing this inflation goal, it was at the same time communicating contradictory signals about the commitment to that inflation target. the fomc minutes reveal that the chairman believe the goal would not represent a change in afomc's policy.

in addition, fomc has stated it believes economic conditions are "likely to abort exceptionally low levels for the federal funds rate, at least through 2014." and other words, the fed is signaling to market participants that it expects to continue the zurich-rate interest policy -- the zero- rate interest policy for the next three years. if the goal conflicts with the inflation goal, which will prevail? why should participants have confidence that the fed is committed to achieving its inflation goal? if the fed is not serious about achieving this goal, how will the fed pause credibility suffer when the inflation rises above 2%?

accordingly today, i hope that chairman can give the committee more insight into how the fomc's inflation goal will work in practice. i would also like to hear whether he believes congress should hold the fomc accountable for meeting its goal, and while the chairman has taken steps to improve the transparency thefomc, the transparency of the board of governors appears to be getting worse. said thejournal article committee has held 47 of votes, yet they have held only two public meetings. the article noted there has been a steady reduction in the number of open meetings by the port since the early 1980's, when the board had more than 30 open meetings. the fed is making sweeping

financial regulatory policy decisions behind closed doors did this is inconsistent with the professed goal of making the fed more transparent. in another troubling new development, the fed recently decided to enter into debate on housing policy. on january 4, the fed issued the white paper white"the u.s. housing market: current conditions and policy considerations." the goal of the paper was not to provide a blueprint, but rather to outlined issues and trade- offs that policy makers might consider. how subsequent actions suggest that the fed has views about the policies congress should enact. two days after the white paper was released, the fed governor gave a speech in which it was advocated for specific housing policies and effectively asking sgse conservator to ignore the mandate to conserve and preserve

access to gse's. that same day, the new york fed president gave a speech in which he argued that it would " make sense for fannie and freddie to routinely reduced principal on the link will press on delinquent mortgages using taxpayer dollars." these statements suggest to many fact as aed does noin blueprint. that blueprint appears to be using the taxpayer supported gse's as a piggy bank. certain fed governors have begun to take sides in which should be at the crystal -- a congressional policy debate. the fed's independence has always been presence -- premised on its remaining nonpartisan.

the fed has been and should i believe continue to be a useful resource for information and analysis on the housing market. i believed it should not become an active participant in the legislative debate over the future of housing finance. i hope the fed's recent foray into housing policy will not become common practice. mr. chairman, i believe when you say that you believe the fed is most effective when it is nonpartisan, transparent, and accountable, i believe that is right. i am interested in hearing from you today, mr. chairman, on how to continue to improve the said's improvement on all three objectives. thank you. >> thank you, senator shelby. welcome, chairman bernanke. his first term began under

president bush in 2006. director bernanke was chairman of the council of economic advisers during the bush administration from june 2005 to january 2006. prior, he served as a member of the board of governors of the federal reserve system from 2002 to 2005. chairman bernanke, please begin your testimony. >> thank you. chairman johnson, ranking member shall become i am pleased to present the federal reserve's semi-annual report to congress. i will begin with the discussion of current conditions and the outlook and then turn to monetary policy. the recovery of the economy continues, but the pace of expansion has been on even and modest. after minimal gains in the first half of last year, real gdp increased at a rate in the second half the limited information available for 2012

was consistent with growth for coming quarters and a piece about the pace registered during the second half of last year. we have seen positive developments in the labour market. private payroll employment has increased since the middle of last year, and nearly 260,000 new private-sector jabs were added in january. the gains have been widespread across industries. in the public sector, laos by state and local governments have continued to. -- layoffs by state and local governments have continued. new claims for unemployment insurance benefits have moderated. the decline in the break over the past year has been more rapid than might have been expected given the economy appears to be growing during that timeframe at or below its

longer-term trend. continued improvement in the market is slated to require stronger growth. notwithstanding the better recent data, the market remains far from normal. the unemployment rate remains elevated. the number of persons working part-time for economic reasons is very high. households spending advanced moderately in the second half of last year, boosted by a surge in motor vehicle purchases facilitated by the easing of constraints on supply related to the earthquake in said -- in japan. the fundamentals continue to be weak. wolf growth was flat -- wealth growth was flat in 2011. in the housing sector affordability has increased as a result of the decline in house prices and lower interest rates.

many potential buyers lack the down payment and history or car to qualify for loans. others are reluctant to buy now because of concern for their in, and the future path of home prices. on the supply side, a 30% of recent home sales have consisted of foreclosed or distressed properties, and vacancy rates remain high, putting downward pressure on prices. or positive signs include a pickup in construction in the multifamily sector. manufacturing production has increased 15% and has posted solid gains since the middle of last year. an ongoing increases in business investment and exports.

real export growth slowed over the same. as for an activity decelerated particularly in europe. the members of the board recently projected activity in 2012 will expand at about the pace registered in the second half of last year. their projections for growth this year have a central tendency of 2.2% to to put 7%. this is lower than the projections they made last june. endeavour of factors have played a role in this reassessment. the annual revisions to the national income accounts released last summer indicated the recovery had been somewhat slower than estimated. fiscal and financial restraints and europe have weighed on conditions and global economic growth and problems in u.s.

housing and mortgage markets have held down construction industries, but also household wealth and confidence. looking beyond 2012, fomc expects economic activity will pick up gradually, supported by the continuation of monetary policy. with growth in 20 pheasant -- 2012 projected to remain close to what we saw in 2010 -- looking beyond this year, participants expect the unemployment rate to continue to edge down only slowly toward levels consistent with the statutory mandate. it will be important to the fight incoming information to assess the the underlying pace of the recovery. at the january meeting

participants agreed strains in markets posed significant risks to the economic outlook. investors' concern about levels of government debt and european countries have led to substantial increases in sovereign borrowing costs, stresses in the banking system in europe, and reductions in the availability of credit in the euro area. to help prevent spilling into the u.s. economy, the fed extended the terms of its swap lines other banks and continues to monitor the european exposures of u.s. financial institutions. and number of constructive policy actions have been taken public in europe, including the program to extend a three year loans to european financial institutions. european policy makers agreed a new package for greece.

critical fiscal and financial challenges remain for the europe stone. the resolution of which will require concerted action on european authorities bit further steps will be required to boost growth and competitiveness in a number of countries. we are in contact with our kind -- can a person in europe and will follow the situation closely. inflation picked up during the early part of 2011. the search in the prices of oil and other commodities pushed overall inflation to an annual rate of more than 3% over the first half of last year. as we had expected, these factors proved transitory and inflation moderated during the second half.

the committee anticipated over coming quarters inflation will run at or below the 2% level we judge most consistent with our mandate. the central tendency of forecasts for inflation in 2012 range from 1.4% to 1.8%. looking farther ahead, participants expected this bid -- the subdued level of inflation to continue this year. we will continue to monitor markets carefully. locke returned inflation expectations appear consistent with the view that inflation will remain subdued. against this backdrop of growth and moderate inflation, the

committee took steps to provide additional accommodation during the second half of 2011 and early to doesn't well. these steps include the changes to the guidance including in the post meeting statements and adjustments to the holdings of treasury securities. the target range for the federal funds rate remainsm and afford guidance language in the statement provide an indication of how long the committee expects that range to be appropriate. in august the committee clarified the language, noting conditions including low rates and subdued outlook for inflation, were likely to work exceptionally low levels for the federal funds rate through 2013. providing a longer time horizon, the statement tended to put downward pressure on longer term interest rates. at the january meeting, the

committee commended the guidons further, extending the horizon over which expects conditions to board exceptionally low levels of the rate through 2014. the committee modify its policies regarding the holdings of centuries. it's a temper the committee put in place a maturity expansion program that combines purchases of longer term treasury securities with sales of shorter-term treasury securities. the objective is to lengthen the average maturity of holdings without generating significant change in the size of the balance sheet. removing securities from the market will put downward pressure on rates and a conditions were supportive of economic growth than they otherwise would have been. to help support conditions in mortgage markets, the committee decided in september to reinvest principle is received -- it

received rather than continuing to invest those securities as had been the practice since august, 2010. the committee reviews the size of its holdings regularly and is prepared to adjust those holdings to promote a stronger economic recovery in the context of price stability. before concluding i would like to say a few words about the stigma of longer run goals and strategy fomc issued in january. the statement reaffirms our commitment to our objectives given to us but congress price stability and maximum employment. its purpose is to provide additional transparency and increase the effectiveness of monetary policy. the statement does not imply a change in how the committee conducts policy. y is enhanced by providing more specificity our

objectives. focmc judges that the rate is most consistent over the long run with its statutory mandate. while maximum employment stands at an equal footing with price stability as an objective, the maximum level of employment in the economy is determined by non monetary factors that affect the structure of labour market. it is not feasible for any central bank to specify a fixed goal for the long run level of employment. the committee can estimate the level of maximum employment and use that estimate to informed decisions. fomc participants estimates had a central tennessee up to 6.0%. the level of maximum employment is up to to change.

it can be affected by ships in structure of the comic and by a crist by shifts in the structure of the economic policy. the objectives of price stability and the climate are complementary. at present, the committee judges sustaining a stance for monetary policy is consistent with promoting both objectives. in cases where these objectives are not complementary, the committee falls a balanced approach taking into account the magnitude of deviations and employment for levels judge to be consistent. thank you, and i am pleased to take your questions. >> thank you for your testimony.

we will now begin the questioning of our witness. will the clerk put five minutes on a cot for eastman kippur -- on the clock for east member. is the recovery happening as you would expect following a major financial crisis, or has the great recession led to any permanent adjustments in either output or unemployment levels? >> normally when an economy suffers severe recession of the recovery is a comparatively strong prepared a sharp decline tends to have a stronger expansion. our economy has been hit by two unusual shocks. one is the housing boom and bust, and we know from history

that housing busts tend to take some time to be offset, in particular since housing is a ren important part in expenses. we also had a financial crisis, and research has pointed out that historically recoveries following financial crisis tend to be somewhat slower than they would be a pyrrhic having been hit by both of these factors, and with housing problems still being important, and as the financial conditions including stress is coming from europe are still being a drag on economic activity, we have had a slower recovery than we would have anticipated. nevertheless we have had growth

since 2009 and unemployment has come down, but not as strong and the improvement is not as much as we would have liked. >> u.s. consumers are to andraging -- deleveraginfgg, fiscal policy has begun to tighten. as we consider economic growth, should congress enact drastic spending cuts is year, -- this year or would a longer time horizon make more sense economically? what sectors of the economy could provide sustainable growth long term? >> as the senator pointed at,

the reserve does not make recommendations on specific fiscal policy decisions. in the broad context, let me make two points. the first is that as i have said on a number of occasions, united states is on an unsustainable to school pat looking out over the next couple of decades. if we continue, eventually we will face fiscal and financial crisis will be bad for stability, and it is important we plan now for a long term improvement in our situation in terms of long-term sustainability. at the same time it is important we keep in mind that the recovery is not yet complete. unemployment remains high. under current law, on january 1,

2013, there will be a major shift in the fiscal position of united states, including the expiration of a number of tax cuts and other tax provisions, together with the sequestration and other provisions that together will create a very sharp shift in the fiscal stance of the federal government. i think that we could achieve the very desirable long run fiscal consolidation and we definitely need and we need to do soon, but we can do that in a way that does not provide such a major shock to the recovery in the near term. i am sure congress will debate the details of this over the next year, and try to take into account both the need for protecting the recovery at the same time ensuring that we do achieve fiscal sustainability in the long term. the second part of your question, mr. chairman, we are

seeing manufacturing and industrial production has been leading the recovery. housing is lagging. generally, it is automobiles being part of manufacturing, but it is hard to predict what sectors will be most -- will have the greatest growth in the long term. you asked me earlier about the potential growth. we did not see at this point the very severe recession has permanently affected the growth potential of the u.s. economy, although we continue to monitor productivity gains. one concern we do have is the fact that more than 40% of the unemployed who have been unemployed for six months or more, those folks are leaving the labour force or having their

skills erode it, and although we have not seen sign of it yet, that situation persists for much longer, then that will reduce the human capital that is part of our great process growing for. -- going forward. >> i have been working with my colleagues in the senate to move forward a set of proposals to update security laws and make it easier for startup and small businesses to raise capital, while maintaining critical investor protections. do you generally agree that these types of proposals will help create jobs and strengthen our economic recovery? >> i do not miss the specific proposals, but it is certainly true that start of companies, companies under 5 years old, create a substantial part of the jobs that are added in our economy, and if there is anything that can be done to

encourage start-ups, whether it is reducing regulation or providing other kinds of assistance, congress makes all the decisions about the specifics, but again, promoting start-ups is an important correction for job creation. in particular, the fact that start-ups business creation has been quite weak during the expansion is one of the reasons that job creation has lagged behind the usual recovery pattern. >> senator shelby. >> thank you. chairman bernanke, at our last hearing right here on the european debt crisis, i asked the federal reserve witness about the exposure of our largest banks to european financial system. the fed has yet to respond to my request for this information. will you provide the committee

with this information regarding the individual exposures of our largest banks to europe? >> force -- of course, supervisory information as a legal protection, but we will be happy to work with the committee to provide the information. >> we need to know what is going on regarding the exposure of our banks to the situation. >> we will make sure you have the information you need to make the decisions. the sec has provided guidance to banks to provide public information on a quarterly basis about their exposures. yes, we can work with you to help understand everything you need to know to make good decisions. >> are you concerned with exposures of our largest banks to europe? >> we are concerned in the sense

that we're paying a lot of attention to it. our sense is that -- including asking banks to stress their european positions in their current capital stress test they are doing now -- our sense is that correct exposures of u.s. banks to sovereign debt in europe, particularly that of the weaker countries, is quite limited, and is well hedged, and those hedges are pretty good hedges. the counterparties are diversified and strong. our banks are exposed to european banks and they are major trading and financial partners. they have been working hard to have -- to provide adequate hedges. it is important note that if there is a major problem in europe, there are so many to

your channels where that would affect the stability of the system that i would not want to take too much comfort to that. >> would you explain to the committee and to this member, situation as far as credit defaults swaps and why they are not deemed to certain nature -- nations to trigger the action on that. what is going on here? is this a government intervention in the market? >> no, there is a private body which makes determinations as to whether a credit yvette has occurred -- -- a credit event, a credit the fault has occurred. thus far then it there -- there has been a private sector involvement, an agreement with private-sector bond holders, and there has also been an exchange

of bonds by ecb and other government agencies with greece that is protections to the ecb for its creaky debt holdings. the news this morning was that those two events did not constitute a credit event. >> why did it not create the dynamics there? why did it not? >> their view is that so far the negotiations have been voluntary. the possibility exists that the greek government has retroactively created a collection active clause which it could use in the future to force other private sector investors to take losses even if they have not agreed to this voluntary deal, and in that case the isda will look at it again.

that has not occurred yet. >> i want to go into one other thing. the dodd-franc act created a new position of vice chairman for supervision, which is subject to senate confirmation. almost two years later the president still has not nominated anyone this position. who is currently fulfilling those duties if they're being done? >> they are of course being done and the dutesies are being distributed across the staff. but the governor is the head of the bank supervisor vision committee and has on many occasions testified before this committee on regulatory matters. >> do you believe ta that position should be nominated and filled? >> well, congress created the position, and, yes, i'd like to see it filled and i'd also like to see the board filled as

well. >> and my last question has to do with the balance sheet, which is approximately my understanding about $2.9 trillion. how are you going to shrink that? i know you're not going to some renk it now. do you have a plan? i'm sure you've talked about it. we've talked about it a little bit at times, but that is a huge balance sheet to start shrinking, and it's probably not the time to start to shrink it now. i don't have any information on that. but how are you going to do that? >> senator, we have provided, on numerous occasions, an exit plan. in, for example, the minutes sometime ago we provided an agreement of the committee about how we would proceed. in the very short term, we can both, of course, allow securities to run off, which we have been re-investing them at

this point. and we can reduce the impact of those securities on the economy both through various sterilization measures and by raising the interest rate we pay on reserves to keep those reserves locked up at the fed. over a longer period of time, of course, we're going to have to sell some of the security, and, of course, we will. our goal is to get back to, eventually, at the appropriate time, our goal is to get back to a more normal size balance sheet, consisting only of treasury securities. >> thank you. >> senator reed. >> thank you very much, mr. chairman, and thank you, chairman bernanke. i thought that the fembs white paper on housing was very analytical and nonprintive, which is appropriate. i think also thinking back, such an analytical paper might have been extremely useful to us in 2005 or 2006 or 2007 to alert policymakers to develop a housing market that proved to be catastrophic.

and the final point, i think, is that it is fully consistent with the enhanced responsibilities under that the federal reserve must display. on all those points, i think it was appropriate. one of the issues you might want to elaborate on is there are programs that might in the long term produce more returns, enhanced value to the government and taxpayers. but if they're not pursued, even if there's an up-front cost, that ironically we could have even aforther deterioration in the profitability as sets of these. can you elaborate on that? >> as you know, fed members often give their views, their

own individual views. sorry, senator reed. one point that we make is that in a typical negotiation between a borrower and a lender, a modification or some other arrangement, like a short sale or a deed in lieu, for example, or other activities like r.e.o. to rental are typically taken on a narrow economic basis for the benefit of the lender and the borrower, which makes sense in a free market economy. but in the current situation i think it's important to recognize that the problems in the housing sector, including massive numbers of foreclosures, uncertainty about the number of houses coming on the market, whole neighborhoods with many empty houses, all of those things have implications not only for the borrower and the lender, but also for the neighborhood and the community and for the national economy. because the weaknesses in the housing market, again, as i mentioned earlier, are slowing the pace of the recovery, and

from the federal reserve's points of view are muting to some extent the impact of our low-interest rate policy. because low mortgage rates don't help if people can't get mortgage credit. so some of the benefits of actions to improve conditions of the housing market go beyond just those of the lender and the borrower and accrue to the broader society as well. >> and one other point if you wouldn't mind commenting upon, is we have several challenges facing us economically, as you've i will straighted. one is the housing market. the other is potential energy spikes. relatively speaking, it seems to me that we have much more ability to influence effectively and correctly housing policy here than international energy prices, and as a result, it would be, i think, a good investment of our time and effort to do so. is that a fair comment or -- >> well, if there was a goal of the white paper, it was simply to encourage congress to look at these issues which represent, i think, one the

directions whereby we could be doing something on a policy basis that would help the economy be stronger. >> leet's talk about the rule that is pending. european governments are urging that their sovereign equities be sort of treated preferentially in the rule, even though, as i understand -- and you might correct me -- that under the bass ill rules, there's a zero risk rating to sovereign debt, is that correct? >> atlantis a zero risk waiting, yes. >> so the greek debt has no risk? >> well, the way that's been handled by the european banking authorities at the moment is to force the banks to write down their sovereign debt, and that, in turn, affects the amount of capital that they can claim. >> and in addition to, the level of the capital and

resulting liquidity for the european banks is rather substantial relative to ours in terms of the kind of liquidity ratios. is that also accurate? >> that is slower? good no, that they can have much higher liquidity than we can or much higher ratio of debt to equity. >> oh, i see. at the moment there's several issues. in principle we're all agreeing to the same set of rules, the basil three rules. but there's some questions. one has to do with the fact that the ratio of total assets is lower in europe than the united states and the question, therefore, are european supervisors in some way allowing lower risk rates being put on comparable assets? the committee takes this very seriously and has a process underway to try to verify that the two continents are operating comparably. the other issue is that the rules have not yet been

implemented in europe or the united states either. there is a european union directive in process which we are looking at carefully. it does not, in our view, completely -- be completely consistent with the agreements, but it's not a final document. but we want to be sure that the capital rules in europe do in fact adhere to the agreement that we all signed on to. >> just a final quick point, is that in this context you are still looking very, very closely at these differentials between european treatment of their sovereign debt and ultimately the way the local rule will treat it. >> the issue that the europeans and the canadians and the japanese and others have raised is because there's an exemption for u.s. treasuries but not for foreign sovereign tease, they believe they're being discriminated against and it my affect the sovereign debt

markets. we take this very seriously. we are in close discussions with those counterparts and we will be looking carefully to see if changes are need and we'll do what's necessary. >> thank you. >> i read with interest that they will not be ready to issue the rule by the deadline of july, which i think is becoming more and more self-evident. the reason is because you have 17,000 comments, you have the issues that were just raised by senator reed with regard to the reaction of other markets in the world to what we may do with that rule, and the need to conduct a cost benefit analysis is just likely not to happen by the time we hit the statutory deadline in july. is that correct? >> yes. and in addition, it's a

multi-agency rule and it requires coordination. but i do want to say that, of course, we will be working as quickly and effectively as we can to get it done. >> well, i appreciate that. the question i have is, as i read the statute, there's a deadline in july for the agencies to act. but if the agencies don't act, the rule, whatever it is, goes into effect. and the market participants are understandably, i believe, concerned about what they should do on july 21 if the agencies have not been able to coordinate effectively and promulgate a rule. the question i have to you is, wouldn't it be helpful if congress were to correct that aspect of the statute and make it clear that on july 21 we are not going to have a volcker rule go into effect that does not have the clarification and cost-benefit analysis and fine tuning that the agencies are now trying to give it? >> well, senator, we certainly don't expect people to obey a

rule that doesn't exist. there is a two-year conformance period built that the statute that allows two years from july of this year, before they have to conform to the rule, and we will certainly make sure that firms have all the time they need to respond. and i think two years will probably be adequate in that respect. >> well, thank you. i'd like to shift the remainder of my questions to a topic that the chairman asked you about -- whether it is time for us to begin more aggressively controlling the spend-out rate in congress's spending habits or whether we need to continue to hold off because of the impact on the economy. i believe, as i understood your response, you indicated that in january we're going to see tax relief -- or tax cuts expire and we're going to see the sequestration impact and a number of other things will happen. i believe your answer was that soon we need to take some

action, and i want to pursue that with you a little more in this context -- we've been having this debate in congress now for a number of years, but i want to go back to the simpson commission which issued its report two-plus years ago now. and in that report it was recognized that there needed to be an easing into the aggressive control of spending in washington, and immediately following that we had the debate over the $800 billion stimulus bill where the argument was made it's not time to control federal spending yet . we need another year or two until we start getting into the serious control of spending. since then we have put another $5 trillion on the national debt, not to count the trillions of dollars that have been used to help sustain economic activity. and whether we agree with them or not from the fed's actions, and we still see the argument being made that it's not time

yet for us to become aggressively engaged in controlling the spending excesses in washington, even though we have over 40 cents of every dollar borrowed today. and the budgets that are being proposed continue that trend for the next decade. you've already tiptoed a little bit into those waters and i'd like to ask you, when will it be time? i believe it's past time. but when will it be time, if it's not time now, for us to start aggressively dealing with the fiscal structure of our country on the spending side of the equation? >> just a word on the fed. the fed's purchase of securities actually reduce the deficit because of the interest that comes back to the treasury. the two things are not incompatible. you can moderate the very near-term impact at the same time that you make strong and decisive actions to put us on a path -- i mean, you haven't done -- you haven't taken any

actions. you haven't passed the laws that will bring us on a glide path into sustainability over the next decade or so. and i would add that one concern there, as i mentioned yesterday, is that the 10-year budget window may artificially constrain some of the things that congress should be thinking about, because many of the issues that we face in terms not only of entitlements but other issues as well are multi-decade issues. and i think you could take strong actions that would be taking place over time. i think about the early 1980's social security reform that phased in a whole bunch of things, including the later retirement age, which is still happening today, 30 years later. so you could take those actions, lock them in and get the benefit of the confidence there, but it wouldn't have necessarily quite as big an impact as the very big shock that would otherwise occur next january 1. i'm not saying that you can't do it and take serious action,

i just think you should balance those objectives. >> well, thank you. i take it that you're saying that we noticed to adopt a long-term plan to deal with this crisis. >> absolutely. >> and i would just observe that at this point the budgets that are being proposed simply go the other direction. we still -- other than some of the others, like the bull simpson commission and others, we still haven't got proposals on the table here in congress to deal with that long-term plan and i personally think it's time we get at it. >> senator menendez. >> thank you, mr. chairman. thank you, chairman bernanke for your service. i read your statement, and i'm just -- obviously creating jobs is the single most important thing in our country for families, for our collective economy, when such a large part of our g.d.p. is consumer demand. obviously without income there isn't the opportunity to make that demand. how would you describe, how are

the latest programs of quantitative easing and operation twist helping us get to a more robust growth and creating those opportunities? >> well, of course, it's very difficult to figure out exactly how to attribute the progress that we have made to fiscal policy, to other sources of growth. but the -- if you look at the record, for example, if you look back at the quantitative easing in 2010, the concerns at the time were that it would be highly inflationary, it would hurt the dollar. they would not have much effect on growth, etc. but since november to you 20-10, where we've had since then the q e-2 and the

so-called operation twist, we've had about 2.2 million jobs created. we've seen big gains in stock prices and improvement in credits. the dollar is about flat. commodity prices x oil are not much changed. inflation is doing well in the sense that we are looking at about a 2% inflation rate for this year. so i think that at least -- and one other point is that in november, 2010, we had concerns about deflation, and i think we have sort of gotten rid of those and brought ourselves back to a more stable inflation environment as well. so i think that the record is positive, again, acknowledging that you can't necessarily disenge tangle all the factors, but it is a constructive tool. but obviously monetary policy cannot do it all. we need to have good policies across the board, including housing, including fiscal

policy and so on. i think that looking back, i think those actions played a constructive role. >> well, let me go to that point you just made on other elements, housing as one of them. mr. dudley, who's the president of the federal reserve bank of new york, in a recent speech in my home state of new jersey tacked about those borrowers who are -- talked about those borrowers who are underwater. he said without a significant turnaround in home price probationes and employment, a portion of those loans will ultimately default, absent an earned principal reduction program. do you agree with his analysis? >> i want to be clear. the federal reserve doesn't have an official position on principal reduction and i think it's a complicated issue. it depends on what your objectives are. in terms of avoiding delinquency, i think there's a reasonable debate in the

literature about whether reducing principal or reducing payments is more important. so that's one issue. in terms of issues like mobility, for example, ability to sell your home and move elsewhere, there are also alternatives of principal reduction including things like deed in lieu and short sales. it's complicated. there there are circumstances where it would be constructive and cost effective in temples reducing default risk and improving the economy, but i don't think there's a blanket statement that you could make on that. >> let me ask you a broader question. right now fannie and freddie mac currently own 60% of the mortgage market in the country. do you think that their regulator at the fhfa has been aggressive enough in using their market power to stabilize the housing market? >> he estimates judgments about the effect of those policies on

the balance sheet of the g.s.e.'s and whether or not they meet the conservatorship requirements and he's made judgments about that. i guess what i would just suggest is that a variety of different tools can be tried, that you can make a mix of different things, and that you can be experimental. and the g.s.e.'s look to be doing that. to some extent we're seeing the r.e.o. to rental program, for example. they've done the harp two. so they've been taking steps in that direction. there's a big element here of trying to figure out what works best for dollar of cost. and fhfa and the g.s.e.'s, we may not all agree exactly on their particular actions, but they are trying some things and we'll see what benefits accrue from them. >> let me say on a final note that there's two ways of preserving the corpus of your interests, one is through foreclosure, the other is through looking at the whole

process of refinancing and, where appropriate, the private sector has taken about 20% of its portfolio on the banks and said it makes sense to do reductions in principal. so i just worry that our whole focus seems to be in those entities preserving the corpus through foreclosure, which at the end of the day has a whole other destabilizing element in the marketplace. >> senator, i'd like to agree with you on that. foreclosure is very costly not only for both rower and the lender, but for the community and the country. what i was discussing was not whether foreclosure is a good thing, i was talking about what are the best ways to discuss the foreclosure issue. >> senator? >> thank you, mr. chairman, and thank you, mr. chairman, for being here. i know we alternate between the house and senate going first. this is sort of a post-game interview, but we thank you for being here today. i want to hone in a little bit on the volcker rule, since there's been a lot of testimony about the economy and

can'ttative easing and all those things related to how that affects prices and savers and all that over the last day and a half. let me just ask you, with the volcker rule -- and i think most of us are in a place where we're just trying to make it work now. we understand that it's passed. why were treasuries and mortgage-backed securities excluded from the volcker rule in the first place? it's quite odd that those would be the only two instruments that it didn't apply to. >> well, of course, congress made that decision. i assume it had to do with a desire to maintain the debt and liquidity of the treasury market. >> and so by that statement you've just made, we've taken away the depth of liquidity and all other instruments and thus we've had an outcry from foreign governments and just middle american companies that realize they're not going to have the depth of liquidity. i know you focus on economic issues. you're a renowned economist. is that something that's good for our country to lose

liquidity with those other instruments, or would we be better off putting treasuries and mortgage-backed commodities back on the same and moving them into the volcker arrangement? >> there's certainly a tradeoff. there's going to be some marginal effect from volcker on markets in principal. there's a market-making exemption, as you know, and we're going to try to do our best to make a distinction. >> you think market-making is a good thing for our country, and by these regulated entities, by virtue of that statement, is that correct? >> i do. and it's exempted from the volcker rule. but, of course, we have to draw that line in a way that doesn't inhibit good market-making. >> you know, i've talked with some of the folks who are advocates for the volcker rule and we've tried to come up with a one-senate solution to allow appropriate market-making to

take place by the regulated entities. some of the people -- at least the people we've talked to -- actually want to see the volcker rule used as a way to get through the back door. by virtue of what you've just said, i think you would believe that to be not a good thing for our country, is that correct, or at least as it relates to market-making? >> well, i haven't been an advocate of glass-divo. if you look back at the crisis, commercial banking was not particularly helpful. investment banks obviously were a big source of the problem by themselves separately. >> right. >> so -- but, again, as i was saying before, there's tradeoffs. the goal of the volcker rule is to reduce risk-taking by institutions, and we're trying to do that in a way that will permit hedging and market-making. >> well, when you have a rule that people ascribe like in many ways pornography, in other

words, you know it when you see it, it is hard, i know, to make a rule. would it be helpful if congress clarified the fact that market-making is not intended to be overreturned by virtue of the volcker rule, that market machine making is a very valid and appropriate process for these regulated entities to be involved in, and do you think that might help? you know, you've had all these comments, you have all these regulators that are trying to come to a conclusion, each being pushed, by the way, by various constituents. would it be helpful if we clarified as a congress that we believe market-making should not be negatively impacted by the volcker rule? >> well, senator, of course, the federal reserve pushed for these elmingses, and i think the statute -- exemptions, and the statute is clear that market-making is exempt and we want to do our best to make it operational. i understand and hear your intent that market-making and hedging should be excluded from

proprietary trading or distinguished from proprietary trading. >> ok. so i think we're, generally speaking, on the same page as it relates to the volcker rule, and we don't want it to do damage to the depth of liquidity unnecessarily for lending activities in this country. is that correct? >> that's correct. >> and i think we're on the same page that it's probably a legitimate concern for other sovereign governments, like canada and japan and like other ones to say this is incredibly unfair for the largest economy in the world to place a tremendous bias on liquidity of treasuries and mortgage-backed securities unbelievably, but not our own sovereign debt. would you agree that that's a little bit of a problem? >> well, there's an issue when we're colonel in conversations with our partners -- we're in conversation was our partners there. the primary markets for, say, japanese debt are in japan and, of course, therefore are not broadly affected by the volcker rule, except to the extent that

u.s. banks are doing it. >> right. >> but, yes, i agree that we want to make sure we're not doing unnecessary damage to those markets. >> ok. do you agree that zero weighting that we place on sovereign debt nuclear weapons this world and elms in light of the -- and as senator crapo as alluding, to deal with our longer-term issues with the rules that are in place, i mean, should there be a zero risk waiting for treasuries or any other kind of sovereign debt? >> none of those securities is completely riskless, that's true. we have, in the case of non-u.s., we've approached this in various ways. in the case of non-u.s. sovereign debt, as i mentioned before, the europeans have asked the banks to write down the value of that debt. so in some sense it's

subtracted from capital one for one. and in the united states we have been making banks -- we're not just relying on the capital ratio or making banks do stress tests and look at their european holdings and their hedges and so on to make sure they're safe and sound. so we're not ignoring that by any means. in the case of u.s. treasuries, our assumption is that the biggest source of risk is interest rate risk as opposed to default risk. under the default, i think the whole financial system would be in enormous trouble. but we do ask banks to stress test their interest rate risk, including their risk of holdings of treasuries and municipalities and so on. >> mr. chairman, i thank you. i know you've received some criticism over the housing white paper and i know we had a brief conversation about it and i know you shared that those weren't your ideas necessarily. i do hope that in your core area, since the fed's been

pretty active in giving advice outside their core areas, i would love to see a white paper on the effect of the financial regulation ta we just passed on our country -- that we just passed on our country. i don't know if that would be forthcoming, but i would just suggest, especially since it's in your core area, that it would be useful to us as we work through the details. but thank you. >> thank you, mr. chairman. tharme bernanke, this is a question which is a follow-up on your discussion with chairman johnson and senator crapo. in your testimony you note there has been some modestly en -- and some increases in manufacturing. but these signs of economic

recovery are not necessarily reflected yet in the-- what poss concern you the most with respect to risks in our economic recovery? send the economy back into a slowdown? >> let me just say first that one of the points that i talked about in my remarks was there is still a little bit of a con tradition between the improvement in the labor market and the speed of the overall recovery in terms of growth.

i mentioned in come had been flat for contest -- flat for consumers and 2011. it was a little bit less than 1%. you have consumption spending growing relatively weekly. you have fiscal issues that are hanging over our heads. in order to make this a sustainable strong recovery, we need to have declines in unemployment and strong growth and demand and production. i think that is something we have to watch carefully. i do have to mention europe. i think that is important. the other is oil prices. we have seen a number of movements up and down in energy prices. to some extent, a little bit of the movement in commodity prices is essentially inevitable because of the economy is growing, the demand for

commodities goes up. when you have shocks to commodity prices are rising from geopolitical events, those are unambiguously negative and are bad for households and the broader economy. housing remains a difficult area. we were hoping for price stabilization. we think once people have a sense that the housing market has stabilized, they will be much more willing to buy. banks will be more willing to lend. right now there is uncertainty about where the housing market is going. i guess, finally i would mention fiscal policy with -- which both in the short term in terms of where fiscal policy will go over the next year and in the long term in terms of whether congress and the administration will work together to have a sustainable path, i think both of those things are creating uncertainty and concern that

will pose some risks to the economy. there are a number of different things. overall, there has been some good news. that is welcome. >> thank you for that response. as you know, i am most concerned with the well-being of consumers. in the current economic climate, consumers are confronted with difficult financial decisions. this is the case in hawaii where many homeowners face possible foreclosure. the average credit card debt of a resident is the second highest in the country. we know that by saving, individuals can protect themselves during an economic downturn.

we also know that our slow economic recovery is partially due to low consumption of consumer spending. my question relates to the intersection of these two factors. how can we continue our efforts to promote economic recovery? at the same time, encourage responsible consumer behavior and financial decision making? >> that is a very good question. part of the problem now is that the total demand in the economy is not adequate to fully utilize the resources of the economy. that is why we talked about the need for greater consumer spending and greater investment and so on. of course, we want consumers to

be responsible as well. they have in fact raised spending rates and reduce leverage. all that is positive. the man comes from places other than consumer spending. -- demand comes from places other than consumer spending. it can come from exports. those are areas where higher investment creates more capital and potential growth in the future. it reduces our trade deficit. it makes us more competitive internationally. those are alternative to consumer spending to provide growth. there is also a bit of a paradox that consumer spending collectively if it generates more hiring and wage income can actually in the end lead to sounder consumer finances than the alternative. if the economy is growing strongly and income is being

created, consumers will actually be better off. confidence is really important. if people are confident about their income prospects, it can be a self fulfilling prophecy as they go out and become more confident in their purchasing habits. of course, this all relates as you have often mentioned to financial literacy and the ability to make good decisions. we want people to make decisions appropriate for their own needs and stage and lifestyle, for their retirement and those things. that remains an important goal even as we worry about trying to get the economy back to full employment. >> thank you very much, mr. chairman. >> you mentioned several times the before us to have a plan for

sustainable fiscal policy. would a plan that balanced our federal budget within a 10-year window -- would that be what you consider a reasonable transition towards good fiscal policy? >> i would go for -- at a minimum i would aim at the next 10 or 15 years eliminating the primary deficit. that is everything except interest payments. wants to eliminate the primary deficit so current revenues are equal, that means the ratio of debt to gdp will stabilize. if you go beyond that, you start to bring the debt to gdp ratio down. the other thing i would say as i mentioned earlier, many of the things that are going to be problems are kicking in after 10 years. i hope congress will take a longer-term horizon than that.

>> in my conversations with some of your governors and some of the central bankers around the world, there seems to be a broad consensus that there is not the political will, here, europe, or many places to get control of fiscal policy. much of our policy is driven by trying to clean up the miss that policy makers may. you may not want to comment on that, but quantitative easing, for instance, is dealing with the tremendous debt we have made as policy makers. what we see in europe today dealing with a debt from a monetary policy rather than fiscal policy. my concern now -- i know you meet with central bankers all over the world regularly. as i see what appears to be a

coordinated increase in money supply here, europe, and other places. it cannot be formal, but there appears to be an effort to keep relative values of currencies the same as we increase our monetary supply. i would just love to have some insight be on the individual policies here. is it released within -- is it true a lot of monetary policy is driven by irresponsible fiscal policy from policy makers? is there an effort for central banks around the world to work together to deal with that? >> i would say no to both questions. our monetary policy is aimed at our dual mandate. we're trying to set monetary

policy at a setting that will help the economy recover in the context of price stability. i think it is interesting other countries are following our basic approach. it is because they face similar situations. weak recoveries, low inflation, and the fact that interest rates are close to zero. some of these quantitative easing tight policies are the main alternative wants to get interest rates close to zero. this is not an attempt to cover up or clean up fiscal policy. on the other hand, the concerns that people express spoke about the united states and other countries about the political will and the ability of the political system to deliver better results over long-term, i think that is an issue a lot of people are concerned about. i have noted in previous occasions the reason s&p downgraded the u.s. treasury's last august was not because of

the size of the data because they took the view that our political system was not making a long-term fiscal plans. i hope we can prove them wrong. this january 1 event, if so many things left unchanged, i hope that will be a trigger. to force congress to set, how are we going to solve this problem? -- trigger point to force congress to say, how are we going to solve this problem. >> my concern is, i really do believe we would not have 16 trillion dollars in debt if we had not been irresponsible as policy makers over many years. i am not blaming them on any

president or party, but it is clearly a problem. as it has been pointed out by " the wall street journal "today and other magazines, a loose monetary policy is compounding the potential problems in the future. i think as senator shelby talked about, the need for transparency and the need to understand where we are heading with this is pretty important to us as policy makers. we are on an unsustainable path. it hurts me to hear you say in the 10-20 years we need to bring it under control when the analysis i have seen of worldwide available credit suggests a five-year window may be tough for us on our current pace as far as borrowing the money. we seem to have a compound in

growing problem and not a sense of urgency. it seems to be potentially making that much worse. i will let you commented that will yield back. >> i would only say that i do not mean action should not be taken until 10-20 years. the plan should be a long-term plan. looking at only 2013 will not be helpful. you need to look at the whole horizon. >> thank you, mr. chairman. thank you for being here today. i wanted to focus my questions on the economy since you actually know what you're talking about. before i do that i want to go back to an answer he made earlier on interest rates. you said you thought the risk of default was not a serious one.

the risky are worried about is interest-rate risk for our financial institutions and the economy. can you talk a little bit more about that? what the effects would be of a more normalized interest rate than the one we have today. >> both short-term and long-term interest rates are quite low. our current expectation as we said in our state and is the short-term rate will stay low for a good bit more time. eventually at some point, the economy will strengthen. inflation may begin to rise. the fed will have to begin to raise short-term interest rates. at the same time, stronger economic conditions here and globally will cause longer-term rates to begin to rise. that is a good thing. that is a healthy thing to see as a economy returns to normal.

depending on how your portfolio is structured, you could have the risk of losing money on holdings, bonds. we just want to make sure banks understand their risk. we want to make sure they are well protected and hedged against whatever course interest rates might take in the future. eventually they will begin to rise. we just do not know when. >> the center made the point earlier that we have seen some economic growth, but it has not hit home in many ways. i have a chart -- i will carve it in the air for you. the top line is gdp growth. what we see is that our gdp is higher than it was before we went into the recession. that surprises a lot of people when they hear that.

productivity has risen mightily over the same period of time because of our response to competition from abroad and the use of technology. then the recession itself better of the productivity index straight up. firms are trying to get by with your people. we are producing the economic outlook with 24 million people that are either unemployed or underemployed in the economy. we are stuck with a gap of economic output and productivity here and wages and jobs here. can you help me think about the kinds of things that would begin to lift the medium income curve in the right direction -- the job curve in the right direction? i encourage you to think broadly about that -- education or

immigration -- whatever you think will help. >> unlike the political stuff we are all talking about in washington that does not make sense to people at home, that is the issue -- >> let's not belittle the impact of getting back to full employment. that would be very helpful. there is a couple of interesting things. one is the profit share of gdp is unusually high. it is a bit of a puzzle. it may have to do with globalization or the fact that a lot of profits are earned overseas rather than domestically and so on. i think more generally, there is a whole raft of issues associated with globalization including trade competition and the fact that low-skilled

workers are effectively competing around the world. advance in new technology provides a lot of benefits to people with greater education and training. it creates discrepancies between them and people with less training and education. from that, there are not a lot of good answers, but certainly the most basic thing is training and skills. those are highly rewarded in our society still. the low-skilled workers are effectively competing with low- skilled workers globally. it is very difficult for them to earn high incomes. >> i am out of time. i realize that. the worst that unemployment not for people with a college degree was 4.5%. there is a lot can learn from that.

>> thank you, mr. chairman, for being here. i am concerned about some of the negatives that could clearly grow over time about the zero interest-rate policy. what would you consider the list of present or potential negatives? how do you go about monitoring those 2 always determine whether this continues to make sense in your mind? >> a number of issues have been raised. when that is often raised is the return to savers. a low interest-rate penalizes savers. we take that into account in our discussions. as i mentioned yesterday, of total household wealth, less than 10% is in fixed income

instruments like cds or bonds or so on. most wealth is and other forms like equities, small-business ownership, real estate, etc.. our efforts to strengthen the economy will increase the returns and value of those assets. our activities are raising household wealth overall even if they are reducing the interest rates. of course, keeping inflation low also helps in that respect. the second issue we hear about his pension and insurance. that low interest rates increase contributions that those companies have to make. again, we have had many conversations with those folks about these issues. i would say it is a serious issue and one would let -- it is a serious issue and what we would look at.

these pension contributions are significant, but not massive. on the other side of the balance sheet, companies have to invest in the economy. once again, a stronger economy. -- produces higher returns. the third issue that is very tricky has to deal with creating a financial bubble. people have different views about that. our view is basically that the first line of defense against bubbles should be what is called macro potential supervision. there should be supervisory approaches looking at what happens in the system and make sure protections are a strong as possible. we have greatly upgraded our ability to monitor the financial system since the crisis. we're both trying to identify potential problems and making sure the institutions are strong so if there is a problem, they will be able to withstand it.

if those things do not seem to be working, we prepare to take that into account in monetary policy. those are the issues, and we are aware of them. >> one thing that might of been first on my list is commodity prices. a weak dollar pushing up commodity prices. of course now, the most obvious example is gasoline prices. briefly, how would you analyze that and what does that start becoming such a negative that you rethink this? >> i think two was low interest- rate policies realistically would affect commodity prices would be through weakening the dollar. the dollar has been pretty stable. it has not moved much since november 2010 when we introduced qe2. the second is by creating growth here and internationally. it increases demand for commodities and raises prices. if you want to have a growing economy.

those two things have not been a big problem. i think particularly, if you look at commodities, the one commodity that has been particularly troublesome has been oil. currently, it is quite obvious there are a number of factors affecting the supply of oil including concerns about iran, supply issues in africa and so on that are contributing to the increase. >> the most of the quantitative easing announcements have been more or less coincided with increases in oil prices. are you saying that is largely a coincidence or not? >> that is now entirely a coincidence. first of all, if you look over long periods, it is not quite as close a correlation as you might think. i think part of the reason again that there is a coincidence is because of the extent that monetary policy is

structured in a way to increase growth expectations. that feeds into commodity prices through the demand channel. that is one like that i do agree exists. >> if i can just wrap up, at what point particularly with regard to oil -- at one point with that factor driving up prices -- at what point is driving up prices that you would pause in terms of this 20140 interest-rate policy? >> will always keep looking at it. our analysis -- our analysis suggests there a whole range of asset prices, through increased consumption and investment spending and so on our way is reasonable estimates on the effects of commodity prices. again, i think the reason we have seen the strong movements has more to do with international situations than a u.s. monetary policy.

obviously, it is a negative and something we want to keep monitoring. >> thank you, mr. chairman. >> i would like to thank you for your testimony today. there is a vote going on. it requires my attention. i now turn over the gavel to senator schumer. >> i would like to recognize senator schumer to ask five minutes of questions. thank you, mr. chairman. the first question is about the highway bill -- the transportation bill that is on the floor. it will create according to its sponsors -- 3 or save 2 million jobs. it has broad bipartisan support. they estimate for every billion

dollars of federal investment in highways creates 36,000 jobs. what impact would pass in the long term transportation reauthorization legislation have on the pace of economic growth? >> i do not know enough about the details of the bill to give you an estimate. i would like to make one estimation. -- i would like to make one observation. if you think about long-term infrastructure investments, you have to think about whether these are good investments in terms of the returns. president eisenhower's investment in the interstate system produced tremendous dividends in terms of reduced transportation costs and integration of our economy. i would urge your -- i know you are doing this. as you approve projects, you want to do the ones that will be the most productive.

>> that goes to the quality of the project. at this point in time, that kind of stimulus in a sense would serve the economy well and would be needed. >> there are different ways -- >> assuming it would be spent well. >> there are different ways to provide stimulus. infrastructure, if it is well designed and has a good return is often a good approach. you understand that i do not want to endorse -- >> endorse a bill. i did not ask you that. you made the caveat that it might not be a good project. i am just saying when you said the economy is moving forward at a slow pace, not having the -- taking away infrastructure money might hurt the economy. adding infrastructure money would help the economy. you want to do it as well as possible. is that a fair recapitulation? >> yes. >> say no more.

those alternatives are not -- this is a yes or no situation for us now. money market funds. we all know the dark days of the fall of 2008. the panic that ensued when a large money market fund broke the buck. there was a run on the funds. the fec instituted some reforms to address the problems that led to run in 2008. however, they have made it clear they believe more should be done. and recent reports they discussed a few options including a requirement that would lock up a portion of investors' money and proposal to require funds to abandon the stable $1 a share net asset value. the proposals have the potential to change the nature of the product. some say it would drive it out of existence. obviously, they play an important role in short-term financing of many different types of businesses. what are the risks to the

economy and financial system if we were to fundamentally alter the money market funds, what do you think of the two different proposals made? if investors have to keep 3% or a certain percent and cannot let our right away, it is not worth the investment to them anymore. it is not worth investing in a money-market fund for them anymore. >> first as you pointed out, the fec has already done some constructive things in terms of improved liquidity requirements. i think the federal reserve in general, and i would have to agree, there are still some risks in the money market mutual funds. in particular, they still could be subject to runs. one of the implications of do dd-frank is some of the tools that we use in 2008 to arrest

the run on the funds are no longer available. the treasury can no longer provide the fed's ability to lend is restricted because of the fact that they -- we would have to take haircut on their assets. and that's not going to work with their economics. so we support the s.e.c.'s attempts to look at alternatives. and you mentioned some different things. but i believe their idea is to put out a number of alternative strategies. one would be to go away from the net asset -- fixed net asset value approach. i think that the industry will reject that pretty categorically and so the question is what else could be done? one approach would be essentially to create some more capital. they have very limited capital at this point. and there might be ways to maybe over time to build up the capital base. so that's one one possible approach and complementing that or a second approach would be

something that involved not allowing the investors to draw out 100% immediately. >> right. >> that, if you think about that, what that really does is that it makes it unattractive to be the first person to withdraw your money and therefore it -- it reduces the risk of runs considerably. it also has an investor protection benefit which is that if you're "slow" investor and not monitoring the situation moment by moment and the last guy to take your money out, you're still protected because there's this 3% or whatever -- >> and i've heard from some investors and from some funds that given the low margin that money market funds pay, that it would just end the business more or less. or certainly i've heard from investors that they wouldn't put money in if they knew they had to keep 2% or 3% in there. does that worry you? >> it's certainly a difficult time because interest rates are

low and their attractiveness is less. i don't know. you have to have some kind of discussion here. because part of the reason that investors invest in money market mutual funds is think think they are 100% safe and no way to lose money and that's not true. >> we learned that the hard way. >> and we have to make sure that investors are aware. and we take whatever actions are necessary to protect their investment. >> you think money market funds play a useful role in the economy? and should try to keep them going? >> generally speaking they do. a useful source of short-run money and don't overread this. but europe doesn't have any and they have a financial system. >> and they're in great shape. >> they're in great shape. many ways to structure your financial system. but again, i envision that money market mutual funds will

be part of the future of u.s. financial system. >> thank you, mr. chairman. appreciate it. >> no more questions. thank you, mr. chairman. and on behalf of the chairman, unless i'm instructed otherwise, i will adjourn the hearing. >> thank you. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012] >> tonight president obama holds the 100th fundraiser of his 2012 re-election campaign. the president has four events in new york city tonight. and together, they're expected to raise it about $5 million. one of those events is a fundraising dinner. we'll have live coverage at 8:20 p.m. eastern here on c-span. next, a look at why several business owners have made plans to help fund the occupy wall

street movement. from this morning's washington journal, it's half an hour. >> mr. cohen, what's your most recent political project that you're getting involved with? >> i'm working with the movement resourcegroup.org. and that organization is raising money to help support a lot of the work that's being done in the occupy and 99% movement around the country. >> why are you supporting those movements? >> you know, i've been working for economic and social justice for decades. and it seems to me that the thing that's been missing in that struggle is a massive

grassroots movement. and i think that's what occupy and the 99% movement have the potential to become. and we want to support that effort. >> and how are you supporting it besides -- well, with money, yes. but what is your goal with the money that you're donating to this campaign? >> well, to keep the campaign going, to support it at this transitional time. as it's transitioning from spontaneous occupations in parks to a more strategic campaign that's more coordinated around the country. and that, you know, starts to talk about some potential solutions to this problem of economic disparity. >> what is one solution that

you would like to see? >> well, i think there's several that are being discussed. one is the idea of a constitutional amendment that would finally get money out of politics and rescind corporate personhood. there's others that are very focused on making college education accessible to people so that students are not saddled with overwhelming debt in order to get a college education. and then there's the home foreclosure crisis and the idea of getting banks to renegotiate mortgages to restructure them so that people can stay in their homes. >> joining us from our new york studio is ben cohen, political activist and co-founder of the ben and jerry's ice cream chain. 202 is the area code if you would like to speak with him.

737--- you can also contact us via email, at c-span.org or twitter, twitter.com/c-span. mr. cohen, you do think that the occupy movements have been successful in what they're trying to do right now? >> the occupy movement has been incredibly successful in finally breaking through and getting americans to understand that essentially our country is being run more and more for the benefit of the wealthiest and the corporations. and it's now become fairly common knowledge that the top 1% of the population owns 40%

of the wealth. and there's something that's wrong about that. and the problem is the direction that it's getting worse. >> first call up for our guest comes from st. louis, on our democrats' line. please go ahead. >> hello. first i would like to say that chocolate fudge and brownie is a wonderful, wonderful invention. thank you very much. >> thank you very much. >> and i would also like to point out that just -- an article on politico how the republicans are salivating over jeb bush possibly running for president. and when you -- and last year, they were talking about the legacy of politicians. they had a discussion over the legacies of families of politicians in this country. and all of them seem to be extremely wealthy. and all of them seem to have some economic influence or spin

in the game. and have children in politics. my encouragement for occupy wall street is the level of social owe quality that is required -- of social equality that is required is can we please get a president who is not a family legacy of millionaires so that we can actually get somebody in there. well, i think the first two in my lifetime were clinton and president obama. but that's the crux of it. we have too many people with interest -- with financial interest in our politics. >> ben cohen. >> yeah. i think that's absolutely correct. and even when you look at congress, i believe 50% of our congresspeople are

millionaires. that is not representative. so i agree with the caller wholeheartedly. and personally, i believe that public campaign financing would help to eliminate that influence of money in politics. >> jeffrey tweets into you, mr. cohen, i'm glad that mr. cohen is standing up for people who want fairness in this capitalist system. what do you say to people who say, well, you benefited from this capitalist system. and now are you trying to change it, take it down, etc.? >> you know, it always amazes me that the assumption is that people are always going to operate in their own narrow self-interest. you know, my concerns before i

ended up with a bunch of money was about equality and economic justice. and my concerns continue to be about that. they haven't changed. and i try to use, you know, my time, myself and my money to work for more economic and social justice in the world. >> and ben and jerry's, social mission goals, as a corporation, use the company to further the cause of peace and justice, harmonize global supply chain and ensure its alignment with values, and take the lead promoting global sustainable dairy practices. since you sold the company, what, about 10 years ago or so, as -- has unilever continued those goals? >> yes, they definitely have.

and it's interesting. in terms of some aspects of being owned by unilever, the ice cream is now available all over the globe. and when we decide to source our ingredients in a fair traded way that supports farmers in the developing world, and pays them a decent wage for their products, it has a whole lot more effect. >> jim tweets into you, mr. cohen, i had high hopes for the occupy movement. but alas, it has led to nothing. power structure doesn't respond to passivity. >> well, i still have very high hopes for the occupy movement. there was a period of hibernation in the winter. but there's a tremendous amount of plans for the spring.

i'm personally very supportive of the effort to get a national outward facing website up so that people are able to engage with the occupy movement throughout the country. and i think the best is yet to come. >> next call for ben cohen comes from pittsburgh. harry on our republican line. go ahead, harry. >> good morning. i'm glad to see somebody with money that's funding this and putting their name on this movement. because i'm sure any violence or damage, now we have somebody to go after and sue and hold their feet to the fire for what they're doing here. because i'm sure any litigation now, you could be right front and center of it. and i'm sure there will be some. thanks for everything you're doing, and goodbye. >> mr. cohen. >> well, i think we've been very, very clear, and i hope if you visit our website, which is

movementresource group.org, you'll see that we are adamantly opposed to violence. i don't believe that violence -- and really, there's been some property destruction in terms of some broken windows at the fringes of the movement. but that's certainly not a part of the movement that i personally support. and it's not -- it's not a way to accomplish the objectives of the movement. we need to represent the 99% of americans. and they do not believe in violence. >> mr. cohen, in november, there was a gallup poll about occupy. and its goals. and there was some support for it. but people were confused about what its goals were.

do you think it's -- movement as a whole has been clear in spelling out what its goals are? >> actually, yes. the movement is very clear that they want a world that works for the 99% instead of just for the 1%. and i think one of the reasons why there hasn't been a demand or a few demands is because what's needed is a total change in terms of outlook and perspective. but, you know, along the way, to that change in outlook, occupy has supported this effort to get a constitutional amendment to get to finally get money out of politics. to state that corporations are not people.

they've been very supportive and very active in terms of keeping people in their homes and ending the home foreclosure crisis. and they've been very successful in getting banks to renegotiate mortgages and restructure them so that people can stay in their homes. so, there's a whole bunch of things that are needed. and i would say that we need to reinstall the separation between banks and investment houses in terms of the glass-steagall act. but occupy is saying that it's not just one, two, three, or four things. i mean, it's a whole bunch of things that need to change. >> what's your get the dough out campaign? >> it's about getting the dough

out of politics and passing a constitutional amendment that will do that. and, you know, i think -- i mean, i haven't been able to find anybody on any -- on either side of the aisle who's saying that we should keep the current system whereby -- which is essentially legal bribery. so i think there's tremendous support for -- throughout the country. and i think that we need to start holding politicians' feet to the fire. you know, and i believe there's a -- there's been a resolution that's either past or proposed to pass that constitutional amendment. i think we ought to be occupying our politicians' offices until they vote for that -- that constitutional amendment. >> all right. this tweet came in for you, mr. cohen. will ben and jerry's be contributing to superpacs supporting president obama? >> absolutely not.

ben and jerry's has never supported a political candidate. ando believe -- and i don't believe they ever will. >> what is your enthusiasm level about the 2012 presidential election? >> i'll tell you, my enthusiasm is about changing politics as usual. and my enthusiasm is about using this presidential election season to start addressing some of the major issues in our country that are nonpartisan. and they're nonpartisan because neither party is addressing them. so that's where my enthusiasm comes from. i think it's a tremendous opportunity to finally talk about money in politics and maybe even start talking about

starting to raise the minimum wage. >> are you enthusiastic about the re-election of president obama? >> i believe president obama is the best alternative we've got. and that's what i think. >> thomas on our independent line. you're on with ben cohen, co-founder of ben and jerry's and political activist. >> good morning, ben. and good morning, c-span. i applaud you both for your efforts in this country. c-span, my tv doesn't change very far from you guys. i just love you. i guess to stay with the subject, in my personal opinion, i think the biggest fire of occupy has been the lack of a coherent plan. which rightfully or not, it invited ridicule from the right. and if i can make one suggestion, mr. cohen, if you can pass this on to the powers that be within occupy, perhaps

a reawakening of henry george's single tax theories would be an excellent base of which to start from. i don't know if you're familiar with henry george. but he still has probably the most -- the most widely purchased book on economics called "progress in poverty" ever written and 100 years ago that he put it out. and thank you for everything you do. and i tried to get in earlier, veterans don't need another parade. i'm a vietnam veteran. and that's last thing we need. we just need to not be used and thrown away when we get back home. >> and that, mr. cohen, was a reference to our earlier segment. but if you want to address what he had to say at first. >> well, i'm interested in reading the book. i haven't read it yet. you know, occupy started off as

a spontaneous movement. and then it spread spontaneously throughout the country. and so no, there never was a plan and a strategy. and i think now some of that planning and strategy work is starting to be done. and some of the national coordination is starting to be worked on. so i think -- i think we're moving in the right direction. >> where was -- a democrat in baltimore. go ahead, will. >> good morning, mr. cohen. let me begin by saying it's refreshing to see someone of your wealth speak for the lower man. and i will intend to purchase your ice cream more now that i know this. but i wanted to say that my concern with the occupy movement, which i do support it, but i think the negative image that we see sometimes on the tv screens. yes, they've been subjected to

brutality. but a lot of us are looking at it and saying, well, day in and day out, they're staying there. and most of the responsible people have to go back to their jobs if they have them. and what's left are maybe some people out there having a good time or whatever else is going on. and i like your comment on that. and one more quick point. i think president obama made a extra teenage cal error his first time -- a strategic error his first time going after health care reform instead of going after tax reform. >> mr. cohen. >> i agree very strongly that the occupy movement starts -- needs to start looking more like the 99% of the population. and that is -- one of the big problems is that there was no way for the millions of people

around the country that support the occupy movement to engage with it. and get involved with it. and that's the idea of this website that we're trying to get out. and an email system that will allow people to communicate back and forth and to get involved with it. but there's -- i agree with the caller. you know, and i also need to say that i spent a bunch of time scooping ice cream and hanging out in the parks at different occupies around the country. and that the people there and the core activists are incredibly dedicated, passionate, encouraging and creative people. and i'm involved with the movement because i support them.

and it's true that on the tv, you know, a lot of times you see the people that are at the fringes of the movement. but that's not what the core of the movement is about. >> ben cohen, what do you think about tax reform and what do you think -- there's been quite a bit of political discussion about the so-called buffett tax rule. what do you think about that? >> i'm totally in favor. i mean, i think buffett puts it in words that are really easy to understand. i mean, after all the loopholes and all the discussions, at the bottom line, the effective tax rate that warren buffett pays and other wealthy people pay is less than the secretary in his office. and that is un-american. and it's unjust. >> do you think you pay enough in taxes?

>> you know, i'm in favor of increasing -- it's an interesting question. nobody wants to pay more taxes. but i am in favor of increasing tax rates on people in my bracket. because i believe that they can afford it. that we're actually paying the lowest tax rates when you compare it to other industrialized democracies. and when you look at the tax rate that the wealthy have been paying in terms of the history of this country, we're at a low point right now. so the country needs money. i mean, you're either going to get it out of the people that are more able to afford it or the people that are less able to afford it. >> ben and jerry's, was started in 1978 in burlington, vermont. employs 510 people.

or about 510 people. in 2000, it was purchase by unilever for $326 million. seneca, south carolina, john on our-run line. -- on our republican line. please go ahead. >> i think this man is somewhat of a hypocrite. my son worked at a ben and jerry's in clemson, south carolina, goes to work one day to find a sign on the door that the business closed. no advance notice. i guess this is the way they treat their employees. and now going around saying how he thinks the world should be run. >> ben cohen. >> i'm really sorry to hear that shop closed. and i'm sorry to hear that -- that the people who worked there didn't get more notice. the individual ben and jerry's ice cream scoop shops are

franchised. they are independent businesses. they're owned by a local -- usually a local person in the community. and ben and jerry's, the corporation, does not really have control over when they -- whether they decide to close or not. and how much notice they end up giving. like i say, it's not -- i would have hoped that there was more notice given to their employees. but the other thing that you need to realize is that these scoop shops are independent small businesses where people are not making a whole lot of money running them. and they put their lives and their time and their money on the line.

and pretty much the only reason why a shop closes is if it's losing money. and they can't afford to keep it in business. so my heart goes out both to your son that didn't get enough notice and to the shop owner who -- who put a whole lot of sweat and tears and money in. and it didn't work out. >> mo rock tweets into you, ben cohen, where do you stand on the tea party movement compared to the occupy movement? >> you know, i think that -- the commonality between the tea party movement and the occupy movement is an understanding that government as it stands now is not working. not working for the majority of americans. and i believe that there is an

agreement between people who support the tea party and people who support occupy that one of the root causes of the problems is money in politics. and i would like to see and i would like to help come into being some kind of joint effort between tea party people and occupy people that would be working to get money out of politics. >> and with regard to public financing of campaigns, ed tweets in, just what i don't need, another bill from the government for the privilege of listening to politicians running for office. >> well, you know, i understand that nobody wants