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tv   Capitol Hill Hearings  CSPAN  July 19, 2012 6:00am-7:00am EDT

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stands behind -- under basel iii, my concern is that it concerns to rely on internal risk models when you set the capital levels. the requirements there. i don't mind those being used internally for purposes, but to set it -- to use that -- to quote, he says that prior to the crisis, the models were gamed as the argument to avoid additional capital. of course what that means is they had excessive leverage. and you look at the basel committee study.
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." >> it is a stronger system. your point is well taken. policies need to be validated and need to be good. the federal reserve and other regulators don't let you use just what ever model you want. they have to be approved by the regulators. >> the only way to guarantee that does not happen is to focus on the old fashioned minimum leverage ratio. which is far too low. [inaudible] by the time you get to me, many of the questions i have have already been addressed. i would like to go back to some of the things that were in your statement in your report.
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i get that the fed is doing everything it can with respect to monetary policy to address the employment part of your dual mandate, is that correct? >> we can continue to evaluate the outlook and look at the tools we have and we are committed to make sure that we need improvement unemployment. i don't want to imply that we have done everything we can. there may be more in the future but it is possible we will take additional action if we conclude we are not making progress towards higher levels of employment. >> thank you, there seems to be little reason for concern on the price stability site at the moment. >> for now, inflation seems to be in check. >> you also said progress is
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made -- has been made on a recovery and employment is high and the recovery is not as strong as you like this point. >> the recovery has decelerated most recently. it is a pattern we have seen for the last few years and things seem to be stronger in the beginning of the year and a slowdown around spring and summer. we will try to assess whether this just a temporary slowdown or whether something more fundamental is happening. we're committed to doing what is necessary to make sure the recovery continues and implements -- and employment continue to grow better use of .he economic risks- you said the most effective thing congress can do was to address the fiscal cliff and you
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say the sooner we do that the better. what do you mean by that? >> one of the issues is that putting aside the defects on the activity of the fiscal cliff, as time passes and we get closer to the end of the year, we are likely to see increased uncertainty in financial markets and among people making investment and hiring decisions about what programs will be in place and which ones will not. >> certainty and confidence are a big part of that? >> certainly. >> i will try not to ask you to suggest things we should be doing but i would like to ask you to go back to a sense of what gradual means. can you describe that
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numerically and some kind of way in terms of policy? >> i think there is a range and people have different views about whether you should be more proactive or avoid the cliff. >> when you say more proactive -- >> maybe more fiscal action, there are different views. i am i taking a do no harm kind of approach. we want to avoid the impact of the cligff. >> have learned anything from the european response? -- have we learned anything from the european response tex? >> i and we have learned that sharp fiscal contractions can slow economic -- i frankly have learned that sharp fiscal
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contractions can slow economic growth. they don't have many options about cutting back on their fiscal deficit but we have seen countries that have sharply contracted their fiscal positions experiencing recessions at the same time. >> two of the big issues in our fiscal situation our health care which is the biggest part on the spending side and tax policy. is the certainty more important than the underlying policy? the affordable care act was intended to reduce costs of the long term but create uncertainty in the short term and similarly on tax policy. >> whenever you can have clarity about policy intentions and that applies to the federal reserve, it will be better. >> the gentleman's time has expired.
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the chair now recognizes himself. press reports have indicated -- let's return to libor for a moment. the new york fed first learned about this in 2008. when the cftc enforced -- announced the enforcement action and the to the million dollar fine against barclays in june, they said the rating -- the rigging continued well into 2009. did anyone at the fed inform anyone of potential rigging in 2008?
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>> thousands of contracts were settled using this and the
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impact is relevant. can i take your answer to say that someone from the federal reserve did indeed tell the cftc about this potential issue in 2008? >> absolutely, as was released ought in the materials on friday, the new york fed made presentations to the president's working group which included the cftc, the ctc, the fed, and the treasury. it communicated with british authorities about the issues about how to strengthen libor and address the underreporting problem. >> thank you for your public service. i would like to note that the consumer financial protection bureau issued its first enforcement action today ordering a financial institution to pay a fine for what the agency described as deceptive marketing tactics related to credit card products. i want to publicly thank you for
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your leadership and this congress leadership on credit card reform and now it is good to see consumers have an agency speaking up and fighting for their protections on financial products. the live for problem -- libor problem is solvable if we use a different index that is the objective and verifiable and manipulation-resistant by any single bank. i would like to ask you, what are your favorite alternatives t olibor and have you relayed that to mr. king of the bank of england and what was his response?
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>> i have not addressed this issue to governor king. i have talked to mark carney, the governor of the bank of canada and he looks at issues pertaining to regulation and financial stability and that body will be looking at the libor implications and possible
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ways to move forward. that will be one international .ay to look at this them >> why is the american economy doing better than europe tex? they are working toward austerity instead of stimulating the economy. what role do you think stimulating the economy and fiscal stimulus, what role do you think that plays in the american recovery which is better so far than the european 1. one? >> in europe, they are facing a number of challenges mostly related to the structural problems associated with the common currency and the
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structure of the europe zone. a number of factors contribute to the slowdown in the economy and one of them as the fact that a number of countries who are under pressure from markets are severely cutting their fiscal positions and that is contributing to the slowing economic activity. in addition to that, they're banking system is having problems and credit has become very tight in some countries. moreover, all the issues related to the possible default of various countries have led to a lot of volatility in financial markets which has been a negative factor. they have been facing a lot of headwinds there. it is a difficult situation. >> i am especially worried about the efforts of so my colleagues and the other side of the aisle to limit the fed possibility to use monetary stimulus. long-term unemployment is high
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and i'm concerned we don't have enough tools to combat it. do you believe the long term unemployment would be >> do you believe the long-term unemployment would be even higher if the fed had raised the federal funds rate and not purchased government securities? >> i am quite confident of that. we have not had the recovery we would like but trade policy has contributed to growth and reduction of unemployment the last three years. >> i would like to hear your comments on positive signs that you see in the latest u.s. economic data. >> the gentle lady's time has expired. >> i know housing is one area. >> the gentleman from california is recognized for five minutes, >> in california, inventories are down which is a good trend.
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in the inland empire which was hit hard, is down about 40 days. it is nice to go into a real estate office and see lists of buyers instead of lists of homes for sale. what do you think we can do to keep this trend going? i don't keep the economy will come back until the housing market recovers. >> as you say, there is improvement and the market -- in the market as a whole particularly in some areas. i am not sure that this low inventory situation will persist because there is a pretty big backlog of houses that are in the foreclosure process that may come on to the market and that will be an issue. we provided a working paper earlier this year that discussed some of the issues in housing3 in order to keep down the inventory, one strategy is to undertake programs that convert real estate owned by banks and other
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owners to rental properties. the gse's running a program like that that has some promise. it is important to do what we can to avoid foreclosure, obviously, where it is possible. if that is not possible, we should give people a way through mechanisms to get out of their home and sell it and to avoid a lengthy process. access to credit remains a significant problem. it is hard to point to specific things that can be done. one thing i think is promising is the gse's are considering changes in their practices that will reduce the concerns that banks have about so-called poutback risks so that when banks make a mortgage loan and sell the mortgage to fannie mae or freddie mac, there is a
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substantial risk that if the mortgage goes bad or there's a problem that they will get a mortgage back and be liable for the loss. >> i like that. >> barre and -- there are a number of areas. where we could hope to see improved in the housing market, unfortunately, there is no single solution. to some extent, economic recovery more generally will drive the housing market. >> there is a concern -- the f h a has developed a pilot program of reo's in a bulk sale. the problem i have with that as they are doing it in the inland empire which has a 40 day supply of homes. when they sent a letter out, there is a group of us that represent that region and we wrote a letter objecting to it and they said 70% of the homes have never been listed. why would we do that, selling them for less than market value, it will cost the
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taxpayers money starting a pilot program in the part of the country that has a very low amount of homes listed. why would we do that? it does not make any sense. i agree there are places in the country where there is a high inventory level but why would they pick the one area of the country that is starting to recover? the bulk selling amount costs taxpayers money. why would we do that? >> i'm not sure it is costing taxpayers money. i hope not. while the reasons they would be doing that is in order to make reo to rental programs were, you want a large amount of houses close together. this is so they can be managed. >> if you sell them off the ball, you will sell them for less than market value. >> but more quickly.
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>> if you have a 40-day supply of inventory -- my argument is that there are other places -- seven months is normal. we have a 40-day supply of inventory. fannie mae and freddie mac are bookselling those to fha at a reduced price when those houses could be listed and sold. >> that is a good point, i have not heard that before. i would urge you to talk to ed demarco about that than i did and he said we thought we would lose credibility. >> i am concerned by losing credibility by costing taxpayers money selling homes in a region that has no inventory and an abundance of buyers. when your in meetings, they should talk about that. >> thank you. >> the gentleman's time has expired. the gentleman from georgia is recognize from 5 minutes. >> thank you very much. welcome, mr. bernanke, good to have you. i want to talk about the core of our issue in dealing with
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unemployment. that is the serious paralysis of partisanship that is basically hijack to this congress. i say that because i think you all have done pretty much what you can do. in the fed, you have reached the point of what you call zero bound you cannot go any longer -- lower with interest rates. we talked about the policies we make. nowhere is the economy more impacted than health care. the whole issue with the rising costs of that -- week passed a health care bill and in that bill it has a direct impact on employment and employing people. for example, in their we have medicaid expansion which will bring in another 18 million individuals. most importantly, it will have
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an extraordinary impact on job creation, maintaining jobs. most critical, on a partisan basis -- those states that have the most to lose, that have the highest rates of uninsured and the highest rates of unemployed are saying that will turn away billions of dollars in medicaid that will go directly to their largest employers which are the hospitals. 1/3 of all the hospitals in this country are facing closure which means rising unemployment. what message can you give the nation and the congress here on how we can get our act together
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and how devastating this partisanship -- people deny the unemployed and it is tricky because of partisanship. how serious is this to this country? >> unemployment is an enormous problem. it represents not only wasted resources, it represents hardship and given the large number of people who've have been employed for six months or more, there are many people will never really come back to the labour force or, if they do, the will of lost their skills and not be as employable as they were before. the costs are very high. our besty, we're doing to try to help the economy recover and put people back to work. monetary policy is not a panacea. it does not have all the tools that can be used. i would urge congress to work together as much as possible to address this which is a very serious problem and it is not just a temporary cyclical
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problem. the long-term unemployed could affect our up -- employment force for many years. >> thank you very much. let's talk about what we can do in the future. we have sequestration coming up, for example. how could we formerly a policy dealing with sequestration to shorten and lessen the impact on employment? we have 50% that we will cut. can we not have some indication of how devastating this will be on employment particularly with many of our defense industries who have huge plants and huge amounts of employees? what effect will sequestration have in employment? can we not have a direction or leadership where we would be very careful to make sure that
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we have less of an impact of that putting people out of work? >> i cited the cbo number of1.25 millions of the we lost -- that would be lost not created. it is very important to not forget about the long run. we have to make sure we're addressing the long-term issues. i have been recommending a combination of more moderate fiscal retrenchment in the shorter-term to respect the fragility of the recover andy. >> the other shoe that will drop is the ending of the bush tax cuts. what is your advice of which way we should go in that direction as far as having a lessening
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impact on unemployment? >> i cannot advise on specific tax cuts and spending but looking at the package overall -- >> the gentleman's time has expired. >> i am concerned about the entire program. >> the gentleman from new jersey is recognized for five minutes. >> ever since 2009, >> we have heard that the house -- that the fed is out of bullets but you and your colleagues have been pulling the trigger quite a bit since that time whether it is three rounds of quantitative easing, six years of interest rates being almost as zero, balance sheet still stands almost triple its normal size. it is always a safe to say that we have been and continue to be in uncharted territory. through all this, you normally come and defend yourself on these policy decisions while arguing the counter. you say things could have done a lot or should -- have we not taken these actions. before we go down that line of argument, think about where things really are. with the recent decline in
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interest rates today, is that the result of what the fed is doing or is that the result of the marketplace? the real return out there on a 10-year treasury is roughly -5%. is that a function of the fed's action, keeping rates down, or is that a function of the market in general? if it is an action in response to the fed, the question would be -- what is the appropriate rate we should have a market? if the appropriate rate is where the fed is trying to keep it and where it will be for the next couple of years, isn't that discouraging investment by individuals and businesses? if i know the interest rates will be this low, maybe i put off those investment decisions to a later date. some of these decisions may have a negative side to them.
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maybe there is a counter- factual to your counterfactual. there may be a risk inherent in the policies that you have taken. the fed involves itself across the economy. you fix the fed funds rate, you monopoly of the yield curve in operation twist, you monetize our national debt, you manipulate the mortgage market along with every other part of the credit market, use quantitative easing, attempt to manipulate the stock market and the prices through the portfolio balance channel, you involve yourself in every aspect of the economy and there's not a price in the marketplace that is not subsidized in one sense or another by the fed. yesterday, i listened to the hearing and you said you have more bullets that you can use. he said there is a range of possibility -- buying treasuries, using the discount window, employee communication tools, holding rates for 2015 and beyond, cutting the rate the fed pays excess reserves.
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these are additional bullets that continue to push into uncharted territory. is the fed being as transparent in all these things in going forward on the downside of all these -- of accommodation particularly the failed accommodation? how does qe3 create a single job? it props up the commodity markets and that is great for those in the commodity markets but if i may -- if i'm on the other side of that trade like an airline buying these commodities, i may be laying off people. is there enough transparency in the area to say with the down sides are in the film course of your policies? >> we provided, some years ago, research that showed, based on models and analysis of easing contention -- financial conditions -- increases spending investment, increase the spending and that provides
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extra demand and helps the economy recover. it is not a panacea and not without costs and risks and i agree with that. on the whole, there is evidence that it has provided some report for the -- some support for the economy. it is not the only solution but it has a positive effect. >> i would ask if you could come back to us and indicate if you have made any mistakes in these areas where you would have liked to see other actions should have taken. maybe you can give us that in writing. with regard to libor -- i saw your testimony at the senate hearing yesterday and you said you about it and you said the entire world knew about in 2008 and up. the finger at london. isn't there something that the new york fed and you could have
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done? is there some recommendation you could have made for dodd- frank over the last couple of years? is there something you could have done as far as regulations perhaps with regards to how banks reporter information to libor with regard to our banks here, perhaps setting up fire walls in regard to the offices -- has expired. >> can i get an answer? expired. the gentleman from north carolina is recognized for 5 minutes. >> thank you. let me do 3 things quickly. i want to apologize for not being here for your testimony. unfortunately, i had a hearing on the subcommittee that i am the ranking member on and judiciary on intellectual property so it could not be here. second, i want to follow-up on
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congresswoman waters encouragement to be more aggressive in the out reach of these real estate settlements. there is money there. it seems to me there is a built-in distancing for lenders to go and find the people because they get to keep the money if they don't find the people. somebody needs to be more aggressively reaching them. even to the point of sending people door to door to find these folks who would be eligible to get the relief. i want to encourage that and we will do more encouragement offline on that. third, i want to pick up on the point of shooting all these
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bullets. my colleague would prefer that the fed be as dysfunctional as congress has been. and that nothing be done and that the economy be allowed to collapse which i think would have been the result had not the fed taken some significant actions. i think you point that out on the bottom of page 5 and the top of page 6 of your abbreviated testimony when you say the important risk to our recovery is the domestic fiscal situation. u.s. fiscal policy is on unsustainable path, developer of a credible medium-term plan for controlling deficits should be a high priority. you paint a doomsday scenario if
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congress does not act and you lay out the dilemma that we are in because we need to be spending short-term to stimulate the economy, keeping tax rates low short-term to stimulate the economy, yet we need to be more fiscally responsible. we cannot both spent and keep taxes low without increasing deficits. that is unsustainable. i guess i am expressing my believe that congress does not seem to be up to that task. lay out the scenario -- i don't want to get to into the politics of this -- talk to us a little
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bit more of the delicate balance the short-term about what we ought to be doing verses long term about what we ought to be doing and maybe edify the public about how difficult these choices are going to be both short and long term. >> certainly. congressncerned that has no intention of addressing the deficit and you can see concerns in the bond market about that. this means layoffs in the defense industries. it will slow the economy and it will mean tax revenues will be less than expected and the benefits in terms of deficit reduction will be smaller than what is anticipated and we will see a slower rate, and less job creation. at the same time, if you simply
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push everything off without any additional comment, there is the risk that people will become concerned that congress has no intention of addressing the deficit and you consider concerns in the bond market about that. it is a difficult balancing act but its recommendation has been made not just by the fed and the cbo but by the imf and every nonpartisan fiscal authority which is to mitigate, moderate the fiscal situation for the short term and avoid destabilizing the weak recovery and work together to establish a framework and a plan, a credible plan, that will, over the 10-year window and beyond that, will bring our fiscal situation into balance. >> the gentleman's time has expired. the gentleman from texas is recognized for 5 minutes. >> thank you.
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your office was their response of the other day when we sent you a letter in regards to the libor issue. we will send you an additional letter today or tomorrow. one of the things that is interesting to me -- one of the 16 banks that were reporting on the libor dollar index, it would be difficult for one bank to influence that index, wouldn't it? >> generally, yes. >> it had to be more than one bank underreporting or not accurately reporting their borrowing. >> the reason some of the banks under reported during the crisis was not to affect the overall libor rate necessarily but because these numbers are reported publicly, they want to avoid giving the impression they were weak and others were strong.
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>> if one bank is reporting dividend the other ones, that of his it would not influence the overall index. >> if they were in the top four or the bottom four, they would be cut out. >> when the fed first learned about this, you have some correspondence with the bank of england. three domestic banks were involved and did anybody else to anybody else is doing this? was all your focus just on barclays? >> our focus was not on a specific bank. barclays is a british bank and not supervised by the federal reserve. our focus was on a general phenomenon. the new york fed did two basic things -- one was to inform the relevant regulators here and in
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the u.k. about this problem so they could look at it but also to try to address the structural problems in libor which were incentivizing banks to lowball their rate information. it was approached as an overall problem. >> are -- are you familiar with the term rprice fixing"? >> yes. >> if we get together fix prices, if money is a commodity in the pricing of money is a function of that, wasn't this almost price-fixing on libor? >> it may be but as you pointed out -- did the individual reporting -- miss reporting affect the overall libor and it may or may not have an nannies
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to be investigated. the other thing is that in some cases, there were no transactions taking place. during the crisis, they were mostly overnight transition -- transactions and the banks forecast to report what they would pay for money a year out. the question is whether or not they were, in fact, ms. reporting or they were simply shaving their estimates in some way. i think the details need to come out and we don't have an of details yet to know if this was deliberate price-fixing or there is another interpretation. >> the thing that is alarming to some of us is the fact that given how widely used that index is throughout our economy from about every area of the financial community, i felt like the fed of new york response was fairly lukewarm if somebody was manipulating at this rate.
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that could have huge implications whether you benefit or are penalized from that. can you explain why the fed thought that was not a big deal? >> i'm sure the fed thought it was a big deal. the information was widely known and was supported in the press. the british bankers' association is not subject in any way to u.s. policy. it was hard to directly affect the calculation of libor. surely, it is a very big deal and affects lots of different financial contracts. as i mentioned in my comments yesterday, i think one of the bad effects of all of this is that it will further erode confidence in financial markets and in financial instruments.
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>> thank you, chairman. >> the gentleman yields back. the gentleman from texas is recognized for 5 minutes. >> thank you, madam chair and think up mr. bernanke for being here today. i would like to yield most of my time to you. i have something like for you to respond to. i find that we have some very credible people who makes an incredible statements. one of the statements that causes a good deal of consternation is that we are now doing worse than we were in 2009, that the economy is in worse shape today than it was in 2009. i can give my opinion i but i don't think it will have the impact that a person of your stature and standing would have.
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if you would, juxtapose the auto industry with the auto industry today, with 2009, financial-services, landing in general -- please, if you would, it so we can bring some clarity to what i believe is an incredible statement. kindly do so. >> nobody is satisfied with where we are today, of course, but there has been significant improvement since the middle of 2009 when the recovery began. we get that economic growth now for about three years. the unemployment rate has fallen from 10% to about 8%. that is not as far as we would like in the right direction. things are getting more stronger and banks have more capital than they did a few years ago. manufacturing is much stronger particularly in automobiles. we have seen important steps in the energy area in terms of u.s. production and
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conservation. the housing market which was completely dead in 2009 is still not where we would like to be but is moving in the right direction. clearly, there has been improvements. i recognize that many americans still feel the situation is not satisfactory but it is going in the right direction. >> would you say it is not worse than it was in 2009? >> not by all the criteria i just mentioned about i want to restate a couple of things -- we were about to lose the automobile industry and we now have the automobile industry and it is coming back. we were about to lose a good portion of the financial services industry, larger banks were about to go under, they are now stabilizing. aig was about to go under and we lost lehman brothers and aig is better than a was but not what it was prior to the
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decline. it amazes me that credible people would make such incredible statements and that adds fuel to this flight of confusion that is engulfing us. people want to have some credibility to speak truth about the conditions. it is just amazing that this line of logic seems to have some degree of credibility in certain circles. if you would, just for the record, is the auto industry in better shape now than it was? >> it is producing more cars and is more profitable, yes. >> is the banking industry in better shape now than it was in 2009? >> it is more profitable and has more capital and is making more loans. >> is the economy in the main in
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better shape now than it was in 2009? >> again, it is now where would like to be but many parts of the economy have improved, yes. >> my lexi -- my next line of question will have to do with something we refer to as structural verses cyclical. you cannot solve structural problems if you use cyclical solutions, generally speaking. it is difficult to ascertain what about of what we are dealing with is structural as opposed to cyclical. do you have some sense of how much of what we are trying to fix is structural as opposed to cyclical? >> that is widely debated and it is hard to know for certain. my view end of view of many economists is that a good bit of our unemployment problem remains cyclical which means it could be addressed in principle by
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monetary fiscal policies and structural problems are probably increasing and the long-term unemployed, the problem -- the risk is that they will over time become unemployable and they will contribute to structural issues. >> thank you, madam chair, i yield back. >> thank you so much for being here today and thank you for your service to our government and our people. with quantitative easing, do you think there is a dilemma as to how much quantitative easing can be used and do you think we are approaching the limit right now? >> there is certainly a theoretical limit which is the fact that the federal reserve can only buy treasuries at agencies and more over,
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quantitative using usually involves longer-term treasurys as opposed to bills. there are finite amount of that available. beyond a certain point, if the federal reserve on to much, -- owned too much it would greatly affect the efficacy of the policy. we're not at that point yet but ultimately there would be some limit to how much you could do, yes. >> so there is some limit. you say we are no close group -- we are not close to a preach -- approaching it? what i have a number but we still have capacity at this point, yes. >> the separate question is that you have said you have a target in place, a number, an ideal and what is that? >> 2%. >> with the fed be comfortable
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with an inflation rate a little higher than that? maybe 3%? >> i don't know what you mean by comfortable. we have seen in the last few years of oil price shocks which have driven inflation to 3% or higher. it is our objective to move inflation back down 3%. if you are asking if we would seek 3%, the answer is no. >> are you more comfortable with a 1% or 3%? >> both of those are concerns. toward ane're moving inflationary situation and 1% is closer to the deflationary went which is not healthy for the economy. >> there has been a lot of discussion that with a little
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higher inflation rate -- this is a belief and i don't subscribe to this -- that that would reduce debt burdens and spending and is more the perception of less of debt and that might spur the economy to more consumer spending. is that desirable or not desirable? >> i recognize that some people advocate that we would set an inflation target at 4% and maintain that for a number of years. i don't think first we could do that without losing control of the inflation process. secondly, i am skeptical it would increase confidence among businesses and households and increase economic activity. i think it would create problems in the financial markets soared don't think as a strategy that has a lot of support. >> a lower inflation rate around
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2%, the fed would have more control than perhaps a higher inflation rate? >> because we have maintained inflation at 2% for a long time and it has given confidence in the financial markets. >> it is confidence but also fed capacity? >> the issue is that we have currently well anchored inflation and -- projections. if we said 4%, could we get there and could we get there with accuracy but beyond that, people would say 4% then why not 6%? in the short run, it is not clear that people would be confident that the new target of 4% would be sustainable. they would wonder where inflation would be in the medium term. >> with the fed contemplate more easing, there's the question of
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liquidity in the marketplace and making sure fed policy enables more liquidity in the marketplace nbc europe running counter to that. the woes of europe are making markets less liquid. do you have a concern about the volcker role that would rein in liquidity? >> the ball roll does not come into effect for a couple more years. -- the volcker rule does not come into effect for couple of more years of that is not an issue now. >> we have a hard stop at 12:45. if you want all the time, you can have it. mr. pierce would like a minute if you can work that end. >> i will be quick. mr. chairman, thank you for being here and thank you for maintaining a steady hand through all of this whether it
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was the collapse on wall street or some of the clashes that we have here in congress. normally we don't give the, the fiscal tools. we hope this will continue to improve our economic situation. i want to ask a couple of specific questions and i will see where we are. can i talk a little bit basel iii? it came up in a conversation yesterday with a small desk medium-sized bank in colorado. with dodd-frank, we established lower limits. either it was a tenor $15 billion sized institution and if you are above that, you have many more things that you have to do whether it is dealing with derivatives or the like. as i understand it now, these basel iii regulations that could
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become world wide regulations are going down to $500 million and it would take into consideration lots of smaller banks and we are -- they are fearful that it will dry up their liquidity. >> certain parts of basel iii are being proposed. there are some basic capital definitions. the idea is to make sure that small banks and will banks are well capitalized. many of the aspects of basel iii do not apply to small banks. things like derivative of books are not relevant to small banks and their other roles such as the international leverage ratio which only applies to the larger banks. >> i want to impress on you, if
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i could -- if you are a smaller caller back, you'll generally -- you will generally have real estate and home loans and small business loans. in my opinion, it was not the smaller banks that led us into the deep recession that we suffered in 2008- 2009. i would ask you as chairman of our central bank to make sure that we don't penalize -- we were top with some of the dodd- frank regulations that we passed to make sure the banking system has some restraints and not just run amok. that there were certain things that had to be watched closely. i would ask you, sir, to keep an eye on that if you would. my last question is -- can you describe for us what has happened with the liquidation of the assets that were in maiden
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lane 1, 2, and3? >> there were sold off and the taxpayers receive profits and the results back to the marketplace. >> we pretty much liquidated it all? did we hold any of it? >> we have a little bit left but we have paid off the loans. what ever we sell now is pure profit. >> thank you. i will yield to mr. pierce for one minute. >> thank you for your consideration. mr. chairman, thank you for your service. i'm looking at page four where you talk of a great risks to us financially. i assume that is because of the size and underfunding of the banks. when i look at that size, i consider the pension systems. yesterday, the california pension system said they only
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got a 1% rate of return. the projection to be solvent is near 7.75%. they have a $500 billion shortfall just on the teachers and that of the smaller of the two. i c-span talk about this. spain is only $1 trillion exposure. can you tell us what the risk is associate with unfunded pensions? >> low interest rates put stress on fan -- pension funds and life insurance companies for the reasons you described. i think our goal basically is to get the ecomy strong enough that returns will rise and things will normalize overtime. pension funds cannot be underfunded forever. if the economy strengthens and goes back to more normal levels,
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these underfunding problems will not disappear, of course, but there will be mitigated. >> thank you, mr. chairman. i yield back. >> the committee appreciates your testimony today and you are dismissed. i will ask the audience to keep your seats until you and your staff exit. you are excused. the chair notes that some members may have additional questions for chairman bernanke that they can submit in writing. without objection, the hearing record will remain open for 30 days for members to submit written questions to witnesses and place responses in the record. do we have unanimous consent? >> unanimous consent to place a letter into the record. their concerns of wanting additionaly on the premium capture reserve
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accounts. >> without objection, >> just let them go. >> everybody is dismissed now. without objection, the letter will be entered in the record. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012] >> here is what we are covering today on the cspan networks. on c-span, live coverage of the house begins at 10:00 a.m. eastern. they will continue work on the annual defense spending bill. live coverage of the senate begins at 9:30 on c-span 2 and they are expected to work on a tax incentive bill for a multinational corporations. on c-span 3, homeland security secretary janet napolitano testified at a house hearing. live coverage begins at 10:00 a.m. in about 45 minutes, we'll talk to congressman eliot engel about u.

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