british banks applied to the british banking association. the bank of england and other regulators screwed up. even though they got outside help from an ocean away. the sense the british bankers life and some regulators skirt up, the solution is obvious. we have to blame america. in particular, we have to find some american we can believe -- we can blame. i am not part of the blame america first crowd. what happened in london caused an awful lot of private contracts to be off by half a dozen or a dozen basis points. that is that you just come for anybody.

-- a huge outcome for any one individual consumer. some consumers were hurt. today, we have american attorneys who have forms. mortgage forms. contract. they all have plugged in libor. it is natural for them to want to have an adjustment mechanism in their contracts. i think most of them would prefer to have one that is not a result of a few private actors acting privately. they prefer to have a government released rate or maybe one that is tied to a public market that is so broad that it cannot be manipulated. a few people have suggested the return to the practice of law. therefore, when i go back to my

old forms and they say libor, what alternative benchmarks are available? everybody else is looking at that question. there are lots of potential alternatives to this. the challenge is not finding a rate that captures the government cost of funds. the challenge is trying to figure out what is a way to capture the credit risk in exposure to a bay. -- bay. the right people are taking a look at that question. they will do it carefully and look at the alternatives. they will brief ozzie and u.s. they go through that process. >> one of the things they like the federal government to do is weigh the measures and it would be great if you could release this. there will be court cases where people go in and seek modification of contract or --

would be great if judges could turn to the secretary of the treasury in say, when the parties agreed to buy war, they did not agree to something private in subject to manipulation. the thing that is not subject to manipulation that is closest is a report that i look forward to getting from your department. in your opening statement, he said as we move forward, you must take care not to undermine the housing market. which is showing signs of recovery, but is still weak in many areas. a few have suggested that wall -- one of the great things we could do is eliminate the home mortgage deduction and the property tax deduction. that would drive housing prices down. i wonder whether a decline in housing prices would be bad for the economy, that for the

deficit, but particularly bad given the fact that today, we are not adjusted government. you have and to go in a couple of large companies. -- happen to own a couple of large companies. home mortgage deduction -- losing that would bring in some money, but what affect would it have on the federal government? >> i think you were right in describing the effect. i think it is important to remind people that we have a very long way to go. to repair the damage in the housing market. our overwhelming obligation is to be doing everything we can to give people a chance to stay in their homes. we need to repair in heal the

terrible damage still out there that has to be overwhelming. we will continue to use the authority we have, but also to encourage congress to make it easier to refinance. we need to be very sensitive to it and of course, as we do those things, we want to make sure we are not making long-term problems worse. >> thank you. the gentleman from texas for five minutes. >> thank you. good to have you back. i want to go back to april of 2008. i think that is when you were president of the federal reserve bank in new york. you first addressed the issue of of libor. were you aware that informal e-

mails were coming into the new york fed saying there is something up with libor? >> i do not believe that i was aware of those specific concerns before the spring of 2008. in response to your request, my colleagues are looking at a full range available year we will share with you in make sure you have that. i was looking at your response about this disclosure. i thought you made structural recommendations about how libor could be more reflective, but here is my issue with that. if they were having structural problems, i thought your e-mail was appropriate. what was being disclosed here was fraud.

the special counsel for the federal financial crisis inquiry information said the regulator has an obligation to make a criminal referral if he expects a crime may have occurred manipulating libor did not rise to that level. that is puzzling to me. >> i thought about this in two different ways. you had a rate set in london overseen by the british banker'' association, which because of its design created not just the incentive to underreport, but the opportunity to do that. that was a problem for a lot of different reasons. opportunity -- it was very important that there be an effort to use stick to those problems in the rate and of course our first instinct was

to go to the british and they said we agree with you, we are on it. we did not know whether that would be sufficient or not so we also did the appropriate thing. we did it at an early stage, even though these concerns were in the press. we went and briefed the relevant authorities with enforcement authority and responsibility for fraud and manipulation. so that they would have the ability to choose whether to act on those concerns. we thought the combination of the concerns in the public domain and the efforts we took directly with them provided more than enough basis for action to not just reform the structure of the raid, but to pursue the behavior that was obviously so consequential pick t. >> they said where they got

their permission to proceed was not from the new york fed, but basically from the wall street journal's article that prompted them to open up an enforcement action. it was not just a british problem. you know well -- you have been involved in financial markets for a long time. you had to know that. there were people on the buy side and the sell side where they were losers. financial transactions are tied to that. the outcome is based on that. there are domestic u.s. banks that are part of that. >> absolutely. this rate had implications for not just the u.s., but for financial markets around the world. that is why we do what we did.

your right. " we did was try to push them to fix it, reform it. and to make sure that the u.s. enforcement agencies and authorities were able to focus -- >> let me interrupt you. after the june memo, did you ever follow up and say hey what have you guys done since our last conversation? >> we did. my colleagues did. the british bankers' association announced some changes to that process, but obviously, we do not think they went far enough. >> the gentleman's time is expired. >> thank you. i want to go back to something

that i think mr. sherman was talking about. i agree that libor is very important. what i have found to be a continuing divide is between wall street in the main street. you touched on it previously. there is a lot to be done for those individuals who are under water in mortgages and that whole area. i believe we did the right thing, but there are questions. main street says we helped others what happens to me? get a lift up? recently, i saw some out of the box type of proposals. one of which was where governments had to use the legal doctrine of him in the main -- in int domain.

using a minute domain to purchase under water market to and work with private -- underwater mortgages and then reissue -- -- homeowners would be able to repair credit ratings of they would not the fault. new investors would be repaid and the taxpayers would be -- nothing would be added to the budget. that is out of the box thinking. have you or the administration thought about that kind of proposal? if you are not thinking about this, what kind of out of the box thoughts to you have to help homeowners? >> we are carefully looking at exactly that proposal. it raises a lot of complicated questions. we have to look at those carefully. i think it is important to recognize that there is a broad range of other tools available

for states and fannie and freddie. wheat used existing authority to provide principal reduction to homeowners who are under water, but can afford to make payments if their mortgages modified. we have been very supportive of the programs we administer. we have encouraged the of their agencies to take advantage of those things so we will continue to do that but we will look at those proposals and their implications. >> he mentioned hamp, -- you mentioned hamp, but too many are still suffering. part of that peace is base lending money. there was another article that was in "the wall street

journal" where the author was talking about an effort to get banks to lend money again and he talked about the central banks in europe cutting their interest they pay on reserves. the danish cut it to -0.2% meaning banks have to pay the central bank to keep reserves with them. this was a powerful incentive to keep their land or have the bank put money into the market. you worked closely with the federal reserve. do you think a policy like that would be beneficial if it was implemented here? would it help the economy? >> i will not comment on the authority the fed has or how to use it. i will tell you my general view. economy is not growing fast enough. unemployment is very high. the huge amount of damage left in the housing market.

americans are living with scars of a crisis. the institutions with authority should be doing everything they can to try to make economic growth stronger. that is an obligation we all share. congress has the authority for the most powerful tools we have available to help economic growth. we would like congress to use those in these contacts. we will keep supporting anything sensible that will make growth stronger and help get more people back to work and help make credit more available to people. two major businesses can expand to meet growing demand for their products. we have made a lot of progress. lending by small-business is growing. it is shrinking in europe, still. we have a lot of work to do. the obligation we all share --

we have to do everything we can to make sure we are getting growth stronger. >> the chair recognizes the gentleman from north carolina for five minutes. >> thank you. thank you for being here. just a note for the record, it was three months later that -- after the libor issue came to fruition that you agreed to the a.i.g. credit line that was tied to libor. taxpayers are on the hook for that $85 billion. the unresolved eurozone debt crisis is a severe consequence to the global economy. >> that has an impact on the american economy.

>> yes. >> you say concerning the fiscal performance, concerns about spanish fiscal performance have assisted -- persisted. your area agrees to assistance to recapitalize its troubled banking sector. the market reacted adversely to this. spain is positive that relaxing fiscal targets and putting more money does not work. with spain be better off had day maintained a more austere fiscal targets? >> the actions the spanish government's are taking is

moving in the right direction. you are right. if you have an unsustainable deficits, you leave them on addressed and that will hurt you. we agree with that. when you are in recession, you want to be very careful that when you are putting in place reforms, you do so were their phased in gradually over time and day are not making growth challenges worth. the balance will differ across countries. what is appropriate for spain is no comparison. >> do you believe the issues and the euro -- in the eurozone will get worse? >> depends on the taurus is they may. they are doing tough things to make economies work better in to make sure that the institutions of europe create a better fiscal

disciplines and better management. in the near term, they will have to do more to make sure there is confidence in their markets and -- >> spain's 10-year sovereign checked up to 10% when this action took place. the you think the market is already discounting the adverse consequences of the eurozone crisis on the world economy? >> there is no way to know that. -- >> there is no way to know that. you cannot tell what markets do. >> we can tell in looking back. >> all you can tell is the market every day is making a new assessment about weather

european leaders are going to do enough to hold it together. they have committed to do that. they said that is their intention. they have the ability to do that. >> my question to you is what is the obama administration's plan? i know there have been numerous summits. you're spending a significant amount of time on this problem, are you not? ok. so you have any plans, large action by the world to take on this issue? what is the obama administration's plan? what is the significant plan you are putting forward to take on and to show some leadership on this? >> as the european leaders have said in public, we have played a role in encouraging them to move much more aggressively to contain the damage from this crisis. we have been careful to where we have the ability to help

that context mitigates the pressure on us. we have done that. we have also been very supportive of the imf coming in providing some assistance in that context. we will continue to do that. but the solution to this problem will have to come from the europeans. they will have to finance it. it has to sit with their politics and economics. we cannot want this more than that. what we can do is try to put -- as much pressure as we can on them to move more quickly and credibly to adjust this. >> the gentleman's time has expired. the chair recognizes the gentleman from massachusetts for five minutes. >> thank you, mr. chairman. mr. secretary, some people think he did not do enough in 2008. but it strikes me that these are the same people that thought

you were doing too much most of the time. they do not like any regulation. they are currently in the funding and undercutting the fec and others to deregulation. they argued against every regulation on everything, no matter what it is. they learn nothing from 2008. do you think that is the best way to look for? what would you say to those people who were not happy with you did not do before and do not like when you are doing now? >> i cannot know what to say to them except to say as you did, we have had compelling evidence in the financial crisis of the damage you can do to the average american when you allow a system to outgrow any sensible said the protections and safeguards for consumers. that is what happened to our country. the irresponsibility of this body and of the executive branch is to make sure -- the responsibilty of this by the end of the executive branch is to

make sure -- we are going to work against that because we want to make sure these reforms are tough. but you need to not does have good design and tougher rules and protections. blogs do you think the word hypocritical might be appropriate? >> i will leave that to others to say. but we need the support of this committee and congress to put these rules of dental plates and make sure these agencies have the resources they need to enforce them. >> do you agree with moody's comments that they made in june of this year when it downgraded 50 financial institutions on page 14. "we believe the fdic remains committed to achieving the goals set out including ending bailouts of too big to fail institutions."

do you agree with their assessment? >> i try never to comment on those reports for obvious reasons but what they point out is to remind people that under these reforms, congress has limited its and evidently the ability -- the ability of the government to in the future, in and protect an institution from its failures. for that reason, if you look at the financial markets today, there's much less confidence in markets. this is a good thing fundamentally. that congress in the future will come in and protect them from their mistakes. >> it is also another matter that some of the same people that voted to repeal the act and the ones complaining that some banks are getting bigger today, i happen to agree with them. i voted against the repeal. the libor matter cannot be ignored today and i do not intend to ignore it but i am not interested in rehashing

history. but nonetheless, since we passed dodd frank and in the last year are so, we have had the mf global issue, capital one having a significant find -- fine and now barclays with a $450 million fine. that is about 1% of their annual revenue. it is a good number but not the kind of will change anything. yet on page 9 of the executive summary report, you point out that the boehner abilities in the financial system can be broken -- grouped into three clauses -- classes. the incentive to take too much risk.

i understand you are working on that and we will continue to do that but those are not in place yet otherwise these instances would not have happened. they took too much risk. maybe a different type of risk. but i would ask a simple question and i know this is by your place. as a member of fsoc, do you think it would be appropriate for fsoc to be in touch with the justice department to inform them -- do you think the markets would be well served if individuals were held liable for criminal activity? if there is criminal activity here. barclays has indicated there might be criminal activity in this libor situation but it people are doing something wrong, some point some individual has to be held as possible. i would like to hear your opinion on the matter. >> i want to be careful not to respond directly to the question you raised about these enforcement actions but i will say the following -- it is very

important to this country that we have in place a very tough enforcement regime so that people who violate the law are held accountable for their actions so that they are not as held accountable the we are deterring others from engaging in that behavior. we have huge institutions try to restore a powerful enforcement mechanism and part of that is good will against manipulation and the pews. a big part is to make sure there's adequate resources available. if we start them of resources, they cannot do an adequate job of protecting investors and consumers. we will keep working very hard to meet that test. >> thank you. >> the chair recognizes the gentleman from new mexico for five minutes. >> thank you, mr.

chairman. and mr. secretary for being here. as you respond to the questions about separation of investment banks and the independent community bankers, of a like to be included in the written response. -- i would like to be included in that written response. i have to say you have an impressive and resume. secretary of the treasury. chairman of the new york fed. one of the colleagues is try to make some choirboy with the terrible bush appointees. you have got a really strong resume and you have accomplished a lot. there are critics the city did not have the next -- have enough experience for the new york fed. i think the estimation is the work with the bush administration to minimize the policies in 2008. people question whether not the actions did that or not. we can accept the fact that there discussions. i do not know that the policy.

i did the congressman from the mexico. we do not have a big banking institutions. i will not sit here and give you some questions that will reach orient your thinking about the country but i have an obligation to those people who elected me to represent them. we have got the whole idea of the administration came in with, a definite change for the country. it was pitched that this is the hope for the peter -- for the future. we have financial difficulties that are erupting everywhere and pension system that are going to file trillions of dollars short that will make the debt in europe look small. it looks like you are not going to stay.

if you do not believe in the path with you have laid out -- i am just going by what our friends on the other side of the aisle said. i am not on the inside. so if you're going to go or even if the state, why should people of new mexico -- they're all 99%. why should they believed in -- in you or the policies he said in place? >> let me say a few things in response. i believe very strongly that this country, this economy is a much stronger place than it was when the president took office. by every measure, we are in a dramatically stronger place and much better position to deal with the challenges still ahead of us. not just on our fiscal deficits and the remaining problems

people face getting a job or keeping a home. i also believe the policies we have laid out in before the congress are the best way to make the country stronger, not just go back to living with and are means of making sure we are making the economy more competitive in the future. i am committed to those things. you are right that i am in public office terry i have a privileged and making lots of decisions. those decisions will be controversial decisions. i have taken a lot of criticism for adjustments i have had to make on both sides. all i can do is what i think is in the public interest and to help president deal with the country. those adjustments will be viewed -- those judgments will be viewed and i fully respect it. but all i can do is make sure i am doing things i think are in the public interest. >> i appreciate that. on page 4, you talk about the budgetary trends are

unsustainable. in your written testimony, you talk about the fact that the budgets are being cut in government spending is being cut causing a week is to the economy. the report talks about budget trends being unsustainable, it is talking about the debt and deficits or the cutting and spending occurring? >> it is to the government spending is falling across the american economy and that is making growth weaker. it is also true that our long- term deficits are unsustainable and would be good for the country for congress -- the deficits are too high and if left unaddressed, our debt will grow to be too large. >> let me finish up here. i does have a second. you spend a lot of time talking

about the debt discussion but almost no time talking about that and i think that is a huge indication -- if you could give that in writing, that would be great. >> the gentleman from missed -- from massachusetts. >> mr. secretary, i want to thank you for help with this committee with its work. there has been a document refer to a number of times -- referred to a number of times. this is regarding your response back in 2008. there were a series of articles that came out in the british press about a possible manipulation of libor by some of the british bank. he had an opportunity. he responded --0 your responded. -- you responded. back then, it was secretary

paulson, ben bernanke at the fed, chris cox and cftc. >> there are other agencies represented but the -- it was the head of the agencies. >> after you informed them, i have a document that has been mentioned a few time -- a memo dated june 2008. it is the cover page that says it was delivered the previous tuesday, i just to mervyn king. was to the governor of the bank of england at that time? >> yes. >> and is from you. can i have somebody -- i want to put a fine point on this. you talked about your response

but it seems to be ignored. i want to make sure this goes into the record and that we have a clear understanding of what you actually did when you are at the federal reserve bank. it has here a -- recommendations for enhancing the credibility of libor markets and research and statistics group. do you recall what the recommendations that he may wear? this is unfair, i have the document, you do not. that would help. thank you. to save time, maybe you can look at the document and say exactly what it is rather than me asking you these questions one at a time. >> there are s -- six recommendations. strength in government and

establish a credible reporting procedure. increased the size and brought in the composition of the u.s. dollar panel. add a second u.s. dollar libor fixing for the u.s. market. specify its transaction size. only report the liable maturities for which there is a net benefit. eliminate incentives to misreport. each of the subheadings, we gave a series of specific suggestions. what that goes to explain as -- is in significant detail, the range of potential boehner abilities in the way this thing is being run. >> exactly. mr. chairman, i would ask unanimous consent that this memo from the head of the federal reserve bank of new york to the governor of the bank of england be accepted into the record. >> without objection. >> thank you.

secretary, there is also an article that came yesterday in the press and i cannot lay my hands on that but it talked about the fact that a lot of the requests for manipulating libor came from traders who were asking to lower libor as opposed to coming from lenders asking to raise libor to enhance their loan portfolios. in this article, it talked to the fact that for berkeley's and other banks, two-thirds of their depository assets were invested and used in their trading portfolio of and only one-third of their depository assets were used for making loans. so there was a bigger upside if they could lower libor and enhance their trading positions as opposed to raising the interest rate to enhance their

low performance. this goes back to what the volcker rule is trying to get at. i just want to know, do you think that that fact that banks -- this goes to what was talked about this morning that maybe we have to go back and look and what banks are doing. and if we're going to have the taxpayer supporting their conduct and the performance of their basic businesses tackle the gentleman's time has expired. >> is it better to separate the risk-taking versus the traditional lending? >> good question. in response to have to think about the volcker rule in this

context, i am happy to respond more to the numbers question. >> the chair recognizes the gentleman from pennsylvania for five minutes. >> thank you, mr. secretary for your testimony and time today and for the report. i want to follow up on the question asked regarding annual budget deficits and a growing national debt. in the report, page 8 entitled potential emerging threats to the united states financial stability, you read that threats to financial stability like threats to national security are always credited. a couple of years ago, admiral michael mullen when he was chairman of the joint chiefs of staff said the greatest threat to our national security is our national debt. its stock to allow the people.

do you agree that the growing national debt is a significant threat to our economic and financial security going forward? >> if left unaddressed, our long term fiscal deficits would damage the american economy. i agree if left unaddressed, that would be true. >> honey morgan jr. secretary treasurer under franklin roosevelt. he has often been quotes recently. he said, "we are spending more money than we have ever spent before and it does not work. i want to see this country prosperous, i want to see people get a job. we have never made good on our promises. i say after eight years of this administration, we have just as much unemployment as when we

started and an enormous debt." what's different between then and what is happening now in light of secretary's comment? >> good question and context. chairman greenspan and others have said this crisis was caused by a shock, a storm much larger than what caused the great depression but because of the things we did, and we were able to get the economy growing again much more quickly. the economy is much stronger than was at that time in history that you refer to and much stronger than it was when we came into office. the fiscal challenges we face -- you were right to say they are unsustainable but these are manageable challenges for our country at this time in history. there are much more manageable than what is faced by many countries around the tree -- the world.

the challenge reface -- we face is to decide how to do it. we have to balance the obvious concern. we need to have growth stronger but also we have to protect our national security interests and make sure we protect the basic safety net for retirees and low-income americans. we will have to make tough choices about what we do for education, infrastructure, incentives for investment, so we make both stronger over the long run as we figure out how to make sure we make those commitments to retirees and low- income americans more sustainable over time. i think that is the challenge. that is what separates us. not a recognition that it's unsustainable but a debate about what's the best composition of spending, savings and tax reforms to return sustainability. >> normally is a budget resolution. would you agree to bring this back down to manageable levels -- wouldn't passing in budget resolution in both houses put this on a path towards getting the deficit under control?

>> i know where you are coming from but you are right, congress has to act. it will not happen on its own. it is not enough for us to propose things. congress has to come together and negotiate remarked that brings these reforms in place. -- negotiate framework that brings these reforms in place. >> section 112b2 of dodd frank requires a sign pavement indicating what reasonable steps such member believes the government should be taking to ensure financial stability yet neither the annual report or any individual member has recommended the senate democrats pass a budget resolution. >> that is true but it would be strange if you ask the fdc to

tell congress how it would restore fiscal sustainability. there is nothing standing in the way of congress taking more action or some action to reduce these deficits. except that you need both sides to come together on some agreement. >> yield back. >> the gentleman's time has expired. the gentleman from north carolina is recognized for five minutes. >> secretary geithner, you have said today and previously that you and others at the new york fed became aware in 2008 that there were concerns about libor and it was vulnerable to manipulation. it was essentially an honor system. there were incentives to misreport and there were rumors that that was in fact happening and the new york fed conducted investigations and decided there was a basis for those concerns. and passed along the concerns to the fsa and bank of england as well as the members of the

president's working group. but among the documents released by the new york fed is a transcript from a telephone conversation on april 2008 between an employee of the fed and an unnamed barclays trader in which the trader said they were reporting about 20 basis points lower than what it would really cost them to do it. that when it posted an honest libor rate, there was an article that they were coming in higher than the other banks. there is an implication the other banks for also misreporting. but when that happened, there was an article in the financial times the raised questions about barclays. barclays stock went down so they decided they were not going to report accurate libor any more. he said we know that we're not

posting on and on his libor and the reason they did was not to have questions about barclays financial conditions. this was a month after bear stearns and jp morgan chase. did you know of this conversation? >> congressman, i did not believe i was aware of that specific conversation but i did not need to be made aware of that. the concerns about the structure of the rate and the brought concerns across the market about what could be potentially happening, we saw a sufficient basis to do the things which was -- >> this conversation is not just about the vulnerability of libor to manipulation but in fact, an admission that it was

being manipulated. that there were false reports being filed by someone involved in it. i asked chairman bernanke last week, is there any element of criminal fraud that is not committed to in this transcript? >> there is a set of lawyers double answer that question and you can be confident they will do that but on the basic point, we had a sufficient basis based on what the market was saying was happening. and the way this thing is designed, on which to take the actions we took. >> i understand that. what were you told this conversation or others like it that not just -- it was not just theoretically possible but participants in libor admitted they were misreporting. were you told it was not just a theoretical vulnerability but in fact it was happening?

>> i believe that's -- that this was not, we were not concerned of the theoretical vulnerability. we were concerned about the range of different reports that are out there with upper credible. that things were actually misreporting. it was not on the basis of its theoretical concern that we did the things we did. those reports were plausible incredible and that is why we took the steps we did. >> you said the justice was not part of the president's working group. so you did not report this conversation or any others like it to the justice department? >> i want to be careful about this. my colleagues at the fed are going back to the records but i do not know what the new york fed staff did in terms of who will stay informed about.

>> but you did not? >> i did not. >> mr. secretary, you also said earlier that the litigation was certainly possible and they contemplated various lenders to had filed suit or contemplated litigation against the libor banks are having -- got paid too little in inches. are we pursuing claims to get back some of the money that we did not get because libor was artificially low did during that time? i do not know whether we were disadvantaged by this practice. obviously we will take a careful look at that. we also do not know what the net effect was of this behavior on the prices. as many of your colleagues have said, some people believe that those who borrowed money generally benefited.

people who lend money generally did not benefit. it is not clear that is the case but that is subject to a very careful and extensive be viewed by a lot of people. it will take some time for them to figure that out. >> the gentleman's time has expired. to honor our commitment to make sure the secretary gets out on time and to make sure we are getting as many questions as possible, the chair will recognize the gentleman from michigan for three minutes. >> thank you. i would like you to expand and revisit -- i was watching squat box this morning and then saw the crawler. he did go back and revisit it. i do not know if you had a chance to see it or -- but i would like to get your reaction both here and in debt. if you have any reaction or comment.

>> i have not seen those comments to know what he meant. but on the broader question about laying out to this committee the extent of the actions congress has authorized and taken to limit this risk, i would be happy to walk you through that as much as he would like. it struck me that maybe he was getting at the too big to fail element and the question of whether some the ordination -- organizations are too big. >> that is a widespread and common subject of concern and it is something people will be looking at for a long time. i think it is important to recognize that we did force the space to hold much more capital against the risk they take. we have forced a dramatic restructuring of the financial system. congress put in place limits on how large they can get and deprived the government of the ability to rescue them from their mistakes and that is significant ways. if you look at the net impact

of those actions on how the market perceives the risk of too big to fail, the market's perception is diminished significantly. i am not saying that is the end of the story. >> i want to touch on the reserves here in the remaining time. you talk about $400 billion increase in reserves and the cost of credit has fallen. it strikes me that whether it is denmark, switzerland, countries out of the eurozone, the united states is color -- is gulliver. it's now we're doing so great but maybe that everyone is such a mess. i had a very prominent economists who put out an e- mail today to its clients -- his clients regarding those reserves and he was saying reduced access to reserves by the fed was $100 billion and

that means there is $100 billion less. i e-mail him back looking to hear his answer but it does seem that his argument is that it runs counter to a lot of the goals, some of those reserve requirements. on one hand, requiring additional reserves yet on the other hand, lowering interest rates for quantitative easing and other things. is it truly a liquidity problem or do we have other issues? >> i would be happy to look at his concerns if you want to share them with me. i think those are combining to different things. there is $400 billion more capital in the financial system than there was before the crisis. it makes the system safer. >> is that because of the reserves? >> that is the differencing.

i think you are referring to a question about access reserves in the banking system and what that does. but i would be happy to take a look at his concerns. >> i appreciate that. people may be put that down in writing. thank you. -- we will maybe put that down in writing. thank you. >> rex secretary geithner, there has been a request from some of my colleagues to see if we can have an equal number of members on this side ask questions. we would like to ask you to stay for an additional three minutes. the chair recognizes the gentleman from texas. >> thank you, mr. chairman. you indicated that the economy is in much better shape now than when the president took office. i am bringing this to your attention notwithstanding libor and fsoc because if you're not

very careful, the fatuous will be perceived as fact. i think it important for you to reiterate the condition that this economy was in when we took office and juxtapose that to where we are now so we can move forward with a much better opportunity. i would like to yield time to you to please -- do not allow the fatuous to become fact. >> we have a long way to go. we have to be honest and open. the u.s. economy was shrinking at an annual rate of 9% in the last quarter of 2008. we are on the verge of a plausible chance for the american financial system to collapse at that time. trillions of lost well in six months later -- lost wealth and six months later, the economy

was growing. the economy has been growing for three years since. not fast enough. the reason is because of this combination of concerns you are all aware of. europe is hurting us, spending is declining, not increasing by the government, and people have been bringing down their debt and try to fix some of the problems that got us into this mess. we have a long way to go but we are definitely in a stronger position. >> to be more specific, we have incredible people say incredible things and i'm sure you're aware of the statements. we were about to lose the american auto industry. i think you agree. do you agree that the auto industry is in a position now that it is coming back? >> i do. >> at that time, the president came into office, the financial system was almost in collapse.

do you agree that it has been stabilized and that it is now in much better shape than it was when the president took office? >> absolutely. >> when the president took office, the you agree that economic uncertainty -- do you agree that economic uncertainty was to the extent that banks would not lend to each other? >> that is true. >> which is why you cannot structure a deal with banks to save the auto industry. because the banks would not lend to each other. there were not about to salvage an auto industry when they were trying to salvage themselves. true? >> true. there is no private market solution to a financial crisis like be faced. >> for those who want to lay all of this at your feet, i have heard the term black swan that debt.

>> absolutely, yes. let the debt, has expired. thank you for your time and testimony today. some members may have additional questions which they may wish to submit to you in writing. this hearing will remain open for an additional 30 days for members to submit written questions to secretary geithner and for you to replace -- to place responses in the record. this meeting is adjourned. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012]

>> on c-span, the house will gabble in at 9:00 eastern. they will continue working on a bill that would cut federal agencies rulemaking authority to the unemployment rate. senate coverage on c-span 2 starts at 9:30. they will begin work on the cybersecurity bill. treasury secretary tim geithner returns to capitol hill this morning. live coverage of his testimony begins at 10:00 eastern on c- span 3. in about 45 minutes, congressman randy forbes will talk about why he opposes defense budget cuts scheduled to take effect under sequestration. we will talk with congressman jim himes about his support for the cuts to the pentagon budget.