philadelphia. we will continue the conversation tomorrow morning as we do every day at 7:00 a.m. eastern time here on c-span. the "washington journal" t talking about a potential success or to out going defense secretary chuck hagle and the chief executive officer for the center for new american security and later nina olson for the national taxpayer advocate tro...

state of the union address. >> our guest this week is congressman jeb not -- jeb hensarling chairman of the financial services committee. before we get started with our reporters, we are taking on this -- are taping on this thursday morning. there is news out of the european central bank that they are starting their own bond buying program. what is your thought on the potential impact to u.s. markets? >> i have not seen the news. i studied it. i have concerns over the extended quantitative easing of our own fed.

i fear the extraordinary measures of 2008 are turning into the ordinary measures of 2015. i fear that there could be asset bubbles being created along a different -- a lot of different lines of policy. we could be making the same mistakes that helped lead to the 2008 financial crisis. i haven't seen the news out of europe. i'm not really qualified to talk about it at the moment. >> let me introduce our reporters. a financial regulation reporter from bloomberg. a political financial -- politico financial services reporter. >> chairman hence earning -- chairman hensarling, president obama has proposed a big tax on banks as part of his reform. what are your thoughts on that? is that the right approach? >> i hurriedly agreed that a tax increase -- i hardly agree that

a tax increase is a tax reform. it has nothing to do with that. this is just the next chapter of obamanomics. this goes back to the 2010 chapter of obamanomics. he has proposed this tax or fee in the past. then the rationale was punitive. today, the rationale is to make our markets supposedly less risky. i would ask the question what was. frank all about -- what was dodd-frank all about? is this a tacit admission that dodd-frank has failed? as i understand it, all the firms that the president would apply this tax to could all be designated to big to fail -- designated too big to fail. they could be functionally controlled by the federal government. they could have enhanced capital

standards. you look at the volker rule, the derivatives title -- the volkcer rule, -- the volcker rule the derivatives, title. it's a lot more about the politics than it is economics of growth and opportunity and financial security. we have to help middle income americans. the great irony is that all the president's rhetoric is aimed at the wealthy, yet all his policies have helped the wealthy. as the president declares victory on the economy, i think that's going to come as news to a lot of hard-working american taxpayers who haven't felt victory in this economy. and we need a regulatory burden that doesn't hurt our small businesses. we need to make sure that middle income families have rising paychecks. we need to make sure they have great career opportunities. we need to make sure that they

have competitive, transparent, innovative credit markets vigorously policed for fraud and deception. regrettably, dodd-frank has institutionalized too big to fi ail. there is a lot of work to be done. >> chairman, the white house says this is a bipartisan idea. did congressman can't just -- did congressman camp just have a bad idea? >> i'm amazed that the white house has the chutzpah to say it is -- to use the word "bipartisan." i listened to what the president insisted he had to have and what he would veto, then spent about five minutes telling us we all had to work together.

it may come as a surprise to former chairman dave camp that he and the president are so simpatico. i am a student of economics. it's with my degree is in from texas a&m university. i know of no society that has ever tax its way into prosperity and growth -- every taxed its way into prosperity and growth. we have to create wealth so the president can redistribute it. under obamanomics, we continue to have the slowest, weakest recovery in the postwar area -- era. middle income families are suffering because of this. paychecks are smaller, bank accounts are smaller. it has failed. this is just again a recycled chapter of obamanomics. it does not work. you cannot help the job seeker by punishing the job creator

and that's exactly what the president is trying to do. the president says i don't believe in trickle-down economics. he ought to believe in trickle-down taxation. as he taxes these financial institutions, ultimately, that becomes a tax on hard-working american taxpayers trying to buy a car, a home, front to get a line of credit to start their own -- trying to get a line of credit to start their own business. there speaking of middle income families, what are your views on the president's proposal for tax breaks for second earners and childcare? are those good ideas? >> what i believe is we need a fairer, flatter, simpler, more competitive tax code. i would be willing to take all the deductions and trade them in for lower marginal rates. when we do this, we promote economic growth for everybody. we have an american economy that

works for everybody. this is still washington trying to pick winners and losers. i want greater economic opportunity for all americans. what the president is trying to do is to tax some to benefit others. he is still trying to redistribute income and wealth when we need to be creating it. i would say to the president why don't you work with us in trying to create a fairer, flatter, simpler, more competitive tax code, one that individuals could fill out on the back of a postcard question mark as we well know, most of these current deductions are used by higher income individuals. a lot of the people he claims will benefit from all his plans can't even use them in the first place. again, how do we get a healthy economy? i don't think the president's plan does it. i know we are in divided government, but i didn't hear much from the president in his state of the union that he had

much interest on working with republicans on any common plan. i heard a lot more of "my way or the highway pick up >> -- "my way or the highway." >> what is one priority that you would like to accomplish this year? what is one bill you would like to send to the president's desk? >> i him a have a greater -- i may have a greater ability to vote on these proposals than i have diplomat them. -- then i have to implement them -- on these proposals than i have to implement them. what we have to do is get a healthy economy, working for all americans. here is what we have to do. today, we have an unsustainable housing finance system. whether you look at mortgage originations mortgage securitizations, you would say that the federal government is still controlling roughly 85% to

90% of that market. we've got to get off the spoon, -- this boom, bust bailout cycle. i fear that, under government control, we are repeating the same mistakes of the past. when the president talked about reducing risk in the economy with his bank fee his administration helped lead it when, for example, fannie and freddie, controlled by the government, controlled by my former colleague who heads up the fha and we are famous for acronyms in washington -- they just lowered the down payment requirement to 3%. we have years of statistical history that shows the default rate will be greater. we need to give every american and opportunity to buy a home they can actually afford to keep. the answer to your question is housing finance reform a sustainable housing finance system, one that gets up off --

gets us awfully boom -- one that gets us off the boom, bust bailout cycle, that is a priority. >> the questioning about -- a question about housing finance. >> you had a bill that would wind down all support for the government housing -- >> that's not true. the federal housing administration was still around. >> outside of the fha. >> it has a pretty big footprint in the market, but go ahead. >> wind down fannie and freddie and not replace them with a government backstop. >> that is true. >> the senate had a bipartisan bill that would replace fannie and freddie with a government backstop. do you think this year you would be willing to move more in that direction in compromise with the senate version, or are you planning to move forward with something similar to what you were doing last year? >> as you may recall, there is a

change in management at the united states senate. i, for one, think that is a good thing, and, clearly, the american people do, too since they voted out harry reid's obstructionist policies. i think you would see a difference in the bill today. i have a strong belief about where public policy should go, but i always stand ready to compromise policies in order to advance principles. i don't ask myself is this the perfect bill. i asked myself does this take -- i ask myself does this take a step in the right direction or the wrong direction. i'm always willing to sit down with the administration, certainly willing to sit down with my colleagues in the senate to find a way forward to a sustainable housing finance system. i don't often go across the pond and look at europe for ideas on public policy, but i do note that there are a number of modern industrialized nations around the world, including europe, that have very healthy

housing finance systems and have nothing remotely resembling our government backstop, fannie and freddie. again, it is not just theory. i have evidence that you can have a successful model. and in what we call the jumbo market that i know you are familiar with, the segment of the market that fannie and freddie did not serve, you had liquidity, you had competition, you had innovation, and you did not put the credit risk on the taxpayer balance sheet. so again, i do not believe there is a role for government in the secondary mortgage market to backstop it and take this credit risk and put it on the taxpayer balance sheet. again, it is not just theory. i have evidence. that's the idea i plan to lead on, but i'm willing to sit down with anybody and try to negotiate. >> what are two specific areas and housing may be one of them where you can sit down with the new senate banking committee

chairman, richard selby -- richard shelby, and fines of the new can work on and send to the president's desk -- and find something you can work on and send to the president's desk? >> underneath our unique, arcane senate rules, it is still going to take at least half a dozen democrats to advance any particular proposition. so, it is not just dealing with chairman shelby. i had a number of conversations with my senate counterpart. i'm very optimistic there are a number of things we can work on. one thing we have to deal with is the sheer weight, cost, ambiguity of the washington redtape burden, particularly on our community financial institutions. again, since the passage of dodd-frank, the big banks have gotten bigger. the small banks have gotten fewer. consumers are seeing free checking go away. they are seeing the dreaded monthly fees credit cards come back.

consumers have been harmed by many aspects of this. i know that i can work with chairman shelby on this. the unfortunate reality is that, for some democrats dodd-frank is now viewed as sacred text. it is viewed as something chiseled on stone that came down from mount sinai. get on the house side in the last congress, we -- yet on the house side in the last congress, we passed a number of bipartisan bills, some of which were modest clarifications of dodd-frank but they all died in the senate. the left-hand did not know what the far left hand was doing. the far left hand has decided again that dodd-frank, the brand, regardless of what is happening, the struggling middle income americans families, this is sacred text. we can't deal with it. i'm hoping that more moderate and more rational members of the democratic party, however many of those maybe around, will work with us. because any bill that is 2000

pages long, probably the most dramatic legislation to affect our capital markets since the new deal -- it is just fraught with unintended consequences. there are some aspects that we are to be able to work on inon a partisan basis, and i would call on my democratic colleagues. what is happening to our community financial institutions. look at what is happening to the families in your districts and states. work with us on a bipartisan basis. >> what are a couple of examples of pieces of the regulatory law that you think should be able to be changed with bipartisan support this year? >> number one, what is fascinating is former chairman barney frank, one of my predecessors, came and testified before our committee on the fourth anniversary of the dodd frank act. obviously, he is a cheerleader for it, since it bears his name. fascinatingly, he indicated four or five different areas that, if he were in congress, he would be willing to modify, including the

asset level at which firms can be designated as what we call -- basically, these too big to fail firms. you could pull the transcript. he indicated he doesn't believe that asset managers -- outfits like fidelity or schwab that help manage money for a lot of working families -- that they should be subject to be designated too big to fail firms and subject to these enhanced standards that are going to cost more money. i think, again hopefully, there is some common ground on dealing with the plight of our community banks and our community credit unions that are just absolutely withering on the vine. they didn't cause the financial crisis, but they are becoming collateral damage. i would hope that there could be some common ground there.

and we will have to see again dealing with the democrats on the senate banking committee -- they are going to have to have some cooperation with chairman shelby. then we have about seven minutes left. >>-- >> we have about seven minutes left. >> you mentioned the too big to fail rules. do you believe the threshold should be moved to a higher number so fewer banks are caught up, or do you think it should be eliminated? >> i would absolutely get rid of any defective or any -- any def factor or any legal definition of too big to fail. our financial system is too big to fail which is one of the reasons we continue to have the discount window at the federal

reserve, but i don't believe any individual firm is too big to fail. in america, if you lose your ability to fail, one day you are going to lose your ability to succeed. when you designate these firms as too big to fail, what you are really doing is designating a special class of firms. investors say, it is less risky because the government has designated them too big to fail we know there will be a government backstop. -- has designated them too big to fail. we know there will be a government backstop. it has become a cell phone filling prophecy. number one, we get rid of the too big to fail designation. number two, i would get rid of the taxpayer-financed bailout fund, which is contained within dodd-frank. dodd-frank did not and too big to fail -- did not end too big to fail. it codified too big to fail.

number three, i would work with our judiciary committee. chairman goodlatte was able to produce a new section or chapter of the bankruptcy code to deal with larger financial institutions so that they could be resolved in a better way. it is bankruptcy, not bailout. would i raise the threshold? no. i would get rid of the threshold. >> some of these changes that you think are possible through compromise with democrats, as you mentioned -- >> i am more hopeful. >> where do you think the president is on this? during the state of the union, he threatened to veto any significant rollback of dodd-frank. do you think that the white house would allow some of these changes that you are talking about? >> i'm quite confident i don't know the answer to your question. i do know that, recently, perhaps it gave the president a bad case of indigestion, but recently he signed into law two

very modest modifications of the dodd frank bill. but i do fear, particularly based on the state of the union address, that the president is interested in circling the political wagons and doing anything he can to define his legacy as obamacare and dodd-frank. notwithstanding him declaring victory in afghanistan and iraq, i do not believe that peace in the middle east will prove to be one of the president's legacies. i find it ironic that former chairman frank, the frank of dodd-frank, has indicated several areas of his signature law he would be willing to compromise on, that he now sees are unintended consequences. i don't think he views it as sacred text, yet apparently, the president does. i know for a fact the president has signed into law two

modifications of dodd-frank. these are very bipartisan. there is a lot of dodd-frank that falls along a very partisan line, but the modifications that have been brought forward are, in many respects clarifications of this 2000-page law, and they are overwhelmingly bipartisan and yet the president seems to be circling the wagons. time will tell. i don't spend a lot of quality time with the president, so i don't really know what he's thinking. >> three minutes left. >> looking beyond dodd-frank and bank rules, what are areas where you could work with the president and get something done? across the spectrum? >> well, again, i don't know what the president is willing to do. i'm always willing to compromise policies to advance principles. the main thing is middle income america is suffering. we've got to build this economy from main street, not washington down. if the president is going to

circle the wagons on dodd-frank, it's going to be hard to find progress. and so, i would -- if i had a chance to talk to the president i don't get all that many opportunities, i would just have him look again at this year weight, volume -- at the sheer weight, volume, complexity, and cost of all the rules he is imposing on our financial system that translates into more expensive credit and less opportunities for credit for those who are trying to buy a car, go to work, amassed a little bit of capital to start their first -- go to work amass a little bit of capital to start their first is this. at one time, the president indicated he and his administration were interested in finding a sustainable housing finance system, when they put out there housing finance white paper several years ago -- put out their housing finance white paper several years ago.

i hope to have conversations with secretary castro and secretary lew to see if they have any willingness to work on that. it is kind of how i approach most matters in washington, high hopes and low expectations. >> final questions. >> will have your former colleague in front of your committee this week. what are you going to talk to him about? >> regrettably, again, i think that mel -- when he was on the committee, a highly respected -- a highly respected member of the committee, we served together for well over a decade. having said that, i fear that, once again, he is helping lead the way to creating the exact same dynamic that led to the housing crisis -- housing fisa -- housing finance crisis in the first place, which was policy that cajoled mandated, or incentivized financial institutions to loan money to people to buy homes that they ultimately could not afford to keep.

we do not need washington controlling our margins -- mortgage system. we need competitive transparent, innovative markets vigorously policed or for -- policed for fraud and deception. if he is going to say that anybody with 3% down can buy a home backstopped by uncle sam and the taxpayer, he will put a lot of people into homes that ultimately cannot afford to keep them. that is what led to this presently, the affordable housing goals of fannie and freddie. i fear my friend may have a very short memory. >> thank you so much for being our guest on "newsmakers" this week. >> thank you for having me. >> listening to the obstacles to success, the need to get democratic votes on the senate side and the president's veto

plan, which he has been making a lot of statements about, the number of pieces he is threatening to use it on, what are the chances for success for what the chairman hopes to accomplish? >> i think it's clear that if he is going to a cop is anything, even though republicans now are controlling -- if he is going to accomplish anything, even though republicans now are controlling both houses, he is going to have to work with democrats. on dodd-frank, there are democrats who believe changes have to be made and have supported them. they are going to have to come together and pick those things and find a way to move them through. and on housing where the republicans in the house, where chairman hence selling -- char irman hensarling was less year, was very apart from where republicans in the senate -- was last yaer, was very far apart from where republicans in the senate were last year.

>> people keep circling around senator warren. she has taken to the floor in the senate to push back on anticonsumer legislation. >> if i remember correctly, i think chairman hensarling told me in december doesn't spend much time worrying about senator warren, but she is absolutely a factor especially with the spending bill in december. there was a derivatives rule included in that. i think she really used that as an opportunity to sort of want people that the new republican majority would try to push their changes the democrats may or may not comfortable with -- may or may not be comfortable with. you seen her do that again with the terrorism insurance bill -- you have seen her do that again with the terrorism insurance bill. house democrats have taken hold and followed her lead and shown that they can sustain a veto if

they need to on the dodd-frank change. >> she is interesting. she is a relatively junior senator, yet she has been able to, through the power of the bully pulpit, circumvent the traditional power structures and , with this populist message she is speaking more directly to the electorate than a lot of folks in washington do. she has forced people to listen in a way that i don't think a lot of people expected. >> we did not talk specifically about the consumer protection financial bureau, but that has also been on chairman hensarling's list of things he would like to rein in. how much of a sacred text is that bureau in washington right now? >> just this week, his committee approved and oversight plan of what agency they would -- what agencies they would look at. of course, cfsb was on it.

they want to change the funding. right now, it is not under congressional appropriation. they would like to rein it in under appropriation's control. i think you will see democrats fight tooth and nail on those kinds of big, structural changes to cfpb. elizabeth warren will be at the front of that. >> final question, leadership interest in this area. how much will they want to get this legislation to the floor? >> meaning dodd-frank changes? >> exactly. >> it is interesting. they certainly prioritize did in the budget debate -- prioritized it in the budget debate at the end of last year. what you're probably going to see -- they did take a vote on dodd-frank changes already this year. they weren't successful, because they did it under a procedure where they needed democrat

support. they may -- it is sort of an open question what their strategy will be going forward whether they bring these bills up for a vote as a symbolic vote or whether they tried to shoehorn -- they try to shoehorn some of these into broader legislation that has to get passed. >> thank you very much for being with us. we appreciate your time. [captions copyright national cable satellite corp. 2015] [captioning performed by national captioning institute] >> andrew keen, author of "the internet is not the answer," on how the public is being used by internet companies for their own profit. >> in the old days, people went to work in factories. they were paid for their labor. they work 90 clocked at 5:00, then went home and did what they want -- they worked 9:00 to 5:00, then went home and did what they wanted with their money. now we are not