average -- its prices are the average prices." her observation was that, "if you are half the market, you cannot get below average price." she went on to say, "seeking gold prices is a good deal, but thinking that seniors in america are going to get a discount is just not possible." but here is the key point when it comes to instituting a rebate program in part d. dr. morton said, "a drawback to the size drawbackpart d is that' reference pricing is impossible." -- "a drawback to the size of

part d is that reference pricing is impossible." she explained very clearly why this is the case. the reason is that, because part d is so big and the government requires a big discount off the price that everyone pays, then manufacturers would prefer to raise prices to everyone else rather than to sell medicare at a low price. batus -- so that is what they will do. it will drive up everybody else's prices. i hope i have a reputation from my oversight in the food and drug initiation. you all know that. i cannot be considered a friend of the pharmaceutical industry. you also know that i have been a leading advocate for increasing oversight of drug companies. so i am not trying to do anybody

any favors here. in fact, i think that what we ought to do is lay out what works. if 88 broke, don't fix it. or the six -- if it ain't broke, don't fix it. >> mr. chairman. i need to respond. >> ok. then senator rockefeller is seeking recognition, too. >> i am not sure i've followed senator grassley's comments because, in this case, rebates in the chairman's mark are mandated for rebates -- ed be

increased from 15% to 23% why there should not be that same rebate and lower the cost of drugs for medicare recipients just simply does not make sense. why should not a medicare recipient gets the same drug prices as a medicaid recipient? that is the philosophical question here. because medicaid has had a big book purchasing power of almost 49 million american citizens, now the philosophical question is, do you want 44 million medicare recipients to have that book purchasing power and, therefore, i translated into these 23% rebates for the drugs?

let me just make clear, in case it is confusing, that these rates, -- that these rebates cannot go to the dual-eligibles. the rebates could to medicare. then medicare can use the money however it wants. i am suggesting that one way they ought to do it is to close the doughnut hole which helps everybody in medicare part d, 17.5 million senior citizens. the logic of this overall is worth $106 billion, close the doughnut hole, and have another

$50 billion left over. i am not saying what you do with this. you could take $50 billion and the lower the whole price of the bill. you could apply it to the deficit of the united states government. you could apply to different things that you all have talked about here that you need. i would certainly like to see some of it applied on this amendment that i have coming, which is $26 billion on grandfathering all of the medicare advantage, the medicare hmo recipients. so the philosophical question is very clear. i am not here putting on formon. i just don't think that medicare recipients should be paying more for their drugs than medicaid recipients. i applaud form opharma.

all of us are beneficiaries of this modern miracles, of modern medicine. this does not have anything to do with that. this has to do with do we treat senior citizens the same? thank you, mr. chairman. >> two segments to this -- first of all, i strongly support the nelson a momenamendment and his expression of rapture as he talks about it. it should lift the assault. the amendment is that good. and the $50 billion, chuck sherman would like to apply them to hospitals in new york city. am i right? and elsewhere.

anyway, these rebates that we're talking about -- i am appointed to revisionist history. i am not good at revisionist history. they were placed prior to the part d benefits. am i correct? i did not vote for that. i did not vote for that. but your amendment would help precisely what i was trying to do and, as the ranking member has pointed out, it would help our most valuable tool-eligibles who i have long championed and which are a much forgotten and misunderstood part of our most vulnerable population. i have argued this, as i mentioned earlier, to president bush when he was president.

he had promised that southern illinois university would make sure that dual-eligible would be covered by prescription drugs. they were not. it was one of the reasons that i voted against it. with the senator's amendment would do it is help the most vulnerable part of our population. the part d program, as it is, is not working for the dual- eligible. one of the reasons is that -- i have an amendment, too, that addresses that. it is basically a sucker punch. it is a one-2 punch on dual- eligible. i resented. -- i resent it.

i have a section here which i may decline to do because the chairmen is obviously getting antsy. it is in response to senator grassley. >> you go right ahead because you want to do it. >> know. senator grassley is a good friend of mine. he is just on the wrong side of this issue. >> i would like to have a vote on this before we break up for lunch. it is about 12:30 p.m. now. >> mr. chairman, could we ask the staff or somebody? i am told that there is no donut hole for bill-eligibles. i have been told that -- for dual-eligibles. i have been told that repeatedly. can we have an expert at this table tell us whether dual-old doubles face a donut hole?

if they do, can they please explain it? >> ok. >> the way it is structured, the folks who are eligible for medicare and medicaid, their costs are covered in the doughnut hole. they have to pay a flat payment of $1. >> so they do not face a donut hole. >> they basically do not. >> so dual-eligibles to not have a donut hole. >> would my colleague yield on that one point? >> i will yield for a question. >> is it not also true that those on medicare and medicaid did not have a doughnut hole before? this is not about whether or not they have it on hold.

>> reclaim my time the point that senator nelson was making was that the dual-eligibles face a donut hole appeared >> no, no -- a doughnut hole. >> no, no. would the senator yield? >> ok, let me make my point then. the lowest income seniors do not face a donut hole. we all agree. >> the question is -- >> senator johnson -- centered johansson has the floor. >> -- senator johansson has the floor. >> if you require this "rebate," which is basically a tax on the pharmaceutical companies, there are a couple of things that can happen. one is that they can shift costs to non-medicare recipients, the

rest of america, the younger people by the way, the younger people today who are paying taxes are paid for the prescription drug benefits that seniors are receiving today that they never paid for. it was an additional benefit that young people are currently paying. this was a wealth transfer payment to senior citizens. i believe we should have taken care of senior citizens, but that is a fact. we should have taking care of senior citizens who only truly need it and not for all seniors. the reason why object to close in the doughnut hole is that this is more of a wealth- transfer. this is from younger generations to older generations who will either, one, pay higher taxes in the future because of higher deficits, two, will pay higher drug prices, or three, not have the drugs available because the money has to come from someplace. if they're going to take it out of r&d, there will transfer it

in cost to younger people who have private plans and through higher drug costs for them, or they will have to pay higher taxes because of the fact that medicare will have to pay more in the future. i think it is an important point to make now that we have established -- eligibles. i understand now what you are trying to do. i think we -- we have established dual-eligibles. i understand now what you're trying to do. >> senator menendez. >> thank you, mr. chairman. i appreciate and understand what senator nelson is trying to accomplish. i don't think that anyone of us wants a hole in the medicare drug benefit. however, just a focus -- because i know that that is not his purpose, there's a lot of talk and it would seem to be a purpose. acknowledged that he said that

that is not his purpose. it is worth noting again that dual-eligible beneficiaries and other low-income beneficiaries have no coverage gap and very small co-payments. in essence, we are talking about taking the universe, particularly as it relates to when we move them into part d and gave them the full benefits so that they have no gaps, going back and saying that we should also now charge the drug companies for what was previously that medicaid rebate and add that to the equation. certainly, medicaid is a much more strict formulary than those who are enjoying medicare part d.

this amendment, while it is well intentioned, would do nothing to improve the drug coverage for dual-eligible medicare beneficiaries. they do not have a donut hole. the amendment proposes to have the drug companies pay rebates on sales to dual-eligible beneficiaries that will not help dual-eligible beneficiaries. the companies are already pay rebates on -- eligibles. the companies are already paying rebates -- the companies are already paying rebates on tool-solid walls. under the law that created -- the companies are already paying rebates on dual-

eligibles. these rebates had exceeded what was expected and that is a big reason that the drug benefit has cost billions of dollars less than projected and beneficiary premiums have been dramatically lower than expected. i look at the chairman's mark and icy good progress being made in closing the doughnut hole. it requires -- and i see good progress being made in closing the doughnut hole. it requires the drug company to pay 50% of the cost in the doughnut hole. it is not insignificant. it is double the level of the medicaid rebate that this amendment proposes to impose. if it passes, it would add another 23% or more in rebates to the 50% that the chairman's mark already mandates.

so we're talking about almost a 75% increase. like others, i would like to see the donut hole close completely. but to put one rebate on a mandatory discount is just piling on. finally, under this amendment, manufacturers pay once by lowering the prices they charge to part d ensures and twice to the federal government through a mandated medicaid price control. on top of that, this amendment does not strip away the significant increases to the medicaid rebate that were included in part of the chairman's mark. i am concerned about the letter

from the cbo said to the house that said that another result of this is that premiums could very well increase by 20% or more for all medicare part d beneficiaries, accept dual- eligibles. at the end of the day, while well intentioned, it's very well may undermine this disagreement and make it very difficult to move forward. i would like to work with the gentleman on the floor to achieve what he wants. but i think this is -- in the way he seeks to achieve this goal is not one that i can support. >> mr. chairman.

i am not went to get into the bridge repair and drug panel. although i think there are people of goodwill who have worked on that. have a different perspective on the outcome of that. but i do want to talk about the senator's amendment and also to say, from my perspective, that this is not about a deal for an agreement made with the white house. i think this is just trying to fix a problem and address the excessive cost, which is what we're trying to do with the whole bill. the health reform is to create more efficiencies and to be able to cut excess cost out so we can put it towards increased services for people. so when we look at that, people who are low-income seniors, both of them in nursing homes, prior to the prescription drug bill, they had prescription drug

coverage under medicaid. there were no gaps in service. they got the drugs they needed. they were able to get the needed with low copayments, no co- payments, and no gaps in service. when the prescription drug bill passed, they're moved over and continue, in general, about the same. but one thing is different. the entire system is now paying over $100 billion more in costs. a. it is not that seniors got a better deal it is not that seniors got a better deal. -- it is not that seniors got a better deal. the cost to the taxpayer and the system changed. that is my concern. when we look at the fact that

all the other seniors under the prescription drug bills see a gap in their carriage, for many, it is a tremendous concern. -- in their coverage, for many, it is a tremendous concern. many stop taking their drugs completely when they are in that gap in coverage. there are all kinds of analyses that have been done. because the decision was made to pay more for folks who were getting the same coverage, the same help, all of the other seniors have to pay more because they cannot have their medicines covered and there is a gap in coverage that we now call the doughnut hole. that is my concern. that is fundamentally what this is about. it is not about the broader questions around medicare prescription drugs. it is about whether or not a group of people, in my judgment, who should have been kept in

their former system should go back to that because we now know it is costing more at a time when the medicare trust fund has great strains on it. we have heard people talk about it going broke. at a time when we cannot provide complete coverage were under the traditional medicare prescription drug program, why in the world would we not save the dollars when, for those seniors, it is the same? it is in fact the same. now it just costs over $100 billion more. i think the senator's amendment is the right one and i strongly support it. >> mr. chairman. i think all of my colleagues for the argument here, which it think is a good argument. -- which i think is a good argument.

first, the present system works. the competitive model works. i would certainly concede that it works better than people thought. in fact, it is $230 billion or whatever the number was, some large minonumber, less. but there's also no question about it that it still brings in a higher price to the taxpayers, the u.s. garmenthe government than the amendment by senator nelson. the fact of the matter is that, in some drugs, the competitive model reduces competition. in many drugs it does not. first, there are many drugs that are patented. you have no competition by definition.

second, for others that are not patented, there are unique usages. it is a trend that only affects a small number of people. there are not many drugs out there. perhaps one or two. there's not much competition when there's oligopoly -- there is not much competition. that is when there is oligopoly. [unintelligible] so the bottom line is, in lots of places, the pure competitive model does not work in the pharmaceutical industry. but the bottom line is simple. we are purchaser. uncle sam. and his uncle sam? the taxpayers.

-- and who is. sam? the taxpayers. -- and who is ucle sam? the taxpayers. every dollar we savior, we do not know how much will go to medical research. maybe it will go to advertising. i do not know. there's no direct link. there is no certain length. i didn't -- there is no certain link. if competition produced lower prices, pharma would be for changing it. but there represent stockholders. we do not represent stockholders. our stockholders are taxpayers.

if you believe in a more robust bill, we could take the $106 billion and use it for affordability or doughnut holes. my good friend from new jersey has said that this does not affect the dual-eligibles. correct. it does not benefit them. it is now supposed to. the dual-eligible to fine under the medicare reimbursement. i am not saying that recipients below 65, for them the system is broken. that is the system that they would all go back to. so it is not broken. it is working. the pharmaceutical industry gets paid $106 billion less to do it, but it is not depriving people of the drugs. nor is this amendment intended to deal with the dual-eligibles. they're doing fine. but i have always believed,

particularly on the democratic side, should not abide the poor from the middle class. -- should not have divided the poor from the middle class. it is the middle class that has the problem right now. they have begun a whole. they do not get paid all awaof e way, the way the dual-eligibles do. so those are two arguments. one is to save the garment a whole lot of money. that is the taxpayers. if you do not do it, the benefits are not as direct. we do not know how much will go into pharmaceutical research. second, yes, this amendment is aimed not at benefiting the poor, the dual-eligibles, who have medicaid. it is aimed at helping middle-

class seniors and then, with whatever is left over, which seems to be growing every day, we could use for other things as well. so i am in strong support of the amendment. i thank my colleague from florida for introducing it. i hope it will pass here or on the floor. >> i think we had a robust debate. i do not want to belabor it. most people understand that i want to close the doughnut hole sooner rather than later. i do not know how many of us voted for the part d program. i voted for it. [unintelligible] we used private providers. competition works. you have multiple choices for prescription benefits. i would like to ask a question.

i want to come back to the issue of whether or not those eligible for medicaid and medicare, did they see a an increase -- did they see an increase in costs? >> no. some states had a minimal cost when they move to the medicare part d program. their cost sharing is the same as what they had under medicaid. it is very similar. >> thank you. i do not know if this point has been made, but, as i understand it, in some states, medicaid programs provided prescription benefit for the limit the number of prescriptions.

they may have three prescriptions, for prescriptions, or five prescriptions that they can get. my mother lived in sort of tried before death. i think there was a limitation there. does that sound about right? >> that is true. before the drug benefit, there was a trend that started the medicaid program. >> it is not uncommon for people -- my mother died in her early a pause. they're using more than four different prescriptions. -- in hurt early 80's. they're using more than 40 for prescriptions. first of all, part d works well.

what is a fair contribution for the pharmaceutical industry to make in this legislation? i mentioned at the the day and i would like to mention it again correct me if i am wrong. my understanding is that a hospital's cost makes up roughly 30% to 40% of medical costs. is that about right? ok. maya understanding is that pharmaceutical cost pick up about 10% to 12%. i realize that some hospitals are non-profit. some hospitals are for-profit. with hospitals providing a to 40% in this country and pharma

providing 10%, that is a big gap in this country. [unintelligible] the deal that the administration negotiated, the $80 billion for pharma, frankly, as an equity matter, i do not think is far off the mark. i was not a part of the negotiation, but if you do the math, in terms of equity to pharma termand in terms of equiy for hospitals, is close to the

mark. in terms of their ability to invest in r&d, that is what we will hear from them. i think there is another consequence. if this amendment is adopted, the unintended consequences, this will undermine our ability to pass comprehensive health reform through this congress. at a time when we have an historical opportunity to do three things that we desperately need to do, one, reduce the deficit, two, reduced the growth in health-care costs, and three, extend coverage to more people that do not have it, and wewe undermine the ability to do things. thank you. >> mr. chairman, very briefly. i listened to my colleagues who

i have a great deal of respect for. i have a couple of points. first of all, we talk about the shift that created a consequence. there was no mandatory drug coverage under medicaid. is that correct? >> that is correct. >> those who were moved into medicare part d got a significant benefit. >> senator menendez, a prescription drug coverage is optional under medicaid. it has been before part d. every state provided coverage to the category lee needy -- categorically needy. >> but was there not restricted formularies? >> yes, there was. >> so when i go to senator

shimmers comments, yes, we are the purchasers. -- senator schumer's, is, yes, we are the purchasers, but the limitations in those states in the number of prescriptions you have, it is fundamentally different. at the end of the day, i think they're very different. we have no mandatory coverage on the medicare. we had very prescriptive formularies. that makes a fundamental difference in what we're looking at here and with the chairman is pursuing by making a very significant coverage of the gap. >> are we ready to go to? >> no. >> the senators are ready to go. >> i agree, but you will let me

finish >> can we let him say something before) first of all, to the senator from new york, i am not a pharmacist, but i am a doctor. you will find out that read the east rise and omega pills will do the same good. my cholesterol came way down. if you want me to get it, i will bring you the polls tomorrow. >> grapefruit might do the same thing for you. [laughter] >> ok. >> and the pastrami sandwich. hell with that suit you? [laughter] -- how would that suit you? [laughter] >> the $106 billion, i think senator menendez and copper made the same view.

there are $106 billion of cost shifting. middle-class people will end up paying for this. you want to save the middle class. do not load these sorts of things on to them. now that we have dual-eligible settled, i hope that senator rockefeller will say that they're not getting a soccer -- a sucker punch any more. >> i think we're ready to vote. to senator nelson, let me say that i want to close the doughnut hole as much as everyone else. but i think we have to find some other way to close a donut hole. frankly, i wish they would not push this amendment because it is up when to pass. we need some time to properly

close they doughnut hole. the industry is required to pay 50% of the done a whole. that is progress. but i am going to have to not vote for this because the goal iin no way to close it is inappropriate. >> may i close on my amendment? >> absolutely. >> i can rebut each of these arguments. i will let go into it with great detail. when you're comparing the profit margin of hospitals to those of pharmaceutical companies, there is no comparison. i would say that the comparison

that the good senator from delaware had offered is not a legitimate one. when you start getting into the details of the dual-eligibles, i could have offered an amendment that would have the 23% rebate on all medicare part d beneficiaries. 17.5 million people. guess what? -- guess what the revenue would have been from that. but i did not. i wanted to go with the theory that we would go back to the law that it was previously so that we are adjusted dealing with the universe of 7.5 million dual- eligibles. do not let that get confused about the rebates.

23% rebate would be symmetrical with the existing lot in the chairman's mark on the rebates for medicaid. that is not the only place where the government gets discounts or rebates. look at the drugs in the veterans administration. look at the drugs in the department of defense. do you not think that the bulk purchasing power has something to do with this? but we precluded ourselves from that with regard to medicare beneficiaries when it came to the passage of the prescription drug bills six years ago. i just simply do not think that is right. i think that this is an opportunity to bring some of that revenue back to the taxpayer in the form of medicare.

thank you, mr. chairman. >> mr. rockefeller. >> aye. >> mr. conrad. >> pass. >> mr. carey. -- mr. kerry. >> aye by proxy. >> mr. y dannon. >>aye. >> ms. cantwell. >> aye. >> mr. menendez. >> no. >> mr. grassley. >> no. >> mr. hatch. >> no. >> mr. kyle. >> no by proxy.

>> mr. roberts. >> no by proxy. >> mr. enzi. >> no by proxy. >> mr. chairman. >>no. no. >> mrs. lincoln. >> aye. >> i would like to vote mr. conrad aye by proxy. >> the final vote is 10 ayes, 13

nays. >> the amendment fails. >> the public option is a government insurance plan that would compete with private insurers to offer coverage to basically middle-class americans under age 65. >> the chairman's mark does not what does he propose instead? >> he proposes a system of what he calls health co-ops or cooperatives across the country that would compete with private insurers. a lot of liberals think it would be a competitor. there would be owned and controlled by the people they

cover -- they would be owned and controlled by the people they cover, rather than the government. >> but the finance committee will be seeing a number of options next week when their sessions resume. what is most prominent? >> senators john rockefeller and chuck schumer are going to offer at least one or two public pants next tuesday. they're probably going to fail in committee. the point of this is to get the idea out there. rockefeller and schumer say they do not really expect to succeed. but they want to get the debate started in committee. when they get to the floor, they might have a better sidshot. >> on the house side, how will they shape a bill if they're going to face opposition from the republicans and the blue dog democrats? >> if there were talking about that today.

there are basically two options. you can create a public plan that pays medicare rates or you can create one that pays rates that are negotiated, just like insurers do. a lot of more conservative democrats want negotiated rates because they think it would be more fair to health providers and will not jeopardize them financially. the liberals what medicare is because you get stronger cost savings. there is about and $80 billion difference between the cost savings the public plan would produce over 10 years, depending on the rates. >> looking into next week, and dues think that any of these public auction amendments will survive -- do you think that any of these public plan amendments will survive? >> no, they will fail. i think maybe plants like and will vote against these

amendments, too. her position on a public plan has not been altogether clear. she is facing a tough reelection fight next year. these amendments are not when to survive. but it -- but you will see them again when they come to the floor. >> thank you for being with us. >> thank you. >> tuesday, on c-span, the senate finance committee will continue working on amendments to the senate health care bill. see the health care marked up alive at 9:30 a.m. eastern here on c-span. >> as the focus on health care continues, c-span's healthcare hub is a resource. you will find ads, links, and

your health care comments via twitter. >> c-span's 2010 student cam contest this year. there are $50,000 in prizes. craig a video on one of our country's greatest strengths -- create a video on one of our country's greatest strengths or challenges. winning entries will be shown on c-span. grab a camera and enter. >> legislation that would require the government accountability of us to audit the federal reserve was discussed during a hearing on friday. next, we look at a portion of that debate. this is one hour 10 minutes.

the members introduced h.r. 3310. within the bill is mr. paul's legislation in its entirety. the chairman rightly suggested that any reform proposal ought to include an audit of the federal reserve and also mentioned section 13.3. although it is not in dr. paul's bill, it is in the republican alternative. we do strike section 13.3. for the record, i would like to introduce the provisions of

h.r. 3310. >> without objection. i appreciate that. i think that is further argument for doing this comprehensive late and doing it as good. i think that is part of the overall vote. >> there was some mention that 13.3 was not addressed. in fact, we do address it. we do strike that. in fact, i would invite anyone interested in again looking at the republican plan for reforming the financial regulatory system. no. 4, which we devote quite a bit of time to come mother's fund -- quite a bit time to, there's quite a bit of reform. >> without objection.

the gentleman from texas s&. >> mr. alvarez -- >> there are two minutes 50 seconds left. if he wants is on five minutes, you can do the seven minutes 50 seconds right now. >> i think i will do the two minutes 50 seconds now. and then we will see how it goes. you have mentioned quite frequently the independence of the fed appeared at the bottom of the first page, you talk about the public interest. your implied that the independence of the fed is important to protect the private interest -- you implied that the independence of the fed is important to protect the private interests. public interest is not easily definable. i would suggest that maybe we have something to do with

protecting the public interest, too. i would not brag about our ability and our record, but i still believe that we have tremendous responsibility to protect the public. this idea that a group of individuals, 12 individuals, who worked behind the scenes that once more secrecy and less transparency -- how did this come about where you assume that you are in charge of the public interest? could you expand that to me? >> congressman, i do not think that we are saying that we are in charge of the public interest in a way that excludes congress and anyone else. all government agencies have to back and do their best to act in the public interest within the constraints that the congress has set out. the concern we have is that monetary policy, to be

effective, has to be -- and this is a matter that has been studied in a variety of contexts across a variety of schemes in the world -- in order to be most effective, it has to be as free as possible from political consideration. the gao audits are not audits in the sense that a cpa 0 would conduct. their policy reviews. they often involve conducting interviews or depositions of participants, looking at records, coming to an independent policy judgment and publishing that policy judgment. that would undermine the ability of the markets to understand the federal reserve's action, the policy action, to believe that those actions are independent

and not influenced by the gao, and that congress is not trying, through the gao, to direct monetary policy. that would make their ability to implement the policy, carry out the duties that congress has given us, it would make that much more difficult. >> you do not want us to review the monetary policy because it might be damaging. but what exactly is the information that you do not want us to have? i think my time is expired. mexican bar the two minutes. i think we will amend the gentleman's time -- >> you can bar the two minutes. i think we will amend the gentleman's time. >> we provide substantial information to the congress to allow to oversee our facilities, i information about

the collateral, the terms and conditions -- >> the question was, what are the types, obviously not the specific information. what types would be damaging if they were revealed? >> our concern of the audits of monetary policy are about the involvement of gao. >> are there types of information in monetary policy that you believe would be damaging if revealed? >> no. it would be about the gao conclusions and reviews. it is not about the types of information. >> i think that is an adequate answer to the gentleman's question. we can go 1. >> yes. >> the gentleman from north carolina. >> i would add to that. this has to do with the ability of people to sit in a room and discuss something without having it appear the next day or being

second guessed the next day. let me do a couple of things in the minutes that i have. mr. paul has a devoted follower either in or near my congressional district who regularly calls me about this. one of the questions he has asked me about is the question that mr. causseaux raised in his opening statement. i am not a high-tech person, so i am going to do this at some risk. there is a website in which all of these reports about the various funds that the fed has been administering under the emergency authority dealt with sunday to go through pages 133 of this report, on pages 16-22 of the reports that i've put in

under unanimous consent. but that information is also available on the said's website http: //www.federalreserve.gov/monetar ypolicy.bst_fedfinancial.htm. i've probably done something wrong there, but the world other, please go and look at what is already up on the website before we continue to second-guess what we ought to be demanding that they put up. second, i am delighted to hear the emerging consensus of both

sides of the aisle that this ought to be done in rate reform. we have had that discussion a number of times. i feel strongly that, to do this before we know what the ultimate authority of the fed will be under regulatory restructuring, it is just an invitation to have to do it again at some subsequent point and we ought to do it as part of the rate reform process. finally, mr. alvarez, you're the general counsel so i think you would be and probably as good a position. you started to address this issue in your response to mr. paul. i addressed it generally in my opening statement. the statement between a regular

cpa audits in the public context and the definition or coverage of a gao audit as we think of it in the government context -- i presume a gao audit is not just a report of the numbers. talk to us about what a gao audit authorizes the gao to do. >> you are exactly right. our financial statements are audited by an actual accounting firm in the traditional sense that people think oabout, checking the numbers and we do that on an annual basis. the gao looks at broad areas. it has access to all the information of the agency. it then formulates suggestions on how the agency should develop

policy. it may make suggestions about the very policy itself. it provides that information to the agency. it is not directed at just verifying what has occurred or verifying the accuracy of statements. it really is meant to be more of a policy guide for the agency. it does involve itself in making recommendations about policy decisions. >> i take it that, if we did not clarify this or be more specific about it, mr. paul might, five years from now, be requesting a gao audit of the gao. because it has very broad authority to get into policy decisions and things that are not just number crunching, that is the point you're making. >> that is correct. >> we are going to break right

now. there's a possible second vote. we're going to go vote on the rule and then come back and continue this because of the importance of the day. we will be in recess, but no more than 50 minutes or 10 minutes. it will be just enough for dr. paul and i to come back. . in your testimony, he said you want the american people to have as much information about have as much information about what we are doing nt that does not jeopardize the performance of our duties.

here is the question that i have beta a good to the doctor and the doctor says i'm going to revers test and tell you everything i think you need to know, i will just not you everything i know. i immediately become interested in he is not telling me i immediately become more interested in what he is not telling me than what he is telling me. what are the things that would keep you from being able to do your duties that you should not tell us. >> that is a very good question. i think this is more akin to what the doctor can tell the public about your help than what the doctor can tell you. the concern is not about hiding information. it is about maintaining the integrity of the process for making monetary policy. monetary policy involves a lot

of discussion and debate about ideas that may work, ideas that won't work, they beadata that my not be meaningful. it requires an unfettered and broad discussion. that process is what we seek to make sure it is effective. also, monetary policy depends very much on the market's understanding of whether the federal reserve will move in a particular direction, if it will stay in that direction, and when it will change directions. if it looks like the federal reserve is changing directions because of a statement or policy review by another agency is influencing the federal reserve

, then the integrity of the process will be undermined. confidence that the federal reserve will move in a direction that is best for the economy will be undermined and we will not be able to carry out our job as well. that is what i am concerned about. >> i think the american people are concerned the have grown the balance sheet. they are on the hook for the activities of the federal reserve. recently, a recommendation has been made that we take additional responsibilities and authority, even more broad authority than you already have, to be the systemic risk regulator. yet we have the fed coming to us and saying that they will have full disclosure and to take these responsibilities. i think they are concerned about that. i think about the currency swaps and international currency

transactions that the fed is engaged in. we do not know all the details of those transactions. our we requiring these countries to turn around and buy treasuryies as a way to prop up our unfettered spending? we are borrowing $1.50 for every $1 but we spend. the american people are extremely concerned about the activities going on in government. whether you want be independent or not, you are london as part of government. i think you are going to have to do a better job of articulating. when some of these financial institutions started participating in the credit facilities, it actually brought confidence to the market. the fact that a large bank is

now coming to the federal reserve window and you are completing the transaction should give the market more confidence that the financial institution is in good condition. if you are turning away, it might have a greater impact. i'm having a hard time understanding the transparency argument. >> i would like to respond briefly to several of those points. on the foreign currency swaps, which provide detailed information on those in our balance sheet and in the monthly report. we list the countries that we have a swaps with. we list the amount outstanding. we list the terms and conditions so that the public will understand what the exposure is of the federal reserve. that is all explained in our monthly reports. as the amount drawn changes, we

revised the information to make it available to the public. that information is precisely what we've tried to fit together on the website. you have referenced the size of our balance sheet to $2 trillion. most of that is in the form of u.s. ownership of government securities and agency-guaranteed securities. that is listed in detail on our balance with the maturities of those securities and a lot of other detailed information. that should help to give people confidence if they are able to spend the time to look through the information. we have a complicated balance sheet. it cannot be summed up in a couple of words. that makes it more difficult for us, but that is why we put so much information on the website and in the monthly report. >> the gentleman from kansas is recognized for five minutes. >> i would like to better understand what risk u.s.

taxpayers take on when the federal reserve lends money under the authority granted to the fed via the emergency powers. what collateral does the fed required to protect against losses when extending credit? as the federal reserve lost money? do you expect the fed to lose money since the crisis last year? >> the lending we do under section 13 is secured. we have collateral for that lending. we and our advisors continue to believe that we have very little exposure. we expect to be fully repaid on the loans we have made. the types of collateral supporting the lending are described in the monthly report. it varies by facility. some facilities are backed by

residential mortgage-backed securities. some are backed by other kinds of loans. there are a variety of things. we explained that in the monthly report for each of the facilities. >> as we consider improving transparency, by and stand at more than 385 prominent economists have signed a petition that there is risk because of the plan to monitor the fed activity. how would you respond? >> we believe that monetary policy must be done in an independent manner. we believe it is most effective when the federal reserve is able to have its unfettered debate and issue its policy decisions without second-guessing, without competing interests in communicating those policies to the public. in general, we agree. if h.r. 12 07 or signed into law

by the president today, what effect might that have on the economy and financial stability? >> if the bill were passed today, the gao would be required to do an audit immediately of our policy operations. that might cause the markets and the public to lose confidence in the judgment of the federal reserve. there would be confusion about the communication, about the forward actions and path of monetary policy. we are afraid that would make our ability to implement policy much more difficult. that could potentially lead to higher interest rates before that is appropriate. it would mean higher interest rates as a general matter. but i yelled back. >-- i yield back.

>> mr. castle from delaware is recognized. earlier, you indicated some information from the federal reserve is on the website. that may be accurate, but maybe i did not articulate it well. we are trying to derive an independent analysis. to mr. alvarez, you mentioned a couple of things. but could not find your written testimony. i may not be summarizing correctly. you indicated something to the effect of you the federal reserve are looking at additional information that you could consider releasing with the jeopardize in the program. later on you indicate in your testimony you are exploring ways to explore transparency.

can you share it does more specifically what those discussions consist of our what areas you are looking at? >> we have increased substantially the amount of information that we make available. we continue to take suggestions that come from hearings like this and from congressman to think of ways that we can beat -- >> is there anything specific you can share with us beyond what you have done? >> we are actively considering how much an affirmation about to borrowers we can make available. we are exploring ways to allow review of the operational and secretary -- integra terry of our monetary policy and whether that is possible. all areas are under thought.

>> there is concerned with respect to everything the fed is doing. it is not you do not to do a good job. the disclosure of -- it is the disclosure of information, etc. we are concerned because any losses that are founded on when to be paid for by the taxpayers. there seems to be some opposition to the legislation. my question is -- how much congressional oversight is appropriate or what aspects of legislation could the fed to live with, if you are qualified to give us that? >> let me point out that there is congressional oversight of our activities. >> beyond that. >> to the extent that the gao is a part of that. that is an area where i think we

would like to continue to work with the congress. we do not have a specific idea at this time. we would like to continue a discussion about whether there are ways that our implementation might be something that could be reviewed. >> i am not an expert on of these powers. this-whole 133 business seems to be where this all started. in terms of some of the lending and things that you are doing, i would encourage you to continue your discussions of what you are willing to do in terms of transparency. i do none of the legislation will be part of a greater bill or even have a chance for passage. i think there is a need by the public to know this. the transparency hearst's -- helps in support of the dollar.

this will not go away. the fed will continue to look at it very seriously. the members of congress are concerned about this, as well. i yield back the balance of my time. >> thank you. mr. sherman from california is recognized. what nobody in my district things that the fed has done such a wonderful job of running the economy that we should continue to quote them in secrecy to keep them from second-guessing criticism it is kind of what goes with being in government. mr. alvarez, we talked a lot about 13-3. let's say next year it the entire federal reserve board comes to you and says congress will not pass tarp 2. it will not pass any legislation.

the economy is going to melt down. we will be eating red meat in the street if you do not agree, because you are the general counsel, that we can use section p would you agree that 1303 could be used to make modest investments? >> we do not make investments in that way. 1303 allows us to land -- >> many people use investment to describe alone. i will recast a question. to make loans that have the

same risk associated with a signal a bond. >> we do land today against a variety of collateral. that includes collateral with a variety of readings and some d up in thethat is not use of the term. i'm trying to use that to describe the level of risk. the question is, do you have to be absolutely fully secured or will you take the kinds of lesser security for which investors usually demands 3, 4, 5% above liability? >> we typically -- we are required to be secured to the satisfaction. to our satisfaction. i would expect that we would be fully concern. what i'm asking you what is legal. what i'm trying to explain. >> you are telling me the

practice. >> is it illegal for your board to make an investment that is not fully secured? -- to make a loan that is not fully secured under a liberal interpretation of section 13-3? >> it is required by statute that we be secured to the satisfaction of the lending reserve bank. the question you are asking is, what would it -- would it be possible for the reserve bank to feel secure without having 100% collateral? that has never been the case. >> but it might very well be. he would not tell them that they did something illegal if they had something less than that security. >> the point of being secured is that the guaranteed repayment. if there were other ways to guarantee repayment, for example, sometimes credit is guaranteed by a third party. >> we are looking at the entire

investment. there are many credit enhancements. the security is guaranteed. the market has a way of looking at the entire package. there are some [unintelligible] the language of finance allows me no words to describe except with a private investor would demand. i am asking you, would significantly less than the kind of security that the loans and made it be legal under 13-3. i am asking for a yes or no answer. >> it is not easy to give a yes or no answer. >> what you are saying is you might very well allow them to do the equivalent to 5 $1 trillion worth of junk bonds if they thought that was adequate security and the the circumstances. >> it they thought they would be

fully repaid in the loan that they made -- >> certification, -- sir, we do probabilities. people that buy junk bonds expect to be paid but they expect a risk. you are saying if they expect with a 51% chance of being repaid -- >> this is about investing. -- this is about lending. >> i am going to make a few comments. i'm going to some of my questions in writing. i wanted to talk about something you wrote on page 6. it prevents government from succumbing to the temptation to use the central bank to fund budget deficit.

i think we are already there. that is one of my the contentions about what is happening. we have had a license to spend. we borrowed. we did not have enough. the fed has been criticized to the point relates to accommodate us whether it is in the funding a wars or welfare state. we have to avenge a get to the bottom of this. the fed was designed to make sure we have full employment and price stability. in my lifetime, interest-rate had been 20% and less than 1%. they want a sailor dollar and prices. we have continuous inflation. we do not execute proper oversight. it is our responsibility. that is what i am arguing for. it is supposed to have full

employment. unemployment is now 16%-20%. the federal reserve is arguing that they have to have more secrecy? this is not make sense. more power? what we need is more oversight and more transparency rather than more authority to the federal reserve. i mentioned earlier that we have to continue to think about what example have we ever had where the gao had an influence on policy? and do not believe that because we have an audit we as a, one to be looking over a shoulder. scotc. i want to mention -- i wt to mention the foreign activity. usage and not that the foreign activity. the foreign activity is very important. those are essentially treaties.

you do not tax the people. you just print the money. you make these deals and promises. you are involved in the president's working group and financial markets. this we all must find out about. we have to know about it. it ultimately leads to what the dollar is worth. the federal cash reserve should be protein the value -- the federal reserve should be protecting the value of the dollar. when you create money out there to subsidize something, you have assumed the authorization of the appropriation process. we are derelict in our duty to allow this to happen. i'm going to put this in writing. i can hopefully get some answers. >> the gentleman from kansas city.

>> thank you. dr. paul. is the well informed on this -- dr. paul is obviously well informed on this issue better than anyone else in congress. i recently had lunch with the chair of the kansas city fed. we had an interesting conversation. i asked him -- how many people do you think walking by here can make two sentences about what the federal reserve does. he said, none. that was the correct answer. one of the problems -- and i'm not sure that the fed can solve

it -- is the most people have no idea what the fed does in our system of government, that will always create problems. i'm not interested in defending the fed. when things happen but the bank bailout, -- like the bank bailout, the sours the opinion of the public. most people, probably most sitting behind you, believe that congress took a specific vote to give money to the banks, as you know, that did not have them. transparency was missing. i go home and people say you gave money to the banks.

the next question is, well, how did you get the money they did not vote. i want you to explain to some of the folks in kansas city how the banks that the money if the committee never recommended it to the full house and senate and counsel and then the president's signature. >> >> i believe you are speaking about the troubled asset program that the tarp program. >> toxic asset removal program. we are going to remove the toxic assets from the market so people have a greater deal of comfort in becoming actively involved in the asset. we did not do with the swedish

people did. they took the assets and put them in -- they separated them. we did not do that. we did bailout the banks. at least, that is what the public believes. >> the treasury is better -- in a better position to discuss that and i am. in summary -- >> the fed was involved. but the expectation was of those funds would be used to buy troubled assets. it became clear in october of 2007 -- 2008 that it would take quite a long time to work through the details of an asset purchase program that would be affected. treasury and fdic continue to work on those details now from

. it also became clear that the events of last fall, it the economy was struggling tremendously. there were very many troubled institutions. confidence in the banking system needed to be restored. treasury took the decision that it was most effective and necessary to use the funds of their to inject capital into the banking system to restore confidence in the banking system. the treasury did that not by giving money away -- i think that is an important point to make. it was investing the money in the banking institutions. the money is being repaid. >> with interest. let me stop you. i am going to turn on you. when the problems people do not know anything about of what the fed does -- hopefully, some of that can be laid out -- do not

the funds that you earn return to the u.s. treasury? >> absolutely. >> absolutely. all the excess funds are beyond >> absolutely. all that we current is turned over towards the debt. the interest on the loans we may, the interest we get on our assets. >> the gentleman's time is expired. the gentleman from new jersey. we are going to have to vote. i am tried to get as many people in as possible. >> we can break this down into two parts. the monetary policy issues that the fed does and everything else. in the everything else area, it

sounds as if you've worked with the initiation, the bush administration and this administration, on those programs. we appreciate the working together on that. with some of the other policies, it seems that the fed has responded to some of the suggestions in these other areas to change their ways. there's all the information on the website on the audits out there. from what i am hearing, that is an ok thing. chairman frank has encouraged the fed with respect to lending practices. the fed has responded. the fed has been active in those areas as well, coming up with new guidelines on credit cards and that sort of thing. it looks like the fed is a little bit open to hearing what congress has to say and responding. it is really in the monetary policy. that this legislation is most

concerneing or troublesome to te fed. one aspect is the disclosure requirements. what happens if information is released too soon? you have your own guidelines. the audit does not really say that if you have a meeting on monday and do the audit on tuesday that they are going to release all of the information. it sounds like the audit is one of those things that will take forever to do and then you'll finally released. it is not like you have the immediate release of information from the audit. is that correct? >> the g-80 is very responsive to requests from congress. -standing is that the gm tries its best to be responsive. the time frames would depend upon the audit and the request. >> you release your minutes

within two or three weeks now. is that a provision that you'd like to have? it has to be within a few weeks later? >> i do not think so. the timing of the release of audit, let's think of it this way. there are two parts. the audit itself will involve an intrusion into the process of making monetary policy by the gao involvement with the various members and then second guessing those things in its report. whenever the report comes out, it is going to be a judgment about whether the fed is doing the right thing, moving in the right direction on monetary policy, and whether the basis for that is appropriate. we have that authority right now to second-guess what the fed is doing. do not we have that authority and responsibility to second-

guess the federal reserve this point? what's what we did >> what is different is that the g a. o establishes a much more interest is -- interested process. it will talk to all the participants. it will look at the underlying data and make a more comprehensive of population. that review gives it a different aura. >> we can second-guessing give you our opinions as long as we do not know what all the facts are. if someone else goes in and find those, then the report would have more weight. it sounds as though when we set king case -- setting guess you, we are basing it on inaccurate information. it to the governors are independent as they told us they

are, why would they be so subjected to this pressure from someone second-guessing them? secretary geithner says all the other regulators are only looking out for their own self interest. he is not hold them up very high. is that the same thing for the federal governors ? which camp do they fall into? >> they do their best in the atmosphere there given. they are giving an atmosphere where unfettered discussion is allowed and actually valued. they have become much more worried about how their remarks would be viewed, what their thoughts would be, and become much more careful about what they say. that changes the debate.

that changes the discussion and lowers the level of interaction. >> i understand what you are saying. >> mr. foster. >> thank you. i have one question having to do with historical archiving of information. i can understand your motivation to not 1 deval rations -- to want deliberations with foreign regulators to come immediately part of the public debate. i understand that. i think there is a real incentive in having the eyes of history on the decisions of your being made progres. >> when the decision detailed minutes are made publicly available.

>>@@@@@@@@@ @ @ @ @ @ @ @ @ @ @ >> i am talking about e-mail going back and forth. it is that sort of thing. >> we have policies for all of the documentation, including e- mails that we keep for the length of time. we have a schedule that is in accord with the darkest about keeping that information. in the monetary policy area, we keep all the memoranda used for the meetings and a complete transcript of the meeting. we make those available to the public after five years. we keep them permanently ourselves. >> all of the detailed stuff like e-mail, personal memos, will those be available to

historians 30 years from now? what is the policy? >> the policy on disclosure of the information depends on the type of information. some is made available as time passes. some of it contains confidential information that is not made available, even as time passes. it depends on the type of information. as i mentioned, the full transcript and all the supporting memoranda for the decision including the complete discussion is made available. >> it is the lasess formal. is any information destroyed? is it kept and not released? >> the only information destroyed is what the national archivist has agreed to be destroyed. that is easily information that has no historical value. that is destroyed according to a set schedule. that is to allow capacity for new information.

>> would it be possible for you to point us of the policies that the archivist follows so that we can see the classes of stuff that is destroyed? can you outline the general outlines being followed? i yield back. >> the gentleman from minnesota. >> thank-you, mr. alvarez, for being here. could you give us an update on the bloomberg freedom of information request, requiring the fed to reveal the names of firms that accessed the discount window? >> there are two cases. there is the bloomberg case and the fox news case. they were both decided by district judges in the second circuit about three weeks apart on a difficult issues.

one said the information should be released. the other said the information's not be released. both cases are in the process of being appealed to the second circuit. dealt with are the >> use said -- with that. >> you said it would be disclosed with their identities? a recent article describes how the share prices of citigroup and the trade action increase after the public learned they receive government support. how would those circumstances differ? >> the concern of many facilities is that they are used by healthy institutions to try to unfreeze some of the market. our commercial papaer facility, the borrowers are institutions that are trying to restart the

markets for commercial paper. the same with our student loan facility, small business loans. the investors in those markets are regular market players. they are not troubled institutions. the concern is that borrowers and those facilities, and their names were disclosed, would be viewed by the public incorrectly as institutions that are troubled. we have also learned to troubled institutions. we did do the aig loan. because they do help troubled institutions, the concern that the load of those that are not trouble is that they will be lumped in with the -- the concern with that of those is that they will be lumped in

with those that are troubled. >> there has been some disagreement on whether not this is the first time the fed opened a window to the investment bank. >> the federal third -- federal reserve opened up 13-3 not to investment banks. >> in the 1980's. >> in never opened the window in the 1980's to anyone. the next time it may be available in the 1960's. they did not actually use the authority again until right before bear stearns with the

facility. >> i am sure you understand the concern has the look at the extraordinary actions of the federal reserve in regard to bear stearns. one thing that i have wondered is whether congress should revisit and tighten up the language of 13-3. the federal reserve seems to have the power to do virtually anything with no restriction whatsoever. would that be prudent thing for congress to take up and tighten up? >> i would like to point out that 13-3 lending are subject

to g.a.o. audits. then whether the fed to continue to have the authority, our chairman has suggested that if a resolution authority were enacted, there would have another tool for implementing -- for passing on the wrist to shareholders and creditors. that would be an atmosphere or context where some revision to 13-3 may be appropriate. >> the gentlemen from colorado. and what to make one point. we heard the gentleman from georgia. i thought thousand have been as with the record. he assured me that was not the case. there have been 28 appearances

before this committee by officials of the federal reserve. >> i need a primer on the federal reserve. remind me how many federal reserve banks there are? but there are 12. but there are 12. >> how many governors are there >> there are 12. >> how many governors per bank? is there one per bank and then a board? how is the decision making structure set up? >> in washington, there is a board of governors that has seven members. right now, we only have bought positions filled. we could have seven each reserve

bank has one president and then a board of directors. this is set by congress. there is a board of directors with nine members. three elected by the banks and representing banks that represent commerce at large. three are elected by the board of governors to represent the public at large. >> the board, how is that selected? >> the board of governors is nominated by the president and confirmed by the senate. >> with the whole 7, who selects the president? how did they become the president of the bank? we talked about the kansas city federal reserve. >> they are selected by the board of directors approved by the board of governors in washington. >> i guess what i am trying to

understand is that there is a confirmation process in the senate of all of the governors of just some of the governors? >> all of the governors in washington. >> but there are not 12 governors, there are only seven governors. we have two openings right now. how long are their terms? >> 14 years. their staggered to expire two years. -- they are staggered to expire at two years. >> the presidents of the bank are selected by the board of the bank and approved in washington. >> explained what it takes to have an action taken in unusual and an exigent circumstances under 13.3.

>> federal government may authorize the bank to make a loan. the board determines that there are unusual circumstances. they direct the reserve bank to make sure it is secured to its satisfaction. the reserve bank then has to collect evidence that other credit accommodations are not available to the borrower. in those circumstances, the reserve bank can make a loan. >> did that occur with the bear stearns assistance? >> yes, it did. >> i recall the action being taken. i felt it was very unusual for the federal reserve, and it is borne out by your testimony, that it had never happened since the 1930's. can you describe the process that happened to get that done? did it happen over one week, two

weeks, a day, two hours? how did you get the five guys or doused get? what is the makeup of the five exist today? >> we have five governors. there's one woman and four men at the time the bear stearns loan was made, there were five men. we had them all on the phone the night before a loan discussing the financial condition of bear stearns, discussing market conditions. we had a substantial amount of information coming in from the federal reserve of new york and from the administration, from their sources. then we convened a board meeting on that friday morning as soon as everyone was able to get to the office. we had to use an emergency provision. there were only four governors

who could be available at the time the vote was taken. the fifth one was on a plane coming back from europe. the statute provides for a vote of less than five in that specific situation. >> did the same thing occurred with lehman brothers? >> with lehman brothers, we did not extend credit. >> was there a meeting, discussion, request? >> there were constant updates with the governors about the condition of the organization, whether there would be the purchaser or not. in the days leading up to the lehman weakened, we have quite a few conference call meetings. -- in the days leading up to the lehman brothers weekend, we had quite a few conference call meetings. >> the gentleman from texas. we're going to keep going. there is only one vote. we do intend to keep going.

we may just keep going continuously. the members can vote and come back. the gentleman from texas. >> forgive me, i just came from speaking on the floor. if we covered some old material, i apologize. i was here for your initial statement. in it, you talked about one of the concerns the fed had with the gao audit with respect to that it could increase potential borrowers fears of stigma and adverse reactions. to the extent -- with respect to lining up before tarp funds , there did not seem to be a stigma associated with that. i am not sure transparency kept people from accepting the tarp funds. i am not sure it had a

beneficial impact on the market. what i need the missing -- what might we be missing? >> i think it is useful to think of them in two parts. the cpd program was presented as a confidence inducing program that was available to help the institutions and designed for healthy institutions. that is one of the reasons i think institutions were at first very eager to participate. it gave them capital that they could use. they did not want to -- they wanted to make it available. as time went on, the participation of the cpp has become something of a red letter. institutions are trying hard to get out of the cpp program.

the other types of tarp programs include more direct lending to folks like a jeep -- >> you believe it is a red letter stigma as opposed to not wanting congress involved in their business? that is what i personally here from new cpp. forgive me this is old. a wanted to talk a little bit about 13-3. in the dead's interpretation, what are the limits on the 13-3 authority? but it can only be triggered if it is unusual. it is only lending. it is not investments. it is only lending that is secured to the satisfaction of those things. >> the missiles these which broke news around, isn't that something beyond lending?

>> they are very much the same thing if it were kept on the books of it and we were lending against the assets. this is a more transparent way to identify the access to keep track of the assets, and to prevent them from being lost in a larger organization. >> speaking for myself, i think it is important for the fed to retain this, but they have been they have been unprecedented in our nation's history. i do not believe that an unelected group of individuals should have the unfettered ability to impose trillions of dollars of taxpayer exposure liability. my question is, what constraints with the fed be willing -- or

does the fed feel any need for any constraints on their 13-3 powers? >> there would be a dual system to have the treasury approved 13-3 lending as well as the board of governors. chairman bernanke has offered a suggestion that if resolution authority is granted, there may be no need for 13-3 lending@@@@? >> the broad lending facilities were enacted on a contractual basis. could you not have negotiated resolution authority? >> i do not think we could have accomplished resolution of 40 with contract. >> did not chairman burning

keernanke say that it would have been shut down? could not you have negotiated resolution authority? >> he could have used that tool rather than the federal reserve. >> in the absence of a bankruptcy, they could have negotiated with aig but not the creditors of aig. they could have gotten agreement from aig as a condition of the money. but that would have left the creditors freestanding. >> i see the time. >> i am now going to recognize the gentleman from illinois and go to vote. north carolina is on his way back. >> i just have a couple of quick questions. head -- have any the finance institutions provided any feedback regarding the possible

adoption of this new transparency policy? >> i am sorry. would transparency? the federal reserve? >> has the financial institutions talked to the fed about the possibility of this bill being enacted and transparency policy? >> i am not aware of financial institutions weighing in on the ron paul bill. there have been some economists that issued a letter suggesting that undermined the independent monetary policy. >> that is all that you have heard then. >> there have been financial institutions weighing in on release of the names of our workers at facilities and in the litigation that was referenced earlier. trade associations for borrowers have written in it that it will

cause them to be an interested and precipitation. -- participation. >> i would really applied to the bill. >> and an indirect way. >> given how the federal reserve actions affects the the value of the dollar, would greater transparency improve international confidence in the dollar? >> the information of the federal reserve with foreign government is disclosed in summary on our balance sheet the facility's -- a balance sheet. the facilities are listened in in detail. that is already ok and it is not undermine confidence. >> i have to go vote, too. thank you very much.

i will yield to dr. paul. >> you are very lucky. >> you are very lucky. i a >> you are lucky. i am back and i have unlimited time. let me think about this and keep it going. we do want to conclude the hearings shortly. i might get more specific on some of the questions i talked about earlier having to do with the international events. i have a particular interest in that. we do reveal the provision in the code that says you are not responsible for telling us about that. i am sure you think i have overstated the position that when the federal reserve gets involved with agreements of other central banks and other

governments, like is that not along the lines of having a treat or agreement and being allowed to finance that outside of the appropriations process? >> i think it overstates what the federal reserve does. we set up accounts with foreign entities, foreign central banks, to allow them to conduct their business in the dollar. there are dollar reserves that foreign countries have. they may buy government securities. they may need a place to deposit their securities and the interest that comes from those securities. that is not providing financial assistance to foreign governments. >> if you have a guaranteed loan, even though you may not save his liberal financing, but if you guarantee something and they agree to do something, what if you want them to intervene in the currency markets? you might ask them to do that?

>> under the responsibility of the treasury, that is not the responsibility of the federal reserve. >> you work closely. you are both on the president's working group on financial markets. you collude there on what you might do. are you aware of any precise times that the federal reserve gets involved in the gold market? there is authority to be involved. what do you know about the fed ever being involved in the gold market? it may be the futures market or loaning gold. a lot of central markets are in the learning and selling of gold constantly. >> the federal reserve bank of new york is a trustee for some of the gold stock for foreign central banks. it holds the gold but does not conduct transactions in the gulf. that is done by the foreign central banks. >> did you have no evidence that

our reserve has ever been involved in the gold market? >> i confess to not being an expert in transactions. we may have dealt in gold over the history of the federal reserve. i could get you the information. >> i suggest the reason for the audit is to find out if we may be indirectly involved by going to another central-bank or government to do the work what to do. that is why i think the full audit is necessary. . .

>> i think your question is too categorical. >> i think not, actually. why don't you answer it? >> your question is so over broad, i don't know where to begin to answer. >> i do not think it is that over broad. i want you to tell me whether it is about -- whether it is within the federal reserve possibility to regulate the -- tries to manipulate the stock market. >> tries? do they? >> and the federal reserve's obligation and what it does is try to influence interest rates to maximize employment and to

stabilize prices. >> if in fact the federal reserve were doing that, isn't that something we would want to know? >> to the extent of the federal reserve influences interest rates, it does make announcements of that decision immediately. >> that is not what i said. i said manipulate the stock market or the futures market. wouldn't we want to know? yes or no? >> could you define what you mean 3 >> i think you know what i mean. wouldn't it be helpful to have [unintelligible] >> i don't know what it is you are seeking to -- >> does the federal reserve possessed the goals listed on their balance sheet? >> yes. >> has that been audited by the gao? >> i believe it is within their authority to audit it. it is certainly our independent -- it is certainly something are independent accountant is able

to verify and does. >> are you opposed to -- >> i don't see any reason to object to that. >> there have been all sorts of claims that insider trading and from running by people who execute the trades -- who is that? to execute the trade of the federal reserve in the markets? >> i have not heard of any allegations of front-running -- >> that's funny because if you were the general counsel, if anybody, you would know that. >> the federal were back -- the federal bank of reserve is responsible for implementing monetary policy. >> and then answer the question. >> the federal reserve bank of new york. >> that is your answer. >> you have -- >> you don't delegate that to anyone else? >> the federal reserve bank of new york -- it is a process where there is several steps. the federal reserve executes

transactions through primary dealers. >> who are the primary dealers? >> the list of primary dealers is on our web site. >> can you name a single one? >> j.p. morgan chase. >> do you mind if we have an audit to see if there is from running or insider-trading by them? is that ok with you? >> i'm not sure i have any decision making authority. >> you are the general counsel. >> the g.a.o. audits government agencies and you want to audit a private entity. i think that is something congress would have to change the authority of the gao to allow. >> that's right. that's what we're doing right here. let's say the federal reserve gave a billion dollars to a promising institution called dick cheney savings and loan. their only asset is in an unnumbered swiss account. don't you think would be a good idea to have the gao looked into

that? >> under the authority, as written, along by the federal reserve to a specific density, say a particular bank, as you have pointed out, would be subject to the g.a.o. audits. we do not oppose that. >> the federal reserve has given one trillion dollars in the past 12 months. that is how much the increase on the balance sheet has been very who got the money? this is a question sent to me. she wants to know who got the money. will you tell me? >> most of the increase in our balance sheet has been the purchase of u.s. government securities and purchase of agency guaranteed securities in the open market from market to dispense broadly. >> the gentleman's time has expired. >> thank you, mr. chairman. we need answers to these questions and the only ways to get answers is to have the gao audit the federal reserve.

>> i want to make the point that if the gentleman has more questions, there's the opportunity suit -- the opportunity to submit them in writing. the jomon from california. >> -- the gentleman from california. >> the austrian economist did studies in terms of business cycles came to the conclusion that central banks have a tendency to extenuate or exacerbate those business cycles. looking at -- looking back at what the fed did in 2002-2006, by setting negative real interest rates, it would match of the thesis that the austrian economist always put forward. this thesis that the fed had a tendency to set interest rates too low and as a consequence,

from time to time, quick -- create these asset bubbles. a housing bubble in this case. se. looking back, when you look at what the fed did during that time and what the central bank's bid to follow suit, would you say that that is one of the reasons that we had such a balloon in the housing market? >> congressman, as a lawyer, there is a good reason why they do not allow me to participate in monetary policy. i can give you an answer to that. >> we had a hearing here yesterday and we listen to paul volcker. he criticized president obama's administration plan to have stronger regulation by the federal reserve.

looker said -- paul volcker said yesterday that such a designation would imply government readiness to support the firms in a crisis, encouraging even more risky behavior in a phenomenon known as moral hazard. would you like to comment on poehler's opposition to having the fed walked down this road with the administration@@@@@@@@' the moral hazard problem already exists. that is why we are asking for to revisions. one is a new resolution regime,

resolution authority because that helps offset moral hazard by making it clear that the government does not simply have to bail out institutions because they are afraid of them going into a disorganized bankruptcy. instead, you have a resolution regime where the government can impose hair cuts on shareholders and creditors as appropriate. regime. that will reinstitute market discipline. the second thing is more strenuous regulation and supervision of those institutions that are systemically important, including enhanced capital requirements, enhanced risk management requirements, and other things. >> i am all for market discipline. but when the richmond federal reserve says that 45% of the liabilities and our financial system back in 1999 were backed by the safety net of the fed,

they were basically guaranteed one way or the other by the fed, you know that number is hard- traded today could -- hard- rated today. whether you agree or not, the federal reserve became the path of least resistance for many of those bailouts. but again to the final point made by paul volcker -- but let me go to the final point made by paul volcker. he says the danger is that the spread of moral hazard will make the next crisis bigger. if last time you had a moral hazard problem in that there was a presumption that the fed was going to bail out 45% of the institutions, and you can conceive that it is a lot bigger than that, why would you not heed his words here and why

would we not really be looking at some solutions to bring about market discipline and why would we be considering that others were right in this whole issue of the fed actually helping to compound our problems in terms of boom and bust cycles? >> we will give you a few seconds. obviously, you can respond briefly or you can do it in writing. >> the question is so complicated that i think that in writing would probably be better. >> the gentleman from minnesota would be next. >> i want to say that i support pol desperate to bring this legislation to the floor. before the economic and -- before the economic and financial crisis, the chairman did an interview on 60 minutes.

it is only natural that a lot of people are asking questions. given your role in the bailouts, it is only natural to expect some interest in looking at this. invoking emergency powers, if you will, why should we not have -- what should congress and not have the ability to understand what is on the balance sheet? we are no stranger to the fact that ben bernanke's words can move markets when he speaks? why should we believe that pulling the veil back on some of the fed's activities and some of these secrets of the temple, if you will,?

>> in order to allow you to have that kind of oversight, we provide substantial information about our activities and balance sheet. part of the difficulty is that we have not been as good as we should be about making clear how much information we do provide to the public. our website is filled with information about our balance sheet, which is audited by an outside accounting firm. all of our programs are explained in detail on the website. we have a monthly report that updates the exposures we have under the different facilities, including information about the collateral, general information about the borrower's, about the timing of the facilities, when they are intending to 11, and the protections we have gotten for the taxpayer. in the monetary policy area, we issued the decision the moment it is made, detailed minutes, shortly thereafter. the complete transcript and all the underlying members are

released after a lag. there is a lot of information that we release on all of our areas of responsibility. it is not as secretive as i think it has been thought to be. it is quite a change from the days of the secrets of the temple that were referenced earlier in the day. i think you will find that information very helpful. >> knowing that the taxpayers are paying more attention, people ask me about representative paul possible. they asked questions about some of the -- representative paul's bill. -questions about some of the items. that is probably going to continue in the near short term, knowing that the fed is holding and buying a lot of debt and buying them from the treasuries.

you have one agency buying from the other. the taxpayers will be required to bail out the government. >> the gentleman from florida. >> thank you very much, mr. chairman. @@@)á i will just refer to those sections of the code verbatim. many people in the public would be surprised about what is currently secret, so to speak. the law now reads that under regulations of the comptroller general, the comptroller general shout audit and agency but may carry out on site examinations of a bank or bank calling company only if the appropriate

agency has consented in writing. i would like your comments because we will not have time for you to respond to all my questions now and get the answers i would like. i request the chairman to give specific answers to that question as soon as possible. why do you think permission of another agency is necessary for the comptroller general to perform an audit? no. 2, current law says that audits of the federal reserve board and federal reserve bank may not include transactions for or with a foreign central bank. the government of a foreign country or private international financing organization. i would like you to answer in writing and you can do it thoroughly if you have time. i think my question will probably take the remainder of my time how can this hurt the

function of the fed? if up on a daily basis, with a short cooling off period, these should not be even potentially turn of the secret actions. the next thing it does, no. 3, it shall not include abortions, decisions, or actions on monetary policy matters, including discount window operations, reserves of a number of banks, securities credit, interest or deposits and open market operations. it sounds to me that anyone would think that would be harmful to become public information. no. 4, transactions made under the direction of the federal open market committee. how is that information going to harm the financial security of our nation if it is no longer off-limits? finally, no. 5, a part of a

discussion and communication among are between the members of the board of governors relating to the aforementioned causes one and three of the subsection. the idea that any of that must be terminally secret for the financial security -- must be a totally secret for the financial security sounds incredulous to me. you can start now if you'd like to respond to those items. these are the things that the bill actually talks about. we have talked about -- we have talked in some platitudes here. but that is the real basic elements of dr. paul's work. >> if i could at least address one of the points, you mentioned disclosing information about one of the bank's. >> we should probably start with number one right off the bat. why do you have to have the

proper agencies commission for the comptroller general to perform an audit? >> of open banks. >> yes. >> the concern there is that disclosure of information about the operations of an open bank -- any number of banks that are not experiencing difficulties would be misunderstood and cause difficulties for the banks. a bank that is open and not work -- a bank that is open and operating requires the public's confidence. consulting with the primary regulator of the bank, which is responsible for examining the bank, and his reports by law are not made public is designed to make sure that misleading or mistaken information about the health of bad bank is not released. it is meant to protect the bank, which is an open institution.

it is to protect that bank. >> in just a second. do you not think that, if we had some of its in public two years ago or three ago, we would not wind up in the crisis we are in now? did the secrecy not protect some of the misbehavior of the industry, do you think? >> i personally do not think that thinkgao had audited -- that if gao had audited these banks would have stopped the crisis better than any of their agency. >> the gentleman's time has expired. >> thank you mr. chairman. i am the co-sponsor. i hope it will proceed to the floor without be watered down too much. -- without being watered down too much. the concern of the people really has to go to what happened in

september of last year when the secretary treasury came to the congress and said we need immediately, overnight, $780 billion to buy up troubled assets otherwise the world is going to collapse. not 1 cent has been spent of that money to buy troubled assets. i voted against it. members of congress are still wondering why they voted on it. whenever the fed gets involved, for example, like pumping money into aig, , et, is that reflected -- aig, etc., is that reflected in the federal dead? >> it shows up on the balance sheet, but it is not part of the outstanding debt. >> so is monetized.

you just print money. is that correct? >> not exactly. this is an area, again, where i am not an expert. the federal reserve does a variety of transactions to support its lending activities. it lends -- it has government securities that it can sell in order to raise the funds to make loans. but that is not monetizing the debt. >> so for all the money that has been pumped into these various institutions, the fed and the treasury, ostensibly, have f#@ @ @ @ @ i have a constituent from

illinois who has followed this very closely, along with other constituents. people are really distrustful of the fed based upon the cloak of secrecy that takes place. the areas that are most important, dealing with monetary policy, and the discount window, are the two most important part of the said. testimony, it says that congress purposefully and for a good reason choose to exclude from gao review two sensitive areas, monetary policy and federal reserve transactions dealing with foreign countries. you have actions and transactions that are excluded from gao review.

it would take an active congress, what is not, in order to go under these two areas? >> yes. >> ok. that is what hr 1207 attempts to do. >> that is correct. >> the very body that sets the policy of review, would you not agree, also has the ability to change that policy? >> absolutely. >> they're very concerned about trying to track this money and believe that, by having more transparency, that the american people will have a better idea as to where their taxpayers' dollars are spent. we do not agree that the american people have a tremendous amount of interest in this? >> this it is certainly an area for congress to consider. we are here simply providing our views and what the ramifications would be of that kind of congressional action and we are

concerned about the effects of making the change that 12 07 would make. but it is clearly a decision for the congress. >> i want to thank you for your time. and your demeanor. >> thank you. >> thank you. >> i want to thank mr. alvarez for his time. [unintelligible] there are fairly small steps for the that we need to complete this. we will know how largour next witness.

mr. woods. >> thomas woods is a senior fellow in auburn, alabama. he graduated from harvard university and received his master's and ph.d. from columbia university. his written two books, including "meltdown, a free- market look at what the stock market collapsed." he won a prize in 2006 for his book "the church and the market." is also a contributing editor of the american conservative. i welcome -- he is also a contributing editor of the american conservative. >> let me begin this summary of my written testimony in support of hr 1207 by recalling a

controversy that happened in late 2008. bloomberg news ran a headline. the article dealt with trillions of dollars in loans whose recipients and whose collateral that had been put were unknown to the american people. the editor in chief of bloomberg news, matthew winkler, stated it very simply. he said that taxpayers, and voluntary investors, have the right to know who received loans, in what amounts, for what collaterals, and why specific laws were made. he is right. there's no good reason for americans not to know the terms and recipients of these loans. there is likewise no good reason for them to be kept in the dark about the fed's arrangement with foreign governments and foreign central banks. these things affect the quality of the money that in our system americans are obliged to accept. this seems like common sense. what about the common arguments that have been raised against

it. it would compromise the fed's independence. eventually, if we open the books, this will lead inexorably to some kind of monetary policy be exercised by congress. i think this is a red herring. the bill is not designed to have congress have any authority over setting interest rates or targets or any such thing as bad. this is part of the fed central planning apparatus and it is best to keep away from the fed or congress, in my judgment. all we're looking to do is open the books. congress has a moral and legal responsibility to keep tabs on and keep the public informed about the various creatures it brings into existence. so these various convoluted some areas by which merely opening the books will eventually lead to a floodgate of inflationary catastrophe at the hands of an epic congress is a little over the top.

at the same time, we hear -- hands of an uppity congress is a little over the top. the fed chairman is routinely up for reappointment. he wants to ingratiate himself into the favor of the president and will accommodate him with loose monetary policy. try to imagine a fed chairman who doggedly insisted on maintaining the value of the dollar, even if it meant refusing to monetize the massive deficit to fight a war or stimulate a depressed economy. the fed, as we have seen in recent years and months, has the ability to extend trillions of dollars to unidentified recipients on undisclosed terms. that is what we're talking about. i find it hard to imagine any i find it hard to imagine any self-respect in we have also heard tha