twist what's come to bear stearns. you said in the book that there is before b bear stearns and now we are in the early 2008. why was it so significant? >> guest: january 2008 to cut by 1.5 percentage points in a matter of days. host could you describe that is ben bernanke weeks of. >> guest: then he breathed a sigh of releasing think we get ahead of this thing. then your kind of surprised by the bear stearns episode. i think it's significant in two respects. one is that it happened and institutions that haven't collateral which had some problems but had collateral couldn't borrow short-term -- >> host: let's be clear it wasn't a commercial bank that was deposits, it wasn't really an institution for which the fed felt responsibility. >> guest: the first thing is it happened. bear stearns was in trouble and there was a surprise. bernanke judge that he was a surprise for which the markets were not ready and hank paulson at the treasury and tim geithner of the fed agreed. secondly, the fed decided as you pointed out quite

you see in the book before bear stearns and after bear stearns, and now we are in early 2008. why this is so significant? >> guest: in january 2008 the kid said cuts interest rates buy quite a bit, one plight five percentage points in a matter of days. >> host: you describe that has been bernanke weeks of. >> guest: and i think that he breathes a big sigh of relief and thinks he's ahead of this thing. then they are kind of surprised by the bear stearns was owed. i think it's sycophant into prospectus. one is it happened and institutions that had collateral which had some problems but had collateral couldn't borrow short-term. >> host: let's be clear it wasn't a commercial bank with deposits, it wasn't really an institution for which the fed felt responsibility. the first thing is it happens. bear stearns was in trouble and that was a surprise. bernanke judged that it was a surprise which the markets were not ready and hank paulson at the treasury and tim geithner at the treasury agreed and then secondly the fed decided as you pointed out quite rightly to help a bank for which

to bear stearns. you said in the book there was before bear stearns and after bear stearns. and now we are in the early 2008. why was this a significant? >> guest: well, so january 2008 the fed cuts interest rates buy quite a bit. 1.5 percentage points in a matter of days. host could you describe that as ben bernanke weeks up. >> guest: then i think ben bernanke prieta a sigh of relief and thinks we are finally end of this thing. then they are kind of surprised by the bear stearns episode. i think it is significant in two respects. one is that it happened and institutions that had collateral , which had some problems but had collateral, couldn't borrow short term, and that was -- >> host: let's be clear it wasn't a commercial bank with deposits. it wasn't really an institution for which the fed felt responsibility. >> guest: the first thing is if they were in trouble and that was a surprise. i think that bernanke judged it was a surprise for which the markets were not ready and hit paulson at the trea

we heard about it from former traders from bear stearns and there were playing of that in the bear stearnsoom. it is very eloquent. >> in 60 seconds, what did you learn? you better go first. >> the most important is when they tell you that things are too complicated for you to understand. that is not to. -- not true. it is very simple. >> i think that what i learned is having spent so much of my life covering stories overseas and post apocalyptic scenes in somalia or afghanistan, what amazed me was how much damage could be done right here at home it was really an eye opener for me to see all the destruction and just how bad it can get. >> the web site is americancasinothemovie.com. we will run these credits again so we can see those numbers. >> thank you. ♪ ♪ ♪ >> we will replace this tonight at 1015 eastern here on c-span.

it was unbelievable to me when i learned bear stearns had leverage of 30 or 40:1. this is off the charts. but getting back to the question i want to ask, there is going to be a congressional inquiry or commission on the current financial crisis. >> i spoke to it on monday. >> can you recall to testify what would your comment on the past and advice on the future be. >> let me say first of all one thing about the risk and the incidence of risk or incidence of risk-taking. risk is always there. it's the incident of risk taking. historic lee one of the things we highlight in the book that if you look at the periods where financial markets are highly deregulated, not just domestically but globally, internationally, those are periods of higher incidence of crises. so, you know, with a brisk, with an increased incidence of the potential for higher profits comes the risk >> [inaudible] -- leverage. i'm sorry. >> and you can engage in that in a regulated system, the point being that for many years from world war ii to the release financial systems in the u.s. and elsewhere

few people would've said that bear stearns was too big to fail, seven years ago. which is how far in advance you need to do these things. if we credibly and too big to fail by protecting the economy from failure. and if we put insistence borrowing limits across financial instruments in financial institutions, no matter what they call themselves, leverage will take care of itself through reasonable regulations, and through market forces. because lenders will know they no longer have an implicit government guarantee. they will care more what they are doing with their money. the same thing with too big to fail financial institutions. lenders will do their own surveillance here, if they know that these institutions can fail without taking the economy hostage. glass-steagall, we are used to living in a mark to market world. we are not going back to holding loans on books for 30 years and booking the profits slowly. investors want to know what's going on. a better solution than going back to glass-steagall is to better protect the economy from prices, fluctuating prices

were playing that track in the bear stearns trading room as things were going south. "everybody's broke" it was like a mordant song. so it's very an eloquent actually if you listen to all the words it's a very good song about financial recession. >> in 60 seconds both of you i'll give you 30 seconds each. what did you learn the most -- what was the most important thing you learned from this experience? >> you better go first. >> so unfair. well, the most important thing to learn is when they, you know, where i thought was when they tell you that things are too complicated for you to understand all this financial stuff it's not true. they're just trying to blind you. it's, you know, it's very simple. this was loan sharking although, you know, they guilt edge, you know, lousy products. it's not our fault. >> i think what i learned is having spent so much of my life now covering stories overseas, wars, you know, sort of post apocalyptic scenes in somalia or afghanistan. that what amazed me was how much damage could be done right here at home through this terrible collaps

if you're looking at bear stearns or lehman brothers, is not a simple thing to do.and the extent to which on shortselling has added real information to the marketplace about what the appropriate price ought to be for the stock of a particular company, that's a good thing. to the extent it's based on rumormongering or desire to drive down the price of a stock artificially, that's a terrible thing. so our investigations are trying to find the path to the amounts of data. you know, we tried billions and billions of shares a day in this country. and understand whether we have cases that could be brought for manipulative shortselling. >> mr. chairman, this is an interesting question to us and obviously a verbal answer in the time we have will not be sufficient. so if you'll allow us to friends and questions to you for response we would appreciate that very much. >> i would be happy to do that. >> and that myers will make a universal statement that we can ask all the questions we would like to ask, and when we get follow-ups to the ones we have. we're learning as a goal a

we had the situation with bear stearns. the circumstances are the same. the world is on the brink, we've got a disaster. we worried about the whole system melting down. with your support and mr. paulsen, mr. bernanke, we forced them bear stearns shareholders from a position i think was a high of $172 a share in january, we forced them down to $2 a share because the american taxpayer money was in the bailout. and that was something that was supported by the fed, by treasury, because we felt that because the taxpayer was bailing them out, that the shareholders of bear stearns should not be held harmless. now, you have a different situation here, slightly different. number of weeks later where we have aig going under. and these are credit default swaps so the money going into aig is going right out to the counterparties. this is a pass-through. and the folks on the other side are goldman sachs. , largely. that's principal beneficiary of all this. and we don't negotiate a nickel, not 1 cent off of what they are getting. you're in the same position, you're sup

indymac, virtual failures in wachovia, bear stearns.e things to fail, it was like they could fail. we never had a conversation ever about relying on the government to do anything. >> i do not recall any internal conversation among the employees or with the board about what we would do if we would fail. on the rodentia a big to fail issue, i agree about the sequence. nobody in our country -- company entertained that, and we did not behave that way. we are shareholders. we work for the shareholders, the equity. even the context of too big to fail, if you take bear stearns, that was, quote, rescued, that failed, and all of the shareholders -- that is how we think internally about what constitutes a failure, so for our purposes, they rescue the debt, and equity goes, and that is as much of a failure as anything could be. the external, i think everybody contemplated that the equity could go to zero. that is because that was the pattern, and, in fact, it is interesting. there was the idea of big to fail noise that came out, that only came aft

and after bear stearns led the way, what happened to bear stearns, but after they led the way, how you can make money on these so-called low income loans and cra loans, a whole industry develop around that called countrywide option letters, century and all these other businesses that practice all these unsavory practices because they knew that wall street would purchase them. at the time, wall street. okay. so here's my point. 2001 to 2003, fannie and freddie went from $2.6 trillion of assets to 1.6% lost $1 trillion in just two and a half year period. and that's when their shareholders and others said look, if we're going to be relevant to this market, and that's when they got in the south prime market and alt-a when the market collapse brought them down. but to say that they created these loans the government told them to buy these unsavory loans or that the market really didn't lead this whole charge into this business is just not consistent with historic fact. so i guess this question is in there, but take a shot. >> somewhere in there there's a question. and would like to say is f

the failure of bear stearns, leeman, washington mutual and a.i.g.nding standards and subprime loans when it passed the homeownership and equity protection act in 1994, the fed failed to enact strong regulations until 2008, more than two years under -- into chairman bernanke's term. in addition, ben bernanke's federal reserve has failed to adequately supervise many of our largest financial institutions, most notably citigroup. for years, it's been no secret that the problems of citigroup have been well known everywhere, but the federal reserve always sought to look the other way rather than deal with its complicated problems. by failing to address citigroup during the good times, the federal reserve left our largest financial institution at that time highly vulnerable to the next downturn. in the end, the federal government had to inject inject $40 billion and guarantee more than $300 billion of citigroup's assets. the fed's failure as a supervisor, the regulator, placed u.s. taxpayers and our economy directly at risk. madam president, regardless of

the failure of bear stearns, leeman, washington mutual and a.i.g. largely stem from the sharp declines in mortgage values, and although the congress gave the federal reserve authority to address lending standards and subprime loans when it passed the homeownership and equity protection act in 1994, the fed failed to enact strong regulations until 2008, more than two years under -- into chairman bernanke's term. in addition, ben bernanke's federal reserve has failed to adequately supervise many of our largest financial institutions, most notably citigroup. for years, it's been no secret that the problems of citigroup have been well known everywhere, but the federal reserve always sought to look the other way rather than deal with its complicated problems. by failing to address citigroup during the good times, the federal reserve left our largest financial institution at that time highly vulnerable to the next downturn. in the end, the federal government had to inject inject $40 billion and guarantee more than $300 billion of citigroup's assets. the f

we estimate that the top five executive teams of bear stearns and lehman brothers derived cash flowsof about $1.4 billion and $1 billion respectively during 2000 to 2008. and these cash flows substantially exceeded the executive's initial -- initial holdings in the beginning of the time frame. as a result, unlike what happened with long-term shareholders, the executives net payoffs for 2000 to 2008 was positive. the second point i would like to make is that we cannot rely solely on existing government arrangements to produce the necessary reforms. to be sure, some firms have announced a fault in the compensation structures. an example, an indication that bonuses would be subject [unintelligible] but firms have not provided information that would enable outsiders to determine whether the cognex would be meaningful or merely cosmetic. this is an area where the devil is in the details. because the changes that firms adopt appear to be at least partly motivated by a desire to appear responsive to outside criticism, there is a basis for concern that arrangements whose details are not disc

even after bear stearns failed, chairman bernanke did little to prepare for additional failures. in other words, bernanke fiddled while our markets burned. in the next six months between the failure of bear stearns and lehman, the federal reserve did very little to prevent either another taxpayer bailout or sudden and disorderly collapse of lehman, even though the problems were well known to the side and to everybody else. as a result, when lehman was ultimately about to fail, our markets responded sharply because they could not understand why the fed let lehman failed, but rescued bear stearns. markets need clarity about policy, especially in times of crisis. yet just when our markets need a clarity about fed policy, chairman bernanke's ad hoc response left our markets in the dark. consequently, the failure of cleveland was disrupted and more damaging than it needed to be. his response to the financial crisis also leaves questions about his judgment. in october 2008 he appeared before the banking committee in the u.s. senate to urge the passage of t.a.r.p. he testified that gove

we had the situation with bear stearns. the world is on the brink. we have a disaster. we are worried the about the system melting down. with your support and mr. paulson and mr. bernanke, we forced bear sterps's shareholders from a position i think that was a high of $172 a share in january, we forced them down to $2 a share because the american taxpayer money was in the bailout. that was something we supported by the fed, by the treasury because we felt that because the taxpayer was bailing them out that the shareholders should not be held harmless. you have a different situation here. slightly different. we have aig going under. these are credit default swaps. the money is going out to the counter parties. this is a pass through. the folks on the other side are goldman sacks. largely that's a principal beneficiary of all this. we don't negotiate a nickel, not a cent off of what they are getting. you are in the same position, supposed to be negotiating on behalf of the american people. you are saying oh, the regulations were different. let me tell you something. we wer

secretary, you are essentially involved in negotiations regarding bear stearns when you insisted on a very, very low price on the part of the bear stearns shareholders in order to protect the taxpayer who has been reported that you are very supportive of a 2-dollar a share price in order to protect the shared excuse me protect the taxpayers interest. and yet, in this situation with aig, and you were the ceo of goldman sachs back in 2006, it was a long-standing relationship there between aig and goldman sachs, that you are well aware of. goldman sachs was a major counterparty on a lot of these credit default swaps with aig when you are the ceo at goldman. and that relationship continued after you left. you would have known that these people were -- that goldman was exposed here with these credit default swaps when the money went from the taxpayer to aig, and through to your former company. and i guess the question that everybody has here is, why when you insisted on bear stearns taking a big haircut, why did you allow goldman to be reimbursed, your former company, at $0.100 on a dollar

we estimate that the top five executive teams of bear stearns and lehman brothers derived cash flows of about $1.4 billion and $1 billion respectively during 2000 to 2008. and these cash flows substantially exceeded the executive's initial -- initial holdings in the beginning of the time frame. as a result, unlike what happened with long-term shareholders, the executives net payoffs for 2000 to 2008 was positive. the second point i would like to make is that we cannot rely solely on existing government arrangements to produce the necessary reforms. to be sure, some firms have announced a fault in the compensation structures. an example, an indication that bonuses would be subject [unintelligible] but firms have not provided information that would enable outsiders to determine whether the cognex would be meaningful or merely cosmetic. this is an area where the devil is in the details. because the changes that firms adopt appear to be at least partly motivated by a desire to appear responsive to outside criticism, there is a basis for ) following aspects of a -- an existing state that

indymac, virtual failures in wachovia, bear stearns.rnment did the stress test and said they do not want these things to fail, it was like they could fail. we never had a conversation ever about relying on the government to do anything. >> i do not recall any internal conversation among the employees or with the board about what we would do if we would fail. on the rodentia a big to fail issue, i agree about the sequence. nobody in our country -- company entertained that, and we did not behave that way. we are shareholders. we work for the shareholders, the equity. even the context of too big to fail, if you take bear stearns, that was, quote, rescued, that failed, and all of the shareholders -- that is how we think internally about what constitutes a failure, so for our purposes, they rescue the debt, and equity goes, and that is as much of a failure as anything could be. the external, i think everybody contemplated that the equity could go to zero. that is because that was the pattern, and, in fact, it is interesting. there was the id

i do not think that the v-shape, when it was going through the 1982 recession, i was at bear stearns,of all places. that was paying v-shaped recovery and we had a lot of reasons to expect that real interest rates were very high, the highest since the depression. we had a lot of room on monetary policy. we did not have the leverage situation in households or with banks. for those reasons, interest rates that are near zero, i'm expecting this recovery to be sub-par. not just in the u.s. but elsewhere. >> there are some very powerful forces skull lying in this -- there are some very powerful forces at play in this recovery. you tend to have some weak and fragile recoveries after that. i think of this as a backwards square root. you go down fast, you come off quite fast and then you love all of the very quickly. how different are things this time, carmen? are there things in this crisis, in the u.s. situation that leads you to believe that we will have a different trajectory? >> well, i will do good news, bad news. the goodness is that the policy stimulus is more aggressive than we have s

maybe we'll get into the scenario of a kind of a bear stearns. and so we were -- in other words, that put some pressure on the equity of our shares which, again, didn't went through, went to those lows after the, after the government inserted money into the firms. >> okay. thank you. related question and why don't we go this direction now, the capital purchase program and the stress tests drew a line between the 19 or 20 largest firms and everybody else. do you think that drawing that line has changed that perception in the market? do you think that investors now believe, well, because my firm was a part of the capital purchase program, because they were a part of the stress test thes, because the federal government clearly stepped in and saved at a minimum the financial service and, in fact, certain specific firms that there is an implicit put option in those, in the value of your firm and those other 15, 16 firms? >> and, by the way, i'm just going to say there's two minutes so if answers can be can brief. >> yes. that feeling -- i would say we

they really didn't see how much was going on at bear stearns or aig or any other number of these bigfinancial institutions was tied to mortgages which were tied to the price of the value of a house. >>> welcome to washington post weekend. we look back at the best moments in the past several months and my interview with fred davis and the future of the team under the new regime and one on one with brian. >>> thanks for tuning in. this is a special edition devoted to the burgundy and gold. one of the bright spots of the last season was the second year tight-end fred davis. see my interview as he touches on mike shanahan to his hold school in the headlines. >> the first impressions on mike. you talked with him. >> he has been busy trying to put together. me working out. i guess we passed ways and went to the office and. he is going to be a good coach it is interesting, i don't know how much you followed but you should be happy and shannon sharp made the hall of game off his offense and the playing time and and how much you have a player are you now. more mentally it took time to see wha

hold my nose and close my eyes, but if we had not build them up along with the auto industry and bear stearnswhich the world be a better place today, ms. minow? >> i think we could have done a better job of building them out, but i think we should have. >> with the world have been a better place? >> no. >> i agree that the way we bailed them out -- >> left a lot to be desired? >> i think at the time the perspective was -- >> would the world be a better place today? >> my speculation is that the world would be a better place if we would like aig fell, -- sale, but we needed to have some kind of bailout for some of these. >> mr. bebchuk? >> i think it would have been better had we done a partial bailout. >> if we had taken a laissez- faire attitude and let things go, with the will be a better place? >> it would not have been a better place if we just took our attention away from the firms. >> let the world go wherever it is going? >> there would have been a worse outcome. >> did you understand that there are members of congress that are saying that we should have let things go? can you understa

very low price on the part of the bear stearns shareholders in order to protect the taxpayer. .was a major counterparty on a lot of these credit default swaps with aig when you were the ceo at goldman. and that relationship continued after you left. you would have known that these people were -- that goldman was exposed here with these credit default swaps when the money went from the taxpayer to aig and through to your former company. and i guess the question that everybody has here is, why when you insisted on bear stearns taking a big haircut, why did you allow goldman to be reimbur reimbursed, your former company, at 100 cents on a dollar in that situation? why did you not weigh in on behalf of the taxpayer? >> as i've said on a number of occasions i did not know -- i had no knowledge of the size of the claim of any bank and i had no involvement in a decision to make payments to the counterparties. none whatsoever. i was very supportive of the rescue of aig because a failure of that company would have been disastrous. >> especially to goldman sachs. >> the gentleman's time h

he took that the evidence of the danger it presented to bear stearns and was told it was rejected. he took it to the federal reserve board and it was rejected. did he bring that evidence to epd sec which would have had a clear provincial interest door to the fdic in giffi didn't bring it directly were you aware of this research? >> i am not aware of that and i would be happy to find out and provide that information. >> now i am not aware of that though 6 cents bear stearns is not a sufficient suppository institution i would not be aware of it. >> senator graham. >> thank you mr. chairman. earlier today i was on the c-span call-in program, and several of the callers raised the issue of the degree to which this crisis was a function of over governmental regulation and intervention, using as the primary example the community reinvestment act. mr. bair, have you any opinion as to whether excessive government involvement or regulation has contributed this and if so in what men are? >> well senator from the perspective of the department of justice, we really do defer to chair bair in cha

credit rating agencies, bear stearns, others. we're happy to share it. it is also important to me because as the new leader of the sec having brought in new leadership across the agency i want everyone informed by things that did not work out well. so that we can make appropriate changes going forward and build a stronger program across the board and across all agencies. >> yes, we have an ongoing self -examination. we have made a number ofi changes number would be happy to give your written document describing the. when banks fail there is always a review of supervisory process. one piece missing is because the large institutions were bailed out. they did not fail. it is free helpful to provide -- we need to look better at what the supervisory issues were leading up to those of larger institutions becoming unstable. >> you do have those documents? >> for those smaller institutions, but they're not required for the larger ones. >> yes, but you will both provide as internal reviews? justice, and not sure if you have done this. i asked it earlier of the at

indymac, virtual failures in wachovia, bear stearns.n after the government did the stress test and said they do not want these things to fail, it was like they could fail. we never had a conversation ever about relying on the government to do anything. >> i do not recall any internal conversation among the employees or with the board about what we would do if we would fail. on the rodentia a big to fail issue, i agree about the sequence. nobody in our country -- company entertained that, and we did not behave that way. we are shareholders. we work for the shareholders, the equity. even the context of too big to fail, if you take bear stearns, that was, quote, rescued, that failed, and all of the shareholders -- that is how we think internally about what constitutes a failure, so for our purposes, they rescue the debt, and equity goes, and that is as much of a failure as anything could be. the external, i think everybody contemplated that the equity could go to zero. that is because that was the pattern, and, in fact, it is interesting.

you scalped the folks on bear stearns two cents on a dollar they got. the folks at goldman sax got 100 cents on a dollar. that is unacceptable. totally unacceptable. you had the opportunity and i think it was a terrible decision on your part and also on mr. paulson's part and he is up later. we will talk to him. how do you expect to -- look. the thing about changing over to the obama administration, you have the same people who will rely on you. when you are in one job and the american taxpayer is relying on the other job. i don't see a conflict. i really don't. you could have done the right thing by the american taxpayer because their money was being put into this deal. it stinks to the high heaven happened here and i don't like it. to top it off, the disclosure was not there. at the proper time to tell the american people and the congress what was going on. that is inexcusable and makes me doubt your commitment to the american people. it makes me doubt mr. paulson's commitment to the american people. i think the commitment to goldman sacks trumped the

on bailouts so the bailouts don't occur in the future, so we don't have to see aig situation or bear stearns situations or fannie mae or freddie mac which is probably going to be more money spent on those two institutions than the congress spent on the tarp program. >> woodruff: we're going to have to leave it there. representative scott garrett. we thank you very much. >> i appreciate the chance to be with you again. thank you. >> lehrer: the ravaged people of haiti struggled on today-- facing hunger and disease after last week's earthquake. more mass graves were dug and more aftershocks rocked port-au-prince. but there was more help, with 12,000 u.s. troops now on the ground and offshore. we begin with a pair of reports from "independent television news"-- first, jonathan rugman. >> reporter: u.s. marines landed on this haitian beach, west of the capital, this morning. the americans aren't just protecting convoys, but distributing food and water in the capital and beyond. and although the haitians and the u.n. are officially in charge of this crisis, a new reality has dawned: only a full s

why did the federal reserve save bear stearns who made that decision?why was the decision made not to save lehman? who made that decision? what were the respective roles of the treasury, the federal reserve board, and the federal reserve bank of new york? why did the fed save american international, a group who made that decision? why did the fed invest so much money in the project bikes first $85 million brought in to $85. and how would the federal reserve describes the ways into which the sharp expansion of the fed's balance sheet reflects its key role as a lender of last resort? now, we have done a lot of work on this issue before. and chairman bernanke answered those questions in that speech and subsequent answers provided to the congress. and they are all on the record. and i would leave those to you to read those. what i want to do just now is to focus on the question of, who should be the systemic risk regulator in the future? the adverse proposers in the barney frank's bill, the chris dodd bill essentially in one way or another the federal reser

aig, bear stearns and women would not have been able to take on as much leverage as they did have theyeen required to post a national collateral on day one for the risk positions they were selling. asset management firms including hayman have always been required to post initial collateral and maine as collateral for virtually every derivatives trade we engage in. however, in aig's case, not only did they have to post a initial collateral, didn't have to post initial collateral for these positions when the positions moved against them, the dealer community forgave margin. the dealer committee as was other supposedly rated counterparties were and some still are able to transact with one another without sending collateral for the risk they are taking. this so-called initial margin was and still is only charged two counterparts that are deemed to be of lesser credit quality. and imagine if you are a 20 year old superstar at aig financial proctored and you are compensated at the end of each are based upon the profitability of your trading book. which was ultimately based upon the risk you

why did the federal reserve save bear stearns who made that decision?why was the decision made not to save lehman? who made that decision? what were the respective roles of the treasury, the federal reserve board, and the federal reserve bank of new york? why did the fed save american international, a group who made that decision? why did the fed invest so much money in the project bikes first $85 million brought in to $85. and how would the federal reserve describes the ways into which the sharp expansion of the fed's balance sheet reflects its key role as a lender of last resort? now, we have done a lot of work on this issue before. and chairman bernanke answered those questions in that speech and subsequent answers provided to the congress. and they are all on the record. and i would leave those to you to read those. what i want to do just now is to focus on the question of, who should be the systemic risk regulator in the future? the adverse proposers in the barney frank's bill, the chris dodd bill essentially in one way or another the federal reser

it was strange to put in a -- to be put in a position to acquire bear stearns and washington mutual.erger caused some of the crisis. we disagree bridge some of the most consequential failures were mortgage companies and thrift companies. our economy needs financial institutions of all sizes and business models to promote economic stability, job creation, and customer service. we operate around the world and employ millions of people. these firms need banking companies to provide financing in billions of dollars. let me be clear. as i said before, no institution including our own should be too big to fail. we need a regulatory system to provide the largest systems away to fail that does not put taxpayers at risk. a way that will not affect taxpayers. shareholders and unsecured creditors should bear the full cost of failure. it lies in our ability to face problems and learn from experience is and make necessary changes. i want to thank the commission for their contribution to this process. we stand ready to assist the commission in any way weekend. thank you for the opportunity to test

and i think it covered bear stearns, lehman brothers, merrill lynch, goldman sachs, and morgan stanley some of which -- one of which failed, some of which had to be acquired and the others became bank holding companies during the financial crisis. did the program fail in providing sufficient prudential supervision? >> i think we have to conclude that the program was not successful in providing prudential supervision. the program as i understand it was developed as a way to change european law that required that the five largest u.s. investment banks subject to consolidated supervision by some entity and because they were investment banks are not commercial banks they elect it to be supervised by the fcc. at the fcc the program prior to that investment bank holding companies were not subject to any supervision at all. so that was due to be a good thing to bring them under the umbrella of regulation. i think -- i have lots of concerns about the program and about many of the specifics. i may say that generally i think there were several problems. one is that it required the sec to become

the obviously gist purchase them in after verse stearns led the way and what happened to bear stearnsut after they lead the way and show everybody how you could make money on the so-called lowentown loans and cra loans, a whole industry developed around that called countrywide, the new century and all of these other businesses that practice all of these unsavory practices because the new wall street would purchase them. at the time, wall street, okay. here is my point, 2001 to 2003 fannie and freddie went from $2,006,000,000,000,000 of management and they lost a trillion dollars in the two and a half year period and that is when their shareholders and others said look are we going to be relevant to this market and that is when they got into the sub-prime market in earnest wits events luben the market collapse brought them down, but to say that they created these loans and the government told them to buy these on savory loans, or that the market really didn't leave this whole charge into this business is just not consistent with historic facts. so i guess this question is in there. >>

if we look at times that have changed our nation, september 14, 2007, which had to do it bear stearns and laymen -- lehman brothers, brought to our attention a long-term deficit trend that we have had as well as a short-term tremendous blow to our economy. should that date symbolize a -- along the lines of the berlin wall and 9/11 that has affected our nation. it looks like a trend that is going to happen for a while. >> well, i think it is important for us. this goes back to the first question. how do we know we are in one of these trends formative moment? it is important if you are an analyst to consistently said yourself and arts and say, and i say this and i think i am in one of these moments, i will start fundamental assumptions. i would answer that in the negative. i do not see the financial crisis as such a moment. the reason is, and maybe i'm old-fashioned -- don't you think that the most powerful actors in the world, some of them shouldn't these be changing their strategies? if the entities with the most capability and are not altering their strategic remarks and to do not se

for example, the list included documents about the bailout of bear stearns and a.i.g. information about the fed's regulation of banks before and during the crisis and traps scripts of monetary policy meetings that have not been made public. but his answer made it clear that he's not going to put -- not going to open the fed's actions to review by congress or the taxpayers. instead of providing those documents, what i got in return was a folder full of paper that was printed off the fed webpage. that kind of response is not only disrespectful to the senate, but it raises the question of what are they hiding? following the markup of chairman bernanke's nomination, chairman dodd did arrange for the banking committee members and staff to review some of the documents surrounding the a.i.g. bailout. i thank him for doing that and i took him up on the offer and went down to the fed myself to look at them. in reviewing those documents some interesting and useful facts came to light that will be helpful as we craft banking and farm legislation. more importantly for what we are

i do not think that the v-shape, when it was going through the 1982 recession, i was at bear stearns,of all places. that was paying v-shaped recovery and we had a lot of reasons to expect that real interest rates were very high, the highest since the depression. we had a lot of room on monetary policy. we did not have the leverage situation in households or with banks. for those reasons, interest rates that are near zero, i'm expecting this recovery to be sub-par. not just in the u.s. but elsewhere. >> there are some very powerful forces skull lying in this -- there are some very powerful forces at play in this recovery. you tend to have some weak and fragile recoveries after that. i think of this as a backwards square root. you go down fast, you come off quite fast and then you love all of the very quickly. how different are things this time, carmen? are there things in this crisis, in the u.s. situation that leads you to believe that we will have a different trajectory? >> well, i will do good news, bad news. the goodness is that the policy stimulus is more aggressive than we have s

after bear stearns lead the way, and showed everybody how you can make money on these so-called low income a whole industry developed around that. all of these other businesses that practice all of these unsavorry practices because they knew wall street would purchase them. at the time, wall street. ok. so here is my point. 2001 to 2003, fannie and freddie went from $2.6 trillion of assets to $1.6 trillion. they lost a trillion dollars in a 2 1/2-year period. that's when shareholders said are we going to be relative to this market and that's when they got into the subprime market. but to say that they created these loan or the government told them to buy these unsavorry loans or that the market really didn't lead this whole charge into this business is just not consistent with the historic fact. so i guess this question is in there but take your -- >> somewhere in there is the question. >> thank you. >> and what i would like to say is that fannie and freddie werec 1990's. the market was much smaller but they were leading the market then at buying these loans and the amounts, as you suggest

the federal government help us to assist in preventing bear stearns from going bankrupt on monday morning5,t( required the deposits, assets and liabilities of washington mutual from the fdic. we learned we were the only bank çprepared toú@zt immediately. in addition, we continued to lend and support our clients financially -- financing throughout the crisis. we provided more than $800 billion in direct lending and corporate clients. we provide state and local governmentsçç money. we're the only institution that agreed to lend california $1.5 billion in its time of need. we have maintained our lending levels to small business. we announced -- we announce that we will increase that lending to $10 billion this year. we are doing everything we can to meet -- to help them meet their mortgage obligations. we offered a new trial, loan modifications. -- home loan modifications. our diversity of business have been essential to us for emerging as a stronger firm. some have suggested that size alone or the combination of investment banking and commercial banking caused the crisis. we disagree. if

genuine financial services reform, it will be only a matter of time before we see another aig, bear stearns, another lehman brothers and the next big bank will be too big to fail and the taxpayers will wind up footing the bill again and again and again. i ask my republican colleagues on this committee to join with me in fixing the system. blame is about yesterday. fixing this system is about today and the future. in the aig case we can talk all we want to about complicated business deals, but this all boils down to a simple concept. when average people are losing their homes and jobs the same big banks that caused the problems got every dollar back courtesy of the american taxpayer. and the federal reserve tried to keep important information a secret. secrecy leads to distrust and the american people now distrust what happened in these bailouts. congress has the right to know how and why that happened and the american people have the right to know how and why that happened. i hope that today we can get answers to these and other important questions. i now yield to our ranking member the gen

i do not think that the v-shape, when it was going through the 1982 recession, i was at bear stearns,of all places. that was paying v-shaped recovery and we had a lot of reasons to expect that real interest rates were very high, the highest since the depression. we had a lot of room on monetary policy. we did not have the leverage situation in households or with banks. for those reasons, interest rates that are near zero, i'm expecting this recovery to be sub-par. not just in the u.s. but elsewhere. >> there are some very powerful forces skull lying in this -- there are some very powerful forces at play in this recovery. you tend to have some weak and fragile recoveries after that. i think of this as a backwards square root. you go down fast, you come off quite fast and then you love all of the very quickly. how different are things this time, carmen? are there things in this crisis, in the u.s. situation that leads you to believe that we will have a different trajectory? >> well, i will do good news, bad news. the goodness is that the policy stimulus is more aggressive than we have s

i do not think the v-shape -- what i was going through the 1992 recession, i was at bear stearns at the time. that was the be shaped recovery. -- v the-shaped recovery. we had a lot of room in monetary policy to bring interest rates down. we also did not have the leverage situation. for those reasons, indebtedness of the household sector, the banks, already interest rates that are zero, i am expecting this recovery to be subpar. not just in the u.s., but elsewhere. >> there are two powerful forces colliding in this recovery. we also have this big hangover from the huge financial crisis and your work has shown that you cannot have this weekend fresh out of recovery after that. if you put those together, i think of this as a backward square root. we were down far, we came up far, the mayflower and quite quickly. -- we flattened out quite quickly. do we have a different trajectory of recovery than you saw in previous ones? >> i will do good news/bad news. i will do the good news first. the good news is that the policy stimulus has been about as aggressive as one could hope for and far more