dr. lachman. >> i think in the european context the problem's a lot deeper. it's that the europeans have allowed the banks to keep the sovereign debt of the periphery on their banking book at 100 cents on dollar which is patently not correct. so we get the ridiculous result that we had that mr. rosner mentioned that you have a stress test that says all of these banks are just fine because we're assuming that it's impossible for any of the countries to default. so i think that they're not doing a service by being very opaque and actually encouraging the capitulation of some sort of myth that these debts are going to be -- >> i thank the panel. great panel. mr. chairman, i yield back. >> i thank my colleague. we'll now start a second round. i recognize myself for five minutes. so i guess the question is how large do you envision this swap line, how large do you think it could get? i mean, in the crisis in '08-'09 we hit about 600 billion in the swap line. dr. lachman, what's your view? if y'all coul

dr. lachman. but it is unknowable at this point. >> i agree that it is a noble, but the longer these, problems continue, they continue the uncertainty abouthese banks and their apparent government. one can easily see the amounts on the swap lines going up and up. i would worry as much as anybody else about the prolongation of it. when is the fever going to break? when will things start to turn around? one wilbanks be able to resume or be able to fund -- when will the banks be able to resume or be able to find themselves more? until we get to the point where there is greater market confidence in the banks, we will see substantial amounts. >> let's say the fed goes beyond sply the swap line, ich they had in the last crisis. we are basing it on now the survivability of europe and the eurozone as it is currently constructed. what if they go beyond that? what policies do you believe the fed has in the event of even greater stress in the european financial markets? what are some scenarios that you envis

dr. lachman. but it is unknowable at this point. >> i agree that it is a noble, but the longer these, problems continue, they continue the uncertainty about these banks and their apparent government. one can easily see the amounts on the swap lines going up and up. i would worry as much as anybody else about the prolongation of it. when is the fever going to break? when will things start to turn around? one wilbanks be able to resume or be able to fund -- when will the banks be able to resume or be able to find themselves more? until we get to the point where there is greater market confidence in the banks, we will see substantial amounts. >> let's say the fed goes beyond simply the swap line, which they had in the last crisis. we are basing it on now the survivability of europe and the eurozone as it is currently constructed. what if they go beyond that? what policies do you believe the fed has in the event of even greater stress in the european financial markets? what are some scenarios that you

dr. lachman? >> i think that the essence of the problem in countries like greece, portugal and ireland is that these countries are insolvent, and providing them with additional funding isn't a solution. it's not just the question that it's a political problem, it's a problem that they can't reduce those imbalances within a fixed exchange rate system. if they try to do massive amount of disthe fiscal austerity within a fixed exchange rate system, you get the result that we're seeing in greece with the country collapsing. when the country's economy collapses, they don't collect the taxes, the debt ratios rise. greece's debt ratio at start of the imf program was supposed to peak at 130%. the latest imf estimates are that it's going to peak at 190% of gdp. this country is clearly insolvent. one has to write-down the debt, and then one has to deal with the problems that that causes for the banking system. if i might just add one point just in connection with the swaps that the fed is making. you know,

dr. desmond lachman, anthony sanders, mr. douglas j. elliot, dr. joshua rosner, mr. bert ely. i know at least four of you had testified before. it is standard practice that all witnesses be sworn. if you will please rise. do you solemnly swear that the testimony you give will be the truth, the whole truth, and nothing but the truth? you may be seated. let the record reflect that all the witnesses answered in affirmative. seen as you have testified before, if you will see the ones before you. this means what it means when you are at a stoplight. green means go. we will recognize mr. lachman for 5 minutes. >> thank you. forgive me to testify you. in my oral statement, i like to set up the reasons that there of the basic of again participation in the months ahead. it could resolve within the next 12 months. it really does have a sense of urgency. i do not like to care of the risks that they pose. the economic recovery should be an intensification of the crisis and lost to consider the various measures. they have been undertaken by the imf and fed reserve to diffuse the crisis. ov