paul volcker took office as chairman of the federal reserve board in 1979. ronald reagan became president at the beginning of '81. >> rose: right. >> the federal reserve slammed on the brakes, began to inflict the pain well before president reagan took office. to reagan's credit, he realized it was the right medicine. but the fed had already administered the medicine before reagan.... >> rose: but paul vocer is the guy who did it? >> yes. and president reagan understand it was necessary and he had to sit there and take it. fortunately two years later, begining in the fall of '82 it began to work and by the fall of '84 as you remember it was morning in america. >> rose: now turn to the... bill clinton comes to office in 1992, comes into office in january '93. what is it that bob rubin and you did in terms of deficit reduction and the legislation in order to produce, some say, you know, a rather attractive surplus at the end of eight years and larry summers and others. >> well, there were a whole series of things and everybody knows it's been widely chronicled

so let's start with paul volcker the fed that killed the ablation of the late 1970's. when the inflation rate in the u.s. got up to 14% or so. and since that time its average since two years after that to as he brought the money supply back under control inflation has averaged about 3% but that several decades, real gdp has averaged about 3.2% which is average for the last several years in the united states up to the first quarter of this year peridot and over this decade and through 2006 leaving out the recession that we are now in an average 3 percent per annum. over this time we had about half the number of recessions in this last 30 years, we've had about half the number of recessions that we didn't put out to our previous history. the fed's record in the last several decades is not all roses however as you know. the fed did keep interest rates too low for too long between 2002 through 2004 contributing to the housing price level -- bubble. this is true. but low interest rates and other markets forces contributing to the low interest rates as well and overvalued u.

paul volcker showed up at some kind of town hall meeting many years ago, but it's pretty unusual now. bernanke has been on "60 minutes," a news conference, now barn storming with jim lehrer with this town meeting and so forth and so on. is he running for re-election, or is he informing the public about his well-intentioned policies, john? >> i think he is doing a little bit of both. more than just his personal re-election, i think what he is running for is the independence of the fed. he is very worried that politicians are going to come in, and try to control what the fed does with monetary policy. that's a big danger. because politicians tend to be less hawkish on inflation than the guys -- >> you mean, even more -- that's a terribly interesting point. very insightful. you're saying that's his real agenda, is making his case to the public, in effect, he's going over the heads of congress, and to many some extent, the white house, and making it directly for fed independents, leave us alone. that's your point, john? >> that's exactly right. he's trying to say, look, we've been doing t

so let's start with paul volcker's fed that killed the inflation of the late 1970s. when the inflation rate in the u.s. got up to 14% or so. since that time, it's averaged about -- since two years after that, as he brought the money supply back under control, inflation has averaged 3% per anum for that several-decade period. real g.d.p. has averaged about 3.2% which is its average for the last several hundred years in the united states. up through the first quarter of this year. and over the -- this decade, through 2006, leaving out the recession that we are now-i[in,t averaged 3% per annum we had the half of number! of recessions that uqr" throughout our previous history. the fed's record in these last several decades is not all roses, however, as you know. the fed did keep interest rates too low for too long between 2002 through 2004 contributing to the housing price bubble. this is true. but low interest rates had other market forces contributing to the low interest rates as well. and overvalued u.s. dollar produced large and growing trade deficits that sucked do

. >> dave, don't they think it takes a lot of risk -- paul volcker has written an educated to recall saying, we know they're too big to fail. they are essentially if ever in trouble again, going to be bailed out by the taxpayer. so every time they trade internally like this, they're putting all of us at risk. aren't they going to face some kind of trouble? >> not excessive risk. >> how do we know that? >> we do know their leverage ratio, which, again, the reason they were on the brink like everybody else back on september 18th, i bring up that date because that was the armageddon day last year, was because of their leverage ratio, but right now taking their assets to 4%. they are -- several equities gone up so their leverage ratio is about 14 times on an asset base than nine months ago. i don't know, michelle, whether they're taking excessive risks. they would, of course, argue absolutely not. they point to value at risk which is one of many measurements and we can talk about how accurate it is, having gone up very slightly, they say, up quarter to quarter. you know, time will ultima

publicly aligned him with brent scowcroft and the number of other people, carla hills, even a paul volckerand others have not called for the united states necessarily to buy latter linkage with hamas right away but to end the isolation of hamas and the penalties and other allies of the french come to mind in particular. my view is in the political terrain in the region want to allow one not to enjoy deal with this sort of -- it doesn't mean you abuse bad behavior's but not to have engaged and to me doesn't make sense in terms of driving our policy for the so i do believe in ending the isolation of a hamas. of me say one thing about the obama administration, the folks that matter in making these are struggling over this themselves and a lot is going on right now this week as we speak. some have come from the center of american progress, folks want to try to make others have illegitimacy and looking like winners because they have been so undermined whether israeli governments or the u.s. and various points, the legitimacy and credibility has been undermined so they're trying to show the nego

this is a paul volcker type chairman rather than an al greenspan type chairman.nt to create a cult of personality. he want to create a cult of doing the right thing. i think that's way too independent. especially -- it administration will be leary about a fed governor -- a fed chairman who's so independent. in the face they'll need easy money if they're going to back off on fiscal stimulus. >> super glue their right foot to the accelerator. >> absolutely right. i think he's much to -- he's fighting for the right reasons but i think the head winds that are into him are really great. >> that really helps the conspiracy theory that i want to think, that the reason they're not saying what they're going to do is because they don't want to reappoint him because they want somebody they can -- that they can -- >> who's even closer to home? >> they want someone in their pocket who will politically do what they want to dpo. >> some initials are -- >> larry summers? >> the compromise will probably be janet yellin because she seems to be independent enough, soft enough and i

what they should have done is take paul volcker, put a group of gray beards and said, come up with somethingship. he didn't do it. >> isn't the whole -- >> by the way, mr. mayor, if he was interested in real stimulus, instead of this grab bag bill he passed, he should have cut the payroll tax in half for 18 months. that would have given people money immediately, reduced the cost of keeping people on payrolls instead he goes for this monstrosity -- >> barring something unforeseen something happen, isn't the obama president all con isn't again on the economy? >> yes. >> if it recovers, in spite of him, he'll get all the credit, and if it continues to lag,  he'll get all the blame, probably more than he deserves. i mean, is that the way it usually works with -- >> yes. everyone -- >> it's basically a one-issue president? >> yes. if the economy isn't working the other issues don't much matter. he also has another challenge in front of him and that, of course, is iran. the israeli is not going to stand on the sidelines forever on that one. >> the defense minister already -- >> the next 12 -- tha

publicly aligned him with brent scowcroft and the number of other people, carla hills, even a paul volckerand others have not called for the united states necessarily to buy latter linkage with hamas right away but to end the isolation of hamas and the penalties and other allies of the french come to mind in particular. my view is in the political terrain in the region want to allow one not to enjoy deal with this sort of -- it doesn't mean you abuse bad behavior's but not to have engaged and to me doesn't make sense in terms of driving our policy for the so i do believe in ending the isolation of a hamas. of me say one thing about the obama administration, the folks that matter in making these are struggling over this themselves and a lot is going on right now this week as we speak. some have come from the center of american progress, folks want to try to make others have illegitimacy and looking like winners because they have been so undermined whether israeli governments or the u.s. and various points, the legitimacy and credibility has been undermined so they're trying to show the nego

aligned with brent scowcroft in speaking of brzezinski and a number of people, tom pickering, paul volcker and others have not called for the united states to necessarily bilaterally engage with hamas right away. but to end the isolation of hamas and the french come to mind in particular. my view is that the political terrain in the region won't allow one not to eventually deal to sort that out doesn't mean you appease bad behaviors but not to have an engagement to me doesn't make sense. it doesn't make sense in terms of driving our policy forward. so i do believe in ending the isolation of hamas there. and let me say one thing about the obama administration. the folks that matter in making these decisions are struggling over this themselves and a lot of that struggle something going on right now this weekend as we speak. some who have come from the center of american progress folks want to try to make mahmoud abbas and fatah and give them another chance at legitimacy and they have been undermined whether by israeli governments or that the united states their legitimacy and their credibili

the question is, is there a republican proposal that would deal with what paul volcker and ben bernanke and the financial regulators in england and warren buffett and many others believe is a destabilizing tendency to give out bonus this is a give you an incentive to take risks, excessive, excessive in the sense that you benefit if the risk pays off and you don't lose. we want people to take risk, but we want them to take risk this is a balance the upside and downside, not which look only at the upside. i continue to point out, not in the committee, not in 12 years when they controlled the place, not during this debate today, not in the rules committee, we have not seen a single republican proposal to deal with bonuses. their position apparently is, however the financial industry wants to structure bonuses, you get a bonus if it pays off in short term and tushes sour in the long term you get a bonus if it pays off and don't lose anything if it doesn't. they want to leave that the same. last consensus among financial regulators and others that this contributed to risk taking. we believe

. >> i want one last question, paul volcker had a report that came out january that i think was called the group of other airports that addressed the issue of proprietary trading by banks and essentially a using the capital assets of the bank should banks really engage in purchasing assets regardless of the risk and does that trade systemic risk? they have recommendations for constraints on proprietary trading. i open it up to all three of you -- do you have thoughts about this, it hasn't got a lot of attention and i'm curious of rethinking. >> well, it probably doesn't surprise you we would strongly prefer the proprietary trading occurred outside the bank and an affiliate and if it does occur in a bank holding company that includes depository institution. we think that is a risk i feared the should be considered if the congress decides to approve a the system for a larger institution. >> i would add that i think proprietary trading with either type spears money in the event of supported institution or a customer's money does absolutely create unrest and we need to be sensitive on the

. >> i want one last question, paul volcker had a report that came out january that i think was called of the group of other airports that addressed the issue of proprietary trading by banks and essentially a using the capital assets of the bank should banks really engage in purchasing assets regardless of the risk and does that trade systemic risk? they have recommendations for constraints on proprietary trading. i open it up to all three of you -- do you have thoughts about this, it hasn't got a lot of attention and i'm curious of rethinking. >> well, it probably doesn't surprise you we would strongly prefer the proprietary trading occurred outside the bank and an affiliate and if it does occur in a bank holding company that includes depository institution. we think that is a risk i feared the should be considered if the congress decides to approve a the system for a larger institution. >> i would add that i think proprietary trading with either type spears money in the event of supported institution or a customer's money does absolutely create unrest and we need to be sensitive on t

the question is, is there a republican proposal that would deal with what paul volcker and ben bernanke and the financial regulators in england and warren buffett and many others believe is a destabilizing tendency to give out bonus this is a give you an incentive to take risks, excessive, excessive in the sense that you benefit if the risk pays off and you don't lose. we want people to take risk, but we want them to take risk this is a balance the upside and downside, not which look only at the upside. i continue to point out, not in the committee, not in 12 years when they controlled the place, not during this debate today, not in the rules committee, we have not seen a single republican proposal to deal with bonuses. their position apparently is, however the financial industry wants to structure bonuses, you get a bonus if it pays off in short term and tushes sour in the long term you get a bonus if it pays off and don't lose anything if it doesn't. they want to leave that the same. last consensus among financial regulators and others that this contributed to risk taking. we believe

publicly aligned him with brent scowcroft and the number of other people, carla hills, even a paul volckerand others have not called for the united states necessarily to buy latter linkage with hamas right away but to end the isolation of hamas and the penalties and other allies of the french come to mind in particular. my view is in the political terrain in the region want to allow one not to enjoy deal with this sort of -- it doesn't mean you abuse bad behavior's but not to have engaged and to me doesn't make sense in terms of driving our policy for the so i do believe in ending the isolation of a hamas. of me say one thing about the obama administration, the folks that matter in making these are struggling over this themselves and a lot is going on right now this week as we speak. some have come from the center of american progress, folks want to try to make others have illegitimacy and looking like winners because they have been so undermined whether israeli governments or the u.s. and various points, the legitimacy and credibility has been undermined so they're trying to show the nego