or do you mean not being willing to spend enough to rescue the financial system, the banking system as exists today? which worries you most? >> guest: the second. the banking system. look, the stimulus package you could argue that we -- it was not large enough. some very prominent economists who are arguing it was not large enough. the virtues you can always add to it. >> host: uh-huh, uh-huh. >> guest: the banking system seems to be more of a problem because we need to recapitalize the banking system to bail out the banking system -- it's hard to do it without in some sense bailing out bankers. >> host: right. >> guest: and bankers are -- bankers are not very popular people these days. >> host: but there's also precedent for that. you noted earlier that one of the things that the u.s. government chose not to do was to rescue banks. and i assume that was at least in part a political as an economic decision; right? >> guest: oh, yeah. the sort of parallel between the way banks are viewed now and then is -- i mean, it's quite striking. in 1933, the senate conducted hearings on the causes

the federal reserve's purchase have had the effect of leaving banking system highly liquid with u.s. banks now holding more than 1.1 trillion dollars of reserves with federal reserve banks. a range of evidence suggests that these purchases and the associated creation of bank reserves have helped improve conditions in mortgage markets and other private credit markets and put downward pressure on longer term private borrowing rates and spreads. at its meeting last week the fomc maintained target range federal funds rate 0-1-4th percent and continues to anticipate economic conditions including low rates of row source utilization subdued inflation trends and stable inflation expectations are likely to warrant exceptionally low level of the federal funds rate for extended period. in due course however as the expansion matures the federal reserve will need to begin to tighten monetary condition to prevent the development of inflationary pressures. the federal reserve has a number of tools that will enable it to afirm the stance of policy at the appropriate time. most importantly in october

apparently it's part of the american banking system. although it has nothing to do with lending or investing. all of these examples have us wondering which democratic party will win out in the end. the party trying to push a bad bill through for special interests and keep our country in tremendous risk as they seek to retire and go hang out on the farm or maybe get a hedge fund job? or the party of truth-tellers, who are willing to do the hard work and get their hands dirty it try to resurrect real rules-based capitalism, lending and investing and a brighter future for the american people. joining us now ezra klein, staff writer for the "washington post" and liberal blogger cenk yuger. who wins? >> on these issues i tend to be a little pessimistic. i think you have described it exactly right. they're battling for the soul right now of the democratic party and i think probably the corporatists will win. the progressives almost never win. it would be a tremendous surprise if they pulled out the victory here. i hope they're strong and hold

mentioned we need to limit the size of the bank's and they get to a truce the commercial banks and investment banks. anything else needs to be done in order of bringing the system and to balance again and my second question is i saw your article about jamie dimond and the question is do you think it is beneficial to take the conversation private and have you heard back from him? [laughter] >> may i ask what country are you from originally? >> russia. >> it does anything about our predicted that strike you as unpleasantly familiar? [laughter] >> exactly. why i end up in a place of such dramatic change. in moscow in the nineties and now i am here. i just moved from san francisco. >> if you could go back to moscow -- no i'm just kidding. look, we've taken on some features we usually prefer to ascribe to other countries and when we see other countries we say look a certain sector, the oil and gas sector and from time to time the banks as well has gotten powerful or the cory in table has taken over and distorted the system. and whenever we see that in other countries in fact whenever our treasury in the 1990's and other countries they always insisted that when you t

one of the things i learned during my career is i'm not a great investor, so i need to find great investors. i believe the system is the financial system is stable, the bankingsystem is in better shape. i do believe clearly the recovery process has begun. you and i have a common worry about the fiscal crisis. >> we are going to get to that. >> one of the best lines i've heard as it relates to that. but anyway, so i am -- you need to understand also what we are looking to do, we are going to devote a balance of the career to conservation in the environment and that is where our money is going so i am not looking to make more. i would like to keep what i have and so i'm not looking at with a long-term horizon because i continue to believe with a long-term horizon the best way is to invest in high-quality companies and stocks. that is what i believe in and if i was a young person i would be looking at companies who have a good, strong market positions for the longer term so i have a lot of what i have ase and fixed-income markets and money markets and cash because -- but the than the others i have attended in growth equity because i still believe the economy ca

credit bubbles threaten the stability of the financial system much more directly than equity bubbles. much of the debt is held by banks and securities dealers that are highly leveraged. when the bubble deflates, it can take the financial system with it, as a result. most equities are held on and on leveraged basis by investors such as pensions and mutual- fund, the sharp decline will not typically threaten the entire financial system. the comparison of the stock market crash verses the equity crash, the bursting of the housing bubble has a greater negative effect on the financial system and on the macro economy. and this cost benefit analysis, the central bank must understand it will make mistakes. it may fail to temper bubbles that turn out to be disruptive when the collapse or it may try to temper price movements that they may think or bubbles but are not. the cost of these type of errors must be weighed against the potential benefits of limiting the damage. what are the tools with which policy-makers should respond? there are three broad set of tools available for i/ . the first tool is to lean against the wind up

the banking problems. and eventually, we do work through it. it will cause the problem for a number of banks in the near term. i don't know what to suggest, frankly, to congress. ultimately, the banking system and the borrowers will have to find solutions and work through this as quickly as possible. >> mr. brady. >> i have about 1000 questions but in the interest of time, two proposals have been floated to increase banking taxes and a transaction fee on trade. one is to pay back tar thep although the banking set -- to pay back the tarp. the transaction fee is a way to raise revenue. what are your views on those taxes? the banking one seems to be a global effort to increase taxes on banks that have international relationships and connections. what is your view? >> the tax on transactions -- the treasury has rejected that idea which came up and other jurisdictions. i think i agree with the judgment on that. the problem is that by taxing transactions, you would greatly reduce liquidity in markets. people who are ordinary investors would find that the assets spreads had gotten wider. it would cost them more to buy and sell assets and hedge their portfolios. what would probably happen is so lon

the banking system was on the verge of collapse.here are the days of the grandfather one man recounted. >> my grandfather spoke of the marshall plan. they were rebuilding the shattered economies. because now as then, the world must come together. >> and a few days later, where mandelson was -- -- ward mandelson -- the lord mandelson. [laughter] >> and during the guacamole period of his life. -- entering. political courage. >> storms were gathering. the bankers move from being frantic. it was becoming a problem. the lehman brothers investment bank collapsed. in britain, minister is engaged in dealmaking. the chancellor tried to explain things. >> they want to rebuild the banks. we want to do this as soon as is feasible possible. we will maintain our stake for as long as we can do that. >> even though the banking system has been on the verge of collapse, this is really the only option for the country. it might be necessary. we consider it constructively with the government on solving this financial crisis, but, of course, the scale of

the entire system to heal. all of your friends and neighbors and communities are paying the price because nobody was minding the store and making sure that these banks and financial institutions were following the basic rules of the road. what we now say is, look. we have to have a financial system that works. we also have to have some basic rules that we make sure we never find ourselves in a situation where we have two choices -- either you bailout the banks, where you think why my propping up the folks that caused the problem in the first place, or, you did not, and the banks start failing and the whole system breaks down, creating what could have been a great depression. we cannot allow ourselves to be put in that situation. we have to have some basic rules and regulations at the front end and say to banks will not want to let you get too big to fail. we are not want to put ourselves in a position where you are able to gamble with other people go money in such a way that it could potentially bring down the whole system. getting the balance right on how to do that is something that you have got to be very careful about. i think now, we are starti

the banks. [unintelligible] when not only save the banks. [unintelligible] >> order. order. >> we not only work with other countries to save the world banking systemut for the depositors who have lost money in britain during the second thing is to get banks into the position where they can resume lending and that is why interest rates have come down by 3.5%, something the offices is said was not possible but actually happened. >> by the beginning of 2009, the scale of the banking crisis was clear. there was still some details yet to emerge. the former chief executive of the world bank of scotland. at the start of the year, they were on the treasury committee. this led to the disastrous decision of the top agenda. >> you've given me the opportunity to repeat what i said to our shareholders. we are profoundly -- i don't think we would say undeservedly sorry -- at the turn of events. our shareholders have lost a great deal of money. i make a full and unreserved apology on behalf of the board and i repeat that this morning. i apologize and i am happy to do so. i would echo those comments, a profound and unqualified apology. how would not risk for ther

with the steps we had to take to avoid the banking system melting down. i know that was not popular. it was not popular with me. here is what the recovery act did. we cut taxes for small businesses and 95% of working families to promote spending and hiring. cut taxes, that is with the recovery act did. we are cutting people put taxes across america. [applause] >> we are also making investments in our infrastructure. that creates private-sector jobs and the platform, a better environment for which businesses can prosper. it is also what we did to the jobs bill that i signed into law just recently -- a bill that cuts taxes for small businesses that hire unemployed workers and allows companies to write off investments in equipment. it encourages building on the investments that we put in place to the recovery act. we have promoted innovation in the private sector, not just to create jobs, but also to help america lead in the growth industries of the 21st century. i want to improve the short-term job picture, but i also want to improve the long-term prospects

the past with commercial realistic reading banking problems. -- there have been issues in the past with commercial real estate creating banking problems. i do not know what to suggest to congress. ultimately, i think that the banking system and the borrowers are going to have to find solutions and work through this as quickly as possible. >> to see this entire joint economic committee hearing with ben bernanke log on to our web site, c-span.org. >> coming up, the weekly online addresses from president obama and republican house whip eric cantor. later on "the communicators," as the department's senior adviser for innovation talks about how the department wants to use technology to advance diplomacy. >> today on america & the courts, supreme court justice stephen breyer and clarence thomas discussed next year's budget before a house appropriations subcommittee. it ought about cameras in the courtroom, the diversity of law clerks, and cases involving health care legislation. "america & the courts," is tonight at 7:00 eastern here on c-span. but in his weekly online address, president obama talks about financial regulation that would create a part -- a consumer protection agency and established new rules governing the pract

people are concerned about breaking up the banks. >> there's so much money that the giant banks make because of their unique advantage. the two-class system because the two-class system allows them to take so much more money that they can basically have an overinfluence in politicians and really no one else stands a chance? >> well i think that's part of it. one of the interesting things is they have an incredible advantage over all the other banks in america. a study done of the certificates of deposits from the really, really big banks, they get higher interest rates than their fellow banks. but one of the things we need, dylan is for the other bankers to come forward and explain, we don't need these massive banks, we can compete and we can

the entire system to heel. and all your friends and neighbors and communities are paying the price, because nobody was minding the store and making sure that these banks and these financial institutions were following basic rules of the road. so what we've now said is, look, we've got to have a financial system that works. that's how credit flows. that's how businesses finance themselves. but we've got to have some basic rules to make sure that we never find ourselves in a situation again where we've got two choices -- either you bail out the banks, in which case you're thinking, why am i propping up these folks who caused the problems in the first place, or you don't but then these banks start failing and the whole system breaks down, creating what could have been a great depression. we can't allow ourselves to be put in that position again. so we've got to have some basic rules, some basic regulations, at the front end that say to banks, we're not going to let you get too big to fail. we're not going to put ourselves in a position where somehow you're able to gamble with other people's money in such a way that it can potentially bring down the whole

national banks with national roles and state banks with state rules when the most successful payment mechanisms came about because of the dual banking system. prior to the civil war every bank had its own currency which is crazy so they invented the national currency but then put the state banks out of business almost but now they issued checks we had a brand new very successful payment mechanism but bottom-line is we need to have some basic national standards for do not eliminate the opportunity to various states and other jurisdictions because we will find some of the better future innovations be established in one of those jurisdictions then become widely popular. >> fantastic and innovation is the key to of all. a couple of things are really important and one of them is sending on time. we have one minute left. i want to think everybody on the panel for coming here and think you to josh for his remarks and think everyone in the audience as well. [applause] [inaudible conversations] [inaudible conversations] [inaudible conversations] >> [inaudible conversations] >> ladies and gentlemen,, the president of the united states. [applause] >>

is something that goes back to a point that was raised earlier is the fed's involvement with the banking system. we are bank examiners. we are obviously very concerned about making sure the banks are safe and sound and making good loans. on the other hand, we are also very concerned about the overall health of our financial system and our economy. therefore, perhaps more than others, we are focusing on getting that balance right. we want to make sure that could loans get made. i have talked about some of our programs and our information gathering. we have had meetings around the country and conferences and we are collecting extra data we did not collect before about small business lending. we put extra questions into the survey to get more insight and as i said earlier, i invite direct feedback from members of congress and their constituents and how we can better meet this need. from congress's point of view, it is a difficult problem. it will provide additional capital incent banks to make loans. that is one direction that is possible. >> thank you. >> chairman bernanke, you testified earlier

were getting grilled by congress said they would point out how there was too much leverage in the banking system did you ever get tempted to say the institution they ran had the most leverage of all? >> i got tempted to say a lot of things, warren. [laughter] but i resisted that temptation because one of the things that i am pleased about was that i was able to build enough relationships on both sides of the aisle that congress did enact before the system collapsed, and if it had collapsed, we would have easily had 25% unemployment in this country. it would have been a terrible situation and the book is very, to a large extent, the story of the collision of market forces and political forces. and the crisis came in many ways that the worst time with an election on the horizon, and so what i needed to do was to get action from congress and actually what we got with betty and franny-- fannie which was unlimited authority. i used use the word in specified it sounded better, but we needed those. but i had have to keep reminding people that i didn't design this thing it didn't create it. >> hank, you

gop senator had voted yes, it would have green lighted debate on the most sweeping changes to the banking system since the great depression. but republicans wanted a deal beforehand. and without it, all 41 said no. >> we're negotiating for a better piece of legislation. not for the sake of the legislation. >> with the complex bill, there's a lot of opinions that people have. but we autoto be able to start the de-- ought to be able to start the debate. >> reporter: they mite bring it up -- they might bring it up again on wednesday. >>> a question mark now hangs over the construction of rail to dulles. this after the supreme court granted an appeal to property owners who say the special tax used to fund this is unfair. >> it goes to pay for the fairfax county sheriff on the dulles construction project. only applying to the commercial and the industrial real estate, not residential. >> you could build the multimillion dollar condos there. they might get as much for the benefits from the rail than thal property owners. >> the other side argues that the constitution has allowed them to make changes t

it's not the banking system. the banking system can offer them, but they don't buy them there's no use. so the nonfinancial part of our economy is the arbator of what products fail. >> would you be in favor of putting aa head of the release of these critical innovations? >> as a general rule, i'm not comfortable with variable capital changes, you know, whether it's for -- the main argument is usually that there's adjusted capital requirements. that would have been fine if we would forecast where in the business cycle we were in real time. we're always very thoughtful on the issue of where we were in the business cycle. but it's another -- it's a holy different issue when you're in real time and saying are we in the beginning of the cycle or closer to the end? i think to -- >> well, for new producting, we would clearly be at the beginning of the cycle. >> i'm sorry. >> for a new product innovation, we would clearly be at the beginning of the cycle. >> i'm referring to the business cycle in general. but i agree with

the release of the stress test result significantly increased market confidence in the banking systemitions, banks lending to both households and businesses has continued to fall. the decline in large part reflects sluggish loan demands, and the fact that many potential borrowers no longer qualify for credit, both results of a weak economy. the high rate of write-downs has also reduced the quantity of loans and banks books. but banks have also been conservative in their lending policies, imposing tough standards and terms. this reflects bankers' concerns about the uncertainty of their own future and capital positions. the federal reserve has been working to ensure that our bank supervision does not inadvertently impede sound lending and, thus, slow the recovery. achieving the appropriate balance between necessary prudence and the need to continue making sound loans to creditworthy borrowers is in the interest of banks, borrowers and the economy as a whole. toward this end, in cooperation with the other banking regulators, we have issued policy statements to bankers and examiners, emph

president obama takes his case to wall street for a wide ranging reform of the banking system. belgium is set to take another step towards becoming the first country in europe to ban full face vails. legislation is passed by most of the parties would ban from public spacing clothing that hides people's identity. politicians said it will stop the oppression of women. critics believe it's an attack on human rights. >> in belgium appearing in public dressed like this could soon risk fine or imprisonment. thelma is a concert islam. she's 22. one of perhaps 30 women in belgium to wear the full face vail. a decision she says she's made for herself. >> it mice freedom to get closer to my creator and closer to allah and everyone should be free to express themselves the way they want, according to their conviction and religion without having to abide by a law. >> but belgium politicians have other plans. they will ban clothing to this and the long vail. some see it's a security measure or protecting the rights of women. but for others it's about social contact and culture. >> if you want

the major reforms needed to banks. i think we owe it to future generations to make sure the implosion in our banking system never, ever, ever can happen again. >> we are going to have to leave this question. we are moving to a question from beth anne. >> i am an immigrant and have been in the uk for 13 years. i recognize that immigration is becoming a problem in the country. what measures will you introduce to make the system more fair? >> how would you make immigration fair? >> first, iten the borders so we no who is coming in and who is going out. previous governments removed the exit control. i would want to see those reinsmalled immediately. we have ef right to police our borders. secondly, i would make sure we direct people who come to and work in this country to those areas in the country where of course i have a job and have someone that can voich for them. this is not unreasonable sprain placed on public services. 1k3* thirdly we have to do something about the legacy of the chaos. lots of people are coming here illegally. i would rather get them out of the hands of the criminal gangs so we can go after them and

nothing has happened which will prevent a disaster in the banking system because of the greed in the banking system from occurring all over again. we're the only party saying split them up, make sure that they lend to viable british businesses, here in bristol and elsewhere. that's the way to get the recovery going. >> you can see one of the problems with hung parliament and coalition forming is there's quite a lot of bickering going on already. there is a difference here, there really is a difference about what we believe particularly on the jobs tax. i think trying to stop this is vital. what nick and the liberal democrats are saying is first of all when we announced let's stop the jobs tax, they said it was nauseating, and in their manifesto, they've now said that actually it's their aspiration. it's the first time in politics i can remember someone coming up with a nauseating aspiration that they want to fulfill. but it is a difference between us. we want to stop this job tax to keep the economy going. the other two parties are not going to do that. >> mr. brown. >> you see, david

that's not to say, first of all, it's not to say that the crisis isn't just as severe as what's happening with autos or banks, though the banking system might not collapse as a result of newspapers declining. what they is potentially just as cities. the ability to hold public institutions, public leaders accountable, the ability for consumers to be protected, the ability for our basic ever crack institutions to function well. that's a big deal. is a big deal and that's why the fcc launched this project in the first place. it's not so much with a particular interest in the economic health of any one of these industries are it's what does this mean for democracy. there's a lot of different points that i think we could talk about. i think the two then been weighing on me most, one is the concept of unbundling and bundling, which are probably talked about a lot in other contexts. but it basically is, refers in some sense to the ways that newspaper and other media institutions were able to cross subsidize different functions within the same operation. and people have their favorite example, whether it is for scopes were essentially subsidi

and the fed is waiting to see signs of healing in the jobs market, the housing market, and the banking system. >> reporter: many economists say it will be late this year or early next before the fed finally pulls the trigger and raises rates. inflation, or the lack of it, is one reason the central bank seems to have the luxury of a little extra time. citi economist bob diclemente says policymakers may even be a bit nervous about deflation. >> they want to be convinced, too, that the recent slowing in inflation isn't part of something undesirable. that there isn't some sort of undercurrent of weakness that isn't evident. so, i think stable inflation is probably an important element. >> reporter: but some experts say an end to the fed's pledge to keep rates low for an extended period could come as early as this summer. you may remember that's the famous language contained in every fed policy statement since march of last year. >> even then, when they change the language, it will be a new phrase that also suggests the fed isn't ready to hike yet. so, they're not going to go straight from extende

. >> i think the difference with the bank, banking system and their regulation is that if there were any flaws in the regulation of the banking system, i would say, whether there are or not, i would say it's the result of policy judgments made by regulators. in the case of ofheo, we didn't even have the authority to make poor policy judgments. we were forced to do the best we could with the authorities that we had. i think that's a very key difference here. >> well, you certainly did not have anything like the powers of a banking regulator, and that you can't really be a safety and soundness supervisor of an enormous financial institution like each of the gse's were, without significantly additional powers. mr. locker, do you have a few? >> that's very true. you know, lobbying per se is not a bad profession to the extent that they are informing members of congress about what's going on. what happened was that they were using it to constrict what should have happened. and a baking case at least the fdic is prefunded that at least there's money there and have already paid for some of th

to go to the state banking systemfar more than coming the other way. but in terms of that being a systemic problem, it certainly was not, have not been, and i have not felt any pressure at all to change as a result. of that kind of pressure. >> do you think there is a need to address the issue further beyond, you know, your suggestion? >> i testified on regular consolidation before. you know, it's fond of quoting jerry hawke of the subject where something that no one would design and there is but it works okay in practice. i don't think it was the root cause of a bunch of problems but on the other hand, could we use some regular consolidation, would it be a better system? i think the answer is yes. but i don't think it's critical that you go to one regulator to address that issue, either as a matter of supervisor efficiency or to avoid the kinds of inappropriate charter arbitrage that you're talking about. there is some talk about doing that, not some talk. there are some proposals to do some consolidations that are i

the payment system. unfortunately, this effort that the banks have put forth to try to protect the payment system has not been reflected in all of the participants in the payment system. many participants or would be participants have been focusing on some of its efficiency, but haven't focused on protecting the integrity of the flow of information and the flow of the fund. and because of that, some very, very major data breaches have been the result and we can go down the list if you want to. nearly every one of those cases, those are people got into the payment system without the adequate protections that were needed to preserve and integrity. any significant participant in the payment system, regardless of how attractive are revolutionary the new platform may be, must have a rigorous program of protecting the integrity of the payment system. now, how do you do that? again, i think bob was a effective in pointing out that many of the new participants in the payment system are not subject to any significant system of standards. there's nobody looking over their shoulder, or few looking over their should

the u.s. banking system as a whole. the documents show that ots allowed washington mutual to engage in lending in part because the bank did not plan to keep the high risk loans on its books. but sold them into the marketplace. ots never considered how dumping billions of dollars in toxic mortgages into the stream of commerce would weaken the financial system, and could even come back to harm its own institutions. one ots examiner commented on the agency's approach in a 2008 e-mail as follows, quote, we were satisfied that the loans were originated for sale. sec and the fed were asleep at the switch and the securitization and repackaging of the cash flows irrespective of who they were selling to. ots examiners knew that washington mutual and long beach were notorious for selling bad loans. as early as 2005, and ots examiner sent an e-mail to colleagues with this description of long beach's mortgage-backed securities. quote, securitizations prior to 2003 had horrible performance, long beach finished in the top 12 worst ann

grew almost as large as the traditional banking system. it operate with little, if any, regulation on the assumption that market discipline was sufficient. but the market did not effectively discipline companies for the shadow banking system. they committed massive risk and pressure traditional banks to engage in many of the same unsustainable practices. when investors finally lost confidence, the resulting run on both the shadow and the traditional banking system put the entire economy in jeopardy. we cannot rely on the same failed strategy in the same field regulatory system going forward. did the stable and efficient, markets need common sense. we need to bring derivatives trading out of the dark. we need to reform our securitization markets and credit rating agencies. we need to be sure that large interconnected financial firms are subject to comprehensive capital and supervision standards, whatever their corporate form. the third reason we need reform now is to generate innovation, sufficiency and economic growth. one of the great stre

it allowed the emergence of a parallel financial system, but many have called the shadow banking system this grew to be almost as big as the regulated banking system, but it lacks basic constraints necessary to protect the economy from classic failures. imagine building a national highway system with two sets of drivers. the first had to wear seat belts and buy cars with antilock brakes. the second group can drive as fast as they choose without safety features and without fear of getting pulled over by the police. imagine both groups are driving on the same road. that system would inevitably cause serious collisions, and drivers following the rules of the game would inevitably get hit by drivers who were not. a system like that makes no sense. as you would expect, there is going to be a lot of activity and risk moving to where constraints are weak. in the lead up to the crisis, we saw a breakdown in the most important checks and balances in the system. credit ratings agencies failed to do an adequate job of assessing the risk and disclosing their ratings methodologies. board of director

it was a lot of small banks that collapsed the financial system in the 1930s. >> reporter: indeed 140 banks failed in the past year with another 702 just added to the fdic's problem list. moreover, says robert kelly.... >> we also have a gigantic economy which you can't run with a lot of really small banks. you need big, successful sophisticated, profitable banks. >> reporter: but the village bank is a $600,000 million says ceo brennan, big enough to offer almost anything i would need. >> size does matter but you don't need to be a large institution in order to be successful as a financial institution today. >> how often do you use your a.m.t.? are you local? do you travel a lot? >> i use my a.m.t. a lot. and i travel aate low. >> reporter: no problem says the village bank's claire me sign a but how about new technology? at my big bank? >> i can deposit a check and it takes a picture of the check and then gives me the deposit slip with the picture. so i feel as if i had my deposit verified . >> we don't have as advanced technology as that. that is a great feature. however, the extra f

the whole tower of assumptions and debt collapses and then you have so much unpaid debt that the banking system is effectively bankrupt. we saw this happen in the 19 -- early 1930s. not just with borrowing against the stock market, of course, but against all kinds of asset markets. and what did we learn from this? we learned markets to have discipline themselves but not at the price of unacceptable destruction in the economy. the first elegant solution of this puzzle is how to allow market discipline without economic destruction was the fdic. this is acceptable, moral hazard. where fdr and his policymakers decided we can eliminate the panic -- reduce panic in the financial system by protecting small depositors but we're not going to protect bad banks against their mistakes. they can still fail. it's just that these small depositors will be protected so that we will not see the destruction of money and credit again. but the most important thing that fdr realized was that you don't want to eliminate risk in the financial markets. you just want to protect the economy against the natural, inevitabl

it happened in 2008 and no government will allow the collapse of the banking system. o it's because of our recent history that everybody understands a bail-out will happen one way or the other. all the arguing over the details is really a matter of positioning. in the end, i think a.b. is right. this is all about that the elections, upcoming elections. obama wants a narrative where he says yes, i haven't attacked unemployment but i gave you healthcare and i'm attacking wall street. a hand republicans ought to settle and put it behind them. >> the bill does matter. wait. if you put stuff in there the republicans want, which would be to break up the big banks. 60% of the bank assets in america are in ten banks. you break them up by stripping away the services they can't do anymore. and set the high reserve requirements and they can't be too big to fail. that's what you do. >> bret: finally, the goldman sachs issue in ten seconds. white house council, former white house counsel greg craig hired by goldman sachs to defend them in all of this. big irony? >> irony. revenge i

deprived of their pensions to this day an appropriate investigation into the e-mail trail that is the banking systeme past 10 yea years. all i can conclude from these e-mails is what goldman sachs says in public is not always what they are saying in private. i know there is meaningful inconsistency in the public representations of bank executives. what is being said privately by those same executives or associates of those executives. i know the american taxpayer has delivered and continues to deliver trillions of dollars in support to these institutions. i know the treasury department and the american government continues to deny the american people a thorough investigation as to why this money from the american taxpayer was and continues to be delivered to the banking institutions, some of whom may be guilty of multi-billion dollar fraud. we don't know the answer because the government is not delivering to us the access toúf"el e-mail that we have the rights to as the owners of aig. that's the real question. will the government give us the investigation they deserve or give us the $8 million budge

we have done studies at the federal reserve bank of new york, the board of governors was involved in a big effort system wiwide, and i think the changese are putting in place are designed to do a couple of things. it is much more multidisciplinary. not just bank examiners, but market people, researchers, economists to get a sense of the landscape. one of the problems going into the crisis was everything was looking at -- looked at by an institution by institution bases. you look at an institution, their capitals, and their earnings, and it looked good. you were not capturing all of the linkages across the financial system. the second is horizontal reviews. best practices. who is doing things well? and bringing the people who are not doing well up to snuff. and the other thing i think we are doing is we are trying to develop a more challenging culture about supervision, in terms of thinking about the bank of the business. -- the bank is a business. how does a bank generate revenue? what risk does it take to generate revenue? rather than checking the box is in terms of is a bank and for me -- and forming

the extension of jobless benefits, the fed's ongoing effort to keep rates at zero and keep the banking system from folding in on itself, these are all real events. you have created a spending cycle and borrowing cycle from the government to replace what you lost in the private sector. they're calling for more next year. these are their numbers, then you have the federal reserve telling you, you know, we need to stay low for a longer period of time. we're cutting our expectation for gdp. if you look alternate first, second and third quarter expectations, why are they lower than the fourth quarter of last year if we're in a v-shaped boom that will carry us into '11, '12 and '13. >> i think you'll get 5% growth the rest of the year. higher tax rates, higher debt rates, these are all long-term problems. >>> i got to get out. thank you ever so much. marque perry , mike darda, and joe, thanks very much. >>> this is a rising federal reserve superstar. he wants ben bernanke to move quickly to get that target rate up in order to prevent a repeat of a credit boom and then bust. >>> and a new concept to

the banking system bought treasury bills and can borrow money at 0%. hat is why they are making a lot of money because they can borrow debt and it looks magic except the people losing their mortgages are losing their houses right now. of these people already on the payroll that our examiners? >> the on the payroll. >> 10,000 probably will not do much good. it is not a lack of examination if you do not deal with the problem. that comes from a monetary policy of low interest rates. all of the examiners in the world cannot compensate for this. the idea that capital can come from a printing press rabin savings, i have a hard time understanding how an economy can thrive on that. every notion of free-market capitalism -- the question i have on the imf is they announced they are going to open up a new appointment to borrow or expand. it coincides with the crisis gone on in increase in europe and how they are going to be bailed out. the irony of this promise is that in the new arrangement, greece is going to put $2.5 billion in there. to have increase bailout i

. >> reporter: in new york near where the nation's banking system nearly failed, president obama demanded new financial regulations to prevent future meltdowns. >> the goal is to make certain the taxpayers are never again on the hook because a firm is deemed too big to fail. >> reporter: but before mr. obama could end his speech, house republicans made the charge. >> the bill that we have in front of us will actually provide permanent bailouts. >> reporter: and john boehner warned of -- >> -- a government takeover of the entire private sector. >> reporter: to democrats that sounds like the last big fight that they almost lost. >> bottom line, on the health care bill, we allowed too many lies to get out there without rebuttal. >> reporter: the obama plan would force obscure financial instruments like derivatives out in the open. some on wall street want more regulation from congress. >> if they can set politics aside and stop the blame game, that they will, in fact, coming up with something that is constructive. >> reporter: i'm steve handelsman, nbc news, capitol hill. >>> meanwhile durin

it was supposed to extract toxic assets out of the banking system. of that have been explained here more than once. i would hope that this amendment would be considered. i would urge everyone to vote for it. thank you. >> thank you. senator gramm, can i get your attention for a moment? >> yes, sir. >> let me make sure that i understand the full implication of your amendment. please take a moment and take me through what your intention is. >> yes. it is pretty simple. it is my understanding that there is $44 billion that were supposed to be in the tarp program that are on obligated. the banks are in good shape. who would get the $44 billion? none of us appreciated the money be used to bailout car companies. again, i voted for tarp believing that the financial system was melting down. next thing you know, we are was a different purpose than what i intended. if this $44 billion is not taken off the table, my fear is that he will be spent on tangential issues that cannot go to the heart of the matter. the program did work when it comes to banking and we'r

. >> degree and the banking system -- the greed. we are the only party saying to split them up. >> there is quite a lot of bickering going one. -- on. when we announced to stop the jobs attacks, they have now said that it is actually their aspiration. we want to stop this jobs tax to keep the economy going. >> david, you are taking millions at of the economy in an emergency budget -- budget. i would be very, very worried, indeed. it seems to be a return to the conservative way. when you got to do is have a global system. >> the governor of the bank of england has made a statement even about casinos. you're always have risks taken with your everyday savings. that is what you have got to stop. it is what they did, by the way, in the 1930's and the depression in the united states. i think we owe it to the united states. >> we are going to another question. >> i have been in the u.k. for 13 years. i recognize that immigration is becoming a problem in the country. what are you going to do to make the system more fair? >> how are you goin

long as it's just the plain vanilla type derivatives that is the majority of the activity of the banking system. >> woodruff: two questions. one is i want to clear something up. we hearing a number of the republican congressional leadership say that what the administration's doing is basically a big bailout for banks, for institutions like yours. do you agree with that assessment? >> i don't think so. i don't know how it could be, judy, when we say that no banks should be too big to fail. if banks get in trouble, matterr what their size, they should be allowed to be taken over by a government entity and slowly wound down so that they could not infect the rest of the financial system or the global economy. that is why we need a resolution authority to allow us be able to take over a lehman-type business and slowly wind it down and say good-bye to it and sell off the pieces without hurting the country. or without costing the taxpayers any money at all. and no one wants a bailout and we have never said-- and certainly i would never support-- a system whereby the taxpayers should be on the hook for

but if you add the shadow banking system, maybe not. >> i thought you would make that point. but in fact, even with the fact that we call them banks today, if you include that broader measure of our financial system, even your civs, our system was much more smaller and less leveraged overall. and because of that, i think more importantly because we did act much more forcefully to recapitalize the system with private money, i think our system is going to emerge much more strongly and quickly. >> was it unhealthy that 1.40% of s&p profits was coming from financial companies? >> that long period created a large level of profits in the industry and obviously, it was too high because it wasn't real and did yourable. it rested on a shifting sands of risk. >> i'm from "usa today." mr. secretary, many of our readers and some of the people in this room will spend the next couple of days struggling to fill out their tax returns. and in the quarter century since the last major tax reform effort i.r.s. has weld to hundreds of pages of instructions and they are working to fill out returns

and negotiations reach a critical stage on reforming the nation's banking system. the latest with house financial services chairman, barney frank. >>> plus, sarah palin speaks out after testifying at the trial of a former college student accused of hacking into her e-mails during the presidential campaign. >> i don't think an illegal action like this is a prank when you consider how impacting it was on a presidential election. >> good day, i'm andrea mitchell in washington. it won't be an easy weekend for top negotiators. they're trying to hammer out a deal for financial reform by monday. they're going to go to the floor with or without republican support. some of the issues still in play, amendments to cap the size of banks. joining us now, congressman barney frank, chairman of the house financial services committee. chairman frank, you must feel pretty good that your side has worked it out, but there are still issues to be worked out. looking at the senate debate, what do you think are the most contention problems between the house and senate? >> i have to say the

the financial system. too big to fail means don't let them get too big. even alan greenspan, who's hardly been an ally -- who's hardly done the right thing in regulating the banking system, he says even, too big to fail means too big. that's what senator kaufman and i are addressing. let me give you some numbers. 15 years ago the six largest u.s. banks had assets equal to 17%, 1-7. 15 year, the six largest banks had assets equal to 17% of our overall g.d.p. today these -- the six largest banks, 63% total assets -- total assets are 63% of overall g.d.p. three of these megabanks have close to $2 trillion of asetteds on their balance sheet sheets. that means we're setting ourselves up for one more round of serious, serious problems. that's why homeowners in youngstown, ohio, lost their homes. that's why retirees in sydney, ohio, lost a lot of their wealth. that's why workers in newark, ohio, lost their jobs -- because we -- because we had a banking system that was overreesmg, that was excessive, that got too greedy and we didn't do enough about it. and here's what's happening. these manufacturers i talked to this morning -- early this afternoon from ohio that are lo

been through a period here in the last couple of decades where the financing system of our country has the upper hand. and we need a bankingsystem, we need a financing system with all of the levels of finance. yes, fdic insured banks, yes, investment banks, venture cap tavment w --capital. we need all of those things. but we need to get back to basics, to the old-fashioned standard of what banking really should and used to be; that is, making deposits and then providing -- taking deposits, rather, and then making loans. and when you make a loan, you do what is called underwriting. that is, you sit across the desk from someone who needs a loan and you look at them in the eye and you evaluate what is their income, what is their idea, their need, their property. and you decide yes or no. there has been no underwriting on many of these loans that helped create this foundation of sand in this economy. there was no underwriting. because if you could say to someone, do you know what? we'll give you a new home mortgage and you don't have to pay any interest and we -- you don't have to pay any principal even and you don't have to t