the immediate result of the fed's action were to expand the balance sheet dramatically and to put in unprecedented volume of money into the banking system. . . has suged this is a delicate balancing act that will have to be done just right to avoid significant damage to the economy. if recent history is any guide any decisions the fed makes to carry out this delicate balancing act regardless of what these decisions are will be second guessed by the congress and the public and this could also lead to questions about the independence of the fed. i'm hopeful that we can use this hearing to understand better the policy options available to the fed to unwind these programs and the potential policy simply casing of these various options. at the psalm time i think we should be -- same time i think we should be careful not to infringe on the fed's ability and willingness to exercise this independent judgment about which options will be the most desirable and effective. so i view this hearing as an effort to educate members of our committee not as a forum for us to try intimidate or browbeat

let the fed be independent of wall street. too many people -- >> we've tried that for the past decade. >> i want them to get out of bed. i want the wall street trader to week up every morning with a cold sweat. >> i agree, larry. we've tried this for the last ten years. what we have is gdp growth, which is 25% normal based on historical averages. you know what, larry, with these interest rates, what are we doing here? we're discouraging investment in a time when that's the only thing that will create job. we're encouraging risk-taking and leverage. we're begging or neighbor and screwing with the dollar, which doesn't help europe right now, and we have this kerry trade that people are going nuts, because people are boroughs money over here from the fed and putting it in brazil. let's get some argentinian cowboys and crack down. >> if we had some fed cowboys, they might even protect the value of the dollar. >>> coming up in "the kudlow report," the very glass to pay your tax this is week, because senator orrin hatch thinks tax ra

>> i would like to see the fed move before december. in fact, i think it might be 2011, early 2011 before we see the first rate hikes from the fed. i really do think we need to see banks lending more. we still are seeing tremendous credit losses in commercial real estate, residential real estate. i think the banks still need to nurse the balance sheets back to health before the fed starts taking away the punch bowl and raising rates. >> i guess quick then, follow-up to you, scott, when they raise rates, are you okay with them saying, now everything's in place, all these things you listed, unemployment, et cetera, so we're going to raise 100 basis points in one feld swoop or something like that? >> you know, historically, past fed cycles, really the fed waits 12 months after the unemployment rate peaks before they start raising rates. that would put it squarely in 2011, if history is any guide. >> gentlemen, thank you very much. we appreciate it. >>> now tom hoenig has laid down the gauntlet, let us know what you think. should the fed rai

he basically made the argument that that does not give the feds the flexibility, the fed the flexibility it would need in case the recovery happens at a quicker pace and that people are starting to build expectations into the marketplace because of the low interest rates. do you just ask you first of all, can you have the flexibility that you need and then if the economy improves at a quicker rate, can you be flexible without shocking markets that are building in the expectations about the low interest rates? >> yes we can. mr. hunt specific concern was the sam one i talked to mr. royce about which was about bubbles and asset imbalances. and as i say, we're looking at that issue but i think it is very important to keep in mind that when we talk extended periods we're not saying a fixed period of time. we're saying a period of time which depends on how the economy evolves and our statement very specifically says it depends on the level of resource utilization or unemployment. it depends on what inflation is doing and what inflation is -- expectations. so if those things begin to move then

that is a top priority for the fed. i do not want to take too much time, but the issues are complicated. there are some firms that had gotten easy credit earlier and now they cannot qualify. there are some firms that are not demanding credit. if you look at the surveys, their number one problem is lack of demand or customers. the surveys also suggested that some firms are able to get credit, though not all. it is complicated. one creditworthy small business that cannot get credit, that is too many. we want to fix that. we will approach this from a long list of policy actions, including strengthening the banking system, including our interest rate policies as you mentioned. i would mention specifically in our supervisory role, we have issued strong guidance to banks and examiners that small businesses are to be evaluated based on their ability to pay, not based on their industry or their geography. and there we encourage, for example, second round reviews if the first one does not pass. we are explicit that decline in the

at what point does the fed have a plan or an idea at what point? or is that an object is to wean the banks of the lower cost at least for the fed and begin to put that liquidity, which is massive back into traditional loans? and then the economy will come up with it. >> so, we are supplying liquidity. we're not, you know, blocking its use in any way. our increase in the discount window rate applies to a very small amount of money. i mean, basically the cost of funds in the markets for banks remains very, very low. so we're not doing anything to prevent them from lending. the reason they're not lending to see that they're concerned about their capital or they don't believe they have good lending opportunities. and our view is that we provide continued support to the economy with lower interest rates to the economy will begin to grow. we'll see more strengths and yields remain low and that in turn, you know, should make increased opportunities for banks to make profitable loves. when i say possible loans to banks, they will go head and make them. agai

larry, your thoughts today on the fed minutes. what did you think? any surprises from your standpoint? >> for big surprises, but they did sound pretty do muchish. they were cautious about the economic outlook, said that inflation is spraying them on the down side. the meeting did take place before the labor market report we got last week, but they were very cautious. it doesn't sound like a central bank that's going to tighten anytime soon. >> do you agree, john? >> i agree. the one thing is these things tend to change quickly. i think even the fed would admit to that, so a few months down the road, thing could have changed quite a bit, and perceptions of the economy, inflation, all those things could have changed by then. >> tell me how you see this playing out in terms of the fed's exit strategy, based on what we know right now. do you worry that as the fed starts raising ratings, people will get out of stocks and we'll need a new strategy in terms of how to invest for the long term? ifrlts actually, i don't think so. i think it will validate the ra

fed. i want the market to be scared of the fed. i want the market to think the fed is some wild and crazy cowboy coming in that's going to shoot down these bubbles. that's the problem. no one is afraid of the fed any more. >> there's a school of thought at is by former boston fed president and she calls it constructive ambiguity and the idea is if you're somewhat ambiguous about policy, that ends up helping policy and not a lot of fans of that. >> i like that. an old friend of mine from the new york fed many, many years ago. just like the soviets, we're scared to death about ronald reagan. i want wall street to be scared to death about the federal reserve. this stuff is too woozy and too predictable. vince reinhart. >> that's right. i think the legitimate criticism from '03 to '05 is the fed was too predictable. in particular what it did was encourage a short-term focus in markets and made trade not only profitable, but safe. >> that was bad. >> on the other end of that, 2007, they kept interest rates high as we were going into a ma

the fed should be their biggest enemy. and i think that's one of the issues as we move ahead. >> larry, i'm going to make a bold prediction. >> i think it's high time we have an open discussion about this. >> my bold prediction is bernanke will be a little less transparent in his second term and will rely a bit more on the surprises to the market to -- >> scared to death. >> i don't know about scared to death. >> how can you be a little surprised? it's like a little pregnant. >> i think on the way -- >> that's what -- >> larry -- larry, on the way up the fed will get benefit out of being a little bit less predictable. >> i don't want a little. >> vince, what would that mean? >> on the way up the fed's going to be more aggressive. they want to be symmetrically aggressive. they'll raise them quicker on the way up once they get started. now, i do think, however, that chairman bernanke has likely going to decide that if you're going to be aggressive when you start, you can actually delay when you start. >> wait. that's a key po

the fed had unique authority since 1994 to regulate all mortgage lenders. they finally used it in 2008. they could have stopped our raw. they could have stopped the sub prime unit that was really a liar sloan place as well as time went by. thank you very much. >> our last witness, should reiterate we asked our witnesses to confine themselves to five minutes. the former senior vice president of lehman brothers. >> thank you for inviting -- >> pull that little closer to you. >> mr. chairman, ranking members, thank you for inviting me here today, questions about my story. i provided a written statement. i will definitely come under 5 minutes and i can even brief an oral statement. many people don't know me. i was born and educated in the united kingdom. i have a graduate degree from the university in scotland. in 1977 i joined the london office in the u.k.. i was transferred in 1981 to the new york office. i have three account qualifications, one of which is certified public accounting in the state of new york. i specialize in financial service companies and i

the two-year note. but when it comes to impact for speech. philly fed chairman charles plosser takes the surprising award here. >> he was one of the earliest to be extremely clear and forceful with the view that the fed should tighten sooner rather than later, and to depart very significantly from the central tendency. >> which way do the fed officials move markets? turns on you janet yellen actually moves rates up. she's followed by plosser a hoenig. as for the doves, nobody moves rates down more than retiring fed chair donald kohn. my guess, watch hoenig. he'sing calling for higher rates than colleagues. it's not hard to assume he's a major contender for next year's "power player of the year." >> thank you so much, steve. >>> i want to go back to the thomas hoenig issue, i think he's the new superstar. all of you should read his railroads speech given in santa fe last week. it's an easy read. he calls for an immediate tightening of the fed fund's target rate to 1% in order to to that in turn will wind up another credit and financial bust. in other wor

we don't need to get rid of the fed. what we can't depend on monetary policy is our only regulatory tool which is effectively what we've done for 20 years. i mean, people -- monetary policy is wrong. it's the human condition for monetary policy to be wrong. but we need limits on borrowing so that mistakes in monetary policy don't create any asset bubble in one particular asset class that becomes so big that it can't fix itself without destroying the economy. and we need to do more with monetary policy and focusing on the fed what it did right and wrong is a drack on my view. -- distraction on my view, thank you. >> hi, this is ray niles. what about getting rid of some of the regulations that i would view as sort of part of the root cause of the problem. and really in the '30s, the guarantees of mortgage loans and the creation of fannie mae and freddie mac -- securitization was invented by the federal government. and, you know, why not get rid of that. that, i think, led to overborrowing. i'm curious on your thoughts on th

the cfpa -- why would you want it in the fed? it be better to be independent? >> we haven't made any -- we haven't asserted anything on this issue. >> i understand. i'm asking you, as the head of the fed, why would you want this? >> well, the one thing that i would like -- >> or are you saying you don't? you don't want it? >> i understand why people would be concerned, given that we were late in making some important -- in taking some important steps. i can understand why some advocates would want to have a purely independent agency that would have this as the top priority. i understand that. it's perfectly sensible. >> i think i want to cut you off right there. >> all right. may i just say, though, that while we have acknowledged, again, being late on these issues, i do believe that we should receive credit for a much better performance in recent years. and note that there are advantages. i know that congress has been grappling with the issue of whether or not the agency should completely be separated completely from the safety

still, bank of america economist ethan harris says the fed is not going to do anything just yet. >> i think we're still in a healing process in the u.s. economy 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. >

>> we are still looking at it in the fed. the basel committee is looking at it. >> could i just add one thing to that? the time frame that the basel committee is working with is to reach broad agreement around the world on a new global capital standard by the end of this year. part of this will not be just new ratios, but deciding what forms of capital are most appropriate in that context. that is the time frame we are working on. >> gentleman from california. >> dresses. we have -- thank you. we have been discussing today the failure of lehman's. there is no question in this report that the sec was in charge of regulating lehman's. the report says the sec did not learn of all of the precise facts until september, but months earlier had learned critical information that put it on notice. the sec did not act on its knowledge. it simply acquiesced. it took no action to require a lehman to have more capital in its liquidity pool. the sec knew that lehman's internal stress test excluded real estate. they acquiesced. it goes on and

i think we will get plenty of signaling from the fed chairman and other members of the federal reserve that things are about to turn, that language is going to go away. we get hyper as fed reporters when the fed chairman gets up. the first thing we look for does he say extended period and exceptionally low. he says it every time because he knows we're keying on it. that language will go away. next a signal from the new york fed they will do a large reverse repo or deposit that could be the size of 50 or $100 billion where they take a bunch of excess reserves out of the system to see how that calibrates. a test but not really. >> dean, what do you say about that? >> i agree with the time line. we may see a language change later this month. if not, probably in june. we do think that language change is going to come in the second quarter. next comes the reverse repo draining. we expect that midyear. >> nobody can say they didn't warn you. that's what we're adding up to, dean, steve? >> they certainly are going to be clear about this process. the only question at this point in a sense is w

unlike for them to tell someone at the fed. art of it is market to market and part of it is fitting appraisals back. they are slow in coming back that they do not reflect a rapidly changing market conditions. people in the real world cannot function in the system that we have created for them. i think the representative had some good points. i will take you up on that offer, because i think there needs to be more hands-on from the fed s to what are the actual effect of the monetary policy that you are pursuing. you also made a comment that they talk about auditing the fed and what is in there. is there a way for me to know what the fed holds as far as real holdings in my congressional district-your story is on the radio about them owning certain things in oklahoma city. what do you own in my congressional district? can i get that information? >> aes. the only kind of strange -- we own treasurys and the liabilities of fannie and freddie mac. we do have some assets that were involved in the bailout of bear stearns and aig still on

the fed, he says, too often delays raising rates, leading to higher inflation. and he calls for a policy reversal while the data are still mixed and wants a fund rate. i want to give you this one quote from the speech here to give you a flavor of what's in the speech. he says, "i am convinced that the time is right to put the market on notice that it must again manage its

cannot be done in any other place in the fed. so with every merger that we authorized was always accompanied by an evaluation of cra, the degree of meeting the cra requirements. the lowest -- law is pretty specific on that, and i think there are innumerable cases which will turn down mergers and acquisitions, but are far greater in which the staff initially said the board would not in its existing various procedures, it's not likely to agree with this merger, unless you alter your cra commitments. and so most of the mergers that occurred, i would say probably had some cra adjustment either directly be threatening to say no to the merger, or indirectly by anticipating that we would say no, and therefore changed. so i think it was a fairly heavy cra commitment in the banking insist passionate industry. and it's working because you don't hear about it. >> thank you. thank you, mr. walston. now we will go to mr. georgiou. 15 minutes. >> thank you, doctor greenspan. let me just follow-up on 11 thing commissioner wallison began on. at p

the other reason it's important is that we have regional fed banks. he reason it was set up that way is so that throughout the country, the federal reserve would be able to make monetary policy with input, with input from kansas city and dallas and houston and san antonio and los angeles and san francisco and san diego, and also minnesota and also wisconsin. that was the concept of the regional fed banks, but if you don't have democrats -- let me just give you an example. the federal reserve bank of dallas which is headed by richard fisher who came to see me last week. he said i would go from regulating about $70 billion in bank assets with all the community bank members that we have in the dallas regional fed to three, three. so is the fed going to listen in washington when they are making the monetary policy to the kansas city fed chief who completely agrees that we need to keep the access of state and community banks to the fed, for their information as well as the level playing field, so that will be my amendment. community banks did not cause the

one professor advocated raising the fed's target to 4%. he said raising the rate would lower unemployment and raise inflation. unemployment is so dire that maybe we should inflate our way to more rapid recovery ta? >> at a higher interest rate, nominal rates would be higher and that would give more space to cut during a recession and perhaps the ability to create impotence. that is not a logical argument but it has substantial risks. the federal reserve has established a great deal of credibility in terms of keeping inflation low, around 2%. you can see that in the in flake -- inflation index and treasury debt over the next 10 years. if we were to go to 4%, we would risk losing a lot of that part one credibility because folks would say that if you go to that level then you could go higher. it would be very difficult to tie down credibly expectations at 4% beyond with low inflation is good for the economy and 4% is already getting up there a bit and would probably have a detrimental effects on the functioning of our market. i understand the

but for some time now, the whole market has been fed by -- the mortgage-backed security market has been fed by the gses and the federal home loan banks. i don't know if you included that as well. but i'm just concerned about selling assets into a very poor economy, with a very poor market, and whether we might sustain considerable losses in those sales and then have the compounding insult of having others, who might buy those at stressed rates, and do very well with a similar argument we had during the sale of assets after the savings and loan bailout where folks came in afterwards and capitalized greatly on the timing. when i first read your remarks surrounding the purchase office these assets, i thought it was clear that this was going to be passive ownership and investment, and we were going to hold this long-term. and that was last march. so, is it something that has changed our position on this? can you explain that? >> well, only that i think the -- we have had a good bit of time to discuss all the aspects of the savings strategy, and i think the fmc is not comfortable with holdin

with the fed no longer expanding its balance sheets. the same has happened in europe so those liquidity conditions are not as stimulus as they used to be. like i mentioned before, markets will start looking forward to the time when fiscal stimulus starts to run out. this will happen in china and the u.s. this year. usual economic developments proceed by two quarters. so if the global economy does happen by tend of this year, sometime in q2, equity markets may start to fall. >> good thoughts, darius. let's continue with some headlines we're following from around the world for you today. it is day two of hearings by the financial crisis inquiry commission. chuck prince and chairman robert rubin are the ones testifying today. rubin, with his with hearings on wall street and president clinton's secretary should have taken a more active role. earlier in the week, alan greenspan insisting that the fed lacks the wording to regulate nonbank lenders that issue the subprime loans. >> and those that have been talking, ba and iberia have signed a me

want to get the gdp report out, two-day fed meeting and a whole host of earnings coming out. take a look at wall street ahead of that busy week. the doufrnlthsds finishing at the high of the day, up 70 points, and we were up every day this week. we end with a gain on the week. have a fantastic weekend, everybody. i'll see you next week. "fast money" begins now. >>> live from the nasdaq marketsite, this is "fast money." the meltup continues as the s&p 500 hits yet another new high. but is this a market trading on flows or fundamentals? gary, what is your first move next week? >> happy friday. this is a market that is trading on massive meltup momentum. we've been on this now for several weeks. i told you mid-week that there was just no way, no way with 400 new highs on wednesday that this was going to be any type of correction. you had 500 new highs on the new york stock exchange yesterday. 634 new highs today on the new york stock exchange. you don't have corrections when you have that type of internal strength. and if you're a portfolio manager running a fund, an actively man

>> well, i mean, we are not seeing the fed exiting any time soon. we think that at this point they are not sure. they think that the recovery is fragile, and we would agree with that, because when you are really coming down to it, it is sustainable growth is really the question on the minds of people right now. this is a balance sheet recession. where the problem lies is in the consumer sector, and there is a lot of consumer debt that needs to be worked off. that is going to be a process that is going to take many, many years. >> well, it is a good point to make, and tony, i think that this is a problem when you look at the consumer part of the economy. we know that the balance sheets on the corporate sector have improved quite a bit, but i believe it was meredith whitney the financial analyst and head of the meredith whitney, the head of her own company who said that consumer credit is down, 8% or so year over year, and she is talking about cash and home equity lines and talking about credit cards. if the consumer does not feel like they have the le

i wanted to start a party called the fed a party. -- the fed up party. guest: i think the challenge for us as democrats is to continue to be up there and talk with the american people and hear from the american people. these concerns expressed are real. they're not made up or imagined. they are real. our job is to be responsive to that. i have to share with you that in my congressional district, like many of my colleagues, i have gone through every part of my congressional district talking about the details of this bill. i knew this would be important coming up. when it first came of, i pulled it down offline just like everybody else could do and i read it to cover recover. i would not say it was a page turner, but i read it cover to cover. i would come only at night and stay up watching c-span and watch those markups being held because i'm not on those relative -- those relevant committees. i really wanted to be able to talk about what is in our reform proposal with clarity. i did that is what people expect in their representatives. host: is it part of

, and the way they are known to the fed, of course, as you know is that their local fed banks know their issues, know their problems, know their needs because they have the ability to serve those banks, which is not allowed in the bill before us. so thank you for your leadership, senator corker, and i will look forward to coming to, i hope, a result that we can all be proud to support. mr. corker: which brings me right back to where i want to be. thank you, senator. the fact is that there is a lot of people coming down to the floor, there are a lot of things being said in the press. first of all, i think we're going to end up with a bipartisan bill. i think we're going to end up with a bipartisan bill before the actual vote to notice to proceed takes place. i believe that's being led by certainly senator dodd and senator shelby. they are the point people. you can't have eight negotiators. but i believe that's where we're headed. so when i hear a lot of the rhetoric on the floor and other places, you know, i think it's just rhetoric. i think at the end of the day, we're going to end

blaming the fed for failing to avert a crisis and asking whether mr. greenspan, whether his deregulatory ideology contributed to the crisis. and he basically denied the accusations. . we did not see what those risks were until they unwound at the end of the lehman brothers' bankruptcy. i have always presumed, as did virtually everyone, in academia, regulatory areas, banks, presumed that risk potential was. having failed their means that we were under-capitalized in the banking system probably for 40 or 50 years. that has to be adjusted. host: st. louis is next, there'll come on the democrats won. caller: i'm not sure, but i like to ask, a bet that the rattner, paulson, bernanke, greenspan did not lose a dime during this fiasco. can you look into that? see how much money these geniuses lost over the last 10 years. we know the american people were hosed, the people do not have pensions, that wall street looted the country. could you tell much -- how much money that the rattner and greenspan and these clowns lost during the fiasco? guest: sir, you are in t

the fed torn between the new york fed and the federal reserve board is paralyzed.hey just couldn't agree on what to do. and so they ended up doing nothing. as a consequence the bubble really moves up. and eventually bursts in october '29. >> host: by doing nothing they leave interest rates unrealistically low without the bubble's creation? >> guest: right. they change them modestly but always too little too late. the second consequence of the bubble, sort of paradoxical, it sucked in capital from europe. not only were we getting a bubble in the u.s., but europe, which depended to service all its debts on u.s. capital suddenly were starved of capital. and so europe in particular, germany, went into the depression first. >> host: even though the cause was arguably on this side of the atlantic? >> guest: exactly. and it shows the interconnections of the world. so germany goes into of a recession and the beginning of the great depression. the u.s. bubble then bursts in 1929. the federal reserve actually reacted initially very quickly. i mean, they cut interest rates --

about the fed or the economy and bonds. but job growth in the manufacturing and servicing sector pushed the bond yields higher and mortgage rates followed along with the yields. now it is important to note that re-fis drove the drop, and breakdown in 11% applications last week where purchase applications were flat up 2.2% where re-fis rely on the rates more heavily were down 17%. purchases flat at the height of the spring season was not a great sign, but at least not falling. some of the issue is maybe that a lot of the buying is buy investors using cash-only in distressed properties. i want to talk about that for a second, because we have tremendous response to the blog yesterday when we said that the new wave of foreclosures is coming, and industry folks in fact wrote to me saying, that they are seeing the same thing, and corroborating numbers, and what will that mean? more inventory of lower-priced distressed homes on the market as we fin wish tish with the hor tax credit, that is more pressure on downward prices. go to

the fed mostly ended its programs. will start next year to bring the deficit down quite sharply over time. >> you still look at the federal reserve, it has 2$2.5 trillion n its balance sheet, almost 2.5 times as much as it did when the crisis started. still very low interest rates. aren't you worried that you're feeding a new bubble of sorts? if you look at the -- there's a book i'm sure you have seen which talks about the history of the last 500 years. in each case the effort to deal with the financial crisis, what ends up happening is you create a small bubble of its own because you flooded the market with cheap credit and liquidity. >> of course our strategy was guided by that, a history of crisis which show fuss mismanage them they get larger. but what we did was move much earlier and with force early on. in the financial sector we did an important thing by forcing banks to open their books and recapitalize with private money. we had the government get out of the financial sector much more quickly and have the priv

the fed under h.o.p.a. es have the authority to apply consumer lending standards across-the-board. in 2008, we followed the strong comment letter urging the fed to ban stated income and require ability to pay and require lending at the index rate on all mortgages and not just subprime and option a.r.m.s., any nontraditional mortgage product. the fed did finalize rules but they only apply to the high rate loans. they don't apply to the negative amortization loans. they're out for comment again on this issue. we filed another comment letter to apply to nontraditional mortgages. i think given the deterioration in prime they should consider applying them across-the-board to all mortgages. but the authority is there now. and we've strongly encouraged the fed to use that. and we'd be happy to make our comment letters available to the committee. >> and you have the authority as well? >> we have the authority for insured deposit other institutions under the rules, yes. >> but you have the authority to act on all of

the fed is the central bank and they have gotten rid of the heads of financial institutions.uncheon. the board of directors are invited. the head of the bank of england has said that we have lost confidence in your enterprise and we believe that mr. jones would be a good replacement. by 4:00 that day, mr. jones is running the place. he has a mandate to clean up all the problems. instead, every day, the exposure of the american people to loss grew by hundreds of millions of dollars on average. one company was pumping out $3 billion a month on bad loans. it is critical not to do business as usual, to change. we have also heard from secretary geithner, we cannot deal with these lenders because they had no authority. this said had unique authority to regulate all mortgage lenders and to finally use it in 2008. it could have stopped the subprime unit. it was a liar is loan place as well. thank you. >> we ask our witness to confine themselves to five minutes to summarize the testimony. >> thank you. mr. chairman, thank you for inviting me here today to answer questions about my sto

we had a series of stress tests with the fed. i went personally to all three of those not once did i hear any feedback that led me to believe that we were deficient. >> how about the day when they said you had to go down? no one said that it was insufficient? >> there was a facility in place where the men had access to the borrowing window. >> you are looking for a bailout? >> i did not say that. >> when your are looking at the federal reserve, if you cannot get that, what was your methodology to stay in business? where you going to get the sufficient collateral news? >> that facility had been in place. we have never needed it. we had not used it. we financed ourselves that friday night. when the bed open the window to the investment banks for additional collateral, we all turn to each other and said," we are fallinin. we will get through this." we then learned the window was denied to us. >> that was quite correct. he obviously went down. let me ask the question. were you able to survive and the federal government forced to into

you know, when the fed reduces interest rates to essentially zero for the banks, making money so free, the banks turn around and will lend to anybody who can stand up straight and many who cannot stand up straight. you need regulation and need oversight and the fed and alan greenspan said, no, we don't need enhanced oversight, and that on top of his refusal in the late 1990s to regulate derivatives when the federal -- when the commodity trading corporation came to greenspan and bob rubin and larry summers and said we need regulation and his support for getting rid of glass/steagall in 1999. alan greenspan doesn't think regulation is needed. he thinks markets work wonderfully well, that they are self-policing, and that whole ideology, that whole outlook in -- in practice led very, very markedly to the problems that we've had. >> professor reich, good to have you on the program as always. thank you. >> thanks very much, maria. >> robert reich joining us today. up next on "the wall street journal report," are you ready for april 15th? we have the tax tips that you need to know that will

it does not mean that i am not a friend of the fed. i'm just not a friend of the secrecy of the fed. host: there is a hearing today at 10:00 a.m. the link to two of our topics. it is titled "credit default swaps on government debt, the potential implications of the greek debt crisis. and you want to say work on that? guest: certainly, but will let the financial institutions played with greece, lending them more money than they could pay and then engaging in some transactions -- it is my understanding that greece has already sold its airport tax for decades into the future. that is a way of borrowing money. you could say, we did not borrow any money, but this revenue stream is now going to our creditors. those types of transactions obscured how much trouble greece was getting itself into. if someone had turned the spigot off on greece a few years ago they would be in less of a hole today and the economy would be in less of a wholhole. currency traders and investment banks have played a role here and what we want is a system in which -- n

also the fed's beige book. thursday, jobless claims. and friday, the commerce department reports on housing starts, and building permits. >> also, china's imports outpacing its exports last month. that is the first time that that has happened in six years. trade deficit could help china make its currency case as the country is facing some global pressure to revalue the yuan, because again facing that trade deficit for the first time in six years gives them a little bit of an argument for their case. >> right. in other global news, standard & poor's is warning that violent protests in bangkok during the weekend could fuel further political instability in thailand. fitch ratings and thailand's central bank governor also expressing worry that the country's sovereign debt, the rating there, could be at risk from the growing political turmoil. >> all right. if you've got any comments or questions about anything we've talked about here this morning on "squawk," e-mail us, we'd love to hear from you our address is squawk@cnbc.com. >> love, stro

then have the fed print the money to pay them off. now, when we did the chrysler bail-out, or the bail-out of tarp, which we had in 2008, we had to get the congress along. this is an interesting and i think a disturbing trend where so much arbitrary power is not only in washington, but not only in the executive, there is no checks, no balance. that means you get a few powerful people in washington, secretary of the treasury, head of the fdic. you walk in a large institution and say we might designate you systematically risky. we want you to do "x," "y" and "z." i can assure you they will do "x," "y" and "z." that's what happens in putin russia when he takes over lucas oil. that's not the way it should be. giving up the prerogative is remarkable. >> bret: bill, what about this question -- is the american public more skeptical of wall street banks or the federal government now? >> they are skeptical of both and they think, and i think you can curb wall street banks without giving unlimited authority to the federal government. brad sherm

we had been mandated by the fed to declare bankruptcy. we tell the secretary paulson if you do that, there can be nor orderly wind down. there'll be a massive repercussions in the swaps and derivatives markets that you will not be able to control. this will be a disaster. >> do you believe there were people inside the lehman organization fighting for government help besides your conversation that you had with often->> not that i am aware of. >> at the end of every quarter, the transactions were temporarily removed from the balance sheet. where were they put back on? >> at the end of a reporting time frame. if you read the examiner's report, there was always a level base. [unintelligible] >> when you were talking about any given day, there were a number of sales transactions. is it fair to say that at the end of a quarter that it was completely different than the rest of the quarter? >> the examiner's report had an interesting chart that showed a spike on the quarters. >> do you know why it spite of the quarters? structural creation of thes

so which member of the fed has the most influence?er to move the markets and make business leaders sit up and take notice? we've been talking about this question all week. steve liesman, the professor, has the influential report. mr. professor. >> you don't understand about television is you being here is what happened this week. it's just an event. it's just an event. there is so much fed speak and so little time. 15 members of the committee which is two shy of what they should have all give speeches every other day seemingly more often. who do you listen to and when do they move markets and which way do they move them? larry myer annually publishes his answers by looking at each fed speech on the economy and how it moved the yield on the two-year note. here's the metric. in a 2.25 hour window from the speech. joining us is larry myer. former fed governor, i'm going to give it to you to give the awards. let's begin with the i move market awards and television coaching here. pause for effect, larry. >> all right. before i do that i th

it's not going to be the fed. it's going to be the market. the market has started the tightening process. so when the fed shows up, they're going to be late to the party. when the fed cut rates to zero, they didn't encourage debt extinguishment. they encouraged debt refinanc g refinancing. so in the aggregate we have debt to gdp in this country of 348%. it's down only slightly through a recession. tip think include a recession it should be down a lot more. so when you see a rise in interest rates with a very still highly levered economy it's a very dangerous combination. >> you just said it. it's relative to where rates have been. and that's exactly my point. i mean, rates are low for a reason, and that's the reason why a small -- >> in a highly leveraged economy you don't -- >> peter, let me ask you. if your thesis is correct, what are the stocks specifically that people should be wary of? >> well, we've seen a 30 basis-point increase in mortgage rates in just two weeks. so we've already seen an immediate impact to the rise in interest rates

the current fed chairman, mr. bernanke, has vowed to overhaul supervision and regulation but it's a tough challenge. i think they have about 3000 supervisors across the country. the challenges right now that congress is trying to say to the fed to think that they will take away a bunch of small state-chartered member banks of the fed system, and they're going to put them in other agencies, primarily the fdic. both will give the fed for the first time explicit oversight responsibility for the nation's largest most interconnected financial institutions, even if they are not banks. so hopefully the aig's of the future so the fed right now is being passed with all this oversight responsibility. the question is can it meet the challenge. >> host: in when presumed a citibank would have been alone in the amount of oversight that it had? >> guest: or in insufficiency of that oversight, probably not. >> host: next is massachusetts. richard, independent line. go ahead. >> caller: thank you. this investigation committee, it's

the fed is also meeting on tuesday, and on wednesday. today the census bureau releases first quarter numbers on home ownership and vacancy rates at 10:00 in the morning new york time. caterpillar a dow component reports before the opening bell, as to black rock, humana, and home appliancemaker whirlpool. after the close we hear from texas instruments. ross? >> okay. meanwhile, european stock markets, an hour and a half into the trading day, up around a percent for the ftse 100. xetra dax, character up 1.32%. joining me to look at the london market is anna. >> absolutely, ross. strong performance on the ftse 100 today. carrefour telling us full year results are going to be better than the market is looking for. this is a company that's going into business with best buy. it owns 50% of best buy europe. and they are opening their first big box best buy mega store in the uk. that happening today. rbs also in focus. they are cutting back on compensation according to reports. they're going to be setting tougher targets for their management team

but it's going to be a long time before the fed tightens. nada and australia, the two stronger economies. the exporters of stuff to the rest of the world clearly seeing better signs for the economy than we are. and the bank of canada said yesterday, we're ready to do it. >> so dennis, this is christine here in asia. if you like the canadian dollar, does that mean you like the aussie dollar? >> christine, good to see you. i always have, for a long period of time. i've been a strong advocate of ownering australia and canada relative to almost any other currencies in the world because there they are, the great exporters of things. they have the stuff that the world needs. they have crude oil, natural gas. they've got wheat, thooel they've got base metals, they've got precious metal pes.they have to put it in a very sophisticated economic term stuff that the world needs and can export it efficiently. so you've had to like canada and you've had to like australia. they've been long-term trends. i don't see any reason to think they're that going to

the fed of course would have preferred to operate without oversight, and without audit. having here is to date at 10 a.m. i believe we have cameras there, which waste of our topics. the one we talk about here this morning and also earlier a discussion on greece. it is titled credit default swaps on government debt, potential applications of the greece debt crisis. >> guest: certainly the role that financial institutions played with greece, lending them more money than they could afford to pay, and then engaging in some transactions. it's my understanding that greece has already sold its airport tax for decades into the future. that will in effect borrow money. we didn't borrow money, it's just this revenue stream is not going to our creditors. those kinds of transactions show how much trouble greece was getting itself into. and obviously, somebody had turned the spigot off on greece a few years ago. made in less of a whole today and the world economy would be in less of a whole. so i do think that currency traders and investment banks have played a role here. and what we

you cannot have an economic recovery without the fed starting to tighten. watch that. that will be where people will focus on the next several weeks. >> gary kaminsky, ti very much for phoning in. whirlpool, three-decade high on this stock. would you get in on this snoint. >> they're selling whirlpool in south america through cbd. the consumer and housing trade in brazil that's how you play it and in fact whirlpool is on sale in brazil. >> to patty's point home depot has worked well hp. hd probably works here. >> to your point, tim, south america up 65%. >> it's a fantastic -- >> biggest names in tech brought low on earnings. getting low inning gool, foote your chips on qualcomm. we'll tell you whether to buy on the dips or keep your distance. all that and more when america's post-market show continues. wo j. one: kills weeds to the root. two: forms a barrier, preventing new ones for up to four months. roundup extended control. >>> live in a rainy times square at the nasdaq marketsite. pete, you've been watching some unusual activity in an online broker and also step, w

it is one reason the fed is keeping interest rates low. host: if this is pessimism and this is optimism about the economic future, where are you? guest: i am more pessimistic than we used -- i used to be. because it seems the problems we had could have been salt and address, but we continue to procrastinate and put it off. that is what makes me pessimistic. host: baltimore. republican line. caller: good morning, mr. samuelson. how are you? i just bought a question on government spending. you get a sense anecdotally from listening that it is not as effective as you might hope. it occurred to me that the act of spending is a two-part deal. the person who spend and purchases goods or services benefits from the receipt of those goods or services, where the person who is paid for them also benefits. and when the government does the spending, it seems like it cuts that equation in half at least. you have any thoughts on that? guest: in theory, the equation you put forward ought to apply to government spending as well. if the political process is

michael, do you dispute anything the fed chairman had to say? >> nope. [laughter] we do have a long-term budget problem that we are going to have to get ahold of over the coming years, and the president, president obama, i think, has taken some good first steps to doing that. i think it's important to distinguish as the chairman did between the short-term deficit, the one we're having this year, and the long-term deficit. in fact, the first one's not a problem at all, the second one is a big one. jon: mike, let me stick with you for just a second there. >> sure. jon: you say president obama's taken some good first steps, does that include the health care bill? >> yes, it does. it reduces the deficit of $130 billion this the first ten years, but more importantly, up to a trillion in the second ten years and hopefully, it will bring some of those health care costs more into sort of a more sustainable level. jon: taylor, i remember my economics class in college, one of the first things we learned is that human wants are unlimited, and it seems like with prog

it's been eeks pressed even in the fed -- expressed in the fed itself that we could be creating the nextbubble with these very low rates just as we created a housing bubble some people believe with the low rates that the fed used to deal with the 2001 downturn. on the other side, there are people who say there is no inflation there. that this country, that the recession has been so severe that if anything what we're looking at is still a threat of deflation which we haven't seen in this country since the great depression. so the two sides of that argument are out there. host: zpwarey from virginia. republican line. good morning. caller: thank you. i'd like to say while i do approve of what obama is trying to do with this stimulus money, i don't approve of the way he's trying to do it. you take these stimulus funds being spent for these highway interchanges projects, i talked to chairman lahood i believe it was december or january anyway, on january 29 on cnn at 6:30 in the morning they had a project in nebraska where it was a railroad overpass, and nobody on either side of the tracks wan