on balances that banks hold at the federal reserve banks. by increaseing the interest rates on the ban ex reserves the federal reserve will be able to put significant upward pressure on all short-term interest rates as banks will not supply short-term funds to the money markets at rates significantly below what they can earn holding resenks at the federal reserve banks. actual and perspective increases in short-term interest rates will be reflect in turn in higher long-term interest rates and tighter financial conditions more generally. the federal reserve has also been developing a number of additional tools it will be able to use to reduce the large quantity of reserves currently held by the banking system. reduceing the quantity of reserves will lower the next supply of funds to the money markets which will improve the federal reserves control of financial conditions by lead fog a fighter relationship of the interest rate paid on reserves and other short-term interest rates. notably to build the capability to drain large quantities of rese

more broadly, the federal reserve carefully monitored in the subprime market and adjusted supervisory policy to meet evolving marketplace challenges. in march 1999, the federal reserve issued its first interagency guidance on subprime lending, which addressed the variety of subprime mortgage risks, including the importance of reliable appraisals, and the need for income and other documents -- documentation. in october 1999, in 2001, and in 2004, the federal reserve issued detailed guidance addressing many of the loan features that have received recent attention, including prepayment penalties, low introductory rates and low down payment loans, among others. a summary of these initiatives is included with my written testimony. the supervision of the fed banking agencies, including the federal reserve, is an important reason why banks and bank holding company affiliates were not a significant originators of the most controversial loan products as non-bank affiliated companies that operated outside the jurisdiction of federal bank regulators. the recent crisis reinforces some important m

one of the federal reserve buys more of the public debt. the federal reserve was not mentioned. what prevents the federal reserve to take a more active role in the management of debt? >> frankly, i consider that self dealing. you have one hand buying debt from the right hand, which is trying to distort market conditions. you can end up having an impact on the market in the short term, but you cannot change market forces over time. frankly, in my opinion, that is a larger version of how the government has taken and all the social security revenues and spent it on something else, and led it to itself. i think that is part of the problem, not part of the solution. if the end up looking at the federal reserve's balance sheet, and if you recognize that fannie mae and freddie mac are not consolidated into the government's balance sheet, our situation is actually worse than the numbers we showed, because they don't consider the federal reserve and fannie mae and freddie mac. [applause]

diversifying0 into corporate debt as you described. >> but let me ask you about that because the federal reserve in one analysis i saw purchased a staggering 80% of the one and a half trillion of debt issued by the federal government last year. if we won a trillion and a half deficit here somebody's got to buy it. and i think it was the pem coanalysis -- pimpco analysis tad sad 078% was bought by the federal government. and i know there was some opposition from some people within the fed in terms of doing that. but you have pundits quipping -- in essence this is like a ponzi scheme in a way. so with yesterday being the worst day since last july for 10 years for 10 year u.s. treasuries is the federal reserve considering getting back into the business of buying u.s. treasuries or are we laying off of that approach for a while? >> congressman, that number isn't correct. we purchased last year $300 billion in treasuries which was much less than 80% and that total number brought us back to 790 or so billion which is abwhere we were before the crisis. so at this point the fed owns the smallest share o

the federal reserve was not lehman's -- to that episode. he federal reserve was not lehman's supervisor. the federal bank did not own the commercial bank. the core subsidiaries under the supervisory jurisdiction, which also supervised the parent company under the consolidated supervise entity. importantly, the program was voluntary, established an agreement with supervise firms, without the benefit of statutory operation. although the federal reserve had no supervisor responsibilities or authorities with respect to the men, it began monitoring the financial conditions -- respect to lehman, it began monitoring the financial conditions. in march 2008, responding to escalating pressures of primary dealers, the federal reserve use its territory emergency lending powers to establish a primary credit facility and a landing facilities as sources of liquidity for those firms. to monitor the ability of firms to repay, the federal reserve required all funds dispensed -- all those provide information about other companies on an ongoing basis. two feder

but the federal reserve, to its credit, then i did. in part to know, we deal with the consumer agency. people did at point of access taken by the agency inaction by the federal reserve came after this committee have initiated some action on the whole house. but i did want to just tank mr. black for that point. let me now just one question to mr. lee. when you raise these issues, what was the general -- the response you got? >> from within lehman? >> yes. >> annoyance. from anderson young, they knew it. >> they knew it, but were they supportive? did they say gas, but that's okay. today defended? what did anderson young said? >> he certainly didn't support it. on the repo 105 issue, they knew about it. they did not appear to note the number was so large. it had risen from 25 in sometime 2072 over 30 by 1130, 2009 at the end of that quarter. >> let me ask you. to the stump there was any ambiguity, did you think the fast-paced subsequent revisions have improved the situation? >> i can't really comment on that. i mean, 140 needs to be killed

the federal reserve was not attempted in that. the federal reserve to regulate bank holding wicompanies and was up big losses. what steps has the federal reserve taken to ensure that the mistakes it made will not reoccur. >> there is no question that that that reserve and other regulators could have done much better. as a consequence, we have been doing a lot of work to try to figure out how we can do better. we have done some studies at the federal reserve bank of new york and the board of governors is involved how we do supervision. the changes that we're putting in place are designed to do couple of different things. we want to do much more multi- disciplinary -- not as bank examiners but market people, researchers, economists, surveying them to get a sense of the landscape. the problem going into the crisis was everything was looked at on an individual institution by institution basis. you look at their capital and earnings and it was all pretty good. you're not really capturing the linkages across the financial system. we are

the federal reserve failed to do that. a consequence it allowed its banking system to collapse. >> host: what could it have done to top the contagion of the runs? >> guest: two things. the first was inject reserves into the system. it could have done open market operations, buy government bonds, flood the system with cash. and secondly, and again, this is what they ended up doing in 1932. this would not be the federal reserve but the treasury and the government should have acted to replenish the equity of banks. and they entered into a program in 1932 to inject capital into banks. they just didn't do it in 1931 when the bank panics were occurring. >> host: what did they do? >> guest: they just sat by and let banks go under. they basically argued that it was not their job to bail out bankers from the consequences of their poor investment decisions. >> host: something you also hear these days. >> guest: right. >> host: and you hear the counter-argument which makes more sense in this context, i suppose. >> guest: and the unfo

it is true that the current proposal would involve the federal reserve financing this agency. speak out about the physical condition of the country. i just -- i think we are in a path that is not a good one at all and that at any point in time the markets could start to react negatively to us on this. and i think the sooner we start to react to that and to show the ability to address it, the better for the country. thank you very much. madam chairman. >> thank you, mr. chairman. i very much appreciate you being here. you have often spoken about imbalances in the global economy and the role that they played leading up to the financial crisis. vice chairman cohen noted in a speech last week that deficit countries like the u.s. need to rely less on consumption, but surplus countries like china, must increase their domestic demand if the global economy is going to thrive. which brings me to my first question -- it's clear to me and many experts agree that china's policy of keeping its currency pegged to the u.s. dollar helps to perpetuate the imbalances in the global economy by sub

the federal reserve is not operated by militants. it is the last place in the world, you will look for it military propaganda. host: you are critical of it. guest: what i was trying to say is -- i have been critical of the health care bill. i do not believe that given the stated the country's finance that this is the right time for this measure. it makes an already bad situation worse. just to give you a few figures, if you start 2009 and of a get the deficit that have already occurred -- and a look at the deficits that have already occurred by the congressional budget office, it is $13 trillion. that is a lot of money, even in washington. our debt to gdp ratio, the ratio of outstanding debt of the federal government, rises from about 40% at the end of 2008 to an estimated 90% in 2020. that is almost where it was at the end of world war ii. it continues to go up. for the president to make his first priority a program that increases spending, even though in a technical sense it pays for itself there other spending cuts, it seems to me

the u.s. intelligence agencies. former federal reserve chairman alan greenspan testified before the financial crisis inquiry commission today. the commission was formed by congress to find the causes of the financial crisis. here is part of mr. greenspan's testimony. this is 45 minutes. as i noted in my prepared remarks, while the roots of the crisis were global, it was securitized u.s. subprime mortgages that served as the crises' immediate trigger. the rate of global housing appreciation was particularly accelerated, beginning if late 2003, by the heavy securitization of american subprime mortgages, bonds that found willing buyers at home and abroad, many encouraged by grossly inflated credit ratings. the surge in demand for mortgage-backed securities was heavily driven by fannie mae and freddie mac, which were pressed by the department of housing and urban development and the congress to expand affordable housing commitments. during 2003 and 2004, the firms purchased an estimated 40% of all private label, subprime mortgage securities,

this was well before the federal reserve was supervising goldman sachs. it was also before the end run episode where the -- enron episode where we strengthen our rules against the arrangements which are intended to have accounting impacts. they are designed to affect the accounting evaluations. we have discussed this issue with goldman sachs they have a much more elaborate procedure now to evaluate such possible deals to make sure they are not being motivated by accounting and other kinds of appearance issues. we believe that situation is now well under control they divested that position in 2005. on the credit defaults wha swape have not addressed the question specifically of using cds to manipulate prices which would be illegal and inappropriate. that would be more an sec issue. exposures of u.s. banks with credit defaults what to european governments is relatively limited. >> argues satisfied with a solution that europe has reached text -- are you satisfied with the solution that europe has reached with greece decks will have an impact on the united sta

it seems like the federal reserve should have been in the driver's seat. >> well, senator, we agree, and when we released our audit report, we went through the reasons that the federal reserve gave for what we described as a very ineffective negotiating strategy ultimately doomed to fail, as well as what we saw was a simple lack of effort. that they even within certain limitations they put on themselves, with the negotiation, things like, you know, requiring they wouldn't do a deal unless all the counter parties agreed. or, refusing to put a little pressure on them, because of their status as a regulator. to encourage the negotiations to move forward and instead, saying, basically, don't worry, it is just a voluntary negotiation. but, the fact they didn't do what they had done, just a couple of weeks earlier, with respect to the recipients of t.a.r.p. funds, to capital purchase program, in other words, with the then president of the federal reserve, now secretary geithner, didn't get on the phone and call the ceos, or the meeting of the ceos of the big banks, and the counter parties,

the federal reserve. oing forward, that's an interesting very important discussion. but i would focus on the fiscal cost of on the balance sheet of the government what is the increase in and government debt to rebel lead -- militant to the economy held by the private-sector. as a poor measure, what i would focus on of how much the government is in debt. this was about 40 percent of gdp before the crisis. and i am on a panel of economic advisers to the cbo when these numbers i will give you a ermine not theirs but i would say that their numbers are moving in my direction as advised, my estimate would double debt to gdp and 40 to 80% as a result of this crisis and all the measures that the government was forced to take in order to reduce the likelihood of a massive depression and make sure it turned out only to be a great recession. if a world recession. but i think it would have been worse without those counteracting measures. that's a big increase in debt. that's not enough to sink the country, that's not

the bill also fails to stop the federal reserve from propping up financial companies like it did a.i.g., and it additionally expands the fed's reach by creating a new consumer protection bureau inside the federal reserve. with its extensive jurisdiction and its unchecked ability to micromanage lending, it really should be considered the anticonsumer bureau. this new bureau will have sweeping authority to regulate almost anything it regards as financial activity. from car dealers to other companies that offer financing for their products to software companies that help people manage their money, this massive new bureaucracy is certain to increase the regulatory burdens on community banks, credit unions and many others who had no role whatsoever in the financial crisis, as well as to raise consumer costs and kill jobs. before we rush to give the feds more control over our economy, we need more information about its activities surrounding the 2008 financial crisis. even to this day, the fed refuses to provide information about the extent to which they have used taxpayer money for the bail

access to the facilities, the credit facility, investment banks were subject to supervision by the federal reserve since march, to designate. stand-alone investment banks were supervised exclusively by the sec have now come under the regulatory authority of the federal reserve as well. so the responsibility for the overall regulation and supervision was with the the new york fed. was it being done, is what the market should assume. >> we did not have that authority, so we established a limited presence with a limited purpose. we want to be in a better position to assess the risk we might be exposed to any event that the lehman brothers took advantage of the credit facility. we were careful to make it clear that we had no supervisory authority, no authority as a regulator. there was an important distinction. >> chairman shapiro, the same question. do you have a comment? >> yes. i think the issue for the consolidated supervisory program was that it was never adequately staffed. there were no more than 24 people at the peak in the press responsible for the five largest investment bank holding compani

whether one believes that these programs worked or not alluding to the federal reserve programs, their reasons to believe their consequent going forward or negative. first they raise questions about that independence. the programs are not monetary policies conventionally defined the rather fiscal policy were credit allocation policy or my best real policy, a word that has not been loosely in my vocabulary because they try to help some firms or sectors and not others and to finance her money creation rather than taxes or borrowing. perhaps you could comment upon it in writing and whether or not you agree with that assessment, thank you. >> the gentleman's time is expired and we will allow subsequent written responses. so, the gentleman from kansas, mr. moore is recognized. >> thank you, mr. chairman. look at how debt and leverage have been used in the past decade by financial firms, nonfinancial businesses, consumers and the government we have a healthy independent on the use of credit cards, overleveraged balance sheet and matching deficits to seek economic growth and policy. an analys

we are back over 10,000 on the dow, thanks to that blank check from the federal reserve. so now as we finally heads towards congress debating financial reform in our country, the question must be ask asked it make sense for our got give more power to a federal reserve and banker con men who unrepentantly caused this crisis and make money on your expense, on the pension side and on the credit side. that's the current plan. give them more power. joining us now congressman alan grayson, democrat from florida who sponsored the audit in the fed bill with ron paul. congressman, pleasure to see you again and on the phone president of fleckenstein capital and more importantly author of -- does an exceptional job of explaining exactly how the godfather greenspan allowed the banks to perplate to con. and bill profited rather handsomely against the conspacek because knowing it was a bubble. >> i would likely more frustrated than i am that our congress' unwillingness to acknowledge or understand the con or address it. why does it continue to be so difficult and continues to be difficu

but these are the results of the most recent federal reserve payment study. we do this study every three years. we have done one in 2000, 2003, and these are the results for 2006. and in the studies we devoted a lot of effort to get complete national picture of what is going on in the u.s. payment system. so, to start off with, the total number of checks written in the united states was about 33 billion, and that is out of about 93 billion payments overall non-cash payments. so, even in 2006 we were talking about a third of all payments made by check. second, it is pretty clear the debit card has been the huge success story as josh pointed out by 2006. and they've overtaken credit cards as the most used by electronic instruments and cards collectively when you come the credit cards and debit cards actually amounted to the largest payment instrument used in the u.s. economy. but by value, checks were the largest payment instrument when you exclude the inquires and it's about $42 trillion worth payments that went through the check system and by comparison the el

it is true that the current proposal would involve federal reserve financing, this agency. that does not make it any less cost to the taxpayer. it means there would be less revenue remitted from the federal reserve to the treasury. it is up to congress how you want to account for in finance the agency. but that particular way of doing it would lead to less revenue being remitted from the fed to the treasury because some would be used to support the agency. >> mr. chairman, i want to urge you to continue to speak out about the fiscal condition of the country. i think we are in a path that is not a good one at all. at any point in time, the market could start to react negatively to us on this. the sooner we start to react to that, and to show the ability to address this, the better for the country. thank you very much. madam chairman? >> thank you, mr. chairman. i very much appreciate your being here. you have spoken about imbalances in the global economy and the role they play leading up -- they played leading up to the crisis. vice chairman colin it noted in a speech that de

the federal reserve is the issuer of currency. and has to print money and reprint it as it wears out. we have ways of tracking the wear and tear of currency. there's evidence that small denomination currency is lasting longer than it used to. there are a variety of factors that could affect it but some of them could be just the simple wear and tear of conducting transactions. it's possible, although not conclusive at this time that individuals may be holding a steady inventory of currency but simply just replenishing it less often. but then, i think the jury is still out. we need to learn more to be clear on how much currency actually being replaced. next, i wanted to sort of talk about a case study of debit cards. stepping back again for a longer view. these were -- debit cards were issued first in the former as atm cards. and they were essentially meant -- they were a network but they were thought of as a bank's own network of atms. and this was for their customers to access currency. this was really the first and only payment s

to, among others, the federal reserve board and the fed for reserve bank of new york. -- federal reserve bank of new york. >> good morning, everyone. it is almost impossible to be opposed to the term "competitiveness." it is like mothers and apple pie. how could you not want to be competitive? the question is what does it mean? we just went through a wrenching national debate on health care reform, and part of the reason that was so complicated, at least from an economic perspective, is that it seemed to mean different things. for some people in means coverage leading to cost reductions, and for others it means no, cost reductions needed to coverage increases. getting a definition right matters. for competitive is, it is ultimately about our living standards, and it is easy to see why we care. in the very difficult economic environment we find ourselves still in, it makes clear the need to never lose focus on long-term competitive fundamentals and the short-term problems that we face. competitive economies are those that have in place at all level of individual sectors -- at the level of

say we have to give it at least the illusion of decentralization for which we have to thank the federal reserve bank as part of that, the illusion and because all along they knew that they admitted the plant-- invented the plan and the real power in the federal reserve wouldn't be in the regional banks. wouldn't even be in washington. would be in the federal reserve bank of new york and they knew if they could put a morgan guy in charge of that they would control it and that is exactly what they did. in 1913 early in the year jpmorgan-- later in the year woodrow wilson signed into law the federal reserve act of the united states, 1913. and in the process of doing it, he thinks he is taking away the power of wall street, but he is not. do you know what he is taking away? the responsibility. they knew it. wilson didn't. what they would walk away with is the power and what the federal government would walk away with is the responsibility, and you have to hand it to the guys. it was a brilliant plan and they pulled it off. whether it was good for the united states, i said this three years ago peopl

if we read economic history, and what was done, what was done with the federal reserve was absolutelyancial collapse. and so, i believe that there was widespread responsibility with the overly-loose fiscal policy under the responsibility of the federal reserve, the fiscal policy under the control of congress, and the control of the federal reserve to create the place where the bubbles would form. and they were not just housing bubble. we certainly have this, but we have the energy bubble, where we went to $100 per barrel. weaheat was $20 a bushel. bubbles were forming and bursting, and when they do, there is enormous economic wreckage. this administration got stuck with cleaning this up. where i would fault of this administration is not in the deficits in the near term. they inherited those. they inherited the devastation of bubbles bursting. i would not fault them in the near term. i would say that this is the second five years of the budget. because the deficit is coming down in the first five years, this is not sharply enough. the budget that i will propose today brings this down m

the federal reserve cut the rates down to zero and engaged in all kind of imaginative and i think probably this successful form of so-called quantitative easing. next time are the -- will that make so much difference? i have no idea. i don't know. no one can tell you. the idea we offset with these think broadly sensible government measures that's roughly what happened. next time we may not able to offset, we may lose 8 million or 20 million jobs. easily. next time we may not go down and then come back but struggle to come back. we may go down and stay down a long time. that is the experience of a lot of countries and the united states in the 1930's. the big banks are becoming bigger. to be to fail now and they will become too big to save. they have a funding advantage and their attitude is let's get bigger. the markets allow them to become bigger. this is not a market outcome economy in this regard. this is people who captured the state and the intellectual rall missile but is not that of the left as site thomas jefferson but i would stress for the modern thinkers how much we john johnston

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 massive, massive call. >> and, actually, that's a very good point. to be fair to tom hoening who has been consistent over the years. he is the low amplitude policymaker. he doesn't want rates to go up too high and doesn't want them to go down too low and the fed can provide a relatively stable background, not a predictable one. >> what's wrong with your theory is that you want a government agency to be random and capricious and that's the problem with it. >> no, i just want, i want a little cowboy monitorism. that's what i want. i want both guns drawn so the street can't predict all this stuff. >>> coming up nex

sheet, our situation is actually worse than the numbers we showed, because they don't consider the federal reserve and fannie mae and freddie mac. [applause] >> the last speaker described the fiscal situation as an existential threat to the country. i think all of you would probably agree with that characterization. most of your solutions have focused on medicare and medicaid spending and social security spending as to be parts of the budget that i would say our human security spending, and this is very little about spending on military security. i am curious to know from each of you, do you think the military spending should be treated differently from any other part of the budget, and if so, why? >> no, i don't. i think that in looking for solutions, all parts of the

longstanding critic of the fed, alan blinder, a liberal at princeton who has been vice- chairman of the federal reserve board -- really having been the most successful unreserve leader in the history of the federal reserve system. now flash forward three years and greenspan is made to be one of the fall guys for the financial crisis, for keeping credit to easy for too long. you really can't blame greenspan, you can't blame the bankers by themselves in isolation. all of these people were conditioned by the experience in the last two decades, when it became conventional wisdom that we had gone into a kind of new era of, is not perfect prosperity, but a kind of underlying indestructible prosperity. we only had two minor recessions in the 1990's and this decade. the recession of 1990-1991, 2001, mild increase in unemployment, 7.8%, the economists call the great moderation. a if you think you live and in less risky world, which that is the conclusion, you begin taking more risk because you are not times. that is the underlying assumption. so, banks started making stallone's, people borrowed more than they c

dodd's financial reform bill would put that agency inside the federal reserve. shelby has been one of the critics of that bill, and originally said that a consumer agency would make it more difficult for consumers to get access to credit. employers posted 2.4 million new jobs. while new openings are still about 40% below pre-recession levels, it was a significant improvement. >>> and the finra is fining citigroup $650,000 for violations receipted to the direct borrowing program. under the settlement, citi says it will not admit to my wrongdoing. this first enforcement -- stocks meanwhile, turning positive, but it was not enough to hold through the close. in a statement the federal reserve said that rates would stay exceptionally low, but with the labor outlook improving following the march xwroimt report and rally under way, can a case be made to raise interest rates in the september meeting? larry can tore is head of research about with barclays capital, and gentlemen, good to have you on the program. larry, your thoughts today on the fed minutes. what did you t

repeated. >> i'm confused because some of the $180 billion taxpayer dollars were paid by the new york federal reserve, or with the approval of the federal reserve to goldman sachs to pay off on the $1 billion bet revealed last friday. so it's a good thing that the taxpayers are there to pay off the $1 billion side bets of american bankers. i do not understand why it is that we refuse to break up the megabanks. >> over the years they've made the argument on wall street that they needed this power and concentration. in order to be competitive on a global basis. i think we saw during the course of the recession, the down side of that decision. i would like to see more competition myself. i don't think there's anything inherently good about this concentration of wealth and power. i would much rather see the competition you've described. >> so why not break up the megabanks? >> i think that's a bridge too far for this wall street reform. >> why? >> i just don't think it's going to occur. i think you know as well as i do, political realities suggest it might not occur even if it is the best policy that we

the "newshour": tracking federal tax dollars in florida. but first, the other news of the day, here's kwame holman in our newsroom. >> holman: the chairman of the federal reserve warned congress and the president today to start reining in the national debt. ben bernanke testified at a senate hearing. he said a credible plan to bring down record deficits could lower long-term interest rates and raise consumer confidence. >> addressing the country's fiscal problems will require difficult choices but postponing them will only make them more difficult. the public and markets requires that policy makers move decisively to set the federal budget on a trajectory toward sustainable fiscal balance. >> holman: bernanke also indicated he has new hope for the staying power of the fledgling economic recovery. but he said high unemployment won't come down any time soon. the latest economic numbers showed spending on retail goods rose more than expected last month, thanks to milder weather and auto incentives. but consumer prices went up only slightly showing inflation remains in check. the latest economic data-- plus upbeat profit reports-- sent wall street higher. the dow

the debtors council. there were numerous claims in excess of those dollars. >> federal reserve responsibility, one of the things you found and as -- the sec will provide the federal reserve on an ongoing basis. in this situation. >> and this observer with an actor? >> my view on it was they acquiesced in this area to an -- some of these other areas. they were not directing them to do things which were issues they should have been directed at. >> nothing further. >> thank you very much. >> thank you for clearing up my confusion as to where we were going. >> i think you made it very clear. the çgentlelady from californ. >> mr. valukas, i want to thank you publicly for your testimony, your statement here could not be clearer. to who was responsible. what is a humorous to me, many statements before us are attempting to rewrite history. one of them is mr. fold, who said in his testimony that he had absolutely no recollection whatsoever of hearing about the transaction when he was ceo of lehman. do you believe that statement to be true? >> i don't know that it is appropriate for me to comment on his credibili

in texas, richard fisher, the president of the dallas federal reserve bank said the provision in the ill would leave the dallas federal jurisdiction, the federal reserve jurisdiction, only one or two bank holding companies, down from 36 member or $74 billion in assets that he now has supervisory authority over. the feds should know the needs and economic conditions throughout the country. not just new york and washington, d.c. it is precisely the ability to foster bottom up growth through small businesses that sets community banks apart from other financial institutions. unlike the big financial institutions, we see in the headlines, bailouts and bonuses, community banks don't have a systemic risk to our financial system and they are not identified as primary contributors to our latest crisis. however, community banks would soon be subjected to a considerable amount of new cost and regulatory burdens as a result of this legislation. community banks are already regulated. they are well regulated. adding additional layers of federal bureaucracy with limitless authority would be a burden

they say they don't want it to fall under the federal reserve because the federal remember is of failede its power this that area years before the financial meltdown. the first thought i have is, why in the world are we looking to create a new consumer agency? why don't we get the people to do the job who hold the position? >> you are right. that's the correct way to do it. the suggestion from our side of the aisle was you raise the level of responsibility and visibility within the regulatory agencies on consumer responsibility. you have safety and soundness as primary purpose of the federal reserve, occ and other agencies which control banking. raise consumer protection to the same level of safety and soundness and merge them. they are intertwined. whether you have good consumer protection has a big effect on safety and soundness of the banking community, especially smaller banks. you put in the regulatory agencies at an equal in both areas. >> greta: don't we already have that but it is just that people drop the ball leading to the financial meltdown? didn't somebody within the federa

finds the information i was prepared to say yes, i would be prepared to work with them with the federal reserveoard and the occ, which are the four regular regulators. -- federal regulators. whenever they would like to get the information is that we do have a statutory structure which assigns certain responsibilities to different agencies. the fdic's authority as it relates to the federal reserve, the office of comptroller and the office of thrift supervision is that of a backup regulator. one of the complaints and i think one of the reasonable complaints by congress coming out of this crisis is that there was no one to provide or assign responsibility to. there was no one in charge. to the extent that we mix up or try to shave over who the primary federal regulator is i think we get ourselves into trouble again with that same kind of charge. if we're responsible for it, if we made a mistake we should be held accountable for it. we can work with the fdic and i'm committed to making sure that we work something out so that we don't have a situation like we apparently had with fdic and ots as it r

the federal reserve acted. with the consumer agency and people did point to actions on the federal reserve. when you raise these issues, what is the response that we got? >> annoyance, they knew the point. >> on the issue, they knew about it. >> to the extent that there was any ambiguity, do you think that a subsequent revision have improved the situation? >> i cannot really comment. >> there is a certain extent of justice. the lehman brothers went to the united kingdom to get their opinion and then they sent you back to get even. you made us a little bit more whole. thank you. >> thank you. the chair recognizes the gentleman from texas. >> good evening, mr. chairman. i assume that you were here for the testimony earlier. >> i did hear a good piece of it. >> on page 3 of his testimony, he said that lehman represented in writing that there >> was a "binding constraint on their risk taking that cannot be exceeded under any circumstances. do you agree or disagree? >> we set up risk appetite with a lower level hurd

the federal reserve is the issuer of currency. and has to print money and reprint it as it wears out. we have ways of tracking the wear and tear of currency. there's evidence that small denomination currency is lasting longer than it used to. there are a variety of factors that could affect it but some of them could be just the simple wear and tear of conducting transactions. it's possible, although not conclusive at this time that individuals may be holding a steady inventory of currency but simply just replenishing it less often. but then, i think the jury is still out. we need to learn more to be clear on how much currency actually being replaced. next, i wanted to sort of talk about a case study of debit cards. stepping back again for a longer view. these were -- debit cards were issued first in the former as atm cards. and they were essentially meant -- they were a network but they were thought of as a bank's own network of atms. and this was for their customers to access currency. this was really the first and only payment s

however, some fraction of the debt is owned by the federal reserve. what is the percentage of the public debt owned by the federal reserve? >> i don't know. >> let's move to the next part.

the federal reserve has been extraordinarily kind to the big banks. and now, without any regulatory reform, financial reform, all they know is that the federal government is going to be there for them when they need it. and this is a different situation -- and frankly, i will tell you, i do not think this is a liberal or conservative or democratic or republican issue. i do not see the logic in bailing out the big banks. i do not think we should have done it. i think we should have come up with extremely tough regulations and rules that prohibit banks from doing anything like this again. the cost to the economy was incalculable. the cost to the global economy -- a recent estimate by a scene was about $four trillion. the cost to americans who are still out of work is extraordinary. -- the cost was about $4 trillion. the cost to americans were still out of work is extraordinary. this is just the tip of the iceberg. host: memphis, tenn., bill, independent line. caller: i have a question concerning the relationship between the large millions of illegal alie

there are changes yes that need to be made in the federal reserve and we can talk about those when i do the question and angeles session. -- answer session. the federal reserve is an important part of the regulation sector. and yes they need regulation of the private business sector because we need enforce the ability of competition and the businesses no the to cheat other people out of their money. and there's so many different ways that we can do it. not just mainly federal regulation like the federal reserve. another thing is personal responsibility and individualism. that's something i believe in wholeheartedly. personal responsibility and individualism really stems from that idea of inherit rights. i'm about to get to that in a moment. the individual's personal responsibility, the responsibility for their own self really ties into the idea of limited government. if the government is limited, then the people need to take more responsibility for their own actions. if, for example, as some people, excuse me, especially on my side of the aisle suggest that we cut more welfare program

i want the federal reserve to be thought of as a cowboy. you never know what they're going to do, both guns drawn, pulling the interest rate triggers. if they do that, then this credit cycle story will have a happier ending. you know what, folks? sometimes being tough and unpredictable is the best medicine. cowboy monetarism. >>> coming up, how they ran the company on the hill today. o. my god. i have two ideas for fannie and freddie. number one. privatize them. number two, privatize them. let's get out of the bailout nation. back in a couple minutes. >>> all right. a couple ex-fannie made executives testified today in washington, d.c. they actually acknowledged that the business model for fannie and freddie, which is to say private profit to the shareholders, but if you screw up, taxpayer liabilities, we have to bail them out. a lousy model. so i want to ask this question on this side of the tease -- should fannie and freddie be privatized? here's our dynamic duo, former labor secretary robert reich, is the author of "super capitalism." and

while the federal reserve is not expected to hike rates this week, experts say the clock is ticking on such a move. 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 summ

however, some fraction of the debt is owned by federal reserve. they own treasury bills, right? so the first part of the question what is the percentage of public debt owned by the federal reserve? >> i don't know. >> we'll move to the next part. >> a lot more than it used to be. >> well, i don't have the percentage but they have been more active in the market because in effect they are the lender of last resort. >> yeah. okay. so i would like to continue the second part. the department of treasury pays interest on this debt to federal reserve. federal reserve gives it back to treasury. why not federal reserve buy more public debt buy it is in foreigners in which case government doesn't spend -- basically get a interest-free loan. why -- who prevents federal reserve to take more active role in a management debt? >> you know, frankly, i consider that self-dealing. you've got one hand buying debt from the right hand. which is trying to distort market conditions. you know, you can end up having an impact on the market in the short term. but you can't change market forces over time.

the average american owes credit card companys $8300 at a charles schwab event for the federal reserve's money smart week-- people are learning how to reduce their debt and create a budget plan that will let them get some sleep at night. not being able to maintian a monthly budget is one of the reasons paula c johnson--who owns a hair salon-- is here for help with her money matters. "i have been in business for 30 years and because of the economy many of my clients have been laid off or losing their jobs so it has effected my business as they do their own hair." melvin keys is concerned about his children's future. "i have a retirement program started but as far as savings for college, that's probably my most pressing need." if there is a way to sneak in a nat sound pop of him talking for 1 sec, that would be fantastic. ryan lee of charles schwab, consults people such as johnson and keys on how to pay down debt and start a rainy day fund. he says a big step is paying more than the minmum on the credit card balance-- "especially in the current economy you've seen credit card rates jump up

you can also worry that the federal reserve had to do and what that has gone to the credibility of the federal reserve going forward that is an interesting and very important discussion but i would focus on the fiscal costs on the balance sheet was haven't. what is the increase in the net to government debt relative to gdp, a look chichester to the economy held by the private sector. that is the core measure i would focus on of how much the government is indebted. this is 40% of gdp before the crisis, and i am on a panel of economic advisors to the budget office. and when to give you my numbers, not their numbers but i would say they are moving in my direction. my estimate is we will double the debt to gdp and go from 40 to 80% as a result of this crisis and all the measures the government was forced to take in order to reduce the likelihood we get a massive depression and make sure it turns only to be a great recession, portable recession. but i think it would have been worse without those counteracting measures. that is a big increase in debt. that's not enough to sink the country. t

it seems like the federal reserve should have been in the driver seat. >> well, senator, we agree. en we released our audit report, we went through the reasons that the federal reserve gave for what we described as a very ineffective negotiating strategy that was ultimately doomed to fail as well as what we call a simple lack of effort that they -- even within certain limitations they put on themselves in negotiations. things like requiring that they wouldn't do any deal unless all counterparties agreed or put pressure on them because as status as a regulator to move negotiations going forward. instead of basically saying, don't worry, it's just a voluntary negotiation. the fact that they didn't do what they had done a couple weeks earlier as resip gents -- recipients of tarp fubbeds. now secretary geithner didn't get on the phone and call a meeting of the c.e.o.'s of the big banks and the counterparties and call them together and make a strong effort on negotiation, like they did with c.p.t., pointing out the incredible support and the taxpayer had given to a.i.g. and they all suff