treasury. >> but no other -- >> the treasury department took the type of action you are talking abouta month earlier. the fed took certain other actions. a unique step was taken that week with respect to citi. >> in the case of citi that week where action was taken, citi was in a position where it was and it did communicate this to treasury. i know this. that they were having, they could have difficulty funding themselves at that time. their debt spreads widened considerably. so in the opinion of their management, they were facing a very serious situation. >> these sounds like euphemisms for failing. i have the great respect for the work you've done and t.a.r.p. but i do not understand why it is the united states government cannot admit what everyone in the world knows which is in that week citigroup was a failing institution. i don't understand why, since no one denies they called the treasury department and asked for extraordinary aid and said effectively they would run out of cash, why it is that we can't all agree they were failing. can you explain to me why that is? >> i'm not tr

treasury is not at fault in this? >> chair warren, we are strongly advocating financial performs to prevent this situation from happening again by assuring that no single institution can threaten a financial system. >> i appreciate that. are you telling me you are exercising no supervision over citi in its financial operations today? no oversight of the financial health of this institution? >> as you know, madam chair, we are a very reluctant shareholder as mr. atkins pointed out. we wish to dispose of those shares in the public market as soon as circumstances permit, in an ordinarily manner. we have agreed with citigroup in a contract that we stated publically, this is a general policy of the u.s. treasury. we are not going to be an active shareholder. we are not going to interfere in the day-to-day management of these companies. we will only vote in a proxy on certain well-defined and limited circumstances. >> so the health of citi is not your department. that belongs somewhere else in government? >> again, we are c

treasury is not at fault in this? >> chair warren, we are strongly advocating financial performs to prevent this situation from happening again by assuring that no single institution can threaten a financial system. >> i appreciate that. are you telling me you are exercising no supervision over citi in its financial operations today? no oversight of the financial health of this institution? >> as you know, madam chair, we are a very reluctant shareholder as mr. atkins pointed out. we wish to dispose of those shares in the public market as soon as circumstances permit, in an ordinarily manner. we have agreed with citigroup in a contract that we stated publically, this is a general policy of the u.s. treasury. we are not going to be an active shareholder. we are not going to interfere in the day-to-day management of these companies. we will only vote in a proxy on certain well-defined and limited circumstances. >> so the health of citi is not your department. that belongs somewhere else in government? >> again, we are c

the ronald reagan treasury department and the bush treasury department, 20 years apart, said they werely deficient and would work and look at the flat tax and said it wouldn't work. my question to you is if we go forward we need to have a deficit commission which we have in place and i am happy to see that the leader has made appointments and republicans in the senate make appointments to look at long-term entitlements. that is great. what i am interested in is what you think of the idea of a dedicated revenue focused entirely on paying down the national debt going forward as part of a constellation of things. we statute statutory pay go and so forth. specifically, i have proposed a transaction on non financial markets activity. dedicated entirely to the debt. i want to know what you think about that specifically. >> you are right to point out we have an unsustainable fiscal position and we need to bring our commitments more into balance over time. what we asked the commission to do is step back from politics and take a fresh look. everything is on the table. no preconditions. and to s

then at last month treasury, last month a treasury official told the committee and administration 's goal was offes of temporary modifications. that does not provide a basis and will help and is hurting many homeowners by giving them false hope and encouraging them to devote hard-earned resources to mortgages that will ultimately end up defaulting anyway. as i have argued before, mr. chairman, delaying for closure does not help the many americans who are fighting to find their jobs. find their jobs. .. the foreclosure problem facing is reflective of the larger economic employment problems facing the american people. without a job is almost impossible for any american to afford any mortgage payments and they deserve jobs and an economic recovery which this administration continues to deny your anti growth, big government, interventionist economic policies. the only viable long-term solution is two keep more americans in their home and in their jobs for that matter, a broad base economic recovery that on the foundation of free markets, fiscal responsibility and women in government that

it's certainly not treasury's core expertise. i should make a couple of points regarding regulatory risks because citigroup corps like a lot of people in business face business risks, credit risks, counterparty risks, exchange risks and political and regulatory risks. congress is considering several bills that could reshape the regulatory landscape significantly. i strongly disagree with some of the positions that citigroup has taken in this regard. i'm concerned that citigroup is allowing itself to become a politicalized entity. it's difficult to avoid the impression one of the motivations that the country curry favor from the hand that feeds it, regulator, resolution authority or whatever, my fear is that citigroup is curing favor at the expense of enterprise and all shareholders. just last year here in washington, the tellers all had

>> the treasury has two ministers. if there were matters affecting that, it would probably before that she secretary to be at that meeting. i believe he was present. but he went on the eighth of may. previous meetings you had, patricia hewett, the attorney general. i wonder why the treasury was not attending on an official level there at the meeting? >> malick, we would want to attend. >> thank you. i w -- normally, we would want to attend. >> thank you. >> just to begin with, you told us already this morning, mr. brown, that the cost of potential united kingdom involvement, you told us was $2.5 billion, not to be seen as a constraint whether to act or not. how far was the potential impact on the party finances and particularly concerning the that you could share or something the treasury needed to contain within itself? >> we were setting aside money for this endeavor, so we made an original estimate of the cost would be 2.5 billion by 2006 because are planning to go through them. having revised our estimate, then it

treasuries, but i have not u.s. treasuries, but i have not seen any reduction in demand u.s. treasuries. the foreign demand remains quite strong. i anticipate -- i do not anticipate any problems. there is always the question of price, and there the question is, well all of our creditors, including domestic, remain confidence in the long run fiscal stability of the united states? there is important for the congress to devise a plan to create a trajectory whereby we have a more stable debt position going forward. that is very important. >> i concur on the points that you have made publicly. but getting back to the question of the extent that we are dependent upon the carry trade to finance our debt, do you think there's an element of truth to that point? >> there's sometimes a misunderstanding that they carry trade is an arbitrage opportunity. it is not. if that is a long-term security, there's a considerable risk on the life of the security. as short-term interest rates go up because the economy strengthens, then long-term rates might go up as well. that would affect our off-

we have been talking with treasury, other large services talking to treasury about services like thisor quite some time. i think the treasury is close to deciding whether they want to go forward with a program like this. definitely, they have it on their radar screen. they know they need to do things to try to improve the acceptance rates also. and this is a way that most people believe it might do the most to improve the acceptance rate. >> erin burnett wants to jump in here. >> a couple quick questions for you, sir. diana mentioned the 45,000. is this something you would view as a test? and if it's successful, that you would roll it out to significantly larger number of borrowers? >> we view it as a test from the point of view of it is a roughly small segment, like you say, 45,000. but still a large enough segment to figure out how this will perform. and if we do have the performance we hope, we definitely will consider rolling out to a larger segment. >> i'm curious, is this a really acknowledgement that the housing market isn't getting better as quickly as you would have thought a

now the reagan treasury department and the bush treasury department 20 years apart. they were fatally deficient and wouldn't work. they looked at the flat tax, said it wouldn't work. so my question to you is as we go forward, we need to have a deficit commission which we have in place. i'm happy to see they're going to make appointments. can you look at long term entitlements. and that's great. what i'm interested to know is what you think about an idea of a dedicated revenue focused entirely on paying down the national debt going forward as part of a constellation of things. we pass statutory pay-go and so on. but revenue source dedicated to debt what you think about that as a generality. and then specifically, i have proposed a transaction fee on nonstop, nonfinancial markets activity, penny on a dollar, dedicated entirely to the debt. i'd like to know what you think about that specifically. >> congressman, you're right to point out that we have an unsustainable fiscal pgs and we'll have to bring our commitments more into balance over time. now what we've asked thi

assistant treasury secretary is inside of the treasury right now which our potential, lou alexander is the citigroup economist and very well regarded in monetary policy circles and allen krueger, who is the labor economist. >> do you think the administration is behind the curve here? three vacancies and we know how long it it takes for an appointment to actually happen. >> it should have been more pro active and it had a let of problems with a lot of the appointments due to the senate and getting things up to speed is not that easy in this particular political environment and it is more important to have more now rather than less. >> his wymar republic. he's basically taking a monitorist view. he's saying the balance sheet is too big and that is turn around very rapidly. it's not an unemployment curve, it's really the balance sheet, right? is that what he's saying? >> it's a strict money supply argument and his argument comes from the idea that the fed could be politically pressured to monetize the debt. that's why that last question i asked him is so important. what would you say when

we all know that the treasury has been looking at that. i think the question -- the budget will reveal whether we'll have one party that is willing to rule it out. but if we get an increase in vat, then it will elevate inflation throughout the course of this year. >> guilt is getting a tick higher after that cpi. you talked about some concern on treasuries down the road. have you got a short-term concern over gilt? >> inflation as we know may be the only way out of our massive debt problem. i am a great supporter of inflating away some of that gigantic nominal debt that is effecting our acts at the moment. and if we believe that is the way out, we don't want to hold a large quantity of gilts. i think tomorrow will be very interesting to see how much the treasury plans to issue an inflation linked securities versus conventional securities. because at bigger amounts in inflation linked securities will make it understand that the government still cares about inflation and if they plan, instead, to let inflation go, then they will not issue ma

there is a picket line outside the treasury.ill the prime minister confirm that on this occasion he would my people to cross it and go ito to work. >> let me first congratulate my right honourable about the good news. and let me secondly thank him for getting near to asking a question about the economy. of course everyone is going to work here. we will continue to work for a labor government. >> i am grateful to the prime minister for his congratulations. most people focusing on how you find the time for these things. i am very grateful nonetheless. very interesting from the prime minister. last week he would not give any support to british airwaves. the first quarter is concerned for them to go to work. one of the things in the spirit of clearing up a few issues to one of the things the treasury are working on concerns the prime minister's disastrous decision to sell gold at rock-bottom prices. this cost the country 6 billion pounds. the treasury has now lost its four year battle against the commissioner to keep the information

>> the treasury has two ministers.here were matters affecting that, it would probably before that she secretary to be at that meeting. i believe he was present. but he went on the eighth of may. previous meetings you had, patricia hewett, the attorney general. i wonder why the treasury was not attending on an official level there at the meeting? >> malick, we would want to attend. >> thank you. i w -- normally, we would want to attend. >> thank you. >> just to begin with, you told us already this morning, mr. brown, that the cost of potential united kingdom involvement, you told us was $2.5 billion, not to be seen as a constraint whether to act or not. how far was the potential impact on the party finances and particularly concerning the that you could share or something the treasury needed to contain within itself? >> we were setting aside money for this endeavor, so we made an original estimate of the cost would be 2.5 billion by 2006 because are planning to go through them. having revised our estimate, then it was 4

treasury people in iraq. the soul. working a very difficult circumstances, very bravely organizing the new currency of iraq, organized in the new financial budgeting system for iraq and organizing public reconstruction. we were directly involved in these things. >> used that in the planning. we were driving out effectively and obviously a lot of warning signals came back from washington to london in the early months of 2000 turks pursing great concern about the american lack of planning for the aftermath and the shift of locusts to the defense department. we heard this from a lot of earlier witnesses. shouldn't we, given the very large commitment we were making to this operation and the military commitment have been able to exercise more influence over the americans to make sure that the aftermath planning was done properly and that we were cut into it? the >> later in the year i did go across state -- >> contacted about the period before the invasion. >> the united states out they had to take more serious the issues o

are talking to treasury about services similar to this for some time and the treasury is deciding whether they want to go for a program like this and you will have to talk to them about whether it happens or not, but it is definitely on the radar screen and they have to do things to improve the acceptance rates and this is something that most people believe could improve the acceptance rates. >> well, it is not confirmed, but we are told that they could make announcement any day now. and it could not have a 30-year fixed here. but the loans have to have a principle balance of 120% of the value of the home and the borrowers must be 60-plus days delinquent and allows the borrower to gain forgiveness over five year years. b and a has over 1 million delinquent loans, and it will only value $3 billion in reduced princip principal. and it is b of a will apply to all of the united states, and to bell jibl loans must meet the criteria for the government home modification program. this is controversial and a great discussion going on, on the blog, and go to it at realtycheck.cnbc.com. >>> well, th

did you speak to anyone in the treasury department during that week?>> i do not recall. >> did anyone in citigroup speak to anyone in the treasury during that week? you stated that "we" agreed that it would be a good idea to back up citigroup during that week. >> that was over the weekend, the federal reserve and the regulators talked to us. we also had conversations with the treasury and other regulators. >> what human beings but to what human being? >> at that point time, there were numerous conversations between the people at the new york fed, people at the washington fed -- >> didn't open that conversation by saying we are a healthy bank and we would just enjoyed having another asset guaranty? how did the conversation go? >> it was very simple. the stock price was at $3.37. it was the results of short- selling, and it was at a point in time where the stock itself would have caused an issue of confidence, and therefore the conversations were around -- >> what did you represent would have occurred if the fed had declined to act? did you represent tha

number one, the $118 billion of 2-and 5-year treasuries. and the other is the new home sales and existing home sales and if you take out the northeast with the snow, bob, it was rough all over the country. down 0.2% on the existing and down 2.2% on the new home sales. >> rick and steve santelli and the gang and i were talking about the higher rate, and it has the attention of the stock traders in the last couple of days, so the question is, how much more to the rally in rates that we have seen? >> well -- >> is this the beginning of something bigger or will we simply fall back down? >> well, 3.9 or 2.5 or so in the u.s. treasury is the major inflection point, and yesterday's high in terms of the yield terms stopped on the down-turn line, and even if you push through 4.0 which is the 200-week moving average and if you push through, there are several numbers between 416 and 425 that says you could get a break out there, but a false breakout, and it won't be a clear case. >> if this sounds like mumbo jumbo, the point is that traders really do

someone said -- the treasury -- secretary of the treasury said you were financially healthy, and within weeks you needed another $20 billion. i just want to understand why citi is special. >> again, what i would say to you is that you're right, this was not a fundamental situation. it was not about the capital we had, not about the funding we had at that time. with the stock price where it was -- by the way, a lot of that was driven by short sellers. short sellers started selling stocks, the stocks started going down. when it gets to that point, perception becomes reality. that's exactly why it was important for all of us to take that issue off the table and the package that we got was a package that the federal reserve and the treasury and all the regulators thought was the right package to ensure that confidence. >> this is a not citi was special, just citi had bad luck? >> you know, i don't mind being special and i think we were in the sense that we came in -- sit ti came into this market with assets on which we took a lot of losses. in this particular case the market dynamics were r

treasury. >> so they're worried about the u.s. treasury debt ratings? they're worried about the u.s. debt rating itself? >> i think they're concerned about treasury rates moving up. particularly in the long end of the curve. i think it's going to be a combination of a lot of supply, which will have to increase the yield to get it placed. i think there's latent concerns over the press that you're seeing about the triple a credit rating of the u.s. >> what about high yield bonds? the results were pretty strong, yet we hear from other money managers they're very cautious because almost everybody right now likes the high yield bond market. >> yeah. it's done extraordinarily well over the last year. as spreads have tightened dramatically in that sector. i think what you're seeing right now is an expression of two things. one, even though the spreads are narrower, there's a big running yield advantage in high yield right now. and because of the more certain economic scenario, at least in the minds of these managers, a greater likelihood those companies will b

as an incentive, the treasury will pay lenders 10 to 20 cents for every dollar the mortgage is reduced. the government is also encouraging homeowners who are current on their loans and have good credit to refinance with the federal housing administration. lenders would receive incentive payments if they agree to reduce the outstanding mortgage by at least 10%. the $14 billion to fund the f-h- a program will come from the troubled asset relief program known as "tarp." f.h.a. commissioner david stevens makes it clear his program is not for everyone. to qualify for help from the f.h.a. homeowners must be current on their mortgages and pass a credit check. >> they wouldn't do this if they didn't want to keep their home at all costs. and that's what this program is designed for. it's responsible homeowners who could afford and want to keep their mortgage and their home if the principle balance could be lowered to make it affordable for them. >> reporter: the administration is also asking lenders to lower mortgage payments for homeowners who lose their jobs. the help will last up to six mont

the text to be considered says the treasury secretary should direct u.s. representatives at international financial institutions to work with their colleagues to achieve cancellation of debt owed by haiti to those institutions. since any cancellation would take months to accomplish, it seeks suspension of debt payment services until the cancellation takes place. none of these institutions realistically expects haiti to service its debt when the country is lying in ruins. former under secretary of bush said, before our committee last week, it's a cruel hoax on both the people of developing countries on the taxpayers of donor nations to pretend that even without an earthquake, a country whose citizens subcyst on $1 or $2 a day is ever going to be able to pay back billions in development loans. even in our current economic challenges, we have not lost our compassion. the president of haiti has given us a greater appreciation for the desperation and suffering of those facing challenges and hardships in haiti, although theirs is much greater than anything we ar

first the secretary of the treasury would instruct the u.s. executive directors of the institutions that lent money to haiti government to immediately cancel all debts owed to haiti to their respective institution. next, haiti death service payments would be suspended and, lastly, grants would be provided for additional assistance so that haiti does not accumulate additional debt. it is my hope that as we continue to rebuild, our rebuilding effort will not begin until the relief effort has concluded. and it is dependent on all allowing haiti to focus solely on humanitarian aid. to do this, it is imperative that we count on the haitian government and i yield back the balance of my time. the speaker pro tempore: the gentleman from california is recognized. mr. miller: continue to reserve the balance of my time. the speaker pro tempore: the gentleman reserves. the gentleman from new york is recognized. mr. meeks: i'd like to recognize the gentleman from the great state of texas, the hardworking, the honorable al green, for a minute and a half. th

also, of course, a big eye on the treasury markets. 3.85%. remember, we hit the highest, the 10-year bench. we gave the highest in nine months yesterday after the last auction. it was fairly disappointing, nicole. >> yeah. ross, let's get more on the bond markets with kit jukes. kit, as you know, there has been a really weak showing for treasuries this week. are you surprised by the weak showup or do you think this is where we should be in this cycle? >> i think if you'd asked, you know, lined up all the economists in the world, for once, you've got a consensus that yields should be higher. there is just so much supply coming from governments to finance their deficits. and the u.s. has been getting remarkably strong support for their auctions until now. this week, we hit the point with economic recovery showing signs of what's happening. so the question is, you know, where does foreign demand come back and so on? but i think this was inevitable at some stage. >> james, i want to bring you in on this. kit says there could be a consensus here.

paulson becomes secretary of the treasury.e asked for permission to negotiate with the congress whom he admires over the objection of many others in the white house. he is negotiating with me, in the next election, the democrats got a majority. he points out in his book that he -- we passed a bill that he said was far from perfect, but was still better than the republican bill in 2005. i apologize to the judgment from new jersey. i thought he was saying it was the democrats that had done this. he is talking about the democrats at the republican leadership. i do remember this, they were outvoted by the democrats and some republicans. in 2005, the records are all here, no amendment either in committee or on the floor and that making the bill tougher on fannie and freddie that received a majority of republican votes past. in other words, the bill that passed committee on the floor -- in no case did a majority of republicans get overwritten because the minority of republicans were with the democrats. that is history, and we have t

and today, inspector general neil barofsky placed much of the blame on the treasury department. >> we believe it is unacceptable that treasury still failed to identify goals for permanent modifications for people to stay in their homes. >> reporter: the treasury department has been trying to get banks and other lenders to give their customers a break, by cutting interest rates to as little as 2%, or extending loan terms up to 40 years. but banks were not asked to reduce the size of the borrower's principal loan as some consumer advocates wanted. and today barofsky told the committee that treasury officials administered the plan in such a way that it led many people to apply for relief who don't earn enough money to qualify. >> we've found it to be essentially counterproductive-- it's led to a huge backlog of trial modifications and more importantly diverted scarce resources that could otherwise be devoted to permanently converting modifications and perhaps worst of all, it may have actually harmed the people this program was intended to help, borrowers, who are put into hopeless modif

. >> we have been talking to treasury. other large services talking to treasury about programs similar to this for quite some time. i think the treasury is close deciding whether they want to go forward with this program. >> reporter: say your home is worth 100,000. under the plan, bank of america will forgive temporarily up to 30% or in this case, $30,000, lowering your monthly payment and hopefully bringing the equity in your home closer to its market value. there are conditions. your loan balance must be at least 20% more than your home's value. your payments must be on time for five years, and in exchange for paying on time, bank of america will make 1/5 of that temporary 30% reduction permanent each year. >> it's a big deal because for three years the banks have been resisting any kind of principal writedown. >> reporter: resisting it because it's expensive and because many like this california home owner say it spends the wrong message. >> why reward people for bad habits that don't try? >> reporter: while bank of am

petroleum and the treasury what sort of act as first loss. this is why the fed reputation is suffering because it is allowed itself to be delivered up by the treasury and get into these programs and so i think that the political pressure that's on the fed now we is really understandable but the fed ought to get back to its role as a monetary authority and if it doesn't get back to it we are going to have more people like ron paul writing books called abolish the fed and that's not a good thing for the fed. to talk for a brief moment about systemic risk, the real problem is not who is going to do it but what do we mean by systemic risk? it's easy for everyone to say okay now we are going to be focusing on systemic risk what exactly are we going to do? we know that the nature of most bubbles or after the fact very brilliant about it, but during the process we are not so brilliant and some people who look in 2004 bald shiller evansdale who wrote the foreword to my book he said the housing market was out of control. he showed you all the numbers.

paulson becomes secretary of the treasury.sked for permission to negotiate with the congress whom he admires over the objection of many others in the white house. he is negotiating with me, in the next election, the democrats got a majority. he points out in his book that he -- we passed a bill that he said was far from perfect, but was still better than the republican bill in 2005. i apologize to the judgment from new jersey. i thought he was saying it was the democrats that had done this. he is talking about the democrats at the republican leadership. i do remember this, they were outvoted by the democrats and some republicans. in 2005, the records are all here, no amendment either in committee or on theloor and that making the bill tougher on fannie and freddie that received a majority of republican votes past. in other words, the bill that passed committee on the floor -- in no case did a majority of republicans get overwritten because the minority of republicans were with the democrats. that is history, and we have to go

what actions will treasury take to ensure that they survive?congressman, as i said, we will do everything we can to make sure they can not just meet their obstacle gages, but they can continue to play an important role in supporting housing financing markets as we work on the design of a better, stronger, more effective housing finance system in the future. we are completely committed to doing everything necessary to make sure we allow them to play the very important role they now play in providing a stable source of housing finance for this country as we try to dig out of repair what's broken in our fenl system. -- in our financial system. >> i have been a strong proponent of community banks because my district is one that has a very, very large number of community banks, and that is one of the sources of borrowing. some of them bought stock from fannie may and freddie mac and took a huge loss. is anything being considered to help them so that their balance sheets can look a little better because of the losses they took? >> congressman, we hav

so treasury secretary timothy geithner getting ready to speak in this room.ight not have time for much more lunch other than a potato cake. in front of the house financial services committee, they're talking about the future of fannie and freddie. we are going to be taking his testimony live, but we have a panel to get ready on the president's plan for fannie and freddie. howard glazier is president of the glazier group and former adviser to fannie and freddie. good to have both of you with us. we appreciate it. howard, what could he possibly say? these companies have become more reliant on the government than they ever have perhaps been before and also more central to the home market than they ever were before, even though they were the center of the crisis. >> we're in a very tough spot here. fannie and freddie have become essentially the vietnam of the american finance system. hank paulson went in there guns ablazing in 2008 with no plan for an exit strategy and now we're kind of stuck because as you say we're so dependent on fannie and freddie for the hou

breather here as some of the rally loses the steam and key moves today and notably today in the treasuries where we saw the 10-year note go to $42 billion in five-year notes. and big spikes in the victor fear indicator and sharp dip in the euro as a result of the portugal news and more on that in a moment. but first, take a look at the major averages. we have the dow right now trading down 54 points and of course, contributing to all of this is concerns about the housing market and home sales data coming in for the fourth month in a row and lower on the heels of yesterday's housing data with the existing home sales and taking a look at the nasdaq right now, because it is trading off 15 points, a loss of .06 of a percent. 2399 is the level, and the dow is down better than six points and loss more than .50%. and time now for the closing bell exchange and here to tell us the themes of the day that they are seeing in the trading session, we have mr. bob pisani from the floor of the nyse, and bertha coombs at the nymex and steve leaseme liesman, and my c simon hobbs. so how much of the bond mar

what actions will treasury take to ensure that they survive?, we will do everything we can to make sure they can not just meet their obstacle gages, but they can continue to play an important role in supporting housing financing markets as we work on the design of a better, stronger, more effective housing finance system in the future. we are completely committed to doing everything necessary to make sure we allow them to play the very important role they now play in providing a stable source of housing finance for this country as we try to dig out of repair what's broken in our fenl system. -- in our financial system. >> i have been a strong proponent of community banks because my district is one that has a very, very large number of community banks, and that is one of the sources of borrowing. some of them bought stock from fannie may and freddie mac and took a huge loss. is anything being considered to help them so that their balance sheets can look a little better because of the losses they took? >> congressman, we have propose8 legislation

senator richard shelby sent a letter to treasury secretary timothy geithner. he says it exposes taxpayers to bailouts for large financial firms and give the fed too much power. however, shelby says there's still room for bipartisan compromise. we'll talk to senator shelby at 8:35 eastern time. things change day-to-day. >> his letter is pretty strife, but if he's willing to make compromise, we'll see what happens. >>> this is the final hurdle, it cleared late last night. democrats approved a package of fixes that approved better benefits and low income housing for middle class familiars. the president is set to sign the fix-it bill early next week. >>> aimed at curbing the rate of foreclosures, it's the second initiatives announced in as many months to require lenders to lower payments for jobless workers. it will lower some principal debt for borrowers who owe more than their house is worth. a lot of these banks are taking the bull by the horn, b of a saying that we're going to work on the principal part ourselves. >> i'm surprised you're not hearing more outr

using the nominal treasury rates, by the way, the treasury really sold off today. and comparing that to the real treasury that so-called tips inflation tree, it shows that the expected inflation rate is going up. what is your take? >> you know, he and i have a fundamental disagreement on what causes inflation. when i look at output employment and production, i think of inflation as being too much money chases too few goods. if we have a recession, a slow-down, a depression, that causes a recession, not takes it away. if you have two goods being produced and lots of money, the prices are going to be a lot higher. >> because we have a competitive economy. if people start demanding more goods, this economy is well able to supply them. >> not true. >> that's when you get inflation. >> no, no, that's not correct. that's when real returns go up. when you have inflation is like the 1970s. when you have very, very high inflation, high interest rates, when we took office at the prime interest rate was 21.5%, and grankly, that wad very competitive, plenty of supply. the prob

right after the march 2009 treasury purchase announcement, 10-year treasury yields fell 50 basis points. comparable declines occurred in option adjusted spreads on the announcement of agency mortgage- backed security purchases in november 2008. it might be reasonable to infer that doubling the size of the lsats might have doubled the impact on rates. however, i would attach more than usual amount of uncertainties to such an effort. we have a lack of understanding about the interaction between nontraditional policy, interest rates, and economic activity. research efforts at the federal reserve and elsewhere to assess the effects of non-standard monetary policy have been increased significantly, today don't have reliable models to reliably calibrate interventions. there are reasons to expect the impact of recent nontraditional policy actions might not have scaled up those implements. initially responded to the financial crisis with our highest value toole, a reduction in the funds rate. then moved to our best alternative policy, with interest rates close to zero. finally, we turned to the

why are treasuries moving the way they are today? >> i think there are a variety of reasons for that. first of all, a lot of supply this week. the market is trying to cheapen up the issues in advance of the supply and we also have a lot of corporate issuance coming into the market, as well. probably some hedging associated with that. >> walk viewers through how you review the results of an auction. a little cheat sheet say the five critical categories you look at to gauge the auction. >> i would narrow it down to two. what you're trying to do is get a handle on how aggressively the bidding is in the auction and also how deep the interest is in the auction. so, you can get a sense of how aggressive the bidding is by looking at something called the market tail and that is where the auction stops relative to where the issue was trading at 1:00. so, if the auction stops below the 1:00 p.m. bid, that typically means that you have a fairly aggressive bid in the action if it stops above the 1:00 p.m. bid, it means a little sloppier. also yo

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i have not heard the treasury say it is overfunding itself. where did it say it will reduce the size of these auctions? >> in the refunding statement last time they signaled, they suggested that perhaps that the next move was going to begin looking at reducing the issue and i think that's something that the treasury is considering and that's something we heard matt rutherford talking about and i think as we get into the funding you may see more discussion. they'll be asking individuals, primary dealers what are your expectations for the deficit and how it will be funded. >> if i could amend what larry said. no hard and fast correlation between deficits and interest rates. i will say there is a correlation between deficit expectations, larry. what i have heard from bond traders a lot -- >> i don't think it has been proven. >> i don't think it has been proven. the health care thing kind of spooked their sense of trajectory of the deficit. >> no doubt about that. >> i agree with that. and i think -- >> they don't need to solve the problem, they n

treasuries as of december. at least to in some statistics. my question to you is to what degree can fed monetary policy in setting interest rates be upset by foreign governments deciding not to buy our debt? >> there are a lot of links in that chain, okay? so first of all,ing monetary policy, if our goals set by congress are stable economic growth and price stability. those are our goals. how foreign governments conduct their modifier policy has relative to do with that as long as we are on a exchange rate regime. the big danger, i think, of course, there are two kind of effects you can have. if monetary policy or fiscal policy if you will leads to a perception on the part of both domestic and foreign -- domestic citizens and foreign governments or foreign central banks where they fear inflation, then that will drive up nominal interest rates down real rates and, in fact, those governments may be concerned about holding on to u.s. government securities if they have fear that great inflation is going to occur. and in turn, they will take capit

treasuries, but i have not seen any reduction in demand for u.s. treasuries. the foreign demand remains quite strong. i anticipate -- i do not anticipate any problems. there is always the question of price, and there the question is, well all of our creditors, including domestic, remain confidence in the long run fiscal stability of the united states? there is important for the congress to devise a plan to create a trajectory whereby we have a more stable debt position going forward. that is very important. >> i concur on the points that you have made publicly. but getting back to the question of the extent that we are dependent upon the carry trade to finance our debt, do you think there's an element of truth to that point? >> there's sometimes a misunderstanding that they carry trade is an arbitrage opportunity. it is not. if that is a long-term security, there's a considerable risk on the life of the security. as short-term interest rates go up because the economy strengthens, then long-term rates might go up as well. that would affect our off- financing of

they sent over the -- >> neil: they didn't share the glee because the deputy treasury secretary saidt me clarify with folks. the deputy treasury secretary said the financial overhaul was sorely needed and the lobby group's obstruction was unacceptable. >> yes, and here now i may be give you a story. i think the department secretary treasury is one of the five or six most important jobs around this town and i would rather have heard from the secretary -- he's very experienced, very bright, some substantive recommendations as we're negotiating with senator dodd and others to come up with adjustments we need in the bill to make it work. you know, of all the subjects we're going to follow over the next weeks, we have got to get this right because every other subject follows and whether we're going to get out of this recession -- >> neil: i know, i know you're a diplomatic nice guy but even i can see where there's smoke, there's probably fire. this goes back to the time you were nice enough to chat with knee on your building overlooking the white house which is as close as i got and you g