because the the underlying problem its the banks are oversized and undercapitalized. with many unrecognized losses that hatch beve been systematic hidden from us. nobody trusts the authorities anymore. the problem is not being addressed. important for the spanish government. we will have an independent audit. ireland did themselves a lot of good. the oej thing they didn't anticipate was the change in personal lautz. so this loss, 35 billion. 20 to 25 billion. will come the banks way by the way of losses was not in those stress tests. but you need serious independent information. i would like to see some private entity, and the european banking authority, and only employs three people. but to go in there and, vet. because unless we have the facts, the markets will never be, have their mind put at ease. sorry. >> okay. i will ask you one more question and then open it up to the participants here. speaking about politics for a moment. how did the french elections changed anything or not in your view? >> well, as i say -- the recognition that -- fiscal policy is -- is, wh

completely overleveraged and undercapitalized. $250 billion of capital led by spanish banks. $250 billion of capital raised for the european banking system and about $2 trillion of assets need to be shut. that's a rather significant problem that the banking system has, when shedding assets not in a position to be able to lend, austerity spills through to the corporate side, which is going through a recession. so we think, for instance, high yield companies, leverage loans and bonds of european companies, will see detault rates as high as 8% or 10% before the cycle's done and the recession gets deeper towards the second half of this year. europe, last year, grew and we grew about that same rate, and this year we're growing about 2.2% last quarter. 2.8% quarter prior. it was accelerated. and they've now fallen into recession. the risk last year was the length that we would fall into a double dip as they dragged, because about 25% of our trade is with the europeans. the link is broken, but that link if europe gets much worse, the banking system and their economy will start to relink again, a

banks seem undercapitalized. moody is downgrading debts in europe and will come back to the united states in another three to four weeks looking at u.s. companies. so you have this series of debt downgrades causing collateral costs. >> so what does this do for the banks? here we are at the implications of a morgan stanley as a result of the facebook really flopped ipo. does that impact, do you think, morgan in any way in your view? and what about the trading loss at this point, given all these downgrades? do you still want to be a buyer of these banks? >> i like jpmorgan and i was convinced when it initially dropped to 36 that it was a drop point. but what i am concerned about it and what do we not own is morgan stanley and some of the others. how will the market react when moodys downgrades down a couple of notches, a couple of notches. what will the stock do? but for the next month i'd keep my powder dry. >> what about facebook? michael, your thoughts on facebook. it's dropping below $29 a share. is there any v

they're still undercapitalized, but i don't think there's anything particularly new going on today on that. >> got it. keep an eye on it nonetheless. thank you, bob. >> okay. >> let's bring in our special panel to talk the mashlgts, the fed, greek banks and whatever else they want. rob morgan, tom por which he willy, rbc capital markets chief u.s. economist and gerald lipkin valley national bank ceo. jerry, because you're onset, i'll go first to you. as a banker, do we need in the u.s. right now qe-3? >> no. >> why not? >> well -- >> you paused. >> because interest rates are already at record lows. i don't know where they're going to push them down. i don't think business is holding back because the price of money. i think business just isn't encouraged to go out and invest. but lower interest rates aren't going to get businesses to invest. right now businesses buy at record low levels. >> obviously a lot of your business hinges on refinancing and mortgages, et cetera. so if there is no qe-3, do you expect a spike up in rates? and therefore be fewer mortgage applications? fewer refi a

and it is still undercapitalized. until we figure out how to bring capital back to fannie and freddie, you will not have capital formation from any of the parties. >> let me jump in here. i want to be very clear that there are two pieces to a gym is talking about. one is whether the actions we can take without congress moving? and whether the actions that require congress to move? we laid out a set of clear steps we can take without congress moving and we have gone down that path. we raised at fha our fees, just the way in that gym described, four times, including just in the last month. we have raise them even more on the longest balanced loans because we want to bring capital back in there. we recommend that the law limits be lower. they were lowered for fannie and freddie. in addition, we raised the fees for the large loans to make sure that there is more capital available to large loans. and we are working cooperatively with fannie and freddie, both to raise their g p's. that did happen. you can argue over whether

financial sector that is still under government ownership with no clear path to exit and still undercapitalized. until we figure out how to bring capital back to fannie and freddie you will have capital formation from private parties in any meaningful size. >> i want to be very clear their part two pieces to what he is talking about. what are the actions we can take without congress and what are the actions that require congress to move? we laid out last year a set of clear steps we can take without congress moving. we have gone down that path. we raised our fees just the way jim described four times, including just in the last month. we raise them even more on the largest balanced once because you want to bring private capital back in there. we recommended the loan limits be lowered. in addition, we raise the fees for the largest loans even though congress did take the step, we are taking a step to make sure there is more capital available. and we are working cooperatively with fannie and freddie both to raise their fees -- that did happen. you can argue about whether they have gone far enough

it is still undercapitalized.until we figure out how to bring capital back to fannie mae and freddie mac, you will not have that from parties. >> i want to be very clear that there to pieces of what they're talking about. one of the actions they can take are the actions that requires congress to move. we have gone down that path. we have raised this in the way that jim descried four times. -- described four times. we want to bring private capital back in there. the recommended that they'll loan limits be lower. in addition, we raised it. we're taking a step to make sure there is more capital. we are working cooperatively to raise the gp's that did happen. you can argue whether they went far enough. we are looking at ways to restructure their guarantees to put more capital. the market share is shrinking as a result of that. where i will agree is that there is much more that needs to be done. we need action in congress to lay out a framework. >> i am willing to ask him to respond. everyone seems to agree that we nee

fdic so it is an overkill lateralization game securitization should go because it is inherently undercapitalized and i would say that the capitol requirement should be transparent cover bonds have somewhat more capital requirements, but they tend to have overcome novelization just like i did in my first bond deal because the investors don't trust the regulators the quality of the capitol or the quality of the loans that institution as providing some and the excess collateral you have to have capital someplace. we will wrap them up and take questions to this barracks before, kevin. [applause] let me again note that both of the papers from which this deride are available online, and i think you would prefer a little bit slower so there's a tremendous amount of detail. u.s. for the microphone and you have a question and certainly let's keep it in the form of a question rather than a comment. secure the answer to the question is as dramatic as the regulations, financial regulations, and this is the answer. does it in a bowl or force the traders into this? >> i would want to clarify. my answer is tha