paul volcker took office as chairman of thfederal serve bod in 1979. ronald reagan came psident at thebeginning of '81. >> ros right. >> the fedal reserve slammed on the brakes, began to inflict the pain well before president rean took offi. to reagan's credit, he realized it was the right medicine. but the fed had already adnistered the medicine before reagan.... >> rose: but paul vocer is the guy who d it? >> yes. and president reagannderstand it w neceary and he h to sit there and take i fortunateltwo years later, begining in the fallf '82 it began to work and bythe fall of '84 as youemember it was morning in erica. >> rose: now turn to the... bill clinton comes office in 12, comes into offic in january '93. what is that bob rubin and you did in terms of deficit reduction and e legistion in order to producesome say, you know, a rather attractive surplus at thend of eight years and larrysummers and others. >> wl, there were a whole seri of things and erybody knows it's been widely chronicled. t me mention one tha hasn't gotten as mu attenon. presiden

paul volcker took office as chairman of the deral rerve boar in 1979. ronald reagan beme predent at the ginning of '81. >> rose:ight. >> the feder reserve slammed on the brakes, began to inflict the pain well before president reag took office to reagan's credit, he realized it was the rightmedicine. but the fedad already admistered the medicine before reagan.... rose: but paulocer is the guy who diit? >> yes. and president reagan uerstand it was necessy and he had to sit there and take it. fortunately o years later, begining in the fall o '82 it gan to work and by e fall of '84 as you rember it was morning in amica. >> rose: nowurn to the... bill clinton cos to office in 1992, comes into oice in january '93. what is ithat bob rubin and you did in terms of deficit reduction and th legislaon in order to produce, me say, you know, aather attractive surplus at the e of eight years and larry mmers and others. >> wel there were a whole seriesf things and evebody knows it's been widely chronicled. leme mention one that hasn't gotten as much attenti. president

. >> you can't imagine volcker ever doing this, i assume. >> reporter: no, but volcker draws a certainer from the way he was very, you know, short-spoken and didn't say very much. greenspan drew power from, unclear. whereas bernanke wants to draw his power from, very clear. here's what we're doing, not doing, tell me where i'm wrong. that's very much the bernanke attitude. >> taking that type of approach, he's setting himself up for when he needs to start to tighten. he better be very clear and very direct to the markets or you're going to see some very big -- >> reporter: i want to add one more thing. bernanke would not be doing this if he thought this was going to lead to worse outcomes for monetary policy. there are studies that show greater transparency leads to greater outcomes. if bernanke had studies that showed him more offiscation, he would do that, too. >> if i was trading bonds and i was concerned with interest rates and i saw this town hall, there's no way he's coming back to tighten -- there's just no way in the next six months -- >> reporter: that's right. >> -- he's goin

>> after he selected volcker, summers, and geithner. sean: and i gave him? >> i think you gave him an f at the time. did we get out of the financial cries sns are the financial institutions surviving right now? sean: this is a disaster. >> this banks are alive and functioning. they have not done everything wrong. sean: good to see you both. coming up hillary clinton lashes out against the obama administration's vetting process. we have that story straight ahead. and the president's teleprompter doesn't think much of his plans to revitalize the economy. kelly saunder's nature valley, the place that inspires her to go faster... and slower, elk mountains, colorado. where's yours? 100% natural nature valley granola bars. the taste nature intended. garth, you're up. hold on, i'm at capitalone.com picking a photo... for my credit card. here's one from my prom. oh, what memories. how 'bout one from our golf outing? ( shouting ) i know, maybe one of my first-born son. dad, mom says the boys gotta go. personalize your card by uploading... your own photo at capitalone

>> pall volcker said pick a number orate but never both. that's we advice, especially in this kind of environment. private sector forecasters a now suggesting that posite economic growth, g.d.p. growth, might retu in the latterart this year. for the sake of argument, let's say that is true. >> rose: does that mean economic recoveryas begun? >> yeah. >> rose: the last quarter of this yr? >>et's say. >> rose: october, nember, december. some private ctor focasters are suggting it i happen in the third quarter. >> rose: i would love to know what the directo of office and managent and budget tnks about at. >> we'll have more to say when we relee our mid-session review next mont but here'she point. if you look bk at the last two recoveries, e unempyment rateeaked a year and a half ter the recovery ban. so evenfter.d.p. growth returns, the unemployment rate still goes up fo some period of time. >> ros because it's a lagging dicator? >> becse it's a lagging indicato for several reons. onis y need g.d.p growth above.5% year before you en start creat

we think the short end of the curve hasn't been this good since volcker raised rates in the 1980s. as you and i know he's back on board. >> you mean short term instruments like the three month treasuries that will take you 360 years to double your money? >> a good point you're making and don't disagree in the short run. in the long run the fed has to raise interest rates to shore up the currency. if they don't, we will have a huge dose of inflation, the consumer cannot handle that, hanging on by its fingernails. >> this will be a girly emotional point, john, what about two factors at some point, investor have tos do something with their money besides leave it in cash and we get tired of being afraid? what about the idea of innovation and u.s. companies and big global companies and ability to push their way out of it by making better products and services? >> one of the best things that happened was gm going bankrupt, guys like roger pency taking over saturn and getting more efficient, that is all going to happen. i have a 20 foot american flagpole in my front yard, i am usa all the

so let's start with paul volcker the fed that killed the ablation of the late 1970's. when the inflation rate in the u.s. got up to 14% or so. and since that time its average since two years after that to as he brought the money supply back under control inflation has averaged about 3% but that several decades, real gdp has averaged about 3.2% which is average for the last several years in the united states up to the first quarter of this year peridot and over this decade and through 2006 leaving out the recession that we are now in an average 3 percent per annum. over this time we had about half the number of recessions in this last 30 years, we've had about half the number of recessions that we didn't put out to our previous history. the fed's record in the last several decades is not all roses however as you know. the fed did keep interest rates too low for too long between 2002 through 2004 contributing to the housing price level -- bubble. this is true. but low interest rates and other markets forces contributing to the low interest rates as well and overvalued u.

>> pall volcker said pick a number or date but never both. that's wise advice, especially in this kind of environment. private sector forecasters are now suggesting that positive economic growth, g.d.p. growth, might return in the latter part of this year. for the sake of argument, let's say that is true. >> rose: does that mean economic recovery has begun? >> yeah. >> rose: the last quarter of this year? >> let's say. >> rose: october, november, december. >> some private sector forecasters are suggesting it in l happen in the third quarter. >> rose: i would love to know what the director of office and management and budget thinks about that. >> we'll have more to say when we release our mid-session review next month. but here's the point. if you look back at the last two recoveries, the unemployment rate peaked a year and a half after the recovery began. so even after g.d.p. growth returns, the unemployment rate still goes up for some period of time. >> rose: because it's a lagging indicator? >> because it's a lagging indicator. for several

the double dip we had in the '80s was because volcker intentionally drove interest rates way back up rate. ben bernanke's not about to give us a 21% prime rate and recreate a double dip. >> and he said, bob, that he has an exit strategy. gentlemen, thank you so much. we appreciate it. >> richard hoey, nigel gault, we appreciate it. 35 minutes to go before the closing bell. we're flat but the do you dow was down 60 points and has come back rather nicely. >> up next a new study unveils the staggering cost of o'boast and the impact on the health care system. details when we come back. today there's a way to save more for retirement, with annuities from fidelity. turn your savings into income -- guaranteed, and get a retirement "paycheck" for life -- guaranteed. call... to get started, and learn how to secure retirement income that won't go down -- guaranteed. call fidelity at... for details about guaranteed income for life, and change the way you think about your retirement savings. >>> according to a new study from research triangle institute and the centers for disease control and pre

paul volcker showed up at some kind of town hall meeting many years ago, but it's pretty unusual now. bernanke has been on "60 minutes," a news conference, now barn storming with jim lehrer with this town meeting and so forth and so on. is he running for re-election, or is he informing the public about his well-intentioned policies, john? >> i think he is doing a little bit of both. more than just his personal re-election, i think what he is running for is the independence of the fed. he is very worried that politicians are going to come in, and try to control what the fed does with monetary policy. that's a big danger. because politicians tend to be less hawkish on inflation than the guys -- >> you mean, even more -- that's a terribly interesting point. very insightful. you're saying that's his real agenda, is making his case to the public, in effect, he's going over the heads of congress, and to many some extent, the white house, and making it directly for fed independents, leave us alone. that's your point, john? >> that's exactly right. he's trying to say, look, we've been doing t

so let's start with paul volcker's fed that killed the inflation of the late 1970s. when the inflation rate in the u.s. got up to 14% or so. since that time, it's averaged about -- since two years after that, as he brought the money supply back under control, inflation has averaged 3% per anum for that several-decade period. real g.d.p. has averaged about 3.2% which is its average for the last several hundred years in the united states. up through the first quarter of this year. and over the -- this decade, through 2006, leaving out the recession that we are now-i[in,t averaged 3% per annum we had the half of number! of recessions that uqr" throughout our previous history. the fed's record in these last several decades is not all roses, however, as you know. the fed did keep interest rates too low for too long between 2002 through 2004 contributing to the housing price bubble. this is true. but low interest rates had other market forces contributing to the low interest rates as well. and overvalued u.s. dollar produced large and growing trade deficits that sucked do

but do you have the will as former chairman volcker did to tighten even if the economy is still weak? >> senator, it was in 1978 that in the humphrey-hawkins bill that congress put in the exclusion for monetary policy in the gao audit bill before volcker came in. he took those decisions because congress didn't intervene although plenty in congress said they should intervene. >> i'm asking you, would you do it? >> we'll absolutely do it so long as we're not forced to do something different by congress. >> even if the economy is still weak? >> we'll take the necessary actions to balance off appropriately the price stability and full employment parts of our mandate. >> it's a balancing act as most fed chairmen have found out, including you, that if you start to pull too fast, the economy stops recovering, and if you add too quickly, you have a tendency to put the economy in a recession. so, i wish you good luck. >> thank you, sir. >> senator schumer. >> thank you, mr. chairman. i thank you, chairman bernanke for these two long days of hearings. this job is a very tough one and of course

publicly aligned him with brent scowcroft and the number of other people, carla hills, even a paul volckerand others have not called for the united states necessarily to buy latter linkage with hamas right away but to end the isolation of hamas and the penalties and other allies of the french come to mind in particular. my view is in the political terrain in the region want to allow one not to enjoy deal with this sort of -- it doesn't mean you abuse bad behavior's but not to have engaged and to me doesn't make sense in terms of driving our policy for the so i do believe in ending the isolation of a hamas. of me say one thing about the obama administration, the folks that matter in making these are struggling over this themselves and a lot is going on right now this week as we speak. some have come from the center of american progress, folks want to try to make others have illegitimacy and looking like winners because they have been so undermined whether israeli governments or the u.s. and various points, the legitimacy and credibility has been undermined so they're trying to show the nego

. >> dave, don't they think it takes a lot of risk -- paul volcker has written an educated to recall saying, we know they're too big to fail. they are essentially if ever in trouble again, going to be bailed out by the taxpayer. so every time they trade internally like this, they're putting all of us at risk. aren't they going to face some kind of trouble? >> not excessive risk. >> how do we know that? >> we do know their leverage ratio, which, again, the reason they were on the brink like everybody else back on september 18th, i bring up that date because that was the armageddon day last year, was because of their leverage ratio, but right now taking their assets to 4%. they are -- several equities gone up so their leverage ratio is about 14 times on an asset base than nine months ago. i don't know, michelle, whether they're taking excessive risks. they would, of course, argue absolutely not. they point to value at risk which is one of many measurements and we can talk about how accurate it is, having gone up very slightly, they say, up quarter to quarter. you know, time will ultima

i see one blip in there which happened in the end of 2000 beginning with volcker the fed has gotten ity right. i think they messed up a couple times, probably the accommodation in post '97 with long-term capital but they took that back relatively quickly. the history of an independent fed is they have contained inflation relatively well. >> that's a wild card, too, gentlemen. we're assuming it is independent. we can argue how much in its current form. the reason for change if not put back into the job, a number of issues there even considering who they replace him with and how the public feels about it now that they actually know who ben bernanke is. >> are you doing fast money tonight? >> yes. >> if you invited steve on fast money. >> are you doing anything tonight, steve? are you busy at 5:00 tonight. >> i'm doing almost anything else -- no. i've been invited on rick's show and i've accepted the invitation on fast money and i'm looking forward to it. >> you've got a name already. you already got a name. >> rick's show. >> you have a name. professor. what? >> i'll come up with a new n

what they should have done is take paul volcker, put a group of gray beards and said, come up with somethingship. he didn't do it. >> isn't the whole -- >> by the way, mr. mayor, if he was interested in real stimulus, instead of this grab bag bill he passed, he should have cut the payroll tax in half for 18 months. that would have given people money immediately, reduced the cost of keeping people on payrolls instead he goes for this monstrosity -- >> barring something unforeseen something happen, isn't the obama president all con isn't again on the economy? >> yes. >> if it recovers, in spite of him, he'll get all the credit, and if it continues to lag,  he'll get all the blame, probably more than he deserves. i mean, is that the way it usually works with -- >> yes. everyone -- >> it's basically a one-issue president? >> yes. if the economy isn't working the other issues don't much matter. he also has another challenge in front of him and that, of course, is iran. the israeli is not going to stand on the sidelines forever on that one. >> the defense minister already -- >> the next 12 -- tha

publicly aligned him with brent scowcroft and the number of other people, carla hills, even a paul volckerand others have not called for the united states necessarily to buy latter linkage with hamas right away but to end the isolation of hamas and the penalties and other allies of the french come to mind in particular. my view is in the political terrain in the region want to allow one not to enjoy deal with this sort of -- it doesn't mean you abuse bad behavior's but not to have engaged and to me doesn't make sense in terms of driving our policy for the so i do believe in ending the isolation of a hamas. of me say one thing about the obama administration, the folks that matter in making these are struggling over this themselves and a lot is going on right now this week as we speak. some have come from the center of american progress, folks want to try to make others have illegitimacy and looking like winners because they have been so undermined whether israeli governments or the u.s. and various points, the legitimacy and credibility has been undermined so they're trying to show the nego

aligned with brent scowcroft in speaking of brzezinski and a number of people, tom pickering, paul volcker and others have not called for the united states to necessarily bilaterally engage with hamas right away. but to end the isolation of hamas and the french come to mind in particular. my view is that the political terrain in the region won't allow one not to eventually deal to sort that out doesn't mean you appease bad behaviors but not to have an engagement to me doesn't make sense. it doesn't make sense in terms of driving our policy forward. so i do believe in ending the isolation of hamas there. and let me say one thing about the obama administration. the folks that matter in making these decisions are struggling over this themselves and a lot of that struggle something going on right now this weekend as we speak. some who have come from the center of american progress folks want to try to make mahmoud abbas and fatah and give them another chance at legitimacy and they have been undermined whether by israeli governments or that the united states their legitimacy and their credibili

the question is, is there a republican proposal that would deal with what paul volcker and ben bernanke and the financial regulators in england and warren buffett and many others believe is a destabilizing tendency to give out bonus this is a give you an incentive to take risks, excessive, excessive in the sense that you benefit if the risk pays off and you don't lose. we want people to take risk, but we want them to take risk this is a balance the upside and downside, not which look only at the upside. i continue to point out, not in the committee, not in 12 years when they controlled the place, not during this debate today, not in the rules committee, we have not seen a single republican proposal to deal with bonuses. their position apparently is, however the financial industry wants to structure bonuses, you get a bonus if it pays off in short term and tushes sour in the long term you get a bonus if it pays off and don't lose anything if it doesn't. they want to leave that the same. last consensus among financial regulators and others that this contributed to risk taking. we believe

. >> i want one last question, paul volcker had a report that came out january that i think was called the group of other airports that addressed the issue of proprietary trading by banks and essentially a using the capital assets of the bank should banks really engage in purchasing assets regardless of the risk and does that trade systemic risk? they have recommendations for constraints on proprietary trading. i open it up to all three of you -- do you have thoughts about this, it hasn't got a lot of attention and i'm curious of rethinking. >> well, it probably doesn't surprise you we would strongly prefer the proprietary trading occurred outside the bank and an affiliate and if it does occur in a bank holding company that includes depository institution. we think that is a risk i feared the should be considered if the congress decides to approve a the system for a larger institution. >> i would add that i think proprietary trading with either type spears money in the event of supported institution or a customer's money does absolutely create unrest and we need to be sensitive on the

. >> i want one last question, paul volcker had a report that came out january that i think was called of the group of other airports that addressed the issue of proprietary trading by banks and essentially a using the capital assets of the bank should banks really engage in purchasing assets regardless of the risk and does that trade systemic risk? they have recommendations for constraints on proprietary trading. i open it up to all three of you -- do you have thoughts about this, it hasn't got a lot of attention and i'm curious of rethinking. >> well, it probably doesn't surprise you we would strongly prefer the proprietary trading occurred outside the bank and an affiliate and if it does occur in a bank holding company that includes depository institution. we think that is a risk i feared the should be considered if the congress decides to approve a the system for a larger institution. >> i would add that i think proprietary trading with either type spears money in the event of supported institution or a customer's money does absolutely create unrest and we need to be sensitive on t

the question is, is there a republican proposal that would deal with what paul volcker and ben bernanke and the financial regulators in england and warren buffett and many others believe is a destabilizing tendency to give out bonus this is a give you an incentive to take risks, excessive, excessive in the sense that you benefit if the risk pays off and you don't lose. we want people to take risk, but we want them to take risk this is a balance the upside and downside, not which look only at the upside. i continue to point out, not in the committee, not in 12 years when they controlled the place, not during this debate today, not in the rules committee, we have not seen a single republican proposal to deal with bonuses. their position apparently is, however the financial industry wants to structure bonuses, you get a bonus if it pays off in short term and tushes sour in the long term you get a bonus if it pays off and don't lose anything if it doesn't. they want to leave that the same. last consensus among financial regulators and others that this contributed to risk taking. we believe

volcker about this topic? >> not that i'm aware of. -- and mr. holder, about this topic?not that i'm aware of. >> is there a possibility that he will not get legislation by august, as you have hope? >> may become i do not know. -- maybe, i do not know. the president said last week that we are continuing to make progress, he thinks, toward that. i spent, obviously, last week out of town. but looking back at some of the coverage, there is always a little bit more from all over -- a little bit more trauma over aspects of this. i get that. that is how this town continues to operate. if you ask the president, he would say we are closer to comprehensive, fundamental, cost-cuttingç reform than we he been at any point since we have had this debate over the course of the past four years. if you look at whether it is -- over the past 40 years. if you look at whether it is agreements in the pharmaceutical industry, the aarp, hospitals, people at the table in previous attempts at reforming the system in a comprehensive way were on opposite sides of the table. obviously, there is a l

publicly aligned him with brent scowcroft and the number of other people, carla hills, even a paul volckerand others have not called for the united states necessarily to buy latter linkage with hamas right away but to end the isolation of hamas and the penalties and other allies of the french come to mind in particular. my view is in the political terrain in the region want to allow one not to enjoy deal with this sort of -- it doesn't mean you abuse bad behavior's but not to have engaged and to me doesn't make sense in terms of driving our policy for the so i do believe in ending the isolation of a hamas. of me say one thing about the obama administration, the folks that matter in making these are struggling over this themselves and a lot is going on right now this week as we speak. some have come from the center of american progress, folks want to try to make others have illegitimacy and looking like winners because they have been so undermined whether israeli governments or the u.s. and various points, the legitimacy and credibility has been undermined so they're trying to show the nego