Skip to main content

tv   Capital News Today  CSPAN  June 9, 2010 11:00pm-2:00am EDT

11:00 pm
director of the united states geological survey come up with our own independent numbers. we did not want to rely on bp to come up with their numbers. before the riser was cut off, the scientific group had come up with an estimate that was between 12,000 and 19,000 barrels per day. now that the roster has been cut off, there is an additional effort to take a look at what is coming out of the leaking well. we hope to be able to have the scientists that are looking at that issue have some numbers that we will share with the american public and obviously with the members of this committee relatively soon. . . elatively soon. >> is there anyht that perhaps the procedure that bp went through to cut off the riser added to the quantity of
11:01 pm
oil coming out? >> you know, chairman bingaman, i think -- i mean, i will say this, something that you might want to confirm with secretary chu and the scientist from the labs that have been involved in this, but their view is it has been communicated to me that the range of increase may have been somewhere between 4% and 5% over what it was before. >> okay. all right. let me ask what -- what d you expect this other report, the one the president continues to refer to which is this six-month report, what do you expect that to yield in the w of -- is it going to make another series of recommendations similar to the recommendations that came out of your 30-day report, or i it going to be trying to do something different? >> i will have deputy secretary
11:02 pm
david hayes respond to that because he's in charge of the investigations and helping with setting up of the commission, but there are multiple investigat going on, many reports that are coming in and we are getting to the root causes, and everything that is happening here and will happen over the next several months will be fed into the presidential commission at the at the end of the day there will be one report but i will have the deputy secretary provide some additional information on that question. and, senator, could i ask you again which report is -- >> well, the president has said that the moratorium will be in place until he gets his six-month report, and that's t one that i'm just interested in knowing, what are we going to learn from that report or is going to be another series of recommendations in addition to an investigation, or what can it going to be? >> yes, yes, thank you. he report from the new commission that has been established with senator graham and bill riley.
11:03 pm
that commission, we will be working with closely per the secretary's comments to fold in everything that's going on so that they have in front of them theull record. theris,course, a minerals manament service united states coast guard joint report that is going on right now, joint inveigation. that will be fed into the presidential commission. there's an independent evaluation by the national academy of engi that will be fed into the commission and the commission itself will be undertaking its own investigation, so we will be looking to the commission ultimately a we expect to be in have every of information potentially important for their delibetions on what their long-term recommendations are. >> senator murkowski? >> mr. airman, secretary salazar, you mentioned the decisi as it related to the
11:04 pm
cha chacii and beaufort. i don't know if you reviewed the white paper presented by the u.s. arctic research commission. they essentially are advocating for additional research in subarctic conditions. it's something that this commission has been focused on for some time, spent a fair amount of stu on and it is a time draft but i want to make sure y've had an opportunity to review that so we'll make sure you get a copy if yound your staff haven't. i wanted to ask you about the study or the review that was conducted, this 30-day review prior to the new deepwater ban, there was an immediate inspectionered by you to review all the deepwater ocs
11:05 pm
falities. can you give any me detail in tes of the results of those inspections and did you unearth anything that wascularly revealing in terms of possibly a culture of unsafe activities? i know it was a very quick review and you're now going into the longer term review but was there anything that was noticeable in that initial review? >> no, we ordered the immediate inspection of all 33 operations that were under way as i recall, the information that came back to us is that they were all in compliance with the requirements of the regulations and with the exception of two or three and the incidents of noncompliance were relatively miner. i will say this, senator murkowski, that one of the
11:06 pm
things that has been learn here is that there is much more that can be done with resct to what we are doing concerning the safety requirements imposed on companies, for example, the testing of blow-out prevention one thing learned by the deepwater horizon incident, the beginning of drilling the relief valves which is the ultimate solution t this particular spill. they have done the testing of these blow-out preventers in the subsea in ways they haven't done before so the new requirements th w imposed throu the notice the lessees we sent out yesterday has significant additional requirements and so there will be a whole panoply of those requirements that have to be met. >> let me ask you specifically about that. it was my understanding that the
11:07 pm
blowout preventer with the deepwater horizon had actually undergone a couple tests only days before it failed and those tests actually were successful. so how are we going to -- i mean i understand the purpose and don't disagree with additional testing but do we really believe that recertifation of the b.o.p. would he done anything to enhance the reliability of at testing? are we doing the right st, i guess is t question. >> well, there's a whole host of things that are going t out with respect to blow-out preventers including the kind of redundancies built in, additional casinghear rams that we will be requiring and additional redundancies in their
11:08 pm
actati a actuation and i'll ask steve black to comment briefly on the report because he was the principal author of the report on the safety recommendations. >> and when you do that, mr. black, in addition to understanding that, i'm curious know, there's going to be a t of new technical requirements that will be required going forward and undetand th. but what about instituting some minimum training standards, for instance, if you're going to have new standards on certification, will you also require certification of people on the rig that are working in these areas that are related to safety and control so you got the technological side but you so have the human side and i think we recognize there's been human error here, as well. how does that integrate as well if you can address that? >> thank you, senator murkowski
11:09 pm
and mr. chairman, thank you for the courtesies of sitting here today with the secretary. to your first question, senator murkowski, with respect to the blowout preventer and the testing it's important to remember this safety report doesn't presuppose any investigation or the outcome of any investigation that's currently ongoing. it instead attempts to identify safety measures that can be taken immediately and improve the safety margin with respect to offshore drilling, the blowout preventer on the deepwater horizon was, in fact, tested but i think what we've learned is those tests, as you suggest, dn't reveal perhaps modificationso the blowout preventer equipment or incompassable between the rov hot stabs and interface panel on the blow-out stack so we want to make sure that the -- that all br, all subc.o.p.s are reinspected and any repair
11:10 pm
or modification that h been made to a b.o.p. stack is properly reported and understood so in the event of an emergency an intervention can occur. with respect to training the report does in fact recommend that mms in conjunction with other sers develop new guidance and new regulations with respect to training, inspections and a variety of other safety measures so those in fact will occur. the department will lead that effort through work groups that we set up at the partment. but we do very much intend to work with industry, work with other skeholders to develop that kind of requirement. >> senator, senator udall, is he here? i don't see him at this point. let me go to senator shaheen. >> thank you, mr. chrman. mr. secretary, i appreciate the efforts that you have taken and that you have talked about this morning to reform the culture of
11:11 pm
corruption that has existed within mms and recognize that this is a culture that has been created over a number of years that you inherited when you took over this job. about w reorganation concerned efforts will really address some of the corruption that exists there and the individuals who may have been part of that and whether it's reshuffling of the deck or whether it will really allow you to deal with that culture and get rid of the folks who have not been operating in a mannerhat they should be as they're lookingt what needs to be done to regulate this dustry so can you talk a little bit about how confident you are about the reorganization that you have underway? >> senator shaheen, let me --
11:12 pm
it's a very good question. let me say our reorganization is not cosmetic. our reorganization is essentially blowing up mms and it into different parts of the department and separating functions to avoid both perceived and real conflicts of interest it is overhaul of this function of the government in every cplete sense of the way. it doesn't mean that things that we did will taken away. for example, still requiring ethics training and having ethics counselors and having hics part of the performance standards, that all will be done, as well. what we have done under the secretarial order and will be implementing is a complete reconstruction of the mms function and deputy secretary david hayes would likeo comment on that, as well. >> senator, you raise a point that is central to our thinking in terms o the reorganization
11:13 pm
effort. in our view is that what is most necessary is a clarity of mission and under the current structure where you have the folks forward leaning under the statute leasing and being encouraged to do more and more leasing, more and more permitting, almost by virtue of the statutory st have the employees accepting that mission executing it. there has not been as clear a mission on the enforcement and safety side candid di and we th structurally by separating these functions, creating a clearer mission, there will be execution. it has bdent tous, frankly, in the last 50 days that the employees can execute a mission. we have asked them to turn on a dime to put in placeome ements and they are doing
11:14 pm
it. so we have some views that we can do this if we get clarity of mission byating these nk you.ns. i want to switch the topic a little bit. i know tt everyone is focused right now on ending the current ill and dealing with cleanup. buone of t things that struck me when we had the principals from bp, halliburton and transocean here before this committee was their response when i asked them what they were doing to address research on deepwater spills and cleanup and the answer from three was zero. they are committing no resources to doing anything about how deal wit these kinds of situations in the future. and as i'm sure you all know, ri we're spending about 50 million a year as the federal
11:15 pm
government to fund r&d for exploration and production of oil and gas and alter deep waters but we're not spending nearly that amount to address cleanup and containment and what happens when we get into the kind o that we're in right now. we're fortunate at the univerty of new hampshire to have the coastal response research center which is one of the premiere centers in the country that's looking at these issues and in talking to their director, dr. nancy kinner, one of the points she made to me is that rht now what we really lack is any funding either in the industry or from the federal government to address this kind of research, so can you talk about whether you think we should be spending at least as much on cleanup and containment as we're spending right now on how to drill in deep water and
11:16 pm
if you have thoughts about how we should be looking at this issue in the future and where the resources should come from? >> senor shaheen, this will be and is one of the questions that will be addressed by the presidential commission and that we are addressing as well. the fact is that bp did have an oil spi response plan. the fact is that that plan contemplated the ability reond hured thousand barrels per day. th fact also is that t plan has not been effective in protecting the sensitive ecology of the gulf of mexico and the people of the gulf of mexico and so there will be a review of all of these issues determine what is it that is needed. there is research under way with respect to oil spi issues of
11:17 pm
the time, in fact, in senator menendez's state of hj knowledge there is an oil spill laboratory which looks at oil spills and how to contain oil spills and so this is an area obviously which will be one of those lessons to be learned. >> but would you agree that, in fact, the resources to really look at this issue have not existed? >> the answero that is yes, i me, the resources in terms of looking at spill response and dealing with some of the deep water issues i don't think have been there. thank you. >>enator sessions? >> thank you, mr. chairman and thank you, mr. secretary, for your directness. you've talked to directly. you haven't used notes. you have obviously gotour head straight on challenges you face and we appreciate that and i want to work with you to deal
11:18 pm
with this crisis. we're now in the 51st day, the people i talk to in my state are concerned on -- they are concerned that we're not doing enough to stop the flow, and they're concerned about the effectiveness of our barriers and so forth. i will say that thursday and friday of last week i was in mobile. i met with the coard and bp officials. we met friday with local mayors, county commissioners, state rep leadership of governor riley who has personally been committing much of his time to this effort and the mood was not good. people felt like there had been a lot of promises made, a lot of uncertainties there that they still haven't gotten true facts about but i believe our people are determined. they want to bounce back from
11:19 pm
this, and i'm confident that we will but we don't need to make any more mistakes. we need to be as effective as we can. so with regard to particularly a problem that i believe resulted from a violation of an agreement with the governor of alabama concerning the boom material that was removed from our state, i do believe that you have responded to that and there has been some progress in restoring at least some of that, and i think thas important. it's just a matter of good faith if you are working with the governor and make commitments you have toake sure that tries to happen. i believe it is a coast guard decision but is a matter that was important. as we build the ate, local and federal teamwork we need to deal with this crisis to follow up on the chairman's question about the flow, first of all, i'd like
11:20 pm
to get a little better picture about the flow, how much is coming out. you've indicated that it was originally projected to 12 to 19,000 barrels ada. is that correct? that's the last report you have and you have another report coming out soon? >> yes and i'll speak more to it when you finish your question. >> well, that would be my question. where -- what is the statusf the flow today? do you expect to see any changes in your reporn the futur and i'd like to follow up on how much is being captured and how much there has been a reduction in the flow, ifany? >> let me make a comment and then i'll have david hes who has been working, frankly, for most of the night on this issue with the flow rate comment on i. it was important for us to have our own independent assessment with respect to the flow rate because there are legal
11:21 pm
consequences, as you well know from every barrel that is spilt so we have not relied on bp for the flow rate analysis that has been done. under the command of admal thad alle there has been a flow rate group that has been established which is headed by marsha mcnutt, the director of the u.s. geological survey a group of scientists came up with those initial ranges of 12,000 to 19,000. there's decisional information that has developed now post-riser cut which those scientists are working on very hard to try to come up with a clear awer so that the american public knows what the flow rate is and so that we can make sure that we are as prepared as possible to do the response. >> can i interrupt you? you know, the information is so different, for example, you indicated that after the cut of the rider we may have had a 4%
11:22 pm
or 5% incase in flow rate. but originally i there was a projection from some official source of a 20% increase and i see some people have projected far more than that. ho confident are you that we sustained just a 4% to 5% increase? >> let me say that it is important for us to have the right number and that is what is being worked on right now. in fact, you know, sectary chu and marsha mcnutt and i have a meeting on this coming up today to make sure that we get to -- . and we will get to that right number because the american people need to know it. it has been difficult toet to the right number because of the subsea condionshat have been operated -- and i'm going to have david comment on that but i just want to respond, senator sessions, my friend, that the
11:23 pm
issues relating to alabama and the issues of boom, the president thad allen who is a national incident commander on this, he calls it as he sees it. i think he has resolved those issues withhe governor including putting it in writing what was to happen so let me just say on the part of thad allen with whom i work with multiple times every day, no effort is being spared to make su that the people of the gulf coast are being protected and if you find that there are things that are not going on, senator sessions in your state, please give me a call, and we' get to thad allen immediately. i'd like just because he has be working on it all night and may have more recent information on the flow rate maybe to kind of give you a sense of what's going on because i think it's of interest to the chairman as well as to all theembers of the committee so if that would be okay with you, mr. chairman. >> w that, mr. hayes, if you -- time is -- my question
11:24 pm
is over. i would just hope that you would talk aut how much is being captured and w what you project is a reduction, if any, in the . >> certainly, senator. leme sort of paint the picture here of t government's effort to identify the flow rate. as the secretary testified, a flow rate technical group was formed and dr. marsha mcnutt, the director of the usgs is in charge of that. there are seven independe scientists that are on tha group, a couple of weeks ago, they -- they -- before the riser was cut, t looked at variety of data streams to do an estimate of how much might be leaking out of at that time there were some leaks in the kink of the riser and then at the end of the riser and also at that time there was a tool tt was bringing some of the
11:25 pm
material uprom the end of the riser, youl recall and collecting some of that material. what they did is they had several different work streams. they had -- they had video that they ordered. the governmentequired bp to provide the video so they could look at the video age attempt to calculate how much might be coming outment they also did a mass balance based on aerial work and subsea work to try to estimate how much had -- was on the surface, how much had evaporated and sort of back calculate how much might be coming out. and those were the primary apoaches. what they ce up with was a range, a kind of aange of two of the work groups came out with a range of 12,000 t19,000 barrels a day. the video work group came up with 12,000 to 25,000 barrels a
11:26 pm
day with a lot of uncertainty beuse of the difficulty of -- there was not good information about what the oil and gas ratio s so when you're looking at the video it was difficult to figure out essentially how much would be oil versus the gas which behaves differently. they -- they also were asked to estimate -- this is to your question, senator, how much, if we cut off the riser, would there be an increase in the amount of flow. and the government scientists in houston including dr. mcnutt with the bp folks did a variety of calculations and came up with a range of 6% to 20% a a potential increase by virtue of losing some of the resistance basically in the rider and the government scientists came out and said it could be as much a 20%. that's not something bp wanted to say, in fact, they did not
11:27 pm
say that the government said it could be as much as 20%. the decision was made to do the riser cut anyway becausef the potential to capture more of that oil through the top hat which i what is happening now is a re-evaluation of all of this, boerms of the original estimate new informion now that the riser is cut and we have gotten from -- we've ordered bp to give usigh resolution video that the same group that looked at and estimated the flow based on the video of the much harder, frankly, to discern even leaks in the kink and at the end of the riser, they're now looking at a single point with high resolution video. we now have much better information on the oil to gas ratio because of the material that's been coming up to the rir so we think that that group that's now looking at the
11:28 pm
video and applying a gas to oil ratio will come up with a much better estimate of how much is coming out of the riser. as the secretary alluded to, we're also getting additional data. we have moretion about relative pressure points and there's a lot of speculation, frankly, that it -- the increase may have been substantially less than 20% fro the cutting off of the riser. but we're going to find out very soon from this group that is looking at this issue very hard. in fact, all seven of these scientists just got the --hat th required of bp was very specific segments of the video from the post riser cut. they actually had to take it -- they got the whole har drive from bd. rerequired it. they got some specialists t take the segments they needed to look at. they're now reviewing it.
11:29 pm
we expect to have additional information very soon on that point. they're also relooking at the earlier estimates, so you will see aew goverent estimate very soon on the flow rate. in terms of the amount collected, we want that new flow rate and we'll have it very soon and then can back calculate essentially how much we believe therefore has been out from day one. i don'tt number, senator, right now. but we expect to have a much better number very, v soon and thank you for yourpatience. >> 4% to 5% incr is that some sort of estimate to date that you think is accurate? that the -- >> in terms of the -- there is -- i think there's -- in terms the group of government scientists looki at this, they are seeing some data tt suggests that the increase that occurr you -- when the
11:30 pm
riser was c off was less than we were afraid it might be. so we hope to confirm that soon. >> soon, soon, this is almost two months. >> you've had more -- >> i know >> senator menendez, go ahead. >> i think we need a good number soon. >> yes. >> thank you, mr. chairman. mr. second, let metart o by applauding the administration's decision at least at this point to cancel -- virginia lease sale 220. i opposed this from the very beginning. it puts the new jersey shore directly at risk. and, you kn, that risk i think is more palpable today as we've tried to make the case for some time tt oil cnot be heocean.d in neat little boxes it is certainly not being coained in the gulf of mexico and now that we are entering hurricane season, you know, even the natural loop current rojectf
11:31 pm
trajectory of that oil is is subject to mother nature. and if you have hurricane season and the hurricane hits the gulf, the consequences of where that oil goesor those of us on the east coast is increasingly of concern, so i think it wasmart at this point. i appreciate the administration support moving towards unlimited liabs it relates to the responsibility of oil companies. it seems to me that if you take ancreate unlimited consequences that you should have unlimited liability. i think an opportunity for oil companies to also have discipline knowing that if that is their liability obligations that they will discipline themselves not to take shortcuts or to cut corners as some suggested happened in this particular incident. i think that is important, as well. but i heard when you said we were only having a pause button and for those of us along the
11:32 pm
atlantic, we want to see much more than a pause button. we want to see an effort that clearly makes it clear that we'rnot looking to put multibillion dollar -- new jersey alone is a $50 billion tourism industry so i hope we nd that -- let me just ask two questions that i think are critically important. you know, a the regulations in the world are good but if they're not enforced it doesn't mean much. i know you know that as a former attorney general. the reality is is that when i look at bp's response plan, it didn't take a rocket scientist tono they couldn't have been very serious because when they had sea otters, walruses and seals as part of the response that they would have to animals in the gulf, last time i look we don't have those animals in the gulf. and obviously they didn't really have a plan to deal with the worst case scenario and it's something that we have to look
11:33 pm
going forward as to what, in fact, we permit. i mean i don't unrstand who reviewed that plan and saw those elements in their plan and said you can't be serious. maybe in the arctic but not in the gulf of mexico. it doesn't take a rocket ientist to figure that out so you really have to question who is reviewing these things. secondly, mms "hston at of nearly400 offshore und safety investigations, mms collected only 16 fines of 400 investigations. so i know that you're reforming mms. the question is are we going to have the right regulatory oversight, vigorous oversight so that we don't relive this including on response plans and, lastly, are we in challenge -- there have been some reports that there is another drilling rig near the deepwater horizon called the ocean saratoga that
11:34 pm
pears to be with a ten-mile-long slick visible from satellite images. it was only discovered because of the images of the deepwater horizon. do you have any information on whether thatis, in fact, a spill kurring and if so what is being don ? >> let me, senator menendez, i appreciate your comments and i know your passion and views on this for a long time and l me assure you they're taken into consideration. with respect to the other spill that you speak about, my understanding is that it is a remnant leftver from hurricane ivan and that it is leaking i guess at approximately a third of a barely a day but i can get -- wwill get some additional infortion for you on that. with respect to your -- >> can you get for the whole committee but i'dike to know
11:35 pm
w long that's been going on, as well. what is t intent to close it down. >> we will get that information to you. with respect to the investigation --he enforcement of regulations, it is precisely the reason why we are moving forward with the creation of a bureau of safety and environmental enforcement. it needs to have the kind of police power to make sure and the personnel and the culture to make sure that regulations are, in fact, enforced and so that's part of the reorganization and overhaul of mms that we are undertaking. the goal is one which i very much share with you,enator menendez, and that is that must have vigorous and complete enforcement mechanisms in place with respect to any oil and gas activities in the outer continental shelf. >> i'll close.
11:36 pm
my time is finished but let me just say you can't be coach and referee and mms has as it was constituted before been both an advocate for the industry and is supp be the referee of making sure that safety and soundns and a whole host of other things were observed. that simply didn't happen. we had a police officer that was asleep at the switch. and if you look at the response plan and see that it doesn't make any sense then alarm bells should have, you know, risen that in fact these people are really not prepared for the worst case scenario and i hope we learn from that as we move forward. thank you, mr. ch >> senator corker? >> thank you, mr. chairman and thanks for having this hearing and mr. second, i'm -- i welcome you back and i'm struck by the dignity and directness with which you'veresented today. ank you for that and your two colleagues who are with y and it actually has raised a question as i've watched you.
11:37 pm
i watched on the other hand the white house which seems to exhibit some characteristics of adolescence or something le that. i'm wondering what is the relationship that we have at present with bp? i know you talked about, you know, the fact is that you don't have the equipment. they have the ent. what is that true relatio and do the machinations that come out of the white house, do they contribute in a positive way towards that relationship? where are we with bp as far as carrying it out? what is the actual direct relationship that you have with them in causing this crisis which is a natural tragedy and for what it's worth i've said no critical comments regarding that because it's just a national tredan all need to figure out the best way to deal with it and we can after the fact do some arterbacking, but what is that relationship and how are you carrying out the
11:38 pm
daily operations? >> thank you, s corker. the relationship is one in which we the united states government are directive of the thanks that are going on with bp. there is a structure which is part of the national framework and the national contingency plans whichre required by law which have been effectuated, and so we have a commander, a unified commander in thad allen who is overall responsible for everything that is going on, but i think phaps to answer your question, you know, even over the lasteveral days, wha we have done is crafted orders, have gone to bp that them to move forward with leak containment mechanisms, expanded beyond the amounts that they had contemplated initially, so they are -- you know, they are responsive to the orders and directives that we have given
11:39 pm
them related in part to senator sessions' questions on floor rates and requiring them toe additional pressure readings so we can have better estimates with respect to flow rates so the relationship under the law and under the president's directiohas been t be one of being directive to bp and we've been carrying that out every day whether it's in houston, whether it's in any of the gulf states or whether it's -- >> so on a daily basis, you get up, and you direct bp as to what to do? >> on aaily basi 51 days into this spill, let me just say, we are onop of it with everything that we have, and that is the president of the united states. it is the white house personnel who have been involved in this effort with us.
11:40 pm
it is my colleagues on the cabinet including secretary napolitano who is over -- >> let me -- again, i really respect you. you know that we've had a good friendship. do y'all like tell them on a daily basis what activities to engage in? >> we -- mean that's what i'm taking from this. i'm just -- >> i mean il -- i receive and it was at my order and thad allen's order, a review of bp, what their work streams are all running in parallel because we didn't want them to run sequentially. those are receiveddaily. that's at our direction. i have a personal conversation with andy ingalls whos the head of bp running the operations out of houston to get an update every morning. secretary chu joins me on some
11:41 pm
of those meetings. when we find deficiencies such as looking at the fact now that we believe they teed to have additionaledundancies in place as you look at hurricane season before you get to t ultimate sealing of the well through relief wells we order them to provide -- to provide those additional containment capacities and redundancies, so it's a dynamic relationship but it is a directive relationship between the united states and bp. which is what is contemplated by the law, senator corker. the law is very clear. bp is the responsible party. they are responsible with respect to dealing with the oil spill.they are responsible for g with a the damages that flow from the oil spill. they're responsible for compensating those that are damaged from the oil l, and the president has been very clear and very direct as all his
11:42 pm
team has been that we will hold bp accountable. >> are you through -- >> i have more questioning but i'll stop t honor the time again, thank you for the way you've conducted yourself today. i appreciate that very much. >> senator stabenow? >> thank you, mr. chairman and welcome, secretary salazar. it's always wonderful to see you, although these circumstances are ones that we l wish we were not having to be involved in and to a of you, thank you for your service. this a horrendous situation. and i appreciate the efforts that you are taking and have tan since the beginning of your term to focus on reforming what has clearly been an process. i think it's important that we learn lessons from history, from the past, otherwise, we are condemned to repeat them.
11:43 pm
that's certainly a v famous phrase, and i think it's very, very true today in terms of the way we approach the public interest in our jobs as it relates to overseeing what is done in the private sector when it relates to public risk, and in my judgment, this has been a perfect storm of alar company that has had according to the records97% of all of the admiral mullen egregious and ght by this company coupled ng with a philosophy that's been in place for the last decade and other times in our history that's basically said, step back, and let industry police itself even when there is tremendous risk to the american public if they cut corners and we've seen that on wall street. we saw that with mine' lives being lost we are now seeing i with oil companies, and so i want you --
11:44 pm
i'd like you to respond to how we move forward to correct that a little bit more, but i do want to enter into the record something -- a piece of what was in "the washington post" yesterday because i think it's very important. the headline was "bp had a history of problems." and this goes to how we go forwarse situations with companies with these kinds of histories. "a series of internal investigations over the past decade warned senior bp managers that the oil company r disregarded safety and environmental rules and risked a serious accident if it did not change its ways. the confidential inquiries which have not previously been made public focused on a rash of problems at bp's alaska oil drilling operations, they described instances in which the nagement flouted safety by neglecting aging equipment, pressured employees not to report problems and wve heard the same thing here with this instance, cut corners, delayed inspections to reduce production costs. similar themes about bp
11:45 pm
operations elsewhere were sounded in interviews with er employees and lawsuits and little notice state iniries as well as e-mails. taken together these documents ray a company that systemically ignored its own safety policies across its north american operations from alaska to the gulf to california. executives were not held accountable. t some were promoted despite them." it's pretty outrageous. pretty outrageous and so my question relates to knowing that this landed in your lap, i mean, i understand with the new administration, whether it was trying to put us back from the edge on the fancial crisis or millions of people unemployed that landedn the laps of this administration or whether it's this situation, or whether it is this situation. the reality is that we have got make sure tt going forward we are changing the philosophy. the philosophy that got us here does not work in the public
11:46 pm
interest.so secretary, as we lo going forward, the ethics reform in place, the plan put in place to review and so on, the dismanmms, dividing it up. do you see the kinds of things? a company like this will bear traffic coming forward that there will be the new tools in place for you and for mm the new entities to be able to say no. to be able to stop these kinds of things that have gone on in the past? >> the answer is yes. that i what our full intent and
11:47 pm
purpose is as we move forward. i would respond in two ways. first the presidential commission that has been formed and the investigations that are underway. we will get to t root cause of what happened here. we have preliminary information that points some to signs that were not ught. problems with cementing. problems with casing. problems wit of the back-up redundancy systems, safety systems and so on. so all of that is going be made public and the american people and the united states government will know what exactly happened here with the root cause known and the actors known, it will lead to whatever results they will lead.
11:48 pm
th is our invention there. we understand the importance of the critical missions of the mms so the bureau of safety a environmental enfo which we are creating will provide us with that kind of vigous enfowhic and the american people want. >> thank you. >> senator? >> welcome. i truly believe that the president understands this will take a great deal of reew. i want to commend you because i think that you have stayed focused on the three most important things. one, stop the leak. two, start the clean-up.
11:49 pm
three, see what went wrong what changes we need to make. i believe i have consistently heard that. le me ask you krks you comment on the agency's involvement in preparing the atlantic coast for any potentialfall-out? >> let me just say that the commander on thisas been working on making sure we are anticipating the problems that will occur. we are prepared for the worst casenary joe.
11:50 pm
>> do you believe the areas cover the issues that cause the accident? >> i think that the areas where the safety recommendations are being implement ed for drilling activities in the outer shelf, those recommendatis there inputting the national sciences. my view is they are very good and we are headed in the absolute right direction. whether there will be additional requireme requirements, a open to ideas. the goal is we need to have safety when ever we are conducting any kind of operations. >> let me ask you for a very
11:51 pm
candid answer inase he wanted to comment. has bp at any point refused to do what the government has asked? >> we have wanted them to do somethi something. >> they have not refused anything i have ordered them to do. i am running the operation. it is a national incident. >> we would like to check back on that. >> i will check with the secretary. >> i was told byn industry technician that didn't work for bp. what steps the entire industry and science community were
11:52 pm
attempting. everybody from industry, everybody from the science community that might have input is at e table awaiting the steps forward. is that an accurate statement? and i will say this. in the day or days after the explosion, i pulled together all of the ceos of the companies that have operations in the outer continental shelf. directed bp to take their input and make sure hay are reaching out for the goal. president directed secretary and the feder also to be involved in making sure that those are
11:53 pm
being brought to bare on the items. those are the best minds of the world focused on this issue and stopping the leak and resolving the problem. the answer to that isyes. >> last question, is the purpose of the graham commission. what changes should be made for the future. >> thank you mr. chairman. good to see you. i wanted to ask you a couple of questions. just to make i am clear about them. many of the rations apply to floating vessels.
11:54 pm
but i think this could potentially leave out about 1/3 of what are called mobil offshore drilling units. only one third of those would be considered floaters so, are you considering that definitio and have a tighter consideration and make sure we don't have a loophole or is there something i am missing about the difference between these facilities? maybe mr. black is better to answerthis. i don't know. >> let me just say we are aware of the distinction and the moratoum in place applies deep water drilling. the notice that i talked earlier that impose a safety requirements for drillwill our w
11:55 pm
water waters i will have steve black comment on the concept of the vessel. >> senator, thank you. if i undstand your question correctly, there usually a different risk profile. the recommendations aintended to cover all of the mobile drilling rigs. we may need to get more information from you but that is our intent. >> in the term and in definition, you are missing some of those mobile offshore drilling units. i think a big number.
11:56 pm
so we should look at that. and also i wanted to clarify the report has recommendation to include third party validation of technology and use and aspects of blow-out prevenn tors but it doesn't include a requirement for al top to bottom look at a system or classification by somebody like abs. so why not do that? >> this isne of the principles. the sectary recommended to thement and the president agreed. with respect to recertification of blow-out safety equipment hose inspections should be verified by a third party. not affiliated with the third party drilling partner.
11:57 pm
and a notice that the sretary put out, we specified that the company needs to hire a qualified third party ver fier. so it may very well be that somebody wit those qualifications would meet that test. >> i think we need to be more specific on your recommendations. you want to understand whether the system is going fail. i am just going off the testimony that we have had from the various people involved and everybody down the line pointed the finger at somebody else. it was supposed to work but you didn't have the right fluid. or this was supposed to happen. we wanto make sure tha we are looking at a validation of this, i believe, by third parties. we would like to suggest some lang you on that as well. >> if i may, we arobviously open to whatever recommendations
11:58 pm
you might want to give us. they dealt with casing, training, and a whole host of other things. it ask a bunch of recommendations that we are implemen this point. if there are things we have missed, please let us know. i am sure as we go forward inuding getting the recommendations, there will be additional requirements that will have to be imposed. >> this is going be critical moving forward.
11:59 pm
you for all of y much. your hard work on this. you have been working relentlessly on this national tragedy. you referred to pushing the pause button. there are about three dozen rig s that could lead to costly delays of projectand endanger jobs that would be there for folks in the gulf. i think the interior department's may 27 report highlights the importance of offshore oil and gasproduction.
12:00 am
it said that the ocs oil approximate gas industry provides high paying jobs and drilling and production activities. estimated 150,000 jobs. the -- i am wondering if in anyway you are looking at our giving consideration to lifting the moratorium, pushing the pause buttonoon er. >> senator, the importance of my mind as well. what weant to assure is that as we move forward with programs that they are going to be safe and that this circumstance that
12:01 am
we are facing with the deep war horizon never happens again. but right now we have multiple investigations that will culminate through the president's commission. and i think it would be unwise for us to move forward with deep water drilling until we have those recommendations that are in front of us that we can then implement. >> just looking at the bp 583 oil spill response plan that was approved. the plan inclusow to protect wall russs, sea lions and sales. none of which live in the gulf.
12:02 am
can we will assured that in six months that the pause button will be pushed or do we look at having a stop b and extending this a longer period of time, focusing on the economics of that region? information is being developed as to the root cause of the incident. i hope to work with members of the committee on so we have organic legislation with these functions. we are not waiting. 30 day report that we smitted to the president. we worked onhat very hard. and include d work ining
12:03 am
implementation of programs as we speak. >> you had mentioned admiraled that allen and his involvement. he had said that bp has the means to fix the problem and they need to be held accountable to do it but with proper oversight and that's our job. i was struck yesterday to hea that the president of -- the ceo said he had not actually talked directly to the president of the united states senator earlier asked had bp refused to do anything that the government asked. a follow up to that is has the government refused to do
12:04 am
anything that bp has asked in terms of trying to be helpful to stop this leak? >> i am not aware that t government has refused any request in terms of science from the labs let me respond to the first questi. the fact of the matter. the relationship with bp. stoney or andy or lamar, i met with them on multiple times. they will pay for every cent as
12:05 am
well as any damages that occur from this national tragedy. the directed relationship which i character iize we will contin to have that kind of relationship until we get a conclusion of this incident. >> thank you for your hard work. >> thank you. i appreciate your focus and attentionn this issue which is, of course, extremely important to the people of louisiana and the gulf coast in a very particular and personal and emotionalay because of what is happening right off of our shore. but it's what's happening on our shore that has me concerned right now. and you know what my question is going be and it is one that everyone in louisiana is asking as well as people from mississippi,texas, and alabama.
12:06 am
in the appendix of this report, may 27, it lists the name os f 15 experts that you consulted with. i received a letter yesterday from eight of them. a majority. that say they disagree with your decision to impose the six month moratorium. in their words the report does not jt fie theatorium as wrten. it has changed will not contribute measurably to increased safety and will have an immediate and long term economic effect. it would wreck havoc on this
12:07 am
region that exceeds the havoc caused by the spill i will submit to the record testimonies that no one on this panel will recognize because they are not oil companies. acre sotions, the shipyards has been in business for 64 years. they have never experienced such an uncertain future. they could be laying off thousands of workers. a 27-year-old privately held company. 100 employees based on the gulf coast. their operations will be 99% effected immediately. another provide mapping. they are not an oil company. they expect lay-offs immediately. the consequences of this moratorium on the 33 deep water rigs where 100 to 200 people work on each one and for every one on the rig there are four or five jobs direct ly.
12:08 am
to our state. and to the gulf coast. th ravages of the storms. we can keep our people at work. get our people back to work. understanding. potenti potential. could effect 30,000 people in louisiana alone. i don't have the alabama
12:09 am
numbers. 13.4% of louisiana's work force. i know not this whole work force is focused on deep water. a shorter time than six months. some confidence that you are doing everything and the president is doing everything they can to get to the root of safety. so we can produce the oil. >> if i may respond to the question. first we have recommendations and i appreciate those recommendations. it was not their decision, it was my decision and the president's decision to move forward. but i do appreciate the experts and their involveme and point of view. secly the jobs already concerned us but we want to mike shaur that as the development takes
12:10 am
place that it will be done in a safe way. that's why the notice that went out yesterday will allow the shallo water developnt programs still to continue. and the third point i would make, senator, to frame the discussion per happens in this mmittee. it seems to me that we three options. another option would be what some members of the congress would want us to do and that is just to stop and say no more drilling or exploration activities in the outer shelf. the place where the president of the united states and i have arrived at this issue is we have put the pause button until we can have a sense of safety that this is never going happen again. we lift our hand from the pause
12:11 am
button, it will depend on when we can get to that point. >> let me ask this and submit one thing to the record. for the record, texas uses just the state of texas 1.1 billion barrels of oil nobody is suggesting these numbers are going go down. there are economic risks. some national security risks in terms of less oil being produced domestically as well as environmental risk and that needs to be balanced. i know that youand that. these companies have to go out
12:12 am
of business or take bankruptcy or lay off thousands of workers. are you going ask bp to pick up their salaries and make them whole? >> the answer to that is yes we will. bp is responsible. and bp is responsible for all theamage and flow from the bp oil spill and these are some of the consequences from that oil spill. >> thank you. >> thank you very much, mr. chairman. i have listened through the testimony. waiting to ask my question and no one else did until all of the issues i had in mind were just covered. i won't take my full-time. but simply, calling your attention to the comments made by the outside experts that you
12:13 am
turn to specifically the national academy of engineer iing and a group ofhem have signed a statement saying we were chosen because of our extensive petroleum industry expertise and perspective. and they quote the report and say we broadly agree wh the detailed recommendations of the report and compliment the department for its efforts. however we do not agree with the six month blanket moratorium on floating drilling. they quote the report as they reviewed it and then quote the port as it was changed.
12:14 am
and i am not questioning that in anyway. simply quote comments to these folks. they say we believe the moratorium as defined in the draft report is limited moratorium described in the draft report to assure the public that something is being done. a blanket moratorium is not the answer. it will not measurably reduce risk further and it will hav a lasting impact on the nation's economy which may be greater than that of the oil spill. awlonghe material -- i am sorry. dr. martin, and stipward and
12:15 am
thomas williams. i join with the comments of all of my colleagues ining you for your diligence and recognizing the burden this has put on your department. you didt sign up to deal with an oil spill. you thought you were going be worrying about jack rabbits in the west and occasional wilderness issues. and you had to take this on and you deserve all of the compliments you received from this committee. i do want to put this in the report with my own observation with respect to the isss th the senator h raised. >> we will be glad t include whatever you have in the record and what the senator offered as
12:16 am
well. >> i appreciate the comment that the engineers played and will continue to play as we try to move forward with a new safety regime. let me also just comment that when i up for this job, i signedp f it because it is the view of america. i describe it as going from sea to shining sea as well as the 1.75 billion acres of thenner continental shelf. we have a job to do to deal with the future plans.and we will ge. >> senator johnson?
12:17 am
you have been doing a great job. i associate myself with the remarks of the senator. do you know whether the moratoriums will have any effect on u. oil production? if so, what effects do you anticipate? >> senator, the will be a report from the moratorium that
12:18 am
we have imposed. we are aware of the fact that there will be some reduction in oil and gas production? i don't have document in front of me. but i recall reading it sometime late last night. >> what percentage would that ekwa to? >> are any shallow water
12:19 am
production corps rags halted as a result of the june 2 memorandum? or does the action only affect wells currely in development roducing oil? nator, the shaow water drilling activities still have to come ply with the safety requirements. our view is that ones that will be able to be met by most of the companies. >> would you explain which oil and gas operations.
12:20 am
>> it's only been minimally effected by the deep water spill so the production online continues to produce muchf energy that we are using here in this nation today. >> the drilling rigs that are out there. we ordered those companies to get to a place where they could secure the well and then to stop until we give them further
12:21 am
orders. >> will you be revisiting to confirm that each operation has been more than temporary abandonment? >> senator johnson we will be making sure including those in shallow and deep water. >> thank you, mr. secretary. >> mr. chairman, thank you very much. let me just say i don't think he meant it quite as harshly as it sounded with respect to the issue offed edoffed a adoe less.
12:22 am
the president didn't punch that hole and he can't plug it either. the sectary of energy, dr. tom hunter, whom i met with this morning, there is a serusness of purpose here that has brought together the best minds we hav in this country to work with all of you. i wish it had been plugged in the worst way. this rses questions it seems to me about regulations.
12:23 am
>> number one, you talked about bp and their responsibility and their pledge and commitment. the fact is there is is nothing bind in binding i propose $10 billion which is about -- it's just a bit more than the first quarter. 6 or $7 billion. be put in a gulf coast recovery fund that is run by a master that would be selected and per happens a counselor from bp so you would have joint management from that. i think it is time to move this from a pledge to some sort of
12:24 am
bindin requirement. if bp would say no, we are not going part with money to put it into gulf coast recovery fund then i think congress ought to be considering what we would do to accumulate that money. i will ask you to consider that -- let me ask two other things. one is this issue of water versus deep water probably
12:25 am
certainly for the better. there will be more regulations. do you think that the flow would have now been stopped. >> the answer to that is yes, because it is much easier to deal with these kinds of issues in shallower water than in deep water. when you are 5,000 feet bew the sea, you can see the effort that bp has put together to try to stop this leak. and we are now 51 days into the continuing leak. it speaks for itself. just the difficulty of operating at those depths. some ask the seriousness in bp
12:26 am
in stopping the leak. i have seen plans that are running parallel in nature to contain this leak. as i have said before pubically, it is an extensial issue for bp. i do believe they are throwing everything they have at the problem and trying to contain it. that's why the president's directive has been to bring people like tom hunter and other scientists to be sure that they are heard. >> there is a public interest here. clearly bp's interest mt be to shut down this gusher.
12:27 am
>> you mentioned tom hunter. i have gotten to work with people like tom hunter a lot over the last 51 days. they are the best scientists that america has. and it is the president's direction that you have people like the secretary and tom and marsha and a whole host of others oversea. >> he is one of the group of the best thinkers brought together to try to figure out what do we do here. if i have just another moment ane just say that you look like you could use 10, 15 hours of slee i know the hours that you are likely working and we thank you for that. let me ask, a hurrica enters the gulf of mexico, wells, rigs and production
12:28 am
platform platforms is is there a written plan for this circumstance? >> the answer to that is yes. >> when they happen in the past, there isue dowoccurs within the mexico. the answer, also, with respect to this particular leak is that it is is one of the issues which secretary and i have insisted there be the capacity it is part
12:29 am
of the program. >> lete say that ion't mean that the three of you look awful. when i said that you need sleep. this has been a long period. you hav not had a day off. good for you. i think this congress wants to do everything possible it can do to be supportive. >> thank you. the folks in the gulf are hurting. you all are putting in predijeous numbers of hours at this point. i want to ask you about two policy questions that relate to the report. areas that the report doesn't get into. for the future, it will be absolutely critical to close the lving door between the interior department between the oil and gas intusry. there is a specific law
12:30 am
governing the department involving the outer continental elf oil and gas program. but it doesn't look to me like it's closing the revolving door. got a job with the company that he was inspecting. the segd one i think concerns me more. as of march 1, 2010. -- the rule fos block this revolving door are not tough
12:31 am
enough. would you be willing to work with me. >> >> if there are this that need to be done which we have put into place since i became secretary of interior. we obviously would want to do that. i know the history of mms perhaps better than almost anybody else. there were huge problems ther that's why people have been terminated. people have gone jail. people have been rep remanded. and ultimately what is essentially this blow up of mms
12:32 am
is and the revolving door issue is one which we need to make sure doesn't happen. >> let's follow up on it. partularly look at this one that i cited involving march 1, 2010. that's an example to me with respect to the emergency response issue, i think there is a general consensus now that the emergency to deal with it as fast as you and i would like.
12:33 am
not on a company basis t establish a permanent oil spill response capability. and i am just putting this out by way there are other approaches that resemble this. if it's going be important to strengthen the oil spill response capability, do you think that this is an issue that ought to be examined >> this is an that needs to be examined and will be examined.
12:34 am
we will address the issue. >> i appreciate the answer. i think wha you told meit's on the table. that's what i was hing for. let's go to work as you and i have so often in t pa. let's toughen up the conflict rules. particularly as it relates to the revolving door. let's work on the emergency response capability. thank you mr. chairman. >> senator corker, do you have -- go ahead. >> and just -- i up with going bring up the issue again.
12:35 am
i am trying to contrast wha ars to me to be a very professional response from yr department and other professionals to the political responses that occur. and that's all i was trying to do. and i was trying to say that appreciate the maturity that it seems that crow hayou have disp. on the police call side people move around and try to figure out where best to be. and i do think for what it's worth, that does effect the chain of command. it does effect how professionals end up dealing with a crisis when, in fact, the political impact. how do you o rescue mission like this through the political side. my question is one of i have
12:36 am
talked a couple of times a little bit about a story that appeared in the mobile register on april 29. and it talked about having non-flammable boom available so that when a spill like this occurs and apparently there was a preapproval process that took place so that when an emergency happens you burn off the oil. immediately. but you h do that withi 24 hours or the oil ends up since you are here and since i know he has been talng about that pubically, i am sure row have a pointview on that. i wondered if you might share
12:37 am
it. he seems to think that 90% of the oil could have been burnt if repeating.ss -- i am just i hope i am not repeating inaccurately. i have heard people talk about the weather and other kinds of things. i just thought i might give you the opportunity to respond since i know it's out there moving around in the public. many ways has, with the admiral has really moved forward to really deal with the boom issue. i know they are doing everything they can with respect to the boom. in terms of burns and booms that could contain oil.
12:38 am
so it is a very active part of the leak containment program that is underway as admiral allen often says we are fighting the battle on multiple fronts. it's been a relentless effort. they have been relentless in terms of pushing not only bp but the united states government to
12:39 am
do everything possible to protect the people of the gulf coast and protect t environment of the gulf coast. i can tell you that from cabinet meetings to meetis i have had with him in the oval office. he is the reason some say i am tired today because there is a 51 day march that we have been on and willontie on this march turned president's diction. >> back to the question at hand. what you are saying is that is absolutely not an issue. having flammable boomvailable to jump on that right away is apt for somebody to make a comment in that regard is is totally off base? >> let me do this. i will have either secretary admiral get back to the senator on the issue. >> that would be good but since i raised the issue, i would love to hear about that. >> i will have them get back to
12:40 am
you as well. >> thank you. >> secretary, thank you very much for your time. god speed in getting this problem solved. that concludes our hearing. >> thank you. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> the see what your member of congress said, search the congressional chronicle at c- span's congressional library, every word on the house and senate floor since 1987.
12:41 am
c-span's congressional directory is available at c- span.org/store. >> in a few moments, federal reserve chairman ben bernanke testifies on capitol hill about the economy. in two hours, house debate on aspects of the financial regulations bill. after that, the united nations security council votes for additional sanctions against iran. then the energy secretary ken salazar's testimony on of short drilling -- offshore drilling and safety. on "washington journal" tomorrow morning, more about the gulf oil spill from the mississippi rep taylor. senator john barrasso of wyoming will discuss republican efforts to repeal the health care law. and we are joined by deborah
12:42 am
russell of aarp to look for the economic outlook of those over 50. "washington journal" is live on c-span every day at 7:00 a.m. eastern. several live events to tell you about tomorrow on c-span 3. the senate commerce, science, and transportation committee holds a confirmation. hearing. that hearing is at 10:00 a.m. eastern. at 3:15 p.m. eastern, house and senate will offer opening statements as to begin work on the financial regulation bill. this is a first of a series of sessions planned to run to the north dakota of the month, with a final vote expected -- run to the end of the month, with a final vote expected by the fourth of july. then the governors' debate at
12:43 am
the university of rhode island,, kingston. this sunday, c-span takes you inside the supreme court to see the rarely seen spaces. hear directly from the justices. the supreme court, hold it to america's highest court, this sunday at 6:30 p.m. eastern on c-span. >> federal reserve chairman ben bernanke says he expects the u.s. economy to continue to grow through next year but worries that federal funding appears to be on an unsustainable path. he testified before the house budget committee for a little more than two hours. >> one, two, >> we need to discuss --
12:44 am
still lie ahead of us. we are pleased to have as our witness the chairman of the federal reserve system, ben bernanke. when the 111 congress began the current administration took office the economy was shrinking at an annualized rate of negative 45%. a year-and-a-half later the economy has experienced it straight quarter of economic growth in putting 5.6% growth in the fourth quarter of 2009 and 3% in the first quarter of 2010. the chart will illustrate that. a year and a half ago the economy was losing jobs, hemorrhaging jobs. in the mud and debris, to thousand nine we lost 779,000 jobs, one month alone. now in players added nearly a million jobs between january and may of this year and the chart shows the job growth of the last
12:45 am
span of time. the ultimate strength of our economy was on the public sector but the actions taken by this congress and the administration have played a significant role. for example in the cbo recovery act that we passed in july end february of 2009 contributed significantly to the economic turnaround raising world gdp by 1.7 to 4.2 percentage points in the fourth quarter of 2010 and increasing employment by between 1.2 to 2.8 million jobs. meanwhile the treasury department, federal reserve and the fdic engaged in unprecedented and coordinte efforts to sve to the cost of listings and the system by injecting liquidity, capital, people see things in securing peoples savings requiring banks to raise more capital we focus on the economic recovery we've also been aware of the need to restore fiscal responsibility.
12:46 am
we want to see the economy and budget recover step by step. like the previous administration that inherited $5.6 trillion surplus er ten years and turned it into a large deficit the current administration was handed a $1.3 trillion deficit for 2010 alone and 8 trillion-dollar deficit over the next ten years. the recession recovery efforts have taken an unavoidable told the budget and we focus on bringing this down as the economy recovers. wheat has the statutory paygo and require mandatory spending to be paid for. the established bipartisan commission now and work to make recommendations to bring the deficit down to a sustainable level by 2015. the president is also propod to freeze long security discretionary spending for three years. last monday introduced a bill to add to the additional tool called rescission that allows
12:47 am
the president to sign a bill into law at the same time recommending to us and the congre elimination in the bill that have a budgetary cost. we will continue to pursue these and other steps for fiscal responsibility so that over the medium and long term we put the nation on a fiscal path to provide a foundation for a strong economy in the future. at the same time, the key concern and short-term remains the economic outlook. as we continue to work on additional legislation to address the situation we are fortunate to have chairman bernanke here to present his testimony and respond to questions. most fundamental and at a time to many americans continue to feel the effect of this recession and wonder when it is going to be -- relief is going to come we would like to hear dr. bernanke's you how the economy is recovering and what steps we can take for steps the government can take to maximize the return to the sustained economic strength. before we turn to chairman bernanke testimony, i would like to extend a welcome to the newest member of the committee,
12:48 am
budget committee from hawaii. welcome. we are glad to have you on the committee. sworn in last month as the newest member of the house and we welcome him and particularly to the budget committee. before dr. bernanke's testimony let me turn to the ranking member's statement he might care to make for opening purposes. -- before, mr. chairman for opening this hearing and i want to start by welcoming the newest member congressman of hawaii. we look forward to welcoming you to the economic challenges and it is exciting to see you and your family here being sworn in at the conference and we look forward o welcoming you. welcome to the nation's capital and to you, german bernanke. it's appropriate your coming before the committee to talk about the state of the economy because the health of the u.s. and global economy is intertwined with the budget in our fiscal issues we deal with in this committee. over the past few months we watched as the sovereign debt crises in europe have boiled
12:49 am
into a troubling problem. we are seeing that the economic recovery is being threatened and b.c. even global financial stability in general is being threatened. in some ways we are seeing the replay of a similar dynamic that impaired global financial markets in 2008. the fear then was systemic exposure to bad mortgage related assets. but the fear now is driven by exposure to sovereign credit and the possibility of a debt induced economic slump. ominously, the bank lending rates and credit spreads have in become more risk adverse. volatility is up and the stock market is down. what we are watching in the real time is the rough justice of the marketplace and the severe economic turmoil that can be inflicted on countries mired in debt. at the moment, the u.s. is at a periphery of the european debt crisis a has reached a short-term beneits likelower long-term interest rates as a result of the ruda global flight
12:50 am
to safety. but americans are left to wonder could we won day find ourselves at the epicenter of such a crisis? to european-style crisis one day happen right here in the united states? the answer is undoubtedly yes. and the sad truth is that actio by policy makers to change the fiscal course is hastening this day of reckoning. if we look at the budget numbers it shows our current fiscal situation and its trajectory going forward is very dire. the budget deficit this year stands at $1.5 trillion or just over 10% of gdp. under the president's budget the budget we are living under right now the cbo tells the level of u.s. debt will triple by the end of the decade. meaning in just a few short years the u.s. is poised to join the group of troubled countries whose public debt of source a growing share of their economic output. a fiscal crisis in the u.s. is no longer an economic hypothetical. with a clear and present risk to
12:51 am
our economy. the society's most vlnerable citizens and america's standing in the world. as the exit of greece has shown the market forces and sentimental novel for the luxury of time and the lead promises to get their fiscal house n order. the rhetoric is no substitute for results. foreigners own half of the u.s. publicly held debt and their willingness to fund the borrowing at record low interest rates will not continue forever. the size of the current and future needs makes us quite vulnerable to a shift in market sentiment and a higher than expected interest rates. the emergence of the bond vigilantes and exposure to the justice marketplace would meet the bad fiscal situation even worse. the main point here is the need for policy makers to reassure the credit markets that the u.s. is engaged in charting a clear course back to sustainable deficit and debt levels of some. it's clear that this means running in government spending not simply ramping up taxes. in particular we need to reform our entitlement programs that
12:52 am
threaten to throw themselves into extinction, collapse the safety net, overwhelm the entire federal budget and sink the economy in the process. the sovereign debt problems and other parts of the world provide a great cautionary tale that it's always best to take action and shore up the deficits before market forces demand it. so what has this administration on to respond? the to internment programs and no budget. the majority fails to even offer a budget in its commitment to continue spending money we don't have come eckert getting brand new entitlements and plunging the nation into debt tells me and the bond market's more importantly that washington still doesn't recognize the severity of the fiscal and economic challenges. i look fo what the testimony today, german bernanke and remain hopeful policy makers will heed your warnings and chart a course to avert the next crisis. thank you. >> before turning to the chairman for his comments let me ask unanimous consent all members be allowed to submit an opening statement for the record at this point.
12:53 am
without objection, so ordered. dr. beanke, we welcome you for final testimony and will make it part of the record. you can summarize as you see fit the only witness today we encourage you to take your time in responding in the latter reading on the questions presented to you. thank you again for coming. the floor is yours. >> thank you, mr. chairman. chairman spratt, ranking member running in and other members of the committee, i am pleased to have this opportunity to offer my views on current economic and financial conditions onssues pertaining to the federal budget. the recovery in economic activity that began in the second half of last year has continued at a moderate pace so far this year. moreover, the economy, supported by a stimulus to monitor policy and the concerted efforts of policymakers to stabilize the financial system, appears to be on track to continue to expand through this year and next. the latest economic projections the federal reserve governors and reserve bank presidents, which were made near the end of april, anticipate that the real gross domestic product will grow in the neighborhood of 3.5% over the course of 2010 as a whole
12:54 am
and a somewhat faster pace next year. this piece of growth were to be realized would probably be associated with the slow reduction in the on imply married over time to read in this environment, inflation is likely to remain subdued. although the support to economic growth and fiscal policy is likely to diminish in the coming year, the incoming data suggests the gains in private final demand will sustain the recovery in economic activity. real consumer spending has risen at an annual rate of nearly 3.5% so far this year, with particular strength in the highly cyclical category of durable goods. consumer spending is likely to increase at a moderate pace going forward, supported a gradual pickup in employment and income, greater consumer confidence and some improvement in credit conditions. in the business sector, real outlays for equipment and software posted another solid gain in the first quarter, and the increases were more broadly based than in late 2009. the available indicators point to continued strength in the second quarter.
12:55 am
looking forward, investment in new equipment and software is expected to be supported by healthy corporate balance sheets, relatively low-cost financing of new procts, increased confidence in the durability of the recovery, and the need of many businesses to replace aging a comment and expand capacity as sales prospects brighten. more generally, u.s. manufacturing ouut, which has benefited from strong export demand, rose t an annual rate of 9% over the first four months of this year. at the time, significant restraint on the pace of the recovery remained. in the housing market, sales and construction have been temporarily boosted lately by the home buyer tax credit. but looking for these temporary movements, underlining housing activity appears to have a firm only a little since may 2009. with activity being weighed down in part by a large inventory of distress or vacant existing houses and by the difficulties of many builders in obtaining credit. spending on nonresidential buildings is also being held
12:56 am
back by vacancy rates, slow property prices and strong credit conditions. meanwhile, pressures on state and local budgets of the tempered somewhat by ongoing federal support, have led these governments to make further cuts in employment infrastructure spending. as you know, the labor market was hit particularly hard by the recession, but we've begun to see modest improvements recently in in plymouth, hours of work and labour income. payroll employment rose by 431,000 in may, but that figure importantly reflected an increase of 411,000 in hiring for the decennial census. private payroll employment has risen an average of 140,000 per month for the past few months and expectations of both businesses and households about hiring prospects have improved since the beginning of the year. in all likelihood, however, a significant amount of time will be required to restore the nearly 8.5 million jobs that were lost over 2008 and 2009. on the inflation front, a recent data continue to show a subdued rate of increase in consumer
12:57 am
prices. for the three months ended in april, the price index for personal consumption expenditures rose at an annual rate of just half percent as energy prices declined and the index excluding food and energy rose at an annual rate of about 1%. over the past two years, overall consumer prices at which we did in response to large swings in energy and food prices. but aside from these volatile components a moderation of inflation has been clear and broadly based over this period. to date, long from inflation expectations have been stable with most survey based measures remaining within the narrow ranges that have prevailed for the past few years. measures based on nominal and indexed treasury yields have decreased somewhat of late, but a least part of these declines reflect market response to changes in the fancial situation in europe, to which i now turn. since late last year, market concerns have mounted over the ability of greece and a number of other year note area countries to manage their
12:58 am
sizable budget deficits and high levels of public debt. by early may, financial strains that increased significantly as investors focused on several interrelated issues including whether the physically stronger your own area governments would provide financial support to the weakest members. the extent to which the area growth would be slowed by efforts of the school consolidation and extent of exposure of major european financial institutions to vulnerable countries. u.s. financial markets have been roiled in recent weeks by these developments that have triggered reduction in the demand for risky assets. broad equity market industries have declined in volatility has risen considerably. treasury yields have fallen as much as 50 basis points since last april. primarily as a result of c2 and flows that boosted the demand for treasury securities. corporate spreads have widened to for the same period and some issuance of corporate bonds have been postponed especially by speculative grade issuers. in response to those concerns,
12:59 am
european leaders have put in place a number of strong measures. countries under stress have committed to address the fiscal problems. a major assistance package has been established jointly by the european union and the international monetary fund for greece. to backstop near-term financing needs of its members more generally, the e.u. has established a european financial stabilization mechasm with up to 500 billion euros in funding, which could be used in tandem with significant bilateral support from the imf. e.u. leaders are also discussing proposals to tighten surveillance of members fiscal performance and improve the design of the e.u. fiscal support mechanisms. in addition, to address the strains in european financial markets, the european central bank has been purchasing debt securities markets that it sees as malfunctioning coming and has resumed auctions of three and six month loans of heroes of unlimited quantities to borrowers with appropriate collateral. to help these strains in u.s.
1:00 am
funding markets the federal reserve reduced up ten per u.s. dollar liquid the swap lines with the ec and other major central banks. to date, the drongen somebodies lines are made quite limited and far below their peaks reached at the height of the financial crisis in late 2008. but they are nevertheless providing an important backstop for the functioning of the >> we will take the actions necessary to ensure stability and continued economic recovery. the actions taken by european leaders represent a firm commitment to restore market confidence and stability. at markets continue to stabilize and the effects of the crisis in the united states will be modest. the falling equity prices in europe will leave some imprint of the u.s. economy. offsetting factors such as gold
1:01 am
prices for oil ongoing developments in europe point to the importance of maintaining sound government finances. in many ways, the united states enjoys a uniquely favored position. our economy is large, diversified, and flexible. it is our intention -- global investors have used treasury securities as a safe haven. barrier to achieve fiscal sustainability will sap the nation's vitality, reduce our living standards, and increase the risk of economic instability. our nation's fiscal situation has deteriorated.
1:02 am
as the economy and financial markets continue to recovery and the actions to promote financial stability are phased out, the budget deficit should narrow over the next few years. even after economic and financial conditions have returned to normal, the federal budget appears to be on an unsustainable path. a variety of projections that make assumptions about the evolution of the economy show a structural budget gap that is large relative to the size of the economy and is increasing over time. among the primary forces putting pressure on the deficit is the aging united states population. the number of people expected to pay taxes is rising more slowly than the people expected to receive benefits.
1:03 am
about 5 individuals per individual 65 or over. this ratio is expected to decline to around 3. in addition, government expenditures and health care continues to rise rapidly as increases are exceeding increases in income. to avoid shifts and to retain the confidence of the public, which should be planning how to meet these budgetary challenges. achieving fiscal sustainability will be difficult. unless we make a strong commitment to fiscal responsibility, we will have neither financial stability nor economic growth. thank you, mr. chairman. i will be happy to take your questions. >> we have just come through the
1:04 am
worst recession since the great depression. we seemed to have turned the corner. looking back, if we had not taken the extraordinary steps that we took, starting with t thearp solicit -- starting with the start solicitation -- tarp solicitation, where would we be now? do you think the steps had been vindicated by events? >> yes, mr. chairman. i do. we took strenuous measures in the fall of 2008 to avert the collapse of the financial system and restore functioning to the global markets. it took a while for that to work, but financial markets are in better shape than they were a year and a half ago. monetary fiscal policy has and supportive and has added to growth. we see, at this point, a
1:05 am
moderate recovery. it is not as fast as we would like. we have emerged from a downturn. >> could you have dealt with that situation of monetary policy alone? >> i think that -- sufficient depends on your definition of costs and benefits. i think that the fiscal policy based on what we know did increase growth and add to job creation. >> you seem to acknowledge in your testimony that we have turned a corner. it appears that we have turned -- it appears that we have. are you concerned about a double dip or a relapse?
1:06 am
>> mr. chairman, forecasting is typical. i cannot make any promises in any particular direction. it appears to us that the recovery has made an important transition from being supported primarily by inventory, toward a recovery being led now by consumer spending. that is encouraging. our current outlook is that the economy will continue to recovery -- recovered at a moderate base -- recover at a moderate pace. our expectation is that the economy will continue to grow at about a or% 4% -- grow at a bell grow at about a 3% or
1:07 am
4% pace. >> the growth rate depends on having adequate capital in the form of borrowed money. >> it is a top priority for the federal reserve. our stabilization with the markets and has restored something close to normal function in the securities markets. larger firms with access to corporate bond markets and equity markets have been able to raise funding as needed. they have liquid balance sheets. problems remain for smaller firms that are dependent upon banks because banks are tending to be very conservative in their lending policies. i would be happy to talk about this if time permits. very briefly, the federal reserve has been working closely with the banks, the examiners, and with small business. i was just at a conference on this in detroit trying to make sure that the banks are able to
1:08 am
lend to credit-worthy borrowers and that they are not being excessively conservative or denying did more worse credit. >> is that message getting to the examiners? >> i am never satisfied. i am sure that there are examples we could point to where that is not happening. we have made a very substantial effort in terms of training, in terms of conference calls, in terms of repeated exhortation to our examiner said that it is very important to work with the banks to make sure that credit- worthy borrowers are not turned away. the banks have taken a number of steps. they have taken on second-look programs where loans are given a second look to see f., perhaps, -- c f, perhaps, -- see
1:09 am
if, perhaps they could be approved. >> mr. chairman, currently we are in a transition period. fannie mae and freddie mac are in conservatorship. they are playing an important role at the moment in providing a source of securitization for home mortgages. the private label security mortgage market is nonfunctional. we need to get to a more sustainable situation. i would be happy to talk about alternative models and reform, but i think everybody agrees that the current situation is not a sustainable one. we need to reform these institutions going forward. >> one final question -- when
1:10 am
you look back on your views up until recently, we have seen catastrophe after catastrophe occurred. it was not fully appreciated or foreseen at that. in time. -- it was not fully appreciated are foreseen at that point in time. or the feds and the other monetary authorities in the federal government -- do we need a distant-early warning system? >> there are multiple dimensions to address this. the financial regulatory reform legislation attempts to look at all the components. first, we need to have a better oversight of the system and a better approach to regulation
1:11 am
that will allow us to identify gaps and problems before they lead to a crisis. that is part of the philosophy of the their reserves provision over large firms. secondly, we need to make the system more resilience of that when crisis occurs it will be more resilient. we will increase capital requirements, increased liquidity requirements, make trading more transparent. thirdly, if a crisis does occur, we need the tools to manage it. congress has been working on alternative mechanisms for safely winding down putting into receivership a critical firm so that it can fail without bringing down the rest of the system. i think we are making progress. whenever eliminate financial crisis, but we need to make sure
1:12 am
that they are much less frequent and that they have less effect on the economy. >> thank you very much. mr. bryant? >> some countries bond yields -- i think spain and italy raised fresh highs this week. in your opinion, is the ecb doing everything from a policy standpoint to extend this crisis? how do you risk it -- how do you rate the risk of contagion? >> this is a joint effort of a number of authorities including the european union and the european commission. it is a complicated problem because there are a number of countries to have a difficult fiscal situations. the concern is that these countries cannot manage their fiscal positions on their own
1:13 am
and they might be a contagion -- own their own and they might be a contagion to other systems. i am encouraged by the response of the europeans. although they lack the central authority that the united states has, they understand the importance of cooperation. they have put together some substantial programs including a 500 billion euros stabilization mechanism that will stand behind countries on the periphery that need assistance in meeting their fiscal obligations. together with i them -- together with the imf, they will provide assistance. this will make sure that these countries will meet their obligations and achieve sustainability. i'd think the markets will remain uncertain about whether these measures will be successful. that is why you are still seeing
1:14 am
volatility in the market. i can assure you that the european leadership is fully committed to addressing this problem, perverting -- preserving the arizona and preserving the european union -- --serving the bureau's own preserving the eurozone and preserving the european union. >> their objective is liquidity for sovereign credit markets. reserves are a similar process. we have two reserve currencies engaged in a quantitative easing policy. gold hit an all-time high yesterday.
1:15 am
i am interested in what that pricing will tell you and what is your view on the long-term repercussions with respect to weak currency policy? i suppose one could argue that we do not have a weak dollar. everyone else is so much weaker. with this sort of policy in place, we removed one of the fire walls that separate our monetary and fiscal policy. that has probably changed investor impressions looking into the future. what is your view on that? >> the signal that goal at -- gold is sending is similar to what others are sending. markets expect about 2% inflation over the next 10 years. other commodity prices have fallen quite support -- severely. that includes oil and food prices. they are doing something
1:16 am
different for the rest of the commodity group. i do not understand the movements in the gold price, but i do know that there is uncertainty and anxiety in the financial markets. some people feel that holding gold will be a hedge. >> i think most people will agree that we do not have an inflation problem right now on our doorstep that you -- the inflation problem right now on our doorstep. you can make the argument that it is a risk. what do you look at today's inflation? you are using a tip-spreads. you're using consumer surveys. what indicators do you look at to inform your view on the future of inflation and how much thought you put in those indicators? >> you pointed to a number of
1:17 am
them. we look to resource utilization and price-wage pressure which is also right now. unit labor costs are declining, so firms are finding their labor costs are falling rather than rising. inflation expectations are very important. we take some comfort in the fact that our mechanisms have been quite stable. we look broadly at the economy and commodity prices to see what markets are anticipating. it is a very eclectic process. what i would like to say is that even though we have expanded our balance sheet, i have given some testimony in the last few months where i have laid out in some detail how we can exit from those extraordinary policies as needed, when needed without leaving any monetary are in
1:18 am
place a very biased in the system. >> you have the ability to pay interest in research. my concern with this to is that we are talking about a credit crunch that our constituents are facing. the fact that people cannot get loans from their community banks -- there is a credit crunch right now. once velocity starts moving, it seems to me that you will precipitateeanother credit crunch on top in order to mop up inflation. what is to make us think that we will not have tighter credit when the time comes around for your policy actions to be reversed? >> it is exactly the same situation under any monetary tightening. with the economy is growing, it begins to raise interest rates precisely to reduce the demand for credit and to give an
1:19 am
alternative to laos. >> so we are looking at a tight credit. for some time it seems to me. -- we are looking at a peri tighto creditd for some time it seems to me. -- we are looking at a tight for some timeiod it seems to me. it is an incredible amount of job creation that is necessary. we cannot be taking the census every year. that is once every 10 years. as the inevitable pullback on the spending -- government spending occurs and the hiring of government workers does not keep up the pace, do you have confidence that the private
1:20 am
sector will pick up the slack to get unemployment going down fast? 3% or 4% growth does not seem to be enough. >> as i said in my testimony, i do think that exports and consumer spending is taking the baton from fiscal policy and inventory accumulation to provide some source of growth. in that respect, the private sector is beginning to take over this recovery. at the same time, there's not much evidence at this point that the recovery will be robust enough to get us back to historical the normal close of unemployment in a short period of time. that is the downside and the disappointment. >> hitting the economy with higher tax rates is going to help us get that growth up to
1:21 am
where we need to go next year? >> we certainly want to get more business is healthy and hiring as much as possible. we worked on credit for small businesses. they are an important source of job creation. >> we have been informed by the chairman's staff that you have a plane to catch so i will ride the five-minute tightly. >> thank you very much. thank you, mr. chairman. you are going to follow up on some of the questions that have been asked. someone had a question about small business growth. we do see in the short-term and the long-term growing jobs in the private sector. we focused on the job growth in
1:22 am
small business. we haae taken a number of actions that we feel are making a difference. i wanted to ask you specifically about lending if he would elaborate a bit more. we have done investment tax- credits. we may do them to incentivize small businesses that do not have access to tax credits. we have increased the cash flow for small businesses by providing a five-year operating loss carry back. we have cut capital gains tax is for investment in small business. we have created tax credits for small businesses to give health benefits. the president has a new initiative on exports, which you referenced very briefly.
1:23 am
we tend not to think about the opportunities for small businesses to increase their outreach to the market. there is an initiative that the president has to double that export number. we are looking at two areas to expand the investment tax credits to help innovative new businesses and small businesses that have a hard time accessing capital. i wanted to know what you think of that. many of us believe that the new technology in the energy and the health sector are great growth areas for the united states. we have always been on the cutting edge of innovation and technology. i would like you to comment on the steps we have taken.
1:24 am
they will make a difference in expanding small business growth. secondly, i would like you to expand on small-business lending. we all hear it. we continue to cure it. -- we continue to hear it. banks are acting too conservatively. they are getting mixed messages from regulators. we need to make sure they have enough capital themselves. they have got to get some dollars out the door. we are looking this week at small business lending legislation that would encourage banks to get the dollars out the door to small businesses. i would highlight the interest we have a in growth areas, particularly innovative entrepreneurs. do you want to comment?
1:25 am
i know you try not to comment on legislation, but the access to capital and what the federal government can do to encourage banks to do this. what could we do to encourage small-business growth as one of these ways -- the placeth -- the ways out of this? >> small business is important to job creation. we should also keep in mind start-up businesses as they provide lots of job creation. it is a very important part. it is our concern that too slow a response on the small business side is one of the reasons that job creation is not as quick as we would like it to be. it is important to remove the barriers and impediments for
1:26 am
small businesses to expand. i agree that we want to make tax policy as small-business friendly as possible, to provide the right incentives, to give the in -- to give them the ability to hire. we need to keep the economy growing. the federal reserve is doing its part by a providing a good mudder policy. we need to make sure they get credit. i am glad the congress is exploring these programs and making credit available. it is very useful to do that. from our own perspectives, we have put bank lending and bank credit at the top of our priority list and we have increased our information gathering. we have increased our training of examiners. we would basically like to know that if your x -- constituents are telling you that they had been turned down for credit, we would like to hear that.
1:27 am
we have a hot-line and a web site. we do want to know about it. we will respond to it. i certainly agree with your sentiments and what you said. >> i would like to follow up on the issue of startup. it seems very hard for them to get a bank to lend to a new opera nor are a new company to is just starting up. i would be happy to follow up with you and i thank you for your positive comments. >> thank you, mr. chairman. good morning, a german bernanke. -- chairman bernanke. you testified at our first meeting. at our second meeting, we received testimony from dr. carmen reinhardt at the
1:28 am
university of maryland. she has come across with the conclusion to her study that when nations have eight to of somegedp ratio percentage, that will not work. in the united states, we have actually received negative economic growth at those points where get to gdp is 8%. debt held by the public is closer to 60%. are you familiar with the
1:29 am
professor's study? are you familiar with her conclusions? the you agree or disagree? >> i am familiar with her steady. i would say that her book is an extraordinary piece of work. it includes analysis of the crisis. i agree with the general point that as debt increases, interest rates increase. it tends to make investment more costly. tax rates go up. >> specifically, growth in debt to gdp of 9%, -- 90%, to you think it is a tipping point? i think that if we were to go out, that debt and interest
1:30 am
payments will be explosive in 10 or 15 years. i think we should be paying close attention. >> you speak about the european leader in your written testimony that they have put in strong measures. countries under stress are addressing their fiscal problems. i take it was before the new prime minister of the united kingdom said that britain's finances were worse than we thought. they are going through painful and -- going through painful cuts. chairman merkle of germany said they are going to difficult times. they have a sizable group of spending cuts to deal with their spending crisis which she said
1:31 am
were necessary to the future of their country. when i look at germany's deficit to gdp ratio and the uk's deficit to gdp ratio, they are comparable to our own. their debt ratio appears to be comparable to our own in dealing with gross debt. i am curious, you appear to be complimenting the european leaders for taking strong stands, yet the uc similar strong stands being taken by this particular congress to rein in the debt? >> countries have different amounts of fiscal capacity, it you will. countries like greece which are being shut out of the market because of their debt ratios and need immediate and sharp changes in their position. the united states, as i said in
1:32 am
my remarks, is favored in that we are a safe-haven currency. we have a long record of paying our debts and our interest. we have a little more breathing space. potentially, i do not know how much we have, we need a program for returning our trajectory of fiscal policy to g by seconds ae --cking a . it is important to send a signal that we have a plan in place. did i understand you correctly? >> a plan in place will help to keep interest rates down and help growth to be stronger in the long term. >> thank you for your testimony, mr. chairman.
1:33 am
there is a report out today that the federal reserve, six months into a compensation study of the country's largest banks, has found that many of the bonus and incentive programs have contributed to the -- the incentive programs remain in place. if your study confirms that to be true, will the fed do anything about it? will it act this year rather than waiting for another year tuesday go by? what policies do you have to deal with? >> we did a series of surveys and questionnaires to try to understand what the pay practices were and whether they were consistent with safe and sound banking and good incentive structures. as the report says, with them that many banks have not modified their practices from what they were before the crisis. we anticipate and entered-agency
1:34 am
guidance on this matter within the next few weeks. we will be setting out a set of criteria and expectations shortly. we will be pushing the banks to work as quickly as possible to restructure their compensation packages so that they will not be engendering excessive risk- taking. we will be doing that very quickly. we hope to have a public report about this by the end of this year or early next year. i want to assure you that the actions we will be taking will not wait for the report. we will be working with the banks. we have been working with the banks already to have them modify their compensation practices. >> dec a real change in compensation practices since before the downturn until now? will people be able to tell the difference? >> compensation practices and need to change said there is not an incentive to take excessive risks. when the trader gets all of the
1:35 am
upside and none of the downside, that is what we are trying to get rid of. >> what do you believe it will be the dollar cost to the taxpayers of tarp? >> the direct cost for a financial institution including a i g is not very large. except for aig, all institutions have repaid with interest and dividends. i believe they will repay. the financial institution part, the direct cost is quite small. it may in fact be a profit. that does not include some of the uses such as the auto makers support and the foreclosure program. the treasury has provided numbers on those. i think they had an overall cost of $110 million.
1:36 am
>> reference has been made to the small-business lending find act. without getting into all of the details of the legislation, the believe that we need to take more action to assure the flow of credit to small businesses? >> i think both the fed, the congress, and the administration should be looking at new ways to get credit flowing. in my mind, that is one of the dangers to the recovery. job creation and small-business growth will not be sufficient to sustain the momentum. i would ask you to put this on your priority list. >> thank you. one of the areas where we have had some controversy in the past is the concept of auditing the fed. you have made your views clear on that. the senate narrowed the audit provision that the house overwhelmingly passed. is something the same or similar
1:37 am
to the senate measure is adopted, heidi see that audit working? >> the senate measure opens up all of our financial transactions, all of our financial controls, all of our financial activities and ensures that the taxpayers' money is well protected and well used. i have been saying from the very beginning that we are comfortable with that and that we are quite satisfied that we have an agreement to do that. we will cooperate in every possible way. we are already working with gao and aig and we will make sure that disinformation is made available to the public. the concern i had about the house version of the bill is that it included an audit of monetary policy, which essentially involves congress
1:38 am
to monitorgoao policy. i would strongly urge you to retain the 1978 exemption for monetary policy from the audits. it is not a financial audit, but a policy review. we are fine with making our books available to the congress to make sure that we are using the taxpayers' money appropriately. >> thank you. >> thank you, mr. chairman. look at chart 3 root weight. it the look at the great, the president at that time would have been george bush. for the first three years at that, the republicans were in charge of the house.
1:39 am
you are an economist. for the gray area there, which way was the deficit going at that. in time? up or down? >> i am not quite sure i understand. >> i just need to know the period of time from 2000 word, 2005, 2006, 2007 -- the trend was up or down? what we sell during the time that president bush was in office, the project -- the republicans were in charge and the deficit was going down. what is the trend then? speaking as an economist, is that up or down? >> we had a financial crisis and a big increase in the deficit.
1:40 am
no doubt about it. >> thank you. back to the points that the gentleman from texas made -- and he made this also -- we need a plan. you're nodding your head yes. we need a plan to add what? uncertainty in the marketplace? secondly, with that also mean to add to the marketplace that we need a plant now for the budget and the economy going forward? is that something that is essential to provide certainty in the marketplace? >> i know you want clarity. policy uncertainty is a problem that these businesses have. by not providing that clarity in either one of those areas, we
1:41 am
are at a point in time for the first time in 40 years that we have not seen a budget without the uncertainty. what would be your prediction going forward if we do not have the certainty? >> those are very important issues and i hope congress will move expeditiously to provide clarity. besides the budget, some businesses are telling me that they do not see certainty in basic tax policy, in regulation, and in spending. we could put up a chart showing were spending is going. how did those three factors play into a lack of certainty in the marketplace or certainty in the marketplace? >> i hear the same thing. uncertainty is a deterrent to expansion.
1:42 am
i think it is important for us to clarify a it as quickly as possible what is going to be expected of banks in the future. we want to do a good job. we want to turn out good legislation and regulation. we should try to clarify s and as possible to avoid negative effects? -- to avoid negative effects. >> i thought i heard a rumor that the feds had done a study to look at itself and to see what has been learned over the past year and a half in regard to the financial crisis. had they done the study? >> we have done a series of papers. we did one on monetary policy which was made public. we have done a number of papers on supervision and practices.
1:43 am
that has led to a revamping of our supervisory structure. >> we are about to move ahead on financial services reform. are all of those reports and studies you have done available? if so, can we have a copy of those? >> i will have to take an inventory of what we have. what we worked on was not so much the regulatory structure, but our execution of those rules. that would be what we looked at. >> could we have copies of that? >> we will see what we have. we will work with you. >> if you do have something, is it possible to get a copy of that? >> if yes. >> there you go. thank you, mr. chairman. i have used up all my time. >> i am heee, mr. chairman.
1:44 am
thank you, mr. chairman, for being here. mr. garrett raise some questions that suggested that the explosion of the deficit has to do with democratic policies. my understanding is that the cbo has conducted a study saying that we are looking at an eight treen dollar debt -- $8 trillion debt. are you familiar with that assessment and if so, what is your take on it? >> they do these baseline projections under current policy. i am ensure that the 2001-2003 --x cuts t
1:45 am
we had a recession in 2001 and we had some recovery from that. the meltdown that we had was a financial crisis which was somewhat unrelated to these fiscal issues. >> you indicated in response to a question that government intervention averted a more severe recession if not a second great depression. do you include the recovery act in your tabulation of government intercession? >> i believe the recovery act did create growth and jobs. it is difficult to know how much. based on our analysis and past experience, i think it did contribute to the recovery. >> the recovery act was essentially $500 billion of
1:46 am
spending, at $300 billion in tax cuts. has there been any assessment that you put credence in that assesses which aspects of the recovery act were better than others? >> i do not know of any studies of this particular episode. i guess the answer is no, i do not. >> let me ask it this way. when we had the recovery act on the floor of the house, the republican alternative that was a recovery at that consisted entirely of tax cuts if i remember correctly. he said its board depredations are difficult -- you said before that predictions are difficult. what with the impact have been if we had only a recovery at that consisted of tax cuts? what implication would that be for the states?
1:47 am
about $200 billion of our recovery act was assistance to states said that they could maintain a level of service. can you assess where we would be if our only response was tax cuts? >> you are asking me something i cannot do without more analysis. tax cuts and spending of facts, but as you point out, they would not have covered any of the state and local budgetary issues that you refer to. >> mr. chairman, i yield back. thank you. >> thank you, mr. chairman. thank you for being here today, mr. chairman. the economy seems to react to almost everything you say. sometimes it reacts to things congress does or fails to do. he said earlier that we need a plan to deal with our long-term financial debt and current economic conditions. is that correct? >> yes. >> does congress -- as
1:48 am
congress's inability to pass a budget have a negative impact on our economy? >> it is important for us to persuade the markets that we have the political will and ability to address the long-term problems. what you are saying is that inability to fix the budget -- it is certainly one of the things that the markets will assess. the political ability of the congress to work together to develop a longer-term budget plan that will bring us back to sustainability. >> in terms of tax policy, he said that it needs to be small business friendly. obviously, a small-business has created the majority of jobs in this country. do they need to be consumer
1:49 am
friendly also? is this a time to let taxes increase or to increase tax rates on anybody in our economy? we have heard ll about the tax rates that we have decreased for small business, investment income, and other things. what about increasing tax rates on consumers? >> i am trying to avoid trying to get into detail debates about specific measures. >> in general. >> in general, we have a stimulus policy which, at the moment, is helping and is needed. it includes lower taxes and higher spending. in order for that to be sustainable, we need to have a plan at the medium term to bring us down to a sustainable trajectory. that is critical. as long as we have the confidence in the market that we will be able to exit the situation, i think we will be
1:50 am
ok if the markets take the conclusion that we are unable to do that, interest rates will go up and markets will be unconvinced. >> do markets care in this long- term fiscal plan to bring us back into some sort of balance, how much of it is based on fiscal restraint or spending restraint by congress and how much would be a tax increase? >> i think it depends on the detailed structure. again, i am trying to avoid taking sides on this. it is up to congress to make those decisions. plenty of people have this type of expertise including the congressional budget office. we need to find some combination of reforms, taxes, spending, however you want to put it together to ensure markets that deficits will be kept under control in the medium and long
1:51 am
term. >> one last question. the chairman asked if we were looking at a double-dipped in the economy. it is going to hit and will be worse than the home mortgage market that drove us into the first recession. are you concerned about that? what are we doing about it? >> we are concerned about it. it is clearly a week apart in the economy. it is a problem. we have done a number of things. the federal reserve work with the treasury to develop programs to restart the security market. beyond that, we have issued guidance to banks in commercial real estate and we are trying to work with them to restructure commercial real estate loans and find ways to manage troubled loans. we are doing the best we can with the banks and with the markets. it seems to me that there are
1:52 am
some glimmers of hope in this area, but it does remain a serious concern and we are watching it very carefully. >> thank you. thank you, mr. chairman. thank you, mr. chairman. can we get back to mr. garrett's graf from earlier? is that possible? mr. bernanke, it is my understanding that during the clinton years we had a surplus. under the bush years we had a deficit. is that an accurate statement? >> if yes. >> on this graph, as you can see bit on 2007, we can see the uptick on the bush administration policy. in the 2009 bar, how much of
1:53 am
that is from the economic downturn and the bush policies? >> a lot of the increases in the past couple of years and the size of the deficit for next year is a portion of the deficit. but this picture does not capture is that the dominant factors will be the entitlement programs. medicare, medicaid, and social security will be the biggest. the recession component ought to go away, but we need to deal with the structural component -- component. >> he testified that the gdp will go up for 2010. you talk about a faster pace
1:54 am
next year. what is the faster pace you are anticipating? >> there is a lot of uncertainty, but we're looking at 3.5% to 4% next year. >> you also talk about the fiscal policy effects. if we which all the fiscal stimulus money that we put into the system -- you talk about and can dating -- incoming data. what incoming data are you looking at to project that? >> there are three areas where supply and demand are strong. the consumer has been pretty strong. it is a big component, obviously. equipment and software investment by firms, not construction, but equipment, and exports have been strong. the others had been relatively weak. >> if you also talk about
1:55 am
manufacturing output which has skyrocketed. it is at 9% over the last four months. it's something like that sustainable? where are we going to go with that? >> manufacturing has rebounded very quickly and is leading the economy out of recession. in part it is because of manufacturing and trade has rebounded. manufacturing has taken advantage of that. right now, there seems to be an impending crisis in the states and their budgets. we are mindful about our own fiscal situation here at the national government, but our states are potentially facing huge budget crises. what effect would massive public employee layoffs of teachers, firefighters, and others have on the cut -- recovery? >> the same way that fiscal
1:56 am
spending affects activity, the decline in the services would add to the slow growth. >> said the recovery would be prolonged and deeper? >> those jobs would be lost in the services would be lost. >> to you see any indication that treasury yields are still pretty low? any indication in the near future that the u.s. treasury will go the way of foreign- currency is? >> the dollar is the dominant reserve currency. as you can see it from the increase in their prices, the u.s. dollar has been a safe- haven currency where investors have gone when they are concerned about other currencies
1:57 am
and other economies. >> thank you very much. i yield back. >> thank you, mr. chairman. dr. bernanke, i appreciate you being with us today. on page one of your testimony, he offered a fairly optimistic projection of what you think is likely to happen in the near term. you talk about a 3.5% increase of the rest of this year and a faster pace next year. there was a column earlier this week in the journal -- in a journal where they talk about the tax increases that are coming. we know that they are going to happen. capital gains tax rates are going to go up. the fundamental principle in economics is that government policies change people's
1:58 am
behavior. they have an impact. i think about my home state of ohio. we had a fairly high income-tax rate. you also, i think in the very first question from the chairman, talk about the potential for a double-dip recession. talk to me about those tax increases that we know are going to happen. the administration and this congress have been plain about that. they are going to raise taxes. what impact will that have on the growth that you are expecting to continue through this year and into next year? >> timing is critical. we have a recovery under way. in the very near term, increase taxes cuts -- in -- increased taxes, cuts, and spending will be a drag on the economy.
1:59 am
we need to convince markets that in the medium and longer-term we had a sustainable fiscal path. the ideal strategy in my view is to provide a plan for balancing our budget for bringing deficits down over the medium and longer- term. again, i will not try to adjudicate for congress how that should be done. i would say that in the short term, as you look at fiscal issues, he should take into account the strength of the recovery. >> i would just point out that last year i offered the only balanced budget in congress. we introduced it a few -- a few weeks ago. we will give you the analysis of it. it is a 10-year plan that reaches balance in the ninth or 10

99 Views

info Stream Only

Uploaded by TV Archive on