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thank you
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i have a question about too big to fail
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if we do not limit the size of financial
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institutions
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and we have a failure even though the
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federal government can unwind that firm
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there would by definition be large
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losses
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so who absorbs those losses if they're
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massive
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and if not the u.s taxpayer who
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great question so first of all there are
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in this
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legislation i think um a range of
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things that either create
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size constraints or positive incentives
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not to grow beyond a certain size so as
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i said in my talk
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higher capital requirements if you're
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bigger and if you're more interconnected
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the legislation adds a kind of a modern
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day
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version of the deposit cap that
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currently applies to banks
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that looks at uh total assets on a
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risk-weighted basis so that
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you know the the problem with the
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current deposit cap is that it
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in a sense caps the safest kind of
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assets and and
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um uh and then sends people to go
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elsewhere if they want to grow
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and a range of things that fundamentally
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are um
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uh risk constraining but i think the
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question nonetheless
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obviously valid the way the legislation
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works is that
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modeled on the fidicia current fiduciary
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authorities that exist for the
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government with respect to banks
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that bank holding companies or non-bank
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financial institutions
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that are of a certain size can if they
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become insolvent will be broken up
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be done so in a way that is designed to
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insulate the broader financial system
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from the kind of contagion effect that
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was
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so prevalent in this last round of
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crisis
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this is meant to be paid for in the
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first instance from the assets of the
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firm that is being broken up
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but insofar as the predicate is
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insolvency
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the whatever increment um and oh by the
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way
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i mean i haven't gone through it but the
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whole point of having higher capital
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standards and
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and leveraged constraints and so forth
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and so on is to minimize the chance of
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this happening but in the
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case uh uh that you suggest
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um to the extent that the estate of the
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firm that's being broken up is
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insufficient to pay the costs
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then financial firms uh will be levied
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for that cost not the taxpayer the
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statute very
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explicit on this question the fdic
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will levy a charge basically x post
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on financial firms big financial firms
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who in our judgment and in the judgment
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of the congress after all
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would be the principal beneficiaries of
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the notion that the contagion effect
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will be
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dampened by this new process and that
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the financial system
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will be well protected so uh
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first recourse is to uh the firm and
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it's
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you know it's capital stack um it's it's
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common equity holders
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uh and so forth um
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and beyond that uh financial firms
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thank you there's been a lot of effort
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to to create a more stable situation in
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the financial system these regulations
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among them
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and and to help put wall street on a
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firmer footing
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but main street is still suffering a lot
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and just today there was an announcement
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that weekly initial unemployment claims
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increased to almost 480 000 and that
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means that the four-week moving average
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has
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basically been stuck for about eight
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months now so
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what more could be done for unemployment
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more immediately than just
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waiting for a recovery to come which
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many people think is going to be very
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slow in coming so there's no question
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there is
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as i suggested in my talk still an
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enormous amount of pain
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across america felt by individuals and
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families and small businesses
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the result of a very very deep recession
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that we
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faced in 2008 and the beginning of 2009
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i think there are now increasingly
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signs of a moderate recovery that is
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beginning to build
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we have had now four quarters in a row
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of growth
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six months in a row of job growth um
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there is still a lot more work to be
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done uh
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and so uh the president uh the secretary
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of the treasury the administration
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generally very focused on
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making sure that the government provides
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the appropriate
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basis for stimulus while understanding
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that
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ultimately it's for the private sector
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really to
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generate jobs as it has done in the
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united states
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we're focused on creating the conditions
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for that to happen and for that to
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happen
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at a rate that continues and ticks
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upward
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um so congress is considering an
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additional stimulus package the senate
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acted on it last night the house is
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going to come back in session briefly
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next tuesday to
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act on it that's an important piece
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there is pending in congress
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small business legislation that would
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provide
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incentives for small banks to extend
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credit to small businesses
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a set of tax cuts that are targeted at
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small businesses that are really focused
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on job creation and economic growth we
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think that
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that's important legislation it has the
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support not only of the president but
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of the chamber of commerce and of the
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small business community
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and we think that's an important piece
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and so we believe that we are
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on a trajectory that is positive
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as you note the data that comes in is
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not
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is not even so although we've added jobs
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each of the last six months
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uh the week to week data and sometimes
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the month-to-month month
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data has a certain amount of unevenness
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to it and
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we what it reminds us is we have
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substantial more work to to do
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i think if you look at where we are
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today
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relative to where we were a year ago or
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18 months ago
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we feel like we've made uh very very
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important
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improvements really on the basis of some
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really decisive stands that the
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president took and that the congress
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took with respect to fiscal stimulus
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with respect to
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efforts to repair the financial system
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and now legislation that
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both reforms the health care system and
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the financial services
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framework and we will keep on this path
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looking at ways to create
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jobs through near-term stimulus so
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that's what the legislation that's about
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to pass the congress will do
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looking for ways to create additional
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incentives for the private sector
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to to grow i would note that if you look
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at the
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uh gdp numbers that were released last
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week they suggest i think an important
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increase in the level of business
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investment and of private
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sector consumption that
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are i think further signs that this
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recovery is starting to
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take hold and to build and
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these other efforts that i've identified
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are meant to continue that along
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to help transfer the
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the job creation to the private sector
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which is
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where it ought to happen and should
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happen and to do so in a way that
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is um also responsible and credible
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within a
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broader fiscal context that our country
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has over the um over the longer the
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intermediate and longer term
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hi public policy seems to focus a lot on
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startups and small businesses since
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those are regarded as
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engines of job creation but in the u.s
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although middle market
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companies account for about 6 trillion
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in revenues
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and 32 million employees i mean what has
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been your policy so far to provide
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incentives in that sector
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and what steps do you plan to take in
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the future to strengthen it further
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well i think if you look at the
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administration's efforts
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partly related to the recovery act
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fiscal piece partly related to the
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tax initiatives of the administration
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there's a lot of focus on
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investment in healthcare in green energy
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and a range of things that span sort of
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businesses small medium-sized bigger
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businesses
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so the focus on small businesses by no
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means meant to be
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exclusive of focus on finding ways to
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generate growth and job creation across
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the range of businesses by size or by
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geography or for that matter by
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sector and i think you'll continue to
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see
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a set of tax policies that are focused
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on trying to generate research and
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development and
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technological innovation that both
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create near-term growth but also
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and importantly are focused on things
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that are important to the
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longer term health of our economy and of
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our country
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uh in in other sorts of ways so whether
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it's energy or healthcare education
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uh so forth you spoke really eloquently
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about the reforms of the 1930s
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and the criticisms that were made and
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what the outcome was
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but clearly those reforms didn't prevent
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crises in the
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in the future including the most recent
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one so my question is
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if you were to look at the dodd-frank
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act
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do you believe it will prevent future
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crises and if not
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what financial risks does it fail to
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address and what do you plan to do about
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those risks
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that's a good challenging question for
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the last one
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so first i guess i'd start by saying um
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although what you say about the
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sort of spate of legislative activity in
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the 30s is true
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it is also true that for 60 or 70 years
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or more
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that essential framework the one that
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was created in that sort of
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couple year period in the early mid 30s
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established a framework that allowed our
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financial services
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um our financial markets and our
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financial services sector
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to um uh exist
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on a stable strong platform
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in ways that allow it to generate you
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know to intermediate an enormous amount
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of
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investment and innovation and economic
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growth
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the likes of which the world has never
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seen and it is true of course
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and we see it now we know it empirically
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that at some point
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that extraordinary set of things that
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were put in place at that time
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um outlive their capacity
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to actually protect the system
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and there's a range of reasons for that
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um
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and you know the literature is already
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big and it's getting bigger by the
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nanosecond as to what exactly
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you know the causes were and and all of
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the
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sort of the ideology if you will of the
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crisis
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um but it was awfully good for an
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awfully long time in the envy of the
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world and i would make the strong
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argument
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you know the best it's ever been so now
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we need a new set of things and that's
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really what we've just been
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about trying to create in our in the
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continuing process of creating
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you know my crystal ball is not uh 70
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years clear
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might not be seven weeks probably not
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seven days clear um
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but um but i think that the goal here
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was to
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create a framework that
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that had the capacity to
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to deal with to bend to to
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to be flexible to a financial services
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world a set of markets that morph at a
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shocking pace uh that are changing and
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innovating
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with lightning speed and that create the
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governance structures and the
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authorities
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to allow the government to do things
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that will
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substantially lessen the probability of
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crisis
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so all the things i mentioned and other
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things as well but
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the core of it i mentioned looking at
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the big most complicated forms the kinds
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of firms that have the capacity to
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create that
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problems at on that scale and treating
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them in a very different
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more consolidated sort of more synoptic
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kind of way
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to make sure that the basic prudential
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rules are a bunch more robust
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that you know buffers are higher
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the margin of error is extended a whole
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bunch
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to make sure that you know opportunities
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for arbitrage in the system
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are squeezed out that gaps where
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risk started to build up the non-bank
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sector being you know broadly speaking
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kind of a classic thing
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the derivatives markets another broadly
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speaking big thing
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are treated and treated seriously but to
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give the government tools
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to adjust its approach over time as the
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world turns and as markets innovate and
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as our understanding of risk
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changes and advances
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and then importantly to make sure that
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the government also has
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a set of tools on the back end so that
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if there is stress again
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and you know there will be stress again
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the government has a better capacity to
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deal with it
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than it did over these last few years
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where the
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options were thin and they were pretty
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uh sub sub optimal and
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and you know and we saw
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kind of you know what happened so this
00:14:57
is not meant to be a magic elixir
00:15:01
this is meant to be a serious rigorous
00:15:05
set of rules that we think has
00:15:09
the fundamental basis covered the things
00:15:11
that not just
00:15:12
relate to fighting the last war which is
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the tendency of folks
00:15:18
in government and out of government to
00:15:19
do but also
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to create the the flexibility to
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fight wars uh if i could use that
00:15:29
metaphor again that we can't conceive of
00:15:31
quite yet
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but that will no doubt be coming around
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the corner
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you
