CHAIR: Time of the gentleman has expired. Senator Sanders.
SANDERS: Thank you, Mr. Chairman. Welcome, Mr. Chairman.
We have spent a lot of time in Congress talking about the $700 billion TARP bailout, which I voted against, as it happens.
Not a whole lot has been talked about with regard to the $2.2 trillion that the Fed has lent out.
Now, I find it absolutely extraordinary that I wrote you a letter and I said, hey, who’d you lend the money to?
What were the terms of those loans?
How can my constituents in Vermont get some of that money?
Who makes the decisions?
You guys sit around in a room, do you make it?
Are there conflicts of interest?
So my question to you is, will you tell the American people to whom you lent $2.2 trillion of their dollars?
Will you tell us who got that money and what the terms are of those agreements?
BERNANKE: We explained each of our programs.
In terms of the terms, we explained the terms exactly.
We explained what the collateral requirements are.
SANDERS: To whom did you explain that?
BERNANKE: It’s on our Web site.
SANDERS: Yeah, okay.
BERNANKE: So all that information is available in our commercial—
SANDERS: And who got the money?
BERNANKE: Hundreds and hundreds of banks, any bank that has access to the U.S. Federal Reserve’s discount—
SANDERS: Can you tell us who they are?
BERNANKE: No, because the reason that it’s counterproductive and will destroy the value of the program is that banks will not come to—
SANDERS: Well, isn’t that too bad?
SANDERS: In other words, isn’t that too bad.
They took the money but they don’t want to be public about the fact that they received it.
We heard a whole lot about AIG.
They’re in the front pages.
BERNANKE: These are very—
SANDERS: Now I’ve got banks and I have businesses in the state of Vermont who are in a lot of trouble, not banks.
Our banks, by the way, are doing pretty well.
Now, how do these guys who are honest businesspeople get it?
Do you have to be a large, greedy, reckless financial institution to apply for these monies?
BERNANKE: There is no subsidy.
There is no capital involved.
There is no gift involved.
It is a collateralized short-term liquid loan that is both over-collateralized and is recoursed to the company itself.
We have never lost a penny doing it.
SANDERS: And how can other institutions get those loans as well?
BERNANKE: According to the law, we are supposed to be lending to depository institutions.
SANDERS: Well, let me just say this, Mr. Chairman.
I have a hard time understanding how you have put $2.2 trillion at risk without making those names available, those institutions public, and we’re going to introduce legislation today, by the way, to demand that you do that.
It is unacceptable to me that that goes on.
Mr. Chairman, one of the untold, one of the issues that bothers me very much is that, for many, many years, some of us were concerned about deregulation.
Some of us were very concerned about where the economy was going.
We didn’t hear much coming from the Bush administration, who told us over and over again that the fundamentals of the economy were sound.
We didn’t hear much from the Fed.
Now, looking back, do you think that maybe there was a problem there that you did not raise some alarms out there and said, we’ve got a problem when trillions of dollars are being floated around the world in a deregulated, non-transparent way?
When you heard people talking about the fundamentals of the economy being sound, how come you didn’t raise an alarm?
BERNANKE: Well, there was a massive credit crisis, and it’s been true that our regulatory system and our financial supervisory system did not succeed in preventing those impacts, and I think it’s very important that—
SANDERS: Did not succeed in preventing them.
Let’s take it another way.
Do you think that the repeal of Glass-Steagall was a tragic mistake?
BERNAKE: No, I don’t think so.
But I do think we need to have much more effective holding company and oversight supervision, and I strongly support a strong program of regulatory reform going forward.
SANDERS: Mr. Chairman, in my state people ask me how it could be that you’re providing loans at almost zero interest rates to large financial institutions, who are then charging consumers 25% or 30% interest rates on their credit cards.
Do you think that that’s acceptable, or do you think that those institutions that are receiving help from the Fed should substantially cut those interest rates?
BERNAKE: Well, with respect to credit cards, we’ve been working actively in that area in a couple of dimensions.
One is that credit card, credit availability will be enhanced by our (inaudible) program, which I’ve just announced—
SANDERS: No, but you’re not answering my question.
Should a financial institution that is being bailed out by taxpayers charge those taxpayers 25% or 30% interest rates when they’re receiving—
BERNAKE: Well, you need to address that to the Treasury because it’s the TARP that’s providing help to failing or damaged firms.
The Federal Reserve lends to healthy firms on a collateralized basis—
SANDERS: Last question, last question.
Many, again, of my constituents, and I think people all over this country, are wondering why the CEOs of these large financial institutions who have been extremely greedy, reckless and maybe have engaged in illegal behavior have not been fired so that we can work with people who want to really reform the system.
Should the CEOs of the financial institutions that have led us into this deep, deep recession be fired?
BERNAKE: Well, pay and job tenure should depend on performance, and those that perform poorly should lose their jobs-
SANDERS: Are any of them who have—
BERNAKE: Many have lost their jobs.
SANDERS: Most of them, the major guys, are still holding their positions.
CHAIR: We’ve, so far a bipartisan commitment to keeping time.
CHAIR: Senator Sanders.
SANDERS: Thanks very much, Mr. Chairman, and, Mr. Bernanke, thank you very much for being with us.
I’m going to try to be as brief as I can.
I think I have three questions which I would appreciate your answering.
Number one, first one deals with conflicts of interest at the Fed.
As you know, Jamie Dimon is the CEO and chairman of JPMorgan Chase, which is the largest financial institution in this country.
During the Fed bailout, if you like, when $16 trillion in low-interest loans over a period of time were given out to every financial institution in this country, JPMorgan Chase received over $300 billion of those loans.
The American people, I believe, perceive a conflict of interest when you have, among others, the head of the largest financial institution in America sitting on the New York Fed, which is presumably supposed to be regulating the Fed, regulating these financial institutions.
Many people, including myself, see this as a situation where the fox is guarding the henhouse and that we need real reform in the Fed to make sure that it’s representing the middle class and small business of this country rather than just Wall Street and the big-money interests.
Would you be supportive of legislation that I’ve introduced which says that representatives of financial institutions, not just Mr. Dimon but others, get off of the Fed and they be replaced by folks from the general public?
BERNANKE: Well, you raised, Senator, you raised an important point, which is that this is not something the Federal Reserve created.
BERNANKE: This is in the statute.
This is, Congress in the Federal Reserve Act said this is the governance of the Federal Reserve, and more specifically, that bankers would be on the board—
SANDERS: Six out of nine.
SANDERS: Six out of nine in the regional banks are from the banking industry.
BERNANKE: That’s correct, and that is in the law.
BERNANKE: And what we have done is try to make something useful out of that.
What we’ve done is, first of all, we have taken a lot of actions to negate conflict of interest and, under Dodd-Frank, the GAO did a comprehensive study, as you know, of our governance, did point out some appearances of conflict—
SANDERS: I know. I wrote that provision. I am familiar.
BERNANKE: Yes, and I congratulate you.
But it also found, it also found that there were no actual conflicts of interest because there is a firewall so that the bankers do not have any information or ability to influence supervisory decisions.
I’ll answer your question, though.
The answer to your question is that, Congress set this up.
We have tried, I think we’ve made it into something useful and valuable.
We do get information from it.
But if Congress wants to change it, you know, of course we will work with you to find alternatives.
SANDERS: Okay, thank you, and I think that is something, you’re quite right.
This is something that Congress established a long time ago.
I think it’s time to change it.
My second question is, in America today, we have the most unequal distribution of wealth and income of any major country on Earth, worse than in any time in our country since before the Great Depression.
You’ve got 400 individuals owning more wealth than the bottom 150 million Americans.
You’ve got the top one percent owning 40% of the wealth of America, while, incredibly enough, the bottom 60% own only two percent of the wealth in America.
The last report that I’ve seen in terms of income, not wealth, suggests that in 2010, 93% of all new income from the previous year went to the top one percent.
Now my question is, we can talk about economic growth all you want, but to the average person it doesn’t mean a damn thing if all of that new income is going to the top one percent.
Do you believe that we can see an expanding middle class if we continue to have that kind of grossly inequitable distribution of wealth and income?
BERNANKE: Well, I think, it’s not so much a question of bringing down the top one percent as it is bringing up the lower 99%.
The question is, how can you strengthen the middle class?
How can you make middle-class incomes higher and more secure?
This has been a, as you know, a trend that’s been going on for 35 years and it’s related to a lot of factors, including globalization, the technical change, which has made a high school education simply less valuable.
So I would be very much in favor of measures to strengthen the middle class and to help the average American do better, and approaches like education and so on would, I think, be very constructive.
SANDERS: Last question.
SANDERS: You have six of the largest financial institutions in this country, the large Wall Street banks, that have, together, assets equivalent to two-thirds of the GDP of the United States of America, over $9 trillion.
You have some folks on the regional Feds and I and some others beginning to talk about the need to break up these huge financial institutions, which have so much economic and political power.
The top six banks write two-thirds of the credit cards in this country and half of the mortgages.
My suspicion is, if Teddy Roosevelt were here, a good Republican, he’d be talking about breaking up these financial institutions.
How do you feel about the need to finally break up these large financial institutions that have so much economic and political power?
BERNANKE: Well, I first commented, a lot of these people saying they want to break up the banks are not very specific.
Does that mean making them a little smaller?
Does it mean making everything community banks?
I really would like to see a plan that clarifies what is really meant by that.
The Dodd-Frank Act put forward a strategy for ending too big to fail.
I think it’s incredibly important to end too big to fail.
That strategy involves taking away the advantages of size.
It means that banks will be allowed to fail but through a safe method that will avoid the effects on the broader financial markets through the orderly liquidation authority that Dodd-Frank created for the FDIC.
It means that large banks will pay, will have higher capital requirements, tougher supervision, will be subject to a whole set of rules that smaller banks will not face.
I will guess that, you know, if the size of banks is basically motivated by a too-big-to-fail motivation, if we take that away, that market forces themselves will make it attractive for banks to downsize, rationalize and so on.
I would add an additional tool that we have from the Dodd-Frank, is the so-called living wills, which require banks to give us information about their very complex structures.
One approach would be to ask banks, for the purposes of being able to be brought into receivership if necessary, is to simplify their structures, to avoid these very complex, interconnected types of situations that I think are as much a problem as sheer size.
Thank you very much.
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