 I think, okay, so good afternoon everyone. I'm Lisa Donner and I'm the Executive Director of Americans for Financial Reform. I want to welcome you and thank you all for coming on behalf of Americans for Financial Reform and also the Economic Policy Institute and the Roosevelt Institute with whom we are jointly sponsoring today's. I'm going to very quickly say something about what we hope to do this afternoon and then also very quickly introduce Senator Warren so we can spend as much time as possible actually listening to the senator before she needs to go. Especially after the recent Stronger Jobs Report, next week's meeting of the Federal Open Market Committee will be the occasion for a bunch of argument about whether the Fed should increase short-term interest rates in order to head off inflation and prevent excessive speculation and risk-taking in the world of finance. But raising interest rates is likely to hurt job growth and throw a damper on economic recovery, which is already coming very slowly, if at all, for too many people who are hit hard by the financial crisis and its aftermath. What if there are alternative ways to approach dealing with bubbles and other speculative dangers with regulatory tools that are more targeted to specific risks? And what if using financial regulation effectively could also help allow the Fed to stimulate the economy in ways that deliver more benefits to working people and are less likely to further overweight the financial sector? These are hardly radical questions. And Chair Janet Yellen has talked about the importance of macroprudential regulatory tools to deal with financial stability and the work that the Fed is doing to put these in place. But we think they're very important questions and that they need more attention and we want to dig in further. For many of us, too, putting these pieces together is part of our continuing focus on deepening our understanding and the public's recognition of the fundamentally important relationships between the financial system, financial regulation and how the real economy works or fails to work for everyday Americans. So our first panel, immediately after Senator Warren speaks, will focus on the downsides of relying only on monetary policy as a tool for stabilization, as well as on the debate about the extent to which the Fed should pull back its support for economic recovery in order to keep inflationary pressure in check. Then there'll be a second keynote from Paul Kregman. And then the second panel will examine the financial regulatory tools available and consider how and to what extent they can in fact be used to control financial risks. Now for Senator Warren. We're very fortunate to have the senator with us today and even more fortunate to have her in the Senate every day and enjoy her leadership standing up to the excessive economic power and political influence of Wall Street in spelling out the harm that does to families and communities and in insisting that things need to be and can be different and that legislators and regulators can make different choices to get us there. We've been lucky enough to work with the senator on the creation of the new Consumer Financial Protection Bureau, a remarkable example of the difference that approach can make and are so glad to be able to continue the conversation about advancing these important principles. Senator Warren. Thank you. Thank you. Thank you for the kind introduction. Thank you for this chance to be able to join all of you here today. Today's event focuses on how the Federal Reserve can use its monetary tools to promote economic growth and its regulatory and supervisory tools to rein in our financial system. You know, the Fed has always had dual responsibilities, monetary policy and regulatory and supervisory policy. But in the wake of the 2008 financial crisis, Congress gave the Fed even more regulatory and supervisory authority than it had before. The new chair of the Fed, Janet Yellen, recently acknowledged the Board's supervisory responsibilities are just as important as its better known obligation to set interest rates and conduct monetary policy. I think the lapses that led to the 2008 crisis drove that point home with searing intensity. The Fed is now our first line of defense against another crisis. And we've made progress through the Dodd-Frank Act. The risk, even so, the risk of another crisis remains unacceptably high. Take just one example. This summer, the Fed and the FDIC determined that 11 of the country's biggest banks had no credible plan for being resolved in bankruptcy. Now, that means that if any one of them takes on too much risk and starts to fail, the taxpayers would have to bail it out to prevent another crash. We're all relying on the Fed to stop that from happening, which means we're all relying on the Fed to get tough in regulating the biggest banks. The question is whether the bank regulators can do the job we need them to do. And that raises an issue about the influence of Wall Street on financial regulation and economic policy. It's an issue that affects not only the Fed, but also the other banking regulators, the Treasury Department, and our government's entire economic policymaking structure. So let's look at some facts. Fact one, Wall Street spends a lot of time and money influencing Congress. Public citizen and the Center for Responsive Politics found that in the run-up to Dodd-Frank, the financial services sector employed 1,447 former employees to carry out their lobbying efforts, including 73 former members of Congress. And according to a report by the Institute for America's Future, by 2010, the six biggest banks and their trade associations employed 243 lobbyists who once worked in the federal government, including 33 who had been chiefs of staff and for members of Congress, and 54 who had worked as staffers for the banking oversight committees in the Senate and the House. Now, that's a lot of former government employees and congressmen pounding on Congress to make sure that the big banks get heard. No surprise that the financial industry spent more than a million dollars a day lobbying Congress on financial reform, and a lot of that money went to former elected officials and government employees. Fact two, Wall Street dedicates enormous amounts of time and money to influencing regulatory policies. The Sunlight Foundation, a nonpartisan nonprofit organization, took a look at all of the meeting logs from 2010 to 2012 of the Treasury Department, the Commodities Futures Trading Commission, and the Fed. It found that those three agencies reported meeting with one of the 20 big banks or banking associations a combined 12 and a half times a week. That's about five times as often as reform-oriented groups combined. That works out to nearly 1,300 meetings over two years. Goldman and J.P. Morgan each met with those agencies at least 175 times, or nearly twice per week, every week on average. And keep in mind, that's the count at only three of the seven major regulators. Fact three, Democratic administrations have filled an enormous number of senior economic policy positions with people who have close ties to Wall Street. Starting with Robert Rubin, a former city group CEO, three of the last four Treasury secretaries under Democratic presidents have had city group affiliations before or after their Treasury service. The fourth was offered, but declined, city group CEO position. The new vice chairman of the Federal Reserve, Stanley Fisher, was a city group executive. Directors of the National Economic Council, the Office of Management and Budget, our current U.S. trade representative, and senior officials at the Treasury Department have also had city group ties. Now that's the record for just one single bank. Many other senior officials in recent administrations have had ties to Goldman, J.P. Morgan, Bank of America, Morgan Stanley, or other major Wall Street firms. Still more officials, including two recent appointees to the Commodity Futures Trading Commission, or lawyers who spent huge portions of their careers representing Wall Street institutions. This is the revolving door at its most dangerous. In virtually every economic policy discussion held in Washington, the point of view of Wall Street banks is well represented. So well represented, in fact, that it often crowds out other points of view. And that's the context for thinking about the nomination of Antonio Weiss. He spent the last 20 years to be at the investment bank, Lazard, and he's been named to be undersecretary for domestic finance at the Treasury Department. He has focused on international corporate mergers, companies buying and selling each other. Now, it may be interesting, challenging work, but it does not sufficiently qualify him to oversee consumer protection and domestic regulatory functions at the Treasury Department. In addition to his lack of basic qualifications, Mr. Weiss was part of the Burger King Inversion Deal that moved the U.S. company to Canada as part of a merger that would cut down on its tax obligations. Also note that Mr. Weiss's friends at Lazard are giving him a golden parachute valued at about $20 million as he goes into government service. For me, this is just one spin of the revolving door too many. Enough is enough. The response to these concerns has been, let's say, loud. First, his supporters say, come on, and he's an investment banker, so of course he should be qualified to oversee complicated financial work at Treasury. But his defenders haven't shown that his actual experience qualifies him for this job at Treasury. Professor Adam Leviton, a law professor who teaches financial regulation in Georgetown, wrote a really good piece about this last week. He looked at each of the functions of the undersecretary position and, as he put it, quote, almost none of that relates to the work of an investment banker doing international M&A. Professor Simon Johnson, the former chief economist at the IMF who now teaches at MIT, agrees. He noted last week that this position was, quote, the third most senior official in the executive branch with regard to physical decision-making. And then he goes on to say, it's hard to think of any senior physical official from a serious country with qualifications as weak as those of Mr. Weiss. End quote. Professor Leviton and Professor Johnson are right. I worked at Treasury, and I know how critical this position is to financial regulation issues. Despite what some of Weiss's supporters have said, the job isn't just to pedal U.S. Treasuries to foreign investors. And even if it were, Weiss is a corporate dealmaker, not a bond trader. Professor Leviton makes another good point about this. Quoting Professor Leviton again, the shock of Mr. Weiss's supporters, that anyone would dare question his suitability, reflects an unspoken assumption that anyone from Wall Street is, of course, expert in all things financial. That's hooey. End quote. I agree. We'd all scratch our heads if the president nominated a theoretical physicist to be the surgeon general just because she had a background in science. It's no less puzzling for the president to nominate an international merger specialist to handle largely domestic economic issues at Treasury because he has a background in finance. Second, why supporters say that Burger King isn't a classic inversion deal? Okay, so when Burger King moved to Canada in a deal that would lower its taxes, I guess it was an unclassic inversion deal. Got it. But let's be clear. In August and September of this year, more than 2,600 news stories mentioned Burger King in the context of tax inversions. There has been some debate over the details. People disagree about what the exact implications will be for Burger King and whether their taxes will go down a little or go down a lot. But no matter how many Burger King executives line up in the newspapers to say that they had other motives, this is an inversion deal and Mr. Weiss was right in the middle of it. Now, this matters because at the end of the day, the administration undercuts its own opposition to this practice by nominating someone to a high-profile cross... who was involved in a high-profile cross-border inversion and who, by the way, made $15 million in the last two years working for Lazard, a firm that did three of the four major announced inversions. And by the way, Lazard isn't an American company anymore either. It already moved to Bermuda to cut its taxes. Third, and maybe you can help me understand this argument, people say opposition to Mr. Weiss is unreasonable because, wait for it, he likes poetry. I'm actually not kidding on this one. Supposedly, because he helps publish a literary magazine called The Paris Review, we should trust that he will zealously pursue financial reform. Now, I confess, I don't read many literary magazines, but really? If he liked monster truck racing, would that show that he supported Wall Street bailouts? I don't get what his hobby has to do with overseeing consumer protection and domestic regulatory functions at the Treasury Department. So what is this really all about? Why call out the cavalry for a guy whose experience doesn't match the job he's been nominated on? Why circle the wagons around a guy who's picking up $20 million to take on a public service job? It's all about the revolving door. That well-oiled mechanism that sends Wall Street executives to make policies in the government and sends government policy makers straight back to Wall Street. Weiss defenders are all in, loudly defending the revolving door and telling America how lucky we are that Wall Street is willing to run the economy and the government. In fact, Weiss supporters even defend the golden parachutes like the $20 million payment that Weiss will receive from Lazard to take this government job. Why? They say it is an important tool in making sure that Wall Street executives will continue to be willing to run government policy making. Now, if that sounds ridiculous to you, you are not alone. Sheila Baer, a Republican and the former head of the FDIC responded that, quote, only in the wonderland of Wall Street logic could one argue that this looks like anything other than a bribe. End quote. She went on, we want people entering public service because they want to serve the public. Frankly, if they need a $20 million incentive, I'd rather they stay away. Why does the revolving door matter? Well, because it means that too much of the time, the wind just blows from the same direction. Time after time in government, the Wall Street view prevails. And time after time, conflicting views are crowded out. Consider the deregulation of the banking industry in the 1980s and 90s, followed by the no strings attached bailouts in the aftermath of the 2008 financial crisis. And most recently, the anemic efforts to help homeowners who had been systematically cheated by financial giants. The wind always blows in the same direction. The impact of the revolving door can sometimes be subtle. No one likes to ignore phone calls from former colleagues, and no one likes to advance policies that could hurt future employers. Relationships matter. And anyone who doubts that Wall Street's outsized influence in Washington has watered down our government's approach toward still too big to fail banks, has their eyes deliberately closed. Take one example. Brown Kauffman was a proposed amendment to the Dodd-Frank Act that would have broken up the nation's largest financial institutions. That amendment might have passed, but it ran into powerful opposition from an alliance between Wall Streeters in government and Wall Streeters still on Wall Street. The hand-in-hand between Treasury officials and Wall Street executives on this was not subtle. A senior Treasury official publicly acknowledged it at the time. The revolving door rips the heart out of public service. Too many people get jobs based on who they know, not what they know. Too many others who might have brought a different perspective to this work had crowded out. I know that there are experienced and innovative people in the financial industry who are qualified for top economic positions in government. Look, when I set up the new Consumer Financial Protection Bureau, I interviewed, I hired, and I worked alongside many people with Wall Street experience, and I was glad to do so. In the Senate, I have voted for plenty of nominees with Wall Street experience, but we need a balance. Not every person who swoops in through the revolving door should be offered a top job without some serious cross-examination. Qualifications matter, and vice doesn't have them. This is about building counter-pressure on the Wall Street bankers. Members of Congress, their staffs and the regulatory agencies are going to hear the Wall Street perspective loud and clear, each and every minute of each and every day. That isn't going to change, but we need a real mix of people in the room when decisions are made. When the President has an opportunity to decide who will be at the financial decision-making table, he should think about who knows the economics of job creation, about community banks and access to financing for small business, about who has the skills and determination to make sure that the biggest banks can't take down our economy again. The titans of Wall Street have succeeded in pushing government policies that made mega-banks rich beyond imagination while leaving working families to struggle from payday to payday. So long as the revolving door keeps spinning, government policies will continue to favor Wall Street over Main Street. I hope you will join me in saying, enough is enough. Thank you. My name is Josh Bivens. I work at the Economic Policy Institute. I want to start first by welcoming people to the event, but also because we wanted to maximize the time for Senator Warren. I'm also going to present not just my own thoughts as a member of this first panel, but also take on kind of the welcome chore of trying to frame why we think the topics being addressed today are so important and are going to be such big questions going forward in the economy. They're important first because the economy is a great recession, and I think the gap between today and what a healthy economy looks like is often underestimated. And so, trying to make this move. Can we get the first slide? Sorry about that. So this is basically just one measure of it. And basically, in terms of employment conditions, my best estimate is that we're probably about halfway recovered from the great recession. This is the share of adults between the ages of 25 and 54 who have a job. Lots of complexity in how you measure some measures of labor market conditions. This is prime age adults. They have really strong labor force attachments. They didn't decide in 2008 to all just take vacations or take an extended time off. They lost their job because of insufficient demand and they've only recovered less than half. And so I think this is just one measure of how much slack remains in the economy. And the issues we'll raise today are important as well because the Fed has been the only macroeconomic policymaking institution that has been consistently and aggressively targeting a return to full recovery pretty much from the minute the great recession began. And in recent years, they faced some really large headwinds from other policymakers' failures, and particularly Congress. And basically our fiscal policy at this point, you know, you've got two tools of macroeconomic stabilization. You have fiscal policy and monetary policy. Fiscal policy at this point in the recovery has been radically different and radically destructive to growth compared to recoveries from pretty much every other post-war recession in U.S. history. Can I get the next slide? Thank you. And to say this really plainly, if federal spending had grown after the great recession along the same trajectory that characterized its growth following the recessions of the early 2000s, the early 1990s, or yes, even the early 1980s when Ronald Reagan was president, if spending since the great recession had just matched those trajectories, we would have hundreds of billions of dollars of additional federal spending today and we would be fully recovered from the great recession hands down. What has kept recovery from happening is the historically different, the historically unprecedented degree of fiscal austerity we've been dealing with. Yes, the Recovery Act in 2009 was hugely important. It broke the back of the recession. It provided for decent growth for about two years after its passage, but with the debt ceiling showdown and the resulting Budget Control Act of 2011, we have throttled spending, and hence economic growth to a degree that people really haven't appreciated enough. No, we haven't embraced sort of Spanish and Greek levels of austerity, but we have embraced austerity that is unprecedented relative to our own economic history. So today monetary policy is the only tool of macro-stabilization that we have going, and it's actually a pretty weak tool when the economy remains sluggish even after six years of conventional short-term interest rates being stuck at zero, something economists sometimes like to call the liquidity trap. But it's important because a weak positive is a lot better than a powerful negative, like from fiscal policy. And also monetary policy is directed by essentially Janet Yellen, not by John Boehner and Mitch McConnell, and so at least we have some chance of evidence providing an input into the decisions being made in that realm, and so that's a big part of what this panel, the panels today are going to be about, insisting that evidence, not vague conventional wisdom, not outdated economic dogma, but evidence be the deciding factor that the Fed makes decisions. There's a course of pretty influential voices, including regional Federal Reserve bank presidents, that have insisting that monetary policy should join fiscal policy in trying to restrain growth in the name of fighting inflationary pressures. And that's, I think, part of what our first panel will talk about. The second panel is going to address sort of a new reason why the Fed should restrain growth. It's you need to restrain growth because we don't believe financial regulation can work and only sort of hurting the overall economy, and keep bubbles from happening. I think the second panel is going to address that really well, so I'm going to focus on the first. Wages have been rising about 2 to 2.3% for the past four years. Nominal wages, not real, not inflation-adjusted. Nominal wages have been rising about 2 to 2.3%. And there's very little evidence of any upturn going on, and so let's put this number in some perspective. Trend productivity growth is about 1.5 to 2%. The Fed's price inflation target is about 2%. I think lots of us think that's too low a target. That's fine. What we'll take it is given for now. Wage growth of 2%, what we're seeing today, combined with trend productivity growth of 2%, puts zero upward pressure on wages. It is consistent with zero inflation. Yes, hourly wages are 2% higher every year, but output per hour rises by 2% every year, so the price per unit of output does not budge. And so basically we're seeing wage growth today and over the past four years is consistent with about zero price inflation. So if the Fed is serious about its 2% inflation target, this means that wages should grow about 3.5%, 4% in trend, almost twice as fast as they're rising today. And further, the share of domestic income going to workers rather than capital owners plummeted in the early stages of this recovery and hasn't recovered at all since. So this means we need a long period of wages going faster than trend to claw back some of that share of national income that workers lost during the early stages of recovery. So nominal wages, price targets, productivity, lots of stuff. We've tried to boil it down in this chart right here that you're seeing. That bottom line, the sort of the squiggly one, that's actual hourly wages and levels. And then the line that goes above it is sort of what these wages would be if they had grown at the 3.5% to 4% wage target that's consistent with the Fed's 2% price level and trend productivity growth and a stable labor share. That cumulative gap between these two lines, this is basically where wages need to be to not only be consistent with 2% inflation and trend productivity, but actually to get back the share of national income that has gone away from wages since the recovery began. You do the math on this, you basically realize we could have 10 years of nominal wage growth of about 4.5% well over double what we're seeing today before we regained pre-great recession and levels of labor share. And so the idea that people are going to look at one month of wage data that's running in the 2 to 2.5% and say, ah, inflation is right around the corner and we need to get ahead of this. Where could this belief possibly be coming from? And so I think that's where I'm mostly going to end. I'm going to say a couple words about where this belief is coming from and it's nowhere useful and it should be changed. Before the crisis of the Great Recession, sort of the more and more macroeconomists signed on to an incorrect consensus that said macro policy should really be about setting a very low inflation target, 1 to 2%. And all you need to do to keep the economy healthy and keep that inflation target is have the Federal Reserve move short-term interest rates a little bit. Some people, sort of older school people who got educated back when we talked about a dual mandate, what about the dual mandate and what about unemployment? Not really a concern. I mean, if you occasionally had to lower interest rates a little bit to get unemployment down, you could do that, but you have to be really careful because inflation is always looking to get its nose under the tent and wages are always looking to just take off. And today's inflation hawks, you'll know, they love metaphors like you have to shoot ahead of the duck and sort of sort of justify in the fact that you say there's no inflation in the data and they go, but it's coming. You have to shoot ahead of the duck. Metaphors are nice, but data and economic reasoning are better. And so our first panel is going to assess this overall policy wisdom about abandoning all tools except short-term interest rates for macroeconomic stability. And I'm just going to end by talking about, I come from someone who lives in the D.C. policy world and thinks way too much short-term day-to-day. And to me, the most important bit that needs reassessment is this idea that wages are always looking to leap ahead of productivity growth and push prices through the roof. And you've got the chart right there. This is real wage growth. This is average annual real wage growth for three periods, 1979 to 1995, 2002 to 2007, 2007 to 2013. The thing to note is that the bottom 70% of wage earners in those 27 years saw zero or outright negative real hourly wage growth in these 27 years. This does not look like irresistible wage pressure. Wage is always looking to surge forward. That's not what that chart looks like to me. If we go to the next chart though, I did leave out a period. I left out the period from 1995 to 2001. This period actually saw across the board wage growth. What was unusual about that period? Well, that was a period where the Fed actually decided to not let economic dogma and economic metaphors about shooting ahead of the duck trumped the data showing that inflation was not happening. And they actually allowed unemployment to go down to 4% for two solid years. And what did we get? Did you remember hearing about the great inflation of the late 1990s? It did not happen. What did happen was across the board wage growth for the first time in a generation. So there's a lot of stake here. But I think what we need to know is that widespread wage growth requires very low rates of unemployment, and the last generation of economic life does not support the idea that the Fed needs to be super vigilant about fighting phantom hypothetical forthcoming inflation pressures. They should actually see them in the data before acting. And we also need to figure out how to not let future recessions do so much damage on the American economy. And with that, I'm going to turn it over to Bob Pollan from the University of Massachusetts Amherst. Bob, this was not working for me. You should give it a try. You need to turn it on. Okay. So this doesn't work. Okay. Okay. Well, thank you very much for inviting me. And I want to talk about Fed policy and thinking more broadly about Fed policy. So Josh made it very clear that we have gotten some good news. Certainly this past week on jobs, but we need to consider these in a broader context. So Josh already gave a good background on considering what's happened in a broader context of wage and employment trends relative to prior to the recession. The other factor in thinking about where we are now and the experience of the Great Recession is to extract some lessons from the Great Recession and enabling us to think more sharply about Fed reserve policy. What I want to try to argue for is to think about using the broader tools that are available to the Fed that were clearly deployed by the Fed in order to bail out Wall Street to think about these tools in a way to achieve a broader and more sustainable recovery. So the first picture there, let's see, can I go over there in point or are we recording? You can do that. There's an aggressive reaction on financial crisis. That is, in 2007 the federal fund rate was at 5.3%, which is quite high, but their aggressive move was to move it down by the end of 2008 to zero, effective to zero, and that's where it stayed. So when we think about the Fed's monetary policy response to the crisis, this is it. This red line is essentially the single most important thing to observe. Now the next thing, though, is the quantitative easing policy through which the Fed was purchasing government bonds to bring down the longer term rates as well as the federal funds rate, and the technique was to buy longer term treasuries. And the impact of that is this blue line. So this is the 5-year treasury bond rate, and you see the treasury bond rate also falls quite sharply, not as sharply as the federal funds rate, because the tool here is the federal funds rate itself, and then on top of that we're overlaying the quantitative easing that the bond purchases. But nevertheless, what we see is very low treasury rates, which is very favorable in terms of government borrowing, because we can borrow the rates. By the way, on this issue of government status and the need for austerity, the facts are that government interest payments on outstanding debtor actually have historic lows, have been in historic lows for the last three years, and that's because the interest rate on the bonds were low. Now the thing I want to focus on though is this line, which is the BAA corporate bond rate. So it is relatively mid-level risk corporate bonds, and this is the key pattern that I want you to see, which is that when the Fed undertakes its super-aggressive policy to pull down the federal funds rate, what initially happens is that the bond rate actually goes up. See, the bond rate actually spikes at 9.2% while the federal funds rate is going to zero. Now this reflects obviously the perception of default risk in the economy in which we're going through a crisis. But the point is picking up on Josh's first observation is that the tool we have used in the most aggressive way that it ever has been which is to push the federal funds rate down to zero initially led to actually an inverse effect with respect to the bond rate and this is the rate that is being in a business space, spikes at 9.2% and the rate between the bond rate and the federal funds rate remains high so that even by mid-2011 the bond rate is at 6.1% which is not much lower than the rate it was in 2007 before the Fed had undertaken any of these policies. So the Fed was running the federal funds rate at 5.3% and we had a 6.6% VAT bond rate so that by mid-2011 when the federal fund rate is at zero we still have an average of 6.5% So what the point is that as aggressively as the Fed actively respect to the federal funds rate its capacity to influence the whole complex of interest rates is limited. This is very important lesson. Now the second pattern that I'm most stressed here is what's happened to credit availability for non-corporate businesses. In the flow funds accounts we don't have data on small businesses per se but we have data on corporate versus non-corporate non-financial businesses. So what I'm showing here is the pattern for this is 2007 so right before the crisis non-corporate borrowing was $514 million overall aggregate and by the middle of the recession it collapses to negative 200 million. So the non-corporate businesses are paying back to the 200 million more than we're taking in at all. Of course the non-corporate business world the small business world remains at the severe slump because they don't have access to credit. Now what we see here is the pace of the recovery. Josh showed an important data with respect to the labor market. These are data with respect to availability of credit for non-corporate borrowers and what we see here even by this the most recent quarterly data was $414 million we're still at $193 million by the way these are on real dollars $2,014 So we're still this is now seven years after the downturn after the crisis started we're still at less than half of the level of credit availability to effectively smaller businesses. Now one of the arguments is of course well of course during the recession the businesses aren't able to borrow and the banks see excessive risk and they don't want to lend. There is some truth to that but there also was significant credit rationing going on and I want to just briefly quote from a study by the Pepperdine School of Business 2011 survey which says that as of 2011 95% of small business owners reported wanting to execute a growth strategy but only 53% were obtaining the funding they needed to execute their strategy at the same time bankers were reporting that they were rejecting 60% of their loan application. This is a 2011 survey now the Fed itself conducts their own surveys every five years and in the 2012 survey the it's called the report to Congress on the availability of credit to small businesses. The results of that survey are effectively the same as the ones from Pepperdine 2011. So the Fed is again conducting a very aggressive policy with one tool the federal funds rate but the tool is not getting credit into the small businesses as you know small businesses are more labor intensive for a dollar of expenditure you're going to get more job by expanding that sector. Now a third critical pattern is that because of the quantitative easing policy through which the Fed was purchasing government bonds from banks and elsewhere what we have is this massive unprecedented increase in cash reserves being held by commercial banks and this 2007 the level of cash reserves held by the commercial banks was $20 billion that's for the whole sector $20 billion and it starts by 2008 it's up to $940 billion by the most current data the current data for the Fed. We're now $2.5 trillion in cash reserves being held by the commercial banks. It's not government bonds these are cash reserves that's 15% of USGED so the approval of 15% of USGED is being held as reserves. Now there's arguments as well this was not a policy tool and just because the banks have reserves doesn't mean the act of land of course they have to see the profit opportunities that's all true they need to have a cushion to standardize themselves when the next infinity crisis is all true but we've got to keep in mind we're talking about 15% of USGED if we locked off 10% of it so that's still $250 billion that's more than half of one year of the entire stimulus program the AERA which was $400 billion a year and what we can do is think about creative ways to channel something equivalent to that level of credit into small businesses into infrastructure activities and the Fed can play a critical role here so to wrap up I just want to remind all of us about the creative things that the Fed did during the crisis focused on damning out industry that were unconventional policy of monetary policy interventions that is they expanded lending facilities to mortgage brokers money market funds and insurance companies so let's think about some creative things that the Fed can do now to channel credit into productive activities into job generating activities and opportunities for small business one which has been proposed by a lot of people is to impose something like an excess reserve tax or a maximum reserve requirement if we call it a maximum reserve requirement the Fed can do that tomorrow they could vote it in tomorrow it's within it's within their mandate and what is the rate in which they need to do that in order to start channeling funds out of this excess level of reserves I don't know what that level is but you start imposing it and you see what the response is and you see the extent to it you're able to shift incentives now what would we do with those funds and one thing we can think about ways to subsidize credit back into small businesses as we see seven years after the crisis the level of credit for small businesses is less than half seven years after the crisis the level of credit for small businesses is less than half we can do that through we can set up a facility through our existing policy framework the small business administration we can expand low guarantee you have as it is you have about $150 billion about spending low guarantees to small businesses the small business administration and the export import bank you could double that if you double that and you make some very plausible assumptions about default rates I can go through if you want but the basic point is you're going to impact the federal budget by like one quarter of one percent now some other things that the Fed could do that I would wrap up the Fed can expand a Article 14 of the Federal Reserve Act can make direct loans to municipalities now they can only do short term loans but they can make loans they can buy municipal bonds now Fed could buy municipal bonds now and municipalities can set up facilities for small businesses in their community or they can support infrastructure projects that channel credit jobs into communities and I'll add just one anecdote I was involved in 2010 at a conference at the Federal Reserve Bank of Cleveland on green recovery at the Federal Reserve Bank of Cleveland and we talked about ways to which you can start stimulating investment in green economy in Cleveland and then the Fed and this guy by then came up the Fed has the power to pursue this they didn't they have it but they can't so there's a lot of opportunity there the funds are available we need more powerful tools we need the Fed to be aggressive not just in supporting Wall Street and filling out Wall Street but channeling credit hi can I get my slides up here so as Josh said the immediate danger the immediate problem we face in debates about macroeconomic policy I forgot to put my name on the top slide I'm Josh Mason J. W. Mason of John J. College and the Roosevelt Institute Financialization Project as Josh said the immediate danger that we face in sort of the debates about macroeconomic policy is this pressure to move towards contractionary policy too soon this sort of desperate flailing around for excuses to shift towards more higher interest rates or other forms of contractionary policy this sort of frantic search for evidence overheating in an economy that really quite evidently still has an enormous amount of slack left and this sort of effort is basically the one that Josh mentioned which has been getting more attention lately is the notion that we need tighter monetary policy as a tool for stabilizing the financial system as a tool for preventing future asset bubbles I think Elizabeth Warren is absolutely right Senator Warren is absolutely right that this Fed has the tools already to limit the kind of irresponsible lending that fuels bubbles without the need to raise interest rates in a way that could be destructed and people will be talking I think about some of those tools but I think also if you take a step back and you think about