Rather than selling empty foreclosed homes in the market to rent them for a period if thats appropriate. Part of the outcome of that is that banks have been working hard to increase their modifications to reduce foreclosures to assist homeowners who are unfairly treated in the past and so on. From a supervisory, regulatory perspective, we are trying to help, but in that republic, we are like other regulatory agencies who are addressing this issue. Finally, and i dont want to underestimate this part. Analytically. Analytically, we studied the issues from the beginning of the crisis to before, influential in talking to other agencies, the treasury, and talking to the congress in providing ideas and approaches. For example, you put out a year ago, a white paper describing the key issues and approaches and provided analysis for things that can be done to improve mortgage lending. Weve also been very supportive of steps like those taken by the financial the housing oversight, gse oversight body to take steps like clarify the conditions under which mortgages would be put bag to lenders, socalled putback risk or creating programs that convert empty houses into rentals so weve had a lot of influence, i think, in from an analytical and intellectual point of view, and well continue to try to do that. Bottom line is these are challenging problems, and the barriers to more mortgage lending and rapid growth in the housing sector are many and diverse, and theres not a single magic bullet as i know you appreciate. Were trying to work on every margin that we can. In discussions of unconventional monetary policies of which you discussed several, the question of lowering the Interest Rate on excess reserves often comes up, and im often asked why doesnt the Federal Reserve do it . I usually thumb for some sort of an answer, which i dont think is a good answer, but i think you could do better. What would be your answer . Well, i hope i can do better. I dont know. [laughter] so heres the question. The questions the following, so the Federal Reserve is the repository, so to speak, of a very large amount of reserves that the banks hold, you know, with the federal rereceiver, reserve, and we currently pay interest on excess reserves of 5 basis points, oneforth of 1 , a very, very low Interest Rate that we pay. Now, i say paraphernalia its important in the future because when the time comes to raise Interest Rates, one of the tools we have to do that will be this interest on excess rereceivers which reserves which we can raise in a period of time which is in the interest of the board of governors to raise, and by raising it, we will make we will cause short term rates across the spectrum to rise because banks, obviously, are not going to lend into money markets at a price lower than they can get from the fed. This is a very important instrument for us, and well be using that at some point, at the appropriate time, to begin to tighten monetary policy. Now, youre talking about the other direction, why not just cut it to zero, pay no interest on excess reserves, and thereby, get more accommodation . Well, its something weve considered repeatedly, and we continue to consider, and i dont rule it out as an action in the futtre, what we do is the following. If we were to cut the Interest Rate from 25 basis points to 0 , our estimate is it affects short term Interest Rates, like overnight rates, on the order of eight or nine basis points, extremely small amount, in turn, having a smaller effect on loans like Housing Loans or auto loans ect. The stimulated agent act of that action is small, but on the other hand, the concerns weve had or some have had is that if there is no return on institutions, money market funds, repo markets and so on could be liquid because theres little incentive to act in the markets when interests pay zero, why not just hold cash or fallow reserves . So the concern is that, perhaps, the federal funds rate itself is less informative because its determined in a less liquid market. Those are the kinds of concerns weve had. Now, weve seen interesting experiments, and relatively recently weve seen in europe, for example, that an Interest Rate is cut to zero, and its hard to judge what the effect of that really is because the interbank markets in europe are not working very much anyway. Theres a bit of a question what effect that had. Those are the tradeoffs were looking at. Its wrong to think of this as a major tool unused. I think if it were used, it would have some effects that would probably be at least marginally disruptive in terms of market functioning. On the other side, theres a few points of accommodation. Its a small cost benefit calculation. Thats what we come out to this point. Good morning. Well, ben, you mentioned the fiscal cliff, and i think everybody here and a lot of people who are not here are very worried about what happens if we go over the fiscal cliff with estimates that the combination of higher taxes and spending cuts takes some 4 of an otherwise relatively weak gdp, but even if we dont, and some deal is struck, the complication of eliminating the payroll tax reduction, which seems to be something that the administration supports, that, together with base broadening would probably be 2 of gdp, and if theres going to be a deal, it would involve spending cuts as well. Even if we avoid going over the cliff, it looks like there would be substantial fiscal contraction impacts next year. So in that environment, what can the fed do to try to offset that to make sure that it doesnt take us to the edge of or over the edge of a recession. So well see what kind of deal comes out, and i think theres a range of possibilities, but youre correct that even if the extreme scenarios are avoided that some plausible scenarios still involved relatively contractionary fiscal overall. No matter what happens next year, that the tightening of federal fiscal policy will outweigh the stronger, more expansion state and local fiscal policy were getting. All of that is right. Its up to congress and the president , of course, to figure out how they want to make the tradeoffs between getting budgetary improvement n the long run and providing Additional Support for the economy in the short run. Were going to see how that goesment i think, goes. I think, again, my advice on this is sort of do no harm, and in that respect, what im particularly concerned about is that we avoid the full force of the cliff which would be substantial as you point out. If there is some federal tightening. Tightening at the federal level, offset by state and local government, that would be an on going head wind on what i described in my remarks, but, again, i think in that situation, the economy will be growing, all be it, you know, not necessarily at a rapid pace. What the Federal Reserve can and will do is continue its stated policy which is to do additional asset purchases and do whatever actions are appropriate to try to ensure the outlook for labor markets improves in a sustained way and a substantial way. We will continue to do our best to add mop tear policy support to the recovery. A appointment ive made, though, and i just want to reiterate this is that the ability of the feds to offset head winds is not infinite. We have certain tools. We used our easiest tools, and we can certainly have a meaningful contribution to supporting recovery, but, in particular, in the worst case scenario, where the economy goes off the broad fiscal cliff, the largest fiscal cliff, which, according to the cbo and to our own analysis throws the economy into recession, i dont think the fed has tools to offset that, and thats why its important to address the fiscal issues soon, and in a bipartisan way, in a way that achieves the necessary long term stainability concerns, which i know youve talked about frequently, but also takes into account exactly this issue of how much restraint well be experiencing in the next six months to a year from the fiscal changes. Why dont we is jan hopkins ask a question from the audience. Jan . You talked about the uncertainty of businesses because of all of the things you also mentioned, and that impacts decisions on investments, ect. How much growth is loss because of that do you anticipate . Well, thats neither here nor there, but when i was a garage graduate student 30 years ago, i wrote a dissertation on how uncertainty affects investment spending, and i concluded that its not a good thing. [laughter] they gave me a ph. D. For that. [laughter] so it seems pretty clear. I mean, one of the benefits of the way the Federal Reserve operates, you know, we have 12 reserve banks around the country. Bill dudley is here, president of the Federal Reserve bank in new york, and at the fomc, we have folks from all over the country with different experiences and backgrounds talking to their boards, local citizen, and others, Business People, bankers, trying to get a sense of the economy, and so we hear an awful lot around the fomc table of an antedoteal nature is its true they are concerned about uncertainty and thats a drag on investment spending and hiring decisions. In fact, i think its kind of striking that right now consumers seem to be, actually, doing a little better, Consumer Sentiment has risen. Consumer spending has been a bit stronger, but businesses, probably in part because they are exposed to the global economy, in part because they are aware of fiscal issues directly connected to the issues, Business Confidence has been low, and investment responded to. That its been quite weak. I think uncertainty is an important factor. Im sure its retraining particularly longer term investments, leading businesses to wait if the resolution of urn uncertainty before they make commitments to new hirings, new products, new markets. Its clearly a negative. Whats difficult is a couple things. First, you asked for how much. You know, i think its probably significant, but very, very hard to assess in a rigorous way how big effects are. They are meaningful because we see businesses being cautious and conservative, particularly lately. Another question thats important is uncertainty about what . Theres a lot of uncertainties in the world now. Theres uncertainties in europe. Theres uncertainties in the fiscal policy. Theres uncertainties about the stability and strength of the recovery. Its a little bit hard to separate all of those different factors when you ask Business People what are they most worried about . What wed like to do is attack the issue on all fronts. I think fiscal policy has a role to play. We hope our european colleagues take necessary actions to create state on the continent, and as for the federal rereceiver, well do what we reserve, well do what we can to support ongoing recovery and demand for growth and jobs and demand for firms product that removes uncertainty about the future and sustainable of the recovery. I hope we help restore confidence that we need to see a strong recovery. I really have a sense that there is a lot of unused capability, not just in terms of unemployed workers, but in terms of potential products, new investments, new technologies, things that are just on the shelf are not utilized to the full extent because people wait to see how things evolve. I think theres an important potential for the economy to strengthen significantly if theres a greater level of security and comfort about where we are going as a country so i hope very much thats whats going to happen. Thank you. [applause] all right, breaking news right now. Listening to that, Federal Reserve chairman ben bernanke wrapping up comments in the Economic Club of new york. A lot of interesting things there. He talked there at the end about uncertainty Holding Back Business investment. I dont know that uncertainty is the right word anymore. It was uncertainty about obamacare, the election, and then the fiscal cliff. Its not uncertainty more as pessimism and depression on businesses. Taxes, slow growth, and quickly, then off to peter barnes, interesting he said solving the fiscal cliff could be a good year for Economic Growth putting it all on washington and congress to get the fiscal policy in order in order to avoid the fiscal cliff. We have not talked about this, raising the debt ceiling, pushing it again, and he warned that a default could be crisis for Business Opportunity and actions so with that, i guess were ready to go out to peter listening to the Federal Reserve chairman as well in washington with a recap and what stuck out for him. Hello, peter. Hey, thats right. I thought the comments in the end in particular saying the potential for the economy to strengthen significantly exists out there if washington can get its act together and do something to fix the fiscal cliff because he said while the fed, of course, is standing by to provide help for the economy to help keep the economic recovery going, quote, i dont think the fed has the tools to offset that ie, the country going off the fiscal cliff, the economy going over the fiscal cliff, but he did say, repeated the fed is standing by continuing to do all it can to keep the economy going, even if the fiscal cliff occurred, but that there also will be some potential contraction in Government Spending regardless, for example, the expiration of the payroll tax cut so the fed willing to continue to use the tools that has to try to keep the recovery going if washington does not fix the fiscal cliff. All right, so as the Federal Reserve chairman stock, peter, stocks sold off. Not a lot of new news. He addressed the question of why not cut interest on excess reserve to force banks to lend more, but your take as well, was it like is victory lap on the state of housing and the recovery were seeing with housing better than expected as well . Well, no, he said while theres improvement in the Housing Market and has been improvement in housing prices, theres still head winds in the Housing Market. For example, lending standards continue to be tight, and he talked about the role of the fed as a Bank Supervisor and how its trying to work with banks to find the right balance between loosening up standard for credit worthy borrowers and prudent in the lending so we dont get into another housing bubble, another crisis. He i dont think he was ready to declare victory yet. Fair point. I thought he was spending so much time on housing it was an easy area to talk about. No, no, youre right, youre right. Its a great conversation to have. Always appreciate your input, peter barnes. Okay, thanks. Fox business stock alert, shares of hewlittpackard after the giant, trading down 15. Layed about lied about its financing, and we have the latest on this. Seems like there was not enough Due Diligence on hps side here. Thats the key question, melissa. Spent 10 billion for a company taking an 8 billion charge. Go through the players simply. Mike lynch issued statements telling wall street journal that they are wrong, we have not been given details about what hp says it uncovered. Well, what whitman says in the press release this morning is more than 5 million is linked to seriousing thing improprieties, misrerptions, and disclosure failures. The sale took place during leo, the former ceos tenure at hp. He had to leave a month after that. A lot of people on wall street felt hp way overpaid for atonomy and bearing responsibility for that is shane roberson, the former chief strategy office. Whitman saying those two people who should be held responsible are gone. Shes giving a pass to lloyd and kpmg, the Accounting Firm that did the Due Diligence. The auditor at the time is not held responsible for that. Final quote, a willful effort to mislead investors, buyers, and impacted hps ability to impact atomomy. In april, 2011, oracle said no thank you, way overpriced. They passed on this one. Interesting. Im sure well hear more about the story. Adam, thank you so much. Yep. Maybe the largest Insider Trading scandal ever, more details on the 276 million scheme with charlie next. Stocks down big heading out to the New York Stock Exchange selling off listening to ben bernanke here, down 52 points on the dow, and how the dollar is fairing as well headed to break. It is stronger against the euro. Well be right back. Twins. I didnt see them coming. I have obligations. Cute obligations, but obligatio. I need to reink the core of my portfolio. What i really need is sleep. Introducing the ishares core, Building Blocks for the heart of your portfolio. Find out why 9 out of 10 large professional investors choose ishares for their etfs. Ishares by blackrock. Call 1800ishares for a prospectus which includes investment objectives, risks, charges and expenses. Read and consider it carefully before investing. Risk includes possible loss of principal. Could be the largest Insider Trading case in history. The department of justice charging former Hedge Fund Portfolio manager with conspiracy to commit securities fraud. The fed alleges that 276 Million Dollars scheme was carried out from 2006 to 2008 after he met a doctor involved in alzheimers disease drug trial and obtained confidential information related to the final results of the drug trial. He worked for Cr Intrinsic Investors out of stanford connecticut. During the alleged misconduct and walked away with 9 Million Dollars. So that insider trader scheme unveiled by federal prosecutors today involves a former sac capital money manager. What does that mean for the highprofile hedge fund and its chief steven cohen . Charlie gasparino has the latest with a special guest as well. Former fbi agent who is not a s