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It appears the recession is finally over, although unemployment continues to rise. Arizona State University economist Herb Kaufman will discuss the economy.

Ted Simons: Federal Reserve Chairman Ben Bernanke says the recession is probably, technically, over. But he says the pain will continue because of rising unemployment. Bernanke says the economy now seems to be growing but that growth won't be enough to offset the rising unemployment rate. Also on the economic front, President Obama sent a warning to Wall Street not to repeat the mistakes that led to last year's economic meltdown. Here now to talk about the president's remarks is Herb Kaufman, an economist with the W.P. Carey School of Business at Arizona State University. What are they and are they viable?

Herb Kaufman: There are several different aspects to it. The one I consider the most important is to invest the fed with the ability to liquidate in an orderly fashion other than bank holding companies and banks, big financial institutions that are, have been judged to be too big to fail. We have had in essence, for example, Alfredo Gutierrez, as an example -- A.I.G., institutions deemed by the government too big to fail. The fed has no authority until this comes through to liquidate those institutions in an orderly fashion so as a result the only alternative you have is to bail out the organization. As you know from previous comments, I thought that that was appropriate at the time and it saved us from going over the abyss. But we can't repeat this. I think one of the things that I was impressed with the President's discussion of the fact that don't come back again. This is a one off and we're not going to do it again. That's the major thing. There are other elements of it, of course, consumer protection agency that intervenes for the consumer, registration and transparency for hedge funds and the like. But the major thing that has been controversial is, of course, the systemic risk.

Ted Simons: The idea, correct me if I am wrong, the idea would be if you are too big to fail you are too big period?

Herb Kaufman: Well, that could be. But we're not going to -- in fact, it's kind of ironic. As a result of this crisis and meltdown that we've had, and for which I think we have started our recovery. I agree with chairman Bernanke on that. From this crisis we actually have had consolidation continue. You know, Bank of America bought Merrill and J.P. Morgan chase merger and as a result of that we get bigger institutions. I'm not positive in our system without just onerous regulation that we can prevent financial institutions getting too big. But I think what the notion is, and I agree with it, is, when they get too big, if we have no alternative, if we can't liquidate them in an orderly fashion we have to bail them out and I think that the idea of having the fed take over as systemic regulator for all large financial institutions outside of the banks, in addition to banks, makes it possible to have an alternative. That's the idea.

Ted Simons: So you like the idea of the fed being first among equals?

Herb Kaufman: I actually do because I think the fed has the best expertise to manage the financial system from that vantage point in terms of failure. Now, I don't want the fed, and I don't think the fed wants, to be an organization that intervenes in any kind of day to day operation. But if we got in the situation, for example, A.I.G., perhaps we could have saved $185 billion. Given the crisis nature at the time maybe not but it does make some sense.

Ted Simons: But should the fed have not seen that crisis nature if not earlier than have a better grasp of it once it hit?

Herb Kaufman: Yes. I think that is a fair criticism that they should have seen what was developing in the financial markets. Whether they could have actually taken effective action earlier, I don't know. But they certainly could have raised the alarm in the markets would have disciplined a bit better. Once it hit, once it hit, they were slow as I have said on this program before to move. Once they did move, once Bernanke moved he moved aggressively and effectively and I believe as I told you before, that it was the aggressiveness of the fed in pumping liquidity into the system that kept us from going over the abyss. The other stuff that was important was tan general shall to that.

Ted Simons: The president wants to tighten rules regarding derivatives, wants to look at executive pay, limiting that as well. Again, that stuff viable?

Herb Kaufman: I don't think some of that's going -- the executive pay, we have a long tradition in this country of rewards for presumably performance. Unfortunately, in the financial meltdown we found there were rewards formal fees sans and that was not certainly something we would like to see. I still think it's going to be a very tough sell. I don't particularly agree with it. That that's an appropriate use of government power. As far as derivatives are concerned and hedge fund registration and so forth, I think the way the market system works is on information. You can't have an effective market if there's no information. We really didn't have it. I agree with that. From a transparency point of view. Not telling people what they can do. Just making it available to the public to make the decision in a market environment.

Ted Simons: Balancing act to keep from too much intrusion into the private market? Is that what you are saying?

Herb Kaufman: Precisely. But at the same time guaranteed transparency so the actors in the private market, in the private sector, will understand what the risks are and they can assess it accordingly. If A.I.G., for example, and it's fairly clear even the executives at A.I.G. did not know what their total exposure was. It was enormous with a very small amount of capital. To have -- if that had been, if the light of day had been shined on that perhaps three times earlier in terms of leverage, perhaps we could have avoided the debacle.

Ted Simons: The president also saying his vote was -- quote was Wall Street was ignoring the lessons of the crisis. Some critics are seeing the same clouds building on the horizon. Are we kind of inching our way back toward what we were trying to get away from?

Herb Kaufman: There certainly has been more, more risk being undertaken by decisions that are made now than would have been made six or eight months ago. There's no question about that. I'm not positive at this point in time whether that is dangerous, whether it retracts the path that we've trod before. I think it's not at this moment in time. If we don't have risk taking in this economy, and I'm not talking about specific instruments and so forth, we really don't have effective economic stimulus in financial market operations. I think it's, we're right to be cautious about how this proceeds, how this monitor, how this development proceeds. We're right to be cautious in terms of how we monitor this risk. And that really goes to my point about transparency so that we can't get too our same situation. I do think that many of the players, although they are always going to look for the best trade and the best buck, have been chastened a bit. And I think that will also be somewhat effective.

Ted Simons: Can't let you go without real quickly you referred to this earlier. Bernanke says the recession is maybe possibly perhaps over. Do you agree?

Herb Kaufman: I will be a little more definite than that. I think when the NBER, the makes the determination, we'll find that this quarter, third quarter was the turning point. However, I don't expect a very rapid recovery, especially in employment and that's unfortunate.

Ted Simons: Very good. Herb, thanks so much for joining us.

Herb Kaufman: Thank you. I enjoyed it.

Herb Kaufman:Arizona State University Economist;

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