firms had stumbled, stumbled badly in their excessively optimistic ratings of the subprime residential mortgage backed securities, the consequences were quite serious. the recognition of the role of financial regulation enforcing the centrality of the major rating agencies then leads to an alternative prescription. eliminate the regulatory reliance on ratings, as senator bunning suggested earlier this morning. eliminating -- eliminate their force of law and bring market forces to bear. since the bond markets are primarily institutional mark its, as assistant secretary for mentioned earlier today, and not a retail securities market where retail customers do need more help, market forces can be expected to work. and the detailed regulation at

has been proposed would be unnecessary. in deep, if regulatory reliance on ratings were eliminated, the entire nrsro superstructure could be dismantled and the nrsro category could be eliminated. let's be clear. the regulatory requirements that potentially regulated financial institutions must maintain state bond portfolios, should remain force. that is terrifically important . . force. that's terrifically important. but the burden should be placed directly on the regulated institutions to demonstrate and justify to their regulators that their bond portfolios are safe and appropriate. either by doing the research themselves or by relying onned their-party advisers who might be the incumbent rating agencies. might be new firms that none of us discovered yet.

>> since financial institutions could call a wider viety, and the market could be open to new ideas that in ways that have not been possible since the 1930s. now my longer statement goes into greater detail. since it was done on april 15 before the obama proposals were proposed, i just want to mention a few things about those proposed. i'll be brief. >> thank you. >> again, it's understandable nay want to do something. but i think the effort goes in the wrong direction and the dangers are substantial because they are going to raise barriers and reduce innovation, reduce the possibility of new ideas. something that especially dangerous is something that mr.

geller mentioned. that the requirement, that all credit rating agencies whether you are an independent guy offering some advice or whether you are a fixed-income analyst of a financial services firm, you must register as a nrsro it strikes me as something that's going to discourage those new ideas. that can't be the direction we want to go. let me just say again in summary that proposal really are wrong headed. and that we really do have a superior root to go. which is a greater alliance on the market for information which an institutional bond marketan use and use effectively. thank you for this opportunity. i'll with happy to answer any

questions. >> thank you. >> senator reed, senator shelby, thank you for giving me this opportunity to talk. let me give you a brief summary, i'm a 1990 of harvardaw school. barack obama was one year behind me. what a difference a year makes. i had been working on structures finance security. i worked there for just over 10 yearsing with audiotape of this time in cdo group. since the beginning many propoa sals most of them are well intention, however, few seem likely to accomplish real reform. real reformn my opinion must achieve two goals: stay awith financial crisis, and stay away from the.

-- many my plan the investor protection act of are sufficient in themselves to accomplish either of these goals. however the actual making authority could be used. why the are performed provisions in my opinion insufficient? first, they are in the the product of a complete investigation into what actually happened at the rating agent sis. without a proper investigation, what happened not conducted on a theoretical level but with the analysts that assigned the problem rating impression, we cannot be sure they propose solutions designed to our problem. the second way to demonstrate is to ask you a simple question: if the investor protection act has been enacted just as it is five yes ago, do you think it would have prevented the subprime crisis? in my opinion, the answer is no. that does not mean the proposals bad, it just means they don't

advancereventing a future crisis. if they are uncertain to prevent a crisis, what reforms could achieve these goals? i have six proposals. and i'm going to speak really fast. i'm going to skip some. first put firewall around rating analyst. the agencies have already separated rating and nonrating. they must also separate from rating from rating analysis. rating analysis generates a pure opinion about credit quality. even if you corrupted a single rating, the potential rating analysis on bottom line. investors could see and kept safe from interference by any agenda. and the best reform proposals will exclude business managers from involvement in any rating

analysis and critically also from any role in the decisions about analysis, pay, performance, or promotions. second prohibit employee stock ownership and change the way they are compensated. there's a reason why weapon don't want judges to have a stake in the matters. we do this even if some or all could decide careful. it seems to be true for rating. even if it has never effected, it provokes that the disinterested. investorship has no -- align more closely with agency shareholders than investurers. all forms of employee stock ownership direct or indirect by anyone in rating analysis. the same concern with bonus compensation and 401k. as long as these formed are allowed to be based on how well

the company and are not limited to how well the employee performs, there will always be doubts about the rating interest. third, create bad rating, expand the liability of the agencies. i'm going to skip my discussion. some of it has occurred. my fourth proposals is to change the anti-trust laws so the agencies cooperate on standards. giving them the capacity to get together to talk about rating standards may expand our ability to prevent the kind of problems we had. imagine how different the world would be if the agencies could have joined forces if they were used to expand the worst of the subprime mortgages. my other is to create and professional -- yes, and also to introduce investor incentives into the issue of pay framework. either of which i have time to

discuss. thank you. >> tnk you very much, mr. froeba. this is an informative panel. let me pose a question to all of the panel members. the investor working group chaired by former sec has recommende a merit of statutes and rules with specific ratings at should be eliminated over time to clarify the alliance on the rating is not satisfied to due diligence effort. i think secretary barr suggests that this is an issue that senator has raised directly which is an alliance on these rating. and the secretary suggested on a case by case they were going to walk through the statutes. i just, you're reaction to this. >> so this has come up on the fcc hearings as well.

my response there is a same response today. it's healthy to go back and look at each regulation individually. i think it would be helpful -- think i've been around a long time. i supposed ratings, and they work from position to try on the risk and to be best a regulators and boards and directors. but to not go back and look at them. even update them because railings have changed over time. they don necessarily all mean the same things to all the same people. i still believe though that if ratings were eliminated in regulation they will be often and frequently used by many institutional investors, because i believe they have value

independent. >> thank you. >> i think we're removing or looking at removing the designation or regulations. i agree they can'tll be stripped out immediately. but looked at in a methodical way will benefit. i think the treasury of plan called for a 30-month review. i think that's a bit more time than anyone needs to get started or at least to be able to make a statement that is a road we are marching down. but i'll point out that it's not just a tendency for institutional investor to overrely or potential rely, it presents an opportunity to arbitrage the system. because a security that meets a certain standard but has a higher yield is something that

they can by and will by. so it really has a handful of ways. >> i was discussing this in any remark because i gave you the example of rule 2a7 which says money market funds, you can only buy eligible securities. and they have to havn investment grade rating from an nrsro. i would change that. we can't dare deregulate. they came thisless to failure. this has to be some restrictions. i would give institutional -- >> putting words in my mouth again. >> anyway. i would give institutional investors a choice. they could do it themselves. they could say we're going to conduct our own due diligence

and have our own fiduciary obligations. so the critical facts that have been verified by someone that is a professional. i know what will happen if given a choice. all of the smaller institutions would refer to rely on the rating agency. because the sec that proposed this last fall, when they did, they nearly got assaulted by pitch forks which said we don't want to take personal liability. i think to encourage competition, you are greater legal responsibility to do it yourself. or rely on the ratings which are supposed by legitimate verify indication. given that choice, i think it would be better off with some competition. >> i think i know where you come down on the big issue.

butet me pose a sghtly different question. and if my time runs out, we'll do a second round. i want to rognize sheldon. there is an economic i think, advantage, particularly for a particular entity. the treasury of the type of rhode island who wants to make an investment to have something that shorthand. triple a, et cetera. and i would think the systemically through the update of the economy, the rating agencies have provided some value other time. it not just a complete out there. just the issue of, i think the approach is short of sequentially looking where we can change. and trying into a what coffee

said, even if we eliminate the requirements, the presumption would be that issuer would still probably need to pay and given the choice most people would go to the rating agencies. just your quick comment. >> all right. thank you. first your larger issue, the larger question you asked about should we strip out the regulatory reliance on ratings? and my short answer is, as my grandmother would have said from your lips to god's ear. or perhaps president obama's ear. but let me nowddress the issue you just raised. when i advocate eliminating regulatory reliance, first it can't be done overnight. that's right. of course you need note and comment et cetera. t also it would be replaced by placing the direct burden on the

bond manager at a bank. at a pension fund. at a money market mutual fund, to justify the safety of his or her bond portfolio. that would be important. he does it getting the dialogue the way it aught to be happening. either by doing the research him or herself but not everybody is going to be able to do that. especially the smaller institution. or relying on an advisor. the advisor could be one of the incumbent rating firms, it might be a pate consultant, it might be a special advisory firm that coming along. of course that reliance aught to be bounced off the regulator. but youpen up the process. now those credit ratings -- sorry the money market mutual

fund responses to the sec proposals, they are sort of bleating and saying not us, we couldn't do the research ourself. >>okay. fine. don't. but if you don't have the expertise to be able to figure out who is a reliable advisor and who is not, you shouldn'te running it in the first place and they aught to remove somebody who does not have the expertise to figure out what is a reliable advisor or who is not. again, this is an ititutional market opinion it is not a retail market. >> thank you, mr. froeba, i have a questio but it'll be the second round. >> thank you. mr. present joynt, one of the issued that was identified by the sec staff in last year's

report was that the growth and complexity. what steps have you taken to ensure the next complex product, and there will be some, that is sold does not outpace your firm's analytic capabilities? >> complex question. but in today's market environment, there's very little in the way of new complex instruments being issued. so in some way we have sort of ti to reassess. some of the most complex instruments in the markets cddos, i think we took six months to analyze before decided we could not rate them. that was a vy difficult process of analyst, modelers,

and experienced people with judgment trying to think about the subjective aspects of the risk. it was mentioned earlier, ratings had affected the probability of loss, rating were not and have not been structured to address that. maybe they need to be. we're working on that now as well. so i would say we have a healthy degree of skepticism. today we have been asked to rate some that were mentioned earlier as well. we've only been able -- willing to rate one class of security rather than trench securities because in the trenching process they are creating strips that if the probability of loss is wrong you will have great sevity. today i'd say we're pausing and reassessing how we do the analysis and what the ratings mean. >> professor white, you pointed

out credit ratings include disclaimer telling not to rely on credit ratings agencies to make decisions. likewise the sec has adviced money market funds not to rely solely on making their investment decision. does the fact that regulations require rdings send a signals that contradicts these disclaimers? >> it sure sounds and looks like a contradiction. on the one hand you have regulations that say pay attention. on the other hand you have a kind of disclaimer. any user of the information contained herein should no rely on any credit rating or other opinion contained here in in making the investing decision. >> why do you want them? >> i don't know wheer to laugh

or cry on this. and that's i would step away. say don't rely if you want to voluntarily do so, fine, and you get to decide. and again you're an institutional investment. you have memory and judgment. you can figure out who's been the reliable provider of information, who has not. who has the business model that you can trust, and who are you not so sure? that's something that institutional investors shod be expected to be able to do. >> mr. coffee, do you have a comment? >>turn your mic on. >> the way in which it is most likely to persist is if we deregulate some of these rules. what we will get most institutional investors continuing to rely on nrsro rating figures that's the safest.

what we should do is give them more options. let them do it themselves or do to consultants, but to the extent that they are relngn the nrsro alternative, we shod upgrade that so it's no a opinion. that way you give them more tions, but they are higher quality. >> mr. white, mr. joynt defends regulations that should be retained in regulations. do the failures in the rating agencies call in the question that their values -- value's a benchmark? >> look. even the executives of the rating agencies acknowlge they made mistakes and stumbled badly. certainly over the past few years, they have not been very good. quite honestly, i am agnostic about the whole issue of what business model, wthert's investor pay oar issuer pay is

the right model. i think that's something that the institutional bond investor can figure out. you know, it's important to remember that the issuer-pay model had been around for 30 years from the early 1970s and really there hadn't been major problems. >> what happened? >> and then a long comes the whole structured finance market where there is only a handful of issuer, only a handful of nrsros that they can go to. the money is very good. and they stumble. they succumb, they got careless. >> greed. >> look greed was there all the time. but there was concern about reputation before. and somehow that got swamped. the model failed this time around. but it worked for 30 years. that's why, you know, i'm

agnostic. this is something that institutional participants can figure out on their own with oversight by the prudential regulators to make sure that at the end of the day they have safe and sound bond portfolios. >> is it possible that ratings as airfreiter value for more complex and structured products such as cdos and clos? >> they are clearly simpler to rate. the entities are more transparent. and the problems are fewer. so, yeah, it's likely -- you know, they - certainly the history tells us they were better benchmarks. >> mr. gellert, you note the inclusioof ring in regulations as given the big

three the defactor legal and statutory power and other financial institutions. to you recommend that references be removed from regulatio do you believe the government's removal would create incentives to conduct better and greater due diligence? >> i think it will. just outside of the legal liability issues there will be the marketing issues and the investor reporting issue for these institutions. because the focus will come on to understand better what types of credit work they are doing internally. this ability to arbitrage the system. there's no question by embedding the big three in rating in

various regulations gives them undue power over the investment decisions and risk management decisions of the institution. >> how do we bring superiorization back? how? it's based on trust. and maybe it's a regular time that worked so well for so long. professor coffee, do you have a comment? >> this is the case where innovation was corrupted. we had a much simpler kind of securization in the 1990s. it worked better. once we started bringing in the ceos, no one could understand. if it is too opaque to be understood, it shouldn't be issue. i think the market is going to insist on that. we will probably have spler kinds of asset-backed securization in which the agencies can signal and sample

the quality. otherwise we will see frozen housing financial -- >> there's no trust out there, is there? >> there's no trust because everyone can see that no one understands it, including the agency. >> thank you senator shelby and cochran. >> thank you for your testimony. i think it's been most enlighting. i think you shed light on the issue. i appreciate that. especially on this issue. mr. joynt, you probably deserve an amount of courage for showing up. i also want you thank you for walking through the issue with us. i know in a market economy this has effected, and a lot of employees have left the firm. and i know this is not a good time for rating agencies. but i want to ask the question. if you listen, i think we were

all sort of shocked that there was no due diligence performed. i think each personal has eluded that in a different way. what is the value proposition that the credit agencies, the three large ones, provide the public. >> so the dialogue about due diligence if we focus on corporate issuer. if you think about the rating agencies that have recently started off or become nrsros, almost all are coop issues not structured financial. i think that's because there's disclosure of good information. they are able to do ratings and get investors to pay. they don't need any special information. that's the process that i think about when you think about securization and financial as well. there should be public disclosure and rating agencies

to be able to use the public information that an issuer and or the bank has put together. and i sigh then them having the due diligence. the function of the rating agency is to analyze that information, think forward about the potential risk of default and ramifications and try to order that for investors and public or research. i think that function which allows many investors that can't analyze the wide variety of financing that we can because we have a staff of 1900 people. i think that provides valuable functions. it shouldn't be the only thing that investors are looking at. invests are responsible for their own analysis. >> one of the things we talked about in your office was really to focus on the toxic asset issue. which has really come and gone.

how do you value those? that's wre we spent most of our time. you guys shared with me that you could tell me zip codes, and default rates. moving away from the corporate sides, those kinds of things were not done on the other hand when you rated these securities, is that correct? >> for mortgage-backed securities, that's not kind of analysis. we would not go out and verify the individual loan information provided in the package. but in looking at the history and frequency of defaults and severities and problems, we could do that as part of our modeling. unfortunately, our history was not a part of what subsequently happened. >> understanding that you look at corporate financial statements. on these other types of asset-based securities, it's

hard to understand in fairness what the value problem significance is that you offer if they are not really being offered by a company, and y're not actually going out and checking the parts of the country that are being offered from. it's hard to understand that there's really any value proposition that's being offered by the credit-writing agency. >> i don't see it that way. i think they put together financial packages and baggage them where we can look athe companies and try to think about whether those are representative of what's being presented and then analyze that compared to the history and what we project th losses to be. >> so it's really more the company's have no say in the game. they are out of it after they are done. mostly. but the companies -- so when you look at the companies they are not standing behind it like

might be the case with a covered bond. >> that's true. but i don think they are not -- it hasn't been my experience that large and important financial instutions doing securization are not appreciative of the fact that their name is on the securization, that they would have originad the product. and so i think they are quite involved. and/or deservicing the product. not all firms, and some have entirely disappeared. mr. chairman, i'm going to ask one more question. we're going to miss senator in about a year and a half. i'm going to miss you. the whole issue, i think one of the things that we talked about some in the past is the business

model. and that is that in the event you actually had to do due diligence and had these third party efforts take place, which by the way i think should have to happen if somebody is going to rely upon it. but in essence, it would really price you out of the market in a way. would you speak to that? if you had to really do due diligence and know what was in that package, you charge the fee that you now charge and make money. i think you eluded that that would be problematic. >> we are not staffed to go audit or check the loan package on every single family loan. we are not staffed that way a all. we're not staffed in the national network or auditors or even a system of local auditors. that's certainly -- it's a little bit different. we've been able to send analysises out.

we're not conducting what very careful about due diligence around lawyers, because i'm in a lawyer, but we certainly conduct an amount of diligent investigation into what we're looking at for individual operties in commercial real estate. so for consumer assets broadly spread we've used a more actuary approach assuming it's credit. >> everyone agrees there should be no regulatory mandate to have to use any type of government entity should not be mandated to have to have a rating to buy security. does eryone agree with that? everybody agrees with that? but we should not build in having to use credit rating agencies and automatically causing people to believe that some work was actually done to

due diligence wise. >> what you are saying is the alternatives that didn't involve the use of nrsro agency. to the extent there is this capital out there, they are going to watch you have an nrsro rating. some of usant to make that real by insisting on due diligence. e paid for by the underwriters. if the underwriters could get this market jump-started again, they would be happy to pay the cost of due diligence. >> thankou all, appreciate it. >> thank you, senator corker. senator bunting. >> thank you. five minutes turns into ten in a big hurry up here. since some of us have another meeting to go to, this is for anyone who would like to answer it. ring the housing boom, the

boom, rating agencies rated mortgage-backed securities without verifying any of the information about the mortgages. if they had, maybe they would have detected some of the fraud and bad lending practices. do you think rating agencies should be required to verify the information provided to them by the issuer? and i'm going >> and ongoing to give you a caveat. the first mortgage that i ever took, i had to take three of my federal tax returns in with me to verify that i had the income that i wrote on my application. you don't have to do any of those things right now. and i'm asking if you think that

we have to have a little more verification of what is on the list that the person who is looking for the mortgage at the time, and that is how we got into all this mischief with mortgage-backed securities being sold into the market without any verification. even though they were aaa rated. >> let me say, you're right, senator. and i have some charts in my statement that shows that the percentage about liar loans, no document, load document loans in subprime mortgages went from any year 2001, 2, to the year 2006, about 51%. that's a very sharp jump in the windows because no one really wanted to look. the loan originators had no interest because they got rid of the entire loan. >> but the federal reserve was

responsible for overseeing the banks that made those loans. and are the mortgage brokers. we gave that power to the fed, d just because they didn't write any regulations, we ran into all this mischief. and so the housing bubble and the bursting of it was caused by someone not doing their homework. >> again, you are right, senator. >> i don't want to be right, because we are in a hell of a mess. if we were to require issuers to disclose information to all rating agencies, should that disclosure apply to securities that have already been rated so that we could get more opinions on the toxic securities already in the system? >> the short answer is yes. the percentage of new issues,

particularly in the structure in business now is infinitesimal compared to what is on people's books. so back to your park questions of how to get the seekers asian market moving again, we have to be able to provide to the market greater insighas to what is already out there. and to just provide the detailed due diligence information and supporting information of structured products that come to market today is insufficient. and i would just add that one of the areas that get short shrift would discuss structured products, is the collateralized debt obligation, asset class. it is equally if not more important than the ceos and other securitized structured products. and information availability is much smaller. and is is much more tightly controlled by the rating agencies that currently do rachels. >> i only have five minutes, so m not try to get you off but i ask this because it do you think

this is a question for anybody. do you think the rating agencies should be able to be sued for errors in their ratings? >> because i am probably the one most associated with saying there has to be some litigation remedy that me say i don't think it should go that far. i don't think there should be a cause of action for negligence. i don't think this judgment should produce litigation. i think it should be for being reckless. now wn you get a rating without knowing any facts a all, you are reckless. >> well then, that is a cause of -- >> i tnk he would be on that and said should you be sued -- >> no, i said if you find negligence, then there is a cause of action. >> not of the federal security laws and i don't think we should try to increase anything and federal law that would create a negligence-based cause of action against the rating agencies. >> how about this question what do you think that issuers who

relied on flawed ratings to sell the product should be able to be sued for using those flawed ratings? >> i think they will be sued directly because they make fraudulent misstatements. and that is how they are being sued. i don't think -- i think they regard the rating agencies as a possible additional part to throw in that they have very modest expectations of what they can get from them. and they haven't got any significant settlements. >> the question, i'm overtime. thank you. >> if you want to take some more time. >> the only thing i want to ask is, if you we have a situation where they were not given enough information, or they didn't investigate far enough, with the mogage-backed securities, and he accepted the that these were legitimate mortgage-backed securities by the banks, then i see where they wouldn't be held responsible. but if they didn't go into the details of what kind mf

mortgages they were selling or were being sold, then i think he should be held responsible. >> and i think that's the line between negligence and recklessness. >> thank you. thank you very much. >> thank you, senator bunning. mr. froeba, thank you for your testimony and also for your insight because you are there in the middle of this while at that opportune level, at the top, not the bottom. but right with the work was bein done. you mentioned of your six raposo turkey suggested the test and it is an interesting test, is that what it referred to problems we saw. and she suggested that the proposals before us will not offset of the six, what's the most critical thing from your view we would have to, or one or two that we would have to incorporate in our reforms? >> in some ways, the most important would be the parsed template and that is the idea that you separate the analytical

function from the management nction. just as in the court system or at a university you want to professors, you wanted judges to be independent of the people who are sort of managing the process. at the rating agency, you want the analysis to be independent of t business decisions. and i think that's probably keep, also the most difficult. and another really important one is affecting the way analysts are paid. i think attila should not be -- their pay, eir compensation, their report should not be anything to do with how the company does. because theest answer for me and the list may impact negatively. you want to encourage them to get that negative answer despite the impact it may have to their own financial situation. so those two are important. i think expanding liability is key, and fally the one that is probably, forgive me for saying, so informally the weirdest proposal is that the rating agencies be allowed to

cooperate. if the rating agencies had gotten together five years ago and said we're not going to allow for the securitization of liar lns, if they had been able to get together and agree that they were all going to do that and they wouldn't feel undercut by the competitors, i think we would've seen much of the subprime crisis averted. >> thank you. professor coffee i just want to follow up, on senator bunning's li questioning. as you pointed out, the standard for liability under the securities is essentially recklessness. >> extreme recklessness. it's a very high threshold, as it should be. the proposal i've made is not to change that liability standard, that to change explicitly the pleading standard. and i wanted you, if that's your understanding, that you've looked at the legislation, if that's the case, and also the rationale is that until you get

to discover, it's awfully hard to understand what was done on a factual basis. and get your comments on that. >> i agree with what you are saying. and i think it's a sound proposal. i also think that it will produce very few litigated lawsuits for the credit rating agencies because you get them, and just had to a kind of safe harbor. if they get independent due diligence done by profession, they are going to be safe. so it tells them they can avoid litigation if they do what we wanted to do, which is bring into diligence. whatever you think you said is correct. >> another point also and i think it is importnt, because we specifically point out that their ratings would not be considered a forward-looking statement for purpos of section 21 e. of the securities act. which is the same protection we get to accountants, etc. and that is, i think, important because without that, their

liability for projecting the future, forecasting, would be i think arduous, is that another point you would agree with? >> i would agree with that also because we're really talking about histocal information. if you knew or should have known if you look, that half of these mortgages were already in default, that's not forward-looking. that is really historical facts. >> secretary barr suggested one issue, which would be sued by corporate issuers against a rating agency for downgrade. and i guess the question, that's one reason why he suggested the ministry is unincorporated this proposal, let me link to questions to. your comment on that, but second, you know, one of the issues i think in response to mr. gillard was this notion of there are a lot of more respects security out there we should share the information with the

rating agencies. i would think that the accountants who have to certify would have a responsibility to act as juncture, to do exactly what the rating agencies might be able to do with you to go in there and say my god, none of these loans are paying and we have to mark down the side of. >> let me see on the first point, which is the litigation question about the corporate issuers. i know a lot about this kind of litigation to those whose were originally brought as defamation suits, and they all lost. and that's where course started talking about the first amendment because defamation triggers the first amendment. none of those suits have one at all. and in the securities law area, there are other problems. the issuer didn't purchase or sell. it doesn't have tenby five standing, an issuer generally rely on this because the issuer knows more about itself and anyone else. so we can't say it was misled by the rating. that is i think a phantom fear

that issuers will be able to see rating agencies. but if you're concerned about you can express a deal with that and make sure thathe statute doesn't apply to the. >> is the quick point about, maybe i am imprecise on my analysis, but shouldn't they have it responsibly now if is a publicly traded, if the banks holding this mortgage-backed security and its underwater, don't they have to write it down. >> responsibilities and accounts are well beyond my expertise. and it has certainly well covered over the past years. i certainly understand the point and i certainly believe that the more information that's available, the more parties can be involved in opining, and that may extend and possibly should extend beyond those who are in, you know, these intermediary roles in should extend all the way to the spatial investors who are buying these instruments. >> that's a fair point. thank you.

thank you all. >> thank all of you for testimony. mr. joynt, back to you again. there has been some discussion about changing the compensation, and by the way i want you to know i am one of those that is slow to sort of mandate how we do those kind of things, but just going to the business model side of it. is that something that is far-fetched? or do you think any of the credit rating agencies have thought well, we'll take a bigger fee but will take it over time based on performance. has any of that had any kind of serious discussion at all at your company level or to your knowledge at standard and pours or others? >> the best discussion about that i think was at the sec hearing, and the navy and subsequent conservation untrimmed conversation with her kind of think about it better or different payment moppet is it difficult for to think how we would adopt a separate kind of payment or fee structure without

having it coordinated with others so they quite problematic, you might not realize but today's when we rate structure financings, for example, we don't take in all of the income immediately. we defer a portion of the into the future to pay for surveillance on the continued surveillan, because if we are not making any new issues we have a painless to still follow the outstanding transactions. so i could be change into some kind of success fee or something of. >> there are alternatives, i think at the sec continues to progress and try to think about what could be workable. >> so than in answering the question that way, you actually would not be opposed to that being mandated by the government, or the sec, as long as everyone was doing it? >> i am open to dialogue about it. each time we have a dialogue driven weaknesses in each one of the oer ideas and of course it could be quite a dramatic change in kind of profile from agency

like fitch. so for example, on a roulette wheel alternave, if 10 rating agencies decide they would like to write structured financing, i guess each one only ge chosen one 10th of the time. that's quite different than today's business dynamic for our firm. so i think what we are open to the dialogue, i would have to at least consider how it would impact our business fortunes. >> professor coffee, when professor white, and i've enjoyed your dialogue a great deal, but when he was talking about the particular bond manager, assuming the liability of dish you were shaking your head in the opposite dredged their kids were shaking. and i just wondered if you wanted to respond to that? >> imac. >> the change -- to an issuer pays model was the early

1970s. asset-backed securitizations don't really become significant before about 1990. what was happening was the big two back there, fitch was a really one of the big three that point. really were break even marginal companies, and as the cost became more expensive, once we get the structured finance, the cost to be as high as three quarters of a million dollars to make a very copd structure finance offer. or at least that is the fee charged in a somewhat slhtly competitive market that is such a high cost, i don't think i could easily be dealt with under a user pays system that you can't put all of that front and work hoping you get paid later on as it developing started coming. that is why they primarily focuc on corporate bonds rather than on this complex structured finance deal. what i am disagreeing with is why the system broke down. it broke down well before structured finance. and frankly, every other gatekeeper you can think of, accountants, investment bankers, lawyers, they arpaid by the client also.

it's got certain efficient properties. >> well, all magnifi and multiply with all of these complex attorneys. but when you say it broke down, expand on that it will. >> around 1972 or 73, moody's and standard & poor's started issuing a -- you pay them for the rating process. in the old days, moody's put out a book. moody's bible. in the world got into by the '70s, that's a very slow process of publishing a book. and is what economists would call a public goods problem, or free rider problem. if you sell just one copy of the book, 10000 people can read it, and they gained the same information. so you had to find some way that you could force people to subscribe to you, and the marketplace didn't react well to insisting upon you pay a subscription fee. >> and yet you have said that you know that's not going to change.

>> i think the issuer pays model, which is the model we moved to in the 1970s, will be the predominant model as far forward as i can see. i certainly wish to encourage user pays. i think they are a very important check and balance on the system. but i think it will primarily be a check about on the system and much of the business will be done under an issuer based business model. >> senator? >> i would just like to point out, if you look at the newer agencies, firms, be they nrsro or not. there almost entirely subscription-based, or user based businesses. no one else is coming into the market and saying let's start up a new issuer pays. and the reason for that is that the market share is so unbelievably tightly held by three plars. so for competitive reasons, for all of the regulatory reasons that we have already discussed, breaking into that business as a new player is a relatively futile effort. but i would just add to

professor coffee's comments that one of the reasons we start out as a firm like us, like rapid rating, start raiding individual corporations is yes, they are simpler than trying to rate structural products but the availability of information is completely different. we rate entirely based on disclosed publicly available financial information for public companies, and private compani gets the dat that is provided to us by our customers, under contract and confidentiality agreement with full understanding on a bilateral basis that we are not conducting due diligee for them. but if they are a bank that has a linear relationship, they supply that information. if it is a corporation that has a counterparty risk, relationship they are receiving that information, they supplied to us that it is about availability of information. so new competitors, regardless of the revenue model, are not going to break into a couple of very small exceptions of rapid

seems to be one of income we're going toreak in the business when the payment as professor coffee just mentioned is a need to be frontload in an information isn't not being shared. >> i appreciate your comments about earlier about the unintended consequences of making everyone register. i think that was a valuable contribution. let's move down that path just a little bit, the one you are on. and we visited the offices of second market, and i knothey are setting up sort of a public auction process for securities. and they are doing a great job and they're being very successful. and i hope they are because they have come up with a brilliant idea. at the same time, as i looked at what they wereisclosed on some of these. again, as you just mentioned there is not as much information as one would like. if one, and publications were disclosure on the securities ought to be broadly given, if that was the case are you saying

that then and the like yours would actually rade many of these more complex securities? i find that, that's a lot of work for, you know, a lot of securities being offered. is it something you would say you pursue? >> i'd say we have a choice and that would be a business choice that we would have, and we would make it as any other business choice. there are other independent, non-nrsro research firms that are staffed not in an analytical quantitative way that we are, but staffed with enough people to be able to execute that type of analysis. not all structured products, of course, but on individual asset class by asset class, clo's been one of them and be able to provide an extremely good alternative. despite the fact that not all of us would be staffed and certainly would be able to say daiwa, we will go ahead and get in the market to do, you know,

too also, get into the structur productating business. >> you wanted to mention something? >> you can combine. they don't have to be exclusive. and you would do it by sibley getting the investors the opportunity to pick which agency and issuer uses. it's the power of the issuer to decide who would rate that became the source of i think the big problems in the last few years. they could pick the agencies against each other. can just take that power away fro them, much of the problem is solved. combine the two, it can begin. i don't think it would be insurmountable. >> mr. chairman, thank you and each of you, one of the great privileges we have here is to hear from intelligent peopl like you often, and we thank you for much. >> that you, senator corker. gentlemen, thank you for excellent testimony. my college may have additional questions, and i were asked them submit them by august 12 and ask you to respond as quickly as you can. all statements of my colleagues will be part of the record, and/or statement will be part of the record. thank you very much, and the

hearing is adjourned. [inaudible conversations] >> this morning president obama renominated federal reserve chairman ben bernanke to a second four-year term. the two men made remarks at martha's vineyard in massachusetts whe the president is vacationing with his family. this is seven minutes.

>> good morning, everybody. i apologize for interrupting the relaxing that i told all of you to do. but i have an important announcement to make concerning the federal reserve. the man next to me, ben bernanke, has led the fed through one of the worst financial crises that this nation and the world has ever faced. as an expert on the causes of the great depression, i am sure then never imagined that he would be part of a team responsible for preventing another. but because of his background, his temperament, his courage and his creativity, that's exactly what he has helped to achieve. and that is what i am reappointing him to another term as chairman of the federal reserve. on the verge of collapse with call, and wisdom, with bold action and out of the box thinking that has helped put the brakes on our economic freefall.

and almost none of the decisions that he or many of us may have been easy. the actions we have taken to stabilize our financial system to repair our credit markets, restructure our auto industry, and has a recovery package have all been steps of necessity, not choice. they faced plenty of critics. some of whom argued that we should stay the course or do nothing at all. but taken togher, this bold persistent experimentation has brought our economy bk from the brink. there are steps that are working. our recovery plan has put tax cuts in peoples pockets, extended health care and unemployment insurance to those who have borne the brunt of this recession. and is continuing to save and create jobs that otherwise would have been lost. our auto industry is showing signs of life. business investment is showing signs of stabilizing. our housing market and credit markets have been saved from collapse. of course, as i've said before,

we are a long way away from completely healthy financial systems and a full economic recovery. and i will not let up until those americans who are looking for jobs can find them, and tell qualified businesses, large and small, the capital to grow and find loans loans at a rate they can afford. and to all responsible mortgage holders can stay in their homes. and that is why we need ben bernanke to continue the work he is doing. and that is why i have saidhat we cannot go back to an economy based on overleveraged banks, inflated profi, and maxed out credit cards. for even as we have taken steps to make you under rescue our financial system and economy, we must now work to rebuild a new foundation for growth and prosperity. we have to build an economy that works for every american, and one that leads the world in investments and in eerts. exports. part of the foundation has to be a financial regular choices and that insures w never face a

crisis like this again. we have already seen how lax enforcement and weak regulation can lead to enormous wealth for a few an enormous pain for everybody else. that's why even though there is some resistance on wall street for those, to keep things the way they are, we will pass the reforms necessary to protect consumers, investors, and the entire financial system. and we will continue to maintain a strong and independent federal reserve. will also keep working towards the reform of the health insurance system whose practices arbanqueting our families, businesses and government. will continue to build a clean energy economy that creates the jobs within our borders, and we will give our children and our workers the skills of creating a need to compete for these jobs in the 21st century. and much like the decisions we have made so far, the steps we take to build this new foundation will not be easy. change never is. as ben and i both know, it comes

with debate and disagreement, and resistance from those who prefer the stus quo. and that is all right. because that is how democracy is supposed to work. but no matter how difficult change is, we will pursue it relentlessly because it is absolutely necessary to lift this country up and create an economy, brought growth, and a future our children can count on. that what we are here to do. and that is what we will continue to do in the months ahead. so i want to congratulate ben on the work that he has done so far. wish them continued success in the hard work that he has it for him. thank you so much, ben. >> thank you, mr. president. i would like to express my gratitude to president obama for the confidence he has shown any with this nomination, and for his unwavering support for a strong and independent federal reserve. it has bn a particular privilege for me to server to

export my colleagues throughout the federal reserve system. data demonstrate a remarkable resource list, dedication and stamina under trying conditions. through thlong nights and weekends at a time way from eir families, they have never lost sight of the critical importance of the work of the fed for the economic well being of all americans. i am deeply grateful for their efforts. i especially want to thank my own family, my wife, anna, and our children, jewel and alyssa, without the support and sacrifice i could not undertake this task. the federal reserve, like other economic policy mick is, has been challenged by the unprecedented events of the past few years. either bold or delivered as circumstances permitted, but our objective remains constant. to restore a more stable financial and economic climate in which opportunity can again floors and in which americans hard work and creativity can

receive their proper rewards. mr. president, i commit today to you and to the american people that if confirmed by the senate i work to the utmost of my abilities with my colleagues at the federal reserve and alongside the congress and the administration to help provide a solid foundation for growth and prosperity in an environment of price stability. thank you, sir. >> thank you. great job. [inaudible conversations] >> today will show you a house hearing from last month on the obama administration's proposal to give the federal reserve a larger role in financial market regulation. you ban see that at 5:30 eastern here on c-span2.

>> go inside the supreme court to see the public places, and those rarely seen spaces. hear directly from the justices as they provide their insight about the court and the building. the supreme court, home to america's highest court. the first sunday in october on c-span. >> mexican officials predict that nation's economy will shrink between six and a half and 7.5% this year. a discussion here on economic recession in mexico. it's about an hour and 20 minutes. >> good morning. let me welcome you all here this morning.

i'd know you are all here because of the air-conditioning. but thanks very much. people say you can't do anything in august because nobody is here, and i see anybody is here today. so i guess it suggests the continuing importance of mexico, despite the headlines that have been grabbed by other countries in the hemisphere recently. the importance of mexico to the u.s., to the u.s. audience. let me say just to start with, i think that the question, at least that i was thinking of, what i would like to learn today to the three panels, and i would ask them to change their presentations, but just to give you my -- is that we know how far down in mexico was to go. in other words, we may not know

the exact number, but that it is a very, very serious drop in economic activity. and the two questions i have is, one, will be -- presuming the united states recovers, mexico write up on the same elevator it will write down on. is that likely to have? and secondly is there any other major sources of growth that mexico has exploded in the past that it can to sort of move back up into the recovery? my focus is, maybe it's an optimistic one on the recovery side. and in any event, i hope we get to those. we have i think an extraordinary group, extraordinary panel here this morning to discuss the

entire issues of mexico's economic outlook. santiago on my i-india left is the vice president of the answer american development bank, in charge of sectors of kwledge, if you want explanation and stay a few minutes afterwards. he was the chief economist for that, and he has a long distinguished career in mexican public service. he was the overall general director of the mexican social security institute which is a massive public enterprise whose deputy minister at the fince ministry, and he was largely credited with having, if not exactly invented certainly put into practice and orchestrated the opportune, a program.

also a very productive scholar at the intellectual, he is putting out more books than i n read. in any event, thanks very much for joining us. santiago. next, e director of sovereign ratings and standard and poor, and responsible for the sovereign analysis in the latin american group. she also teaches part-time at colombia university school of public and international affairs. she worked at the federal reserve board of governors in washington. let me say that the job of the southern ratings of course is to put all this into a single number, which is not so easy to do. it takes an incredible amount of analysis, and you will see why we invited lisa to be on the nel very soon now.

she sort of manages all of these variables that she has to put together. and finally, my great pleasure and my colleague, is a senior fellow at the inter-american dialogue. he works on a wide range of issues, mainly outside e dialogue these days. have been traveling a lot to his home country, argentina. he served as the chief of the latin american western hemispre program at the international monetary fund, and welcome back to the dialogue club. >> figure at. >> claudia will start assaulter also, he has written a recent paper on mexico, which he sounded little bit like the pessimist. but maybe this summer has mellowed him a bit. >> okay. thank you very much. indifference to your very strong

-- >> don take more than 10 minutes. >> yes, but it's still in difference to your very strong feelings, and will not be able to, oh i will not show a powerpoint which is help of the economy so i will have to live without that. and i really think this is a great opportunity given the importance of mexico. of course, my two copanelists, extremely knowledgeable of course. san diego, when i used to go on mission to mexico, i was always very interested in my counterpart. it was alws intellectually challenging. it was always a pleasure to be with santiago and listen to what he could tell me and how much i could learn. and of course, lisa, has been working on these things for a long time. of course, standard and pours has made the most, tougher and

most objective of the agencies in dealing with mexico. and i think that is also something very good. so let me just start by saying, okay, mexico is in its worst economic crisis since 1994, 1995. the gdp is expected to fall by about the same, by about the same percentage as it fell in 1984, 1995 whe, but here i didn't lose at the time, but very great. so that's the main explanation. i don't think i would lose my now, but fundamentally, mexico is in this very difficult situation. it has a gernment with an

economic team that i think is excellent, but the conditions that mexico faces, and the problems, politically, that mexico has makes it very difficult for the authorities to be able to operate effectively, especially after the elections of the end of june. anyway, as you all know, mexico is the second largest economy in latin america after brazil. and it's about three times larger cor, between the two countries, they are about two thirds of total gdp of latin america. so when we talk about latin america, we are really talking about brazil and mexico. mexico, i would say, has up to

now in 2008 and 2009, being a country which was really benefiting from a significantly proven macroeconomic conditions. during my professional life, and that has been a long one, mexico was always in crisis, related to the success, the separation period. from 1995, things were well but suddenly things start looking very, very competent. and mexico, although it's a microeconomic policieand conditions have been good, they have low inflation, and the balance of payments is not an imbalance, etc. has had a very poor growth

performance. and effectively in the last 10, 12 years, 10 years mexico has been a growing less than the world average, and seven years out of those it's been growing less than latin america over all. so that shows that there are problems. if one really looks at gdp per capita, not much has happened over the last years. mexico has grown, but it has lost -- it has lost its relative importance, and even as it became integrated with the rest of the world, and the united states in rticular, it really has more and more problems in terms of keeping up. not with a neighbor, but because

the neighborhood did poorly, but in terms of growing countries in asia, in particular. now, mexico was a very, very hard in 2008, 2009. ports plummeted. as i say, it is expected that gdp will decline, by 7% this year. but i have been sort of projecting a bigger declines over t last -- over the last nine months or so, and peter always says i was behind the curve. and i really was because i was looking at something to michael ani were sitting mexico might decline by two, 3%. and now we are talking about 7%. sono carrierringconnect 1200

so with that, the government is faced with something, something very difficult choices. they have to do a reform of th tax system. taxes are among one of the lowest in the country, not in latin america but worldwide. and mexico has to find a way to tax other activities. mexico, i am not saying that you have to have a major growth in the government fundamentally. you really have to find a new source of revenue. and the payments have to be sort of strength and they have to

reinvest in many of the resources that are being taken out. but fundamentally, what you have is a situation where mexico is solid from a macroeconomic point of view, but from a microeconomic int of view, it's doing poorly. i haven't talked about all of the comparisons with a number of other countries in terms of how mexico and latin america, for julie, is doing because if we compare mexico and latin america, with another emerging asia, but another of asian countries, etc., you'll find that we are doing very poorly in terms of infrastructure, in terms of quality of, in terms of levels of investment. and i think that is a general product not with america, but it is very straight in the case of mexico. and one issue is, and here i have to mention one item at i

have been sort of emphasize a lot in recent months. mexico is, after chile, the highest -ranked country by the rating agencies. standard & poor's has been the most cautious saying, and i don't know what has happened over the last, over the last month or so in this rega so much, but fundamentally, mexico the senate would have said mexico has to be obserd very carefully. but then i think the rating agencies have been too generous to say the least with mexico in terms of its rating. and it is not just type in brazil and other countries. and so i think there is a problem there in terms of -- this to finalize my

presentation. obviously, the authorities are made tremendous efforts. but mexico has serious problems, and the serious problems have been aggravated by the fact that we'll have the control of congress in mexico and this will make the situation a much more difficult, in order to find the appropriate solutions for the country. so i am afraid that although the macro may look okay, the challenge to mexico are such that the prospects for growth are -- i am fairly pessimistic about them. i believe that they may have some difficulty. i don't think that they will lose the investment grade, but i think mexico certainly may need to have an adjustment in the

ratings. i have been saying that, of course. i have been proven wrong, but mainly because i think some of thrating agencies have not been sufficiently bold to recognize the problems that exist. i will finish it. >> thank you very much. >> i didn't take a vacation this year. i'm sorry. [laughter] >> thanks so much, peter. is a pleasure to be here. it is pleasure being on a panel with you. i will pick up, starting where claudio left off to get some perspective on mexico's rating. it as level as well as kind of a tendency that we see that we put a negative outlook on mexico's ratings earlier this year. as claudio highlighted, the rating is triple b+,

foreign-currency, single a+ loco to. to. and we have a negative outlook on both ratings. a negative outlook highlights the possibility of a downgrade. given what we see as a deterioration in the fiscal outlook, very much along the lines that claudio highlighted. i can go to that in more detail, but it's a question as to how the fiscal pressures, challenges will play out over t next several years. and some deterioration in some of mexico's external indicators as well. a key issue for us is one of the things we're looking for is how the government, and that includes the executive as well as congress, will respond to what we see as, you know, deterioration in some of these indicators. i think it's a several points to highlight. first, as clauo highlighted, mexico is firmly investment-grade. foreign curtsy at triple b+. investment-grade begins at

triple b-minus, three notches into the investment-grade category. mexico's profile, fiscal indicated external indicators are very fit very well in this low investment-grade category. versus speculative gde, and that is a point i want to highlight. you are talking policy response, track record of institutions, policy predictability. this is consistent along with the indicators that we look at, the policy framework, the macro stability that claudio highlighted. this is all consistent with investment-grade. with lisa possibily of a downgrade, becau we see the trends are negative. the risks are tilted to the downside. they are not evenly balanced. which is a greater chance that we see of a downgrade today. that doesn't mean one will happen but there is a greater chance. historically speaking, you look at our data, sovereign ratings, two thirds, more or less, of negative outlooks have been

followed by a downgrade. it doesn't mean -- ssa this is a probability per se, but this is what has happened at the outlook speaks to the six months to a year and have time to. kind of the thing, the perspective we're looking at. we have highlighted in our analysis one of the elements we want to see how things play out later this year in terms of discussions on the reform measures that executives from much working on in concert with congress and see how the political dynamics in force at. however, that doesn't mean we couldn't keep a negative outlook later this year. we could down great, we could go to stupid these are the options on the table. again, i want to give thoughts on mexico's overall profile and why the negative outlook. weed with mexico to investment-grade in february of 2002, was then followed by two subsequent upgrades. and dysreflexia domination of

factors, proactive debt management and a much stronger government debt profile, and his commitment to macro stability. what concludes across party lines, track record of adjustment in a downturn, for example. so all of these improvements that we see provide greater policy flexibility and room for move today. and that's why mexico's reyes with there. . .

>> to the tune of 275 basis points as opposed to have to defend the currency in the past. inflation in the single digits compared with some other countries, it has cut less and inflation has been more sticky. big picture perspectives is investment grade versus not. nking system well capitalized. you know, the -- the fact that credit is only 20% of gdp. that's the negative for growth. for the medium term prospects.

what it does do is in the moment of global stress that we're seeing it means that there is less of a financial contingent liabilit anall the tripped bs, mexico had a probay risk from the financial sector, spilling over to the public sector, having the government to step in. the banker system is stronger in latin america. also the credit is very low. as we look at this, we're talking risk on the gdp. that's kind of average and over 20%. so even if it'on one hand and a strength in the moment of this stress at the other. but it feeds into the growth outlook. on the fiscal side again is a key area of challenge. but let's also think about the perspective in terms after track record that has been developed, fiscal responsibility loss,

formalization of fuels and setting budget and profile highlighted. we're talking about a lower risk to mexico today. switching, you know, we've had very strong improvement in the profile. 85 @erse of debt now. as we're relying more on multilaterals, no deterioration there. in the 90s today. 2% average, public sector bar requirement lasts five years. we see it rose last year, we see it going up more. this is a little bit of the pressure that we are seeing. all of these issues and what we've seen on the external debt side. debt is very much down 90 versus tmday to report where the rating isn investment grade. why the negative outlook? again, we see desperation in the fiscal picture this year and the

next couple of years. everyone's fiscal picture is deteriorate. it's if you think about the degree, 7% contraction, moving the deficit up from public sector bar rowing a under last year 3 and 4ish which is certainly not what the government is looking for. that's not significant deterioration. it's sort of inline with its peers. but we see the pressureseally looking over the several years. the global pressures -- the current is highlights, exacerbating, underlying fiscal flexibility. limited fiscal flexibility. more in the past, but we're talking about degree. budgetary dependence on oil. with limited resources in the

stabilization. but you're talking about 2% loss gdp, with chile with resources of 10% of gdp. it has much more room to run fiscal policy. this rating is also higher. but you have a strong dependence on oil with limited resources in the stabilization. you have a low nonoil tax space. among the lowest in the region, 8 to 10% of gdp of the central government versus public sector. there has been reform, trying to enhance the tax space in the recent years. but it is challenging. okay? and the bottom line is the revenue base doesn't provide flexibility. you compare overall government revenue, public sector revenue, giving you on the upside 24% of

gdp. that compares with our triple d median for general government. so a less inclusive of 36% of gdp. smaller revenue base is on the low end in this area. it limited the scope as it is oil revenues come down. so these provide the challenges. the government has taken proactive steps over the past year. that's why we haven't put the ratings down but why we have tilted the risk to the downside. the resource to more temporary measures, the oil stabilization fund will be used this year and next year. the oil hedge is very prudent, but you don't have access to that next year. the relying on some of the resources from mexico this year fully versus being able to spread them over two years. highlight -- all of these issues

highlight the fiscal picture. the government is very very -- has highlighted across the year since the end of last year that it wants to address some of these issues, post the midterm election. and this is what we're looking at how these things will play out. but this is also to be fiscal challenges in the context of what we see as potentially low growth. looking at the past as claudio highlighted, underperformance compared to emerging markets in general. even the outlook for the u.s. economy, the reliance on the u.s. economy, this raises questions moving forrd. the issue of public sector and security, including a very important strong policy him that willield results as we've seen elsewhere globally. but this is a question in the nearer term what this might mean in terms of investment. it's a question we put on the

table. there are other constraints on the youth that we kind of talked about. the outlook for oil production provides another stress. before -- so we have the fiscal picture issues tt are key element so why we see the risk tilt to the downside. another element that we've highlighted, claudio is talking about this, external financialing needs for the corporate sector. it's important to highlight we do see some extear ration. if you look at financing, despite pressures in the markets, mexico's financing needs compare well with the triple d kind of pure group. they are not as strong as brazil and peru, lower rated. but there are other weaknesses in those rating. we can tal more in q and a. spite the pressures and

stressing, you know, all international reserves, nonroll over of some of the corporate sector paper. you still come out with the way we look at financing needs, it's a bit better than triple b median. and stronger than some other credits. weaker than some. but that's an important element to highlight. we're also seeing in the corporate sector, you know, we've had a number -- but we have refinancing going on. and we're coming out of that. you've seen issuance, high -- top name being able to top glal markets. but beginning in august, you've seen specklators issues globally. there's some stablization there. that is certainly a risk we continue to look. >> thank you very much, lisa. you will hit clean up today, santiago. >> so good morning.

let me begin by thanking peter and the inter-american dialogue. it's a pleasure to be here with all riends and try to give some inspites on mexico. so let me not talk about the crisis first. let me devote a few minutes to talk about i you looked at mexico in june 2008 or may 2008 and you look at them before. i think it's important to have th longer term perspective. because the story of mexico is a story that may define crisis, but even before that it was an economy that had achieved civilization. the crisis was a keep problem, but after '96 things began to get into shape. if you look at the long-term for mexico when you see is an issue with median term growth.

lo at peri of 2002 to 2007 which was an spectacular period by latin american standards, commodity prices, world growth, you name it. when latin america performed the best in three decades, mexico performed below the average of latin america. so the problem has to be put into perspective. this is an economy that has achieved stability but it's not being able to achie growth. in my view that's a central question. i'll come back in the e to talk aut that. in parallel to that, and central to the story, as the efforts of the economic stablization, but with no growth taking place, the country is experiencing a major transition to democracy. an i think the transition to the democracy for the purpose of this discussion really has two

implications. one, this is a societal consensus for stability. it is not an issue of executive anymore. this is not an issue of political party. this has been an issue that has been fully eternalized by the mexican society and even political parties in the left that realized that mexicans were fed up with the crisis, and now they do want stability. so the transition to democracy is accompanied by a con sen us of stability, but that transition to democracy is also accompanied by the absence of any deep consensus anywhere else. and what you see is an economy that after '97 really stalled in terms of carrying out the reforms that are required to keep mexico competitive not only in latin american and the rest

of the world. the rest of the world is moving along, and mexico enters into a very complicated political period in which there is no consensus as to where to go that can deepen competitiveness. and exposed the naive view of the state and the ability of carrying out forms by itself by command and control methods in which some of the reforms are inverted or don't produce what you expect them to reduce. and which these reforms are not producing the efficiency that you were expecting, in fact some of them seem that yo were fighting. so the mix of reforming that didn't to as deep as they should have gone or in some cases backfires and absence of the further reforms present a

complex period in an economy that has commitment, stability but no materials. so that's the loan scenario for the crisis. in 2008, it really occurs in the most unfortunate situation. it is truly large to mexico. i think by and large the authorities have done the best they could do. i think the response of central bank and financial industry has been competent and responsible. there's this deep underlying weakness which is fundamental to understand. there's a major fiscal problem. a major fiscal problem that has been able to tag along. because there's consensus for stability keeping expenditures below. and our use of oil rates is not the best possible use of oil rigs, a lot of themes are being

used for expenditure, not for investment. in the context of wk fiscal base, the mexico lower just taxes than american. we collect just taxes. just taxes, less than 10% of gdp. so there's very little room for change in policy. and yet the authorities must announce some sort of a change in policy. but in fact by and large it's clear that you can'teally iiplement. and in fact right now policy is being untypical. i'm not critizing it. i think there's very little else that can be done. so that creates a very short-run problem which is a problem that claudio discusses very well in his paper note that produced the talk this morning. and aided by the fact that mid-rm elections create for president caller on.

i'm not really worried about the macro. even though there's going to be a lot of push and shove between now and november, at the end of the day the societal is going to prevail and willy-nilly by some cuts here and there and dealing with tax cuts here and there, the budget will be passed and stability will be maintained. the central issue, and i come back now to peter's questions are assume that now 2010 or middle of 2010-2011 and bump of 2008 and 2009 has somehow been managed with high cost annul of this. are you then againn conflict in which you can grow again? are you going to grow back again with the united states or is mexico going to find its own

indigenous sources? that brings to the core discussion which is why hasn't mexico been growing for the past 20 years spite the fact that ha has take away '95 and 2008 macrostability. and societal consensus for macrostability. which is reflected in the bank, budgets by and large. but it's not being able to grow. a couple of points here. if you look at the rate of growth of labor and capital stock and all of that, and compare that to the united states and to other countries. mexico's growth story is not absence of factor accumulation. it's not that mexico has worked less hard or other people in the world or working hours or participation rate is lower. it is in fact even not the care that years of education are

less. and, you know, capitalization has slowed down a bit. but it's still not really. the growth story is absence of productivity growth. d that's the deep central issue. and that's my deep concern. not only to answer the peter's questions. but as i look over the medium term. because productivity is really driven by an incentive structure that produces productivity. what mexico hasn'teen able to put together in the reform o fox reform with president calderon, what mexico hasn't been able to put together is an environment or incentive structure for business, firms, and work. arguably, it's working in the opposite direction. the underlying in various sectors in media, in energy, some public, some private.

there are some of the trade unions in education, in oil, in electricity, in the public sector has increased in the transition to the democracy as the counterweight exercise by a strong executive that is no longer there. and the issue is even more deep because it's not a question of personality. you could say it is because they had all these links and therefore a change to the plan would allow you to esce from that. and then you have president fox and you realize you aring from that. maybe it's the case with a different president this will change. now you have a president which is different personality from president fox and still haven't been glowing. so the issue of what you might want to call a very entrenched groups in the public sector and labor unions and particular sectors of the economy are actually extracting in a very

concentrated rent-seeking situation that doesn't allow for the productivity enhancing, you know, effort-inducing actions. and i add a little bit of 60 seconds from my own work. this situation is actually a little bit complicated. because some of the social policies that has been put by the countries in the last few years are actually in my view further dissorting the structure as more and more social programs for the formal sector are growing. so what you see is a very large growth of imformal firms, a very large of growth of imformal environment in which there's little growt and training. and what you see a large amount of subsidies going in through the product to subsidize the sector through the social programs. this is the nature. so i am here. will the mexico recover are the u.s. in a very short-run sense,

yes. the point between manufacturing output in mexico and united stateshe is going to -- the automobile recovery in the u.s. i don't knoif it's u.s. what are they called clinkers? >> clunkers. >> all right. will that be enough? if you look at the ' crisis, mexico pulled fast. because in fact the u.s. was experiencing a very high period of growth in the mid '90s. if that doesn't occur, then there are no deep reasons to think that mexico's growth rate will grow beyond the point and then the scenario because the contingent. could sources of growth internally? yes, but it has the productivity. and to race productivity it really has to change the

political e quill limb yum that are holding the country back. i stop there. >> thank you very, very much. let me start off with a question. and then i'll open it up with the questions. it's nor of a conceptual issue, because i think your presentation was conceptual in some ways. but brazil also had very slow growth during the early 2000. and maybe i'm wrong,ut i didn't think that there was any big jump in productivity or anything that would look like a -- but suddenly let's say around 2004, 2005, ion't remember, the growth curve went up. it sort of reached, went significantly exceeded mexico. what was the distinction between brazil and mexico and sort of

now looking at the analysts suggest that brazil has the inconvenience of the global financial crisis. but it's sort of weathered it very well. and mexico has really sort of fell down. and brazil seems to be ready to retake its growth. and i don't quite see the same kinds of productivity at least from what i know of brazil are present as they are in mexico. and the same social programs. >> me? i'm happy to. because you were looking at -- >> but you were trying to answer that. [laughter] >> this is very interesting. i think part of it is important to keep in mind. mexico has a longer track record of macrostability. and i think brazil benefits very much with the transition to the

administration and the consolidation of macrostability. it's benefiting more recently from that sense of stable rules of the game. and that is a very important role, versus mexico might -- you could say gained very much after the tequila crisis. it crew faster, than comparatively speaking. still maybe not as fast as we would like& brazil gains more recently from consolidation of macro and perhaps in some ways waning in mexico. there have been improvement in brazil. if you look at investment as a share of gdp. higher in mexico an in brazil. brazil is in the teens, granted it's improved. it went up, obviously the climate has been going back down. but as it peaked towards 19%

where mexico is in the mid 20s. and mexico has grown less. i think the discussion that's santiago put on the table in terms of informality from formal employment gains, you got the bulk of family in terms of consumer demand. but you also have real formal employment gains under the macrostability and more of a vie bran si there and a decline in inrmality and the deepening of capital markets in brazil. which in terms of fixed income are much less than mexico. but brazil benefits from these things today. question, if they don't pursue more of of the some of reforms of brazil, lower the tax base which is extremely high, how

their growth rate could slow. so it's a matter of timing. >> so it's better than to be late than never. >> their benefiting from something now that mexico may have benefited from before. >> uh-huh. and that's why per capita income is higher in mexico than in brazil. >> yes. >> but still. >> we don't fully, fully understand. economist has been struggling with this for 30 years. but at the mergen, and i think -- margin, and i think the last five years of the growth in brazil. at the margin, formality has been growing in bra swill, and formality has been growing in mexico. and you can argue cause and effect. but it's highly core related productivity with formalization of the economy. >> i'm going to open it up for questions. we're going to take two or three

so we can giv the panelist a chance. go ahead. go ahead. >> resident calderon announced yesterday the comments about this policy and if any of you have any any -- for mexico and the the economies with respect to it will be easier to predict mexico this year. >> the question is for santiago, if i may. we talked about it -- >> can you speak up a little bit? >> sure. we tked about the e quill lip yum and the impact of product pivot what needs to be done to jolt it out? and the productivity and the

tradeable sector is increasing. the mexico producers are taking market share away from other producers in the united states. is it possible to have the economy that you have and tradeable sector and the productivity is increasing and nontradable is describing. and then the question if i may, i'm sure you have a lot of experience on brazil, how do you compare some of the key debt ratios like the gdp and public death to the countries. >> in how far has the stock -- really influenced mexico's growth factor. all of it really drafted away from china and the integration of north america in it has not

stopped war developed as rapidly as we all expected years ago. we'll take these questions and go from there. >> okay. i think in terms of the question on the prosperity plan, it illustrates again what saning santiago and lisa also mentioned. which is the fact that mexico because of the small margin it has, it has no choice but to have pro policies. in the sense that that -- here, of course, mexico i will say is not alone. they are very few people in the margins of operation to have anti-policies in latin america,

chile, peru, columbia, brazil to come extent, but mexico has no opportunities. they have gotten a very significant loan from the the -- that they can use. of course they question of significantals in terms of the use of these resources. because they can use them without preconditions. but if they use them, it maybe a signal that things are not so good. this is this notion that they want to maintain macroeconomics. but there is no choice with oil production coming down. we load prices, say for the mexican makes certainly well below the $67 that it is today for height crude, and mexico has to maintain these fiscal

discipline and they are having to repeat the stories of the past whenever they have the crisis. and the only is thatecause the macropart is so much better they can deal with it better. without the cat that chris pick consequences that you saw in 1975 or 1976. >> on the terms of how the outlook given the gains that the pres made. we put the negative outlook before the election. we assumed that pre would make some gains. pre versus pan than expected. we were assuming gains. and therefore but the basic picture of needing cross party coalition, building, negotiate, to pass a budget.

to pass any kind of reform was our base case. again the spread is wider. but the messa is the same. and you've seen all kind of the reforms that have been passed. the budgets that has been passed cross party. partly why the negative outlooks, the topics on the table, improving the fiscal flexibility perhaps kind o looking at the oil sector. those are fund fundamentally, politically change topics in mexico. period. for my party. that's some of our perspective there. >> quickly in the productivity. there's the segment of plants and a segment of manufacturing particularly say arbitrarily half of the country called it the united states. we certainly benefited from nafta, which showed important

productity gains. the automobile sector across a whole range of consumer doables. and it's connected to your question on tequila. these are the large sports side of the mexican economy, but they are not even all of the side of the important. there's a important for domestic consumption that benefits a little bit. and cost and all of that. that's a small. along with a very large segment of the nontradable. when you find is very few firms large competitive, very, very large number of firms, many of them informal and incompetitive. that tells you the story. their initial big gains associated part with the gains

of nafta. part that you could argue together with the u.s. grow. but then in 2001, 2002 with the recession here in the year. and the fact that mexico lost competitiveness along the way during that dime. >> go to brazil fiscal external comparison. i think there for brazil government debt to gdp is higher. we're talkg we have it going up as the way we calculated in th government. i can talk about that offline and gdp this year. okay, general net government debt. mexico, for the general government, high 30s. if you look at the public sectors, we're talking mid 40s. we look at blend between the two issues we've highlighted. you have some of the other

factors in the public sector. we look at a combination. bottom line the debt ratio is higher because the interest rates are coming down. but revenue, interest revenues to gdp are higher in brazil. the excel significance of brazil you're talking a 30-year yield curve in mexico. this is reflecting the history that moving into macrostability in bra swill. longer track record. on the external sides, brazil has stronger indicators. you're talking overall expersonal debt for the public and private sector. and the expert based brazil is a creditor. and in the order of say moving towards 40% of gpd was lower

moving up. ok? over the next couple of years. because they are relying more own mexico is a bit weaker -- bit, than the of triple b median there. so brazil is stronger. and you also look at financing needs. as i highlighted, mexico is better than average in the triple b, but brazil is stronger. so there's some excel tears. >> one thing about the political situation, although i believe that mexico has always shown contraryo the country the capacity to make an opportunity out of a crisis contrary to my country argentina where they say they conve every opportunity into a crisis. [laughter] >> i believe that we have a tell mate in the case of mexico.

in the end it will come closer to the government position. but at the moment they have to -- they want to flex their muscles at the party inower in congress. and that will eake it work -- the job of the government very, very difficult. why? because they are doing, they are presenting a party of proposals. but at the moment, it's not yet sure whether they should play sort of the truer position or a sort of a supporting oppositn that may win the presidential election in three years. so i think that the next six months will be very difficult in in regard. >> and there's been a couple of years now i think since mexico adopted two modest tax reforms. one was what you might called

the tax rate aimed at corporation. the other was a tax on bank deposits aimed at the hitten economy. now i haven't read calderon's statement. i wonder first of all i'd be interested in my comment about the degree of success thus far in enforcing these two, and whether or not you think they are enforceable and would make a difference. i should add i'm an energy analyst. and i'm optimistic about the outlook than most people are. i think oil prices are going to stay high or even go higher. and i believe a lot of faith.

>> i was wondring if there's any of the future insights of the mexan economy they'll take into economy the mechanic coition of the indigenous people in mexic the reason why i'm asking although mexico has had wonderful cultural rights, there's still economically of the indigenous people in mexico as in many other latin american untries. and so the question i have they have the high poverty rates and half a million indigenous people, al they are called latinos, they are indigenous people that have come here from mexico. and the free trade association did not really help the indigenous people in mexico. >> let me ask a question if i

can. that's why -- the political debate. you know the enormous drop in gdp this year in mexico, the criticism that mexico gets from international organizations, international managing some of the issues like pex and all. how does that enter into the debates, the political debates in mexico? is there any sort of debates about economics that's serious? or does it tend to be more of a sort of a popular story to debate. what is the nature of the political debate over the economy? >> boy. you want to? >> one topic that as me kind of -- you talk about productivity growth is competition.

and it's kind of the overhanging kind of black cloud that mexico. in your view, what do you think, where does societal consensus. what is to going to take to societal consensus o come around that topic? what's going to drive that competition? >> not excelliveness. >> yes, competition. >> what to we take these for? >> so the last two, and then -- no, clearly the competition issues, that's w when i talk about the sectors of the economy, you know, telecom and media and ergy and all of that, some public and private in serious issues, there's an increasing recognition by the public that these are issues that need to be tackled. either case public or private with very strong and entrenched

interest group. and it's not easy to track -- tackle them. i would say by and large there's a recognition that these competition -- absence of competition is not only a real drag of productivity, it's also from the point of income distribution, undesirable. but from that consensus to the actual legislation and then jot only the actual legislation but the very complex process that follows the legislation because of the mexican system to the actual implementation of changes is a long road to go. >> i would say there's kind of a, you know, people are extremely concerned and have been concerned for a long time about -- for a decade orore as it has become clear that process of reform has not yielded the expectations everybody had. as to why that is the case.

there's academic record of the executive. what has been difficult is to translate that into political action. i think pple are aware of all this issues. you know i might emphasis one. but in general, there's an awareness. it's just difficult translating that in this democrat transition that mexico is experiencing into concrete legislative actions to be enforced. that's where the matter is, i think. >> on the -- the government's new plan. i don't know the details of the recent announced plan by calderon. but in terms of tax reform( but if i know things well enough, i'm sure this will be a scissor

approach, you need both the revenue and expenditure in order to deal with the problem. now, this is one serious issue in not only mexico but certainly it is in mexico that the tax system is fairly inefficient in termsf taxing sort of the higher levels of income. there's a serious problem in latin america and mexico and brazil are the stronger indicators. you have a high levels of worth if you look at the average worth of a rich individuals in mexico and brazil compared to other areas the world, it is fairly high. but the fax system is -- tax system is not capable of dealing with this. i'm not saying tax avoid dance, more of a question of tax

evasion more than avoidance because the interest groups are so powerful. i would say there are the taxes that have been taken at a time when mexico introduced a tax on the bank transcriptions. transactions. i would remain very opposed to it. it was something that gave enough -- basically there is a lot that has to be done in terms of income tax, not so much in terms of -- they are all sorts of discussions whether you want to have a tax like the sales tax or value-added tax which is maybe more regressive but more effective versus a tax on income i think that mexicans have studied this. it's not something that they don't know. it's just a question of being le to implement these policies. so i would say they sell a lot of hard work in the implementation of policy more

than in the design of policies that they would work. i don't know if anybody wants to or if in a position to answer the issue of the population. >> i was going to say, you might be better to follow up on kind ofhe tax -- i think -- that's -- i think it's -- i think it's a hard question. in part becausef you look at trajectory of tax revenue to gdp. the reform that was done in 2007 and deposits that game in 2008, these are phashng i after that. you still have had a continue decline from tax reforms from 10% to 2002 and went up to 2007, but they were close to 2008 at 8.2% of gdp taxes by the federal

government. by given the way the economy, it's not clear how much it is on the couple of -- since the reform. how much is the economy dynamics. but i think it' a valid question in terms of loopholes, enforcements, feeding into collection of soft -- some of these new taxes. is is certainly a challenging area. there's not a clear cut answer. it's not clear that they are yielding what they intended to yield. >> yeah. >> just on the indigenous question. i think here at the margin, there is good news. i think for the decade or so the growth for the poor in general of the indigenous groups to the extend that many of the poor are made up. it's not that nay have specificically designed programs for indigenous group that they

have been very effective programs. since many of those, they have benefited. if you look at sort of some basic indicators about access to health and years of education, and present consumption, those are included. that said, there's a huge amount of migration because of the lack of growth and mexico to united states both indigenous and nonand some of those show up to what you're referring to before. >> it's time for a couple more questions. go ahead. >> much of the problems in mexico in manufacturing centers come from the united states, canada, germany, korea, japan. so the manufacturing technology mexico is really important. there have been universities in the productivity in united states tremendouy between 2002 and 2008. with those improved

productivity, it declines in the actual number of people in manufacturg. so if mexico adapted improvement in productivity, it's logicad there will be a drug courier in manufacturing employment in mexico. how are we going to increase consumption if we hav a decline in manufacturing appointments? >> two questions, we talked a little bit about the history of the past tax reforms. what kinof reforms wld you see being proposed in the aoming year with the new congress and what kind of support is there from business and from all sectors to support some new sort of tax reform. and in the second question would be about calderon was in -- recently he talked about may be a free trade agreement between mexico and brazil. would you see thatotentially increasing the exportss --

mexico's exports and diversity the economy sot it's not so few focused on the u.s.? >> one more question. >> okay here in the united states as it related to mexico, we tend to comeack to depending o which side of the political spectrum you are on. whatever term you wish to use. my question from an economic stand point is especially remit than to going down and talking about economy. does that create a bit of a brain drain if skilled workers leave mexicoor the u.s.? >> go ahead. one more. >> would it be like a peace to come out of the negative? would it be like the main point? >> claudio, do you want to start usff? >> okay.

the issue of the productivity gains and that it saves, it may produce employment. this is not an mexico issue, that is an issue that is global and still employment has been growing. in china, it's also you had this major increase in ployment and there has been an enormous increase in productivity. i don't think that the fact that mafacturing employment does not grow that much in a -- is a serious problem in terms of mexico's growth. i think service in mexico will have to increase its total productivity. this is really the issue. the question is not so much that it's important that the technology is more a question of

why doesn't the total factor of productivity increase? i do not have a good answer for that. but it's an area of serious problem. now,n terms of what tax reform would be supported by various groups? nobody will support openly the tax reform that increasing the tax burden on your own group unfortunately. it's what it is. it will have to be some type, it will have to be a competition of more efficient, broader tax, value-added tax system together with an income tax system that more effective. and again it's more a question of closing loopholes and tightening the so the system of control.

but i -- if it is difficult in the united states, it's as difficult in mexico and other latin american -- countries t come up. i want to say one thing about calderon, this was high time for mexico and brazil to get together. i think there was a very profitable competition between mexico and brazil in terms of cooperating the brazil and mexico seeing the only country in latin america that could protect or constrain their stance of being the important country latin america, i think -- it's starting to cooperate a tremendously positive piece of good news. how it will work out, i don't

know. but it certainly will be good for both countries and for the region, for the region overall. >> what to take this? >> sure. in terms of the blend of the two questions, i mean it's not clear whap kind of reform the government is planning on putting on the table. they are obviously discussions in the press, there are discussions within the political parties. i mean i think it's -- signals that have been sent so far. it's going to be a mix on the expenditure se and on the revenue. on the revenue sehether you are talking aboutddressing the issue with the combat lean and diesel and the tackling that. it's certainly coming to put publicly on the table. there's the question of how you deal with some loopholes on the consumption side comes syntaxes

what have you. but it's also the government considered and addressing the issues in the competition, issues of competition. competitiveness, kind of helping to deal with t medium term growth trajectory. they are enhancing the stabilization funds, the rule governing those. it's not car what's going to be put on the table. and then for us, the question is given what's put on the table, what is actually politically feasibly implemented? what is economically implemented? and this will feed into the track record of being able to collect and get an efficient -- increased efficiencies from tax collections. we don't make a recommendation. so i can't say what is the reform we're looking for. we need to wait to see what the government puts on the table and kind of the mix of measures an

then make an assessmented of what we think this may do to enhance fiscal flexibility and potentially address some of the issues on the growth outlook. >> so two points on the tax outlook. i think the most distorting tax that mexico has today is the tax on legal formal labor. through the whole range of regulatory and taxation aspects, it creates a wedge by my number 35% of hiring a worker formally and informally. so you have a wedge of 35% of your wage bill between hiring somebody isn'the formal sector or that magnitude, there's no surprise you have a huge informal sector and that's it

growing. my issue is the deepest issue to be tackled is toliminate that tax. it has to be wit job -- job creation and productivity. the the other things might be revenue enhancing, but they are not goi to be actual. it's a revenue and activity issue. if you only focus on the revenue and don't think about the pructivity, you're going to repeating the same mistakes. you have to tackle both if you want to have higher jobs. that goes to the question of immigration. there are some ligture in fact that suggests what you say is collect. there's a process of selection and people with more or whatever label you want to put on it are more prone to migration. it's very costly to mexico in the long run because you are losing a lot of talent aside

from the fact that you are losing labor force. i am of the people that think that imitation is a loss. and that problem is not going to be fixed until the people have better opportunities at home. and i go back to 5% of creating those opportunities and the incentives for firms to hire the people. and i would put that at the central of the taxation debate and tax reform debate more than the issues of income tax for the other taxes? >> thank you, santiago. thank y, lisa. thank you, claudio. this was an excellent session. thanks very, very much. [applause] >> thank you, peter. it was fun. >> this is because it' the second half of all of it. [laughter] [hushed conversations]

>> afghanistan's election commission says president both have about 40% of the nationwide vote for president with 10% of ballots in. final receive if credit if id results. this evening c-span will bring you live coverage has jamb moran talked in the washington, d.c. suburb. he's joined by howard dean. that's at 7 eastern. and tonight on booktv prime time. fox news, author of culture of corruption.

: >> on science and technology released the report yesterday. health officials from acroshe

country met in washington, d.c., this month to talk about the influence of in this hour and a half portion. researchers discuss efforts to track pandemic. >> once again i want to welcome everyone here this week at my name is david austin, the chairman of the festivities here. our conference for the last day. and now we're going into day two. and i'm not going to go back to the presentation i done yestday but what i want to do is take a look at your programs and i'm going to me my updates. i'm going to make some announcement so you have all the updated information as we go through today. if you can look actually on your last page nitty and -- near the end which a your breakout sessions a day when d you. if you look on your date to

address section breakout i want to make a couple of announcements in reference to breakout sessions on day two. if you look down on the page, the number eight, where it says stephen track him is not making a prestation today. he made his yesterday. but we do have an congressional room a will be jim akers. you will be making his presentation. so i think that was a typo there. i just want to make sure that w get that information to you. so just remove number eht. he made his presentation yesterday and it will be just mr. jim akers who will be presenting. and as, if you look at the 3:15 to three for 5 timeslot. the other change will be in, we're looking at basically part of our panel. we're going to make an adjustment here on times and we

will see how timed runs. it will be after our coffee break. a panel discussion is set from 10:45 a.m. to 12, will be making some minor adjustments to that around 1145 am. will have a special presentation from energex was one of our major sponsors and they have a very important presentation to make at the time. so just make some slight adstments to that in your schedule. for those of you who did not know, and i just found this out today. i just want to make sure it wasn't a joke, but we have an ipod opptunity for those of you who didn't know that. so if you have your business cards, before you leave, right audit roundtable next to the door is a little black box, if you have are done that then you already know about the free ipod. we will be maing the announcement at lunch. so mak sure you get you business card in the ltle slot over there f the ipod. for those of you who traveled

from afar, forransportation reasons, we have at the desk and there's information about the transportation. starting at noon today, every 30 minutes transportation back to the airport for those of you who need transportation. there will be signage, placard i think for the international swine flu, pluckers on the transportation vehicles. they are using that route to get to the airport. by all means, you can get that as well. if you need information on transportation, by all means, get that at the front desk if there were other questions about the powerpoint within your programs. somet may be missing. we are reviewing all of those again today. looking at those in seeing what is missing out on the program. making sure that we have those on the site for new feels so you can upload those probably in the next 24 hours or so. will have a lot of isolator on you can go into the website and be able to upload those powerpoint that may be missing in your package. we hope to have those there for your. the other piece i want to make

sure you know, is that we have an opportunity to see some very special things today and here's a very special presentations. so take a vantage of a the special information that you have, and i hope you have had some great information for the great -- last 24 hours. how did it g yesterday for everyone? pretty good? [applause] >> good deal. enjoy the food. good, good. i am hoping we have more good food today. i'm going to try some of that desert. they had some very unique desert yesterday. we want to thank our sponsors. we have three of our major sponsors today. we have celebrant and ecolab and we have energex as one of our major sponsors today. we are very, very hpy to have them and very appreciative of their support. which actually brings me to my nextntroduction.

we are very honored to have, one of our major sponsors, energex, to be here today. and i'm going to pass the baton to the chair of that, the ceo of that organization today. i will may can introductory first, and he will be standing here and he will be doing what i am doing. and you guys will be reading him. i know he is ready for that. i am going to introduce him first. i see he is ready. he is mine so he is ready for that greeted his name is gary. is president and ceo of energex. since 1980, gehry has been the thoughtful leader in performance centered solutions technologies and methods. following the origin of the electronic performance, support systems and 1987. did they? they gave me the wrong -- okay. well, anyway. ladies in general, i'm going to let this gentleman come up and introduce himself to die the wrong guy. forgive me on that. ladies and children, welcome the

ceo of energex, please. [applause] >> i should've let him go on it sounded pretty good. [laughter] >> i am tom fagan, despite what my colleague thought. and i am president and ceo of energex systems. and hopefully with all the other things that are going on here in prevention and so on, you'll never have to consider what we do, which is a compassionate use there be, or emergency use therap for h1n1 and other influnza vires. we start about five, six years ago going to the fda with a technology that uses ultraviolet light to inactivate virus.

we started our research, our human research with hepatitis c. we have done to unit, hepatitis c trust that we are now doing an hiv trial at tulane university. and we are about three years ago, the fda came to us after seeing some of our -- the results that we had, and asked us if we would do some work on influenza. in their original fear was h5n1 pandemic, as we know, we have a h1n1 and that is where we have started with our research. and we have some very intereingesults and later on in the program, doctor casillas from louisiana state university will be presenting those to you. >> we're going to start with a panel today and hopefully i will gethe panelists names correct.

our firs panelist is doctor stephealdrich. is president and ceo of bio economic research associates, llc. steven is the founder and president of bio economic research, a leading independent research and consulting firm based in cambridge, massachusetts. serving a broad range of corporate nonprofit and government clien by providing independent expert research and consulting service on the social and economic consequences of human induced change of biological systems. mr. aldrich? >> our second panelist is doctor robert lee, who is -- doctor lee works in the area of disaster preparedness and emergency response at the pan american health organization in

shington, d.c. pic is the manager of the emergency operation center at paho. and pandemic preparedness in the caribbean. doctor lee? >> so far the names are right. >> and arthur panelist will be jeffrey rubin. mr. rubin has been involved in health care administration planning for over 35 years in both the private and public sectors. is expected close emergency medical services system development, disaster medical service planning and response management, public health program administration and primary clinic management. he currently serves as the chief of the disaster medical service

division of the california emergency medical services authority. mr. rubin? and we will begin with mr. aldrich. >> thank you. thank you. well, od morning. i am under some time constraint here so i'm going to go very, very fast. i hope i don't lose anyone. note any questions you have and will hopefully have time for that at the end. my company has studied the overall economic impacts of emerging infectious disease for the last half-dozen years. and so part of what i want to do with you today is to leave you with some of our basic lessons regarding what to expect from

pandemic influenza wh respect to itsverall impact. and i also want to show you how we think about that, and how we are tracking the current pandemic influenza and trying to assess what the relative impact is going to be. and hopefully this will be useful for you no matter what kind of organization you are working with. as you make your own plans. just a quick couple of points to start out. the way we think about a merging disease that bio era is we think about it as something that we term a florescent event, a rapid cascade of effects across spatial scale. and i think that is actually pretty important to keep in mind, and i hopeo come back and show you how that acally expresses itself i the real wod. but it's important to remember that we are talking just about

something at the molecular level really in the virus infecting itself and in the cascade of events up entire globally -- thentire global economy, and indeed the biosphere. this is well produced grafter when i went to my hotel room i had received an e-mail from the fao asked being yet again if they could reproduce it. for educational purpose. it shows the result of the analysis we did following the sars outbreak on looking backwards in time at the relative economic impact of various emerging infectious diseases. two things to note. e, just that emerging infectious disease has been trending upward. we have been seeing more of them. in rect years. there no big news with respect to that but we seehis

significan driving force on the overall global economy. and that is a perspective from which we operate. the send thing to note about this draft is that in more recent years the scale of the economic impact overall has been growing. and certainly the granddaddy of all emerging infectious diseases inerms of economic impact is a global pandemic, such as the one that we are talking about that i will mention in a moment. there is quite a range of uncertainty as to what that might look like. but what did we -- turning our attention back in history to the largest of those bubbles, or one of the largest of those bbles on the last graphic, whic was sars, i just want to point out some of the incredible learnings that we took away frol that experience. sars was a very, very short event. it was basically an event that stretched over a six-month

period, and there were very, very few infections globally. there were only about 8000 people who became infected. and yet, it was a $50 billion event. that's the scale of the economic impact that took place with respect to sars so that 50 that $50 billion, we broke that down d discovered, to our shock, that the cost of managing the disease, that is, if you took all the health care costs with respect to respond to sars and managing sars, everything that was a direct health related expense, that represented only 1% of that $50 billion. the remainder of the economic impact was driven by secondary affects, most importantly by fear, which we noticed traveled faster than the disease itself and had much, much, much larger

impact and insigficant. and secondly, the institutional responses that were taken in response to that fear. so i'm going to boot returning to the theme but i want you to note here the ex-drug neri repeatedly of which it was an impact in the decline of tourist arrivals of sars in asia that fell off the very dramatically. that was reflected in asian market share prices during the sars epidemic. and you will notice -- or you will remembethat one of the things that maids are so fearful was that initially people didn't know what it was. there was no information on what this disease was. as the number of cases started to mount, and the pubc health stem began to respond and we learned more, abou the vir, even though cases continue to rise, the fear level dropped. and as the fear level dropped, you will notice that markets begin to round, etc.

the effects of the canadian economy were equally dramatic. sars was really only a toronto event, but canadian gdp swung by almost six percentage points. across two quarters, which is an extraordary significant event in terms of a national economy. when it comes to estimating the economic impact of global influenza pandemic, that really -- there hadn't been very much done. the cdc did a study on direct costs, what to expect. and just looking at direct health costs or impacts on the health system, they came up with a figure that was widely quoted for many years in excess of $100 billion. and there wasn't much done building on that until h5n1 emerged. and with the emergence of h5n1,

it became much more heavily studied topic, especially in the aftermath of sars. and the best that he, in my judgment so far, has bn lowly institute study. is a lowly institute on there, but that's a typo. it should be low we. and their work puts a bad pandemic that, you know, these are events that would be in excess of $1 trilln impact on the global economy. for showing moderate carb mild, they put at $300 billion mark in terms of the overall impact our turn to that but i share this with you because i want to give you a sense that there was a great deal of people who had weighed in on the subject of the overall impact.

and that the ranges were quite severe. tovey knows exactly significant impact will be. what we do have with h1n1 is so emerging data withespect to what's happened with those countries where there has been outbreak. and so far with respect to mexico and with respect to argentina, it lood like the scale of the economic impact for those first ways is estimated to be about one to 1.5% off of the national gdp for the 2009 calendar year. you will see those estimates, if you google. i'm going to skip the detail on this. but just to make the point that some of the secondary affects, these are nondirected medical of facts. we certainly saw the fear of that happening with the h5n1

outbreak as it rolled westward out of asia and across eope. we saw everywhere it went, and till it hit the uk. we saw chicken sales decline. poultry sales decline. chicken consumption decline. that fed back into the u.s. in the form of declining export prices for chicken parts and ultimately io shareprice as we see here. of some of the major poultry producers in the u.s. so the point being that the economic impacts of the h5n1 event, and respect also for the h1n1 event are critically sensitive to the degree of fear that accompanies the unfolding of events, much more so than the event itself. so this is how very simply we add bio era look at the

unfolding of the pandemic event. is between the local expense of disease outbreaks and global perceptions, reactions and responses. and you've got to look both at the local level, what's happening, and at the broader global level. we see that the character of the impact is driven by these uncertainties. the overall transmissionate, the so-cald or subzero,he virus, that has varied widely for this virus where you look as one would expect, or as a biologist would expect. in june there was an overall estimate of one t for the 1.6% sicko and yet in new york city school system, it was estimateat two points nine which is a lot lot higher of course it is driven, the character, the virus, how it evolves. it is driven by how sick it

makes people pick it is driven by what human individuals and institutions do in response. and of course, the availability and effectiveness of countermeasures. all of these things are uncertain in the face of an emerging pandemic. and yet they all have a central -- centrally important impact on how significant the impact is. so here's what watched. and this is how we see things at bio era. we watch in the first instance the evolution of both the virus and the expression of the disease on the ground locly. what is actually happening to folks and how is the virus and the disease changing. we watch perception of the degree of threat. that is, how fearful are people. locally and at the global level, and how is this changing. and we watch what people do in response. what to institutions do, and how

do they respond and react. these are the things that are gointo determine how significant this impact is there so looking at a local disease outbreak and the global perception and response, again, that is the dynamic. it has now got an intermediary so to speak. these the things we are watching in the middle. and this is the framework that we use to judge how things are developing. we ask -- this is a scenarios framework in which there is the outcomes, the three principal outcomes, one of which would've are gone beyond, the false alarms, we're not in a false alarm. th is the real thing. added are really two big outcomes that we think about. we think about manageable disruptions is the event going to be manageable if there can be degrees of manageability, but basically do we have a handle on this thing, how are we managing it? is that going to be something

that we can do. versus fear dominated outmes. and id there dominates, then the overall economic impact of the event is going to be much, much greater, as i try t illustrate with the sars example, than otherwise would be the case. what i am happy to report is that right now it looks like this pandemic is eminently manageable. and i will come back to its claimed one i think that, just to give you very quickly some insight. this mig be hardly. i guess you can read it, but these are the things that we actually watch in each of those three categories. so within evolution, its infection rate, hospitalization ra, hospitality, it socioeconomic and cultural factors, viral genome changes. those are things we're watching. these are the things were watching on the degree of threats. and if anybody s any questions on these, just ask me.

this is what we watch on reaction and response. and what we do is we have a tracking system, for all three of these categories. and every event that happens, we track on a scale of minus two to plus two, with respect to -- with respect to whether or not the development is positive or negative for either the physical evolution of the disease, the perceptions of the dease, or the future disease event impacts their we do this daily. we do it for all the new stories that we think are significant. and we report on that. we keep track of a timeline of how things are unfolding for each of these categories with respect to evolution, with respect to perception, with respect to response.

and we keep track on a daily basis how things are evolving with respect to the pandemic. we keep track of that on a few databases, and then we judge it based on all of that how we think things are going. and overall where we think things are headed is right now moving up that scenarios framework from is the infection rate high. that is, to have a high r-subzero. it doesn't appear that we do which is very good. so that leads to a slower patch bird, a lower r-subzero is good for a lot of reasons. and we believe we are headed at the moment, all signs indate, towards manageable disruptions or conduct, relatively mild pandemic, especially since we have got effective therapeutics that are widely available, and we have vaccines on the way. that, that doesn't mean that things can't change. they can.

that is why we are watching this. they can change in unpredictable ways and we are talking not as it goes on. that's it. thank you very much. [applause] >> good morning. i am robert lee for the pan american health organization. i am manager of the emergey operating center at headquarters in foggy bottom. mykola, john, spoke on the organization which was formed yesterday. so it is a bit concerned that i would not have to recount what

he had presented. john is actually a spokesperson for the organization, and is accustomed to speaking to the press. so his presentation actually is quite elaborate. so what i decided tdo is perhaps for those of you who are nofully cognizand of what the pan american health organization is, i just give you a very short overview and then i will talk more specifically abt some of the work we have been doing for pandemic preparedness and how that played out once this h1n1 began spreading. i work in the division at the part of disaster preparedness and emergency response. and this unit was createdfter the big mexin earthquake in the '70s when it was realized that significant public health equally to disaster, and that was disasters that cannot be prevented. certainly, the can be trained public health officials and what to do after such an event.

and as time unfolded, this concept which was radical at the time begin to actually take hold. and now there are many more players in the field of disaster preparedness and on response to . .

we've realized would be necessary in the defense of a pandem, and so i have been rking since 2006 to create an emergency operation center driven by the anticipation of the pandemic. but i digress. the pan american health organization is the oldest health based organization in the world. it was established in 1902. the original nameas the pan american sanitary bureau and is still legally is referred to as that and it referred to environmental health focus related to yellow fever and malaria, which is affecting health a great deal particularly

in the central andouth america. it comprises 35 governments and also three of parcipating european governments who contribute something to the organization. it is the american -- it is the regional office for the world health organization for the countries of the americas. the world health organization was created in 1946 after the war and it comprises 190 member counies and is a specialized u.n. agencies. the area in disaster preparedness and response is decentralized. we have three subregional office one in the caribbean and barbados, one in her co-star rica and one in ecuador and these b regional offices are

responsible for the various activities we have in these countries and those regions. this here is an abbreviated time line of defense, and the only point of this slide which is much to become much too densely populated as it was very quick. the first notification came on the 23rd of april and it was about :00 at night and i remember this because i was called and we activated the emergency of the center and immediately started giving information and also contacting people. as with all emergencies we actually had most of the team and ecuador and as you a know whenever there is an emergency it is late at night on the weekend and everyone is on holiday and their cellphone is switched off. i was i a cinema at the film

festival and actually had to lee the audience because my cellphone and blackberry kept going off, so i remember precisely when i was notified. so what happened was that by chance the director of the world health organization was in the office, and she came to the you see the following morning and had the first meeting of the organization. within a few days the world health organization declared a public international concern. we did not really know the severity of the virus. we were getting stories about many death associated. we rushed to see exactly what the data applause, and of course there was a lot of data cleaning to go through and this took some time. also there was a big push to try

to do tting because the initial positive results came from a lab and when a take canada so with the cdc, paho tried to establish an country lab testing as quickly as ssle while trying to manage general public increasing anxiety about the evolving situation. so, within a few days, they declared phase four, which is more tn one country in the same region and then phase fiv more than one region o the world affected by the virus. there was some misunderstanding about the who catheterizations biphasic and many people thought phase is meant severity of impact when actual fact it is the geographic description of the spread of the epidemic in different regions and phase six

we are currently in ishe virus is now spread throughout al regions of the world. this is just probably covered yesterday. okay, so just to summarize what the organization has done is we had to first brief the mean struggle to keep the information for going and manage information not only between the countries but also headquarters and within headquarters as this actually was a unique even there has never been in recent history and even which covered so many countries at the same time and required all levels of the organization to respond and so we tested our capacity and it also identified some of the

strengths of the organization. paho has country offices and all of the central and south american countries and in the caribbean that 27 english and dutch speaking islands are sold by eight country offices. some of these islands have small populations the smallest being a monster act which have set population of 4,000 people and so we have an office in barbados that covers ten of the eastern caribbean countries and so we actually have this network of countries and subregional offices wch all have disaster preparedness focal points and all have some sort of focal point in each countryealing with disaster preparedness. historic the it has been because of hurricanes and as a result the caribbean is better prepared

for emergencies than other countries because every year we have hurricanes and usually the hurricanes have some impact so the population's themselves turn to count preparedness response activities and the systems were actually attending to these events. the current hurricane bill is being tracked by my office and it seems it is being downgraded however last september wead a freight train of five hurricanes and four weeks which more less followed the same path and did quite a lot of damage to several countries be in haiti, jamaica but also the cayman islands a others and it is this sort of experiencef having frequent events we actually capitalized

for a pandemic and this played out in terms of the response. since 2005 we have been encouraging all countries in the americas to prepare national pandemic plans while the focus initially was avian influenza and there was a strong eckert cultural health and so on we did see from the start this was not just a heah issue and so from the start it was conceptualize the pandemic would be an emergency or disaster like eve and which would be jointly handled between the people involved in surveillance and epidemiologynd health services but also the disaster relevant and the experience has shown this to be true. paho mobilized 1 million tama flew to the contras a provided aid to protective gear to all

the countries from different sources and have mobilized the count is now up to 100 technical advisers moved from one country to the next as the epidemic spad from country to country. at the moment, things seem to have stabized but there are ongoing activities in argentina, chile, uruguay. we are actually anticipated the second wave of the pandemic as it is nowinter in the southern and we are interested to see what effect ts would have on the capture and success of the pandemic. we are also has john spoke about yesterday anticipating how we are going to deliver all of these millions of doses of vaccine, and how we are going to make surehis equitable sharing

of vaccine to countries as the americas contained some of the poorest countries in the world exist in the americas and also the infrastructures and some of the countries are weak. in terms of the community eparedne, what we found is a big part of what was necessary was the strong need for social communication, risk communication, crisis communication as we found while the health services were not heavily impacted by theases the public panic on the event actually required a l of strategic thinking and planning. in mexico for instance the control of information by the

government became a big issue as the press began to sort of examine every single statement that was me from t government or any sources and then the minister of health would have to answer my new show of questions dealing to the ongoing evolving situation. in the caribbean it is quite interesting in some countries the government actually spent a lot of time on communicating to the public being very up front telling them where to get information and also keeping them apprised of the ongoing situation so when a team of basketball players return from trinidad with several members of the team becoming ill and being confirmed as positive for h1n1 the public reaction was good and the reason for this is the government was very honest abt what had happened and kept tting an update on the status

of the basketball players none of whom got seriously ill as well as giving information about the pandemic in the caribbean. in contrast there was an incident where a cruise ship became mary celeste weare cases were identified on the cruise ship. countries were not informed immediaty, and so about four islands refused to let the cruise ship dock so for a week the cruise ship vent to the caribbean before the original base and the passengers got off. what's interesting in that case of the impact was very little. the cases were mainly along the crew and fed by the crew being replaced island to island. testing was done in one island and the results came back after the ship left but what happened is there was panic in some countries, and it actually had to be managed by not the health

sector but by the tourism sector who insisted that a better approach to handling such a fence of t cruise ship industry as you may imagine in the caribbeanrovide significant in come to many of the countries and this issue of pandemic is taken extremely seriously. this impacts in several ways one of which is the restriction of information so information goes out as very heavily. they tend to be speaking only to the [inaudible] case is there for giving the illusion the numr of cas in the country is relatively modest as we all know that systems for testing and identifying will impact on the number of cases being confirmed. a social communication is a big part of the preparedness as well

as invoking all of the national systems for disaster preparedness and response and linking a pandemic response to the national disaster plans as well as updating hospital and health service plans in the caribbean. all caribbe countries are now working on their pandemic plan revisions for hospitals and health services and we are having a meeting next month in barbados just to sort of make sure everyone is on the sam field and identify any ongoing gaps. another thing that we actually managed to capitalize on these new technologies usi eliminate which is a softwarehat promotes virtual meetings, and so we actually through the suegional office have daily illuminate sessions with

countries of the caribbean to share information has also to get information on country needs and estions because the need for information on technical guidance was aost overwhelming and the systewe develop was to capture information from various mechanisms and then have a team post information on our website, as it was n psible to answer every single question but could be analyzed the types of questions and referred people to the website. so, in conclusion this eve and paulson unique in terms of the simultanus impact on all countries in the americas and the world. we tested the organization response and identified the strengths as well as some things we are hoping to address more completely as times e fault.

we are using this phase of planning for the next wave of the pandemic as well as planning for future activities. the emergency operating center which is still not i a permanent location managed to deal with the evolving situation and also rapidly scaled up its capacity and staff and services for being open 20 hou a day and increasing the staff from four to 20 at theeight of the the defense. i think i would like to stop here and follow up with questions later on if you have any. thank you. [applause]

[inaudible conversations] >> good morning. you know, last night ias a very good boy. i spent a little bit of time doing some work for presentation answered e-mails, had a nice dinner, took a tour of washington, salles monuments. but some of you -- some of you look like you had a little too much party last night. [laughter] you look a little slow this morning so i want you to sta up right now. come on. i want you all to stretch. get your hands up, all right? i want you tout your hands down, turn to your rightnd say hello to the person next. okay, now i know this is difficult, i want you to turn to your left and say hello to the person there.

now iant you to find the chair and we will try and reduce your maximum botom time. in all conversations thanyou for joining us this morning. it's a pleasure to be here with you. it is 3,000 miles frgm california. i and understand the smoke has cleared a little bit. we are not earning as much as we were yesterday. so, what i would like to talk about it this morning with you and then as the other finalists mentioned we will go into questions and answers is a bit about what we see this even to being in terms of other disasters and preparedness that we have done across the country. kind of the diffence between the types of defense we have to deal with and then maybe some faults what might be i will call them the best practices that may be good thoughts where we will go to try t deal with the event. we have three overall goals and

this isn't in your hand out i want to mention them the fst is decrease number and severity of the illness itself. as you heard yesterday we have got to communicate and should receive the vaccine first and where to reive it. that is absolutely critical. second for the fall pandemic response we need to decrease the burden on the health care system and maximize its capacity and i cannot say that strongly enough. this will be won or lost in the trenches. this is a supply and demand issue. there is only so much we can do on the demand side for the ine and, you know, making sure there's good social diancing and washing your hands and all those kind of things people a going to hit the emergency department, people are ing to hit the primary clinics and health care system is going to have to beact very differently than it does for other types of hazards, peery differently than it does on a y-to-day basis when it is already very much overwhelmed in major cities around the country. we've run a 90 plus occancy

rate in most of our hospitals so it is critical anything we can do to decrease the burden on the system and get the health care system ready to respond. and finally, we need to minimize disruption on the ctical community services, fir law, puic works, etc.. we have a saying in the earthquake business that in fact a hospital without hngnd ventilating air-conditioning, medical gases, water, etc. it is a building with a bunch of sick people andf we are not going to have the staff to r the critical community services, we are going to be in trouble. okay. most of the disasters we have been planning for in the united states have been mass casualty even oriented. we have seen not only in the states but around the world we have many different types of

impact on t populace and medical system from disasters but again we tend to think of large numbers of injuries, a lot patient transport, disruption of people overwhelming the hospital's etc. we've bn spending a lot of money in recent years on terrorism and getting ready for rge chemical biological radiological nuclear explosive defense. so a lot of wt we have been doing and experience with national disasters, floods, hurricanes, fires, earthquakes, tornadoes, etc., they are very much mass casualty even oregon to. there has been great thought and good work and we will talk about that in a second that has gone into bioterrorism community disease outbreaks but i would say in he hospital preparedness program which is one of the government's programs to prepare for disasters and the homeland security programs they have been mass casualty oriented not so much public emergency and that is what is different in this

kind. for us in california and i think a lot of our partners around the country will try to simplify this and break it down. we are looking at building a system that has thr different components. the rst is building capacity and capabilities. looking at what is there in the existing health care system trying to strengthen that, build field deployable resources. secondly, as we look athe system and its capabilities, build infrastructure as far as managing the event, command is a word that public safety dos is, those of you from the fire service, will in force and military and civilian side we talk about management, talk about control, working together and communicating together using the nation management system, the acronym their, sems, we developed the system that nims is based o it's a way of bringing the partners to better and understanding we are in this in a complex emergency together.

and then finally, when we know what to capacity is and how we are going to work with each other and communicate to tie it together and then the train and exercise enhanced medical provider of readiness. we spend a lot of time and money as have our counterparts in other states building what we call mobile medical assets, we have and will strike team programs with large vehicles, full of supplies to support ambulances when they deployed. we have to the right top their california medical assistance teams built on the idea of the federal disaster team many states are building their own programs, the bomb left. whenever we deploy field medical resources we wt to manage that and provide logistic support recall that mission suort team. again, modeled after our federal counterparts and then on the bottoi right, we have built -- purchased and built rather the largest mobile hospitals in the

world, each ofhem are 200 bed, fully equipped hospitals with0 dead e.d. come surgery, ten pressure isolation. these are totally self-sufficient and can be deployed in 72 hours and several other states have built facilities that are similar. all the states ha to put together what is known as the emergency system for the advance registration of volunteer health professional can anybody say esarvip? the idea is those individuals would be part of the ongoing system trained, would be available at the local level, would ba ready to g from when the disaster happens. in california we have a california man called disaster health care volunteers. but the basic concept is that we are developing a registry of individuals who are interested in responding in disasters. i would point out to you though,

that as large as this registry is going to be, we have to have one out of every six licensed health care providers in the entire united states, and other states have done tremendous jobs building the registries, that at that time of this event or any disaster, the content of that registry is zero. these are volunteers. th may belready engaged in providing health care services in their community. many of them have signed up on thre or four volunteer activities as the nature of people interested in disaster response. the kind of overextend themselves. but the reality is in an event like this they may not be able to lve the east coast to come to the west coast or from the south to go to northern california. anso we have to understand a registry is only as good as the volunteers attention that time and it's important for us to make sure as we deploy personnel they are our most treasured asset, most treasured resource. we have to protect them, we have

to make sure they are there and they are safe dmas deployed in new orleans during katrina and unfortunately had some very bad situations on site at the superdome so we want to me sure people are protected in this case they're vaccinated, personal protective equipment and we watch out for them in the response. i would suggest to you if you take one thing aw@y from this discsion that the limit in factor in this event, and this hazard that we are dealing with is people. we are going to be short providers and that's going to make the difference for us. finally we spent a fair amount of money inalifornia as have other states and actually when the economy is a little bit better. wenvested $172,000,000.51 million respirators, 2100 centiliters come almost 4 million courses of antiviral medications in

addition to the federal allocation alterman care site medical supplies, 21,000 of those, the mobile field hospitals, and wonderful set of documents available on the depament of public health website for hospital and alternate care site guidance and standards that's a nationally known document and 1i would encourage you to visit and we are writing one now for nursing hmes and primary-care clinics. so, put a lot of resources into this but what does it come down to? in my mind comes into partnerships if we are building a system wh components and the components are in this case the partnerships that are there and an emergency medical services we have a saying that no one owns emergency medical services and everyone owns it and the disaster medical and health world has many more partners than the day-to-day ems system.

it goes beyond hospitals and ambulances and fire service, doors, nurses, it gets into a whole group of partners we don't necessarily particular in our world and even the public health world hopes we don't work with on a day-to-day basis, the military, the care and shelter folks, the emergency management folks. and so it's very critical that is -- we build that system as we build the partnership we have the right people at the table. one group of people i think we have kind of forgotten is the public and the general disaster preparedness. i know we talked about disaster education, 72 hours self-sufficiency, 96 hours self-sufficiency. a lot of the plic health folks to an incredible job getti out there and working day to day public health and fire mental health programs but we need to make sure we are thinking of the public now just as victi but as partners and they are equally as important to all the other entities listed here. yesterday we listened to what

the speakers talk about the media and importance of using the media. who is the media's climate -- excuse me, customer? the public as well as health care providers, the public we are the mos concern with so i think it is critical we have what is the difference between this event and the typical flood, fire, earthquake? this is a maratn. it isot a sin for those of you who are managing the event or participating in the management or proding services and even or your businesses were affected by the event in april and may, we got pretty tired. i am sure some of you to also. what's it going to be like six months into this, nine months into this? ..

>> we walking them through what will happen. what the aftermath will look like. we don't know what it's going to be like. that's the scary part that i previously mentioned. and external events anteinforming provided really do shape our response. we have to understand that what does happen on the other side of the world, unlike the locly generated, earthquakes and tornadoes, are going to effect us very quickly and sometimes very strongly. and finally, government, we're

the responder and the victim. we are not the ultimate deep pockets here, we are not the ultimate store that going to provide all the resources. we have some issues that we have to deal with internally and at the same time be expected to assist the public and health care community. i do believe though that the work that we've all done to date, the united states really has pushed a program emergency management, many of us have gone around the world talking to the countries, the ideas in incident command system in multiagency coordination systems, making decisions together, working together, these are all critical ideas and programs that we move forward. and i think, and i know, they will work. it starts with organization. who is in charge? one of the first things that struck me when we got involved

a lot o bioterrorism planning, all of the sudden it wasn't the emergency management agency, it was the public health office. but is it one versus the other? isn't it both? i think that's a critical issue that has to be talked about now. we can't wait. this is coming folks. we have to deal with it. the one thing the public wants to know is who is in charge? i think all of us look back at september 11th. we see mayor giuliani. he was in charge. behind him was his aid team. but he was in charge. and so for this kind of event, it's important to understand who was in charge and then who will be speaking for the organization and what time? we have to talk about sustainability. but again this is going to be an ongoing event. what are the rules of engagement

for local assistance? you know, i have been on the end of the telephone over the years when down through the governor's office and the call has come. give it whatever they need. let's take care of this. we may not have everything to give them. if we don't have positions in a ware house, how are we going to give them everything they need? and what are the funding optis? what are dollars that are available? what suld they go toward? what's doing to make the difference after the event? we still haven't figured out how to reimburse for health re services provided in a disaster. it's very clear in individual assistance programs. stafford act is not set up. iould ask my federal partners to be thinking about this at this point. three areas: strengthing the

partnerships, risk communication, and provide guidanceo work with health care industry. when the energy -- emergency management folks are looking at a disaster. it's very clear when they look at the folks in public uniform. they know exactly what they do. they know exactly what the public works people do. when it comes to public health and ems, they areot quite sure. on the ems, a lot of fire service. but public health is kind of new to them. it's kind mf in the area of set of emerging disciplines in disaster medical and health that aren't as well known. i think it's important for us to ems to reach to public health so we have a clear message that w can get to themergency management ancy about what we are, how we work together, we are available, we are responders, we are first

responders, we are first receivers. we're aumber of different things opinion but together we are medical and health preparedness energy team that's going to work with the other partners. but ems and public health has to talk together. they have different cultures. and those cultures sometimes get in the way of optimal response and optimal partnership that we can then turn to that emergency management agency and say thi is who we are, this is what w do. and this is how we're goinc to strengthen the response. obviously working together before an event, training, meeting, exercising, understanding those cultures. when i sit down in a meeting and i'm sometimes a county or city and i listen to the discussion often times between public health is an example sayin fire service and law enforcement. one group wants just the facts. let's get to this.

let's get it over with. another group wants to talk about all the issues surrounding it. we don't have time far. okay. we have an event that's coming. during the response itself we tend to get into our own silos. we talk about the planning. but during the event itself we need to get into the emergency operation centers. greatest example in our state many good examples, one is san diego at their medical operation. there's representative from the hospital association, clinic sociation, medical reserve corp, it goes on and on. that's a lot ofeople. but i can tell you it makes a difference when everybody is there. and we need to device what eac is and is not in a disaster response. so the risk communication stand point. it's not too late to plan. okay? you know, we all talk about lessons learned lessons

relearned p april and may gave us some good experiences and lessons. but let's use the kiss principal. let's keep it simple. partnerships. schools we talked about about yesterday. it's really an area of yes we've done a lot of wk with earthquake planning with our schools. but this event vy well maybe given to us from t stand point that we can me a difference on the demand side of this if we can work with the schools collaboratively, if we can give the schools good direction, gauge that partnership, and produce the number of sick kids here. the messages that we give out, again who's giving the message, what'she content? is there competency involved? is there spokes people and persons that are believable? is it in multiple languages?

in california they answer in 60 or 70 languages. america is an amazing country and amazing mixture of people. we have to change our messages and delivery systems. with the social networking, twitter, you name it all these different new mechanisms. let's understand how good they are, who's going t look at these devices, who's going to take action based on the message, and let's use these thoughtfully and well. and let's make surehat we deal with the issue of rumor control. this thing can get awayrom us really quickly. i mean when i talk to law enforcement. they are very concerned. they see limited resources, vaccines, they wan to mak sure there's protection and security for that. they want to make sure there's protection and security for the points of distribution. these are all issues that are very iortant to them. so i think it' important for us on the medical and health side

in working with the leaders that will be the spokes people to make sure we a very clear. tell people of the time and also understand what we don't know and get back as quickly as possible. it's important that working with health care providers that we understand the situation they are in. during the anthraxvent in washington, i think the hospitals, as we understand, felt very concern. because the was conflicting guidance coming from city, county, and state. they felt like they were left in the lurch. they wereetting the calls. the triage nurses were overwomenned. we need to understand that event is going to unfold over time and that we need to make sure that we clearly say what are the sources of authority and direct our provide partners to those sources of authority. that we need to work with them on trying to leverage as much as

we can a supply chain for personal protective equipment, the anti-virals and make sure they are vaccinated, get everybody vaccinated if that's what it's going to take. but we need to work together, and we need to have them understand when to come to us and how to come for us for resource acquisition. i have a relativ that livesn central ameca. after hurricane katrina they happened to be a reading a newspaper that the jerman tourist left in a hotel. that was sent to me by relative.

>> the hurricane is coming. it's up to us to work together to do someing about it. thank you. >> that certainly was very informative. and i think you're right, the hurricane is coming. we could take some questions from the audience at this point. anyone? ma'am? [inaudible question] >> i'm sorry earthquake. the earthquake today where everybody, you have all the

calculations trying to earthquake with each other. how did that work? i never did hear the end result. >> they start out with the shake out. this is an an usual event. that looked at a 7.8 earthquake in california, and it was a great launching point from public education stand point into our statewide golden guardian exercise which we do every november. and golden guardian started out, but now it's all hazard. earthquake was the scenario that was used. the california management agency is bringing up the action. i can tell you it went really well and we love to develop processes that can support local needs. >> could that b used for h1n1? >> it -- yeah.

the question was can we use a portion of what we did in golden guardian for h1n1? our former director now our emergency management agency said years ago, you don't want to meet your parers at 3:00 in the morning on the runway. i think that's what we're looking at here. i find for all the different hazards that we face, particularly in the southeast, it's the same people in the emergency operation center. we bring in technical experts of the hazards event and commune ll disease event. and i think it's critical that we use those same systems. i think that's a very important point. we don't want t create new systems. have to speak to our strengths. >> yes, ma'am? >> i was woning if you have done any joint looking at earthquake during a pandemic, that kind of planning or a double event.

>> i'm sorry. i didn't understand. >> she was asking if you've done joint disaster like earthquake plus -- >> sorbitan yowsly, no. had a good test in april and may, we had a large fire at same time we were dealing with h1n1. i know our partners in the southeast are planning for hurricane. again it's the same structure. you may have a different portion of your daily situation report being put out. you may have some specifics in the resources that you look for, anti-virals. but again a lot of the partners are the same. the system should be the same. we shouldn't be creates all new systems just for one hazard. we're going to fail if we do that. >> this is a question for mr. lee. we have an idea of situation in africa regarding h1n1.

can you update us what's goi on in africa? >> yes, for a long time there were very few cases. there ar an increasing number of countries reporting cases. one of the problems with african reporting related to the number of labs that were functioning to do testing. and so this impacted on the reporting. but there are cases being reported from south africa and different over countries at the ment. w.h.o. held dly regional meeting every morning at 6:00. and all the regions around the world reported including african. and certainly in april, may, and up to june, africa still hadn't reported many cases. only the last few weeks we're getting cases being reported. of cours again understanding that the systems of survey lens,

detection, and investigation in afca are not as well developed as other parts of the world. >> any other questions? >> can you come up to the microphone here on the cter? there's a -- yes, sir >> michael, hi. director of environmental safet baton rouge community college. what do we expect the role of fema to be for anyone? >> want to try?

ahead. [laughter] >> all right. let's give them a cnce. >> for us as a state, we go through, you know, the nional response framework and the existing plans. >> can you move your microphone? >> sure. from a state perspective, you're following the national system we agreed to. which is fakework and there's economy suppt function. for us the number 8, public health and medical. that's who we go through hhs, and they go to fem as i go through my state the emergency management agency. i'm not a federal employee. fema has done some very good things in the last couple of years. we hope that the continued approval is there at the state

and local level. >> hi, this question is for mr. aldridge, you had said in your talk that you thought that he economic impact of the h1n1 event would probably be manageable if there are no significant changes. i guess there's different definitions of manageable. but it seems t me that it would be because sars, it seems like it would be much bigger. can you explain? >> yeah, severe acute respiratory syndrome was a very event and it was driven by fear. so this was a very, very large fear component to the overall economic impact of sars, as i mentioned the direct medical cost or the cost of dealing with

the illness that were only 8,000 or so illnesses was only about 1% of the overall cost. so it's what i would call a fear dominated event. e overall sars event. >>in this h1n1 pandemic, it will be bigger in the global eyes. it will also stretch out over at least a year where as sars was much more narrow. so we're spreading out the impact over time. and although the absolute number maybe larger in terms of the economic impact, globally, it's spread out over locality and time in a way that die dilutes it so to speak.

so far if, you know, you remeerin that i've been wrapped up in looking at economic impacts of other emerging diseases f a lock time. so i tend to assume a lot. when i speak about it. but the -- so far the virus is cooperating. meaning we have a relatively mild virushat's largely attacking the young. if you look at the existing data, what you'll see is that this is a disease primarily of the yng. if you're over 50, you're very unlucky if you get the virus. if you do come down with it, and you're over 50, though, it's likely to be rough on you. much more likely to be rough on you than if you're younger. so it's -- but overall the virus is cooperating. it's mild. it has a relatively low subzero

from wht we can tell. which is very important for the overall impact of public health. so while we've run in bun bob that has airiers where we ar running up in cities to that pot where the public health structure looks like it will be strained, we haven't seen so far the absolutely overwhelmed public health system that tends to be a breeding ground for fear. when you really ask what's going to cause the thing to get out of control. it's when local peoe in response to the disease outbreak really becomeearful. and that fear starts to spread. that's where the economic consequence with multiply many, many times.

d become unmanageable. because we -- the virus is cooperating, because we have done so much planning for h1n1, not everyone in the world, but certainly in the u.s. and other countries, because the governments have so far contacted responsibly overall reasonably. and we've stayed away from fear. overall i think it's a manageable event. it looked to be now. but the hole reason we watch every day and grade every day, every event from the point of view of what does it mean for the perception, what does it mean for fear, and what does it mean in terms o theesponses that individualsnd institutions are taking. the reason we do that is because

the situation can change. and it could become unmanageable. so it's a long winded answer. but i hope i covered it. >> could you come to the microphone in the center? >> sure. >> thank you. >> good morning. my name is kristin hill, anne i'm not director of great lakes epidemiology center here in the united states. i'm the only one who did tha who actually did that. i wanted to just ask you about the special status of the risk populations of the indigenous poputions of the world. and what is being done to especially deal with these populations. i know that this last go around may may -- first nations in canada had a difficult time. thank you. >> well, i can't answer your question in terms of the

specifics of whathe canadian government is doing. but i think the overall point that you're making or that your question makes is that we must keep in mind in preparing for pandemic that different populations are going to be affect differently by the virus. that's the critical point. and so far we've already seen to as your question points out, the virus hit indigenous communities in manitoba and auqtralia. there's a great concern of what's happening pereruvian amazon widh the populations that are vuhnerable. but i can't answer for the canadian government itself of what they are doing. do you want to add to that? >> we don't collect data by --

we only get country data. >> ts on? my ne is mark. i'm with the department of homeland security. my position is chief of interagency plans. first i'd like to address what you answered on the involvement in fema in the h1n1 process. secretary has organized regional coordination teams. these teems are spread throughout the country. the members of health and human services,ema, and other organizations, et cetera. in addition to that, there are assessment teams of health and human services are setting up that fema has trained various

members of their organization to assist with the health and human service department and going out and doin regional assessments to look at populations that are being affected and to look at the responses that are ongoing and what needs to be done in the near future. so you're answer was very well made when the question was posed on what is fema going to do? for dr. lee, sir, could you tell us a little bit more about your plans for lessons learned? it's coming up in september here in washington, d.c. uld you tell us more about those plans? >> they are is series of lessoned learned for the organization. the first one is barbados caribbean region. it's a technical meeting in the

survey lens of aspects which will be held in miami for all the countries of the region. and then the third one is an internal one at headquarters on the third week of september. which is actually going to addrs how the headquarters responded. the third one, which we are involved -- which i am involved in, is an internal review. in addition to tha we have identified a consultant to do a analysis of the organization response and he or she will be attending all these meetings, and will also propair a report for the director. -- prepare a report for the director. >> we have time for one more question. >> i'm from the clinic in cairo, egypt. question is about the vaccine. when will i be available in the

u.s. and i will ask about 1,000 muslims in americans will come to egypt next september. and when exactly the vaccine going to be available to the middle east, especiay in cairo, egypt. is -- thank you. >> ion't think anyone has a precise state of when vaccine will be available. people keep saying september. i understand there are some logistical things in terms of pructi and distribution. the production of the vcine for h1n1, a decision was made under the encouragement of the director of world health organization to the vaccine production companies which were in the process of preparing a

seasonal vaccine. so they were asked to switch to producing h1n1 vaccine. in addition to that we know that several countries have actually preordered vast amount of stocks and the director of w.h.o. is -- was in place systems that vaccine should be equitab to the region with focus on those countries in the various regions who do not have the financial economic resource to buy vaccine in vast quantities. the answer is i don't know specificically. i do know for egypt, the regional office for the mediterranean is based in cairo. i'm sure if the point there will make sure that egypt will have its share of vaccine. as you know, egypt has had an

ongoing bird flu outbreak with deaths in egypt. and the concern is actually to see what will happen if there's any mixing of the virus straining. and so the world health organization is monitoring the situation in egypt lice closely. my question is for the first. you have informed us about a tool of using evolution, evolution and the response to the future of the product. now you have worked very fast throh the activity and each indication tour. at least for the revolution, the challenge is with the perception. we can find big difference within the continents and even in the same country. doing this on daily bases, how can you do it?

and to ensure and correct it as much as possible. thank you. >> no, it's a good question. so the question is, how do you measure perception? and the answer is, the only way you can do it is with human judgment. there's no other way to do it. at least for this event. when i say that what i mean is you have a stream of things that are happening in the world. and you have to rate them. you have to evaluate them. so whate have de is we've created a very simple transparent rating system. as i mentioned it goes from minus two to plus two. and it has criteria associated with the different levels. and simply have a human being

who tries to match the event using their judgment -- informed judgment with the appropriate rating. and then we give it that rating. and if you think we're good judges, you agree with us. if you don't we you have your own opinion. but that's the only way we can figure out howo do it. that's what we do. >> okay. i guess -- it's time t take break. we will be back at 10:50. maybe a round of applause. [applause] [inaudible conversations]

>> that's at 7 eastern. at about 9:3 a town hall by lisa murkowski to discuss. shealk the to strengths at an anchorage high school.

>> as the debate over health care continues, c-span's health care hub is a key resource. go online and follow the latest twits, watch the latest events, and share where are thoughts on the issue with your own citizen vid wrote. including video from any town halls you've gone to. and there's more at c-span.org/health care. > how is c-span funded? >> grants. >> i don't know where the money coming from. >> contribution from donors. >> how is c-span funded? america cable companied created it as a public service. no government mandate, no government money. >> the president's council of

advisors of science and technology released a report saying the h1n1 can hospitalize 2 million people this winter. at a swine flu conference earlier this morning researchers discuss efforts to get a vaccine out. it's aut an hour and 20 minutes. >> we want to make sure you know what's happening in terms of announcementagain. i'm going to call out several names of individuals. if you areot here, we'll try to connect. i want them to meet me at least after the presentation is over before we brief. lunch is going to start at :15. we have another speaker. dr. daniel beer net. i'm not sure if u are here. please meet me for our lunch break or after our lunch break start at 12:15. gary, i think it's sontz, meet

mes well. james higgin, michael steveer, james bender, and don cook. if any of you are here plee meet me at 12:15. i'll probably be on the outside in the foyer area. another update is if you look on ur your -- in your package on page two, the secon day. we have a topic by darrell henry. he's -- it's going to be on infectious medical waste. his time, he will be in congressional room a.

he's in t program, but make re that you list him in that agenda there. the tim for him will be 1:30 to 3:00 in congressional room a. and that's for darrell henry. he has worked in the emergency planning and disaster assistance for two governors, and natural gas utility industry. and 20 years of experience is a fairest leader and issue of the political campaign specialist. he's also manager at corporate issues. and in addition he leads the coalition principal for our strategies and partner for his development and sategy. make sure y put a note for that. and for karl. >> okay. coming back from our break. i got some announcements to make sure.

i just want to make sure that we make some corrections on our earlier introductions and everybody on the right page. i wanto make sure that everyone knows that i want joined together, i didn't know they were brothers, but i've join the them togeth. ga would you please stand. pleaseive him a hand. as you may recall, i was reading his bio earlier. and for his brother, thomas. please stand. so we now have found out the relative have joined togher. i'm glad to have them here today. o of energy said that to really save your graces, you need to b sck into e company. i will do that accordingly. once again the ceo, please well

thomas fagen, as he will present for us today. thanks. and i'm messing up someone's spot here. >> thank you, stephen. >> i just wanted to say before when we talked about a hurricane, and comparing a hurrican to this pandemic. you know in one way it is sort of a hurricane. the difference is that a hurricane hits usually in one generally area. and i remember back at katrina, our local -- we got involved, the company got involved in o local fire department and ergency services personnel and

collected four tractor trailer loads of food and baby supplies and you name it, it was on those four trucks. and we shift back down to louisiana and,you know, the point i'm trying to make is that with a pandemic there may not be help from other states and from other country counties. chances are the entire country is going to be effected by this. we're going to have to rely on the services that we have. so with that let me introduce the next panel. this will behe panel on vaccines. the moderator will be dr. sam

mule bogoch. >> and our panelist will be betty, dr. betty lee. dr. lee is currently working as licensing officer at the bureau of industry and security fice. so non ration controls, chemical and

biological controls, and reviewing license and biological exports for dual and use purposes. and our next panelist will be dr.ouglas pour powell who is director at antigen express. dr. powell is an influence and immunologist, directly of immual biology. he stu the immune response of h5n1 and h1n1 and the vaccines and infection [applause]

>> good morning. i'm so glad that we got some help with presiding and introducing because that leaves me free to be nonobjective as the full role of chair, i'd have to objective and polite and balanced opinion and i hope to do none of the above this morning. so the subject that i like to talk about is chemically synthesized vaccines. you probably rd quite a bit, lately, exspecially, about

various vaccines that are supposed to b synthetic. that is an extremely broad term. if we look at this slide, which unfortunately is a little tiny for the purposes that you'd like, i'll do some reading for you. what are synthetic vaccine broad definition against an infectious agent are any vaccine produced other than the whole infectious agency. in other words you could use parts, you could use partial or total enactive agent, parts so that are no longer infectious, you can reproduce these agents in some live biological cells. for example in eggs or in cells and tissue culture such as

bacteria in caterpillars, in insects, and the kitchen sink is not included, but almost that's being used as a host to make these vaccines. the final vac even product, and here's t crucial point. it is contaminated to some degree but carbo hydrates, other than the specific pep constitute. and antigen interference is prerent. and this is a major problem. now in distinction from this group under the broad definition of so-called synthetic vaccines are what i call here chemically synthesize because that's what they are.

and chemically sincetized vaccines are none of the above. all of the things identify said doot apply toheckically synthesized vaccines. so that what you do is make a chemically synthesized product by solid phase chemical synthesis that's been around for 45, 50 years, and you sta with synthetic amino acids. this is not ever in any biological agents. synthetic pep tides has been used for a long same time. they are safe. they don't make much troub. you have rapid production.

we made our vaccine in seven dates not nine or 12 months, but seven days. it's aig dference. if you find out you have an agent that's hitting, and you'd like to make some vaccine please, you don't have to say as our current situation has said, we will have it for you in six months and nine months and then not produce because it's very complex business putting it into eggs, put it on cells, put it into various other agents. ours is synthetically made and can be done in seven days. crucial difference. you can respond rapidly. and mas production is possible in kilogram amounts. in tons. very simply, very cheaply. and ler costs. and you caj choose a principal

for this election of your particular piece of the puzzle. but then you have to have some knowledge about what the principal is. and we haven't had any principals that have worked in the past 40 years. that's part of the reason we've had to use these big agents rather than picking up particular littl agents. and the principal that we've discovered that's made our vaccines possible that principal of the replicants which are a group of -- a well defined group of peptides which are defined by thr amino acid constituents and the distance between them. the distance between them is quite crucial. without going into the details of that, you can read out in our

patent history, these are potentially highly specific. because what we found is that they are as i told you yesterday, related in a strange specific way to the outbreaks. so if you picked those reply cants that are new to the outbreak and you put them together and synthesize them or lock them together and synthesize them. you get a vaccine which can be a lot more specific than what you had before. they are stable. no preservatives, no nothing. they've been shown to work to protect the ht in the first two examples tried. when we did the first one, we thought maybe that was just lucky. now we've done the second one. makes the chances just lucky diminish.

and we're on to our third one now with h1n1. and the question i would like you to think about is, given all these potential advantages, will all vaccines be madehis way in the future? and to me, the answer is yes. all vaccines i think will be made this way in the future. synthetically. and the nightmare of the discussions of yesterday and today, will it be september, october, you sure it won'te january, will there be enough? gone. what's wrong be our current annual vaccine formulations? you know the scene in mcbeth wher the three witches get together and stir the pot? d that's what happens twice a ye with our major governmental organizations who say whato

you have? well, i think h2n3 looks dangerous. it happened in australia okay. throw it in. throw it into the pot. how about h1n1. no, it hasn't done anything in years. et cetera. so the guesses are pretty good. that's what's amazing. the guess wor is better than 50/50. over the years. but it's no good when it's no good. and we can't afford that. because lives are at stake. and maybe the suboptimal performance is due to the fact that no virus structure was known with which to predict the next outbreak. if you knew the virus structure that was coming, you'd have time to picknd choose from that and even have trials. if you have a year advance as we had for this one. and those of you who were here yesterday. i showed you that apri 7th of

2008 we published the prediction of h1n1 aiving. it got here 10 months later. if we knew tt, we believe it would make a huge difference in terms of our ability to respd. and secondly producing a vaccine against the strains takes too long. that's the same point. stated in aferenp way. now what -- the thing -- i told you about yesterday was flu forecast. and that's a softwar oprietary software that's based upon what we have learned and software we've designed for picking them out. so if you got the scout viruses appears, you know that virus pandemic have scout viruses that appear first quite a bit of time before. the way we did was in february and march of 2008 outbreaks of

n1 not only did our count go up above to the level that it was at in 1918 which made us think we better loomore carefully. but when we looked we saw there was an outbreak in kids. how many people knew that? how many people knew there was an outbreak in australia -- austria. we only knew because the count was going of. these replicants in theast have made trouble every time. instead of looking for mexico. we asked the computer for the usa. and we got two things.

california, how many people knew there was h1n1 in california one year before the present? i s one hands, two hands. not many. and then we saw that there was no data for mexico. but ther was for new mexico, surprise, surprise. you mean the virus didn't pay attention to the border? talk about one world. the virus doesn't know any other. it just knows it goes where it's accepted. where it can make out. and new mexico had cases of h1 in 1, as what was later reported, a year later in mexico. it probably was in mexico too, it just wasn't reported or detected. someone was recently asked what's the most important thing going forward? is it high official among the governmental agencies. he said i have three things that we mus do. and he said what are those

three? and he said:survey lens, surveillance, surveillance. that's a wise man. and think they flu forecast gives us that handle we've never had bore because we've never been able to read the message in the replicants of the sequences that are published. in this case we give an example of sequence in which we've identified -- you can't see them there, but a couple of replicants. we track the rift for each year and strain from 1918 to 2008. we calculate the replicant, which is the first part of this exercise. which tells you whether things are sleeping or in trouble. orhether things are coming. in this case, the replicant ually if it's under 5, nothing

much is doing to happen. in the last 100 years, that's been the case. if it's above 5, it usually means that the genes that are involved in t influenza in particular have been stimulated and they have overproducing which we have shown there related to rapid replicated and related to the outbreak. we were then able to isolate the gene that was responsible for this by checking the eight genes, for example, in h5n1. and i showed you this yesterday. and what you see here is that

there are 7 between genes that aren't much and one that's going a lot noticehe standard various of the mean. not only has the mean but the standard aviation has gone up. and that's standard aviation indicating how bad the range of activities is in each gene. and you'll notice a staard aviation which is in red. it's very small when nothing much is happening. very small, smaller than half, smaller than 1/3 usuall of the value for the mean. but when things are happening, the standardviation is much larger. that means there are scouts out there that are making many more replicants while a large part of the population is still sleeping. and what we spotted in early '08 is the total count for the world, all vues entered into

the software, the total count was up to 7, which was the number it was at in 191. -- 1918. and secondly, there was outbreaks in austria and california. you notice in the years of '03 and '04 for this peak. for this peak were '03 and '04 th are low. if we'd just picked one year and looked, we would have spotted this. so you do each year and as you see later, or you saw yesterday, and each country. an you're able to -- people are asking about how do you zone in on this. the way you zone is you get specimens of all the sneezes and coughs and colds in the area. we compared eight countries so we are in the east and it was

clear that indonesia wac in for it with a more lethal replicant count. that was the first prediction. the second w h1n1. so the next by measuring its height we know what's coming. :

>> too many lives are at stake. it's very cozy but not nice. the cdc acted very quickly this year, and did release t sequences they have. that was very encouraging. and hopefully, the w.h.o. and cdc and all other governmental

agencies will release their sequences. of course, indonesia said i am not going to send you my sequence because you are a bunch of capitalists and you will take advantag of us. right? that will not do either. this is cooperative boat in which we are alllaced. it will sink if everybody doesn't release sequences your well, and black, you see in 1918 h1n1 and then you see the black throughout this arlo up to 2007. i didn't have 2008 here. you saw it yesrday. where it went up for the current. the dark blue is h2 into, the last pandemic of 1957. the green is 1968 for h2n3 and then you see h5n1 and read at the end out here acting up.

and what we thought when the first day she cdc was very helpful. they sent us all of the records and tapes and boxes. of all the strains for all the outbreaks for all those years. you say you want to look? have a look. so it took us a while to get through that. and this is what we found. what we found is that there is point to point correlation between the increase in replikin count and neil current of the outbreaks. and that includes the pandemics. that's the first time i note in history that we can read any correlation between any virus structure and the occurrence of the epidemic, let alone predicting its county. very important, draw attention to the light blue, the sky blue short guys which are influenza b., w@ich occurs a lot but doesn't kill anybody. so far.

influenza b. is important to troll because you see none of those values exceed four or five. and the ones that exceed four or five are the ones that lead to outbreaks. now this is a slide that we didn't have yesterday. got lost somehow. remember, i said there looking for the following change. this is sars, and we had looked at the replikin count in the spike proteins in red and in the nuclear capsid proteins for the whole of the virus group. becae of coue we didn't know about sars until 2003. so we look at the whole group. and what we found i that there was a slight increase, gradual in the nuclear capsid proteins. but in the spike proteins nothing much was happening at all from 1995 to 2001. and suddenly you see the red takes a jump, four times its

value. you see the standard deviation in the mean. so there is a huge increase in 2002. if we would've had this retrospective, if we would've had this method then, we could have said hey, look out, it is up to something. we did know it was going to be sars but that would give us a very big head start. now the thing i want to dr your attention to is that the epidemic, the sars outbreak, did not occur until the next yr, 2003. but at the same time in that time, the replikin count had already dropped. so we would have been able to say relax folks, this isn't going to rely on last long. that's what happened. the replikin count was down. we wou like to say that now for the h1n1. instead, this is what wee got. you see here that the rep can

count in 2001 of two genes that we have isolated, one for infectivity and one for lethality, the red is infectivity. the black is lethality. the black ghettos was trucking along a routeo. nothing much happening there. the red was increasing year by year. and when it got in 2008 to be securely seven, we bw the whistle and sounded the alarm and 10 months later, didn't bother measuring much anymore. and then 10 months later, we had the outbreak. and in may, the next big one shows what the replikin count had gotten to in may of 2009. and it was up to 10. so we have from or to 10, approximately two and half fold increase in the replikin count. but lookt the black. in may 2008, in may of 2009, the

lethality chain was still downward at being in previous years. in that next month, it rose. it rose 40%, and that is seen in the 2009 june. and now we are doing this every day, and i show you through july here. you can see that the replikin count infectivity is not gong down, appreciably. and the replikin count for lethality may be drifting a little, but i wouldn't b on those numbers. but we will see what comes up in august data. and so this is not like the previous slide which showed you sharp drop in the red a the replikin count. we wis you were but it is not. to all the optimistic views i

think will be wrong, unfortunately. you know, it's all hype. what does the government know anay? the replikin count says it's not al hype. the reason for concern is it hasn't gone away like it shod. we hope. now we will let you know if yore interested, i didn't make this clear. we're ppy to work with any institution, big or small, who wants to work with us on getting reports, monthly, weekly, daily, whatever. we are happy to form collaborative relationships with any government, with any institution that is interested in doing that. so you're up-to-date on what's happing here, on the replikin count. now, vaccines, specifically we have made to that work. the first is in parvovirus. i never heard of this but we sort of stumbled into it because it was a small laboratory thing. it can be grown nicely.

the first thing we did was we were handed for strains of parvovirus and asked to tell the top investigator which of the four -- what was the order of lethality of these. if i replikin count was actually related to lethality, we should be able to do that. so we took the challenge and we did it blind. and they didn't know either. they started to test in the laboratory. and these are the resul. and you can see that there is a straight-line relationship between the replikin count and the lethality. i don't know anything else like this, but it makes it very clear that the replikin counis indicative of lethali. and what we did then was to make a replica maxing that works 91% of the time to protect shrift from lethal tyro syndrome virus. tyro synome is something that

destroys shrift crops all over the world. and his works. that the next thing we did was we gave -- and this was just published -- our synthetic vaccine. we called it to punch because it knocks out both the infectivity, the entryway out the hemoglobin part and it knocks out the other part. and the first time in chickens are you know, every chicken ub data comes from a commercial factory is immunize on the first day of its life? i didn't know this. every chicken is. and what it does, it makes them play better eggs, that they excreta virus. what other buyers do you have? there is nothing tolock the virus. we are told with a great expert, chicken man, mar the professor at the university of georgia who did this experiment, that this has not been done before.

and he emphasized indian, he said taken together, these data indicate that a replikin count died vaccine specifically made against the h5n1 black duck and administered three times to the upper respire tory track, no injections. upper respiratory tract is capable of protecting chickens from infection and shedding of the homologous virus, which is extremely important. i never saw that in an abstract. extremely important, because reduced the virus shedding and transmission decreases the potential for the h5n1 path being converted to the high-fat virus. studies also important beuse it shows that the vaccine can be effectively mask delivered to the upper respiratory tract. so we are making progress, and we are now involved in the h1n1

trials, and we hope will get similar results from our two punch vaccine there in h1n1 cause it is a very close relative of h5n1 of course. and i will end there. thank you very much. [applause] >> perhaps i could introduce the next speaker. i didn't get off so easy. [laughter] >> it's in your books, and i don't have the full curriculum -- i could read that if you like. the full biography. thank you very much. doctor betty lee. [applause]

>> thank you for the introduction, dr. bogoch. most of you may know how and why the center for disease control is involved in the event of a pandemic. some of you may wonder how the department of commerce is involved in the pandemic. so i hope to explain to you the role of commerce when a pandemic occurs. the bureau of industry and security is small bureau with the department of comrce. and we're involved with regulation of drug use technology. d i will define what we mean by doing youthechnologies in the next couplef slides here

when a pandemic outbreak occurs this requires rapid motion of viruses, genetic elements such as ena sequences, diagnostic case vaccineto other countries. so the transfer of these items may require export license. our overall mission is to ensure that dual use items or technologies are provided to legitimate end-users, and do not become available to terrorists for them to build my weapons. so there is a dual function within the bureau of industry and security, and we have a site that does export administration and another site or another branch within the pis which does export enforcement.

son the context of the h1n1 pandemic, it translates in into streamlining the export of viruses and vaccines -- virus strains, vaccines, diagnostic kits to enable research to continue in a timely fashion. and also to move equipment to affected areas to contain the infection. and when i mean by moving equipment, we are talking about biological processing equipment that manufacturing companies such as pharmaceutical grade that may require these equipment. so therefore, that is the nexus between commerce, cdc, and pandemics.

and i will give an example of how we can be volved in a pandemic. if, for example, the cdc is doing or have a claboration with an institution in a different country, that is affected, t's say, by an emerging disease, and the cdc would like to send the virus strain from the banks, the virus banks, they would have to come to commerce or a license. and once they get the license then they wil be able to export this particular virus strain t the institution for a collaborative studies. so in that way we are involved whenever a pandemic occurs. indicates of dual use items, when we mean dual usetems as they are predominately for commercial and acadec users.

they may also have military applications, and therefore when they had the dual use function, they are subjected to bis regulations. so we have a control that is called commerce ctroller, or ccl for sure, that is listed under bis website. in addition, there are multilateral controls which the united states have with differt nations. and one of them is called australia group control, or ag for short. and this isroup i believe 42 meer countries that have an agreement, membership within the country's meaning that they have agreed to similar export requirements for their countries as wl. and once you are a member of the australia group, then you have i

would say expedited way of sending or transferring equipment or technology to and from the countries that are involved. in addition, we also have unilateral controls. and this is only particular to the united states. in other words, we have what they call anti-terrorism contls for at least five different countries. the enhanced proliferation control initiative, this was establishea few years ago during the last administration. and this is an end-user control, which means that the responsibility lies on the manufacturers or the researcher who wants to send a controlled item to a foreign nation kr to another researcher in a different country. so these anheuser proliferation

control initiative is then put as -- the responsibity onto the manufacture of the export of himself. so the mtilateral control groups, and this is the one i'm as lazy i say, the ag, is mainly involved with chemical and biological equipment or chemicals and biological toxins, viruses and material. one emple is avian influenza virus, and the number that is next to it, this is actually the export control number, which means that the avian influenza virus, whi is the highly avian

injured lentivirus is on the ccl. so if anyone wants to send a string of this virus, even for research purposes, they will require license from the bureau of indutry and security. some of thehings that we ntrol -- under our control is genetic elements. and this means that there could be dna sequences that associat associated. we also control chnology for the development, or production of the virus. and the virus has to be under control list so the technology follows under that particular control. we also control technology for the disposal of control item, which mainly refers to chemical disposal. so these are chemical researchers to make chemica

weapons. so the technology for disposing of that chemicalrecursor is under the bis jurisdiction. so therefore license that are required to export this product to any country. even to the australia group members. so for non-australian group members, hever, we also have additional export controls. and this refers to biological production equipment to help vaccine production. and you can find all the different kinds of biological processing equipmnt under the category of, which is called the ee. in four short. license then are required and even the technology to make tt equipment. now there are some select agents which is on the cdc list that is

not controlled by the australia group. so then this is considered unilateral contr, which means that iyou would like to export some of these items, let's say vaccines and diagnostic kits against the controlled organism, then you are required to license. and countries are ve sanctioned countries which, cuba, syria, iran, north korea, and i think i don't know if i'm missing -- iran. i said i ran. but anyway, there are five control -- rather sanctione congeries at this point. dowsing making before, the cdc selct agent versus the ccl. there are similarities, but then the cdc dhen rulates transfe

of organisms within or among u.s. labs. and the bis however controlled export of theserganisms to other nations. and as i mentioned before, the most vast majority of cdc agent are controlled by the bis. which means that there is about 98% of the same agents are controlled. however, the cdc sometimes at new organisms on their list. and so it takes, a select time between what the cdc have on their list and what the common control list have on their regular list. in other words, it takes time for them to be updated. but in general, we t to keep the cdc select agent and commerce control agents similar so that there is -- there will

be an overlap. and in addition to that, as i say,he bis controlled organism or an not only select agent list. so in other wds, the bis would control material which, if the organism is controlled, then t genomic materials ao controlled and this would be listed under this. what we mean by genetic elents, the genetic elements referred to in sequences that are associated with of control micrrganisms. as lg as the organisms on the list, then the genetic element that is associated with photo janessa they will require license if you need to export them. wi the new click acid

sequence, a control tocsin is on the list and this will also be controlled. jnana material refers to but this is not limited to things like chromosomes, genomes, transposon and vectors. so any of these that fall under those criteria will be controlled. and it can be genetically modified to unmodified. now the nucleic acid sequence, or the dna sequence is any sequence that when transcribed will cause a significant health hazard. so in other words, it will cau a disease, that sequence is controlled.

and it also means that if it has ability -- or rather it enhances the organio make it more verelan, that would be controlled. and these can be diseases that are harmful to humans, animals, or plans. so what is not and und c you may ask? there are some select agents that are not under ccl as i said before because they have been added maybe on a annual basis or, you know, periodic basis. and there are some genetic elements such as gene fragnts that are not controlled if they do not have the open reading frame. norge if it's just a gene fragment and it is not a whole gene, can we do not control them. and chromosome fragments, we don't control them as well.

in the casof e. coli, dna sequences, the sequence must code for a tocsin and if it do not that it is not controlled. so basically, the organisms, the microbes othe viruses that are controlled, very limited. rge a very select group a a lot of organisms are not corolled. so as long as it meets the criteria or the specifi criteria in the ccl, then you will require license. if it does not then, you go buy a principle of elimination. so now talk about technology controls for a biological material. it's a start.

-- stuck. so what kind of technology are we talking about? we control technology for genetic engineering of those controlled organism. that is, if you're genetically modifying it to make it a more verelan and organism, that's what is controlled. if, however, if it is published processes, we do not control that. and also control specific information that is necessary for development production of control microorganisms, a this will be uer the earlier number. now, what does technolog mean? it can take the form of

technical data, or technical assistance. so in the next slide. i have examples of what the technical data means. so it could mean that it is a blueprint. it could be a diagram. it could be tables it could be anything that is on the tape given information on an e-mail. that is considered technical data. and how extensive are these controls than? theechnology controls is only r technology that is not publicly available. and when we mean by publicly available, if the technology is alreadpublished, or will be published, or refers to fundamtal research, or results from research, it could be educational, like available in a

patent application or in public libraries. commerce does not control any of those technology. so than any technology that is related to control organisms, that is under our jurisdiction. and then again, as i mentioned, it would be the development and production of these microorganisms. and so it will only be on the microorganisms that are on ccl. if it is not on the ccl, we do not worry about those organisms. and again, as i say, the disposal technology which is mainly used for chemil disposal. now the related control for biological processing equipment, and there are several eec insisted there. these refer to how do you make k

but there are associated in