needs, and once you do that, you don't have to throw debit cards or money or anything else around. >> well, the other issue for you and the ranking member is because of the amount of funds we provide are not designed to make people whole, the less money that we give them incrementally that takes away from the total amount because it comes back to the issue if they lost everything and don't have insurance which is why they are qualifying, you want that money going towards the recovery, not their immediate needs, and so, again, this comes back to the preservation of what the intention of the funds were. it's never been the intent of congress to make you whole after disaster. they are to help you start recovery. if we're putting funds out ahead of time and they not getting you to that point, it decreases the ability to support people when they really should start now start to manage things on their own and be able to yews the funds to start the recovery process versus the funds going out in the emergency phase, and as was pointed out, if the basic

needs are not met and we're in this situation, we go from being fast to a lot of haste, and then that in turn leads to fraud, waste, and the inability to really make sure we're good stewards of the funds. we put a high premium on the idea of stablization and speed to support this and drive good in the next steps of the initial recovery with the funds so they with going towards the intended purposes. >> right. do you want to respond to that? i want to ask you, administrator, just one factual question which may be of interest of people watching relating to japan. there's been concern, and i think a certain amount of confusion about what the potential danger is to the u.s. from the nuclear plant problems in japan, and particularly as the media's been following the last few days and a sense that

the possibility of a meltdown at the plant, the explosion, and emission of a large amount of radioactivity and people are concerned about the west coast of the u.s., particularly hawaii, guam, and other islands may be subject to some danger, and i wonder if you have a current sense of what that possibility is? >> i'll refer back to the statement made by the chairman of nuclear regulatory commission in looking at all the scenarios, they do not see radiation reaching the u.s. that it would be of a danger or require protective angsts, but anticipation of this, fema support with the department of energy have a system called rad net. it's been there and 24 hours a day, seven days a week monitors various channels, air, water, other types of things across the country, and so if we were to detect anything, we may detect

things well below any levels that require action. we did not currently have any monitors in the tear tears, particularly guam and the commonwealth of the northern islands and we were in the support role, epa in the lead role. they deployed monitors out to augment the network they have as well as supporting alaska with monitors particularly in the islands. this is two-part. one, based on the support the regulatory commission doesn't see this reaching the u.s. territories or the west coast, but we had an active monitoring system that epa expanded to be able to active monitoring to verify that and provide that information, and the epa is, again, looking at this again not that we think we're going to get something, but we need to be able to answer the question are you testing, monitoring, are you sure? so this was the decision to send the monitors out to guam and the

commonwealth of the islands and other places where there were not existing monitors. >> as i understand it, there's more than 100 existing monitors along the west coast. >> yes, sir. >> measuring radiation. >> this is a public website and you can look where the sites are, and their current activities, what they monitor, and the purpose and the history of the program. >> i presume that just trying to be helpful, that people including on the west coast should not yet be taking potassium iodine pills as a preventative of any kind because there is no risk, and there is a slight risk of side effects from the pills for people? >> yes, sir. as i understand it the state department of health for hawaii and the state of california are telling people that this is something they should not be doing. there's no indicator to do this, and their recommendation is that people not take potassium iodine

in this event that is not warranted, and as you point out, there may be other concerns, so both of the health state offices are telling people that they do not recommend this, and that they would not want you to take this based upon the event because they don't see where there would be any need in this event, and we have the active monitoring that is taking place now. >> all right. appreciate those answers. i hope they are helpful to people. i think the three of the witnesses -- i thank the three witnesses. senator collins and i were comments to each other that we had two hearings at once. on the ag's report and fema report and what's happening in japan. we try to bring them together. i appreciate the patient of the witnesses as we did that. i appreciate the work of the witnesses, all of your statements are included in the record in full. we'll keep the record of the hearing open for 15 days for

additional statements that you'd like to put in the record and any questions that our colleagues or we may have of you. senator collins, do you have anything more? thank you, very very, very much. with that, the hearing is adjourned. [inaudible conversations] [inaudible conversations] [inaudible conversations] >> the senate and house are out for the week of march 28th. in washington today, the japanese ambassador will speak about the earthquake in the nuclear crisis there. that's coming up at 2 p.m. eastern, and we'll have that live on c-span2. president obama today signing the continuing resolution and also before he departs on his trip making a statement on libya, that also at 2 p.m.. president meeting with

congressional leaders before that statement. the president's statement will be live on c-span at 2 p.m. eastern just ahead of comments by secretary of state hillary clinton. she'll be speaking about the president's trip and u.s. relations with latin america. that's coming up today from the center for strategic and international studies around two o'clock over on c-span. the treasury inspector general for the troubled asset relief programs thinks the markets should step in and save big institutions. testified this week and looking into the effectiveness of t.a.r.p., joined by a member of the t.a.r.p. oversight panel which released their final report this week. the hearing is an hour and 40 minutes. [inaudible conversations] [inaudible conversations]

>> i'd like to call to order this senate banking committee hearing and returns and tax investments. one topic comes up, and it's hard not to think back to the intensity and dramatic moments of the financial panic near two and a half years ago. treasury secretary paulson and the federal reserve were quickly running out of options and legislatures were forced with difficult choice of whether to provide hundreds of millions of dollars at wall street or possibly see the economy slide deeper into chaos. however, as the congressional oversight panel put it in their final report released yesterday

states although america enduressed recession, it has not experienced a second great depression. the t.a.r.p. does not deserve full credit for this outcome, but it provided critical support that are prone to uncertainty. comp made another point in the report that bears repeating. t.a.r.p. has become one of the most thoroughly scrutinized government programs in u.s. history. in the midst of of a crisis, perfect solutions do not exist. every possible action carries regrettable consequences. in the end, the best decisions are subject to critiques and second guessing. that said, the outcome of t.a.r.p. was much more successful than many other

anticipated and emergency policies saving 8.5 million jobs. i strongly believe that t.a.r.p. oversight was vital to the success. early estimates show that the program causing taxpayers over $350 billion. now, thanks to oversight, they plummeted and estimated by the non partisan congressional office. that's one sixth the cost of the savings and loan crisis of the 80s and 90s. taxpayers clearly win when oversight works. today, some still criticize hamp for its up ability to help more homeowners. as i talk about how to improve the program, simply ending

foreclosure assistance won't make the program problem go away and would limit the sustainable options for homeowners who could save their homes. over 530,000 families have been helped through hamp which is not an up significant number -- insignificant number. their neighbors have been helped as well by preventing the home values from becoming -- hamp helps loan moteifications that were the industry following suit. the american people deserve better than the repeal everything but the approach to government that there are

others. our report to lending more for our witnesses about what worked in t.a.r.p. and what did not work and why. going forward, i believe these lessons prove the importance of tough oversight in implementing the dodd frank act. i also believe it can be instructive as we continue to work through the foreclosure crisis and as we consider reforms to the mortgage finance system. before i recognize the ranking member shelby for his statement, i want to note that there is a written testimony from professor john taylor of stanford university that we will make part of the record. i ask that the people, other great recession was brought to an end by professor allen blunder and mark cindy be made part of the record.

i remind my colleagues we'll keep the record open seven days for statements, questions, and any other material you would like to submit. with that, i will turn to ranking member shelby for his opening statement. >> thank you, mr. chairman. in late 2008, treasury secretary paulson and federal reserve chairman bernanke came to congress demanding $700 billion to buy toxic assets from banks. they insisted we were on the verge of a worldwide meltdown. their scare tactics worked. congress passed legislation creating the troubled asset relief program or what we call t.a.r.p.. although t.a.r.p. was proposed by president bush, his successor was what supporter of the program. i voted against t.a.r.p.. i believe then as i do today that t.a.r.p. was a serious policy mistake, and while many claim it was a success, a

thorough examination of t.a.r.p.'s record tells a very different story. the design of t.a.r.p. was so flawed that just weeks after the bill was passed, they boppedded the plan for toxic assets. it proves to be a difficult plan to implement and very risky way to stabilize the financial system. if treasury purchased assets at too low a price, it could have threatened the solvency of institutions forcing them to mark down the value of assets to reflect the prices paid, and if treasury paid too much, it would give taxpayers a wind fall. treasury had to switch to direct injection of banks. accordingly it was a vote for a flawed plan, i believe. what price did we pay? our credit markets froze.

our equity markets tanked as they saw the policy leaders panicking and recognizing that t.a.r.p. would not solve our problems. i would like to submit for the record, and i want to bring it up again because it's important what the chairman just did, testimony by former under secretary of the treasury and the distinguished economist, john taylor, which lays out in detail how the process of inaction t.a.r.p. worsened our downturn, and mr. chairman, i appreciate you putting that in the record. i fear myself that the long term damage caused by t.a.r.p. will be even more damaging to our financial system. t.a.r.p. turned our already severe too big to fail problem into official policy. even t.a.r.p.'s inspector general said perhaps, and i'll quote -- "t.a.r.p.'s legacy is the moral hazard and consequences associated with the continued exist of financial

institutions that are too big too fail." perhaps disconcerning was the fact that our regulators used t.a.r.p. to keep even insolvent banks afloat. after t.a.r.p., creditors, investors in big banks have every reason to expect that the u.s. government will never allows the banks to fail. even worse, it makes big banks careless about the risks they take and makes the next financial crisis more likely and even more severe. darp, i believe, has created moral has sard with respect to financial regulation. by using t.a.r.p. to bail out banks, our financial regulators were able to hide the regulatory failures, and there were many leading up to the crisis. going forward, our regulators will have reduced insent is to be tough with the big banks if they know their work has little baring on whether or not the

bank fails. government has intervention in the market to achieve end. the sloppy drafting gave the treasury secretary unfettered discretion on how he spent the money, and as a result, he was used to bailout politically powerful auto makers and put billions into a homeowner assistance program. some say t.a.r.p. is a success because it yields a so-called profit. i'm not persuadeed. the taxpayer will likely still take losses on t.a.r.p.'s housing programs and many financial institutions have yet to fully repay their t.a.r.p. funds. moreover, t.a.r.p. used taxpayers' dollars for very risky investments. a proper evaluation of the returns on any investment most appropriately adjust for risk. i believe such in the evaluation would show the taxpayers were not adequately compensated for

incurring such risks. what matters most is the negative long term impact on the overall economy that will dwarf any profit generated if any. t.a.r.p. was enacted on unemployment rates and reached and stayed at record levels, lending is stagnant, and millions of americans are facing foreclosure. in light of the vast majority -- vast authority granted to the treasury department under t.a.r.p., i believe this committee had a responsibility to conduct extensive oversite of the program. unfortunately, the majority decided to outsource the work of the committee to outside parties. today, we will hear from three bodies charged by congress with overseeing t.a.r.p.. it's especially important for us to hear from special inspector general barosky before he leaves

his post at the end of the month. we have to see thousand they managed t.a.r.p.. were they able to obtain the information they needed from treasury and financial regulators to do their jobs? what problems did they identify? how receptive were treasury in our financial regulators to their recommendations? hopefully today's hearing will help us better understand what actually happened in this very controversial program. thank you, mr. chairman. >> thank you. it was said service as an acting assistant secretary for financial ability -- >> do you have to make statements? [inaudible conversations]

>> serving as agenting assistant secretary for stability in such capacity he has the office of financial state which administers t.a.r.p.. he joined the treasury in may 2009 as the chief consul for ofs and later became the chief for parting officer for the office to joining treasury was the partner with his law firm in new york and served as a special legal adviser to the congressional oversight panel for its first report on t.a.r.p. investments. senator ted compton serves as the chair of the congressional oversight panel appointed by senate majority leader reid last fall to replace elizabeth warren

on the panel. previously, senator kaufman was sworn in as the junior senator in 2009 taking the -- served 19 # years for the -- as the chief of staff. he served the senate until november 15, 2010. the special inspector general, neil barosky was confirmed in 2008 and sworn into office in december 152008. prior to serving as secretary, mr. barosky was in the southern district of new york for eight years and was a senior trial

counsel who headed their mortgage group. thomas is the director of the center for economics part of the research investments group. he has served as the gao sense 1987 and previously taught economists at georgetown university from 1977 to 1987. before we start the testimony, i want to note that cop issued their financial report yesterday and closes in a few weeks. mr. barosky announced his resignation effective at the end of the month, so i want to say a special word of thanks to mr. barosky and senator kaufman for their public service swelt

excellent service provided by all the staff from cob, t.a.r.p., gao, and treasury. go ahead. >> thank you, mr. chairman. chairman johnson, ranking member shelly bi, and other members of the committee. thank you for allowing me to testify about the troubled asset relief program, or t.a.r.p.. as the acting financial secretary for financial stability, i'm responsible for overseeing the program on a day-to-day basis. it's two and a half years since t.a.r.p. was created, and it is clear that the program has been remarkably effective. first and foremost, t.a.r.p. in conjunction with other government actions prevented a collapse of our system and economy. in the fall of 2008, we faced

the real risk of a second great depression, now we're on the road to recovery and no longer fear the financial system will fail. businesses can raise capital in the credit markets in which consumers and small businesses depended on has reopened. t.a.r.p. was not the solution to all problems and much work is left to be done. unemployment is high and the housing market weak, but the worst of the storm has passed. second, we accomplished all this using much less money than congress originally provided, and we are understood -- unwinding t.a.r.p. faster than anyone thought possible. congress authorized $1 billion. third, the ultimate cost of t.a.r.p. is far less than anyone expected. the total cost was initially projected to be $350 billion.

according to the latest estimates, the overall cost of t.a.r.p. is between $25-$50 billion and that represents the money we give to responsible americans to protect their homes. taken as a whole, this results in little or no cost to the american tax payers. moreover, the overall cost of the government's response to the crisis is likely to be less than 1% of gdp, far less to resolve the average cost of other financial crisis according to an ims study. finally, our financial system is in much better shape today. congress adopted the most sweeping overall givings toolings we did not have in the fall of 2008 to mitigate financial crisis and address the

too big to fail problem which you have noted. this work is not yet completed either, but progress made since t.a.r.p.'s inception. we have moved quickly to reduce the financial dependence on emergency support and recoved from banks an amount equal to 99% funds, and where we provided funds, we did so with tough positions. the companies are stronger today, and we have begun to recoop investments. for example, we provided stance to the automoative industry. they prevented the lost of 1 million jobs and we created a public offering to general motors last november and working to leave financial investments with chrysler as well. i want to address confident, but struggling homeowners. by providing sensible

incentives, our policies helped hundreds of thousands of families stay in their homes and help change the mortgage industry generally. we have done so in a manner that uses resources prudently. there is much more work to be done. programs we have can continue to ease the pain of this terrible crisis which is why we oppose the efforts to terminate them. in all of these efforts, t.a.r.p. has been subjected to precedented oversight. when congress created t.a.r.p., they directed four different oversight bodies review our programs. three representatives of three entities are sitting with me today. to date, treasury responded to 75 reports from the gao, t.a.r.p., and the congressional oversight panel and adopted over 120 recommendations. t.a.r.p. is subject to vigorous congressional oversight by this committee and others. we welcome this oversight. individually and collectively, it helped develop, implement, and improve our t.a.r.p. programs. mr. chairman, in short,

t.a.r.p. succeeded in what it was designed to do, stabilize the financial system and lay the foundation for economic recovery at the fraction of the expected cost. both political parties deserve credit for these achievements. congress enacted the program at a time when the financial system was falling apart. in that moment, leaders from both parties stood up, stood together, and did what was best for this country. thank you for the opportunity to testify, and i welcome your questions. >> thank you, mr. massad, and ted kaufman. >> yes, thank you, members of the committee. it is truly a pleasure to see my former colleagues, and it's a privilege to offer my assistance on the t.a.r.p.. the congressional oversight panel charged by law with overseeing the t.a.r.p.. since our former chair testified before this committee in september 2009, the panel issued

20 reports examining issues such as t.a.r.p.'s support for the domestic automotive industry, the rescue of aig, commercial real estate, small banks, government contracting, executive compensation restrictions, as well as four reports on treasury's foreclosure prfs efforts. in total, the panel's offered over 30 reports including with the march 2011 report issued to congress just yesterday by statute, panel ends on april 3, 2011. as the congressional oversight panel continues work, we shall recall where we stood in 2008. the stock market had triple swings, financial institutions collapsed, hedge rajing -- hemorrhaging jobs, and the words of ben bernanke, we were on the course for cataclysm and could have surpassed the great depression. the good news is the americans

did not suffer at great depression. the t.a.r.p. doesn't full full credit, but provided support at a time of great uncertainty. further good news is that the tarp's projected costs have fallen sharply. the congressional budget office now projects taxpayers to lose $25 billion. that's a lot of money, but down from the initial system of $356 billion. which is mind boggling. the programs on main street have been far less effective. . the 900,000. the failure to address foreclosures is one of the reasons why the costs are coming in so low. tarp will cost less than expected because of accomplished far less than envisioned for american homeowners. the tarp also distorted market, created a profound moral hazard

and led to a deep stigma. policy-makers cares more about bailing out wall street than helping ordinary families. some degree of moral hazard was unavoidable. the treasury could have done more to rein in these problems. many senior managers of tarp was a big banks maintained their jobs and their high salaries and shareholders maintained significant ownership stakes. it looks as though wall street banks and bankers can retain their profits, but shift their losses to taxpayers during a bus. an arrangement that cannot help but undermine our free-market system. to very to push tens of billions of s out the door to very

large financial institutions without requiring banks to reveal how many emus.dr the tarps amattransparency has improved dramatically sincemp then. ublic es these very early in very large type investments, the public will never know to what purpose this money waskn put. i i biked to say a few words about beeimportance of oversight. the t.a.r.p. has been by both pt government programs in history. oversight has improved the program and increased taxpayer'' returns. in july 2009, the panel reported the treasury's method for selling the rights purchased from park appeared to be recovering 66 cents -- 66% overestimated growth. the treasury changed its approach and recovered 103 cents on the dollar. all the substantial improvements, increased

transparency of contacting, they're all parts of results by the panel and the oversight bodies. careful scrutiny is an indispensable step to preserving the public trust and insuring the effective use of taxpayers' money. thank you again the opportunity testify. i would be happy to answer any questions that you have. thank you, mr. chairman. >> mr. barofsky? >> it is a privilege to appear in front of you once again. it is also a pleasure for me to be testifying alongside my oversight colleague. tarp has been an historic program in many respects one has

been the unprecedented oversight assigned to this program by congress as embodied by the three representatives present here today. by working together closely and coordinating our activities, i believe that we have well served the american people. by making sure that we could cover the broadest coverage possible and insuring unprecedented transparency and accountability in the 13 programs that make up tarp. part of our focus has been on policing and investigating tarp related criminal activity. we have had a major impact. 52 different individuals and 18 different entities have been the subject of civil or criminal action. 18 defendants have already been convicted of tarp related fraud, including just yesterday a senior official from colonial bank. colonial had a received

conditional approval for tarp funds. investigators stopped a massive ongoing accounting fraud dead in its tracks. all told, investigations have led to the recovery of funds and avoid a loss of fraud of more than $700 million. making sure that tarp will pay for itself. another example of the collected benefits. the tangible results in one of the pieces of good news from tarp below expectations of the financial costs of the program. my oversight colleague deserves credit for those lowering numbers, as does treasury for its efficient management. our approach to live and in losses has been focusing on lamenting the amount of losses

from fraud. working the treasury to develop strong anti-fraud provisions within the program. the neighborhood of $50 billion. i am very proud to say today that we will come there -- no more close to that number. in no small part, thanks to the willingness of treasury and the federal reserve to work with sigtarp. i recall a conversation i had with secretary nightmare. after a somewhat heated discussion on another topic, he told me that he believed that sigtarp had scared away people

from participating in the tarp program. strong and better program design has been instrumental. on a final note, today is likely my last time testifying before the u.s. senate as special inspector general. one of the initial times i was here before this committee, it was my confirmation hearing. ranking member shall be you gave me some advice. he told me this was a great opportunity and if i did my job well, i would never be able to work again. he thought it was a good thing. my wife disagrees. i am very happy to say that in this limited circumstance, senator, circumstances have proven you are wrong. i have been able to get a job. i'll be joining in new york university's school law as an adjunct professor and senior fellow.

i think you -- i thank you all of the members of the committee for your strong unwavering continuous bipartisan support. we would not have been able to be close to achieve the successes we have had on behalf of the american taxpayer without support. i thank you. i thank you for the opportunity to testify. >> thank you, mr. barofsky. we will miss you. >> thank you, the chairman johnson. i am pleased to be here to do that. under a tarp, a broad range of activities have been initiated. providing assistance to the automobile at agency and aig and

offering incentives to residential mortgages. as tarp passes its 30-month mark, markets appear to be less volatile than they were into a dozen 8 -- 2008. while many programs have ended, some institutions have been paid, the prospect of repayment of other institutions remain somewhat uncertain. some top programs have been terminated. others have closed and are winding down operations. several programs have focused on preserving homeownership and provide assistance to auto companies and aig remain active. the capital purchase program, a lot of that has been repaid. a $30.8 billion remain outstanding. one of the issues that we try to

focus the treasury's attention on is that there are a number of institutions that are still in the capital purchase program to allow potential issues. almost 200 of them have mr. least 1 dividend payment. there are issues with some other give it -- other institutions that may not be as sound as they were thought to be. this means that they require continued monitoring. the program had a slow start, so far, it has not been some money. that is not necessarily a sign of success. there are issues going forward grade -- a report today that will look at the programs that

go beyond the modification program. the foreclosure alternative program and the principal reduction program. there have been some movement and the right direction, but we still have some areas were treasury can improve those programs. the auto industry financing program has a balance of $44 billion. $29 billion has been repaid. the auto industry are doing much better than they were back in 2008. whether they will be able to repay the treasury investment, that is still up in the air. it will depend a lot on what share prices do. the ipo, the fact that they sold below their breakeven price means that the remaining shares will have to bring the a higher

price to actually make the program break-even. the treasury has gone from 60% owner to a 33% owner. that is a good thing. it needs to make a lot of money in future sales to be able to make the program of break-even. aig has continued to receive assistance over the last year from an equity capital line. it has are paid $6.9 billion. this has reduced the treasury's balance to about $58.7 billion trade treasury bonds money to% of aig. -- the elegant. the treasury cones 92% of aig. a lot of uncertainty to that. let me point out that one of the recommendations we made in our most recent report issued in january is to try to focus treasury's attention on staffing

going forward. it has been in very good shape in charge -- as far as stopping. are concerned that if the programs wind down, it may be harder and harder to retain staff. we think there is the need for them to update their workforce plan and take into account all the active -- alternative scenarios for retaining staff. i appreciate the opportunity to testify. i'm happy to answer any questions that you have. >> thank you. thank you for your testimony. as we begin questioning, we will have declared -- the clerk puts five minutes on the clock for each member's questions preyed he recently testified -- questions.

if we should not repeal the program, how do we fix it? is one option to have treasury focus on the earlier part of the process? >> it is a fundamentally broken program. if it is going to be permitted to continue, the treasury needs to -- let out a plan on how to fix the program. there are a number of good ideas out there. you start with something that secretary geithner has a acknowledged. the very structure of the program is broken. this whole program is a voluntary program. it is designed by encouraging servicers to participate by making incentive payments. it is a carrot program were discipline would be provided,

financial penalties. with secretary guide their acknowledging that the incentives are insufficient, not power enough to overcome the conflicts of interest and treasury's refusal to impose a single sanction, it is it really all that surprising that the program has been a failure? the place to start is let's address what secretary geithner acknowledged was a problem. the incentive structure, the lack of penalty on servicers who amce has been abysmal under the program paraded as a starting point. for those seeking to defend the existence of the program, one of the most basic pieces of

information that you need to have is what is treasuries projection of how many people is going to help? i have been calling for this for more than a year. gao has been calling for this for more than a year. congressional oversight panel went so far as to give its own analysis and its own estimate. cbo has provided an estimate. they will not. those who are criticizing the program had every right to conclude is that the reason they will not provide a number, is that their projections may be so terrifying that they will not provide this level of transparency great to have an informed debate, treasury needs to be transparent about its expectations. not a total of offers the engine to make. how many people are going to be in sustained permanent

modification. their failure to do so is inexplicable. and indefensible. >> do you agree that servicers should it reach out to homeowners sooner? should treasury explore creating a single point of contact so that borrowers know the to communicate with? >> we have raised recommendations and some of them have been implemented or partially implemented. there has been some improvement in that arena, but there is still work to be done. what we have been pushing for from the very beginning is performance standards. the particular performance standards for the services.

we think the treasury needs to come up with the service standards and hold the servicers accountable and until they do that, we think some of the problems are going to continue to fester. >> what is your response to these suggestions? >> thank you, mr. chairman. on the issue of performance standards, that is precisely what we have done. let's remember that this is a crisis that was a decade in the making. for two years, nothing was done. when we launched this program, no modifications were occurring. we launched the program on a voluntary basis. in terms of performance standards, we have forced the servicers to do a lot of things they were not doing. that includes a whole range of our were protection. -- borrower protection.

we stop that. we put in other borrower protection as well. there is a need for national service in standards. this is a servicing model that was set up to collect payments on performing loans. it was not equipped to deal with this crisis. far more is needed to fix that. the regulators are now paying attention to it, the conservative of the gst is paying attention to it, i think we will see it. secondly, it is very difficult to make estimates as to how many we will ultimately serve. the cost of this program is directly related to how many we serve. it is not a matter that we will spend the same amount of money regardless. we publish reams of information about this program, including how many people were reaching every month. permanent modifications, trial modifications, how many auletta that, how many read default.

everybody can see how this program is doing great -- is doing it. this is a very difficult housing market to fix. this program is the least helping fix it. it is not enough, but it needs to be continued. >> senator shelby? >> i want to thank you for a great job that you have done as inspector general. i remember when you were up for confirmation and i told you that i hope that you would do something very good for the american people and that he would stand up for the american people, and you have. i am glad that you are -- my reference was that you did not need to be employed by some of the people you're going after. they would never hire you

anyway, thank god. you will leave that post with a lot of thanks from the american people for the job you have done and you will always do well. i know that. i would like to ask you a couple questions. in written testimony, you states, unfortunately, tarps most significant legacy may be the exacerbation of the problems posed by too big to fail. you go on to " secretary brightener -- you go onto " secretary dieter and which he states that in the future, the federal government may have to do exceptional things. if we face a large -- in your view, do financial markets still believe that the federal government will not allow big banks to fail? >> thank you for your comments. i really do appreciate them.

they mean a lot to me and my family. absolutely, the financial markets believe more than ever that the united states government will step in and save the too big to fail institutions should there be another financial shock. >> isn't that what helped bring about the gse's where they are today? >> it is merely the identical toxic cocktail of guarantees and market distortions that too big to fail banks have today. yes. >> i just want to read them into the record. this is on page 6 in your testimony. regardless of whether all the required regulations are properly calibrated and fully

implemented, the ultimate success depends on a certain degree on market perception. the act is clearly not -- reflecting on secretary geithner's candid assessment of the likely limits in the events of another full-blown financial crisis. but largest institutions continued to enjoy access to cheaper credit based on the existence of this government guarantee against failure. they recently reinforced this a vivid and bandage for those institutions. in january of this year, s&p announced its intention to make permanent the prospect of government support as a factor in determining a bank's credit rating, a radical change from pre-tarp practice.

this pattern of the banking to repeat itself in some fashion regardless of the government's recent emergency policy response. moody's stated that it believes that the proposed resolution regime will not work as planned, opposing a contagion risk that most likely will force the government to support -- to supply support. i want to quote a former secretary of the treasury, lawrence summers. a healthy financial system cannot be built on expectation of bailouts. do you disagree with that? >> no, i do not. >> thank you for that. in october 2010, in an

editorial, secretary geithner stated that tarp is over. the tarp specter -- although no new tarp funds may be obligated, a $59.7 billion remained obligated and available to be spent. do you have differences with those figures? >> thank you, senator. with the secretary was referring to was the purchase of 40, the authority to make new commitments under tarp, expired. we do still have about $150 billion in investments outstanding. we do still have commitments with respect to warehousing programs.

-- to our housing programs. i would also like to respond to the too big to fail issue if he would let me. would that be all right? >> absolutely. >> i share your concern about the issue. we have to have the financial system where companies fail. >> the two big to fail doctrine is a flawed doctrine from the beginning, is it not? >> it is an unfortunate doctrine, that is for sure. create the problem. we needed tarp because we did not have the tools to fix it. i think that dodd-frank has given us tools to fix it. >> to current members and one former member of the congressional oversight panel explained by tarp was not a win for taxpayers.

they criticize the it ministrations claim that tarp was successful because the money may be reclaimed. the focus on repayment of tarp is deceptive because it fails to consider the huge taxpayer cost from non start programs that directly and indirectly enable many of the large banks to repay their tarp funds. they led several programs that provide significant aid to banks, including the federal reserve's purchase of $1 trillion guaranteed, treasuries, $150 billion, and other fdic programs. do you disagree with that conclusion? >> i think is important to view tarp in the context of the broader scope of the government's response to the financial crisis. it's a lie, we published a comprehensive overview of all

those prep -- in july, we published a comprehensive overview of all of those programs. our job here is to focus on the tarp, but it does not exist in isolation. indian count -- any accounting would have to include those other things. we always did try to put it in context. >> thank you. >> thank you very much, mr. chairman. i was listening closely to the recollections of those and -- of you and the ranking member. i was also there. what i recall was palpable fear that we run on the cusp of a significant financial collapse, that the tools available had been exhausted and that we needed assistance. in the context of allegis laid -- legislative debate, with

cropped something -- we crafted something equity injections which has proven to at least stabilized the situation. it has avoided a significant financial deterioration, which would still be putting us. -- plaguing us. you have done a remarkable work. you of in a thoughtful, but your independence and your integrity and commitment has been so clear. it has been inspiring. but aside too big to fail and all those discussions, if we had not acted decisively, where will

we be today? but you have a sense of the magnitude of what we were facing? >> i can best reports on the extensive work we have done that in interviewing all of the major participants. we were on the brink of a cataclysmic failure. this was a very significant crisis that we had not seen since the great depression. there was a sense of widespread panic among regulators. the reaction was, just not -- the federal reserve's programs, the trillions of dollars door from of the situation. that that really reflects the deep level of panic that was built by the regulators and the market participants. >> having done all this work,

that reaction was not a rational given what they were seeing in the marketplace? brenda, -- frankly, the very tentative response in the 1920's and 1930's to an international crisis prompted him and others to say, this is the only way we can do it. they were very clear about this fallout. >> there is no doubt that financial crisis are psychological. that fear was universal and widely held. one of the things that the correctional oversight panel really hits the nail right on the head is that to while we do believe that tarp was a very important component of common market, it is impossible to say, which one of the marietta

programs was responsible for help, and the market eventually? we believe that the broad statement by secretary paulson and later by secretary geithner air, that they would not let these large financial institutions fail. they have the tarp funds to back it up. it costs a lot of the problems that you were discussing about moral hazard, it was instrumental in common the market and avoiding the that cataclysmic potential second great depression. >> i also want to thank senator kaufman. it was one page, an outline. we did some things that gave

them the flexibility to respond, but also went after -- we insisted that there be warrant provisions. i knew that if the wall street investment bank was going to do this, they would take preferred stock with a very preferential rate of return, they would also insist on warrants. those warrants, the right to buy their stock at a fixed price, as they improved, we got a second pay back, which is about $8.6 billion. it might be seen as a pure transfer from the improving banks. can you comment on that? >> thank you, senator. thank you for your push for that

provision. it was very important and you are absolutely right on your figures. we have recovered about $9 billion from the warrants because we had a recent repurchase this week. that is from about 15 or 20 auctions as well as 45 repurchases. we stuck more positions that we will sell over time. >> a quick comment -- this issue of moral hazard is not unique to this time and this place in financial history. anytime a government provides support, we do it through the deposit insurance fund. it has proven to be very effective.

one of the reasons it has been effective is that it has been very well regulated. if we accurately and aggressively and with the resources regulate that, we will do a lot to avoid a potential crisis. >> it is really quite extraordinary. there is a consensus. there was a solid consensus that tarp stopped what could've been a very bad situation. moral hazard was one decision --

the moral hazard part and you see it now in terms of the rating agencies, if you're running an organization and you know that this is positive on this is-any of the cut that- section off, there is no price to be paid. the higher the risk, the higher the return. you just go for the moon. if you fail, the taxpayers are there to get you out. this is not some theoretical economic business school analysis. the real concern is the rating agencies are saying they believed that there are firms that are too big to fail. a very big firms that are too big to fail. >> the chairman has been very gracious, thank you.

>> thank you very much. this is directed to mr. barofsky. i am not certain. i am troubled by the long time assertion that the success of tarp was determined by the return of taxpayer dollars. as if that is the criteria in which we can judge the success or failure. i am troubled by that because i think it fails to take into account other consequences, even if all the money is repaid to the treasury, there were consequences of tarp not accounted for. i think of things in your testimony about large institutions continuing to enjoy it access to cheaper credit. there is a consequence to that. my small community bank in kansas has a consequence to that occurrence. when you couple that with dodd- frank and increasing regulation.

larger institutions have cheaper access to credit and a better ability to spread the cost of additional regulation among the larger economy to scale. my smaller banks are disadvantaged. congress responded by providing money to large institutions. there is a consequence in places like kansas for community banks. if the criteria -- we still to take accounts other consequences of this legislation. it fails to take into account, was there a better way to do it than we did? could there be a greater return? i have heard several talk about -- the savings and loan bail

out. that was the criterion which we are judging success today. this is better, we will lose less money than we did them. i wonder about -- was that not a better example where we were able to reap return and prohibit investors from getting a return as well? one of the things that is a consequence of tarp is that those invested in these constitute -- institutions, they were held a lot less accountable for their investments than continental? my question is a broad one. i am not satisfied when i hear that just because the money has been repaid, this was a good idea. >> nor should he be. the tunnel vision of mission accomplished ignores the

important non-financial costs of tarp. they are just as important and may prove to be more important. of the moral hazard, the legacy of too big to fail that tarp has left. it is done real harm to governments -- it includes the failure of tarp to meet its very important main street goals as well as wall street deals -- wall street bulls. -- gaols. -- goals. this is not a simple black and white answer. it is a much deeper issue. >> when you originally talked about it, you talked about $356 billion. 80% of the news articles talk

about tarp and talk about the $700 billion. i totally agree with what he said. there -- the thing that is amazing is that 60% of americans think we lost it all. 60% think we've lost all $700 billion. spending a little bit of time saying, okay, we have a problem here. and this is part of a big thing. all the questions are legitimate concerns. we did not lose $70 billion. 25 to $50 billion is a lot of money. the yacht -- that is an important point to make.

>> thank you. is there any analysis by those of you have done oversights in regard to was there a better way to do it? was there a greater opportunity for return? >> we have 30 reports that you can take a look at. we have a final reports and you can look at how to do it. we do not write the rules. we start with the basic premise that congress has passed a law and we have oversight. if you go back and read the reports, a rich area to say, without the panic, without the concern, could we have done this a little differently? there is a lot of meat in the study reports. >> only a former senator would attribute the responsibility back to congress. [laughter]

>> thank you, mr. chairman. i want to welcome all of you here today. thank you for your testimony. senator kaufman, it is certainly a pleasure to see you again. you added some much to the work that has taken place. thank you for your oversights. i am thrilled to hear that you will be back at duke university doing your good work. it is great to see you again. one of the things that you talked about in your testimony is the reference to the higher funds for our smaller community banks. the smaller community banks in north carolina consistently are very concerned about their capital requirements, the regulation, their inability to do so much of the lending they

have done in the past. it has so adversely affected so many of the smaller communities where these banks have been the mainstay. one of my concerns is what can we be doing in congress to reverse this trend? i am talking primarily about the higher costs of funds that you mentioned. to ensure that we maintain a by its network of community banks in our main street communities. >> mixture we do not have too big to fail. it is difficult -- make sure we do not have too big to fail. the key thing is that we have to get away from this too big to fail. it is bad in some many different ways. there is a lot of things and dodd-frank. look at our small banks right now. it is interesting to find out

how many small banks are now in commercial real estate. why are small banks in commercial real estate? the big banks, and i can do all the other services that they use to do. they can do it at a much lower price because of the advantages that they have. are really do think -- they hang together. you have these major banks that feel like they can -- they are too big to fail. i think it is up to congress and up to the treasury and not to the other regulators to make sure that the dodd-frank provisions are in there. make sure that we do not have too big to fail.

how will they survive when they have these giant coming to town with low interest rates? it is very difficult. unless you go into things like commercial real estate. and now you see what happens. it makes them -- it makes it tough for them to make money. >> thank you, senator. we agree very strongly that we have to have a thriving community bank industry in this country with the obama administration took office, we did not provide any additional funds to the largest banks in the country. we provided funds to about 400 very small banks. i agree with decisions they made. they were necessary to prevent a collapse of our system. but we have tried to work with the smaller banks. i also point out that while we have had some weakness in that

sector, those banks are getting stronger and those banks that took the tarp money overall in a much better place than the industry average. the task now is to implement the tools under dodd-frank. you have to distinguish between what you have to do in a crisis and what you do to look at what were the causes of the fire? how do we prevent this from happening again? >> it appears that some of the smaller banks are having trouble paying some of the tarp money back. are we setting them up by continuing to ask them to pay a higher rate? >> that is a very good question. they are not obligated to pay it. they have to have the approval of the regulators in order to pay it. as a result, many of the regulators have said, you should not pay this. you need to conserve your capital. that is fine with us.

we do have a number of banks to have not been paying their dividend, but we look at the rate at which banks better in the program are paying dividends on preferred stock versus those outside the program, to the extent there is data, what we found was 11% of the banks in the program were not able to pay the dividend. >> i wanted to return to -- i know several of you have talked about how this has not been operating the way you would of liked it too. mr. barofsky, could you speak about the changes going forward to helping homeowners? >> the important thing is there has to be initially and acknowledgement from treasury that this program is failing.

the cessation of continuing to defend the status quo -- >> going forward, what can we be doing? >> i would say, you start with the reassessing the incentive structure and the penalty structure. if the current system is not working, revisit that structure. we have made other recommendations as well. recommendations regarding principal reduction, which appears to not be working. increasing transparency. there are a number of things. ao, there is a whole list of recommendations. >> senator kaufman, do you have any comments? >> the program is over.

the reality of the situation is bad -- is across the table from each other and then modify a lung. that is pretty simple. now they have the servicers in there. there are two really big elephants and the room. -- in the room. the servicers are these third parties. they are the big banks. you have a conflict of interest, if you are a first servicer on a bank and you have a second lien on a mortgage, and the first mortgages was someone else, do you want to modify the first mortgage?

when he modified that first mortgage, your second lien goes to zero. those aren't too gigantic conflicts. treasury -- those are too gigantic complex. the whole thing was designed for our subprime problems. it became quickly a prime problem. it is trying to catch up with all the different things. we've had four reports on it. we have identified with the changes are. it has to be a program that recognizes the realities of what happened. >> thank you, senator. i think we have implemented most of the specific suggestions that have been made by the oversight bodies with respect to the program. as far as the basic structure, that is determined by a lot and the powers that we had. it had to be voluntary program. i do not think it is a matter of

acknowledging that is failing. i did not consider the fact we've got 600,000 people and to permit modification or the fact that we have helped another 1.4 million at least get some breathing room to a temporary modification, many of them went on to get other forms of modification outside of our program. or the fact that this program has resulted in significant changes in the industry is a failure. we have gotten about another 40,000 families. that is not enough and we need to do more. one of the things we have done in response to the congressional oversight panel's suggestion was that we did implement programs that addressed unemployment and falling house prices, we set up a hardest-hit program. we're sending money to a number of states hardest-hit, including

north carolina. those programs take time to ramp up. the important thing is to keep at it. this is a crisis that ticket long time to develop, so it is not going to be fixed overnight. >> mr. barofsky, can you elaborate about the program and which you advise us to do what it -- with the penalties? >> the numbers are potentially misleading. there may have been 40,000 initial permit modifications, but is that a next number? how many of those have dropped out? 1.4 million people -- it demeans

the real harm that many of those people who got failed trial modifications have suffered. it has been documented time and time again. >> can you come up with some examples of penalties? >> one place where we can start is by treasury living up to its commitment that it made in late 2009 about imposing financial penalties by withholding payments to mortgage services under the terms of their agreement. this is what they said. recently, treasury has been saying, we do not have that ability. we did not give ourselves the ability to post financial penalties for failure in conduct. we sent a letter and we asked them to detail to us what the changes in their legal position. so far, they have ignored that.

going back to the agreement and trying to withhold payment and impose -- that would be the easiest thing to do with work within the contract if it is as they suggest ambiguous, try it. let's go to court. let's have servicers sued treasury under the idea that they are allowed to willfully and violates the terms of their agreement with the consequences. i think that is a good starting point. in congress, as far as financial penalties, is encouraging -- if he believes that he does not have the necessary tools under these agreements, he should tell you what tools he needs in order to compel servicers to abide by the terms of their agreement. tell them what tools they need. >> i am happy to respond.

>> there is always more that can be done. this is an industry that was not working. >> we have not changed our legal position. we cannot impose fines and penalties in the manner of a letter later wed -- in the manner of a regulator would. we have over 200 people working on compliance. they would have preferred to write a check. we made services go back and solicit people. we made them go back and do door knocking. we made them go back and read about -- and reevaluate people.

i think you will see us withhold more payment. we were working on getting the systems in a place for they could implement this program. i've been reading the testimony. i'm happy to have anyone if you answered. i am thrilled to see my former colleague here. now i get to ask you all of this. just kidding. we did not do talk. i am happy to answer. we face the risk of the great depression.

it is noted by many economists and other. it is all the government interventions. it was coordinated. it was powerful. it was swift. they all recognize that. elizabeth warren had plenty of criticisms of how to get there. she said it was obvious. she said we would have been back in the stone age. >> the panel never channel been answered. when you face the situation, they put it there. i think the kitchen sink, too. i think the figure out whether t.a.r.p. stop specific themes. this would have brubeck the

grapes of wrath. panel agreed that t.a.r.p. and a bunch of other things really did stop the panic and keep us from a complete meltdown. the poinsettia number of negative things. the government is getting involved. and is not a sippers that -- perception of reality. panel fell that the federal government did that thing. >> i wonder if it is not moral hazards to allow a nation to go into depression. >> absolutely. i was on a show today.

the as the about the lessons learned. they learned prevention. everybody can sit here and we can talk about this are that. ellis it right with them. it is a moral hazard of putting people back on its feet. the moral hazard of creating this institute to fail. there is no when in that one. he had to make sure you never have to face that. >> i often have average citizens stop in said "i do not get it, " when they make a mistake, they have to pay for their mistakes. explain systemic risk.

it is a tough opposition. i am not thrilled t.a.r.p. >> by the same token, having listened to ben bernanke in 2008 come into members of this committee and members of leadership and largely describe the series of events that were unfolding that would have had a serious financial institution collapse and if they collapse, create systemic risk to the entire country's economy, and i'll never forget the answer to the question, well, surely you must have enough tools at the federal reserve to get us through this prosecutor so we can think more proactively, you know, about how we respond and how we do it, and the answer about if you don't act in the next two weeks, we'll have a global financial meltdown, and basically the response means that's a new depression, and the

answer to that was yes, if we allow it to happen. back home in new jersey and across the country as we talk about an economy that is coming out of a deep recession, we were really on the verge of a new depression, and had market forces just been allowed to agent on their -- act on their own without governmental intervention, i think we would be, not because any of my expertise, but ben bernanke while i don't always agree with him, his expertise in depression economics. what roosevelt did to get out of the compression and it had some way to it. sometimes we need a sobering understanding of where we started, what we had to face, the time frame in which we had to face it in order to understand where we have been and where we've come from.

that doesn't mean there's not a series of things that i hope we learned, but also understand when we need to act how we need to do it in a more effective and efficient way, but i just wanted to say i wanted to put this in the right frame because i think it's very easy to gloss over that moment in history, and it was a tipping point in terms of how we responded to what would have happened to the country. thank you, mr. chairman, for the opportunity. >> senator, shelby. >> mr. mccool, if you could, walk us back to what happened at aig, what we did to get into it, where we are today. you alluded to it earlier in your testimony. we hear reports everything's over with, it's great, but i don't believe that's true. ped >> what i eluded to was at

least in the recent past with the recapitalization program announced, there's a chance of us exiting aig, and we'll see -- >> how much money have we put into aig? directly and indirectly. >> high as $150 billion at one point. >> paid that back yet? a fair amount. >> what's a fair amount? >> i think we're down to $96 billion, so paid $50 billion. >> well over a third they paid back. they owe two-thirds more or less. >> more or less. >> they still owe a substantial amount of money. >> if you include the assets and maiden lanes as well as money -- >> okay, tell us where we are today. >> the key is going to be since the treasury was 92% of common

stock is the price they get from the stock over time. >> that's a lot of money. >> that's a lot of money, and there's a lot of questions how deep the market will be and things like that. we are doing work to work at that, but that's an ongoing issue. >> a billion dollars in a sale, you're going to have to have a pretty good strike price there, aren't you? >> it's not $96 billion for equity. there's $25 billion of that that's financing for the troubled assets that the fed put in the maiden lanes, but there's $60 billion of equity they have to sell. >> still, you have to have a good stock price. >> exactly, exactly. >> when do you think that will happen if it will? >> they can't start to sell until may, i think, tim? >> happy to respond. >> yeah. >> today there's the following outstanding. under t.a.r.p., there's about $60 billion which is represented by common stock and preferred.

>> okay. >> the preferred is about $10 billion, and it's secured by assets that exceed that value, so we fully expect that -- >> is that all part of the $60. >> that's part of the 60. >> all right. >> the common, $60 billion today, and i'm incoming all the aig shares. there's a little technicality there, but today, the stock price's above our valued investment. in addition to that, there's $32 billion that mr. mccool referred to. those are not obligations of aig today, just special purpose vehicles secured by assets that exceed the value of the federal reserve's loans today, so they are in the money if you will. aig is also offered to take the fed out of one of those vehicles, so as of today, current market prices, we expect to recover the entire

investment. >> when will this happen? generally? when do you expect that? >> it will take some time. we don't have a specific timetable, but i would think a couple of years. >> excuse me. mr. mccool, it's my understanding that on several occasions the gao asked treasury to release internal projections for the number of mortgages they expect to be successfully modified under the t.a.r.p. mortgage modification programs. have you received all internal projections from treasury that you requested? >> yes, yes we have. >> you have. mr. massas, i assume in his answer that you provided that information? >> yes. >> how can we measure the success of the mortgage modification program now? how can we measure it,

mr. mccool? >> well, again, i think that as some of us have been saying i think we haven't seen benchmarks for some of the programs, and that's one the things we'd like to see. the fact we have the analysis they've done doesn't mean they've done all the analysis we'd like them to do. the question is i think is to try to come up with benchmarks for the programs in terms of how many hole owners you think you will be able to help or not going forward, and, again, releasing that to the public so the public is help hold them accountable. >> you have to do the metrics, haven't you? you're in the process of doing that? >> we're not currently in the process of that, no. >> when will you do that in >> i don't know that we had plans do doing that, but maybe we'll look into that in the future. >> what does the future mean? >> there's ongoing work on this program. until the program goes away,

we're not going away. >> okay. all of you made recommendations during your course of the oversight at t.a.r.p.. how many recommendations would you made to the administration regarding t.a.r.p., let's say the top three, what would they be? >> those not yet implemented, are you referring to, senator? >> yeah. well, not implemented. >> not implemented. going back to what we talked about today. what is ongoing today and what is the biggest failure so far right now is related to hamp. i go back to the hamp modifications, publishing estimates, stop accepting the status quo, fix the incentive structure, impose financial penalties if they have the power to do so, why on earth have they not done so yet given the dismal performance. >> have you heard why they haven't done that yet?

>> they have several explanations, but not implemented the recommendations. >> mr. massad, do you have a response? >> with respect to the structure of the program by and large, number two, with respect to the compliance issue. we have withheld payments in some cases, we can just with hold the payments they are entitled to with the modifications. the problem for the first year and a half was the servicers weren't getting the permanent modifications done, so we were in the shops forcing them to take corrective action because we felt that was a better resultment i think you will see us impose more financial withholding where it's appropriate in the future. >> okay. thank you, mr. chairman. >> one more quick question.

senator kaufman, before hamp when servicers were left to their own devices, what kind of modifications were servicers offering to struggling homeowners? >> that's out of our jurisdiction. what they do outside of hamp is not something we have looked into. i know this is a systemic problem of the servicers in fact fact that the servicers have a conflict of interest. it's true whether they're in the hamp program or any other program. you're basically the servicer and you also hold a lot of mortgages like the big servicers hold a lot of mortgages. there are two con conflicts. one, they are more more interested in money from foreclosure, and two, # they are concerned about closing down mortgages, primary mortgages, having modification prime mortgages when they hold a

second lien. >> thank you, senator. that's a good question and a very important issue. prior to the launch of the hamp program, there were very, very few modifications that were occurring, and this was a crisis that had been acute for two years and very little had been done. the few modifications happening generally didn't reduce people's payments. one of the things hamp accomplished was it set standards on modifying mortgages, it set an affordability standard. we don't pay for every modification. we do it where based on an economic analysis it makes sense to do as the alternative for foreclosure. what we've seen sense is the servicers have now done a lot of what we call proprior modifications outside the hamp program using our standards.

that volume of modifications increased as a result of this program. >> mr. chairman, one other thing, and it has to do with congressional action which i didn't realize when i was here. i voted for cram down, cram down, but i was talking to someone who was a merchant acquisition person. he said, i don't understand why there's a probe here. the person who is the lender reduces the price of the asset of the price of the house because when they go into bankruptcy, the judge lowers the price. the reason why the lenders don't reduce the price for modification is because if they go into bankruptcy, the bankruptcy judge cannot put the real asset. just something, you two are knowledgeable people about how the world works, but one of the real systemic problems we have in getting lenders to actually go ahead with this is they know

they don't have to deal because they know when you get into bankruptcy you could. if it's a commercial loan, they would deal because they know the first thing the judge would do is say, hey, what's the real value here? that's something to think about in terms of legislation. cram down is a political issue and other things, but this person -- and i've talked to a number of people since then and said that's right. the difference between commercial and residential and why we have a problem reaching a modification with a lender is because they know when they go into bankruptcy they cannot be -- the asset cannot be reduced. thank you. >> well, there are many lessons we can take from t.a.r.p., but one of the key ones is oversight when then aggressively and responsibly improves outcomes. i intend to follow that example and push for tough oversight in all that we do whether it is dodd-frank implementation,

foreclosure crisis, housing finance reform, and other key issues so that we can better protect consumers, investors, and taxpayers while promoting economic growth. thanks again to my colleagues, and our panelists for being here today. this hearing is adjourned. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

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>> the japanese ambassador to the united states is in washington today, and in under 15 minutes he'll speak about the ongoing nuclear crisis and recent earthquake and tsunami. he's at the brookings institution. we'll take you there live in a few minutes at 2 p.m. eastern. earlier today, japanese prime minister called on the mission to rebuild the country after the magnitude 9 earthquake and the ongoing nuclear crisis in japan. he said the events have been "a great test for the japanese people." his comments from nhk are 10 minutes. >> the prime minister is sharing a message for the people of japan. naoto kan says one week passed since the disaster. he says he offers his con doll lenses to the victims and their

families. for people whose family members remain unaccounted for, he says that he offers his condolences and thoughts. over the last week, the jab these people have dealt with the situation calmly. he says that the japanese public has placed an emphasis on community ties and is working together to overcome this disaster. prime minister naoto kan says respects the way the japanese people have behaved.

he says that the country faces two major challenges. one of them being the damage from the major earthquake and tsunami. the other challenge is the nuclear power plant crisis which was caused as a result of this massive quake and tsunamis. prime minister kan says there was a great deal of confusion around the delivery of relief goods. however, obstacles are being overcome and he says that he believes that the relief supplies will be delivered to the disaster zones.

as for recovery efforts in japanese japan, the prime minister says that japan as a country will overcome this tragedy and will recover. as for the power plant crisis, the prime minister says that the situation surrounding the accident is still very grave. in order to overcome this crisis, the police, fire department, self-defense forces, and other groups are all working together putting their lives on the line to -- in an attempt to

resolve the situation. the prime minister says that he is determined to overcome this nuclear power plant crisis. he is fully determined to resolve the issue and he is committed to working with the japanese public as well as all of the stake holders involved to overcome this crisis. the prime minister says that he is committed to bringing back reassurance for the japanese public, and with that, resolve and continue to plow forward. many nations have offered their con dollses.

29 organizations have extended a helping hand for providing support and aide and already their support activities are taking place on the ground. we are much appreciative of this. after the world war ii, japan is facing the largest crisis, but we are gaining global support, and inclusive in all of this, we do not have time to be pessimistic. we need to be resolved and have a strong resolution for each and every one of the japanese people. they must have the strong resolve to move forward and overcome this difficulty. for the evacwees living in centers, i know it is very cold, and there are not enough food or water and you are inconvenienced by the shortage of water for

toilet situations, for example, and i'd like to extend my condolences for those of you suffering that hardship. you are in places and communities where you do not know them and people are all living together in the center. we hope that each and every one of them help each other and hand in hand overcome this hardship posed on your lives in the centers. the government will provide food, blankets, and not only relief goods, but he says the government hopes to provide support so that people can be able to live with a reassuring sentiments in their minds so they are taking out all efforts to do so. prime minister kan calls on the

people who are living in evacuation. he says that he knows that the evacuation will continue for some time. he hopes that they will take good care of their health and hopefully they will be able to move to a place of living where they can feel a little bit more safely, so he hopes the people will persevere and continue to exercise their patience. he says he will repeat this point again and that is for the japanese people, this is a great test of all of the people of japan. that in the current situation and in the past history of japan, this small island nation as so they say we have made

miraculous economic growth. thanks to the effort of every one of the japanese citizens, and that is how the nation japan was built. with the tsunami and earthquake, we don't have any room to be pessimistic or to be disencouraged. we cannot do so. we are going to create japan once again from scratch. that is the strong resolve that we all must share. he says that all of the japanese people will face this challenge together. prime minister kan calls on each and every citizen of japan within their family, local community, within their workplace, and with their schoolmates, they will work hand in hand and do what they can.

he hopes that they will think about what they can do to make a contribution and to keep their wishes together and be united so that we can overcome the crisis and make a step forward rebilling and recovering the nation as one member of the citizens, he has that resolve, and he will work hard. he says that this is the message he wanted to convey to the people of japan in marking the 7th day after the earthquake. this is a question from media. regarding the nuclear plant, the local residents not only are concerned it's giving a concern to the whole poll pewlation -- population, and there's a trust

spreading among citizens about the way the government is releasing the information. how dangerous is it or how safe and reassured can we be, and what is the forecast? can you give a specific example? please give us that information of what you think. >> with regards of the recent accident to the nuclear power plant, the facts i know as prime minister and also the facts that have reached the chief cabinet secretary, everything has been disclosed to the japanese public. we have shared what we know with the international community, and i would like to stress that point. the current situation with the nuclear power plant accident is

that it is still very grave and i will share that quite hoppestly -- honestly. the situation must be resolved with every effort and to the send the tokyo electric company, self-defense forces, fire fighting department, the police, all institutions involved are making their utmost effort, putting their lives at risk to respond to this disaster. today, water dousing activities are continuing at the number three reactor. the situation is still very grave, but in the not so distant

future, the overall situation will be controlled and we will be able to emerge from this crisis, and it is towards this direction that we are making every effort, and that is what i want to tell the public of japan . >> that was the japanese prime minister from earlier today curtesy of nhk television. live now at the brookings institution in washington to hear from the japanese ambassador to the u.s.. he's going to talk about the state of the nation after the earthquake and tsunami and the ongoing nuclear crisis in japan. we expect him to be introduced by the head of the brookings institution. this is the associated press

reports at this hour that the efforts continue at the nuclear power plant in fukushima. they are spraying the active nuclear units, and also at this hour, major foreign policy going on. number one, we expect to hear from president obama before his trip to latin america. he will be making a comment at the white house about libya and the no-fly zone that was authorized last night by the u.n. security counsel, so the president's comments coming shortly on c-span. ongoing now on c-span3, secretary of state, hillary clinton, talking about relations with latin america in regards to president obama's trip. here we are waiting for the japanese ambassador to the

u.s.. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations] >> this is the brookings institution in washington. waiting to hear from the japanese ambassador to the u.s.. ambassador will be talking about the recent disasters and ongoing nuclear crisis and following his remarks, others will discuss his remarks and what it means from the economy and the society there. "new york times" reports the exodus from japan is growing as foreigners sought to free the thought of radiation from the stricken fukushima plant. some 20,000 resident foreigners

have indicated intentions to leave the area. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] >> waiting at the brookings institution, the japanese

ambassador will be speaking shortly. the associated press reports that one week after the earthquake and tsunami devastated japan and set off a nuclear pry sis, the government is saying they were unprepared for a disaster of that scale and were slow to respond. in the u.s., the ap reports that there are indications that traces of radiation from japan have made their way to california, but u.s. government experts insists that there is no threat to the american public. that just out from the associated press. again, this is brookings institution, the japanese ambassador here shortly. also in a couple of minutes, president obama, at the white house talking about libya and the passing last night of the no-fly zone, the announcement by libya of a cease fire and a truce. the president will be speaking shortly, and you can follow those comments on our companion network, c-span.

[inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] >> ichiro fujisaki is the japanese ambassador to the united states and speaking shortly about last week's earthquake and tsunami and the nuclear crisis. scholars with talk about what's ahead for the economy and momentarily, president obama at the white house speaking about

libya and some of the news out of libya today, of course, with the declaration of a cease fire, and the u.s. joining in the vote last night at the united nations security counsel to institute a no-fly zone. they wrote about how that decision was made and writing that at the start of the week the consensus around washington was that military action against libya was not in the cards, however, in the last several days, they altered its stance and successfully pushed for the authorization of military intervention against libyan leaders and what changed? josh writing that the key decision was made by president obama, himself, at a tuesday evening senior level meeting at the white house which was described by two administration officials as "extremely contentious." inside that meeting, officials presented arguments for and against attacking libya. obama ultimately sided with the interventionists. his overall thinking was

described to a group of experts called to the white house to discuss the crisis in libya only days earlier. reporting of josh rogan in policy online. we expect president obama shortly at the white house on our companion network, c-span. on going now, secretary of state, incompetent hillary -- hillary clinton talking about the u.s.-latin relations ahead of president obama's trip to central and south america. he leaves washington tonight and will be in latin america next week. [inaudible conversations] [inaudible conversations] [inaudible conversations] >> looks like things are about to get underway with thethese

ambassador to the u.s.. we expect him to be introduced by the head of the brookings institution. live coverage here on c-span2. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] >> good afternoon, everybody. i'd like to welcome you all and thank you for being here this afternoon. like pretty much all of the gatherings that we have here in the brookings auditorium, today's panel is intended to give us a chance to discuss a

major event that's both in the headlines, and, of course, very much on our minds and also to discuss the challenges that this event poses to our political leaders, to their ingenuity, their fortitude, and their wisdom. today's event goes beyond that. it gives everyone in this room and everyone who is watching on television or listening on the radio or following the proceedings on the web, a chance to inform and intensify our compassion for the brave and grievancely stricken people of japan. the japanese people and the japanese government are very ably represented in the united states by ambassador ichiro

fujisaki. he is a very close friend of a number of us here in this room, and that makes it all the more fitting that he should be representing a country that is a close friend and partner and ally of the united states. i think that all of you can imagine what the last week has been like for ambassador fujisaki, for his wife, and for his family. he is been working around the clock with numerous agencies of the united states government to coordinate as much as possible in the american and international support for the japanese people. he is continuing that important work today, and we are all very grateful to him for taking just a few minutes out of that very busy schedule in order to be

with us to make a brief opening statement. i want to stress that because of the urgent erroneous work that he is doing, he can only be with us for a few minutes, so after he speaks, i'm going to ask all of you, please, to keep in your seats. you have a very good panel to listen to after he leaves, and this message is directed particularly to the media in the back of the room. i don't want to see anybody do anything that will impede his departure given his busy program for this afternoon. i will accompany him out after we have a chance to hear from ambassador fujisaki. mr. ambassador, it is yours. [applause] >> thank you very much, everyone, and thank you very much officially for mr. strobe

tallbot for offering me this opportunity. this has been something never experienced, natural disaster, that we have experienced. there was earthquakes, tsunami, and this nuclear accident as well. when you engage in search and rescue, we are now engaging in supplying basic human needs to people food, water, shelter, blankets, and all those things which you need every day. we are trying to cope with this nuclear reactor situation.

i do not want to prejudge the situation now, but what i can say is we are trying our best and we have very -- we are very grateful to the united states for the support you are giving to us. president obama was in my embassy signing the condolence book and made a comment to prime minister naoto kan saying the u.s. will do everything it can. american people are sending us assistance through your red cross, ngo's, and other

channels, and you are sending your sympathy, expressing your friendship to us. your forces in japan and pacific fleet are heroically engaging with search and rescue and transporting goods to the affected area. your experts are working with our nuclear experts as well. we are working as strobe said in washington as well as in tokyo. every hour to try to come to a better solution.

it's not an easy situation, but as president obama and prime minister kan said, we should overcome this situation, and we will overcome this situation. again, we are grateful to american people for your solidarity and being with us at this very difficult moment. i thank you very much. [applause] [applause] [applause]

>> good afternoon, ladies and gentlemen, and welcome to brookings. i'm martin, the vice president director of the foreign policy program at brookings. i want to add my words of sympathy and condolence to the japanese japanese people during this time. we have four brookings scholars on this panel with expertise of issues that are on so many of our minds as we watch the hoer row show -- horror show unfold on television screens. to my right here is richard bush who is the director of the center for northeast asian

policy studies in the foreign policy program at brookings. he has a distinguished career in government, serving on the hill, and then as national intelligent officer for east asia, then as the director of the american institute in taiwan which handled america's diplomatic relations with taiwan and then as the director of cnops as we call it. he worked on many books and the latest called the "perils of -- the second man is working on the economy and development program and chair in international

economics here in brookings. he works on the challenge of economic growth in developing countries and is the author of many studies in this area. he was the director of president's counsel back in the 1970s and has taught at harvard. next to him is the director of our internally displaced project that focuses on humanitarian affairs and particularly the impact of natural disasters. her latest book is the "politics of protection, the limits of humanitarian action." and finally on the far right is charlie evanger, an expert on a

whole range of energy issues in south and east asia and in particular, an expert on nuclear energy issues, so i wanted to start first by having a bit of a conversation between the panelist, and then we'll go to your questions. i'm sure you'll have many questions. first start with beth and ask you to give us a sense of the nature of the natural side of this disaster that is, of course, the earthquake and the tsunami. what impact has it had on the japanese people in particular on the issue of displacement that looms so large, and perhaps you can put it in a comparative perspective for us so we get a sense of how big this disaster

is. >> thank youment i'm sure you like all of us have been following the tv images relentlessly, the story of the earthquake and tsunami and people leaving their homes, killed, missing, very brave and courageous rescues. there's over 10,000 missing, and we expect the figures to go higher. they always do. about 400,000 people have been evacuated, millions without water, electricity being restored, but still a million people without electricity. the situation is serious human tarrian needs concern even with a rich government with high capacity. in comparison, a country like haiti that experienced a less severe earthquake in january of last year had 300,000 casualties

and 3 million people who were directly affected. japan, even with a strong government and strong civil society capacity has been slow and complicated. complicated first by the number of aftershocks. today there's been 232 aftershocks in the last week of five or higher. the fear of people staying in shelters which are often dark, cold, the weather, the snow, the cold weather is an impediment, closed roads and airports hamper the delivery of relief supplies, the military has done a terrific job of getting those up and oaring'sal to enable relief to be delivered. there's a -- you know, trucks need gasoline to be able to deliver supplies even when the

roads have been repaired. the national response has been impressive. you know, we study these things and look as indicators of strong government response with a high level of interagency emergency response team, and japan has that within the prime minister's office. if there were disaster response teams ready to go, went out throughout the country, red cross mobilized 134 response teams who planned where to go, what services would be needed, and a very impressive national response. the international response has also been strong in this first initial phase, particularly in the search and rescue missions with dan baxter mentioned, the foreign governments provided assistance, and most of the ngo's who worked so far had done so through local japanese counterparts. that's the way it should work. the japanese government says they want to assess the need,

determine what the need is before allowing foreign ngo's to set up operation. that's the way the system should work. we have in contrast in haiti where thousands, tens of thousands of ngo's went in and set up operations without much coordination by the government or indeed with each other. another point that japan response indicates is that prevention pays off. some of you may remember in 1995, there was a serious earthquake in hobi japan where 7,000 people were killed. at the time there was criticisms of building codes and regulation, and sense then, they led the world with architectural structure and not only inside japan, but up deed shared that expertise with experts around the world. a report from the u.n. found that of the casualties in japan,

100 were results of the earthquake. the rest came from the tsunami and related damages. 100 from the earthquake. again, remember that figure of 300,000 dead in haiti with an earthquake that measured 7.0. japan led the world in pushing for disaster reduction which is an amazing accomplishment. timely, i must say -- finally, i must say the nuclear issue is overshadowing everything else. this is is a whole new ball games. in the past problems of access is the result of damaged infrastructure resulting from natural disaster such as all that rubble in haiti or the result of armed attacks on workers, but never before have agencies had to think about radioactivity, of how close to get, how certain it is, what danger status is placed on them when they are trying to carry out their missions.

an article in today's "new york times" said some 10,000 people left their homes, not evacuated as a direct result of the natural disasters, but because the fear of radiation. those are internally displaced persons. it's something to watch for. i mean, one thing we learned working with internally displaced persons for 20 years is when people are fighting, when they are uncertain, particularly when they are uncertain about the information they are given, they seek safety elsewhere. >> this is a follow-up. you say 400,000, roughly 400,000 are displaced. where are they? what's happened to them? >> they are living in shelters, about 400,000 living in shelters, schools, shrines, office buildings with the idea they'll live there temporarily until transitional housing can be built. to put that in perspective, their population is over 120

million people. it's a large percentage, but it's smaller than the haitian earthquake. . . >> you may have heard that the overall evaluation of the incident has been raised along the international atomic energy

scale, one level towards the chernobyl disaster, but in reality that should not be seen as a worsening situation but that reflects and that we now have more information about what happened previously. it looks as if the major problems is that number two reactor, where the primary containment vessel, unlike secondary and tertiary vessels, was apparently breached to some degree. but the radiation levels, while high, took place in context they were measured at, i won't bother you with technical terms, but they were measured at levels that would be roughly at 204 yards from the plant gate, roughly half the equivalent of receiving a cat scan. i don't mean to minimize this because the situation can get very, change very quickly, but it does appear that's the major problem. it looks as if, several of the other reactors, we still have a

major problem that fuel rods and/or spent storage pools are not covered. looks like this to on average about five feet below where the water level needs to be in each of those. the significance of that, of course, is, as uncovered, the heat builds up, eventually where the fuel is located begins to melt. that's take up to 1200 degrees centigrade. and then if you get up to 2400 centigrade you begin to have a serious meltdown of the reactor core. it doesn't look like one of the neighboring utilities to tokyo electric in the region is bringing in a powerline as rapidly as possible. and may even be up and running by tonight, japanese die. i guess we are ready tonight japanese die. that would be significant because commercial power can be brought into restart the pumps that were knocked out of course by the tsunami. let me just say one final thing on kind of a technical issue.

i think it's very important, this may seem like an arcane point at this horrific point in time, but i think it's very important given a lot of the information that families coming wrong out of much of the international media, that the reactor technology has not failed. it failed at chernobyl. there's no question about that. granted because some operators made errors, but the reactor technology closed down at the time of the earthquake as it was expected to. the tragedy has arisen because then the tsunami came and knocked out the diesel pumps for backup waterpower. one can argue about the design of the plant, the people that should of been there, but it has not been a failure of technology. and i say that because around the world we've got certain voices arguing that this is the end of nuclear power and we had to slow nuclear power, et cetera. longer-term i think we need to start thinking about what the implications would be if we even

slowed the developers of projected nuclear power. this has not gotten a lot of attention in immediate because the near-term impact, particularly in countries like china, india, south korea, would be for much greater possible fuel consumption. and those of us are concerned about climate change, this would be devastating if the chinese were to reduce their program even by a third in terms of the amount of coal that would be released in the atmosphere. i think a lot of people have not rationally thought about what the over all implications of using this as the death knell for nuclear power might mean. >> we'll come back to that in a moment. can you just give us an intimate, it's, is not a simple answer, but is the nuclear disaster under control at this point in your judgment? or are we likely to see things

get out of -- >> i do not think -- is not under control. the numbers on the unit two, primary containment say that maybe 70% of the primary containment was knocked out. so if that leads to a major buildup of pressure and a massive meltdown that could potentially affect the other plants in the region, we could indeed be looking at a catastrophe, but it does appear that leads with the power being brought in, with more workers now able to be there, and these are the most courageous people in the entire world who are fighting this incident, it does appear that the situation right now is getting better that it might have been 24 hours ago. as i said, it's not that something does happen with the primary core being shot. it's not that we now know what we're fighting. i would hope that the situation will improve, but you cannot rule out a much more serious event.

>> just one quick question. about what we all saw on our television screens, these helicopters dumping water on the reactors. and my reaction to that was, that surely is a sign of desperation. doesn't actually have any affect? >> it has affect. it's very difficult, particularly in that part of japan where apparently the weather is very windy at the moment. so a lot of the water from helicopters miss the sites. but the good news is we had evidence that from a lot of the steam that came up, that the water did indeed hit some of the plants and probably improve the situation. but if were talking about water levels i eat below where they should be, you're not going to solve the problem with helicopters. >> barry, let's talk if you will about the economic implications, first of all, for the japanese economy, and then for the global

economy. house it likely to be? >> i think the economic challenge is extremely manageable. it's really not the problem. they should be focusing on human loss and the social cost of this. this is a manageable economic problem. we've had a lot of historic experience with it happening before. it takes a while for things to get going. but japan is probably the most experienced group of people in trying to deal with the economic effects of this. for reference, the colby disaster was estimated to be about a loss of about $100 billion. this one looks like it's going to be in the neighborhood of 200-300 billion, but those are pretty crude estimates. people are just guessing. but at that magnitude are talking something around four to 5% of gdp, one or 2% of japan's

wealth. it's not a great big number that you get. in the short run the fx will be the infrastructure has been disrupted, transportation, but it is being restored within a few months most of that should be completed. there was a huge loss of housing. they will have to move these people somewhere in japan to find them at least temporary housing. but those are all solvable problems. there will be a supply side disruption. it looks like -- the industries that were most affected is electronics. they were in the northern part. most of japanese industry is in the south. it's the south side of tokyo. therefore, largely unaffected. so i think the overall -- the last one is, this is not the big problem. in the short run it will have an effect on the japanese economy. second quarter growth may be negative with all the disruptions that are occurring. in the longer-term actually it gives a country that is in trouble on its economy a chance

to show maybe it can do better. there will be a big stimulus. if there's one thing japan can do, it's a very rich country and it is easy for them to afford the rebuilding costs that they will have to pay. in the short run that will end up having a stainless affect on the japanese economy. it will give them some energy over the next year or two. so i don't think the economic problems are substantial year there's a couple of weird things going on. i think the strangest one that has got the international comic, who would have thought if the country had a disaster that the demand for its currency would rise and the exchange rate would appreciate? that does seem a little hard to understand, and i think economists are a little puzzled as well. there's a little bit of experience with colby, the same thing happened. and explanation back then was, that the japanese insurance companies had invested abroad and had to bring money back to

try to get funds inside japan to pay off. also, you should differentiate it from the stories you see in the newspaper about the bank of japan issuing lots of union. that's just liquidity. am am one of these things happen, if you thought about having in u.s. we all rushed to the atm and we want money. that's what's happened in japan. so the bank of japan quite easily just accommodates that by pumping a lot of money into the domestic economy as evidence it is working. you see no signs of rise in interest rates inside japan. no shortage of funds. and also i think what's happened on the exchange rate is they are thinking this money is going to have to come back from abroad. i think it's exaggerated. for a bunch of reasons. if i was in japan and i was running a japanese company, i would not liquidate my holdings in order to come back to rebuild in japan.

just borrow it in japan at a zero rate of interest. so japan does not have trouble as a country raising the funds they need to rebuild their industrial base. that's very easy for them to do. i think this is driven by speculators, and, therefore, some say why do other countries intervene? i think japan was concerned about it, and this is an easy gesture for the united states and the other allies to make. why not? it's painless to do. i think it's a very thin market. as i said i think driven by speculators so it was pretty easy to overcome it but i would also argue that it's the right thing to do economically. so i don't think that's of much consequence either. i would think outside japan, there will be some of these very isolated little supply shortages. >> will we be able to get our ipad to? >> what was one of heard about,

and china there's a concern about baby formula which comes from japan and babies get attached to a certain kind of formula. i think that's a solvable problem. [laughter] >> so i think the message still is, that this is not a big economic crisis. this is manageable. what people ought to focus on is the tremendous loss of human life that has occurred in japan's. >> what about debt levels? is that a problem? >> japanese debt differs from american do. the japanese oh it to themselves. they can handle this either by issuing some more debt to their citizens, or raising the taxes on their citizens. and their citizens can easily afford to pay it in one way or the other. it's not an international debt holding for japan, as the way the u.s. is that most of our debt is held abroad. we worry about this, but not in

the case of japan. so i think that's overcome. it does mean i think realistically the japanese will probably continue to run large deficit budgets. i think the emphasis on trying to sustain large deficits of stainless to the japanese economy is overdone, so it's about time maybe to be more restrictive on the fiscal poli policy. >> one negative in japan can have a negative effect on global economic growth. it's not going to be big enough to effect that. >> we're talking something that would probably be less than half of a percentage point of the japanese growth rate. japan has from an economist perspective, japan has lots of puzzling problems. and the economy has not been doing well for years. this crisis in the short run ads to that, but in the long run,

it's largely awash, some estimate the effects of the economy providing job opportunities to people that we go the other way. but i think we're still worried about japan in a longer-term sense, the japanese economy has lost a lot of its energy but that's nothing to do with much of this crisis. >> thanks, barry. richard, tell us about political fallout in tokyo. and the foreign policy of the disaster's. >> i'm a little bit more pessimistic about the situation than barry is on the economic side because i do think it represents a serious challenge to the japanese political system. granted, everything that barry said i think we still have to be, have to recognize that before last friday's earthquake, the parameters governing japan's

future trajectory were not great. it has a declining working age population and a growing elderly population. and so their big questions over the long-term, how -- caring for the elderly is going to take place. and that's off of the base of gross national debt of 200% of gdp. moreover, we have the rapid growth of chinese power at a time when japan's power has been relatively stagnant. that poses twin did to limit. how is japan going to maintain its economic competitiveness? how it preserve security? i think that over the long-term the recovery from the reason disaster will only make those problems more daunting for

japanese politicians. it appears that the earthquake, tsunami, the problems at the fukushima nuclear plant have already worsened japan, the public slow confidence in their government. they reminded over the last week of weaknesses in terms of crisis management, the dysfunctional relationship between elected politicians and unelected bureaucrats, and economic entities like tokyo power. and there's the problem of lack of transparency. it was this lack of confidence that led voters 18 months ago to throw out the liberal democratic party which had ruled for 50 years, and vote in the untested democratic party of japan. and so, the political class is

somewhat on trial here. now, i think in the short term the crisis actually encourages a certain amount of political stability. you know, 10 days ago prime minister -- prime minister kan was considered a dead been. he was going to leave office in months. now he make it to 2011 or 2012. last week there was little or no cooperation between the ldp on the one hand and the democratic party on the other. and the fate of the administration's budget side, te near-term consequences have generally been good. countries have reached out to japan in its time of need. china is really interesting here because it probably has the worst relations with japan of any country in the world, but you have the chinese red cross sending a.

you have different provinces sending aid to their sister prefectures in japan, sister cities helping each other. and such generosity may mute the negative feelings japan has towards china. the united states of course is a special case. ambassador fujisaki describe the ways in which we are trying to help come and that's what a good alliance is all about. i am a little bit worried about these divergent a testament, japanese government on the one hand and the u.s. government on the other, about the severity of the crisis. that may lead to a certain amount every statement in japan. that we lack confidence in their institutional capacity. i think if one looks beyond the immediate situation in a speculative way, and that's all political scientist do is speculate, we could ask, you know, to the extent that any

country is going to be helping japan, which one is a? i don't think it's the united states beyond what we are already doing because we don't have financial capacity. china on the other hand has resources. and china has a strategic interest and weaning japan and away from its reliance from the united states and encouraging tokyo to be more accommodating to its interests. the big question is whether china's leaders would have political will to exploit the earthquake for strategic advantage, and then there's the question of whether japan would choose to go in that direction. my guess is that china is unwilling to play that game, and chinese nationalism is a factor. but the fact that the strategic opportunity even exist should remind us that to an extent we are on trial as well. thank you. >> i just want to clarify one

thing because there seems to be tension. between what beth was saying about efficiency of the japanese government's response to the disaster and your own suggestion that the japanese people have some questions about the effectiveness. is this in fact a question about the way in which they have handled the information flow, rather than the way they have handled the actual disaster relief? >> i think it's partly that. i think it's also that japan learned the lesson of the last earthquake crisis, and they are certainly doing well on the shock. us in on the appears to be something maybe they were less prepared for. and then the nuclear problem is one that they have, that you get the impression that they really

are scrambling and add hawking it. >> you know the japanese quite well. what's behind that, that concerned about that, the sense that they are not being open with her own people about what's happening? >> my guess is that the tokyo power is not being totally honest with the bureaucracies that regulate it. and in the bureaucracies may not be totally forthcoming with the prime minister's office. and then you have certain cultural aversion to being blunt about the reality, and japanese are a lot more skillful at interpreting vagueness then we are. but certain instances, you appreciate clarity.

>> charlie, let's go back to this question that you raised at the end about longer-term role of nuclear energy and countries, energy mix, and let's start with japan. japan has what, 30% -- >> 30% from reactors. >> it got about 54, 55 plants in operation at the moment. do you expect that this will, they will shut down of the plants now? would be a changing energy policy in japan and? >> i do not foresee any change in energy policy for the simple reason that japan basically has to import all its fuel besides nuclear power. it imports liquefied natural gas, its oil, its goal. and so, i think they are so concerned about energy security when there is a moment to reflect, they may put a much greater redundancies and safety

in new reactors. these were very old reactors. but i can't see the japanese changing their view towards nuclear power. it's also of course a very important export for the country. that would have a big whammy as will. >> and the united states, what conclusion are we likely to draw about nuclear energy in our future? >> well, all the people traditionally opposed to nuclear power have come out of the woodwork. some that haven't been heard from since three mile island but they're all back. i think it will have a negative impact in the united states, but i personally thought we were not going to have the great nuclear expansion even before this incident, largely because of the cost of nuclear power in the united states with a new plant costing nearly $10 billion. there are very few utilities particularly now with the availability of natural gas abundance that would make that move. i think that number, even if it's as well as i thought it might be, six, seven reactors over the next 15 years, that may

be cut in half and you may see some moves in the congress which already been introduced to cut back some of the proposed loan guarantees that were there for the next generation of plants. that would not be good for the domestic industry speak of how many are we building now? >> we have about 20 before the nuclear regulatory commission for licensing, but we only have two that are actually under construction. and they are as a result of the energy policy act of 2005 that set loan guarantees for the next for reactors. they are being built by the southern company. spee if i could make one final point. i have the resilience of the japanese people has been startling. they were having rolling brownouts to try to deal with the crisis and asked people to conserve. all of this overnight japan got its electricity consumption by 25% just by everybody responding to the national charge, please, help your fellow citizens. i think that's an extraordinary cost.

can you imagine that happening in the united states, particularly during march madness? [laughter] it would not happen in anytime in this country. so i think before when we talk about the change would when the japanese people and maybe their government leaders, clearly on that call for them to conserve, they rose to the occasion quite dramatically. >> if i could add to that. i had a note from a japanese friend of mine, and he said to describe this as the worse crisis that japan had faced since world war ii, which was a fundamental sort of threat to national survival. but he also expressed a sort of deep confidence in the resilience and perseverance of the japanese people to meet a challenge like this. maybe not as much confidence in the government, and but i think there's a feeling that this is a very strong society. and it can overcome. >> i just have to speak up on behalf of the american people.

i think you underestimate our willingness to sacrifice, but we have to be asked first. >> i was -- when you look katrina arkady our most natural disasters that happen. but if i could ask the question of charlie, you seem to think things are going to be basically okay. going to? if something terrible happened, wouldn't that indeed change the balance of support for nuclear power both in japan and around the world? >> it could well, but the only problem i see is when you realize the implications if we're going for nuclear power, it's about 14% of the world's electricity. the near-term answer is fossil fuels. if we hope to let anything come out of the climate change negotiations and change u.s. policy, you know, if china and india said we're going to not build nuclear and burn more

coal, we might as will not worry about what we do on fossil fuel consumption because it won't make a difference. we will have climate change. i don't think people realize the degree to which you're not going to replace the nuclear plants with wind and solar in the near future. so you're talking about a fundamental change. it's the upward pressure on petroleum prices, and this would not be good for the world economy. >> let's go to your questions, please here and i would appreciate it if you would wake for the microphone when i call on you. identify yourself and ask a question. right here. >> thank you. i am japanese. the japanese media accused for transparency.

[inaudible] so what do you think about japanese currency, other things, other issues? is this just a little by little? >> richard, do you want to start? >> i'll just say i think any government confronting a nuclear accident particularly should be as fully transparent as possible. because there's enough reason for people to panic, a lot of it is misinformation or lack of understanding of what really happens in radiation and different types of radiation. but for goodness sakes you don't want any question as to the utility involved is not being fully transparent, both with the government and with the japanese people. just a disaster. >> thank you. my name is coco.

former -- working at the embassy three years ago. i have a question. you mentioned in terms of which country can contribute most to this incident. you argued united states or china and so forth. in the long run maybe so, but in the short run i have no doubt that only one country, that is united states. when the incident occurred i was still in japan. i have immediately thought that recently the golden opportunity to show the fundamental alliance, why? because on one hand, the importance of alliance. but at the same time after they

came into power, clear the alliance relationship open all, the marines there. now, this earthquake and tsunami clearly gives an opportunity that the marines in okinawa have a totally different role to play. but the image i have been is a kind of massive flying for the marines. and supplying blankets, food, to all those refugee areas. as ambassador fujisaki rightly mentioned, at the same time i can't help wondering, is it the maximum extent of assistance with your military can provide to us? i may be wrong. i may be wrong about this, but please come in my view the

extent of the assistance is not shown enough through the television screen in japan. it has to have two sides. the fact it has been shown through the television screen that the marines can put a totally different role than being just something else. my question, do you think that our substantial cooperation, and whether if there is co-op or eight, do you think it is sufficiently shown in the japanese media through their screens? because the japanese people have instinct that the united states military can and does play a totally different role. >> i have no question that the

testes is doing whatever it can to be helpful in this situation. i think we move very quickly, and we have demonstrated again that we are the only country in the world that has this kind of capacity to move quickly in this kind of situation. i expect that the united states is not getting enough credit yet for our assistance, and for our desire to assist. and that doesn't surprise me because i think that the japanese people are most focused right now on the tragedy, tragedies that occurred and what's going to happen with the fukushima plants. i hope that once the immediate crisis has passed that japanese political leaders will remind the public that, although the

japanese people may the primary effort, that the united states helped out a lot. i also agree with you that the united states is the most influential in the short term, but china does have opportunities in the medium-term and long-term that we should be aware of. >> the second part as i understood it, are we doing enough to show us, isn't visible enough? -- is it visible in the? >> i would rather the japanese leaders be the ones who, i suspect we're not doing enough, but i think that there's a media overload at this point. and we can take credit later but i hope the japanese leaders give credit. >> is there something else we should be doing? >> there are teams now that are assessing the needs and looking for the gaps it could be filtered i think is possibility

for an outpouring of support from american organizations ngos, et cetera, once they figure out what the needs are. but just remind people, some of the most desperate need to come later. they come six months down the road when the tv cameras have moved onto the next emergency. and sometimes that's the same support can have more impact than and a media -- immediate flashing. >> permanent shelter, long-term reconstruction might be more effective. >> barry, on the economic front is there something the united states should be doing? >> i don't really think and innovation of exchange rate is of any significance but i understand why the u.s. did it. i think it's perfectly appropriate. but no, there's no big challenge on the economic side. the challenge is on the human side to deal with the people

that have been displaced. and it's a complete a separate matter of. >> take another question. >> carol, i'm a historian of japan. i had a political question. there's been criticism of the democratic party in japan for its handling but it seems to me for there to be long-term implications with the democratic party of japan and the government, comparison needs to be made with the ldp. in other words, people are unhappy but do they think the ldp would have done a better job? >> i think -- >> it seems to me they would have to think the ldp would be better in order for the democratic party of japan to lose out seriously. >> i think that the jury is not out on that question. you know, it's still out, i'm sorry. i think that prime minister kan

and his government had a tremendous opportunity to prove that they are, through this response to this crisis, that they are capable of being a ruling party that is as good or better than the ldp. if on the other hand they fail to meet that challenge, then the sentiment grows that maybe the ldp is the only one we can rely on for whatever their faults. >> i ask for because i have a friend who is rather more of a supporter of the gdp in that i think she's comparing their reaction to the earthquake with the ldp, notably inadequate reaction to the kobe earthquake, for example. and i think that she feels that they are at least trying to do better than the ldp in terms of trying to get information out. would you agree with that? >> i'm not close enough to the situation to know, what i appreciate the difficulties of

getting information that's needed in this very complicated fukushima situation. >> thank you. >> yes, please. >> rob ward. i have a question for mr. bosworth. as i understood your comments, that you see this as a wash as far as the impact on the economy in the long term, perhaps declined by half a% or show during the short term. could you address the long-term bomb, that is the resiliency and the growth of the japanese economy, the need for restructuring greater competitiveness and just a greater enthusiasm in the economy? will be the impact of there? >> i guess you might say this gives an opportunity a little bit to see if the government decides to come up with a

policy. if that works for this it will build public confidence, and you could maybe use that as a base for moving on. i think the problem in japan is a deep one or it's not like people sitting outside here in the united states have lots of ideas about how dissolve the japanese economic difficulties. in fact, i think the concern here in the united states is growing that we are headed down the same road. we are facing a lot of the same stagnation problems after the financial crisis here that japan had in adjusting to the one in the 1990s. but they do need some leadership. they need to develop some effective economic program about what to do. and there may be some stimulative effect that could come from this. but i think the bigger problem, sort of an economic, i have not heard anybody come forward with a real successful ideas about how we get the japanese economy growing again at a rapid pace.

we are all sort of puzzled about what's the fundamental problems that hold growth back. >> so there's no bosworth plan i the? >> i don't think so. i think of a multiple thing about japan is that 25 years ago everybody pointed to japan for this incredibly high rate of savings that they had. they now save less than american households. but the offset on the other side is, japan and this less than the united states does. in the last two years, physical investment by the household sector is negative. by the government sector is negative. by the business sector has been negative. households don't save any more but corporations do, and the money just piles up in japanese corporations and they don't use it for purposes of reinvesting. they just hang onto. that's what people mean, there just doesn't seem to be any

energy in the japanese economy, where there are people actually investing in new ideas. is not a new spirit anymore of entrepreneurship inside japan. a lot of people are sort of stagnant entrance of new business ideas, how do you get that going again? >> richard come is a possible the disasters could stimulate that kind of energy for the japanese people, a sense of rejuvenation, rebuilding? >> i think it's possible. i think the leadership is required. good ideas are required. incentives are required. i hope that the political leadership will seize that opportunity, but i see the danger of just going back to business as usual. >> i think it was a question on this side. >> in the context of the question i think that mr. togo had on the impact of the security allies, right now --

>> identify yourself. >> clay future, with the pentagon. the impact that this will have potentially on the defense policy realignment initiative right now and restructuring a lot of all the forces in the west pacific, principally in japan, okinawa, the very same forces right now that are directly involved in preparing disaster relief with the current crisis, but what's also been very, very difficult to judge tangible process from the government of japan on this large real-time initiative. do you anticipate that this crisis is a catalyst for the gao j. to reproach the secretary of defense and secretary of state in the upcoming months or two, the upcoming to post to to rewrite the security alliance, current agreements, cleanest slate and start all over? what's the impact? >> is a great question. i guess my fear would be that

the japanese government both political leadership and bureaucrats would be so focused on issues related to relieve reconstruction and so on that they would not have time to face what is politically controversial question in japan. we have the roadmap agreed to five years ago basically. and very little progress has been made. there was a setback. you know, ambassador togo, if you refer to the use of assets on okinawa, and for the american contribution here, that is probably not trivial. i hope it improves the environment. i think americans have also learned in the last couple of weeks that it's better not to say too much about okinawa at

all. >> thank you. >> thank you very much. i notice tuesday that -- >> could you identify yourself as? >> i come from -- [inaudible] >> president obama -- [inaudible] [inaudible] the stock market of europe dropped more than the stock market of u.s.a. so my question is actually what will that mean to energy policy of the u.s.a. and europe respectively?

and my colleague also want to ask you another question. this crisis will have -- [inaudible] thank you very much. >> charlie, you want to talk about the policy? >> i think in europe it will have a profound impact. you've already seen mrs. merkel come out very strongly about not only inspecting a number of reactors, but now she's gone further in saying that perhaps the whole german nuclear program should be phased out over time. we think negative responses in sweden, in italy where they were just beginning to reverse long-standing antinuclear policy and restart. so it's going to be an italian today. i think in the u.k. you will see continued, there've very vigorous brogue rams mated because they can't meet their climate change goals using went alone.

they have use nuclear and wind to further reduce their dependence on coal. france and belgium i think he was a continue with their nuclear programs. and as you move farther out in the former soviet union, european states i think accommodation of wanting to reduce, thinking the baltic states for example, and the balkans. they want to reduce their dependence on russian gas and also get away from their dirty go. so i think you will see them continue to push slowly but for nuclear. the united states i think we have 20% of our electricity from nuclear power. because of the slow growth i mentioned that already believe is going to happen even before the accident. i think between retirements of aged facilities we'll be lucky to keep that 20% contribution, 10, 15 years from now. >> and natural gas, how much -- >> natural gas is also about

20%. a lot of people are noticing would probably raise natural gas to 30, 35% of our electricity and keep it there for a long time. >> barry? >> almost no impact whatsoever. stock markets go up and down. they always overreact. i wouldn't pay any attention to them. one way or the other. the only part that makes sense is the japanese stock market is the one that dropped the most. but it looks like it is -- if he took seriously their estimate of the cost in japan, you would claim that the wealth loss was almost a trillion dollars. that's clearly not realistic at all. so the stock market has dropped in value way too much. i think one reason is the markets were kind of thin, not much confidence. and in europe there's also been a drop in the stock market, but i would have the same story. i do see where they are going to

get much economic effect in your. the u.s. stock market is pretty resilient. nothing much actually happen. maybe maybe it's unfortunate, but japan is simply not a big market for the united states. we don't export much to anybody anymore, and in particular we don't export a lot to japan. so we worry about japan, probably about whether or not there'll be any interruption to some of our electronic and automobile supplies. and i don't expect that to happen. but that's a sense of which i don't think what goes on in japan will have a big effect on the u.s. economy. >> okay. yes, sir. >> i am a correspondent. there's not much talk about the radio activity affect on human

beings. should we have -- [inaudible] also should we look about the iraq osha food chain -- agricultural food chain for radio activity material? and also, over the years there is a problem in russia, in u.s., in france, in argentina, and now in japan. showed iaea have oversight -- should iaea have oversight in the nuclear activity? thank you. >> in terms of radiation monitoring, we have a fairly sophisticated global system to register changes in radiation. most of that was developed against the potential for atomic

weapons, but they can pretty well pick up what's happening. within japan, there is definitely concerned about the food chain. and this incident gets worse, the first place it often hits is in dairy products. [inaudible] >> right. i'm sorry. but radiation, nearby radiation event, the first concern is about dairy products in terms of the food chain. as this radiation goes over the world, the amounts that we are talking about, at least from what we think is going to happen right now, is infinitesimal by the time it reaches any of the landmass than japan. that it could have a very serious impact on japan were it to get noticeably worse. we are not expecting -- you know, we're not expecting -- does an erroneous report the other day that was going to hit southern california, move

towards las vegas. that report has now been shown not to have been issued by the organization that it was said to have come out of, a very prestigious organization in australia. that was on the internet. it was not released by that. it has been discredited by both the australians and by the international atomic energy agency. the second part of your question, the iaea i'm not sure i understood where you want to extend their authority. of course, we try to get all nuclear plants from a proliferation standpoint under iaea safeguards. and with the additional protocol that we are trying to get all nations to sign the right of the iaea inspectors to me, you know, snap inspections without warning of any nuclear facility in a country. but in terms of saying that the iaea should have authority over all radiation environments and in local countries, i think that -- [inaudible] >> and also in japan, i do not

understand why there is no -- does japan just get water from ocean and give it back to the ocean? there's a particular one about speed is a very good question by the iaea has no authority over questions like that. they will send in teams to advise on safety, to advise on greater, a knowledge of radiation potential. [inaudible] >> but they have no -- what i'm saying is they do not have the authority. whether they should have the authority i think is a very good question, but you have to go back and probably modify the iaea treaty to give them that enhanced authority and get the existing members to agree that they were willing to give up sovereignty in those areas. it's a very interesting question. [inaudible] >> let's go to another question. thank you. >> i'm bob richard.

i'm wondering if you could comment on either the engineering or perhaps shoddy engineering in some cases in terms of the nuclear facilities and also in terms of the preparedness at the nuclear plants from your observations. i know it's early yet. >> this was a very old -- this was a very old set of reactors. you know, generation. those blowing water reactors that are being built around the world today are very different, with much higher containment standards. so you can't compare a blowing reactor, water reactor built today five years ago, for one of these plants. i think you can certainly question, you can turn the question that wisdom. that if there were a tsunami as they get wiped out rather than

having them on higher ground, water does tend to flow downward. if you directed that way. so i mean, that design we now know was challenged by people at the atomic energy commission act in the 1970s as an unsafe design. apparently at the time because it was a new fledgling industry, it was decided that it would be catastrophic to require the nuclear vendors to completely change their design. because we are trying to get the industry taking off. so the warnings out of the aec were not heeded. but i don't think in terms of safety that there was any country that has any better record. maybe the united states, but japan has an extremely fine record on paying attention to safety, on evacuation. and obviously on earthquake protection because the earthquake did not trigger the reactor accident. so i don't know. it's always easy to second-guess. we may find and wrote that there were mistakes made, but i think

right now in it's premature to suggest that we know that for sure. >> are you saying there was criticism at the time that these were built? >> apparently. several memos have surfaced. people warned that this design and a catastrophe could create big problems. >> what about location, charlie? you know, this is located right on the coast. >> you know, i may come in japan the problem is there's not a lot of spare land. but we try to put reactors on the coast because particularly if there's shipping components for the construction, it's easy to land on the coast. you're talking about big vessels and tubes. you put them on the back of a flatbed truck, you know, you disrupt entire community. even if you can get them through.

so this is why we tend to build reactors predominately near the coast. likewise, it's easier to ship out if we go to long-term nuclear waste storage, geological repository somewhere, you can ship it out without having to transit the dangers of fuel through populated communities. so this is why we do it, but obviously maybe don't want to do what is a history of tsunamis and earthquakes. >> well, that's about, i think we might conclude this. i want to thank the panelists for the very informative views in this regard. and again, we wish the japanese people all the best coming from this horrendous disaster. if you all very much for coming. [applause] [applause]

[inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] >> earlier today we showed you comments from the japanese prime minister, courtesy of nhk. you'll find some of the video on our website. president obama and his family leave today for a five day trip to south and central america. he is headed to brazil tomorrow.

>> we were writing off america.

new york city was really pulled into the global economy and became america's gateway to the economy and has really prospered ever since. >> watch the rest of the interview sunday night on c-span q&a. >> c-span2, one of c-span's public affairs offerings, weekdays live coverage of the u.s. senate and weekends booktv, 48 hours of the latest nonfiction authors and books. connect with us on twitter, facebook and youtube and sign up for schedule the alert e-mails at c-span.org. >> pure of ocean energy management director michael bromwich announced yesterday that more offshore drilling request will be approved in the next couple of days. he testify before house appropriations subcommittee on what the interior departments natural resources revenue

director about the department 2012 budget request and report on loss of royalties from oil companies. .. >> it will take a larger staff and larger resources to do this. at the same time, there's no blank check coming from the subcommittee. we expect results from appropriated dollars and will

comet to rigorously conduct oversight at bomer and honor, did i say those right? >> perfect. >> i understand it may take some time after the tragedy last summer to review and revise the proceed -- procedures and actions, but it's been a year. people in the gulf have been without good paying jobs in a terrible recession. purchasing leases and scheduling crews and rigs for development of offshore is no easy task and requires a great deal of investment, worse because of recent policies, many of the jobs that should have been american have been exported to foreign countries. there needs to be a balance, and all of these issues need to be considered. two permits in a year is not frankly going to cut it. the fy12 budget asks for increases in several areas, many of which i agree. you need -- you asked for additional inspectors, clear

you, you need them, and we support that request. there's staff for environmental reviews and permitting. we need certainty that the funding we provide results in inspections, appropriate environmental analysis, and permits issued. i commend you for doing this, but urge you to do this in the conventional energy category. as discussed in our gao and ig hearings several weeks ago, i'm concerned about royally collections and accountability. i applaud the efforts of this committee to daughter and sonty click -- drastically improve the program. we'll have programs on how the money will be spent on the important issue. thank you for being here, this reorganization is no easy task, and i look forward to working with you on many issues, and thank you and your staff for your hard work. i want to take a moment to thank chris, his last hearing.

for as many years of service to the interior subcommittee. chris came to the committee on appropriations as a dethey lee from the service in the mid 1990s, and since then worked on nonpartisan bases to face the critical issues facing the land management agencies. he is one the most knowledgeable individuals on the appropriation's committee staff and he'll will missed. chris, we appreciate your dedication and commitment over the years of public service and wish you all the best with your new endeavors, and i look forward to working with you on whatever they are. i yield to mr. moran for his opening states. >> thank you very much, mr. chairman, and thank you for recognizing chris. he's been a tremendous asset for all of us, and i think everyone knows that and you know, we -- i know you share my feeling as does others that so much of our

success or failure rests on the backs of the staff to do so much of the work and chris does wonderful work. he's also invariably the source of the quotes that we're going to miss. [laughter] i know we got to -- [laughter] he's been wonderful. he'll go to the nature con ser venn sigh and wants to make his way out west again. he loves the states like idaho and montana, but he's a wonderful person, and we'll miss him greatly. i know the agencies that we deal with will miss him as well. i will, you know, begin with some other comments with regard to this new organization, and mr. bromwich, thank you for taking it over. you have a strong reputation for

integrity, work ethic, and a real commitment to see things are done right. i think that's a real stroke of good fortune that we've been able to have you take this over on what is really an awesome responsibility. thank you. all of the staff that supports your works, we thank. almost a year ago, 11 months ago, april 20th, news of the explosion on transoceans deepwater horizon drilling rig broke, and took the lives of 11 crew members. we all watched as one attempt after another failed to cap that spewing well. between the explosion and the completion of the capping operation on august 2, almost 5 million barrels of oil spewed into the gulf of mexico, much more than originally had been suggested by bp and others.

i mean, that's -- it's over 200 million gallons a day emptying into the gulf. needless to say, it's been a tumultuous year for oil and gas drilling and the interior department had to restructure its bureaucracy that operated with what appeared to be some inherent conflicts of interest with a culture that many believe was just too subserve to the oil and gas industry. the new ocean management regulation and enforcemented had a challenging ten neurotrying to -- tenure trying to assure another gulf disaster doesn't occur while being attacked by congress. those who represent those interests and the people whose jobs are dependent upon that industry are naturally speaking out wanting those jobs to be restored.

they -- but i don't think, and i want to make the case that i don't think this is why we have rising gasoline prices. as we all know, the price of gasoline is set in the international market, and our net production, even with deep water drilling, opening up our conservation areas and the pacific coast has no immediate impact on world prices and minimal impact over the next decade. the deepwater horizon blowup proves there's inherent risks of drilling offshore and indicates the drill, baby, drill montra that we heard from some. drilling for the cost of this nation's needs is reckless and costly. when you think we use up more energy than china and japan combined, 25% of the world's energy for 4.5% of the world's population.

that puts it in context. truth is that we will never achieve energy independence by drilling for more oil within the united states. under the friend i most prooil administration, most acknowledge that that both president bush and chieny were part of the industry before getting into politics, but u.s. oil production declined between 2001 and 2008, and that's with generous tax subsidies and lax legislation. in 2001, they produced 2.1 billion barrels a year, and in 2008, we produced 1.28 billion barrels a year. during obama's administration in

the first year, i know people think this is ironic, we saw production increase to 1.957 billion barrels of oil per year. you know, about 2 billion barrels a year were back up to where we were in 2001. average monthly production which did decline during the moratorium in issues new deepwater drilling permits was 143 million barrels for december. that's the latest data we can find. during the last month of the bush administration, domestic average was 156,000. there's a difference of 20,000 barrels roughly that we are producing over and above what we were during the last month the bush administration. i say that noft so much, mr. simpson, but there's been a number of people, colleagues, that put forward a point of view that i don't think is supported by the facts. we're less than 5% of the

world's population as i say consuming 25% of the world's oil. there's no way we can drill ourselves towards energy independence or lower pump prices. given the overwhelming consensus that fossil fuel combustion is damaging the environment and prospects of future generations, there's a legitimate interest in curving what's see as an appropriate use of fossil fuels. we're not going to settle this debate in this hearing or today, but it should chasen those who call for the relaxes of the inspection process. former formal prosecutor, you have a great background, came through when needed. you're needed now because we need a tough and thorough prosecutor of this issue, and i know you will be that, so thank you for being here as a witness. thank you, mr. chairman. >> thank you.

mr. bromwich? >> thank you, mr. moran and members of the subcommittee. i appreciate the opportunity to testify here on the 2012 budget request for the regulation enforcement. this budget request implements the most aggressive reforms of offshore oil and gas relation in u.s. history. our request is $358.4 million, an increase of $319 million over the fiscal year 2010 budget after adjusting for funds as part of the ongoing reorganization of the former mms. this is offset by $151.6 million in receipts, and $65 million in adjustment fees with a net request of $233 million. the resources are essential to carry out our important and

diverse mission. as mr. moran said and chairman simpson said on april 20th, 2010, explosions rocked the rig leading to the sinking of the led, death of 11 workers, serious injuries to many others, and the release of almost three months of 500 million barrels of oil into the gulf of mexico. it was the largest spill ever many american waters. the blowout brought to light the inefficiencies. we worked hard to address that and restore confidence in offshore oil and gas drilling. the ongoing reorganization and reform efforts are in form by the results of multiple investigations and reviews including inquiries conducted by the department of interior safety oversight board, the presidential national commission on the bp deepwater horizon oil spill, the national academy of

engineering, and the doi office of inspector general. consistent with the findings of the safety oversight board oig, the president's commission proved there were weakness in the regulation and oversight of offshore drilling stemming from conflicting missions, a lack of authority, a lack of resources, and insufficient expertise. the related reforms that would be funded by this fiscal year 2012 request are intended to address the short falls while at the same time allow for continue newty of operations and ongoing operations and production. the centerpiece of the reorganization is the creation of three strong independent entities to carry out the missions of promoting energy development, ragelating -- regulating offshore drilling, and collecting revenues. this resided in the same bureau, mms, related to conflicts of interest. this began on may 189, 2010 when

secretary sol zaire called for the establishment of three new intties consistenting of the bureau of ocean energy management, the bureau of safety environmental enforcement, and the office of natural resources revenue. now, the know boem is responsible for managing development of offshore resources in an environmentally responsible way. its functions and responsibilities include leasing, planned administration, environmental studies, nepa, national voormtal policy act, economic analysis, and the renewable energy program. the new bsei enforces regulations and responsibilities include permitting, inspections, offshore regulatory programs, and oil spill response as well as newly formed training and compliance functions.

as you know, honr has already become a separate entity. the fiscal year 2012 budget request supports the reform and reorganization and consistents of a -- consists of a number of lengthy requests. an increase in inspection capability that enables us to conduct additional inspections and oversee high risk activities. this part of the request allows the development of a sufficiently staffed inspection program that will enable offshore oil and gas exploration and production to continue while protecting the environment and improving worker safety. they have begun to increase the safety in the 2011 continuing resolutions. second, investments in resources to sustain increased oversight and efficient review and processing of various kinds including development activities like processing and approval.

these are two of large areas in which capacity needs to be dramatically improvedded and enlarged. other areas are nepa and environmental studies staff, funding for come mine, and inincrease in oil spill research. as i discussed and you heard from others, the deepwater horizon tragedy exposed weaknesses in the way we have historically done business. a consensus has been formed that this agency historically had insufficient resources to provide an appropriate level of regulatory oversight of overshore oil and gas development. these shortcomings are more pronounced as operations moved into deeper and deeper waters. we believe that substantial budge increase sustained with the president's fiscal year 2012 budget ask is an extremely important step towards bridging the gap of the resources the agency currently has and the resources it needs properly to discharge its important

responsibilities. mr. chairman, other members, mr. moran, this concludes my statement and happy to answer any questions you may have. >> mr. chairman, mr. moran and members of the subcommittee, i appreciate the opportunity to testify. the 201 budget is $148 million representing a significant increase over the 2010 enacted level. it is important to review the request in the context of the economic benefit on it provide to the nation and the recent challenges we faced as an organization. on average, honr produces $10 million a year to states and treasury. the budget request provides necessary resources to implement the management reforms highlighted by recent reports and the reorganization announced by the secretary. it requests the funding aid of revenue management activities. last year, secretary spearheaded

an aggressive effort of the offshore energy and renewable retch new management programs. on october 1 of last year, honor was established urn the assistant secretary for policy management and budget. with the support of the secretary secretary and the director erk the reorganization of honor took place as planned without disruption. eliminating prior conflicts of interest, mitigating risks, and allowing a greater focus on opportunities for improvement. following a transcigs to pmb, we initiated a top to bottom review to concentrate efforts on the continued improvement of the management activities. through this effort, we assessed improvement and developed the framework for current and future initiatives. it is now proactively up vesting resources to inpolicemen initiatives to achieve the organization's three priority goals collecting every dollar

due, dispersing information, and restoring credibility with the public. the 201 budget enables us to identify the initiatives in the strategic review and respond to numerous recommendations we received. since 2003, honor has been the subject of more than 100 certainly and external evaluations and implemented over 1,000 recommendations. the 2012 funding is critical to ensure the closure of the remaining internal and external recommendations. recently gao testified on the high risk report. the report cites three deficiencies and says the collection policies needed to ensure that, one, the federal government receives a fair return on its oil and gas resources also known as the government take. two, interior completes production verification inspections, and three, data and production of royalties are consistent and reliable. we are working 20 address the

two first desht sighs and supporting them as they study government take under different management structures. it provide funding for additional production meter inspectors and a feasibility study on the use of automated production metering systems. the third deficiency relates to the royalty and production data that we collect from industry. we agreed with gao when they raised the issue in 2008, and we have been working diligently to implement improvements to the data. several of 2012 budget initiatives relate to implementing gao's recommendations. the gao identified 50doi recommendations in their high-risk report. we are responsible for implementing 11 of the recommendations. we made significant progress on all 11 of these recommendations. in fact, five have been implemented. the funds we request allow us to fully implement the remaining six. itit is important to note as

companies report their own data, we have an accounting system a risk based compliant program to target underpayments and make sure royalties do not go uncollected. our program is strengthedded from the funding of this committee. in fact, over the last five years, oh compliance program detected and collected more than a half billion dollars in initial underpayments. in addition to our compliance program, there's a strong partnership with the inspector general and u.s. attorney's office to pursue companies 245 intentionally underpay royalties on indian lands. this is an exciting time for us, and as we continue to develop, implement, and improve the revenue management activities and move forward on implementing critical reforms. i'd like to thank the committee for all the support they have provided. mr. chairman, this concludes my statement. deputy director of honor and i

are happy to answer questions you may have. >> thank you, and thank you for being here today. one of the issues i think our entire committee was concerned about when we had the gao and ig up here was the collection of royalties and whether the government was confident that it was getting what was do it, and as they said during the hearing when they weren't sunlighting there was -- suggesting there was fraud going on out there, they just had no way of being confident that actual accurate reporting was going on. how is this going to change this? >> well, we actually are doing a number of things. as i said in my opening statement, we finished a comprehensive strategic review of our organization, and during that review, we looked for a number of ways to improve our rev new collection capability -- revenue collection capabilities. one thing in recent year, thanks to the support of this

committee, we've improved our computer systems. a lot of the information that comes in comes in electronically and our computer systems now are upgraded so we can actually have more up-front edits, so when the companies submit data to us, we can do a quick company check from the payer information and the oil and gas operator information. after the computer does its work with those improvements, we have an initiative in this budget request for 12 additional employees to look at the exceptions. every time the computer system kicks out some information, we need somebody then to look at that information and see what the discrepancy was. this budget here allows us to high 12 more people to do a data mining effort. >> the discrepancy? you get your information that you count on with the royalties paid from the production records of the company; right? >> with the company due. there's two pieces of information coming in. information from the companies

that pay the royalties so all of the payment information and then we have payments from the producers that includes the volumes and information related to the oil production, so those two pieces of information compared to make sure we're getting all of the money that is due for the production that was made. . we have a third party petition process where we get the source information from the meters themselves. >> okay. one of the things that was brought up also during ig's report was the difficulty that the department is having with personnel because qualified experienced personnel is hired by the oil companies and so forth and that we're having a hard time retining them. what are we doing about that? >> a number of things about it.

part is a generational thing. many of the employees are reaching retirement age, and so they are not surprisingly heading for the exits. we're doing several things. number one, i have done, i think i mentioned to both of you when i met with you, recruiting tours, so i went in october and early november to some of our best engineering and petroleum engineering schools in the gulf, lsu, university of houston, texas, university of texas, a and m, other schools to recruit some of the best and brightest engineers in school telling them that their country needs them working for us, regulating the terribly important industry offshore, and the result of the recruiting tour was a very narrow jobs announcement, narrow in terms of time. it was overwhelming, and that was rewarding, and we are bringing people on. we're separately -- >> i'd be curious, how many people are you able to hire?

the cost of hiring someone in today's federal government seems impossible. all those people that tried to get hired, mr. chairman, can i ask? >> we brought on 70 new people since june 1 of last year. >> a substantial amount. >> many are back filled. i don't want to say they are net adds. >> new people. >> they are new people, exactly right. >> that's good; excuse me for the interruption. >> no, that's fine. there's a great need for environmental scientists and people with environmental backgrounds. we're going to be doing the same kind of thing that we did in october and november in two weeks. we're starting to go out to various environmental studies programs in our universities across the country again trying to recruit them and make them aware of the important public service opportunities that are availability for them in our organization. mr. chairman, you are quite right in identifying the problem of having our people recruited

away either before we get them or after we have them by industry because there is a significant salary disperty. >> do you have any idea what the disperty is? >> i don't, but it's enormous and it grows over time in terms of the seniority of the people. we have information, but we can try to collect that for you. one of the things we're trying to do, and this mirrors what other countries that do offshore regulation do, we're trying to get exemptions and exceptions from the normal salary scale in recognition that we're competing with industry that can pay far more. we have a package pending at the office of personnel management to help to narrow the gap between what engineers and other specialists can make in private industry versus what they can make in long term careers with us. i don't know the way that's going to turn out. i hope that the need is so traumatic that it will be

granted. it gives you aceps for the levers and tools that we're trying to use to get the best people and keep them. >> okay. you mentioned during your testimony that at the end of this fiscal year bomer will be split and divided into bome and besi. given the department of interior, are you concerned the two agencies might not work well together and reduce the efficiencies and delays in oil and gas development, and how will you prevent this? one of the things that i hear from industry is that what they need more than anything else is predictability, and while there was criticisms of the old mms, and you're right, there was sometimes too close a relationship between the regulators and the permitees, and ect., ect., that at least

there was some permittability. that's what they saying. it used to be, you know, we'd submit an application for a permit, and it might come back to us two or three times for additional information. now, they're saying permits come back to them 20 and 30 times for additional information, and it is just delaying the permitting process. how are we going to get the agencies to work together and that we, while we do the proper oversight and environmental reviews and everything else that it's not just a continual foot dragging. >> two parts of the question. one, how do we make the process efficient? i think as both you and mr. moran mentioned, deepwater horizon was a shocking event for everyone, and not surprisingly it prompted a lot of activity within the agency in terms of developing new rules, in processes, new procedures. as those were rolled out to industry, they were complicated

and did took time for industry to absorb them and frankly, it took time for our people to absorb them, explain them, and understand how to permit new applications. i think that has improved over the last few weeks. . . we focused on that rift since day one, and in fact we had

teams of personnel that are focusing on the interdependencies between the functions that will now be in the separate agencies and they are identifying ways to make sure that the operations remain efficient and hole, and that the split into two separate agencies does not cause impairments of operational efficiency. it is a terribly important issue. we are focusing on that very intently and i think we are going to solve the problem. >> i hope so because that is probably war than anything else the complaint we hear from people. as you know any business that plans, they need to have some predictability and what these companies they need to be able to predict when they are going to be able to drill an order to keep the refineries going and etc. and that type of thing. >> that is absolutely right and i think we have come a long way. we now have, since last june when new requirements first went into effect, we have rented 38

shallow water permits and the cases have been pretty steady recently. as -- now it is not reallyyy accurate to say there were no deep water permits that were issued because that suggests that industry was ready. in fact until february 17, there was no containment capability that existed for deepwater drilling. that is when the two containment groups, the helix group and the marine will containment company, which is composed of the majors, that is when they announced that they had the capacity ready and they were able to provide the containment resources in the event of a spill. so i think in industry agrees with me on this, that is the date from which to measure the issuance of deep water permits, and we were able within 11 days of that readiness announced by industry to issue the first deep water permit and then as you

know we issued another one just last week. and there will be more to come. so in terms of predictability, which i completely agree with you is so important, i think that with these first two deep water permits that have been approved and with my having said in secretary salazar having said that there are more to come we are providing the kind of predictability that industry craves and needs. >> mr. moran. >> thank you very much mr. chairman. i want to thank all the witnesses for their service. the chairman conducted a very good hearing a couple of weeks ago with the gao on the interior department, and gao identified interiors onshore and offshore oil and gas management as being on the highest risk list for fraud, waste and abuse.

i want to ask mr. gould first of all, in the gao testimony they said they collected, the interior collected lower levels of revenue. another which your organization collected lower levels of revenue for oil and gas production and all but 11 of 104 oil and gas resource owners, including states and other countries. do you agree with gao's assessment the u.s. government take of oil and gas revenue compared to other countries and can you give us a feel for the kind of revenue loss that the taxpayers are bearing, and can we rectify that? >> a very good question and actually we are working very closely with bom and bomer on the government issue and in fact be omn bomer have a study going on right now that we are part of i think when we get the results

of that study i think we will all be ready to do what we need to do to implement it. and tell that study is done i think we are in a position to know what type of revenue structure is the best. >> mr. gould, before you move it over to mr. bromberg, how long have you been working in the area of natural resources and revenue for the interior department? >> 429 years. >> for 29 years. and so we get a gao assessment that you are on the highest risk list for waste, fraud and abuse that the share of the taxpayers revenue from oil and gas is at the very bottom in terms of what other oil and gas resource owners are getting. and your response is that you are going to commission a study. and then look at the issue after 29 years of professional

experience in this, so it is fair then i think after 29 years to ask you, do you personally think that the taxpayers are getting their fair share of the revenue that is due them from these natural the snatcher resources that belong to them, their children and grandchildren? >> congressman, i respectfully -- i am a geologist and we are running right now and i'm in charge of the collection part of that process, and in terms of the collection part of that process we did agree with gao in 2008 when they said that the data we were getting needed to be cleaned up and we have done a lot since 2008, as i said. right now we have a sophisticated accounting detection system to make sure that we are collecting everything that is due, so in terms of the third part of gao's criticism about we are doing i feel we are doing a lot right

now and i feel the budget request we have in front of us is going to help us to ensure that we duke collect every dollar do. in terms of the fare receipt i think we need to let the study go through and get the information. i honestly don't have an opinion on whether or not we are getting a fair return. >> no opinion. you have been involved in the industry for 29 years. mr. simpson knows more about it than i do, but we formed some opinions pretty readily when we see some of the numbers, the states get half of the royalties. you wonder if they wouldn't feel shortchanged. i want to continue to focus on mr. gould and -- because mr. bromwich you were doing other things for the public interest while the stuff was going on. what is the situation with

regard to the royalty free deep water oil and gas leases in the gulf of mexico and i am sure you must have must have had some opinion on the discussion that has taken place from the floor and in press conferences and mr. markey certainly, he has aloud enough voice to reach your ears i think that the billions of dollars in revenue that is being foregone that should be going to the taxpayers because of what can only be described -- well, what has been described as a screw-up on the part of the professionals in this area when they put together the contract. we tried to delve into it. they say well, it was one person's responsibility. that person said it was their responsibility. the fact is that this is a situation where the contract

that was made when the oil was very cheap was supposed to yield appropriate revenues to the federal government when the price of oil went up the price of oil went up, and they tried to collect and kerr-mcgee said wait a minute, the staff messed up, and we are not legally obligated to pay this money, which amounts to billions of dollars and the court upheld them saying that the staff messed up. so, what happened? >> well actually. >> it is a serious issue. >> it is a serious issue and actually of january 31 of its 7.2 billion what we estimated to be a forgone royalties but it is important to note that the supreme court did not hear that case, did not accept that case and it was determined that the law itself actually prevents us or prevents bomer from putting a

price cap or a price limit on it, so right now, the way the law is written, it it is a certain volume has to go royalty-free and we have actually no control over that based on the supreme court ruling. >> so this is going to continue. and what would you say is the total cost to the federal taxpayer of this mess up? >> the estimates that we are getting working closely with director bromwich and his staff, we have estimates of 15.21 billion. >> $15.2 billion? that shouldn't be going to the taxpayers and reimbursement for the oil and gas they own but instead is going to enhance the profit margin of the oil and gas companies. i am not exaggerating here. that is the case. that is an expensive mistake. you would agree. >> i do want to make sure it is clear that it wasn't a mistake that we made in our office. >> who made the mistake?

i do want to belabor this except for the fact that we are talking about $15.2 billion in taxpayers money. we cut $1 billion out of headstart programs and we are cutting here and we are cutting there to save a million here and there and here it is $15.2 billion. we gave up and revenue. >> i truly understand your concern and again as a taxpayer i agree with you, but we don't have any legal mechanism to put any type of price caps on those. >> but didn't there used to be price caps when the price of oil went up and -- no? >> no, know, there was not. >> so how do we protect the government's interest in this oil and gas that they own? >> these are leasing questions and i'm sorry to say but i haven't --. >> alright, you earn your pay as it is. >> i'm not thoroughly familiar with these issues but hearing you describe it in hearing the

magnitude of the dollars, it is a serious problem and i will learn more about it and get back to you with more answers. >> okay. well, you know i don't really want to give up at this point, but okay. you need to get back to us. this isn't going to go away. >> absolutely, we understand. >> there is a provision that the when they put the law and effective but the law in effect under certain production levels the go royalty-free and that wa the only thing the law said.wwñó didn't provide any other mechanisms. [inaudible] >> the law does not allow it. >> the legislation doesn't permit it so the legislation would have to be change. >> well the congress put it in with the clear impression that this was low-priced oil now when it goes up higher, then we will

collect royalties but we want to keep the industry going because the price of oil was 20 or $30 a barrel and now that it is over 100 dollars a barrel everyone assumes that there -- and that the head of chevron says yeah we should be paying this but we are not. okay, i just have one last question. and mr. gould. 29 years. over the past five years, your audit and compliance program has collected 110 million from companies that are underreporting. gao told us in this excellent hearing that chairman simpson, and really you just take the numbers at the oil companies give you. so you can feel that with hal but that is what we are being told and they get on-time reporting because they need to know what the value of their inventory is, but you are less interested was the implication. so you would think though that

the federal government might invest in more careful auditing on the industry. at the irs for every dollar we spend on program integrity and other words going up to people who it looks like haven't paid their fair share, we collect $10. one to 10 is a pretty good ratio. do you know what the ratio is? in other words if we put more money into more careful auditing of the oil and gas industry would it be more revenue to the taxpayer? >> yes it does and actually our audit and compliance program historically is about one to four. >> so for every dollar you put in you get back about $4? >> for the compliance program, that is correct. >> okay, mr. chairman thank you. it is a good hearing. >> thank you mr. chairman. in wyoming's experience.auditing really does improve collections

for a period of time, and then it declines for obvious reasons. compliance improves and so the collection declines because of compliance has been ramped up, so we have that experience as well. a couple of questions. mr. bromwich, this goes back to the marine well containment and the helix containment devices that have now been approved. is the word approve correct? >> no and i'm glad you asked the question. we do the evaluation as to whether containment resources are sufficient in the context of individual applications that are submitted by operators. and the operator has discretion, which of these two containment groups to designate, or it doesn't have to designate either of these two groups.

so these are the best way to describe it, these are resource alternatives available to individual operators that they can then include in their individual applications for permits. they can designate one. they can designate another. they can designate both over if they have resources of their own they don't have to designate any, and so we have reviewed and reviewed the test results of the capping stats to devices that can actually be put on top of runaway wells and we are satisfied that those have the capabilities that we groups have said they would.7i7a7a at each assessment needs to be done in the context of an individual application which has its own water depth, its own pressure configuration and everything else. >> okay, great. that is informative. how many permits are ready and awaiting approval now that february 17 has passed, and the

containment devices -- i assume that they are included as part of the permit now. >> right. the individual operator designates the containment resources that they are designating is available to them that they have contracted for. that are available in the case of a blowout. >> okay. how many permits are in that, fit that description? they are ready and awaiting approval now that february 17 is here. >> we have granted two. we have a relatively small number of permits that are pending. my best estimate is that we will have additional permits that will be granted in the next few days. responsive to chairman simpson's comment about predictability what we are seeing now, now that we have granted the first to deep water permits, is more coming in so the number of pending permits now exceeds 10 for the first time since

deepwater horizon, and so i think that shows industry says okay, this agency is going to approve permits. containment capabilities are now available, so we are going to move forward. so the thing, looking around the corner of the thing that i am concerned about our lack of resources, is whether we have sufficient permitting personnel who are going to be available to process what i anticipate will be a surge in permit applications. we were obviously hopeful with the presidents $100 million supplemental request for fiscal year 2011 that kind of help would be on the way. you know better than i that through the series of cr's that help has not been forthcoming. so we are working on various alternatives to try to bridge that gap to make sure that we have the resources that we need, and one of the things that i

have done recently is reached out and tried to see whether we could get retired petroleum engineers from industry who would be willing to comment on a temporary basis to help our permitting personnel. they would be under the control of our people. no retired people from industry would have the final authority to approve permits, but they would be manpower that would help us do that. so that is just one alternative that we are considering but it is our effort to act and to think about these issues before a crisis hits and therefore a bottleneck develops, and so we are working on that. i've talked to top executives of some companies and asked them to reach into their ranks of retirees to see if we can get some help. >> i know that you are proposing a 4-dollar per acre fee on non-producing wells, so i have some questions about that.

for example, what does an industry pay on average for a lease add option? >> well, it can be millions or billions of dollars. i don't have a per acre figure for you. >> okay and those leases are usually 10 years? >> generally. >> and what is the annual rental on those leases? >> the annual rental i guess would depend. it is a sliding scale. just to be clear the rental and i'm sure you have noticed is only paid until production begins. and then a royalty rate is assessed. >> and the royalty rates art. >> i don't have the percentages in front of me. i can get back to you on that. >> when you issue a lease on -- do the royalties vary? and do they vary based on cyclic data? >> i'm not sure. >> i know in wyoming, we usually put them out at 16%. if nobody picks them up, then we

have an over-the-counter leasing process at a 12.5% royalty, but even that is subject to change, so i was just curious about a. >> i turned the tables on chairman gould about the royalty rates that we collect. [inaudible] >> well that is pretty generous, and in the private sector, leasing that is going on in the formation in wyoming, which is shale oil, royalties are running between 15 and 20%. the highest i have ever heard in the last few months is 20% and almost no one is getting back, but that is better than most people are getting onshore in wyoming on private land in the nye prayer of. of the leases still held, have the lessees continue to pay their annual rant even on lisa's awaiting permits to drill?

>> yes. >> okay. does your legislative proposal charge a 4-dollar per acre fee on non-producing wells include wells that have been waiting on you over the last year? >> i'm not sure. i think is one of the subjects of discussion and we certainly recognize that interruptions in the process that have been caused by the need for regulatory changes and the subsequent slowdown in the permitting process should be recognized in this process, so i think those issues are in the process of being worked through. >> okay, very good. regarding civil penalties, if i understand it the bureau levees a civil penalty of 35,000 per day per incident. >> that's right. >> now. >> which i think is terribly inadequate. >> you might be right but i'm curious i am curious to know what criteria were leveringó civil penalties, what the criteria should be. under what circumstances are

civil penalties levied? >> there is a complicated system frankly, is a two at cadiz system within the agency for referring violations for consideration of civil penalties and in a decision on civil penalties. one of the things we are doing in response to the various reviews and reports on us is to look at this whole structure of civil fine referrals and civil fine assessments. my own impression, my own view is that it is terribly inefficient and it is quite inadequate. so we have one of our implementation teams that was formed in response originally to the secretary of safety oversight report looking at exact way that issue. that that is, enforcement issues and civil fine issues. so my view that $35,000 ceiling is inadequate is based on my intuitive sense that when we have serious violations bork am

panisse that are making large revenues, that $35,000 at its peak is completely inadequate to deter violations. completely inadequate to deter serious violations. >> and, are the subject to rulemaking, the criteria under which a civil penalty is issued? >> yes they are subject or rulemaking that the ceiling although we can make cost-of-living adjustments within narrow limits, a broader raising of the ceiling requires legislation. >> okay. what additional congressional authority would be required? >> i think legislation specifically raising the fine ceiling. >> alright. and you have an up to criteria in your rules right now? >> we have criteria right now. again those are subject to review and my own view is that

will probably substantially change over the next several months. >> do you have the right number in mind in terms of the per day per incident penalty? >> i don't. >> when i was on natural resources, you came in when you were new and we talked about your background and it was sort of if i recall forensic. don't you have kind of a forensic background? >> i have dabbled in forensic science but only as someone running investigations. i never did forensic science. my background is mr. moran noted has been in law enforcement. >> very good. my time is probably up, isn't it mr. chair? very good. thank you. >> i want to thank you very much. thanks are being here and thanks for everything you do and i also want to tank the one applaud you basically for something that was very important that you did last year of course the deepwater horizon management and how that's bill last year was taking

care of and how you managed it and how you did all the necessary work. it was an exemplary set of circumstances and we applaud you and thank you very much for what you have done. a lot of progress has been made, but there are a lot of things that really need to be done, complex of interest, that plague the former minerals management service. all of these things that really need to be taking care of. just out of curiosity come in the context of what mr. moran said a moment ago, he was asking something and he said you couldn't do it because it was a restriction in the rules. would you be kind enough to, not now, i'm not asking you to do it now but would you provide me with a play on that restriction, the details, how that is set up, when it got set up in what the restrictions are that you had to deal with? i think this is something that we should really be looking into and trying to address.

>> mr. chairman for the record record --. >> yes, we will provide you with a detailed summary. thank you. thanks very much. i appreciate it. mr. bromwich i wanted to ask you a specific question. as the price of oil continues to increase, we are once again hearing the call for more drilling on public lands and in public water. yet, before we go down that road it is important for us to understand just what is being done and how much his been allocated for them and what is being done on the land that they have in their control. oil and gas companies if i understand it currently holds 80 million acres under lease. yet the industry is only producing on 12 million, 12 million of the 80 million of those acres. for offshore specifically, there are a total of 38 billion acres under lease but the industry is producing on only 6.5 million of

the 38 million acres. that means that less than 25% of the acres leased on federal lands and water are actually being used, actually producing. of the rest are just staying aside and apparently it has been set aside for some time. before we rush to open up new tracks for oil and gas exploration and criticized the pace at which the department is issuing new deepwater drilling bases, i think that has been put out, that criticism has been put out which frankly doesn't make any sense. i think we need to make sure companies are taking advantage of the permits that they already have. so your budget proposes a 4-dollar per acre fee on non-producing oil and gas leases to incentivize current lease holders utilizing existing permits. however, that is going to require legislation here and it is very questionable as to whether or not this operation here is going to be willing to

do it. we will see. we will see how that goes. but in the meantime, what else can your department be doing to make sure these companies actually develop the leases that they have? >> well, as you probably know the president addressed this in his press conference last friday and he directed did department of interior to report back to him within two weeks on the potential policy alternatives that might he available to further incentivize industries to develop the lands that are already under lease. so, at the interior department we are as fully at work trying to put together that report that will be delivered to the president. we are exploring a wide range of options. we expect that report world be delivered on time at the end of next week. >> what do you think so far? >> i think that there are a righty of techniques that we might use. we have already try to work with developing incentives through the lease process.

for example the notion of shorter leases, so there is not a larger risk that companies will not work aggressively to develop the properties under lease and have a shorter. matter of time as an incentive for them to do it faster. another possibility that we have talked about and experimented with is changing the royalty rate, and charging a lower rate if the property is developed very quickly. so that they pay a rental rate for a shorter period and the royalty rate starts kicking in sooner because the development is sooner and to try to incentivize that you could reduce the royalty rate in the first couple of years in development. so those are examples. >> i wonder about that but the $4 is not a very high rate. >> no it is not. >> i think reducing that is not going to be an incentive for them to do anything positive. i think there were other ways of doing that. >> there is no alternative that is beyond consideration and we are trying to look at the full

menu of alternatives that are out there. >> what might go under the alternative might be the reduction because it is a very low price and one of the things we are seeing of course is a very high success of the drillers in terms of the economic circumstances. so this is something that we need to be paying a lot of attention to. these are materials that are owned by the people of this country. they are owned by the general public and the general public is not really getting any advantage of the drilling process. in fact they own it. somebody else comes in and drills that, takes it up and then spends it for them. you know, so there is something that really needs to be done here that is going to be much more effective on behalf of the general public of this country. not just for the royal companies but for the people here who are now spending so much of their income on the price of gasoline.

i appreciate that and i'm looking forward to that and i'm hoping we get a copy of what do you send to the president as well. we are asking you for the same thing. we are asking you to provide for us the routine that you think and the circumstances that you understand in the context of the examination you are engaged in now and if you would be kind enough to provide us with that information that you have come up with as a result of the investigation that you are engaged in, we would deeply appreciate at. >> very good. >> when do you think we will get at? >> i think you will get it soon after the president gets it is my guess. i don't usually say this but that is a decision about my pay grade. >> it is not really but you have an obligation to the president and you have an obligation to the congress. >> it is not my report. >> they can clear a departmentwide. that is -- the department here

has asked for this and we would like to get it as soon as they have the information that they have been able to put together. >> i will definitely pass that along. >> thanks very much. >> you are welcome. >> just out of curiosity does every acre that is under lease contain resources or are some of them actually dry? >> some of them are dry. some of them are dry. >> that is shocking. ms. lummis did you have a question quest vi do. thank you mr. chairman. there is information -- i don't understand this discrepancy and i just want to ask if you can account for it. doj filed in federal court in louisiana they claim that you have 270 shallow permits pending and 52 deep water permits pending, and this information as i understand is current as of

why there's that difference? the information included in the designated permits. the focusing on those permits sequence as the judge directed would divert our permitting personnel from other the 270 number was designed work that permitting

are already granted so included adjustments or it was extraordinarily misleading because the numbers that members of congress and applications. wanted to start talking about applications to modify we granted thousands of those,7'7'' thousands.7'7'7' but some of them can be for relatively minor things, and so% we thought it was inappropriate and misleading to cite those-" numbers because those are not numbers that mr. chairman you and your colleagues have blood and rightly so. and rightly so. when it is not a discrepancy at all and

category they are, that would been the appropriate way to handle this rather than too blasted out and suggest that people are not being candid about numbers. >> okay and so you did explain the 270 shallow permits because because -- but what about the 52 deep waters that this press mentioned? >> the same thing. >> so they are just request to alter existing permits? >> the 52, i don't have the me. do you? >> i do. it just says because there are actually 270 shallow water permit applications pending in 52 deep water permits. >> it is the same principle. they are dings like applications to modify as opposed to applications for a new well or are the meaningful substantive her agency does, and that takes so much time.

>> okay, so it is around 10 when you look at brand-new permits to drill? >> that are pending. >> that are pending, okay. >> does that help? >> it does. it clears it up. mr. chairman do i have time for one more question? thank you. i want to ask a question about how that differs from the inspector general and i know you are requesting 5.8 million and 20 full-time equivalents for the irq so i am trying to understand what they ivan ru will do that >> a very good question. as you know and as the chairman knows there has been a history of allegations of corruption and misconduct within the agency as well as mismanagement of certain experience and i have a lot of experience in a lot of

different organizations, in order to have a healthy organization you need to have the ability to handle certain kinds of allegations and general of interior and the inspector general of any department doesn't have adequate resources to do all of that. when i was at the justice department and i was the inspector general all of the different components, prisons and immigration, all had their own internal affairs units. and so the inspector general would get allegations and those that he didn't have the resources or for some of other reason did want to handle would be flipped back to internal affairs. that is exactly the principle we are talking about here. to create an internal affairs type capability which will also have the ability to do aggressive enforcement actions that are violating our rules and have been cited for violation of our rules. so we work in close coordination with the ig. we do not go out on our own without checking with the ig. the ig welcomes my creating this

entity. and i think it is serving the intended function already. >> and i'm not going to disagree with that at all, because you know i know to former two former mms director said us for ig investigations, when ethical lapses at mms arose, and it took three years to complete. to address. >> okay, great. now would iru have the authority to hault production on a well based on allegations if it was an investigation for a specific episode of misconduct? >> the iru would have no authority to stop production, no. >> one more question mr. chairman? you are so kind. on to state partnerships for audit programs. that program relies on states to

to -- on an estimated 3.3 billion in royalty payments. i know the state of wyoming has been doing that for years with federal mineral or royalties and the stay. i know you have agreements with 10 states and h. tribe's. generally speaking, when i was in state government in wyoming i felt like the states were doing a really good job, specially the state of wyoming on some of these compliance audits. and my question about this is, since we have got such tight budgets and we are not going to be able to fund everything here at the federal level that is being requested, do you think it would make sense to rely on states with which you have, currently have agreements, to collect revenue as well? obviously states like wyoming are collecting a tremendous amount of state royalty ad valorem royalty severance tax royalty based on a lot of the same production from the same

companies on the same formulas, and it might be a cost-saving mission. >> actually, the partnership we have with the state is something we are working on in our strategic review and actually we are including the state auditors with all of our reviews we are doing within our program right now in the creation of our new office so we have an excellent relationship with your auditors and something that i think is a win for both sides. we have the federal system and we have all these computer systems in in place that can handle all of the revenue coming in and it is a situation where the revenue comes in and goes into the treasury and is disbursed. so i don't see that there is any efficiencies gained by turning that part of it over to the state but i do see in the partnerships that we have had a lot of efficiencies used by the state auditor's. >> a final question i think i know the answer to this.

i hope i do. did interior finally get tribal royalties on the same mineral valuation formula as non-tribal royalties? >> actually right now we are looking at all of our evaluation regulations and we actually are just starting the process on valuation for indian gas -- i mean oil. >> so they are not on the same formula? >> we are working that right now. >> oh my gosh i can't believe it's taken this long. one of the reasons they are not the same is as the lease terms are different. we did revise the indian gas valuation regulations in 2000 we are still continuing to work on revising the indian oil valuation regulations and we are convening an indian negotiated rulemaking in order to revise that. >> and the navajo and verizon are they pretty deeply involved? >> they seem pretty sophisticated on that.

>> we are working very closely on that particular issue. >> thank you, mr. chairman thank you for your patience. >> thanks mr. chairman. when you provide that information to the president and a copy of it to us, would you kindly include the number of acres that are not likely or that you know do not have any value in them? as you said, there are some. >> there are some. we will do our best to collect that data. is obviously relevant data. i don't know whether we currently have access to it that i will make sure that is focused on. >> whatever extent you know. that just don't have any oil in them, but is no what percentage that would be. that would be interesting. >> okay.

>> i just wanted to ask another question mr. bromwich. it is about the drilling in the arctic and as i understand it shall recently announced that it would not be drilling in gulfport. and they would be drilling fair this summer anyway but they will be planning on drilling there sometimes perhaps next year. the plans that they have include up to three wells as i understand it and chukchi sea is a pretty . the operation there is concerning because of the whole set of circumstances that they are going to have to deal with and the experience that we have seen from other activities up there. so there has been a number of tragedies. we saw and the gulf last year and more recently with an icelandic oil tanker that ran aground i think off of norway,

off the coast sometime just recently, last month. so, despite the bad things that have been going on up there in the context of those circumstances shell intends to rely on spill response plans that were written before the bp oil spill and the norway spill for the arctic operation. and that seems a little ridiculous, looking at operations that they planned to take to be prevented but based upon not the most recent things that took place which were much more tragic and much more damaging and dangerous, and i think they should be at least upgraded in the context of what they are is an set of are. in addition to all we have learned since those two incidents, shell's spill response plans for the arctic are seemingly inadequate and in some cases not at all based on the real set of circumstances that they are going to have to

deal with. shell's plans assume it will remove upwards of 90% of an oil spill and the open water, and in practice any time. offshore mechanical containment and recovery rates for the deepwater horizon speed were 3%, and somewhere between eight and 9% for the exxon valdez spill. shell's plan even fails to consider a potential uncontrolled blowout under their worst-case scenario despite what happened in the gulf and there are many more examples like these. so i am just hoping that, given this information and all we have learned, we should even, whether or not we should even allow shell drilling in the arctic on the basis of the set of circumstances but at the very least, shouldn't should the company be required to develop a new oil spill response and be prepared to deal with this in a much more reasonable, much more

effective than rational way? >> thanks for asking the question. the arctic is obviously one of the most significant set of issues that we have to deal with it is a frontier area as people describe it and it contains various kinds of challenges because of the temperatures, because of the ice, because of the relative absence of infrastructure, because coast guard is not right there. they are unique. we were working with shell to understand the plan that they had submitted for 2011 for just the beaufort and at that time the proposal was just to drill one exploratory well and before we were too far down the road in doing that evaluation and assessment, they have provided quite a bit of additional spill response related information to us. because of problems with getting an epa permit, they change their plans and announced that they would not need looking to move forward in 2011.

we have this later the same things that you have about their intentions to move forward in 2012. i think they are going to have to obviously satisfy us at all elements of their plan and their individual permit applications are adequate, including with respect to containing a subsea blowout and dealing with other spill response issues. now as i said the application for 2011 is now off the table was just for the beaufort. if in fact they go forward with plans for the chukchi, that is obviously another set of issues for us to address. to anticipate that and to help us with that we are doing a supplement and environmental impact statement in the chukchi that goes beyond what the court had directed us to do, precisely to look at spill response related issues in the wake of deepwater horizon. so we agree with you that there are lots of important and significant issues that need to be addressed and that we will

address if we get exploration plans filed as shell says they will be, and applications to drill a long with those plans. we will not rubberstamp them. we will give them close scrutiny and we will look at every aspect of their proposals. >> thank you very much and i deeply appreciate what you have just said in the way you are looking into this and i think it is very appropriate and just exactly what needs to be done so thank you very much. >> you are welcome. >> these are shallow water permits, right? >> i think they are all shallow water. i know the ones in beaufort where. i don't know exactly what show is going to propose in the chukchi but as you know there's not a lot of deep water and beaufort are chukchi so i assume they are shallow water. >> so far show has done everything to have been asked of them as for the epa in their review panel? >> shell has done everything we have asked of them, have been very cooperative with us in supplying the information that we have requested. i have had no complaints or

criticisms about shell. >> just out of curiosity, sometimes to find out whether an anchor has, the lease has oil in it or not you actually have to drill? so it will would be kind of hard to say how many acres -- why would you least something if you knew there was an oil down there or something? the numbers i have is the probably one out of 4 acres that are least probably show no resources there? >> i've been told as recently as yesterday that if the company best one out of three they are doing well. >> i appreciated. i appreciate all you have done. we look forward to working with you to make sure that bomer and boem and bessie and onrr. i will get used to those eventually, that they come into existence do the job that all of us want them to do and we look forward to working with you on this years budget. >> thank you very much for your support mr. chairman. i appreciate it.

>> thank you. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

>> house oversight committee held a hearing looking into the

impact of full body scans at airports. over the next three hours you will hear from people who have gone through the process, radiation experts and tsa representatives who are questioned about the effectiveness of the program. we began as alaska state representative sharon says that begins her testimony onrr recent experience. >> chairman chaffetz and rankinn member tierney, i am -- and fellow members of the subcommittee, i wanted to first of all introduce myself, and by my name is sharon cessna and yen i am a state representative,re statehouse, and have been with the legislature now seven termso

i am in my seventh and represent district 22, which is in fact the district in the state that has the universities and medical systems that actually serve the whole state, so my focus really is health and education. those are the two focuses i have i have another thing that actually brings me here, and that is that i fit a profile of the people that are harmed by the president -- the tsa and that his initials that i haven't actually used very often before, but suddenly found myselfou actually starting in november of this last year in a situation where, like so many other

alaskans, i went down for a second opinion to seattle andtt got that medical procedure done. went out to the airport, not having a clue that there had been any changes in the screening devices, and seatac had just put it in. this was in early november, and because in fact i am what i like to consider a veteran of rest cancer, i fit that profile data and simply is to have the full, very invasive hand search. and this is not something that t have talked to many people aboun that i'm going to talk to youw now about it because i think it is really important.t an and i think this actually, asse

i've i have listened to your conversations, bring something that we really don't oftentimes look at when we are talking about the total world of our country. we look at the economy and we look at statistics and we look at that kind of thing but oftentimes we don't look at the individual lives of the people that we are serving, and what actually is affecting them and how. it is oftentimes in the research that we see, and we see thisci especially in alaska because they don't have enough numbers toe really make it work, and tht is the research that shows what kind of harm is really being done when?e go if you have very few numbers itt doesn't fit into research and yet, people are being harmed.

in my case, it was because of a teenager i experienced bad touch. and have spent my adult life hae working on making sure that a fault doesn't happen to the kids that i have come into contact with, which in having worked in the mental health field for a number of years starting in actually 1962, which of course is that i am not new at all of this, braley has been somethinge that is a lot larger than we ever talk about or think about or even test. i am fairly sure of that. so, when in fact i went through the screeningh device, i was in front of the woman who tried to tell me that i simultaneously was going to go through the new

hand pat. o i can sit or a feeling up up ane i'm sorry but i'm going to refer to it that way.a please accept that. i went through this, and that is the way i feel about it.h she was also telling me very rudely as a matter of fact, that i had two simultaneous whateverb she was going to do to me and she wasn't really explaining that because i think she was trying to remember.tryi she had just been trained. she was learning. it showed. but simultaneously i was supposed to be watching my baggage and at that point i look over at my baggage and other people's bags are now piling on mine, and someone is going through my bag, trying to figure out i am sure that if it wasin fairs.fa i start moving towards it and she yanks me back and very rudely tells me, stand still.t keep your eye on youre bags.et

yet i am supposed to now stand and put my hands in certain ways to have her feeling me up. and it was very intensive. all right. that happened. for several weeks after that, and i would love to know if there were someone ia could goul for the time i lost, because of my emotional state, that actually was i think theh emotional state that happened after that was very similar to what happens with probably anyone who has been through and of salt, and i even wonder if in fact, in my running way past the time here? i am sorry. >> we would like to ask unanimous consent to allow herk to continue with this testimonyn for another two minutes. m without objection, please. >> thank you. what happens is that i went through two weeks of verywh disrupted time over the response to that.

alright, moving forward again very quickly