the individual and certainly the aggregate which helps to contribute so mightily to our financial stress are looked after. so the consumer protection -- the consumer financial bureau implementation team is off to i think a very strong start making sure they put together a set of rules coming efficient but nonetheless clear consumers can use to make sure they understand the implications of the judgments and make sure the rules are adhered to across the financial system among the banks and also among the the non-bank parts of the financial system which has heretofore not been something that the federal government has had the authority to focus on. for the consumer protection with a very profound problem getting to the crisis we had the community bank yesterday a

number of community banks on the advisory committee that our mortgage originators and in the years leading up to the crisis it is continued they lost significant market share to the unregulated third party mortgage originators that had nothing, not much in the way of consumer protection requirements, so they are i think these are good lenders and people who want to do the right thing for the customer and they are gaining market share again in this area. but, you know, as we get further and further from the crisis a lot of us could start up again and i think we do need an agency to provide a good strong comments across the board. i think you will be good for consumers and will also be good for the more heavily regulated sectors and the good players in the industry trying to do the right thing. that said, i think it's important for there to be the market approach to the consumer regulation and the focus is i think the current leadership indicated on have a simpler disclosure, better information to make their own decisions. that's really what we need and i think there will be very

important value added for the consumer agency. >> senator brown. >> i have questions for the panel concerning, but i want to say a couple of things first, before any institution, and the institution subject to examination and rules for capital risk it must be designated and the council will soon be missing five full-time members and by sorry our colleagues are not here to hear this because i want to speak pretty bluntly about this the five that had to the fdic, the fha and the insurance representatives will undoubtedly make it harder to designate new companies of systemically important. we need strong nominees who will not be afraid to take a bold steps to prevent a new financial crisis, but if qualified nominees for these important positions are blocked it will increase the likelihood we have another aig or lehman brothers and i urge everyone to remember what happened to the financial system of the economy three

years ago and it's a serious business and shouldn't be so politicized the to block the nominee for nominee after nominee. and the panel agrees with that and i'm sorry my colleagues are not here to at least discuss this and think clearly through what actually can happen. my question for deputy secretary wolin u.s about the financial crisis in large part necessitated by the shadow banking complex initiated by the wall street firms that typically sell outside of the scope of regulation, the designation of the systemically important financial institutions as opposed to address this problem. i want to agree with senator toomey's comments and questions to each of you the council proposed rule seems like reflection, not an aberration or a road map of what is systemically important. it's not clear to me, and i guess from the answers to his questions from you at what point

a large hedge fund because systemically important it's impossible to the regulated mean streak property-casualty insurers would be systemically important and my question mr. secretaries if you believe the mutual companies engaging in personal alliance of insurance, do you think they pose a threat to the financial stability of the economy should they be categorized as systemically important? >> thank you for that question. we are and it's a process that we are going to provide further elaboration. i think it is again premature for me to make judgments about who is in and who is out. it is a specific kind of consideration as the chairman shapiro mentioned, and i think we've done, the statute obviously lays out the factors that are relevant. the council will put out an additional guidance and clarification about how we think

it out those various factors and i think the firms in the first instance will make a judgment about whether they think they are of sufficient size and interconnectedness' and so forth and until the process reaches a level of maturity until the members of the council have an opportunity to have conversations about how to think about those criteria i am not in the position to rule any particular firm in or out. but i think firms can make judgments based on whether they have those kind of attributes or not based on the additional guidance that we give, and we will be getting affirms an opportunity to be heard on these questions. that's in the statute we have laid out in our own rulemakings what process will be even before there's a proposal for the designation they will have an opportunity to come to the fsob and the out with a thing about the application of the factors to their particular circumstance. so there will be a long process

in which the individual firms have a very substantial opportunity to be heard and their views to be considered before any designations are made. >> thank you. mr. chairman, i just want to say to chairman bair, thank you for your service the last half decade. you've served your country well and have been helpful to so many of us. thank you. >> senator benet. >> thank you, mr. chairman and very much for holding this hearing. thank you to all of you for what you try to do to implement. this bill so that we don't have the kind of systemic risk we face come to the front end of the crisis and i think the oversight of this committee is important and it's in that spirit i want to ask secretary speed and bernanke whether or not in your analysis of what we are facing in the economy right now there's anything the would create more systemic risk to our economy than the united states

congress failing to raise the debt ceiling in the united states. >> senator, if i might, i think it is absolutely unthinkable that we would not raise the debt ceiling in order to make good on obligations that congress and presidents in the past have made. secretary geithner has spoken many times publicly about the wide range of catastrophic implications to failing to raise the debt limit as necessary with respect to first of all those in this great national asset that we have and the full faith and credit of the united states has been considered sacred to the real implications with respect to funding and interest rates that will affect not just the u.s. government i ron ackley which has its own set of fiscal the implications, but also individual -- >> let me stop you there. has its own to the fiscal implications in the sense that it would actually make our

fiscal condition worse rather than better? >> it would require us to spend more money to finance the deficit that's already built up on the interest rates go up and if your funding rates go up, so i think -- >> i interrupted you but where you're headed is the implications for by people living in places like colorado? >> every american whether they are borrowing a house or buy a car or pagen off their credit card bills will have to experience higher interest rates which will have real effects on their pocketbooks but i think more broadly the effects on welfare and so forth of people's balances and their mutual fund accounts would be put in jeopardy in ways that are unthinkable, so the implications are enormous and is something that we think of as an enormous risk. we have city and we believe as has been the case in the past congress will increase the debt limit but it is also would like critical that that would happen,

and that we would work for the broad set of the fiscal issues which are enormously important and once the president has been very clear need to be addressed but the we not hold the debt limit as hostage to those critically important discussions. >> mr. chairman? >> senator, first, let me say that this is in the context of the broad discussion of fiscal stability and fiscal discipline, and i fully support all the efforts of the congress and i know they are very difficult challenges to bring the long term fiscal situation into something closer to balance, so and no way do i disagree with those objectives. that being said using the debt limit as a bargaining chip is quite risky. we don't know exactly what would happen if the debt limit was not approved. there are certainly significant operational problems, legal problems associated with making sure that debt is paid even if

the debt is paid, there's the issue of market confidence and how the market will respond to the risk of default or the fault on the non-debt obligations, so i think it is a risky approach not to raise the debt limit in a reasonable time. in the cost at minimum would be an increase in interest rates which would worsen the deficit and would hurt all of the bar was in the economy including mortgage borrowers and the like. the worst outcome would be one in which the financial system was again destabilized azzaoui salles following lehman brothers for example, which of course would have extremely dire consequences for the u.s. economy. >> i share your concern about the fiscal conditions as well, and i believe we are going to be

able to have a constructive conversation about it. one of thing i would like to say or ask you, secretary wolin in particular is the longer this goes on the debt ceiling, isn't there a risk that the markets will react even before the august date that secretary geithner has given to get this done or is there a risk? >> we haven't seen it today to but there isn't at risk if we get too close and the markets don't see a credible way through. >> thank you, mr. chairman. >> senator reid. >> thank you mr. chairman and ladies and gentlemen. chairman bair, let me join my colleagues in thinking you for your extraordinary service and i wish you well room. your testimony reflects on one of the most pressing economic problems we have in the country and that is the housing crisis. we've taken extraordinary measures to assist the financial sector. we have taken very few effective

measures to assist homeowners, 28% of homeowners in the united states are under water today. that is probably the biggest and my view drag on economic recovery that we face. yet the most recent attempt by the regulators to provide some clarity in my view is woefully inadequate. i wonder if you might comment on that and what we have to do to be as fair to homeowners as we have to the financial industry. >> i do think the regulatory orders are just one step and the examination focused on the issues didn't really get into broad issues of whether the loan modification is evaluated and approved or denied. we have done some of our broad analysis of banks to service loans under the last year's agreement and have found not insignificant rights making the

error rates and determination's but whether the borrower should qualify for the mortgage, so we think in the next phase to be looked the third party that the orders require a very important davie 100% of consumer complaints and 100% of modification denials because not insignificant numbers of the calculations based on the sample we've done with our last share requires. i think more broadly, we need to be thinking about simplifying the service process, modification process as well as the relocation process cost to the critical some borrowers are not going to make it. we've also been exploring ways to provide a relocation system there's an incentive where there is not the possibility of the loan modification for the bar were because they simply don't have the income to make the restructuring. we think will save money because it is so backed up now and one

of the reasons the housing is in clearing and can't recover until it clears. so the short sales and relocation assistance can shorten the time that it takes to get the back of the market and can mitigate losses which we see in our financial interest, so yes, they're needs to be much more aggressive action in terms of looking back for the borrowers that have been harmed for the streamlined process is and the major borrowers are appropriately dealt with and less litigation and restriction efforts occurred where they should. so that is a positive, but there's a lot more work to be done and dvorkin isn't going to clear until we get this fixed. >> what you said i have to agree has been said repeatedly the last two years and all of you collectively as regulators have had a chance to make these things happen. and essentially what you chose

to do is just kick the can down the road a bit further, let the banks appoint an independent evaluator to go in and look again. can i ask what is the definition of independence? would this be someone who's never done any business before? is this a division of a company that has big contracts and all these banks and will be independent in the sense that the rating agencies are independent? >> we are not the primary regulator of any servicer, so their representatives and the primary regulators might want to respond to that. we've is servicer who had a problem to tell the bank the servicer for them needed to take some significant remedial steps, and so i think our view on that is the third party does need to be independent and their needs to be some validation process on independently by the regulators.

>> for your participation there is no definition of independence >> as far as again i would defer to mr. bernanke and wolin if they want to share thoughts on that because they are the primary regulator of the servicers. but i agree with you there are a lot of professional banking consultants that may be independent in the sense that they don't work for the bank but they may have other business with them or future business they would like to do with them so this is a huge issue and their needs to be some validation process. >> let me ask another question and the days you indicated that the loan modification process was explicitly excluded from this review, is that correct? >> this review is focused on the mortgage document processing. >> again, two years of struggling through this multiple times we have attempted to fix it. the problem is the foreclosure modification together, not one or the other come and this to me

is a way of defining the problem , and frankly it's very disappointing. my time is expired and if there's an opportunity again i will raise this with the primary deily but one of the reasons i raise the review is i think that you have been very forthright and the fdic going back to 2007 has been effective with the other agencies have been more apologetic in. >> senator schumer. >> thank you, mr. chairman. first, chairman bernanke, have a couple of statements that were recently made by the speaker of the house, john boehner, and i would like to ask about them. the first is he said, quote, we are calling for the end to the government spending binge that is crowding out private investment and threatening the availability of the capitol needed for job creation. now several economists reach you did the notion that given particularly now with our current slack in the economy and

corporate america having lots of money and still being reluctant to invest for other reasons, so they disputed the notion that we are crowding out private investment with government spending. do you agree with speaker's statement that the government spending is at this time crowding out private investment? >> there is a lot of crowding out as you pointed out interest rates are quite low. there is a lot of excess resources available for the firm's that need to for civil high your additional workers obviously. that being said of course if we don't address the fiscal trajectory that we are on we are going to be facing increasingly severe crowding out problems and perhaps financial stability problems in the future. >> but it's not occurring now? >> not to a substantial extent. i do think that if we had a

long-term plan to produce our long term fiscal deficits it might help to lower interest rates and increased confidence today, but under the conventional definition of crowding out the credit markets and labor markets we are not seeing too much. >> second statement is the inverse of fact. speaker boehner said the recent stimulus spending binge hurt our economy and hampered private sector job creation in america. cbo own analysis seems to contradict the statement. do you agree with speaker boehner's statement that the stimulus spending hurt the economy and hampered private sector job creation in america? >> i would distinguish between the short run and the long run -- >> we are talking about the stimulus. >> we have a long run problem to the extent that we are pushing our debt situation further and further into the red. we are taking greater risks. that being said, i have cited

the cbo analysis in the past as being a reasonable analysis. >> do you disagree with speaker boehner's view that the stimulus we passed last year hurt our economy and particularly hampered private job creation? >> my best guess is the stimulus increased employment. >> thank you. i'm glad you disagree. [laughter] >> next question, this is also for you, this isn't the same type of question. [laughter] the fed along with overprint regulators and the cftc issued proposed rules relating to when the counterparties and the derivative transactions are required to post margin that is put up cash as a security for their obligation as you know i've spoken to you about this shortly after the rules were announced and several members of the new york delegation sent you a letter on this.

i'm concerned with the part of the proposal we all wore on the new york delegation that would apply only to the u.s. firms and would result in them facing competitive disadvantages, ivies of the international competitors here's the basic issue as reported last week in the financial times. if the chairman, in the sector were to do in interest-rate swap with the u.s. banks london norms it would have to cough up margin but if the german car maker did a slot in the british bank it wouldn't have to. that is the financial times summation of this. do you agree this might cause u.s. firms to be at a competitive disadvantage? >> yes, i do agree. in the transactions with u.s. customers both foreign and domestic banks have the same rules. transactions with foreign customers we have put out margin and capital rules which have a good purpose which is increasing the safety of our financial system.

currently, under the basel agreement capital rules will probably be in effect, similar capital rules will be in effect for foreign banks but at this point they have not yet done the margin. >> that leads to my last chairman with the indulgence >> what is the treasury doing, secretary wolin, to ensure that the european regulators about the same or very similar rules and would we go forward and enact the rules before they did if it could our firms, our u.s. firms at a disadvantage? because obviously i'd like to see american institutions to as much foreign business as possible it creates jobs in new york. >> we are working very hard with the europeans in brussels and also individual european capitals to make sure we have as much as possible level playing field. we are making good progress on that but we have to stay vigilant. on the question of whether we

would put forth rules i would defer to the chairman and the market regulators as to how they would move forward, but i think is of course important as we said repeatedly to have essentially level playing field so as not to disadvantage u.s. businesses. >> i assume you are urging the regulators to do just that right here. thank you, mr. chairman. >> senator merkley? >> thank you very much, mr. chair, and you all for your testimony. i was just downstairs in the gathering of the health committee in a hearing and was rustling with the impact on the middle class of the last three years and essentially the hollowing out of the middle class in america, and i think there is a chart that captures much of the concern as it tries to show how middle class wages

rose with productivity of the country over the 30 years following world war ii. but starting in roughly 1925, 1974 for the next 30 years enormous divergence of which middle class working wages, inflation adjusted and we had a tremendous increase in the productivity of the country, but families, working families did not share in that and raises the question of what kind of country do we want? do we want a country where families participate in the wealth of this nation where they are able to send their children to college and plan for their retirement or own a home, department ownership society or one in which essentially fewer families are in the position to access those fundamental instrument related to the quality-of-life. and it's discouraging to see that half over this last 30

years. in some ways, many of the issues we dealt with in dodd-frank are related, and we have seen basically the doubling of the national debt under the bush administration and then a tripling of the debt as a result of the house of cards the was built in the mortgage deregulation by the bush administration. and now we are seeing their recommendations from the house that say okay let's dismantle what's left of the programs to provide support for families as a consequence of the debt even though the debt was created by strategies that were not designed to support the no class to begin with. the entire picture troubles me. ..

but it certainly -- we invaded to the performance of the financial system as it affects families. anticipate the anticipated addition of a foreclosure is 5 million from the provides and the impact on construction and just straight affects almost every aspect of my state economy how do you hobbies and topics that have been wrestled with in the financial stability oversight council? should they be opened up?

does anybody care to comment? >> senator, first you talk about a number of broad macro issues in a cute do justice to them, but i note the federal reserve and its pulitzer is trying to address unemployment, which is a major source of foreclosures as well as mortgage interest rates another fact is a fact in foreclosure crisis. we are addressing a do not respect. attempting to address for closure crisis directly, you know, there's an effort and so far only modest success. it's proving very difficult to find solutions in many cases. in other cases, the process has not, you know, not the inadequate in the cases of banks of the party discussed here a

bit to recent review of servicing part says. the federal reserve and the occ with this worth the fdic received as part of cents. issued cease-and-desist orders to try to stop that practices and try to require banks to go back and discover who was harmed in to help offset those problems where possible. going forward we expect to assess civil money penalties as well. but you are right that this remains a very, very difficult problem and some level, regulation of the problem, but some of us in academic problem and that needs to be addressed in terms of global and national employment and economic conditions. >> anyone else care to comment on this? >> well, i thought i'd see the financial stability oversight council has not talked about

some of these matters about the rising commodity prices as a council and at staff levels. i think the train for atkins a number of features that helps market regulators like the cftc for writer for the american public your weird high-priced veteran that is not what the congress were american public has asked it to be. but the train for i.t. this broader authority see the whole derivatives market swap stronger anti-manipulation of rudy, in our case, more summer to the fcc's, to actually ring in some of the foreign ports of trees and foreign exchanges and also to move forward with what i think congress said with regard to limiting some of the size of the speculators positions in these marketplaces. so prepare proposals on all of these matters consistently with congressional intent and we look were to public comment trying to finalize the rules.

>> senator chester. >> thank you jimmie johnson. once talk about debit interchange. of course mr. bernanke, we are hearing february. we talked about the serious risk that the durbin amendment would have on small community banks and credit unions because of the lack of ability to enforce the 10 billion under exemption. you've got more information since then. do you still deal with the information you've got that an exemption can work? >> to be honest with you, we write gnostic. we're still not sure whether it will work. a number of the networks have expressed their interest willingness to maintain a tiered interchange fee system. but of course that is not

required. there is no law which says we have to do that. the suggestion we got was that we should ask for even require networks to make public to put the interchange fees were they recharging. the e. some value in terms of transparency. there are market forces that would work against. >> you've been in the business for a long time and you're very intelligent guy. i know in the political process and i know you've probably been getting a lot of pressure from people at least one person on the senate. i'm talking about rural america but here. i'm talking the community banks and credit unions in a big rates another nail in her coffin. it is really important -- i think it's really important. is it going to work? >> i can't say with certainty. there's good reason to be concerned about it.

>> if it doesn't work, what's the impact from the rural market? >> well, it's going to affect revenues of smaller issues and could result in some smaller banks being less profitable or even failing. >> okay. thank you. when it seemed a prudent thing to do is to step back and get more information? wouldn't you agree the amendment was put in rather quickly? >> it was put in quickly but i think i have to defer to congress on what kind of information you want to get. we have done one review and we've got 11,000 comments. >> to jamaica decisions with that information? >> can you make good decisions with little to no information? >> that's a problem. we've received 11,000 comments and done an enormous amount of sitting in the industry and so on. >> you've been able to read through those comments?

>> that's why we wrote that we were going to be late but i will come up we are making progress. >> chairwoman bair, i went to thank you for your service. i very much appreciate all the work you've done. a senator brown said, you've been very good at what she'd done. same issue from your vantage point committee think it possible to send community banks with debit interchange? >> i think it is questionable. i think we have suggested that the fed perhaps could use authority to require the networks except here praising and our lawyers have different subnet and i think i was called to the fed's role. so if you have reasonable authority to require that come it does become more problematic. and so i do think this is going to reduce revenue but smaller

banks and they will have to invest that two customers in terms of higher fees, per merely for transaction accounts. it's going to happen. as a direct result? you need to determine not, but i think it will happen. >> was there any impact on their safety and soundness? >> our initial houses we don't think that will happen, but clearly we trust them and there are still other challenges confronted in the banking and it's probably something they don't need to be dealing with right now. >> you talk to but you didn't know if this is what the impact of congress would have. i trust that this would potentially and will certainly need higher fees and other areas for facilities. >> yes.

>> okay, mr. welsh committee of anything you'd like to add to this issue? >> now, only that we provided a comment letter that did not address particularly this distinction. it dealt more with flexibility the fed has to sort of except the overall level that they set. we've been doing it for one it for one of outreach of outreach to community bankers and it certainly has been a key concern for them. >> the impact on community banks, d.c. very similar to the way -- how do you see a? >> well, i would say to the extent it works out as suggested camorra cuts into revenue for community banks, is one more stress on them. >> do you think an exemption can be implemented? >> i haven't really studied the issue of whether that can work. >> thank you very much. >> senator warner. >> thank you, mr. chaiman.

let me start by adding my comments to some of my other colleagues in thanking chairman bair for having extraordinary service and lots of hope personally to me and senator corker as we navigate through some of these issues. i hope mr. chairman, since her down to the field at this point, maybe we can get a second round of questions since i've got lots of things i'd love to raise. first of all, for deputy secretary neal himelfarb six, i continue to think the jury is out on whether the members hope and aspiration of what the fsoc will be will be accomplished. i think it is a critically important early warning signal. one of the things that i think will make the fsoc a more

informed entity will be the art of creation of the bar. i was wondering, do you have any thoughts of what would make it the nominee? >> we certainly hope soon. i expect the president will make a nomination for that important job soon. i want to assure you that in the meantime we are working with an awful lot of intensity and focus to stand up to ofr and make it the important addition to the landscape but it is beginning to be and will be. we have made very good progress in hiring senior people. we're just now in the last few weeks brought on to burner, a very accomplished individual with lots of experience in markets and risk, with

impeccable credentials to lead the standup affair. we have hired chief business officer to run the datacenter. chief operating officer and two other folks. they are together beginning to work together with the other members of the fsoc in evaluating risk, trying to work through the kinds of data issues that will be critical for the ofr to work through. >> i got a lot of questions. i appreciate that, but it's been 11 months. we need a nominee. i want to also three echo that senator to me and senator brown mentioned as well in terms of the designation. we've got to give more clarity here. visitor the better. one of the notions i personally believe is if we give guidance

to reaffirm and parnevik was a safe harbor and take actions to ensure they are not designated, that would benefit the system. that means in effect will the limiting risk exposures so they don't get this designation. again, that helps us move along in this process. i concur with chairman bernanke's comments that this cannot be with dollars and cents. the sooner we can move this forward, the better. and the notion of some sense of a safe harbor, whether it's insurance funds, money market funds is helpful. i would put one other caveat here from some of our financial institutions to repeatedly with

cobb and appeal. perhaps share jobs overseas. towards the formation of dodd-frank when they said please, please don't give firm guidelines and legislation. leave it to the regulators. and now they're coming back and saying my gosh, regulators have got so much to do. hopefully this in the audience who visited my office when they were saying please don't legislate specifics, that you recall the system of which you asked for. i would also urge because i know one of my colleagues asked the point that some of this chipping away at for it is my sense there is an enormous not complete agreement with what we've done but across the e.u., around the

world, there could be that first. any effort to try to retract that would be potentially devastating to international implementation and i want to do -- i know my time is gone, the chairman bernanke, one of the things we think about what the g20 and my fear is the crisis gets further away from the financial legislation issue falls down the level a little bit, how do we be sure that we really get their? how do we be sure is be sure cpk in the e.u. and the billing options rather than some resolution activities that we keep this international implementation and international perhaps slightly different roles, but at least a unified approach on track? >> well, that's a major priority of the whole process and i think

on the whole it's gone pretty well. people have joined in in good faith to try to create a level playing field. so while there are some international differences, at this point i don't see very many. senator schumer talked about some aspects of margin requirements and things of that sort. but herbig in general, i don't see many irresolvable differences at this point. moreover, a very important part of this is ensuring that roles are both implemented in a consistent way across countries and enforced across countries. part of what the basel committee and financial stability board are trying to set up frameworks for looking into those things as well as paper rolls. >> my time is expired, but i'll say run for second round. do you or chairman barrett want to comment on resolutions for example with the uk's bail in?

>> well, there's been a lot of work. the defense as a neither shows for large financial entities. no one is trying to be the bankruptcy process. it is just not suited for it. it's used as much as i can, but for some instant not suited. i think the g20 over the year ago we cochaired to cross resolution and played a leading role in devising, so there's really progress moving forward. i think there's another tool in the tool kit. i think dale and as one toolkit is a good thing. they are not suggesting that can replace resolution regimes. you'll always need the backs that they feel. also bailey and busy resolution and i would like to bring some of the unsecured debt into an institution has a lot of problems and is one of the structures to my pursuant to

resolution planning. so there's a tremendous amount already with the u.k. china has a number and also the e.u. is moving forward with development to special resolution regimes. so i think there's tremendous progress and i hope we can forgive and train and continued political support for it. >> at the suggestion of senator reid, we will produce eight with a brief second round. for other panelists, currently there are several vacancies at the financial services regulatory agencies. this summer there will be several. i am increasingly assigned of the comments by some of my colleagues that any and every man and he will be brought to. not having done individuals in

the place of the agencies will continue to implement soon to be dead to handle in the economic recovery. what do you believe is the impact of these legacies? >> mr. chairman, these are important roles in it's important to fill them. the president will be making nominations on these open positions. those that he hasn't made nominations for her. i think it is of course important to have leaders in the seats. having said that, the work of the various agencies goes on in the fsoc has been off to a very strong start and has been very effective in its early days and will continue to be so, but that is not to suggest it is important to get folks in these areas jobs.

>> chairman bernanke. >> why do you think the agencies or to another, leadership to set direction and tone and i think it's important to have highly qualified people at the heads of these agencies. that being said, the senate has to do its duty of advice and consent in ensuring these are qualified people. but i hope there will not be unnecessary delays and politically motivated blockages that prevent those qualified people from undertaking their duties. >> chairman bair. >> i think this is very important. after i depart on july 8, our ots will be gone july 21. we could rapidly go from five to three directors quickly and

actually down to two because one of our internal directors right now is on hold status as other opportunities. i think this is very important and i think having the next term is important. it's important for the senate to have their say and will process the president to have his prerogatives as is constitutionally charged with nominations and appointments. so i do think if members want independent thought in an agency, it's important for that senate confirmation. all the tough decisions i made if there is an acting capacity, it would've been very inhibiting to me, so i hope the process can move forward. >> chairman schapiro. >> i think with the five-member commission is important to have a way to intend a full complement of commissioners. it's particularly true right now given the huge volume of work both with respect to law

enforcement and that duties the most particular respect for the rule writing responsibilities we have taken on under dodd-frank. we had no vacancies at the moment although we have one commissioner explaining of the year ago it has been holding over that position. >> chairman gensler. >> where 5% position and have sides are equal and fairly engage commissioners, but we do have a term that comes up after serving two terms will be open in june and yesterday the president did announce that he's forwarding a nomination to the senate so i was glad to see that. i look forward to maintaining. i think it will always have five commissioners there we engage. >> comptroller walsh. >> as the one acting agency had here at the table, i guess i would add the thought that secretary gates are invited me

to do this job and certainly encourage me to do the job as if it was my job. but the fact is i have said repeatedly that i do it's very important for independent supervisory agencies to have nominated and confirmed heads in place for the perception of independence and they think it's obviously the right way to proceed since that is the structure that exists. so why would join others in support of that. >> senator merkley, do you have any questions? >> first i want to join my colleagues in thanking you, chairman himelfarb bair. i wish you well and the next chapter of your life and will continue to ensure many of us

look to your advice. one of the things i wanted to pursue in deputy secretary wolin, it's appropriate to ask you about this and that is if we turn the clock back a year and a half, there was another continues to be a real challenge in terms of lending capacity at a lot of work community banks. in wrestling with this and talking to many, many experts and stakeholders, we produced a planned called small business lending fund, which was to essentially counter the irrational fear that follows irrational exuberance. how's that we fear related to capitalizing community banks? that capitalization is leveraged provided to 300 billion community bank lending. that was some game that was

amended into small-business jobs bill in a bipartisan fashion. everything's coming coming to me now that are applying and saying there is no sign of the treasury is ever going to respond to applications. it just seems like the process is absolutely frozen. what's wrong and how is treasury going to fix it? this is an important issue to bring our economy back on track. >> thank you, senator for that question. it is a critical element to getting a credit flowing against small businesses. we supported very strongly and are spending a lot of a lot of energy implementing. we have received lots and lots of applications. you can expect will start making announcements of investments very quickly in response to this applications. >> that's great news and they thank you.

i want to have the same stream of folks asking me what's going on. second question i wanted to ask and i may turn to share schapiro is to follow the flash crash from a year ago. the fcc of the league has had to address greater audit trail for about 20 years the flash can't put an exclamation point on the need to both develop a real-time audit trail can look at other issues related to preferential treatment for high-volume and high-speed trading. maybe you can update us on where the fcc process is in your personal perspectives on how important is this in terms of the confidence of small investors and others. >> i would be happy to. let me start with the last part 1.

it's absolutely essential that we as a market structure that's resilient and capable and perceived by all market participants to be fair -- i mean, is fair. on may 6 we quickly made a number of changes in the market structure to deal specifically with the extraordinary volatility we saw on that day. so we instituted single stock breaks out the prices stop was for than 10% in a five-minute period, just time to catch their breath and come back into the marketplace. we also eliminated the rules that were permitted of the executions 1 cent a hundred thousand dollars on that day. the exchange clarified the rules on the road for when they would break trades are clearly erroneous or not valid trades in the marketplace. about 20 27,000 trees were broken that day. and get access to the markets of customers and broker-dealers must go through and must not

directly into the marketplace. important things had been done. our next type respect was to move to an up-and-down proposal will be proffered by exchanges that would limit the ability to put into the marketplace in order that was out of a reasonably tart range of the current trading and that will be important as well. we have broader issues are very focused on. many are in our concept relief for 14 months ago, 15 months ago focus on high frequency trading and used by all the rhythmic traders. we are moving forward with that in pieces and hopefully will begin to take action in the area. the most important pieces of the audit trail and a large treasure reporting system that was specifically proposed by the agency era go for almost a year ago and it's my hope those will come back for final approval in the next couple of months. they're absolutely essential to our ability to reconstruct

trading after an event full day like may 6, but also for us to determine whether people are manipulating markets or taking advantage of other market anticipates in any way. the consolidated audit trail will bring together data from the many trading venues that exist in the u.s. market is really critical regulatory tool that simply hasn't been done and we're going to move ahead and try to get it done in the next couple of months. >> or appreciate. but it remains something you're hard at work on. >> absolutely committed to it. >> chairman warner. >> to pick up for mr. merkley left off. i still have some concerns that can you keep up with the technological challenges, co-location techniques, some of the technology aspects one of

the things i find curious is some colleagues on the other side of attacked the consumer bureau because of its ability to have a funding source. i think we ought to try to get the bill in place wanted to make sure the prudential supervisors or at least parity vis-à-vis the new consumer entity in its curious one of the ways to do that, particularly the fcc would make sure they have adequate funding so they could upgrade technologies to win the deal with flash crash technology challenges, when thinking about perhaps voting on a new challenge to the fcc in terms of reported back as major publicly traded companies are subject to cyberattacks, which deeply buried challenges. if we maintain the parity to keep the supervisors appear that

role, they've got to have resources to do it. that brings they now to one of the areas that i want to ask both chairman shapiro and chairman concern. we're seeing, as they relate to this process on some of the swap execution challenges. difference between sec's approach that chairman gensler hives. let's get five votes. i'm not sure where they should all play out, but i'm anxious to see how we between the two entities have the reconciliation whether at some point this is where we will ultimately be bumped up to a fsoc -- i recognize your different markets, but some type of clarity to what was ultimately end up at the fsoc.

>> let me begin in an alternate to garrett. it probably shouldn't be surprised we have some different approaches. some of those are results of having different statutory foundations, but also because there's differences in progress based on liquidity and how they trade and that argues in some instances a different regulatory approach. i will say we are working together extremely close to you. or so the proposing stage while these rules. we've added the cross, so with the cftc took a different approach. we asked questions whether that was better or whether the sec approach is better or an entirely different way to go. we continue to review each other's comments so we have a good understanding and continued to meet with industry and other interested parties to talk about what is the approach for for filling the statutory mandate to

bring this product under regulatory shame in a way that's a fact that of investment have institutions to different sets of regulations where that would be silly and unnecessarily costly. for a very focused on all of these issues and our staff continue to do really fabulous for together to try to narrow the differences. i expect as we get to the stage where we adopt rules, you will see differences continued. >> if i could just come back to one core piece. transparency is a key part of how markets work is. i truly believe competitive and transparent markets are what helps the american public and lowers systemic risk of a future crisis in terms of our working relationship, it's remarkably close in a dozen or 15 joint work roundtables and sharing the comment letters as chairman

schapiro said. more particularly on the swap execution facility rule, one of the challenges we have is that the future's regime, the regime were trading features as mandated in the 1930s, that i was on the central exchange, 100% has to be transparent and out there for the public to see. that's a good thing i think for the american public. the security laws are different. there were guests and we started between securities and futures. as we come up with rules or swaps like interest rate swaps, we have to be mindful they are not so far after the futures market that we start to undermine even her futures markets that work very well in this country even to the crisis. so were focused not just on the gap between security-based sauce and slots, but also focused on a recreation is something that undermines the futures markets when we do this while waiting for something called swap execution facilities.

>> i have an indirect result of a proposed nonexchange treating swap. if we have to have a a threshold in terms of pushing it and peered >> senator warner, this only relates to something that is cleared -- it has to be cleared. has to be made available for training and thirdly it cannot be a block. the way both of us looked at this rule is this is for the five or $10 million interest rate swap, not the tune of 50 million or 500 million interest rate swap. if not for the bilateral swaps or swaps to corporate america as opposed to the nonfinancial corporate america. financial entity to financial and indian transaction is cleared made available for treating and is not a block. >> to us questions very briefly and i appreciate the chairman granting me this.

we clearly need to move these transactions into clearing houses and i just raised the question, a critique we want to have an open access to not just create such a limited amendment or clearinghouse, but i do have some questions whether the $50 million b. is. i sure want to make sure the base requirement for any clearinghouse is proof of true capital and we get that right. i think trend of robust competition is good, but we've got to make sure they really have the ability to get the counterparty assurance. >> this is important to assure robust competition among steelers. what happened is it's a very close, concentrated groups of dealers. in the future is wrote an

securities road, very many members of clearing houses and that's allowed. their 60 to 70 members of the chicago mercantile clearinghouse for instance. it is swaps road is closed and i think they're high in arbitrary limits for judges have $5 billion of capital than $1 trillion swap book and i wasn't part-time to keep a barrier to entry frankly. i think congress address that they seen the clearinghouse has open access. we could put a rollup for a proposal to hear from the public, but it's also for pension funds and asset managers to have more choices as to who is going to be their clearing, who is going to represent them on the buy side? i think this is actually a rule that hopes pension funds, asset managers of america, financial entities who are not swap dealers have access to this clear he cannot be constrained and have to go through a handful of big wall street firms.

>> finally again, secretary himelfarb six, sounds like the ftc and the cftc are working well together. but at some point it is this members hope that so we wouldn't have this patchwork and pilot approach in duplicated sets of regulations, the fsoc was hopefully the place that would help resolve these issues and at some point there needs to be that umpire. i hope secretary geithner will realize not just in this particular case, but in a series of others. i think the indulgence of the chair. >> well, senator warner, as you heard from the chairman they are still early in the process and we will move forward. i think while respecting the independence of regulators commodities for the fsoc has a responsibility to look at things that has important implications and try to bring to bear consistency across the system

where those issues are relevant. that is something we've been focused on. there's also from treasury's perspective and need to worry about international dimensions are not only to read consistency where we can with the united states but it can latch up to offer in the g20 and beyond again for the level playing field that we think are important. >> today's hearing has been very helpful with given us all understanding of important provisions and the dodd-frank act to promote financial stability in our nation's economy going forward. we cannot afford to go back to the old financial system that has jobs and cost chileans of dollars. the creation of the fsoc and other new tools to archive your regulators to monitor systemic

risks and feeling financial institutions are just many weaknesses in the old system. this will help the regulators better manage virtue crisis. 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]

duration of my remarks. the presiding officer: without objection. mr. mccain: the successful end of the ten-year manhunt to bring osama bin laden to justice has appropriately heightened the nation's appreciation for the diligence, patriotism and courage of our armed forces and our intelligence community.

they are a great credit, an inspiration to the country that has asked so much of them, and like all americans, i'm in their debt. but their success has also reignited debate over whether the so-called enhanced interrogation techniques of enemy prisoners, including waterboarding, were instrumental in locating bin laden and whether they are necessary and justifiable means for securing valuable information that might help prevent future terrorist attacks against us and our allies and lead to the capture or killing of those who would perpetrate them, or are they and should they be prohibited by our conscience and laws astor tour or cruel, inhuman and degrading treatment? i believe some of these practices, especially waterboarding, which is a mock execution and thus to me indisputably torture, are and

should be prohibited in a nation that is septional -- exceptional in its defense and advocacy of human rights. i believe they are a violation of the detainee treatment act of 2005, the military commissions act of 2006, and common article 3 of the geneva conventions, all of which forbid cruel, inhuman and degrading treatment of all captured combatants, whether they wear the uniform of a country or are essentially stateless. i opposed waterboarding and similar so-called enhanced interrogation techniques before osama bin laden was brought to justice, and i oppose them now. i do not believe they are necessary to our success in our war against terrorists, as the advocates of these techniques claim they are. even more importantly, i believe that if america uses torture, it could someday result in the torture of american combatants.

yeah, i know that al qaeda and other terrorist organizations don't share our scruples about the treatment of enemy combatants and have and will continue to subject american soldiers and anyone they capture to the cruelest treatment imaginable, but we must bear in mind the likelihood that someday we will be involved in a more conventional war against a state and not a terrorist movement or insurgency and be careful that we do not set a standard that another country could use to justify their mistreatment of our prisoners. and lastly, it's difficult to overstate the damage that any practice of torture or cruel, inhuman and degrading treatment by americans does to our national character and historical reputation, to our standing as an exceptional nation among the countries of the world. it is too grave to justify the use of these interrogation

techniques. america has made its progress in the world not only by avidly pursuing our geopolitical interests but persuading and inspiring other nations to embrace the political values that distinguish us. as i've said many times before and still maintain, this is not about the terrorists. it's about us. i understand the reasons that govern the decision to approve these interrogation methods, and i know that those who approve them -- approved them and those who employed them in the interrogation of captured terrorists were dedicated to protecting the american people from harm. i know they were determined to keep faith with the victims of terrorism and to prove to our enemies that the united states would pursue justice tirelessly, relentlessly and successfully, no matter how long it took.

i know their responsibilities were grave and urgent, the strain of their duty was considerable. i admire their dedication and love of country. but i dispute that it was right to use these methods which i do not believe were in the best interests of justice to -- or our security are the ideals that define us and which we have sacrificed much to defend. i don't believe anyone should be prosecuted for having used these techniques in the past, and i agree that the administration should state definitively that no one will be. as one of the authors of the military commissions act, which i believe prohibits waterboarding and other enhanced interrogation techniques, we wrote into the language of the law that no one who used them before the enactment of the law should be prosecuted, and i don't think it's helpful or wise to revisit that policy. many advocates of these

techniques have asserted their use on terrorists in our custody, particularly khalid sheikh sheikh muhammed. a trail which leads to his destruction. the former attorney general of the ?iets, michael mckoski recently claimed, and i quote -- "the intelligence which led to bin laden began with the disclosure of khalid sheikh muhammed which began under the interrogation techniques that included waterboarding. he released a torrent of information, including eventually the nickname of a trusted currier of bin laden." that is false. there is so much misinformation being fed into such an essential public debate as this one, i asked the director of central

intelligence leon patent for the facts -- leon panetta for the following facts. the trail did not begin with the disclosure of khalid sheikh muhammed who was waterboarded 183 times. we did not learn from muhammed the real name of bin laden's career or his alias, al-kuwaiti, the man who first allowed us to find bin laden. the man who mentioned al-kuwaiti as an important member of al qaeda came from a detainee in another country. the united states did not conduct this detainee's interrogation, nor did we render into that country for the purpose of interrogation. we did not american his real name as a result of waterboarding or any enhanced interrogation technique used on a detainee in u.s. custody. none of the three detainees who

were waterboarded gave his real name, his whereabouts or an accurate description of his role in al qaeda. in fact, not only did the use of enhanced interrogation techniques on khalid sheikh muhammed did not provide us with key leads on bin laden's currier, abu akman. it actually produced false and misleading information. khalid sheikh muhammed specifically told his interrogators that abu akman had moved to pashawar, got married and ceased his role as an al qaeda facilitator, which was not true, as we now know. all we learned about abu akman al-kuwaiti through the use of waterboarding and other enhanced interrogation techniques against khalid sheikh muhammed was a confirmation of the already known fact that the currier

existed and used an alias. i have sought further information from the staff of the senate intelligence committee, and they confirmed for me that, in fact, the best intelligence came from a c.i.a. detainee, information describing al-kuwaiti's real role in al qaeda and his true relationship to osama bin laden was obtained through standard, noncoercive means, not through any enhanced interrogation technique. in short, it was not torture or cruel, inhuman, degrading treatment of detainees that got us the major leads that ultimately enabled our intelligence community to find osama bin laden. i hope former attorney general mukasey will correct his misstatement. it's important that he do so because we're again engaged in this important debate. with much at stake for america's security and reputation. each side should make its own

case, but do so without making up its own facts. for my part, i would oppose any legislation if any should be proposed that is intended to authorize the administration to return to the use of waterboarding or other methods of interrogation that i sincerely believe are torture or cruel, inhuman and degrading and as such unworthy and injurious to our country. this debate is ongoing, but i don't believe it will lead to a change in current policy prohibiting these methods. so perhaps this is just a debate for the history books, but it is still important because americans in a future age as well as their leaders might face these same questions. we should do our best to provide them a record of our debates and decisions that is notable, not just for its passion but for its deliberativeness and for

opinions that were informed by facts, informed with scrupulous care by both sides for the security of the american people and the success of the ideals we cherish. we have a duty to leave future american generations with a history that will offer them not confusion but instruction as they face their crease east and challenges and try to lead america safely and honorably through them. both sides can't be right, of course, but both sides can be honest, diligent and sincere. let me briefly elaborate my reasons for opposing the return to these interrogation policies. obviously, to defeat our enemies, we need intelligence, but intelligence that is reliable. we should not torture or treat inhumanely terrorists we have captured. i believe the abuse of prisoners harms, not helps, our war effort. in my personal experience, the

abuse of prisoners sometimes produces good intelligence but often produces bad intelligence. because under torture, a person will say anything he thinks his captors want to hear, whether it is true or false, if he believes it will relieve his suffering. often, information provided to stop the torture is deliberately misleading. and what the advocates of cruel and harsh interrogation techniques can never prove is that we could not have gathered the same intelligence through other more humane means, as a review of the facts provides solid reason to be confident that we can. the costs of assuming otherwise can be hugely detrimental. it has been reported in the staff of the senate intelligence committee confirms for me that a man named iban asheik al-ribi,

where we believe he was tortured and providing false information about saddam hussein's weapons of mass destruction programs. that false information was ultimately included in secretary of state colin powell's statement to the u.n. security council and i assume helped influence the bush administration's decision to invade iraq. furthermore i think it's supremely unfair to the men and women in our intelligence community who labored for a decade to locate bin laden bin laden to claim followsly that they only succeeded because we succeeded because we used torture to extract intelligence from a few detainees several years ago. i have not found evidence to suggest that torture, interrogation methods that i believe are torture, which i

believe are prohibited by u.s. law and international treaty obligations, we're not just a party to, but leading advocates of, played an important part in finding and killing bin laden. rather, i think his death at the hands of the united states argues quite the contrary, that we can succeed without resort to these methods. it's also the case of the mistreatment of enemy prisoners endangers our own troops who might some day be held captive. while some enemies in a al qaeda will never have reciprocity, we should be concerned by those of more conventional enemies, if not in this war, then the next. until 1970 north korea ignored its obligations not to mistreat the americans they held prisoner claiming we were engaged in an unlawful war against them and

thus not entitled to the protections of the geneva conventions. when their abuses became widely known, they subsequently decreased their mistreatment of our p.o.w.'s. some have argued if it is right to kill bin laden, it should also be right to torture him had he been captured rather than killed. i disagree. first, the americans who killed bin laden were on a military mission against the leader of a terrorist organization with which we are at war. it was not a law enforcement operation or primarily an intelligence operation. they could not be certain that bin laden, even though he was unarmed, did not possess some means of harming them, a suicide vest, for instance, and they were correctly instructed to take no unnecessary chances in the completion of their mission. second, bin laden was a mass

murder. had we captured him we would -- he would have eventually received the ultimate sanctions for his terrible crimes. as captured war criminals in previous wars have. but war criminals captured, tried, and executed in world war ii, for instance, were not tortured in advance of their execution either in retaliation for their crimes or to illicit -- elicit information that might have helped us locate, apprehend and convict other war criminals. this was not done because civilized nations have long made a distinction between killing and injuring in the heat of combat on the one hand and the deliberate infliction of torture on an encompass titted fighter on -- encompass tated fighter on the other. this is not only longstanding american values an practices, but also in the geneva conventions that provide legal protections for our own fighting

men and women. all of these arguments have the force of right, but ultimately even they are beside the most important point. there are many arguments to be made against torture on practical grounds. as i have said, i believe torture produces unreliable information, hinders our fight against global terrorism and harms our national interest and reputation. but, ultimately, this debate is about far more than technical or practical issues. it's about far more than whether torture works or does not work. it is about far more than utilitarian matters. ultimately this is about morality. what is at stake here is the very idea of america. the america whose values have inspired the world and instilled in the hearts of its citizens the certainty that no matter how

hard we fight, no matter how dangerous our adversary, in the course of advantag vanquishing r enemies we do not compromise our greater values. we are america. we hold ourselves to a higher standard. that's what's really at stake. though bin laden bin laden is dead, america remains at war. to prevail in war, we need more than victories on the battlefield. this is a war of ideas as well. a struggle to advance freedom in the place of terror in places where oppressive rule is bread to m -- prisoner abuses, exact a terrible toll on us in this war of ideas. they inevitably become public. and when they do, they threaten our moral standard and expose us to false, but widely

disseminated charges that democracies are no more inherently idealistic and moral than other regimes. i understand that islamic extremists who resort to terror would destroy us utterly if they could up train the weapons to do so. to defeat them we must have the universal values that ultimately have the greatest power to eradicate this evil ideology. though it took a decade to find him, there's one constellation for bin laden's 10-year evasion of justice. he lived long enough to see what some are calling the arab spring, the complete reputatio n of bin laden's world view and the cruel disregard for innocent life and human dignity he used to advance it. in egypt and tunisia arabs rightfully proclaimed their

rights to determine their own destiny without resorting to violence or destruction of innocent lives. now they are trying sa to do the same in syria and elsewhere. as the united states discusses and debates what role we should play to influence the course of the arab spring, can we not all agree that the first and most obvious thing we can do is stand as an example of just government and equal justice under the law? as a champion of the idea that an individual's human rights are superior to the will of the majority or the wishes of the government. individuals might forfeit their life and liberty as pup for breaking laws -- punishment for breaking laws, but even then as recognized in our constitution's prohibition of cruel and unusual punishment, they are still

entitled to respect for their basic human dignity even if they have denied that respect to others. i don't mourn the loss of any terrorist's life nor do i care if in the course of serving their cause they suffered great harm. they earned their terrible punishment in this life and the next. what i do mourn is what we lose when by official policy or official neglect -- neglect we allow confuse or encourage those who fight this war for us to forget that -- that sense of ourselves which is our greatest strength that when we fight to defend our security, we also fight for an idea, not a tribe, not a land, not a king, not a twisted interpretation of an ancient religion, but for an idea that all men are endowed by

their creator with inai inaliene rights. it is indispensable to our success in this war that those we ask to fight it know in the discharge of their dangerous responsibilities to our country, they are never expected to forget that they are americans. the valiant defenders of a sacred idea of how nations should be governed and conduct their relations with others. even our enemies. and those of us who have given them this onerous duty are obliged by our history and the many terrible sacrifices that have been made in our defense to make clear to them that they need not risk our country's honor to prevail. that there are always, through the violence, chaos, and heartache of war, through deprivation of cruelty and loss, that there are always, -- they

are always, always americans and different, stronger, and better different, stronger, and better >> um

[inaudible conversations] the hearing will come to order. good afternoon and thanks to all of you particularly the witnesses for being here. this is one of a series of hearings the committee is doing this year as we approach the tenth anniversary of the attacks against the 9/11 and the purpose of these hearings is to examine how well with national security reforms implemented in the wake of 9/11 are working. this particular hearing of

course has been held in the aftermath of a spectacularly successful collaboration between the intelligence and military agencies locating and killing osama bin laden the al qaeda leader who presided of course over the 9/11 attacks on america. this success required intense and focused cooperation among the key intelligence agencies and the defense department as well as other related agencies through of the government. each organization as we go back and debriefed on this mission brought its distinct assets and expertise to bear on the mission which was to locate bin laden and then to capture or kill him and when it comes to intelligence, sufficient material was brought together to

reach informed conclusions with a level of confidence that enabled the president of the united states to make a tough call but one he felt the evidence enabled him to make the size of the result of this remarkable success. i don't believe that all of this would have happened ten years ago. in fact, in the report of the 9/11 commission the author expressed frustration that as they reviewed the government at that time no one was actually in charge of the hunt for bin laden which symbolizes to the commission that this function and the disunity that they can conclude contributed to the 9/11 attacks in the first place. in response to the 9/11 commission criticisms this committee drafted and congress has the intelligence reform and terrorism act of 2004.

there is -- there was then and still is today another body of congress called the house of representatives and there was another committee that drafted similar legislation headed at the time by one of the three witnesses, congresswoman harman. a result of the most sweeping intelligence reform since the creation of the cia after the second world war. i think the most important reform in the 2004 act is the creation of the office of director of national the intelligence with the aim of bringing together coordinating the efforts of our 16 intelligence agencies and offices under one leader to make sure they work toward a single goal of collecting and analyzing intelligence to better protect our national security.

so, the purpose of the hearing today really is to take a look at how the zero dni is going to include the rest of my statement in the record except to say that i am grateful that we have the witnesses that we have before us today. really three people particularly well to assist us in answering questions we are posing which is how has the odni money and what if any statutes of limitations are necessary? i mentioned congresswoman harman was the ranking member of the house permanent select committee on intelligence where she worked closely with us as i sit on the to those in fort she chaired the homeland security subcommittee on intelligence information sharing and terrorism risk assessment and has now gone on

to be the head of the wilson center which she is already doing a great job. general michael haydon, former director of the central intelligence agency, former director of the national security agency, former deputy director of national intelligence really a great national asset to help this committee in its deliberations and former assistant director of central and intelligence for analysis and production. and really one of the nation's top experts on intelligence analysis. we think all of you for coming today. we look forward to your testimony about where we are, where we need to go to ensure that our intelligence community consistently performs at the highest levels, the kind of levels that we saw demonstrated in the hunt for and taking down of osama bin laden.

senator collins. thank you mr. chairman. i am going to follow the chairman's the day and also in an abbreviated version of my opening statement. let me begin by echoing his comment about the distinguished panel that we have before us today. i too am particularly delighted to see former representative jane harman here with us as the chairman has indicated she was one of the four authors of the 2004 intelligence reform and terrorism prevention act and worked very closely with us through extraordinarily intense talks if the negotiations that spanned several months. general haydon has given so much work and effort to his country and also was the key behind the ausley year as we drafted that

bill and of course as the chairman has indicated has had a stellar career in the intelligence community, and i am confident that all three of our witnesses will help us do the evaluation that we are undertaking today. last week's news that osama bin laden was worked demonstrate exactly the successful collaboration of intelligence and operations that we envisioned and reforming our key capability in the wake of the attacks on our country men en in 2001. this was a great victory for the intelligence efforts and a great blow to al qaeda. but the fact remains that al

qaeda isn't going away and that is why it is time for conagra's to examine closely and build upon the success that have emanated from the intelligence reform and terrorism prevention act identify any shortcomings and work to correct them and build further reforms. as the chairman indicated, our 2,004 law created the director of national intelligence and the national counterterrorism center to foster information sharing and collaboration among our security partners not only across the federal government, but also tall levels of government. the dni has made some concrete progress integrating the 17 agencies in the intelligence community. i want to give just two examples

of how that integration is taking place. they are not the kind of examples the public is generally aware not but when you talk to those working these frequently come up. in 2008 the dni ruled out the innovative state which is an intelligence analyst facebook but instead of being used for social networking, our intelligence experts are posting, sharing and asking each other about topical issues. they can collaborate with colleagues across agencies and the world helping them to share leaves and resources more easily than ever. a second example is the national counterterrorism center's creation of the pursuit teams that met terrorist networks, track threats using information from across intelligence agencies to bridge the gap

between national and domestic intelligence and help to put the pieces of the intelligence puzzle together. those are just two examples of innovative ways the stovepipes have been broken. i completely agree with the chairman that i doubt that the kind of integrated operations that were successful in going after osama bin laden could have existed a decade ago. so i think that we have indeed made progress. and there are other examples as well. the unrest of mr. zazi and mr. headley are two other cases where the dots were corrected. on the other hand, this committee has investigations and reports on the fort hood shooting hair show the we still have a way to go in other areas

particularly in the information sharing between the fbi and other members of the intelligence committee. we concluded that the dod and the fbi collectively had sufficient information to have detected major passan's radical islamist extremism but that the department of defense and fbi field to act effectively together on the many red flags signaling that he had become a potential threat. so the bottom line is almost ten years since the attack of september 11th and 7 years since our landmark legislation, our nation as much safer, but we clearly are not yet safe, and that's why it's incumbent upon all of us to reevaluate the mall and to look at where we are and

where we need to go. finally, let me and with one comment that seems to be of concern to me. when we drafted the intelligence reform act, we described the dni as the quarterback that the 9/11 commission envisioned and that we intended. at a were earlier oversight hearing the two leaders of that commission, governor kaine and congressman hamilton made the point that some of the functions we envision the dni carrying out are being done by john brenau of the white house, and that troubles me not due to any doubt about mr. brennan's capability but because that structure undermines the statutory role of the dni. so a basic question we adjust

and is whether changes to the mall are required or whether it is simply a matter of more fidelity to the spirit and the letter of the 2004 law in order to realize the potential of the dni. thank you mr. chairman. >> thank you. well said. congresswoman, it's great to have you here on the other side of the table. welcome back. >> thank you. i'm not used to be on the other side of the table. you and i and senator collins and pete hoekstra or at the same table day and night as we crafted what is now probably the worst ackerman never invented. again it is a pleasure to testify with good friends before dear friends and dedicate former colleagues who serve on one of the most important and bipartisan committees in the senate.

i now work in a bipartisan institution and pinch myself every day to be so lucky and to succeed our former colleague lee hamilton at that job. i am passionate about the topic of the hearing. intelligence and intelligence reform of the focus of my 17 years which is 100-1912 years in the house of representatives. i didn't run and intelligence agency like mike haydon and i wasn't a top analyst like john gannon, but i did try to conduct as you did careful oversight over the function during my eight years on the house intelligence committee and my eight years on the house homeland security committee. i agree with both of you that if 24 or more heroic navy seals deserve the nation's gratitude for the killer of the world's most wanted man last week. the information on which was based drive in most part from

the integration of people and achieved by the intelligence reform terrorism prevention act to those of four. we now have proof, big time proof that erpta works and can obtain this aimlessness that it authors including me dream of. in fact, my view is had we not passed erpta and had we continued to operate the intelligence community using the 1947 business model set out in the national security act we would probably not have been able to thwart a number of plots or to take down osama bin laden. let me focus briefly on three issues. first, both of you have been addressed the performance of the director of national intelligence, the dni. by the way i take credit for the

name of the dni. originally it was supposed to be national intelligence stricter, nid, which i thought sounded like a bug. >> it's interesting. i take credit for that, too. islamic and i'm the one who actually did it. [laughter] >> i think we can all agree that pete hoekstra had nothing to do with it. [laughter] >> moving along, second, let me talk about something senator collins mentioned which is the role of domestic intelligence agencies and third some ongoing issues evolving congressional oversight of course not involving the two of you. i think the dni continues to be work in progress. congress intended her or him to be a joint commander. a quarterback is a good analogy, but i recall our modeling this after the goldwater nickel slot

that created a joint command across four military services and worked very well i believe so we envision the commander across 16 intelligence agencies, far more than a coordinator come and a job that clearly required leadership skills. erpta is not perfect but i believe it contains adequate authority to give the dni the necessary leverage that she or she needs to get the job done. i've often said that the function is 50% law and 50% leadership. congress intended as i think both of you said the dni serves as a principal intelligence adviser to the president. those authorities were i think clarified and enhanced when the president, president bush issued an executive order and that was the intention of congress

including of president bush as well. this has never really happened. i believe during the bush administration vice president cheney was the principal the intelligence adviser and as senator collins said during this administration, john brennan, the counterterrorism coordinator in the white house is the principle intelligence adviser. in my view, neither president has adequately valued the dni rule nor has made, nor as either president made an effort to support the mission. this is something i've think congress and those of us who agree with congress should push hard on. it's not to diminish the reputation and powered of the people in the white house who have assumed the role, but we have established a person who is confirmed by congress and accountable to congress to take the job and i think we should push harder to make sure that

person has the job. president bush, also, let me mention -- let me raise a few issues that i think are important that the dni is addressing. number one, the dni has suggested, and i would urge that this happened, that the national intelligence program be taken out of the defense department and added to the dni budget. i think this will achieve more efficiency and promote more accountability. a second come - the issue of right sizing of the dni staff is being handled well and we should move on to other topics. we should also by the way reduce the use of outside contractors. third, when general petraeus moved to the role and i assume he will and the cia director panetta becomes the security

fence hopefully we will finally cement a good working relationship between the cia director. this was impossible to doesn't for because defense rumsfeld opposed the law and duncan hunter also did. we had to work around them to achieve what we did, and i thought it was pretty good. finally, the dni clapper urges the we reduce the number of reports to congress. i know how those reports began to statutes and i know what they mean politically to the members who have them but i think consolidating them will save time and resources and enhance the focus on the mission. i want to keep to my time so let me move to another subject and that is our domestic intelligence agencies. i think senator collins said there are ongoing problems with the vertical intelligence sharing, this is going better especially because you're doing so greater oversight and the

fort hood massacre as you said to have perhaps been prevented if there had been better collaboration between dod and the fbi, and the especially weak player is the intelligence analysis function in the department of homeland security we need much more work and i want to think the stuff and you for the work you did on helping to pass for the over classification bill last year which was signed into law by president obama in october. finally, on congressional oversight, your committee has far more jurisdiction than the counterpart on which i served for eight years. but i don't believe any committee in the senate or the house has adequate jurisdiction. we know why this happened. no one wants to give it jurisdiction but i actually think that reorganizing this function in the congress would carry out a strong recommendation of the 9/11

commission that number to give a better shot of providing the oversight necessary to be sure that the intelligence community will get the job done and help us protect our homeland. i agree with senator collins that will last week's news is fabulous it will not diminish the threat to the homeland and it probably will not diminish the potency of al qaeda although the potency i believe will now move from pakistan to other places like yemen where al qaeda and the arabian peninsula is emerging in my view and the part of al qaeda doing the most work to inspire people to attack us in the homeland. of let me finally conclude by saying that there is no way to make our homeland 100% safe. what we can do is minimize risk and we are doing that. we need to constantly reevaluate the threat against the united

states and prioritize our investments. we are not making a lot more brain cells and those we have have to be applied against the top threats and surely we are in a resource crunch and resources must be carefully marshaled. let me close by recognizing the heroically brave women and men of our intelligence community who put their lives on the line every day for the country often in ostia places around the world living apart from their families. surely the cia director panetta and the dni clapper and some members of congress and others and president obama should take a lot of credit for last week's activities. but the true heroes were those in the field not just the navy seals the those in the field who put together the clues that led to the information come attract the careers that found the house

that john osama bin laden and they deserve a heartfelt thanks. >> here here. thank you. that gave the president a sufficient level of confidence in the information he had to order. thank you for the excellent statement. it's good to welcome you back. good for being here and we look forward to your testimony now. >> thank you mr. chairman. good to see a lot to begin. let me begin by attempting to scope the problem. we sometimes look as if we are trying to repair a community there was dysfunctional, and what i want to describe is i think what the legislation attempted to do is to balance two things both of which are virtues and two things which in a complex organization has to balance and that is simply unity of effort for the whole and autonomy of action for the poor and those are good things, both need to be protected, and i think the macrojudgment was more

than a brick shy below when it can to the unity of effort for the whole and that was the intent of the legislation. the problem is i think what we are trying to do is to build with some of our young guest analysts describe as a network organization which very frequently looks and acts like it is leaderles or has many leaders and the only way we can get from here or there is to have strong leadership in order to create this kind of organization. and so what the nation decided in you have fostered in 2004 is another path to the balance, not the d.c. ausley -- dnr i. i think that in the committee we were nervous about that and quite busy at that time. we thought it had a real authority and did provide roughly a fair amount of blue

but even those who had our doubts recognized that if we needed more blue and unity of effort to the then current model was probably going to be inadequate simply because it had full-time work as the director of the cia and would be very hard for anyone almost superhuman to kind of reach above that role and both psychologically and physically play the role of cushing the entire community. but you have a real daunting challenge because whatever blue we had in 2004, whatever forces we were able to create in the community can from the fact that the head of the -- community headed the cia and he was in the court position inside of the community and of course the decision was made whatever the dni was going to be he wasn't

calling to have his office at langley let alone run the cia. so he had a difficult challenge to kind of pull us out of this course, put us on another and put enough bricks in his backpack he had enough authority to get beyond what the old model provided. beyond that is it's substantially difficult as it was this has been harder than it should have been. we were ed war and therefore it's kind of hard to restructure when your daily tempo is so important but there is another i think more subtle challenge because we are at war. those big organizations to care a lot about, and most of those first initials are n are in the department of defense and as mentioned i was the director of nsa and i wouldn't say we were schizophrenic but we did have a depravity and other personalities.

we were the national security agency but also directed to act as a combat support agency to read in many ways, your law is trying to strengthen the national character to bring organizations under the director of national intelligence. it is inevitable that after nine years of war the combat support character of those organizations become more and more. there's nothing wrong with that, that is a good thing we would all agree and foster it, but it's not quite a convergence on the course of action you set out in terms of strengthening the dni. there are other the next and it is harder. we have had four in six years. that can help. we have had for dcia and that can help either. i think one of the most powerful phrases in the legislation is the rule that you gave to the dni to recommend to the president the dcia. i just told you we had four and

four. i can think of only one example where the dni recommended the head of the cia to the president of the united states and the was john negroponte recommended me instead of his deputy and we overlapped for only six months after i took the job. it's actually pretty important. finally, and i am fearful of being preferential here, my job as the principal deputy i think is important because the two tasks you gave to the senior intelligence adviser and the president and the functioning to the community, those are really hard and the deputy function is really important. for over half the life of this legislation that the deputy position has been vacant. that has a real impact on i think as you said, senator collins, affecting the intent of law rather than trying to change the legislation. now, all that said, i think

there's been some really good news with regard to the dni. number one, it exists and is accepted and frankly in 2005 when i was the principal deputy that wasn't a given throughout the community. the in ctc has been measured as a success and there will be questions as we go further. imagine if you will chongging to create the nctc which is characterized by foreign intelligence with domestic law enforcement. try to picture that reported not to the dni but if the reported to the d.c. i and was your former espionage chief american political culture would have rejected that like a foreign object and so the dni structure has actually enable the success of the nctc. the dni is also filmed from time to time in front of the trains. i can recall director mcconnell

spending eight -- 18 months on legislation you are familiar with. that couldn't have been done by any sitting director. only the dni could have brought the gravitas of the community to that discussion. this sounds a bit personal but it's a very real. every day i was there i think god that there was a dni. i had no idea how anybody could be there and be the head of the american intelligence community. we talked about the recent success and you used the term quarterback. i think i'm a little bit more comfortable with the term coach to describe the dni and i think it's clear why wasn't on the inside but from all of the accounting i think it's clear that the director panetta was a quarterback for this effort. there is an echo of that if you recall the cerium nuclear reactor the was ultimately

destroyed when that came up director mcconnell and i worked very closely but in fact she is empowered me to act on behalf of him because this was at the operational level, and i don't know the we want the dni routinely played at that level. there's other things they set in motion, sharing 502 which sounds like coded language to most folks in the room but it's a process which allows over time the bureaucracies to more readily share information. joint duty is another thing that's been set in motion and that over time will change the culture of the community, not possible without the current structure. there are some tinkering sentinel that someone might consider. i will not suggest any. that should come out of the sitting dni but some things that come to mind if there is anything you need to do to get

the national intelligence program more fully under the dni and out of the budget, there is some legal impediment i'm not aware that probably a very good thing. we've already mentioned we are cooperating pretty good east to west at the national level. but the new thrift will require more cooperation from north to south and how better to we should win the national, state, local, tribal assets? i don't know that there are legal impediments, but if there are i think the would be a great help to rebuild that said i think i agree with something both of you suggested. we are going to succeed or fail moron tangibles than on the precise litter of the law as important as this. the most the come to mind or the personality of the dni. that really matters to that person is. second is the relationship with the dni to the dcia. it's got to work.

my shorthand is the dni of the dcia ruined the run and the dcia total transparency. then finally as it is already suggested whatever shortcomings there may be in the lock everything is fixed. if the dni is and everyone knows him to be the president's senior intelligence adviser without question. thank you very much and i yield to the questions. >> thanks, general peaden, there was great. thanks again for being here. please, proceed. [inaudible] if he could hit the microphone. >> there you go. >> thank you pure in my view for all the performance of the u.s. intelligence community has improved dramatically since

9/11. analytical tradecraft advanced significantly performance counterterrorism programs has reached the highest standard of professionalism and dedication. the application of technology has broadened, deepened and accelerated. interagency collaboration especially in support of the fighter has improved remarkably. in progress towards the more distributed model of intelligence support to users anywhere in the world is palpable the fusion of intelligence and well-trained people and advanced technology and the interagency team work and afghanistan and iraq are at the highest level ever that seemed unattainable when i left the government. the creation has been contributed significant to this progress will the leaders and individual agencies with administration's congressional support also have taken the steps on their own. the department of defense when congressional approval to establish and to those into the position of undersecretary defense for intelligence to improve management of its considerable intelligence assets and programs.

significantly in my view the secretary defense elevated the authority and the budget of the joint special operations command to provide in the field a strong coalescing leadership, kirchen of command and a powerful authority to coordinate the focus requirements for intelligence collection and analysis by would risk the whole side judgment that the cooperation of the cia including the counterterrorism center has never been closer and more effective. there is always room for improvement intelligence business, the strong club of performance of the agency's is unprecedented in a source justifiable to the intelligence community. the domestic picture in my view is next. the difference with fidel ranges there is no counterpart in the homeland to integrate the intelligence process these. the fbi has built an impressive intelligence infrastructure and shifted significant resource once devoted to more enforcement to domestic intelligence collection analysis. the national counterterrorism center has made significant

progress in integrating foreign and domestic intelligence analysis. the department of land securities was 22 constituents agencies sometimes taking initiative on their own has made commendable strides in our border security and some but uneven progress in sharing threat based information in coordinating policy with state and local governments in the private sector. overall however domestic agencies do not show the strong unity of effort that is evident abroad. in my judgment it is a much slower work in progress. the dni should be seen as a leader with explicit response of the lease for clearly defined selected oversight performance for the development and application of interagency program standards and for the implementation of the national intelligence program. we are not yet there in my view. i believe however we can do better. we should recall that the erpta was passed after decades of debate about the success of tci

to manage the community. today it is challenged by historic political change of leaders first threat environment and technological revolution that is enabling even minor adversaries to hurt us as never before. the dni has the potential to help agencies achieve a unity of effort in this challenging environment. to be optimized, the dni rules and responsible these should be tied clearly to defensible strategic priorities and requirements. the leadership must be afforded it with regard to these priorities but not intrusive in the agency specific matters and must recognize the distributed network nature of intelligence supporters of the world today. and most importantly in my view the incumbent must have the visible and sustained backing of both the white house and the congress and it is questionable whether the dni has this now and

this in my judgment has been a major obstacle to progress. they needed additional authorities i believe his management of the national intelligence program would be strengthened if it were removed from the defense budget and a purple of tightening budgets he will need clear authority and powerful top cover to evaluate and prioritize the key programs for growth, reduction and elimination it will he has a unique potential to perform. at this juncture however rather than simply that authorities are believed there would be more useful in the period of leadership transition to take a step back and consider ways to get the intelligence community, white house and congressional priorities aligned to enable and support this hazardous mission. i would say several priorities areas in addition to the management across the agency program as i which the dni is uniquely positioned to help improve the performance and enhanced the u.s. national security.

balancing strategic tactical collection and analysis which in my view has swung too far in the tactical direction to recruiting trained analysts for the information age giving greater and full internet access to social media and outside experts essentials against the challenges we face today. and strengthening the commitment to science and technology in the area where subject more than ever to technological surprise. enhancing training and education for the intelligence profession that is with a curriculum that codifies and conveys the body of knowledge that defines the intelligence profession itself. that insecurity counterintelligence in the 21st century, pursuing the benefit from innovation and avoiding the costs of doing it the old way and continued promotion of information sharing across all the agencies and improving

intelligence strategies and policies as well as the government contract -- improving government contract management overall. i'm glad to say i am aware that the dni is working all these important areas but in my judgment it will need help to deliver the best results the and it shouldn't matter -- should matter to all of us that he succeeds. >> thank you. door statement and the others prepared will be part of the record and we appreciate the time and thought that you gave to your statements. we will do a seven minute round of questions here to the general haydon, i want to start with you picking up on one thing you said, reminding us that the dni has two major functions. one is to be the senior intelligence adviser to the president, and the other is to be whatever term we chose, coach and manager, leader, quarterback

of the intelligence community. you've been close to the functioning since it can to affect and first one to say you're absolutely right one of the shortcomings the last period of time which is not into law but its implementation is that for too long the principal deputy commission has been vacant and that means either we are putting these two functions in a very burdensome way on the dni himself or he's not going to be about to -- either do both not as well as they should be done or fulfil one and not do as well as he should. how would you assess the function of the dni as the senior intelligence advisor to the president in practice? in other words, we talked about

this a little before. the cia is a big agency that the lot history and a lot of assets so that's the muscle they have. but from what you know, you can't talk about it from the inside but has the dni created since we created the senior intelligence adviser to president? >> writing it's gone back and forth. it depends upon the personality of the president, the personality of the dni. the first thing is the dni has to choose where he's going to shift his weight. as he shifted downtown? that's frankly have to draw the picture or does he shifted back out of headquarters. there's an incredibly powerful gravitational pull downtown and that is sent out of pride for the dni. that is out of the demand of the president and the national security council staff.

my experience to show you how difficult this was, i was generally always there, not in the morning briefings, the was generally the dni show one of the decisions he made it the deputy level, principal level, and i was almost always invited so i knew there with the admiral mcconnell literally president or stephen hadley would say okay the to mike schogol first and he would talk and then if i had anything to add i would add. we were both of there. the admiral was really disadvantaged and i'm sitting atop the nation's premier analytical service. we are going down with the problem to ensure. at mcconnell is up the road reading books and i'm putting somebody in the back of the car with me explain the details are running down because it got the analytical staffs. so there is a bit of attention, a bit of an anomaly.

you have to work through would remember that transparency and freedom of action between the two the bci and the cia have to be friends and the dni doesn't get to to do the job which is smooth functioning into the community. unless everyone believes he's the responsible one for job one. he gains power for the second task from his performance on the first. >> i agree. we wanted the dni to be the principal intelligence adviser to the president because the gathering of intelligence goes beyond the central intelligence agency even though it's -- it has the most personnel and the most assets in the community. is the presence critically important to this fact? it's not in the statute or is it generally in the statute cracks

>> first of all, senator, mr. chairman, this depends on the personality of the president and all presidents deal with this in a different way. president bush was very

her or his job is to leverage the strength of the other agencies. if you are a good ceo you don't do all the work yourself. you help those underneath you understand the mission and perform their mission as well and then you put together and that is what i see is the dni role and yes i agree with general haydon that being part

of the president's daily brief is important but i don't think the dni personally tested with every time letting other people shiny and have that face time is the sign of a secure leader. >> he said twice now that we ought to be pushing harbor. in the face of the fact that neither president who is head of the dni has used that to the full extent we hoped. are you thinking additional statutory authority to the dni or is it more to make a point to the president that if we could that this is what we intended and this will serve him better? >> yes. it's the latter. i would think to the extent that our law left any ambiguity, and of course as one of its authors i thought it was quite as well. that was clarified. >> but not without in dignity. islamic in the face of opposition by the to keep people in government at the time i thought we did extremely well.

but executive order 120003 issued by president bush and supported at the time by candidate obama as i recall was an attempt to make even clearer we intended the dni to be the principal actor in intelligence. i mean, you can't make a president rely on the somebody in the chair. but as general haydon said, you can try to help forge the right chemistry between the president and this person, and you could also explain as congress that the person accountable to congress for the failure of success is the dni, not the vice president of the united states or the principal counterterrorism office in the white house. >> do you want to get into this? >> just as former deputy

director [inaudible] orie regard it and still do and as access to the president and ability to serve the president is absolutely critical to the rule of the senior adviser to the president. i degette -- by the way, i will add it and i think mike knows this all it takes resources to do that successfully and that is a substantive role that you play in the form it's difficult for managing of the community role and the d.c. i struggled with it and all of them try to do the two things. but i think the problem with of the dni construct is i don't think they have analytical resources to serve the critical role. it takes to produce that is a tremendous and the estimate of resources and expertise and they have to be serving the person who actually provides the

briefing. >> so is the answer to try to provide more analytical resources to the dni? >> that would be the answer to the question, yes. i think if he's going to continue to serve in that role he needs to have more resources. a person can't do it on their own. >> because otherwise this will naturally move to the cia -- >> i think there would be a strong gravitational pull in that direction. >> okay. thank you. senator collins. >> thank you, mr. chairman. as i am listening to this debate, it reminds me that an washington there are three levers of power. one is your relationship with the president, and we talked about the fact and i agree with representative harman that neither president bush nor president obama has fully valued

the dni as the principal advisor to the president the way that we intended in the law. the second is the control of personnel and i want to come back to that with an example. and the third is control of the budget. each of you i believe made a budget recommendation to us when we wrote to the 2004 law it was a big, huge dispute over whether the intelligence community budget should remain with the dod and then be doled out essentially to the agency. so whether it should go through the dni. and i think, but i want to clarify that each of you are recommending more authority for the dni in this area. so if i could first explored the budget issue and start with representative harman.

.. unless there is a bar in the statute by just getting hopefully this president to support a. >> i have been advised that we have been in discussion with the dni about whether there is there is a need for statutory action and they are not sure, so they are coming back to us with an answer and we will reason it together.

>> general? >> yes, maam. you have got some tension outside the inside the law on the budget. ever be picked is great, determined is what you decided and then you have got section 1018, which says nothing in here of the progress of the cabinet officers of which these officers are located. i'm not suggesting you go back in and use a wrench to change any of that led to the degree you can end the process, foster the dni determines i think that is a very positive thing. in terms of shifting out of the dod budget national and intelligence program into an independent account under the dni think most people look at that will say you would actually strengthen his authority and the execution year which is not a bad thing. it may not do a whole lot in the planning or programming about in the executioner which is where you look around and say who is burning money at the rate

expected and who is sent and let me ryan mind everybody was my money to begin with and that might be a very positive thing. >> mr. gammon. >> i agree with all that has been said. i think jim clapper is made a persuasive case that i would have probably agreed with even before he made it, and i think in a era of greater stress on the intelligence budget i think it is important, important and it real terms and symbolically that he have that legit control. >> i was smiling as general hayden was talking about the language, because i remember how difficult it was that we did want the dni to be responsible for determining the budget but in order to get the bill through, i think we did create a compromise or some lack of clarity in order to get the bill

accomplished, which sometimes happens so it will be interesting to see if we can perhaps clarify that. let me turn to the personnel issue. as representative harman has mentioned at the start of this current administration, shortly after leon panetta was confirmed as the cia director, the dni, admiral blair, issued a directive in which he claimed the right to select an individual other than a cia station chief to be the dni representative and foreign government. and, this builds upon similar but far less public efforts that were undertaken by previous dni meg ripati -- negroponte and mcconnell as well but this did blow up into a rather prominent public battle between the dni

and the cia director. and the unfortunate, in my view, outcome was the white house was forced to choose sides and sided with the cia, which in many ways in my view, undermined the dni's ability to to in the whole area of personnel. so, my question is, who should be in charge of the personnel in the intelligence community in terms of allocating assets? mr. gammon we will start with you. >> first of all in a particular case you are citing in my judgment i think it was badly handled and so the outcome need not have been what it was and i have to believe it could have been managed in a way that the

parties of interest of this conflict could have got away with a much better feeling but i think it ended up undermining the dni and did a lot of damage to his ever to establish authority. i think in the nature of the global threat environment in our country, the need to be able to move assets quickly is critical and i think the dni needs to have some authority to be able to move personnel also. so i don't have the confidence to say how precisely that should be crafted into law but he does need to have that ability and i think the dni is the appropriate authority to do it. >> thank you. general hayden? >> yes, maam. admiral mcconnell and i had that very issue for quite a while when we were in office and unfortunately the he couldn't get it across the finish line. i recall, this is a very emotional issue for the cia and i was doing my duty in terms of

representing and frequently my senior staff would say you just take this to mr. hadley or someone else in the white house. my response was guys, we take this to the white house, we lose. there is no way the white house can support the dni in this kind of issue. frankly i think the dni was wrong. i think it should be a station chief. i think our foreign partners expected to be the station chief but the dni has a right to be wrong without being over ruled and such a public humiliating way by the white house, so i agree with john. it was a very bad thing. in terms of moving personnel around in general, falling back a little bit on the military model commanders talked his commanders. commanders don't command troops inside other people's organizations, so i think the model we might want to think of is to make sure the dni has the authority to demand capabilities of his component commands come his component commander, nsa, nga and cia but to leave those

commanders, component commanders to freedom of movement is how they respond and how they create that capacity for the dni wants it but he fully should have the authority to demand capacity where he needs it. >> that is a good distinction. >> i strongly support that last point and also agree with mike hayden's earlier point that the dni should carefully pick her his fight and hopefully pick the right fight. this was the wrong fight. all of this beats the conversation we are having and have been having from the start. i felt again given the implacable opposition by secretary rumsfeld and armed services chairman duncan hunter that we did pretty well. we consulted closely with an unnamed source than in the bush administration to make sure we had adequate authority for the

dni to build the budget, not just to educate the budget it has moving money, providing money is how you give somebody power and i believe we had adequate authority there. section 1018 was modified or clarified later by executive order 120 -- 12333. in terms of people, even people for the pdb, if i were the dni i would use assets that exist at a monthly 16 intelligence agencies to help me do what is necessary there. there are excellent analyst at the cia as we mentioned. john gannon knows that extremely well and they surely were very good at providing information leading up to the capture and kill of osama bin laden. those assets could be used by the dni. there is no prohibition against using them. they don't have to move to different box. i think we should be done with moving boxes around and we

should insist that the dni get the respect that hurston deserves and do the job by leveraging the assets of the agencies under her or his command. just one final comment if you will indulge me. i also believe that as the intelligence community more fully adjust the joint model of the military, where in order to advance your career, you need joint service, that will help promote those kinds of exchanges and willingness to give up talented people as well. senator collins that was in the love and giving some points for joint service and trying to break down as and she said the stovepipes and promote a need to share culture instead of a need to know culture. >> thank you. >> senator collins, one of the

other ways in which the law attempted to give the dni authority in a way that would help him or her be a better manager or leader of the intelligence community was in the recommendation of personnel throughout the intelligence community. general hayden as the beginning of a series of questions he made a think a very good point which is to the best of your knowledge, the only cia director who was actually recommended by the dni was yourself and in the other cases, i assume what you are saying is the name came from the president. while the dni may have formally put his name to the bottom of the letter recommending that is the way it happen. >> that is my understanding senator and frankly there is nothing wrong with that. but if you are going to establish that kind of

relationship, if you have this ideal relationship between the dni and the dci a, starting off with one owing nothing to the other for being in the position, it isn't a disqualifier. >> it makes it harder, you are absolutely right. none of us here think that general clapper came with -- up with the idea of general petraeus being ahead of the cia. not that he is opposed to it. i talked about and i'm sure he's happy he is happy that it. this discussion is another piece of evidence and one that we just had of the way in which the law can express an aspiration that the congress has regarding something but it all depends ultimately on how the people in the positions are implemented. go with acknowledging the piece of unaccustomed congressional humility let me go on to ask you, one other idea that has

been suggested to us as we take a look back at the dni is that we ought to extend the authority of the dni to recommend, to approve, recommend and order prove personnel throughout the intelligence community below the level of the head of the constituent agency, perhaps down to the second or third position in the agency. what you all think about that lex lets start let's start with mr. gannon. >> e. i would think that is an idea whose time has not yet come. [laughter] >> the that didn't have any particular charm for me either senator. >> representative harman? >> i think there are higher priorities like urging the president to fully stand up to privacy and civil liberties board required under the law. i would go there before i would start an opportunity to pick new flights between the dni and

other agencies. >> am i right in interpreting the reaction to consistent with what we just said about the dni relationship to the dci a, that the head of the constituent agency ought to be able to choose his own second and there had -- just in terms of their ability to work together. let's see, let's go back to this extraordinary experience we have just been through with the intelligence leading to the take down of osama bin laden. the president designated the tour of the cia, director panetta, under title l to be in charge of this operation. even though in the end of course, and leon panetta both

privately and publicly has gone out of his way to say that he then essentially delegated the final part of it to a title x force which was the special operating command under admiral mccray then, i suppose the first question i want to ask is whether consistent with what we have been focused on today, do you think and i know this is second guessing a spectacular success but whether the president consistent with the intention of the love we were talking about should it designated the dni to be in charge of the hunt for bin laden as opposed to the dci a? jan do you want to start it we will just go down the row. >> in terms i think the answer to that is yes. i think this was a highly risky operation and there were at

least plausible reasons to designate someone else. i'm just guessing that the president has worked longer with director panetta than he has with dni clapper on a personal basis and figured he not only brought the assets to the table in terms of preparing the information on which special ops team acted but he also had a strong relationship with congress and therefore that made him probably the best guy especially in the event something went wrong. so i think this was a call based on personal chemistry more than on an organization chart and i don't fault the president for making it and the result was spectacular. >> and it worked. >> all that is true and i agree with it but i don't think it is exclusive. i think it is structural. i don't think it is personality-based. if you do it under title l it is a covert action. executive order says the president can change this but what it says right now is the

only -- is the central intelligence agency so i understand why that is gone in that direction. technically the director panetta had what is called opticon rich means he is responsible for it. he gave admiral mccray then and his group's take on the tactical control. it makes great sense. i can't think of any other better way to do it. with regard to the dni role of this we actually have this discussion in the bush administration and congresswoman harman has talked about needing more presidential of to the job and we got a fair amount from president bush based on my recollection. we had a pretty serious debate about this role and we went to the law, and the language in the law is that the dcia reports to the dni for all the activities in the central and teijin's agency and it is not authority direction or control which are also english words that were

available but they weren't chosen. fields in a decision, and we have this discussion long before going to abbottabad, is that the dni had to have total transparency. the covert actions are so sensitive and those delicate but that president and i suspect this president wants no one between him and the individual carrying out the covert action. and so in that sense the dni is kind of here in a be aware of as the nsc role but not in that chain because we discussed this at great length. he really clearly didn't want to make this to ops rather than one. >> discussing in other words is kind of action? >> that is correct. title xv covert action. >> right and begin because the cia director is in charge of the operators. mr. gannon. >> i have no problem with the

way this transpired and i don't think really had negative impact on the dni's authorities. as a professional intelligence officer i regarded covert action is partially an intelligence activity. it is supported by the national intelligence budget program so the dni should play consulted role but i think the accountability for covert action belongs acutely to the president that there should not be any players between him and the actual operations beyond the cia director. >> let me if i may go over my time, want to ask you mr. gannon a somewhat related question. i was interested in your statement and your testimony that the intelligence community has moved to what you call a more distributed model of providing intelligence support in which a large number of intelligence agencies and officers provide direct support to policymakers and also work

closely with the military. in fact with troops on the ground and that there could va conflict between that model and having a strong central leadership. i just want to ask you to develop that a little bit more. is there necessarily a conflict there or is there an argument the dni should in any case be the leader ultimately responsible for building the distributive network and ensuring it works properly and accountable for the performance? >> the direct answer to your question is i don't know there is necessarily a conflict of my point is i think we do need to understand the evolution of the intelligence community to a more decentralized distributed model of intelligence support. back in the '90s when i was producing intelligence, there rarely was a preference for the national customer at the cia, and i could.

>> just to clarify? >> the cabinet level, washington-based, the president and the white house. >> as opposed to. >> as opposed to the warfighter, the military establishment so if i got a request for analytic support safe from at that time -- i would say if you could wait a few days i will get a sanitized version. ice on the 97 berman change partly because of the digital revolution where we could provide it in real-time and secondly because of the demands of people like -- and he would say heck now i need it now. look at the challenge. this is the post-cold war period. i have challenges and i need to have real-time intelligence and i need to have the best that you were giving to the president. so you started then the decentralization. was no longer just coming out of cia. you have to find other ways to

get the information out there. but i think with the balkans conflict, that began where the demand was not only to get information out there but to actually have intelligence capability in place in the field where you could actually provide intelligence requirements and analysis directly to the mission that it was to serve. i think that is what i was talking about, the jsoc model and afghanistan. my point is that i think we can sort of lighten up about how much the dni should be controlling this. this is the network's environment that we were talking about here that mic and i both had mentioned. i think that is working very well and the dni should be nurturing that but the dni should be above it all looking for where there are gaps where you can better enable it, better resource than two growth that capability for the intelligence. i don't think there's anyway we are going to get back to the old

days where you had an essentially control distribution of intelligence support. >> right and i hear you saying that we shouldn't try to get back to that. the world is gone beyond that. >> it is just the expectations we have put on the dni. if successful authoritative dni and by the way i don't see a secretary of defense who worries about a lot of what is going on. i think this is, a lot of the success we have had in afghanistan is because we have developed a network capability and that means you are not going to have be intrusive central authority getting in the way. >> that is great. thank you. senator collins. >> thank you mr. chairman. we talked a lot about the dni this afternoon. i want to get your assessment of the nctc, the national counterterrorism center. i remember when president rushed by executive order created what

was called ptech and i can't remember what that stands for but it was the predecessor agency of nctc, and i visited i believe that senator lieberman was with me, i visited t. tech and i remember being struck by how young the analysts were and got the distinct impression that agency sent over their least experienced analysts. by contrast, when we visited nctc, the analysts seem to be far more experienced and there seemed to be competition to be assigned to the nctc, totally different, but that is my observation as a senator. i would like to hear your views

of nctc. has it been effective? where does it need to go and i will start with you mr. gannon. >> i think nctc has been effective. i think it has been grown from strength to strength and is much better today than it was two or three years ago. i think it is doing a commendable job of integrating foreign and domestic intelligence and producing an analysis for a much broader nationally based customer base. i would say that the.which i think needs to be addressed by leadership and i think it is a leadership issue and that is the tension between nctc and the ctc and cia. i was actually around and 1986 when we created the ctc and i think the ctc, there are different missions here. i don't think it is that difficult to appreciate they are different and they should be respected for their differences. they have some need to support

one another and we could address that. but i think what has happened is the ctc in the washington domain is getting less attention, less respect and i think it deserves a tremendous amount of credit for what it has been able to do in providing analytic support to operations in the field and the reputation it has in the field if you talk to special operations people for example is very powerful. i don't think it is ever done better than it is doing now so why would we want to see that organization in any way diminish because we have created an nctc? i think you can do both of them. i think sort of the rap against ctc was that it was in support of operations and didn't support the washington community. now we have the nctc that can do that and it has the responsibility of the ctc doesn't have to do integration of foreign and domestic. i think those missions can be developed that there has to be

leadership and there has to be appreciation and the white house and congress have distinct missions that both of these organizations to will the people have to be given credit for. i perception is the ctc is not getting the credit in washington environment that i think it deserves. >> thank you, general. >> very briefly and as john just said, i was asked this question them both the dni role, deputy and head of cia, what is the division of labor between the two? what i'm going to tell you now is not perfect. it is wary but i think as john noted that is okay. it is a bit offense and defense. u-turn to the nctc first to deal with the homeland and what needs to be done about it. hence the powerful blending of foreign and domestic intelligence and law enforcement. >> ctc has its center of gravity

on the offense. we are going after these people and we need to know where they are. so i think we are blessed to have both been lucky to live in a nation that has the resources that can afford what i call redundancy, not duplication or competitive analysis. fundamentally, there are different and they're focused on different things. >> thank you. representative. >> a terrorist threat integration center, i know. i remember, was set up by president bush i think out of frustration that the intelligence function of the department of homeland security was taking so long to be established and i think it has now become the national counterterrorism center underwrite 2004 law has served us extremely well. i understand this point, but i think our big threat now his attacks to our homeland and a

piece of this we need to nurture and in fact is doing well is the nctc. it is very ably led by mike lighter who is a holdover from the bush administration, very good call by president obama to keep them there and get, along with something called the -- which stands for the interagency threat assessment and coronation group, a group of police and first responders who calmed to washington for a gear and work the nctc, is preparing good product for local law enforcement so they know what to look for and what to do. nctc plays an indispensable role in that regard. the other point i was making is that after the abdulmutallab plot was finally foiled, that was not a great moment for intelligence community, mike lighter set up something called

pursuit teams. we discovered there was no one in the u.s. intelligence community who had sole responsibility for detecting and piecing together disparate threat information. talk about offense/defense. that is an offense we absolutely need in order to protect our homeland in nctc provides that so i think we have room for both of these things. i think the week after in this picture is still the intelligence and analysis function at the department of homeland security. in the bush administration charlie allen had that job and he was a legendary cia director of operations who built it in my view a kind of many cia at dhs. i'm not sure we needed it there but i surely think we need more than what we now have there. in fact it is kind of telling that rand pierce who is not the director of i am a but is an undersecretary of homeland security, has the portfolio for counterterrorism at the department of homeland security, not the director for intelligence and analysis. >> thank you.

my final question for each of you is, is there any recommendation that you would like to make to us as we look to reifies necessary to the 2004 intelligence reform act? mr. gannon? >> i would just say that i think we are in a period of transition in the leadership in the intelligence community and the should be a great time to take a step back and i think of gates is leaving. there's nobody who has more knowledge and more desire to make dings work and i think jim clapper is a guy who works very hard to work with others. i can imagine having a battered dni for the times we are in. so to bring some of the folks who are leaving to talk with them about how we could have the human dialogue about people who know and have worked like mike is an example, bring them

together to ask let's commit ourselves to making this work. let's admit we have a need to do it, and let's concede we have a terrific guy and jim clapper and a capable set of leaders across the intelligence community and get their ideas about, and their commitment, with new leaders to move forward. >> thank you. general? >> i would be receptive to whatever the dni when he needs changes on lott to go where he has to go. i don't think there'll be numerous but when they come i think you can bet he needs them to get from here to there but to echo what has been set at the table before, a lot more is depending on the individuals and taking full advantage of the law and those informal structures that get so much done in such a complex kind of organization, so i would keep a close watch on that. if you do end up with for lack of a better word pathologies in terms of poor process and personalities, then there isn't

enough history and there isn't enough structure to overcome that. and therefore, that is a danger sign. you need to be aware of. >> thank you. >> i think the law is a good law and it is working and the people in the top positions are excellent, and we had an enormous success last weekend we have had other substantial successes over the last several years. we are getting better and better at this, building on the record of three administrations in pursuit of osama bin laden starting under bill clinton when he was indicted and again at the cia was set up to pursue him. we didn't get ari far with that. the then national security pfizer's hair was on fire but alas, we didn't get the job done and through the bush administration and now the obama administration, with successive congresses we are doing better so i would kind of say that is in good shape.

a piece of the law that has never really been implemented is the formation of a robust privacy and civil liberties board. i know both of you have written letters in my last job i wrote letters. to people of the top of now been designated by this administration but i don't think the board -- and why does this matter? it is not just to check a box of the civil liberties community which is a robust community and should be as happy. is to make certain there is full vetting of policies that affect our u.s. constitution and the implementation of the fisa limits we all work so hard on and the implementation of the patriot act and perhaps new policies to deal with something i know you are both worried about which is our vulnerability to cyberattacks. we want a group of knowledgeable people to screen these things

and then to persuade an anxious public that the policies are a good idea. i was told today that the patriot act extension may be in trouble on the hill in both parties because people don't understand why we need it. and, i think they would understand that that or if there were a bipartisan privacy and civil liberties board to explain this. the final point is that our vulnerability in the near-term future is to our homeland and that is why the nctc matters and that is why vertical information sharing matters. we have to think very carefully about the domestic intelligence space and how we are going to move forward and make sure that we don't trade off liberties for security. i don't think that is a zero-sum game. i think we will either have oath or we will have neither. getting from here to there will depend on the watchdog that the

three of us plus pete hoekstra insisted be in the 2004 law that has not yet been fully operational. >> thank you. thank you all. thank you mr. chairman. >> thank senator collins. one more item that i want to take up with you while we have you here. my impression from the testimony at least a representative harman and mr. gannon is that using the term general that you used, kennedy of effort, is that we don't have the unity of effort regarding domestic intelligence that we have regarding foreign intelligence. and i know represented harman you have been critical at the department of homeland security is not where it should be. i agree. i think secretary napolitano is working on that and we are getting better but i wanted to invite any of you and we will

start with mr. gannon because you made this point, what is the problem in terms of unity of effort? i note you weren't criticizing the of the eye. you were admiring their improvements they have made in counterterrorism but what do we need to do and does the dni needed additional authority or is this one of those areas as you said before that the dni, looking across the community, maybe this is an area that the dni authority has now focused in on? >> i would like to make several points here. i think you are dealing with frankly new agencies like the department of homeland security. compared to the department of defense or the cia, they have years of doing foreign, working on the foreign intelligence side and developing cup at -- capabilities that are extort me. we don't have these capabilities. the fbi, and by the way would

have reduces racism for the fbi today but i would also say that i think we underestimate the difficulty of transforming a law-enforcement agency into an intelligence agency and if i had been a cia man transferred to a law-enforcement agency i would have been horrified. so i think we had to expect was going to take some time and then some of the constituent agencies are doing their own thing and dealing with new missions. there is a lot of overlap, but i would also have to say that you also have fragmented congressional jurisdiction that i think it's been a real problem. there is no but i would call adult supervision, giving all these agencies and ability to deal with the strategy and then to measure progress against that strategy. >> adult supervision from congress. >> yes.

i wasn't talking about you. >> i know, i know. this is the most significant failure we had been working to adopt the recommendations of the 9/11 commission and we were really pretty good at reforming the executive branch but when it came to reforming congress, it just didn't work. >> fud again on the national side you have got the cia with years of practice and they have jsoc now which really has become a center, the gravitational pull on the agencies to work collaboratively. >> and as you said. >> don't have any counterpart on the domestic side and a lot of what is being done including with the fbi while the structure is being put in place the output i think is -- but i have actually attended some of what i can find of who actually has

jurisdiction in a particular hearing, i don't find it an aggressive approach on part the part of congress to really put quality measurement on what is going on. >> so what should be done about this? general hayden? >> first of all let me just say i agree totally with everything that john is just described. not bad people or lack of effort. it is very hard for us to do because we haven't done it historically. recall your legislation sets up the fbi to be a domestic intelligence service and everyone said that it was great in 2004 and late 2008 attorney general mukasey finally did issue fbi guidelines with regard to working the spaces between cases as a domestic intelligence services. you saw how will well that fit in the popular political culture. it unleashed a firestorm of criticism so this is hard because we have not done it before and our political culture is a bit of a rejection for it. it brings the point to call someone harman brought up, you

make people feel better if you have got those mechanisms in place and working to give a comfort level that this is being overseen as well. i guess to reinforce it, this is a very important if not the most important area of focus, the new flavor of threat homegrown, low threshold, self-radicalized, individual which puts a lot or wait on domestic as opposed to foreign, lot or wait on law enforcement as opposed to intelligence derived and if we don't begin to perfect our processes and organizations there are, something bad will happen and we will overreact and perhaps make it even worse. >> well said. go ahead representative harman. i was going to ask you if you agree whether this is a matter of trying to give new authority against the dni or just

searching the dni to focus in on domestic intelligence as one of the weaker links in our chain? >> i think the dni has adequate authority. i think we need to have, and this is something you can do, a public debate about how to do this. not whether to do this. i think most people get it, that the risk of homegrown terrorists great and maybe the harm from homegrown terror won't be as great as two towers in new york falling down and killing 3000 people but it is certainly possible, we all know this, that nuclear or radiological materials not only can be funneled into this country but certainly they radiological materials are hearing can be assembled into a dirty bomb or several and harm a lot of folks. but my point is we need public by an. and. it isn't just making people feel better. at least that is my view. is making them agree that our

constitution will be respected and it must be. otherwise the underpinnings of our country are done and we turn into something else, which i surely don't want us to do. we have not yet had a robust public debate about a comprehensive framework through security framework and a post-9/11 world. we have done that the psychically. we did the patriot act, which i supported. we amended the patriotic -- patriot act which i supported. we did fisa amendments. we did intelligence reform, but we haven't thought through how all the pieces fit together and i don't know we would agree and i don't know that this is the best time for congress to do this since there is an excess amount of partisanship in congress at the moment that if ever there was a time to give this committee adequate jurisdiction to hold that debate and do broader legislation, not just moving boxes around for the

dni, but really thinking about in a new world with 21st century threats, how should americans deal with the tension, interrogation, investigation of americans on american soil, racial profiling or other activities that are -- how should we do this comprehensive way? i think this is the time and this is a huge service you could perform. i think the hearings you were holding right now are very helpful, and i'm very happy to participate in one, but i would urge the congress to play its role as a co-equal branch of government to thoroughly assess what is the right way of the buy-in to fill this domestic intelligence space. >> thank you. this is an interesting place for

us to come but it does point to what needs to be done next and it does relate as you all said, to the unique threat which is to say we didn't have homegrown domestic terrorism in our minds when we adopted the 2004 acts. it now becomes a very significant part of the threat that we face and we are trying to do this in ways that are different, as he wills that. for instance the dhs is trying to interact with state and local law enforcement, literally hundreds of thousands of people. they're obviously interacting with the leadership, but potentially a mighty force of gatherers of intelligence, if you can do this well and we are still feeling our way. i don't have anymore questions.

i want to thank the three of you. has been a very valuable session for us. it really brought to bear the quite remarkable and long experience you have all had. you know, we are going to continue these hearings and stepped-up and decide whether we think there is any legislation proposed in a session of congress to better achieve the purposes for which the original legislation was adopted or whether this is a matter where we ought to just agree on a report or even, in part public and impart maybe just to meet with some of the key players and say hey we have taken a look at this, and here is what we really think based on a what we agree you ought to be focused on now. doesn't require a new law but it does require attention and coordination. with that i thank you. the record of the hearing will stay open for 15 days for any

additional questions and statements. the hearing is adjourned. [inaudible conversations] [inaudible conversations]

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vulnerability of reactors.

>> before we begin, i wanted to take a moment to acknowledge the passing of a former nrc chairman earlier this year. before his time with the ncr, he served 39 years with the u.s. navy retiring at their chief of naval personnel. his life will be celebrated with services today followed by internment with full military honors. just wanted to take a moment to honor his service to the commission and ultimately to the nation. i'll now turn to the subject of today's meeting. the systemic and methodical safety review that the commission has launched in response to the events in japan. although we remain at an early stage, task force will be discussing their short term 90 day review and how it's progressing and ultimately their next steps. among the broad range of issues are flooding, seismic and other natural has arresteds, station

blackout mitigation strategies and emergency preparedness. and this is the first in a series of meetings that will focus on the task forces short time 90 day review. there will also be a public commission meeting at the 60 day and 90 day mark. so approximately 30 days from now and then another 30 days following that. to keep the public informed of additional developments as we do this short term review. ultimately the task force report will be made public and i know charlie will it talk a little about that today. unfortunately because of the time constraints with doing this quick review, we've in order had the opportunity of public participation would he normally would have. but the purpose of the meetings are to serve as an opportunity for the public to hear about the progress we're makinghave. but the purpose of the meetings are to serve as an opportunity for the public to hear about the progress we're making, the issues looked at and to provide insight on the direction that the task force may be headed. as we transition to the longer

term review, the commission has asked the staff to more fully engage stakeholders in a way that unfortunately the time constraints of this short term review do not allow. i just want to say that this is going to be a very important meeting. this is the first opportunity for the commission to hear from the task force, the first opportunity for the public to hear from the task force. so i certainly look forward to hearing from you on what issues you're identifying, what processes you'll be taking and fundamentally i fully expect that there are going to be lessons that we'll learn and likely because of those lessons we'll be making changes to the way that we do business and the way the industry does business in this country. one of the issues i'll certainly be keeping a close eye on is the importance of the time frame in which we make changes. it's important that whatever

changes come out of this process we do these in an expedited way. i think it will not be acceptable if ten years from now we're still working through the recommendations of this task force or even the long term task force that comes out of this process. so i certainly will be keeping an eye towards how we can implement whatever recommendations the task force does provide to us in a very expedited way to put these issues to rest as quickly as possible. i think that will be important for stability for the industry, important for the agency and ultimately for our public stakeholders. so with that, i would offer my colleagues an opportunity to make any opening comments. >> a few brief comments. it's been two months since the earthquake and tsunami in japan brought so much death and destruction to that done and caused damage to the fukushima

reactors. and as you know, the work to stabilize those rebeing a it tors is still going on and our thoughts and hopes go with those who continue that difficult work. we today are here to discuss what we can learn.

-- communications that we've had with the public and the states. in the early days of this event, i think there's lessons to be had there, as well. there are lessons beyond what our agency can cover, but i wanted to highlight this incident also showed that there is some interesting aspects to the international framework to respond to emergencies and we learned some lessons there. and i think that the government should give careful thought to that and maybe make recommendations for the future. with that, i look forward to hear whagt task force has to say and appreciate all your work on this. thank you.

mitigation phase of theirand th still in the accident mitigation phase of their activities. while plant conditions aren't stable, you might say they're static. spent fuel conditions while they changed, they're not changing at such a rapid pace that it's causing any kind of undue concern. there have been new issues identified, been some structural conditions that have recently been identified that are receiving increased focus and attention. i would describe the feed and plead situation that they're use to go control temperature inside the reactor vessels as something that deserves considerable continued attention. it's not steady state yet, requires responsibility monitoring and adjustment. there's also the situation of

unfiltered and unmonitored release taps continuing amongst the three units. and then of cour still the reliability of instrumentation, complicates our understanding of the exact conditions at any given time. p pepco has initiated a recovery plan that has a number of important activities imbedded in it. the enclosure over the units is beginning. right now they're doing over unit one. they're working on a number of ventilation modifications to improve conditions inside of the plant, installing closed loop cooling for units one and two on the spent fuel pools.

and engineered systems to help contain those releases i mentioned earlier. there are at least six challenges of concern. the first is the radiation fieldses inside the reactor buildingses which are certainly going to impact the rate that work can be done and the accessibility of various parts of the plant and pieces of equipment. similarly high humidity levels inside of the reactor building is going to be problematic for the workforce. there is a considerable amount of debris inside of the spent fuel pools and in the turbine buildings. much caused by the tsunami and also some from the hydrogen explosions that occurred shortly

after the events started. i mentioned that there are some structural concerns that have recently been identified, at least potential structure all issues in the units three and four spent fuel pool. there's the challenge what to do with the radioactive waste that has been generated and is being held in various areas, tanks and locations around the mant. and then there's the natural challenge that they're now entering in to the rainy season. which will just complicate more the activities around the plant. there is an immense cleanup challenge resulting from the tsunami by itself and then much of the soil and cleanup that needs to be done has the added complication of it being

radioactive contamination area, as well. but overall i believe the japanese are making progress on addressing those issues. they have a well organized plan and are moving ahead deliberately. i'd also like to add my thanks to charlie miller and the entire team that we've put together on this task force. they've been working on this very diligently and with that, i'll turn it over to marty who will begin the presentation and then charlie will give the details. >> thank you, bill. good morning. chairman, commissioners. what i want to do is talk about the status of our activities subsequent to the event itself. and as you know, on march 11th, the event took place and we activated our emergency response facility. went into the monitoring mode and subsequently dispatched a team out to the site. our first interest was in ensuring that the tsunami itself

was not going to have an impact on the licensees in the pacific and west coast and subsequently we've been providing support to the ambassador, citizens of japan and government of japan. subsequent, the nuclear power reacted and took a number of actions to assess the capability to respond to events such as occurred at the fukushima site and we began our activities i think the first was the information notice that we issue order march 18th. this was provided a description of the event as best we knew it at the time and highlighted to the nuclear power industry the underlying regulations we have in place to ensure that nuclear power plants are designed and operated in a manner that would be responsive to such events and preserve safety. subsequent to that, it was on march 31st, we issued a similar

information notice and that information notice was directed to our pfuel cycle facilities s they would have the same information as the reactors. if you go to slide four, the next set of actions in a we took were temporary instructions. temporary instructions are basically -- provide guidance to our inspectors on activities we'd like them to conduct in terms of gathering information and assessing compliance. the first was on march 23rd and that was focused on independently assessing the adequacy of the actions that licensees had taken in response to the fukushima event. and we asked our inspectors to look at what licensees were doing with respect to the capabilities and strategies they had to respond to large fires and explosions, response to station blackout events, respond

to flooding events. the inspectors conducted walk downs, looked at the equipment, looked at the procedures, looked at the maintenance, the training and everything that surrounds the capabilities that were put in place to address these kinds of events. we're now getting the inspection reports back. i think the final reports are due back today and we're getting some insights from those inspection activities. the second of the temporary instructions we issued was on april 29th. that instruction was as a result of charlie's task force and the need for additional information with respect to severe accident management guidelines. these guidelines were put in place in 1990s and they were voluntary industry might be differences. so they didn't have what we consider and use in our jargon a regulatory footprint and had been followed up on.

so in order to assist the task force, we have the inspectors now out in the field looking at the adequacy of these severe accident management guidelines and how they've been maintained over the years. the third that is not on the slide is a bulletin. yesterday we issued a bulletin to the nuke cheer power industry and that requested information specifically with respect to the licensees, what the licensees have done to implement strategies to respond to large fires and explosions. if you recall following 9/11, we issued a series of orders requiring licensees to take a southwest actions to respond to large fires and explosions beyond the design basis of the plant. we subsequently codified those orders in a set of regulations and we've inspected those over time, but we wanted to go back out and check again to make sure

that we understood clearly what licensees had done. so there's a set of actions required by that bulletin, both short term and longer term actions. the first said we're asking listene listen licensees to verify that they're capable of performi performingmeperforming the action and the second set is a longer term asking licensees to provide us information on the maintenance, testing, off-site support and other features that were required by that regulation. if you go to slide five, what i want to talk about is what charlie's been tasked to do. on the 23rd of march, the chairman on behalf of the commission tasked the staff to establish this task force to perform a systemic and methodical review of our processes and regulations in light of the events at fukushima. march 30th, the edo then took

that tasking and converted that into a charter for the task force and we established the task force in response to that tasking memo and charter. the task force as we know is led by charlie miller. i'd like to -- the a team. gary, jack, dan, nathan and amy on that treated and we provided their resumes for you for your benefit. but it certainly is the a team. if you go to slide six, the task force was directed to evaluate available technical and operational information and on the reactors including spent fuel pools in light of the accident at fukushima. they're to develop near term recommendations and suggest a framework for us to move forward in the longer term if there are any additional information or issues that we need to address.

they're doing information gathering and we're not involving all of the stakeholders, but we have involved certain stakeholders in near term in order to gather information that they need to conduct their assessment. and as the chairman summarized, they will provide a report with their recommendations to the commission outlining any policy issues or operational issues that we identify and that will be provided to the commission in july. so with that background, i'd like to introduce charlie miller and allow charlie to tell you a little bit more about the work of the task force. thank you. >> thank you. good morning. as marty mentioned, i've got a very experienced team here. we kind of added it up and determined that we've got to get collectively over 150 years of regulatory experience among us and i think the team is fairly diverse. and i can assure you we had a lot of lively discussions and have to come to agreement on issues that sometimes take some

tile. so i feel very fortunate. it if i could have slide eight, please. i thought it was important to give you our current assessment as we stand today. and as we stand today, the task force has not ied filed any issues. we think would under mimin minm confidence. that said, we do expect that we're likely to have findings and recommendations that will further enhance the safety of it the nuclear plants in this country. slide nine, please. commission instructed the task force to be systemic and methodical as we went new our thought process. in doing this, the task force has tried to take the lessons learned from past efforts, especially the lessons learned from the tmi lessons learned.

we feel we're more focused now as an agency and that framework is much more mature than it was at the time of tmi. the task force is screening issues to ensure that there is a nexus for what happened at nuke she made and that the issues that we look at are related to our insights from what happened at fukushima. but we want to make sure that our focus isn't so narrow that we miss some related insights that we might get. for example, flood can go occur from other ways than tsunamis. in our report, we'll give a very high level narrative of what happened at puck she marks but only to the extent that it's necessary for us to inform our insights and our recommendations. a longer term review will look at the sequence of events in more detail once that's known

and that will probably take a considerable period of time. the principles that we're really following start with defense and depth. it's been an agency principle since day one and we follow it every day. we want to make sure that we have appropriate balance in what we're looking at between protection, mitigation and emergency preparedness in our requirements. slide ten, please. in keeping with that approach, the task force thought about how we would be making our recommendations. we identified several existing policies and guidelines to help frame the way that we thought and the way that we did our business. we looked at existing regulatory policies and guidelines such as safety goals. i've mentioned defense in-depth. existing requirements and guidelines. consistent with the principles of good regulation, the task force is striving to develop a southwest recommendations that will further enhance the

coherence, proceed difficult ability, clarity and transparency of our regular la to requirements, programs and processes. slide 11, please. during the task force deliberations, the importance of severe acts of management has been highlighted. cm gchlts as they're known were implemented as a voluntary initiative by the industry in the 1990s. and are not covered by our regulations. consequently, we do not evaluate them as part of the agency's routine reactor oversight process. marty mentioned that the task force has already taken an action at our request, the office of nuclear reactor regulation put out a temporary instruction asking inspectors to go take a further look at this. i'd like to thank nrr for their timely issuance of this. the results we expect to get back towards the end of may and we very forward look to as a

task force with further insights to help us formulate our recommendations. we wanted them to be able to look at the availability and the maintenance of these cmgs, the training and exercises conducted to support them. and, again, i think that this will go a long way in helping us try to formulate recommendations and you'll hear me talk about that more as this presentation goes on. we also recognize the benefit of making the public knowledgeable of some of the efforts that took place following 9/11. following 9/11, on the agency worked with the industry and there were industry guidelines put in place to meet the regular places that we put in place. and we've asked that these be made public because i think it will help the public get a better understanding to some of the things that here to forehave not been made public. while these guidelines do not give the specifics of some of these features, i think it helps

a lot to know that u.s. plants do have some additional features added as a result of 9/11. this information also may be useful in international collaborations that we'll be doing from here forward. slide 12, please. commission directed the task force to address operating and new pow he reactor issues in spent fuel pools. we will identify issues that need to be addressed in the near term and longer term has been mentioned. the applicability of the lessons learned to some of our licensed facilities will be taken on in a longer term review and is not part of a near term task force review. with regard to the agency's response to the incident in japan, that's being addressed by our line organization and not part of the task force's review. slid 13. let me get into detail about the

areas of focus of the task force efforts. consistent with you're systemic and methodical approach and fundamentals and principles of defense in-depth, the task force has identified the following areas of focus. first is on design basis of natural phenomena. then we've extended toster beyond design basis natural phenomena. dozen we're looking at extended station blackout. if you found yourself in it an extended station blackout, what can we do to better protect.it extended station blackout, what can we do to better protect.t a extended station blackout, what can we do to better protect. an extended station blackout, what can we do to better protect. finally, we're focusing on emergency preparedness as a final line of defense to protect public health and safety. and we're also look internally as a task force to see where the agency itself and the staff itself may be able to change the way that we do business with regard to our own internal programs and where potential

enhancements could be made. i'll expand upon each of these as the present talation proceed. slide 14. first layer is protection. fukushima event reinforces the importance of protection from natural phenomena. the task force is evaluating design basis requirements for seismic and flooding events and the associated safety margins including how those requirements and margins evolved over time. in addition, we're evaluating design basis and the margin for external events that could affect large areas of the plant that might be affected from an extended station blackout or the loss of the ultimate heat sink. we're not limiting ourses to just the earthquake/tsunami pair. as i mentioned, flooding can occur from other phenomenon. so we're look at things like seismic events followed by dam failure, side pieismic events fd

by fire, large amounts of precipitation, et cetera. we also wanted to be able to acknowledge, however, existing agency efforts that have been ongoing and started before the event at fukushima. generic issue 199 is addressing the updated seismic hazards in central and eastern united states. there's going an new generic issue as it relates to dam failures. the task force has tried to look at these activities and other ongoing agency activities to see if the focus on those activities is sufficient in addressing the fukushima less ons learned. and if not, the task force will make recommendations for how they might be enhanced. slide 15, please. the task force is evaluating the sur advisability of ac power to provide spent pool cooling.

this throughs an evaluation of power sources and their distribution and includes support systems, things like diesel fuel transfer, tank, cooli cooling, et cetera. we also want to be able to include in our thinking the availability of alternate ac sources for station blackout and other available ac sources that could be utized. the task force is evaluating these issues to explore existing and potential capability to maintain ac power during beyond design basis events. slide 16, please. the next wllayer is mitigation. we're focused on mitigating the consequences to first prevent core and containment damage and secondly to prevent spent fuel

damage. fukushima highlighted the chal thinks regarding long term station blackout and the ability to cope until off-site support can be effectively implemented. i'll give you some more details of this in the forthcoming slides. slide 17, please. we're looking at the availability of ac independent heat removal capability. reactor core isolation cooling, auxiliary feed water, for example. we're looking at strategies to ensure that station blackout event is not further complicated by things like the loss of rebeing a tant cooler pump in-tein integri integrity. we're looking at hard vents put into bwrs. these are there to prevent containment over pressure failure. hydrogen control measures is an

extremely important subject. mark one and mark two, bwrs with inerted with nitrogen. design of large dry containments is such that they're supposed to be able to withstand hydrogen detonation, so we're trying to take a step back in look at all of that and see where we stand in the u.s. industry and as regulator. these are features that are in our plants today, but i think it's worthy of a look. slide 18. for spent fuelle pools, we're looking at heat removal capability, water cooling, ways to get makeup water, sprays, things of that nature. we're looking at the fact that if you lost water, would there be air cool ability maintained in the pools. we're looking at things like reduced fuel inventory and spent fuel pools.

we're also looking at considerations to mitigate the releases in the event of fuel damage. the task force is exploring whether it's needed. the capability to filter and monitor releases. all of these things are issues that have come to bear that we're trying to examine. next slide, please. we've identify what we consider to be cross cutting considerations for evaluation. the task force has identifiedie consider to be cross cutting considerations for evaluation. the task force has identifieddy consider to be cross cutting considerations for evaluation. the task force has identified w consider to be cross cutting considerations for evaluation. the task force has identified three areas. the emergency operating procedures are for design basis transients and accidents. they're included in the nrc requirements. with regard to station blackout, there are procedures for coping and recovery and a beyond design basis scenario. these are also part of our rules

to the saying black out rule. as we've mentioned, the severe accident management guidelines were a voluntary enhancement, but we've noticed in our examination that these are limited to core and containment and do not consider the spent fuel pool. so we looked at the extensive damage mitigation guidelines that resulted there ofrom our efforts after 9/11 where there could an lot of a large area of the plant due whito explosion o fire. so while we've put things in place, prior to fukushima, one of the things that the task force is really looking at as are they really integrated together in any way. and is there a better way it to integrate them together. you had various levels of training, various levels of requirements, various levels of

procedures an configuration control. so we're trying to look at the integration of these or whether there could be better integration of these so that you would get a more seamless response if you should ever experience a severe accident. we're looking at issues such as the control room operators and tech center have adequate information to monitor and mitigate beyond design basis events. spent fuel pool level, for example, is one level before survive ability and backup power. are the expectations clear with regard to command and control and decision making? transition timing from the operators in the control room to the tsk. decision points for initiating requests for off-site help. one of the advantages that we do have in this country is that as part of our regulations, 504 x does allow for a listenee to it take an emergency action immediately even if that action causes them to have to violate

listen conditions or tech specs if they feel that public health and safety protection is imminent. these actions, however, have to be approved at a senior operator level at a minimum. so we're trying to see if anything needs to be further enhanced in that regard. next slide, please. emergency preparedness. the task force wants to make sure we take a thorough look at it. as fukushima has taught us, it was a situation where you had major infrastructure damage. evaluation of evacuation and sheltering follow itting natural disasters with a large amount of infrastructure damage is something we need to look at a little bit farther. also about if you look at the way we've analyzed accidents in

the united states, it focused on a single unit being affected. pu so our epa requirements focus on a single unit event. the size and staffing is really based upon a single unit event. so in many cases at multiple event site, resources could be brought to bear to help fight the problem at that single unit may be taken from a multiple unit and if you're dealing with a multiple unit event at the same time, you have considerations with regard to adequate staffing, who makes the decisions on how to triage and how you go about proceeding with what you need to do first. other impacts. the ability to provide emergency notification when communications will be damaged. the ability to transmit plant data to licensees is extremely

important for the people in the emergency operation facilities and emergency operation centers for the state to have continued information so that they're better informed and so that the state and locals can make better decisions with regard to protective actions. the availability of real time and on site and off site radiation measurements during accidents is an area that we're looking at. finally i'd like to spend a moment on the appropriate use of potassium iodine. information education regarding radiation response decision making and the appropriate use of ki is an important subject. if you the days following puke she made even in the united states, this way various levels of forgiven out about the prophylactic use of ki, not all of which was prudent. and i think that we need to take a look at whether further education in that regard is necessary.

next slide. looking inwardly, we're trying to take a look at our own regulatory framework and how well that we consider within our regulatory framework events that go beyond the design basis, looking at reactor licensing issues, operator licensing issue, reactor inspection program, does it need to be refocused anyway. should we have additional inspections in certain areas. trying to take a look at our evaluation of operating experience program. we do an awful lot of work in that area. but are there better things that we could even improve upon with regard to looking at domestic and international events that might help us learn some lessons before an event happens. we're trying to examine areas for possible enhancement of information access and integration across technical organizational boundaries. let me explain what that means to us. as part of our effort, we've had an opportunity to talk to a lot of staff and we have a lot of

great expertise in this agency. in other forms, we've many times talked about how the agency has gone through a transition with many of our more experienced people having retired, a number of our staff have less than five years of regulatory experience. we have a very bright dedicated staff. but as they gain more experience, it's important that people who are working on related areas talk to each other and understand what they're doing in these related areases. you might have someone who is an extreme expert, for example, on diesel generators or spent fuel pools that know certain aspects of it, but are they talking with people who are look at other aspects of it, people who are very adept at looking at accurate cooling and what would happen if you lost adequate cooling. but a better focus perhaps in the integration of people who are looking at some of the severe accident consequences following 9/11 type of an event.

areas that we could possibly make recommendations on that we're still trying to gel. let's go to slide 22. i think it's important to try to explain how we're gathering information. as i've mentioned, we've had the opportunity to interview dozens of agency experts in a wide variety of technical topics. seismic, tsunamis, flooding, spent fool pool, hydrogen, control, emergency preparedness. emergency mitigation guidelines. we've had the opportunity to continue to get the insights from our coverage in the operations center and our site team in japan. and dan spent some team in japan. we've had the opportunity to talk to fema for any insights that they might have for

emergency preparedness. and we've had the opportunity to gain the insights by understanding how impo is going about their efforts with regards to gathering information. that said and while we've talked a little bit in this meeting about the limited time we've had for stake holder input, i want to assure you we're not working in a cave. there have been a lot of published articles, congressional testimony, correspondence to the agency about the affairs following fukushima. we're trying to make sure that we take a look at all of those as they become available to us to see if insights that we get from that can better inform us in our decision making process. we've already begun some international interactions. i've had the opportunity to attend the nea steering committee, nuclear energy agency steering committee meeting

recently. i also had an opportunity to talk to them outside of that meeting. gary has chaired the steering committee where we also had presentations by the japanese. various members of the nrc staff have had a number of interactions from various delegations and had an opportunity to give us insights from that. but we're trying to focus on where those insights take us with regard to what we can learn. as i said, we're not focused on the specifics of every single day of what's going on in fukushima. that's being handled in the lime organization. next slide, please. what are our next steps? our next meeting and update will be in the middle of june. we'll give you a status briefing. and if i could give you a little bit of a coming attractions through that briefing as we see it, by then we'll have the results of both temporary

instructions and how those insights may help better inform us with regard to our recommendations. if we identify they other prompt task force actions that were needed, we'll report that at that time. further, our near term evaluation of the lessons learned from fukushima will give us additional insights i think we can report at that time as we formulate our recommendations from the information that we've gathered. and then finally, we hope to give you at that time a better vision for how we would proceed in the long term as an agency for those issues that are more appropriate for long term review and consideration. finally, our task force report will become publicly available as we move towards the july commission meeting. chairman, commissioners, that concludes my presentation. we'd be happy to take your questions. thank you. >> thank you, charlie, bill, and marty for a very informative presentation. we will start our questions.

>> thank you. and i thank you, dr. miller, charlie, for agreeing to lead the team and for the team's hard work and not working in a cave. there are a lot of nrc employees who aren't on the team who are supporting you. so i'm grateful for what is a very strong both professional and personal commitment to the work that they're doing. so i'm grateful for that. the last time that the commission met in the days immediately following the events, i had made a comment about faith in nuclear technology maybe being shaken, but that we don't regulate and we can't respond on the basis of faith, it has to be on the basis of facts. i had the opportunity yesterday to be at an event and in response to a question the chairman received, he had an insight that since h