america's diplomatic capabilities for the new century unfolding before us. taking care of our people of the members of this civil services and foreign service nationals who serve the country with such dedication and courage and so many difficult places around the world is not only the right thing to do but also a powerful country should to america's best interest. think you very much again, mr. chairman, ranking member lugar and members of the committee for your consideration i look forward to your questions. -- before, mr. secretary. we look forward to a good dialogue and i don't think that there is any great controversy here and i am not sure if we have to tackle that logic let me ask you first wall, with tom filling the position on the deputy secretary of state management resources you're coming in in the steinberg position. can you share with the committee

how you will divide up responsibilities of what if anything new might accompany your portfolio that wasn't there with psychiatry steinberg? >> thank you very much senator kerry. i look forward to working with tom who is a terrific partner as a deputy secretary primarily responsible for management and resources issues which is no small challenge as both you and senator lugar indicated earlier. i look forward very much to continuing the work that i've been involved in in trying to strengthen relations with the emerging and the emerging powers around the world india, brazil, russia look forward to doing more work on china issues in the pacific given the significance of that part of the world. i hope to remain very much involved in the middle east issues particularly with the challenges posed by the arabs ring as you mentioned earlier. but in truth i think that there is no shortage of the challenge of policy challenges before us

around the world and i look forward to doing my very best to help secretary clinton make progress in all those areas. what if any of those that you just listed is their anything that is different from where secretary steinberg steinberg was focused? >> i spent a good deal of time over the last years of the relations with russia, which i hope to continue relations with india which the secretary and the president has invested a lot of time and as i said, given my own background in what is never a dull part of the world in the middle east, i expect to continue to be engaged on those as well. >> speaking on the middle east, in light of the prime minister's speech this morning and concluded a visit, what is your sense of whether we can get meaningful is really promised to lead to palestinian track going? where would you say that is in your judgment after this visit?

>> well, mr. chairman, the president last thursday laid out a very clear vision i think of how the united states at least thinks a resumption of negotiations ought to be framed. that is based is the president emphasized on appreciations strategically that the resumption of diplomatic movement towards a two-stage solution is deeply in our interest but in the interest of israel as a democratic jewish state and its own security given the demographic and technological realities. i think that it's also technically important as well to try to resume diplomatic movement simply because i think all of your experience in the middle east is that when vacuum's exist in the peace process they tend to get filled by an helpful ideas and actions such as the notion of moving in september in new york and the u.n. general assembly toward a

kind of symbolic isolation of israel and movement toward a declaration of an independent palestinian state. the truth as the president emphasized is that that state desperately needs to be produced but it can only be produced through the negotiation and that is the vision the president tried to lay out and that we are going to work hard. >> in your reaction to the statement in a speech about tearing up with hamas, where do you think that leads the president of loss in terms of actions and thus? >> the reconciliation agreement which we have all read about between hamas and fatah is something of the palestinians are going to have to work through. it will impose a very clear and legitimate threshold question for palestinians. once that reconciliation is aimed at. what kind of palestinian partner can israel look at across the table, and none of us can expect israel to sit down at the

negotiating table and the palestinian leadership has a very important question to address in the weeks and months ahead. >> i would agree with that but i think the prime minister put a question to them pretty effectively today. coming back to the state department from a minute having spent those years there and understanding it as you do, what do you see as the biggest challenge now for the department itself in the context of these changes that are taking place globally and some of the demand is taking place particularly in light of the budget right now? can you speak to the internal challenge we don't see every day but with your whistling? >> secretary clinton has addressed this very clearly and

eloquently and the quadrennial development initiatives for the review which she launched not only of the pentagon has done for the last couple of decades and that is aimed at making the best possible use of what we've recognized are going to be increasingly tight resources, strengthening the civilian capacities of the american government to promote american economic interests overseas but to promote important global initiatives related to global health for food security to ensuring that within the state department the regional bureaus and the so-called functional bureaus those responsible for economic issues, energy as well as human rights work closely and effectively together aimed at the president's priorities in the past there's been an artificial tension between the bureaus and i think a lot of that has been broken down through the secretaries efforts in the last couple of years, and i will do everything i can to help in that respect as well. so i think it is incumbent upon

the department to demonstrate the best possible use of the resources that we have to make the querist arguments we can about what is at stake for the united states at the moment in history when our own economic well-being depends more and more on interactions within the global economy on trade with countries overseas and on the efforts our embassy's diplomatic missions can make to promote those kind of interests. it's a tall order. i think that something over the past couple of years it's going to be extraordinarily important. on egypt to can speak to the -- i am comfortable with the amount of money being put on the table. i just don't think that it's enough for not just us, but the global community to be committing to the transitional as critical as the one that takes place in or quito egypt,

one country doesn't have all of the secretary and struggles and other places but it is a very clear economic challenge. in their region there is a prepare tignes to step up the program or the initiative that brings people together to do that could you speak to that for a moment? >> first i would stress the reinforcement point that you made that i think egypt's transition is going to be as consequential as any challenge that we faced across the middle east in the coming years. egypt is by far the largest of the arab countries, and i think if egypt makes a successful transition which i believe the egyptians are entirely capable of, it is going to have an enormously positive demonstration effect in the rest of the region. the political transition cannot succeed without a sense of

economic possibility. economic modernization which egyptians themselves have to lead by which we have a deep state assisting as to other arab states and other european partners it's going to be extremely important and that is why the president last thursday emphasized a number of initiatives that the united states intends to undertake and where we will welcome support from others. these relate first to the enterprise funds that you and others in the congress have suggested based on a work experience in central and eastern europe 20 years ago and proven vehicles for supporting the expansion of small and medium enterprises as a significant amount of debt relief as a billion dollars over the next three years, aimed at making use of creative ideas like swaps helping create jobs and infrastructure projects which is desperately needed in egypt and also more ambitiously in the medium term, a wide trade initiative that could involve egypt and particular but also

other countries in the region as well as the european partners and then the united states. the dirty little secret about these arab world in recent years has been the arab don't trade much with one another and we can do a lot to support successful political transition as space transitions in the arab world. this kind of industry initiatives and i think we have a love interest in europe and the president will be following up on this at the g8 summit. there's a lot of possibilities here but there's an enormous amount at stake, too. >> there will be a topic and this great. senator lugar? >> mr. chairman, i just simply want to raise the question how pathetically today taking the advantage of this opportunity to talk about the state department funding in the coming months that is the rest of this fiscal

year in the coming year. as you've noted, secure burns call before we have been occupied almost entirely through the year this far. the question of the budget deficits, debt ceiling, issues of this occupies almost all of our time a few interruptions for nominations in the votes on those sorts of things. on the other hand in the backroom here in our foreign relations committee hearings talking about very substantial challenges it comes as no surprise because you have been working through what we are going to be doing with regard to our embassy in iraq and likewise and in afghanistan as well as all of the contractors that are going to becoming a to do various things all of these things are budget items and cost money it would appear that about $8 billion in cuts in the state

department budget just for the rest of this year. i have a delegation of people from a tech in the speech today they want assurance that $3 billion of aid to israel is there and i had to respond about talking to you now that we are not discussing for the moment precisely what is in any of these budgets. we are not sure anyone has presented a budget. from the standpoint of the senate. how do you manage expectations in the various countries that we have served right apart from anxiety i would think about foreign service operatives who are going to be in these embassies and elsewhere when you have really no idea what the budget is going to be for the state department. and when these resolutions finally happen because of some

-- there will be some sort of conclusion, and we don't know which week or which month how do you go about informing people are making the adjustments at that time? any sort of backroom planning going on for the contingency that might be involved in all of this. >> welcome a senator lugar it is a challenge as you described and a great deal of backroom thinking going on about how best to deal with that challenge. as i said before, it is essential for the department to demonstrate the most effective possible use of the resources that we are provided to make the best possible case for why we believe the resources were requested especially for fiscal 2012 and the best interest of united states. i think obviously the so-called overseas contingency operation is part of our request focused mainly on afghanistan and iraq is extremely important so that we can build on the success that

has been achieved such a cost of the recent years but to build on that responsibly. i think it's important to remember that the state department budget represents something like 1% of the total federal budget. it's a relatively small investment. we are very well aware of the pressures on the u.s. federal budget across the board. and again, we want to do our part very effectively. if you look at a place like iraq and the kind of civilian expenditure that we are requesting for fiscal 2012 which is admittedly an increase from the level of fiscal 2010, you have to weigh that against the reality of the defense department request for the overseas contingency operation is going to be about $45 billion less as a transitions to the civilian leadership so the net result of that i think it's a pretty good deal for the american tax payer and a good

investment of american funds and what is a crucial moment in our relations with iraq and the part of the world. >> we hope he will stay in touch throughout these months and this committee is tremendously interested as you are and policies in both of those countries the safety of americans who are serving and the continuity of the influence we have. i want to pick up another controversial point, and that is on may 12th, deputy secretary steinberg when he was before the committee said that the president has conducted u.s. military operations in libya in a manner consistent with war power resolution and will continue to do so. now last friday of the president wrote the congressional leadership indicating the military operations would continue beyond the 60-day deadline specified by the war power resolution although the congress not authorized these operations.

this is a point of discussion and some debate. i know our chairman has offered a resolution going through the various parts about libya and essentially commending the president for his activities. i wont get into an argument about that. the tendency isn't being said here in terms of our overall foreign policy it's not a good one and a conclusion. it would be directed of humanitarian goals mainly stopping civilian killings. the president might say that we need to act quickly because otherwise people are going to be lost. but conceivably this gets on to the of war powers resolution even though it isn't a declaration of war man or a commitment to use military power in the united states.

but in this particular case this is drifting well beyond 60 days. calls for budget of what we spend all ready plus what we are about to spend and what we might spend contingent lee on the libyan resurrection at some point hasn't been forthcoming, and you can't solve that during this hearing today. let me just say as a source of concern for me and for others of to be i think concern for everybody. it's important to pin down when the united states is going to use military force to have the proper checks and balances with the congress to use even the leeway of the 60 days, the war powers act does, but not to move well beyond that as almost imagination. so i hope he will confirm seriously and we can have more conversation about. >> i certainly will, senator and i appreciate the seriousness of

the concerns that you raise. i also appreciate the fact there's been a longstanding debate within the conagra's of the war powers resolution. as the white house press secretary says last friday, the president believes that the actions and libya are regarding libya have been and remain consistent with a vote for power resolution and the president also indicated in the letter that he said to the congressional leadership last saturday the strong conviction that it's extremely important when engaged in any military action either a limited military action of the sort that we are engaged in support of a coalition in libya that we engage with, consult with and have a support of the congress and that's why the president welcome to the introduction last night with bipartisan resolution co-sponsored by senator kerry, senator mccain and other members along those lines but i will certainly convey the concern.

>> thanks very much, senator lugar. >> i ask your indulgence i have a meeting i need to go to in that moment. senator casey is going to preside in my absence and i just want to thank you again. i think it is obvious from the tone and questions here that there is no issue of your being confirmed by think, and we want to try to move to get it done as rapidly as we can and to continue our relationship with you formally. senator casey, i recognize you and thank you for sharing in my absence. >> thank you mr. chairman, 63 birds, we are grateful for your public service and for your appearance here today. and you're on going to commitment to engage in and the responsibility of public service yet again we don't have enough

time to list all of the positions he held that they have all been difficult and they've been positions of significant responsibility so we think you for that and also your family as well as he pointed out in your statement when you serve the public they do as well lie extention and i know the support they give you so we are grateful for that. i want to turn first to iran. i don't need to free site for review the challenge that iran presents for the region and the middle east and the world. we are of course concerned about two basic areas. one is the nuclear capability, and the determination to have nuclear weapon in my judgment and i think in the judgment of others. in addition to that even have said that if that were not a threat, as it is, they are demonstrate support for terrorism throughout the region and well beyond the visa and especially when it comes to the

support for hezbollah and hamas as well as others. i guess i would ask a couple of questions in this area. there is a 2,000 mine -- i'm sorry, 2011 annual white for a briefing of our director of the national intelligence and states the important part of the limited excerpt and iran has a scientific technical and industrial capacity to produce enough highly enriched uranium in the next few years if it chooses to come and we know that one strategy alone a solution make but we know we have sanctions in place. i'm one of the senators who co-sponsored the legislation today to further enhance those sanctions but those sanctions are part of it and they are working and necessary.

we also know that diplomacy plays a huge role here and your work demonstrated that swedes got more to do to hold 3g accountable. i want to get your sense based upon the experience and in light of the position we are going to be assuming in the event of your confirmation which i am confident about. what can you tell us about how you view the position of the assistant secretary of state to being able to push forward an agenda that would lead to both a diplomatic strategy as well as to keep the pressure on the iranian regime and elsewhere? >> thank you, senator. i think we remain very firmly committed to enforcing all of the laws that we have available to us now as well as international understanding such as even security council

resolution 1929 to maximize the pressure on the iranian regime to engage seriously of diplomacy on the nuclear issue something we haven't seen to date. earlier today, we announced a series of significant measures with regard to sanctions against iran including seven new entities, companies, designated under cisada and the so-called inksna. i think those are statistics forward and we are continuing to look at other steps that we can take to demonstrate our seriousness and beyond our seriousness the seriousness of the community on these issues it's constructive the european union yesterday also announced the continuation of the international effort against iran would have a strong

platform to build an unprecedented satisfaction role of the resolution of the 229 and what we did nationally and what a number of routes or other partners around the world have done it is having an impact on iran. it hasn't yet produced a kind of serious willingness to engage with diplomacy that we had hoped for, and in the absence of the indication of seriousness, we are going to continue to step up the pressure in every way we can treat stomach may i ask in the remaining time i can to correct the record your seeking position of deputy secretary. i apologize for that. the question that middle east peace or i should say the challenge presents to us got i think more difficult in the last couple of weeks and we could point to the last couple of months of the time per call within which you got more

difficult, more complicated even as complicated as it always is because of a number one of the developments which in my judgment makes it exceedingly more difficult as the government between hamas and fatah and with the decision made by president a loss due to a loss what that means for any kind of successful peace process. in light of that or in the aftermath of that, and a number of senators sent a letter to president obama. this letter is dated may 6th, and i want read all of it obviously but the one outlined in that i think is particularly relevant and important i want to get your reaction to this in the may 6th letter and we urge you

to make it clear to president abbas and to the international community the united states opposition to a hamas unity government that does not fully accept the accord at principles. those principles meaning that hamas must renounce violence and recognize israel and agreed to abide by agreements. in light of that condition or set of conditions, not having been effectuated or agreed to, what can you tell us about how the administration views not just the peace process more generally but specifically the peace process through the lens of this difficult question. >> thank you, senator. it is a very serious concern. the president was clear in his speech thursday opposing what is a threshold question for palestinians about what efforts

of reconciliation or unity are aimed at because none of us can expect israel to sit down at negotiating table sworn to the destruction because the president underscored and so i think in the coming days and weeks the palestinian leadership has important questions before about how what this reconciliation agreement means about how what is going to translate into a unity government about what the policies and positions of that government are going to be and whether that makes it possible for there to be a resumption and negotiation. we made clear that we are prepared to do our part, but the palestinians need to demonstrate their willingness to be that kind of a partner in the negotiations. >> i urge you in this the department as well as the administration over all and the president to continually

reassert that policy because repetition in a question like this is very important to get that message out. thank you very much. we will move to center rubio. 64. congratulations. the fact that this isn't full today is a good sign your nomination is going well. [laughter] and i wanted to personally thank you for your service to the country and for the sacrifice of being in the surface means to your family so we are grateful to that. i have three quick questions. one is your impression on something and in the time i've been here in on this committee which is a great experience so far it's very apparent the world faces major issues, big problems and clearly no nation on earth can solve these problems by themselves. the israel palestinian issue, syria, libya, north korea to its collections to address these and the have to be put together and lead and right now we can probably do that.

my impression is what others have discussed in the past many of the international institutions that are in place are creatures of the cold war, post-world war two what's your assessment of may not be a fair question in the form we can talk about later but i'm giving a tremendous amount of thought and perhaps you have but what is your assessment of the existing institutions in terms of their ability to deal with the reality of the 21st century to dramatically different than just 20 years ago and i mean all of them, they are important in the united nations oas. is it in your mind -- have we reached the point maybe we should start on the global scale having a conversation about either retooling some of these organizations and institutions to kind of line up more with the reality of the 21st century and the challenges we are facing? >> it's an important point, senator and it's under way already but i think it needs to be approached with a greater

digger and determination because whether you look at the regional organizations like the oas for example, which itself made clear the importance of reform and updating a different set of challenges in the 21st century, or a global institution like the united nations, the u.n. security council where the administration has made clear the importance of updating the security council to reflect the reality of the 21st century or looking at the global financial one institution, the world bank and where a great deal of work has gone into this already. but where if you look at the kind of economic challenges that we and countries around the world face, those institutions are going to need to adapt. so it is a long fur conversation but a very important one. >> just building on that there is a lot of concern and to hear a lot of talk about the rise in china, what that means, but also in the context of that and i think you would agree there is opportunity to find real

partners to take on these issues and not just china, turkey, brazil, india, these are countries we hope -- how do we -- what's the most constructive way for us to help -- i don't want to use the word coax but i decided, to encourage the other nations that are beginning to find more influence to really kind of realize that part of being at that scale, what nations reached that point do is they get involved with other nations who are at that scale to deal with the issues. that's a real challenge and what is your thought on what we can do here in the senate and beyond to be constructive in that regard? ..

whether it's a good security or energy or other areas where we have a great deal in common. i can't think of the bigger challenge as we look at, over the coming years and decades, been spending a lot of time and attention on those relationships and helping to deepen the stake of those countries and the kind of stable international system that serves their interest and promote our values as well. >> i have two quick questions on the specifics. first a couple of weeks ago we met, several of us did and then again subsequent meetings with some of the folks who were here on behalf of the libyan transitional council. i apologize if this was covered in the testimony earlier. basically what they have been asked for some of these funds have been frozen either direct access to the funds. is there any update, and i know

senator kerry who is working on some legislation of some sort regarding that issue, what is the latest on efforts to, if any to provide those funds or make something available? >> something which we are very much committed to. we are working with the congress with a variety of committees here to try and develop legislation which will enable us to do this. in other words to get access in one way or the other issue described to frozen assets so that it can be used to make the humanitarian needs of the libyan people and we are confident we will be able to do that. we want to work or a closely with the congress to do it because there is a real sense of urgency connected to this. >> the last question and it is one that i think we are doing well on and should continue to build on as the state department globally as a leader on trafficking and modern-day slavery largely in part to the trafficking report that is demonstrated an ability to influence governments capacity in their willingness to combat the criminal activity. what do you envision are some the steps that we can take to

kind of institutionalized these policies and procedures and continue to make that kind of an important part of our foreign, core principle of our foreign policy? i think it is important issue and we have taken the leadership on it locally and i would imagine he would consider that to be a priority as well. any thoughts on how we build on our successes there are? >> i think it is a difficult challenge, and you know we have worked to do and not only streamlining the process but in ensuring that it is a high priority in our agendas with other governments. i think as you said senator we have made a good deal of progress. in countries where in their own self interest not as a favor to us but the trafficking process, countries have made significant strides to deal with this problem. >> i'm going to make one quick one in. yemen, careful balancing act between a nation whose resources have been used for the war on terror but also increasingly dysfunctional situation that looks untenable.

it is a much broader question but i know the administration is grappling with the right approach. any updates on that? >> just to express at this moment anyway deep disappointment with the fact that president saleh chose not to follow through on his commitment to make a peaceful transfer of power. this is an issue in which we have worked closely with the gulf cooperation and the gulf will continue to have that this is a fragile moment if he you is he was said and we will do everything we can to encourage movement in the direction of a peaceful transition. there is a carried cure in yemen. >> thank you. congratulations. >> thank you senator rubio. i will be relinquishing my gavel to senator menendez who was our next question her. >> thank you mr. chairman. ambassador thank you for your service to our country and i appreciate what you have done over a long period of time. let me start off by saying something positive on the state department. i have been one of those who

have been pressing really hard about her sanctions regime on i ran, and i am very pleased to see that the department has listed about seven different companies who are engaged in activities related to the supply of refined petroleum products to i ran, including a supply of gasoline and they come from various countries. so that is a very good step forward and i am thrilled to see it. you may know that yesterday i introduced with -- legislation which i have authored with senator kyl and lieberman and casey, gillibrand, collins and kirk among others, and it is to further pursue closures of loopholes that we believe exist particularly with the i ran sanctions regime. part of what we call for in that legislation is for the state

department to undertake a diplomatic initiative to qualitatively expand the u.n. sanctions against the regime. are you committed, if you are confirmed, to robust enforcement of our sanctions regime and pursuing a more vigorous effort at the united nations and in our bilateral relationships to ensure that we are succeeding in that? >> yes, sir. certainly i am. >> and since you are going to be in essence in this position of the chief counselor to in a sense, to secretary of state, is that what you will be advocating for in that position that? >> i certainly will senator, and i think as you mentioned, the further actions that we took this morning under this cisada sanctions, the seven entities designated there as well as 16 under the -- i think underscores the commitment of this

administration to follow through. >> now i want to follow-up on your answer to senator casey. i was the author of that letter, and you know i listen to the president's speech very intently. i reread it and when he gets to the point about it he says the palestinian authority will have to condense israel that in fact, how am i supposed to deal or negotiate with someone who has as part of that entity is committed do you know, a blue great my existence and essence? >> but that doesn't say that if in fact that is a continuing reality that we will invoke u.s. law which pretty much says if you have an unreformed hamas, the u.s. taxpayer dollars will not flow to such an entity. is it your understanding that if

in fact we have an unreformed hamas, that u.s. law calls for the suspension of those funds? to a palestinian authority that includes hamas? >> senator we are certainly committed to applying u.s. law and our view of hamas hasn't changed. it is a foreign terrorist organization and we don't engage with them. we will have to see how the so-called reconciliation agreement translates in terms of government of unity as well as the policies and positions of that government. there is a distance between where we are today and seeing those realities. and we will certainly have to make our judgments accordingly that we but we will certainly apply u.s. law. and i think in the meantime it is important for us, until we reach that point, to continue to plan to provide support to the very worthwhile efforts of people like prime minister fayyad who has made enormous progress over the last few

years. it would have been very hard to predict a few years ago and the institutions of an palestinian state. >> i appreciate your answer. just let me say i think it will be very hard for those of us who have cast votes in support of helping the palestinian authority as part of a middle east package to be voting to send the u.s. taxpayer dollars to an entity that includes a terrorist organization recognized by the united states government as such, and i always understand the diplomatic. >> and they get nervous about it. i think it should be very clear that i think there will be a very strong will in the congress of the united states to not have u.s. taxpayer dollars go to such an entity. and so, what the definition of a unity government is may be of interest to the state

department. what is of interest to those of us who have a fiduciary responsibility to the taxpayers of this country is not to have u.s. dollars flow to a terrorist organization. and so i hope that -- i understand distinctions but i hope distinctions at the end of the day they'll get so blurred that we will be on a collision course. let me ask you on a different part of the world. we are losing our system secretary for the western hemisphere which i share that subcommittee. we don't have an ambassador to mexico. these are incredibly important assignments, and they don't give a sense that at a time in which the hemisphere is continuously a challenge to us, that we are as committed as is necessary to fill -- i know the one just became a reality but the other existed. what is your expectation and what we do when you get to the state department to make this a critical focus?

the senator you are absolutely right. they are extremely important post. the secretary is firmly convinced of a high priority that needs to be attached to both of those posts and we are moving as quickly as we can, working with the white house toward setting up nominations as it is very important to fill those posts for all the reasons that you said. this is a critical moment for the hemisphere and four for our interest in it. >> i hope we will, especially in mexico which has been open, hope we will get someone who both understands the u.s.-mexico relationship and will not have the challenge that we had most recently and can be very meaningful. finally, and i will be pursuing that with the secretary's office and hopefully with you upon your confirmation. this is the one thing that is pretty outrageous to me and that is something that i've been pursuing for the 19 years i have been in the congress of the united states and the house in the senate and that is diversity of the state department. it has the worst, worst record

of any of the federal departments. so much so that what is incredibly disappointing to me and to show the department's indifference to this issue is that the state department failed to even provide data for 2009 at the opm for the january report to the president on hispanic employment in the federal government. it was the only, only underlying federal agency not to respond. >> well senator i'm not aware of the lack of response, but if that is the case we will fix that is certainly not indifferent to the issue of diversity, and is made extraordinary efforts to try and ensure that the state department, both the foreign and civil services, reflect on the great strengths of the united states which is its diversity. certainly the department foreign service in particular is a more representative place than it was when i joined the foreign service 29 years ago.

and this is the result not only of the efforts of secretary clinton but secretary powell, and secretary rice before her. i promise to make this a high priority because i share your conviction that is extremely important and i to believe we have made progress in recent years and we will keep at it. >> i appreciate that in and i raise it because you are going to be in a position and -- you know i chair the nomination hearing for deputy secretary denies when he was, his confirmation process was before the committee and i asked him about the departments of a small record. this is a record that goes back in time. it still is the worst apartment department in the federal government. and in his oral and written response he agreed that this was a priority for the department to respond to and that there is more that could be done and the department was going to find innovative ways to improve minority recruitment and retention and the subjectiveness about whether or not you can

orally express yourself, which i always found interesting. but yet we don't even have a response to opm. only the federal department can do it so i hope we can change that and i look forward to working with you to do so. >> i will certainly do everything i can working with tom nice in the secretary on this issue because it is a high priority and we need to demonstrate that. >> i prefer we get a response we can work with versus a legislative response to make it happen. senator webb. >> thank you kutcher chairman. ambassador burns, congratulations. i can think of no one who is better qualified to do the job that you are about to undertake and i have great admiration for your greatness. as a diplomat but also your wealth of knowledge. i want to get in three or four questions here. not in terms of great length of

practical remarks but i have two serious concerns about the libyan situation. as you will recall, in fact the last time you were before this committee was the day before or the day of the u.n. vote on the libyan situation. we -- and this was sort of in the middle of an exchange so we had. i said in terms of international law becomes rather awkward when you are supporting a movement is yet to be fully defined and his attempt to overthrow a government to which we still formally recognized and your answer is, yes it is certainly a complicated proposition, which is very -- shall we say but precise. do we still have diplomatic relations with with the gadhafi government under the definition of international law? >> senator we have suspended our diplomatic operations. >> basically where we still were on march 18?

we have diplomatic operations but we have suspended them? we have not broken them? >> that is correct, sir. >> and are we then considering recognizing this other entity? has it been vetted or what is going on here? >> well, we have the issue of recognition under review, the transition of national council. i mean what we have done over the last couple of months i think a strength of the practical ties that we have to that group. we have developed a much clearer understanding of it. i think it is a credible representative of a wide spectrum of libyans. we have a diplomatic office in benghazi. >> but to cut to the chase here, we still have not severed diplomatic relations with the gadhafi government which -- against which we are using military force? >> that is right. we have suspended our diplomatic relations.

>> but not severed them. i find that extremely odd. the second concern that i have is with respect to the president for the unilateral decision by a president of the united united s to use force in an environment where, just to summarize, we are not under attack and we are not under a threat of attack and were not implementing a treaty or not rescuing american citizens. we were not responding directly to an incident as we were in 1986 when i was at the pentagon by the way when we retaliated in libya. but, purely as far as i can tell the notion of a humanitarian situation that existed outside of the realm of the united states by valencia to the listener with secretary gates was saying, it really does church in terms of precedent. what comes out of this? have we established a new precedent or what is your

thought on that? >> well i think what led to the president's decision was that -- were a variety of factors. first he did have an imminent humanitarian incident and he would have seen it was bath and benghazi. second at an unprecedented call from the arab league to the security council to intervene to protect civilians. 30 had the number of our closest nato partners the same people we look to for cooperation places like afghanistan who were urging us to join them in acting. fourth, you had a wider set of stakes, the countries on either side of libya and egypt and tunisia going through their own revolutions and very fragile states themselves and the unrest in libya could easily have further aggravated those. >> i understand the logic that was given and i'm empathetic with a good bit of it, but there were a lot of countervailing logic says well, the extensions in the u.n. key with china and

russia, india, germany among -- i think there were five. i can pull them out of my head right now but i find it just really troubling and particularly now two months later that a unilateral decision by a president of the united states in an environment, when these other factors weren't present that has been ongoing and could set i think a very disturbing precedent for how decisions are made for the use of force. i want to lay that down the something a something for further discussion. the tape report was mentioned. i want to commend you on the results of a caring that i held on and i hope you will look at it because i think the legislation is getting ready to be renewed. i think there said inconsistencies in a way that we are carrying out an otherwise

well-intentioned policy and they have particular indications in asia. this was the focus of the hearing where we have been -- the benchmarks and we have been using our convictions rather than say a settled, a nation with a very settled rule of law that doesn't actually get the convictions and also comparing a nation, a country against itself when the implication is that they are being compared against other countries. the classic example that came up in the hearing is that we have given nigeria won one innertube reports and we have given japan a two and singapore a to w. these as you know are stable societies who are able to deal with the rule of law and in a very how shall we say in a way comparable in many cases to our own. i really think we need to fix the law so that we are measuring the right sorts of things as we put these policies forward because it is causing a great

deal of resentment among people who are otherwise are close friends. >> i've read the transcript of that hearing and i think it was very helpful. i mean it's a complicated process to go through but i think you raise some very legitimate questions which will sort through. >> i hope we can work with you on that because we are going to come up with some suggestions as to how we can as i said implement the intentions of this policy but in a way that our friends and people whose governmental systems are pretty stable can understand what we are talking about. >> thank you senator webb. seeing no other member's ambassador, thank you for your appearance here today, your answers. the record will remain open for 48 hours. we urge you if you have any questions to answer them as expeditiously as possible so we can have your nomination move as expeditiously as possible and

with that this hearing is adjourned. >> thank you. [inaudible conversations] [inaudible conversations]

>> house republicans today accused elizabeth warren of improperly interfering with government efforts to resolve disputes over mortgage foreclosures. as assistant to the president and treasury department adviser, ms. warren is in charge of setting up the consumer financial protection bureau, part of the 2010 dodd-frank regulations love. the exchange took place at a house oversight subcommittee hearing. it is just under three hours.

>> the committee will come to order. the hearing today, who is watching the watchmen? the oversight of the consumer financial protection bureau. the committee is now in order. we make it a policy here on the financial -- on the oversight and government reform committee to read our mission statement. we exist to secure two fundamental principles. first americans have a right to know that the money washington takes from them as well spend. and second, americans deserve an efficient and effective government that works for them. our duty on the oversight and government reform committee is to protect these rights. our solemn responsibility to hold government accountable with the taxpayers because taxpayers have a right to know what they get from their government. we will work tirelessly in partnership with citizen watchdogs to deliver the facts the american people and bring genuine reform to the federal

brook was it. this is the mission of the oversight and government reform committee. i now recognized recognize myself or four minutes for an opening statement. today's oversight hearing underscores the role of the united states congress united states congress to scrutinize the implementation and enforcement a key provisions of the dodd-frank acts. the consumer financial protection's bureau, which is the brainchild of today's first witness, has been hailed by some as a much-needed regulatory authority to limit the risk of financial fraud. yet others, myself included, are skeptical that the bureau's creation, structure and broad discretionary powers are warranted. nevertheless, dodd-frank is now the law of the land, and in a few short weeks the bureau will become a powerful instrument in the hands of progressive regulators. once fully operational, the bureau will possess virtually unchecked discretion to identify financial products and services that the directors determined to be unfair, deceptive or abusive.

to fund and execute this mandate the law has granted the bureau and unparalleled budgetary authority free from congressional authorization and and i'm acceptable degree of autonomy hidden from congressional oversight. while we have yet to hit the date of transfer of authority for the bureau of congress has a responsibility to assess and the american people have a right to know the designs that professor warren has implemented in its creation. what controls are being created to protect the american people from abuse of government power? we demand internal controls of companies. what internal controls govern the bureau? what limits are being set to guard them from administrative overreach? in the absence of the normal checks and balances established by the constitution, what guarantees to the mac and people have that the bureau will behave responsibly, spend wisely and regulate a fairly? furthermore, in earlier

testimony before the financial services committee here in the house, professor warren asserted that the bureau is quote the most constrained in the most accountable agency in government, end of quote get the lofty promise of restraint and accountability seems to be backed by the highest appeal threshold than regulatory history. in that same appearance professor warren testified that the bureau's role in in ongoing mortgage settlement negotiations was limited to quote advice. go furthermore, one of her staffers then e-mailed the press and defines the role and big -- sensor testimony however, congress received evidence that professor warren and the bureau were deeply involved in the negotiations. the emergence of the pirro's quote settlement presentation end quote and the fact that professor warren has been in dozens of meetings with federal and state officials about the settlements raised concerns about the veracity of her earlier testimony.

this hearing however is not about a confirmation hearing for professor warren or a potential senate race. this hearing is about the mission, policy and structure that affect the creation and implementation of the bureau and it is also the need for critical oversight of an agency which has so vast oversight authority over large portions of the american economy. simply stated, who was watching the watchmen? the constitution creates a government that protects the freedoms of the american people, not one that provides for them. ..

>> americans are still suffering the consequences of the house and financial crisis. this crisis was caused in large part by weak or nonexistence regulation. this allowed dangerous consumer financial products and financial instruments to enter the market place. responsibilities were scattered across industries and they signed facultiy, fraudulent, and deceptive financial products. this reckless lending poisenned the financial system and contributed to the mortgage meltdown. while today, we may have the

benefit of hindsight, some sounded the alarm well in advance of the crisis. in 2007 before the on set of the crisis, professor elizabeth warren recognized there have a problem." nearly every product passed safety regulations well in advance of passing store shelfs, but credit products by comparison are regulated by a patchwork of laws that failed to adapt to changing markets." this new agency was exclusively designed to address the regulatory shortcomings just like the consumer products safety commission protecting consumers against explode r toasters, the new agency protects consumers against faulty mortgages. one of the strengths is the kt and capped the budget and it must follow stricter rule making procedures than most other

agencies. another strength is the focus on the "shadow financial services sector which has been the most responsible -- most responsible for victimizing consumers. these unregulated lenders will be held to the same standards as banks and credit yiewngons. our number one priority should be ensuring we never repeat a financial crisis and it is a strong step in the right direction. they have won early praise from financial industry groups that were to support it, but both the icbe and the aba praised the bureau for the rule making prosays. i ask unanimous consent that the may 19th 2011 article titled the mortgage quoters win praise and submit that for the record.

>> without objection. >> this transparency is important given the mandate to increase transparaphernalia sigh in the consumer -- transparency in the market and i'm confident they will build on early successes and both consumers and businesses are stronger for it. it is critical it be implemented as set forth in the dodd-frank act. thank you, mr. chairman, and i yield back. >> i thank the ranking member. members have seven days to submit material to the record. it is pursuant to committee rules, all witnesses are sworn before they testify, and if you'll stand and raise your right hand and repeat after me. do you solemnly swear or affirm the testimony you are about to give will be the truth, the whole truth, and nothing be the truth? the record will indicate the

witness answered in the atirmtive. our first panel, sole witness on the first panel is ms. elizabeth warren serving as the assistant to the president and special adviser to the secretary of treasury for the consumer financial protection bureau at the u.s. department of treasury. ms. warren, you are accustomed to testifying before congress, and so we have a system of lights, and with one minute, you get the yellow light and have five minutes to summarize your opening statement, and we move forward with questions thereafter. you are recognized for five minutes. >> thank you, chairman mchenry, ranking member quigley. thank you for inviting me to testify about the work of the consumer protection bureau. two and a half years ago i came to washington to serve congress as chair of the t.a.r.p.

congressional oversight panel and developed a keen appreciate for the role of oversight and respect careful oversight work. for today's hearing, i've prepared ten pages of win testimony to document our start-up efforts, and that supplements the 34 pages of testimony i provided for the subcommittee on financial institutions and consumer credit in march. in my testimony, i discuss the consumer bureaus straightforward mission to make prices and risks clear and cut down on fine protect to make straight up comparisons among products to compare two or three or four credit cards or three or four mortgages before they actually sign on the dotted line. that's what congress created, the consumer agency to do, and that's what we're already doing. last week after months of consultation with borrowers and lenders and their representatives, we started

testing a prototype of the mortgage shopping sheet. eventually, the result of this process will be a simple, streamlined mortgage disclosure to replace the longer, more complicated and more burdensome forms that are now required by law. now, in this process, we have taken another step, something pretty much unprecedented in the regulatory world. we have invited everyone in the door early before the cake is baked. we are months away from formal rule making, but you believe by opening up our process and getting help from the people who are affected by these rules, we will be more likely to produce something that works right. we posted early versions of the form op our website, www.consumerfinance.gov. come and see us there, and we've asked people to let us know what they think. so far, a lot of people are

willing to help. within hours after our posting of the new forms, we had more than 20,000 visits to our website. the reaction to the forms has been almost unanimously favorable. the article that congressman qigly referred to american banker was headlined. disclosures win praise for content and process. you know, a lot of very different people have been supportive throughout the process. the consumer federation of america and the american enterprise institute. u.s. perg and the u.s. round table have been all supportive. the draft forms are not perfect. we're only at the beginning, but the process really matters. it is an example of how a new federal agency can shed some of the old bureaucratic attitudes and develop ideas and approaches

that serve both consumers and businesses. mr. chairman, the title of this hearing is who watches the watchman? the answer can be found in a single word, "every one". we are not just talking about transparency and openness, but we are living it right now. we are building an agency that involves american families, small banks, credit unions, and other financial service providers in our work from the ground up. recently, there's been many overblown claims about the nature of the consumer agency's powers. critics claim that the cfpb is, "the most powerful regulatory agency that's ever been put together and it's the most powerful agency ever created." the consumer agency is not even the strongest of the banking

regulator much less the most powerful agency ever created. those kinds of claims disregard the significant limits on the consumer bureaus authorities, the long debates over these issues more than a year ago, and the very meaningful oversight that congress imposes on the bureau's functioning. those claims also ignore the intensity with which large and powerful interests watch everything we do and make certain that their views are carefully considered. most importantly, those claims ignore what we are doing, building an agency in plain sight with help from good people across this country. together, we can create a fairer system that works for families and works for the community banks, for the credit yiewn yons, and for the other -- credit unions and other

financial institutions that want to serve those families honestly and openly. thank you for inviting me here today, and i look forward to your questions. >> thank you, ms. warren, thank you for your testimony, and i recognize myself for five minutes. ms. warren, if the president makes you the first director through recessed appointment, would you accept it? >> [inaudible] >> yes or no would be fine. >> congressman, it is -- >> yes or no is fine. >> congressman, it's up to the president of the united states under dad-frank to make a nomination. it's not appropriate i think for anyone to speculate on that. >> as assistant to the president, your advising the president about the nomination for this bureau, are you not? >> congress mapp, i've tried to help the president in any way i can on the nomination process. >> have you recommended anyone? >> congressman, i tried to help the president -- >> that's fine if you don't want to answer. that's fine.

okay, reclaiming my time. i understand. you don't want to answer, and that's fine. i'd call up for the -- if you look the the screen, we have a powerpoint presentation. now, when -- i'll ask you questions before the march 16th house financial service committee meeting hearing, you -- i asked about your role in the mortgage settlement issue, and the cfpb's role there. you said, "we have been asked for advice, and wherever we are helpful, we are not only glad to be helpful, but proud to be helpful." slide one, dated february 14th, a month before you answered that question and gave that answer. apparently, it's altered by the cfpb. are you familiar with that document? >> congressman, i believe -- >> are you familiar, yes or no? >> congressman, i have not seen

the rest of the pages, but i assume it's a document that was initially prepared for internal discussions with the secretary of the treasury. >> right. at the bottom left corner if i might point out, it says draft confidential for ag miller. are you familiar with that? >> thank you very much. yes, congressman, i am p >> okay. second slide. the second slide indicates they are pushing for significant policy change. third slide. this quote indicates they are leading the charge to purr suede other regulators to demand punitive penalties. fourth slide, it's apparent they are pushing a policy proposal called the principle reduction mandate. is that something that the cfpb has been pushing? >> congressman, if you want to ask about our participation -- >> i'm going to get to that. i'm asking a question. if you could respond to my

question, i would certainly appreciate that. >> congressman, we've given advice when asked for advice. >> okay. thank you. >> and we've done so proudly and enthusiastically. >> if you're so proud about an advocacy and advice, why not express that before the committee when i asked you your involvement in the settlement issue? >> congressman, i thought -- you quoted exactly that, and i believe it said that i was proud to give that advice, and i thought there was -- >> okay. just said -- let me give you the fuller quote. when the treasury came to me and said we would like your advice, i was glad to. >> glad to. >> okay. ag miller -- >> was there more? i just lost -- >> who is attorney general miller? >> i believe attorney general miller is the attorney general for the state of iowa. >> that is different than advice to the treasury secretary that is part of your job title, and

advice to the president, is it not? >> i'm sorry, is what different? is the attorney general different? >> you provided advice in your sworn testimony, and what is now apparent is you're providing advice to the attorney regime of iowa in their suits against mortgage servicers; is that correct? >> congressman, the secretary of the treasury asked for advice, and we gave advice. we also gave advice at his instructions. we gave advice to other federal agencies, and we gave advice where asked. i think -- >> okay. it terms of the mortgage settlement talks, would you disclose the meetings you've had about those mortgage settlement talks? >> congress mapp -- congressman, i believe my calendar is an open book of that we've been posting my calendar since last october, last

november -- i actually can't remember. >> it entails when you have discussion about the mortgage settlement? >> i can say my calendar is an open book. >> i understand -- >> of the public record. >> i understand. reclaiming my time. so it's gone beyond your advice to treasury, and you're also providing advice to other governmental agencies? >> congressman -- >> i understand, you can use the word "congress mapp" a number of times, but it's a simple question, who you're providing advice too. >> congressman, there was a question on this from -- >> i know. i'm asking you a question -- >> and i what i want to do -- >> answer my question, are you giving advice to any governmental agency outside of treasury and the president, yes or no? >> congressman, let me read the letter i sent two months ago. >> my time expired. i'm asking you a yes or no question. >> we have provided advice to

federal and state officials regarding a potential settlement service -- servicing settlement. in doing so, we've been an active participant in inner agency institutioning sharing analysis and recommendations in support of a resolution to hold accountable any servicers that violated the law. we sent this letter nearly two months ago. we have not heard back from you or anyone else as far as i know in the house of representatives or in congress. this is a statement. we have given -- >> i certainly appreciate your statement. i have one final question. >> yes, congressman? >> have you been in meetings with the department of justice regarding the mortgage settlement issue, yes or no? >> yes, we have given advice to the department of justice when asked. as we say here -- >> okay. thank you for your testimony. i now recognize -- >> thank you, mr. chairman. >> professor, someone accuses of

anyone lying to congress, but let's walk back through this. first, as was mentioned, the definition of advice will somehow magically appear. if not, random house defines it as an opinion or recommendation offered as a guide to action, so, professor, you are asked to provide advice by another agency involved in these negotiations; correct? >> yes, congressman, it is. >> did you provide advice in response? >> yes, congressman, we did. >> okay. >> did you provide options for how the federal government might proceed in the negotiations? >> congressman, that's what we've tried to do, is give advice as we said here, shared our analysis and recommendations. that's what we're trying to do. >> did you ever talk directly to the private parties of the negotiations? >> congressman, it is not our job to negotiate on behalf of the federal agencies.

that undertaking is led by the department of justice at the federal level. what we have done is tried to be helpful to those regulators who are trying to hold those who broke the law accountable for their actions. >> if the department of justice ends uptaking your advice, that would give some qualities or reference to how good your advice was; correct? >> congressman, what they ultimately decide, i'm sure, will be a mix of many things. i hope we have given good advice. i mean, let me say this as clearly as i can, congressman, this is our job, and we are trying to do our job, and that is to be helpful to other agencies, to work with other agencies in trying to hold those who break the law accountable for their misdeeds. >> well, and unfortunately, many of these new -- these entities

that you'll be regulating as a new agency are mortgage servicing companies that have already admitted to breaking the law, that they have illegally fore closed on u.s. service members and their families, for example, that they charged inflated fees and perpetuateed fraud on the courts. you're aware of the admissions as well; correct? >> yes, congressman, i'm aware now the officer controller of the commission and the federal reserve bank all found serious widespread deficiencyies and they have >> a david and guy

lithe description and you are accused of being an all powerful type of goliath, but your budget gives out one% of what your agencies charge in credit card penalties. the question is how do you keep up? >> congressman, that's a tough question, but i believe that the consumer financial agency well drafted that we can make the difference and be a cop on the beat. we have responsibilities in the blue light area doing research and as the new mortgage project shows doing what we can to make sure the rules are streamlined and efficient and effective. we will have responsibilities in supervision and in enforcement

and ncht about half the budget goes to supervision and enforcement. we'll hear from americans around the country when they have problems. we have a lot to do, but the good part is those things work together, work in concert. we have a real opportunity here to make prices clear, to make risks clear, to give families the opportunity to compare one product with two or three others, and when that happens, markets can start to work, they can start to work on behalf of american families. >> in the end all we have is our good name. anything else you want to say about evaluations made? >> congressman, all i can say it's a deep honor to be here to set up an agency designed to be a voice for american families. they have been shut out of the process for far too long. this most recent crisis was the

consequence of a substantial -- >> gentleman's time expired. you can finish your that and we'll get the next question. >> thank you, mr. chairman. this most recent crisis started one lousy mortgage at a time. if we had a consumer financial protection bureau in place, we could have avoided the pain we've gone through in the last two and a half years. >> i thank the ranking member, and with that, ms. berk l is recognized for five minutes. >> thank you, and thank you for calling this hearing, and thank you to ms. warren being here. >> thank you. >> the act included sweeping reforms, but it ignored, and it ignored reforming fed di and -- freddie and fannie who led to

tremendous losses and taxpayer bailouts rather than addressing the problems by political point tees, they sought to address it with the creation of a new regulatory body, the consumer protection bureau. the thing that concerns me about the new body is that the house does not get to approve the director, and even worse, it appears the administration is going to install political appointees using a recess appointment process. this takes away from the senate and the house in an opportunity to question and to do what they should be doing as elected representatives. a quick look at your website and jobs you are seeking to fill in dc and chicago, new york, and

san fransisco. after a close look at these openings, i found that these startings held it higher than on the federal government's website. my first question to you is given the absolute fiscal constraints that this nation faces, the deficit and the depth this country -- debt this country is trying to grapple with and get this country back on a fiscal sanity course, how do you justify that kind of a disperty in salaries between a government worker versus the folks hired by your regulatory agency? >> congresswoman, i really appreciate your question and your concerns in this area. you know, when you talk about the structure, the new structure for the consumer financial protection bureau, i know that you're aware that this new bureau is designed to pick up

consumer laws and consumer speedometers that have been scattered among seven different agencies, none of those agencies focusing on consumer practices and consumer products. this is important in the context of the most recent financial crisis. the reason so many people across this country are unemployed, so many millions of families are releasing their home and others lost their savings, and that is the question of what kind of regulatory structure do we want including what kind of pay structure, and i think you're right to raise this. dodd-frank was very careful and thoughtful in its point, and that was to say in effect the office of the controller of the currency, the principle banking regulator in the country is paid at one level -- >> excuse me to interrupt. as you know, there's five minutes here. >> yes, ma'am. >> for example, there's ten positions, and it's the consumer

response policy analyst. starting salary range for that position is $72,000 in your regulatory body. the top salary range is $149,000. now, the gs equivalent of that is a gs-9. in the federal government, that starts at $49,000 with a top salary of $57,000. why are those folks getting paid so much more than someone in the federal government system? you are not answering the question. you are going around. >> i'm sorry, congresswoman, i'm trying to get at the context. we're following the laws set up in dodd-frank. the five banking regulators that exist today, the federal reserve bank, the office of the controller of the currency, the office of thrift supervision, the fdic, those banking regulators are paid on a different pay scale, and the reason they are paid on a

different pay scale in part is because they are bank regulators and the competition for those jobs include people in the financial services industry. we'll never be able to pay like the financial services industry pays, -- >> excuse me. this is a government agency. this is not the private sector, and we, the congress, we the government needs to be accountable to the american people and committing to this government agency and make a starting salary at $72,000 with a range of $149,000 -- >> the time expired. >> just seems like i think that this regulatory body has questions to answer regarding the huge disperty in the federal jobs versus the salaries in the jobs you are offering. >> i recognize the full committee member, mr. cummings

for five minutes. you get the full time p >> thank you. >> start over right nowment one second. we'll pause. >> all right. ms. warren, first of all, i don't care what happens in the hearing today or what is said, i'm begging you, begging you, to keep the fire. i got constituents who have lost so much, and they don't know how they lost it, and we need you. we really desperately need your passion, your concern, and thank you for putting together your conscious with your conduct, and i just the you to know that. you know, one of the things that is so significant, one of the things you're doing for us, and part of your mission is to protect consumers from unfair, deceptive abuse or acts and practices or from discrimination, every single member of congress have got people whether they know it or not who have suffered and have lost and like i said, some of

them don't even know what they lost. they still don't know. professor warren, ranking member said something i agree with. your situation is like david and goliath. let me ask you about the consumer resources fees generated by banks you are to regulate. consumers paid more than $20 billion, that's our constituents, in credit card penalties in 2009. the same year, they paid more than $38 billion in overdraft fees, our constituents, so that's about $59 billion in one year and that's just some of the fees they generated. professor warren, your budget and the consumer bureau is capped at about $600 million; is that right? >> yes, sir, it is. >> let me somehow you a chart. if my math is correct, the consumer bureau's budget is only

1% -- where's my chart? got the chart up. don't, don't, don't, get my chart. the consumer bureau's budget is only about 1% of the amount banks generate just from late fees and overdraft fees. i have to ask you, how in the world can you compete against this goliath when you are so mismatched? >> you know, congressman, it's a fair question, but i want to say this. i think in the creation of the consumer financial protection bureau, congress made some very smart moves, and unof the key ones is that we have the capacity at the consumer agency to drive toward making the price clear, making the risk clear, making it easy, not 111 pages of documentation and fine print, but making it easy for families to compare one product to another. i ultimately believe that the

real partners for this agency will be families all over this country who if they've got clear and simple information in prompt of them, if they can really make apples to apps comparisons, we'll be able to turn this market around so that those providers, those community banks, those credit unions, those providers who in good faith are willing to get out there and compete in the market place, they are willing to offer the most value at the lowest price, or they are willing to offer good customer service that draws people in, that those will be the providers who will flourish in consumer credit ultimately serving families, so i believe we can do this, sir. >> kathy hughs has a slogan saying information is power. information is powerful when you use it. i think that summarizes pretty much what you say. give them the information, and

let them run with it and make decisions based on sound informs. now, some people are saying you are the goliath, incredible. they are saying you will overrun the industry with regulations and a complete lack of accountability, but isn't it true your rule making power can be vetoed by the oversight canceled; is that right? >> yes, sir, it is. >> any other bank regulator have that requirement? >> no, sir, they do not. >> to issue regulations, you have to make particular findings and consult with other banking regulators; is that right? >> yes, sir, it is. >> i understand the banks want to protect their fees like the oil companies in the gulf want to protect their profits, but as i said this morning, we had a hearing this morning on oil, we can want go back to the -- can want -- cannot go back to the era of

unprotection. i thank you for what you are doing and your staff. there's people in my district applauding what you're doing. god bless you. stay in the battlefield. >> thank you, sir. >> gentleman's time expired and now recognize the yes mapp from new jersey for five minutes. >> thank you, mr. chairman. thank you for being here today, and i wish this was not described as a battlefield rather than -- rather than that, i would like to see a more productive manner in which we could solve the nation's problems. i do have some questions though about the formation of this entity and the need for its existence and how it plans to operate, and i'm sure you could appreciate that some members of congress do have questions given the unique nature of this entity. the first question i want to ask is can you quickly describe how

unique this is in comparison to other bank regulator organizations in terms of who you have oversee you? >> well, like the occ, we have a single directer. >> yeah. >> up like the -- unlike the occ, any rule out of the consumer financial protection bureau can be overruled by a group of other regulators. i'm trying to think. like the occ, we have rule making authority separate from procedures act. we are also subject to the acronym is sbpa -- small business panels, that have to go through the impact on small businesses. we are required to do cost

benefit and analysis and required to consult with the other banking regulators before we issue rules. i think it's fair to say that our charter is written very much in line with the notion that we are there to be cooperative with the other banking regulators, at least to work with them. we are -- trying to think -- >> let me ask -- >> we have a research function somewhat different from the other regulators. >> is it -- can you tell me why there's a necessity for a five year fixed term when i don't believe anyone else in history has had that period of time as an appointment. >> congress mapp, i think -- congressman, i think many terms are five year fixed terms. it's my understanding that the -- >> but those have --

>> that the head of the office of the controller of the currency finished his five year term last august -- >> but i think those -- >> i'm sorry -- >> those entities, i think, are at the discretion of congress. there's an oversight process through appropriations. you're excluded from that. >> no, congressman, i'm sorry, but that's not the rule with the office of the controller of the currency. there is no banking regulator who is subject to the political process or to appropriations. all banking regulators are funded independently, and indeed, all of the other banking regulators, not the consumer agency, but all of the other banking regulators are able to set their own funding levels, so, for example, if the office of the controller of the currency decide they need more money to run examines or they need more money to engage in their other activities, they up the assessment on banks and

simply raise more money. there's no oversight from congress in that process. >> do you have an idea of what your budget is going to be? >> the cap on our budget is set at just under $600 million. >> right. >> the actual budget i actually brought with me because i knew you wanted to do oversight on this. our estimates for fiscal year 2011 are $143 million, and our estimate for miscall year 2012 is $329 million, so at least as best we can project in the next two years, we will be substantially under the caps that are set by congress in the dodd-frank act. >> and of the seven separate agencies that you're going to assume authority over, you map on hiring from those agencies?

>> congressman, we have already begun the process of hiring some people. ill it's the case from each of the federal agencies. we have certainly been in talks with all seven agencies. we have been -- >> gentleman's time expired. please finish. >> we've been lucky to have detailees come and help us in the process and gone through an interview process. i want to describe it, but i understand i'm past time. it's your call. >> i just state to the chairman the reason i ask that question is earlier the witness had stated that if this entity had existed, we wouldn't have the financial meltdown that we had, so i wonder why we hire people from the other agencies who were doing this oversight in the first place. >> thank you, and now recognize the member from new york for

five minutes. >> [inaudible] thank you, thank you very much, and i truly believe the title of this hearing today and really the gop efforts in general should be let's pretend the financial crisis had never happened. let's forget that 15 trillion families lost household wealth in america, that our financial community was brought to its knees and had to be bailed out by the american taxpayer, and in response to this crisis, with overwhelming support from the american people, we created the cfpb and it is carefully constructed, urgently needed, and should be allowed to go into operation as planned by the bill that was signed into law by president obama. now, the cfpb fills a gaping

hole in our regulatory framework. this is a body that will focus completely and totally on consumer financial protection. too much, consumer protection was a second thought, a third thought, or not even thought about at all, so you came out with abusive and anticompetitive practices in credit cards, subprime loans that had a degree of probability of throwing american families out on the street and hurting our financial system, so this was put in place to help our overall economy and to help consumers, and all of the efforts so far have been to dismantle, disrupt, and displace and not allow the agency to go into effect. there was an astonishing abuse of power, of confirmation power in the senate, 4 # senators --

44 senators signed a letter that said we will not allow this agency to go into effect or for you to confirm a director unless you pass bills that will destroy it, that will make it meaningless, that will make it in effective. that's not what the confirmation process is supposed to be. it's literally holding the entire government hostage to their demands on dismantling this program, and i would say there is a lot of unfounded concern about lack of oversight on this agency. i would argue that the oversight and balance of power over this agency is greater than any other agency in the entire federal government with audits and requirements and the unprecedented ability of another agency, the financial stability oversight counsel, to overrule

the decisions made by the cfpb. i don't believe any other government agency has that ability to overrule another agency. would you comment on that, dr. warren? >> yes, congresswoman. as far as i know, there is no agency anywhere in the federal government whose rulings once arifed at through the full process, through hearings, through fact finding, all the way through could actually be overruled by a group of other agencies. it is unprecedented. >> how many other banking regulators can be overruled? >> can banking regulators be overruled with say a faulty morning? can they be overruled? >> right now there's no banking regulator that can be overruled. >> and can you go through and outline some of the oversight

and really constraints, no other agency has their budget cappedded i don't believe -- capped i don't believe. >> i appreciate you bringing up the question in the budget because i think it's so important here, congresswoman. as congress has known since the middle of the 1800s when they made the decision in the establishment of the first bank regulator to make the funding for that regulator outside the appropriations and political process. we knew that we wanted banking regulators that at a minimum were not glancing over their shoulders as they walked in now, walked into trillion dollar institutions to try to do supervision or enforcement. they are not glancing over their shoulders wondering if something they do or say will create problems and increase lobbying efforts against the agency next time around in the political

process. this agency -- and as a result, all of the banking regulators are set up to determine their funding. it's not that their out the -- they're out of the political process, but they decide the number of dollars that they get. the consumer agency is capped. if we need more money for supervision and enforcement, our only option is to come to congress, but we are capped, and there is only a certain amount of money that comes to this agency to carry out its functions before we would be forced to go into the political process. >> well, i want to thank you for your testimony and your hard work. my time has expired, but i would say those who want to gut this agency, want to leave consumers prey to unscrupulous mortgage efforts and credit card abuses, so i believe this agency is important. it should be allowed to go forward.

>> the member of south carolina is recognized for five minutes. >> thank you, mr. chairman, and thank you to ms. warren. in the business providing financial services, what steps will you take to ensure complaints received by the bureau are legitimate ones and not post-contract gripes against a company when the consumer decide they don't want to live with the terms? >> i'm glad you asked about the complaint system. it's one the most significant features of the new consumer agency, and what we're planning to do with it is instead of having sort of a general complaint line, we're really trying to tell more effective complaint resolution in the consumer agency on a product-by-product basis, so, for example, we'll be starting with credit cards, and what we're proposing to do is setting up a hotline and form online for

people who have had problems with their credit card issuers, and they believe, perhaps, that this have been violations of law and want to get in touch with the new consumer agency. >> will the complaints be made public? i think you'll agree with me unfounded have an effect on the accused. >> so what we'll be doing, and i really want to give a shoutout here to five of the largest credit card companies in the country who are working with us right now on a way that as soon as we receive a complaint, that complaint can go directly to the credit card companies. they can help us understand whether the complaint has merit. they have the opportunity to try and resolve it with the customer, keeping us in the loop. >> is that just for credit card companies or all financial service providers? >> here's what i want to make clear. as -- >> i got five minutes.

not trying to cut you off, but there's other things to ask. >> fair enough, just trying to get you details. >> yes or no, are the complaints public? >> we are trying to get the product right. there's been cooperation with the -- >> i'm probably not asking the question right. are the complaints public, yes or no? >> there's no single answer. >> are any of the complaints public? >> congressman, we don't have complaints yet. what we're trying to do is builds system. >> you do have the plan to keep complaints not public it you like? >> we want to work with the industry to find a complaint system that works for american families and works for those woo are providing those services. we're in the middle of that process. this is part of the standup, and we are glad, congressman, to hear from you, your constituents, and to hear from

everyone else on the process. we're an open door. >> i'll encourage them to participate. i want to ask you about some deaf definitions. i saw in the definition for abusive -- see if i can -- materially interferes with the consumer financial product or service. that suggests to me that some interferences are inmaterial. >> congressman, i believe the language you quote is out of the dodd-frank act, and it's congress' intention, not -- i believe, if i'm not mistaken. >> will you not be the one enforcing that? >> congressman -- >> will you set regulations to define these terms? >> congressman, this is the guidance -- >> i'm asking you. are some interferences inmaterial? >> congressman, we will go through the process of interpreting the language that congress has given us. >> i don't mean for that to be a

trick question. are some interferences inmaterial? the word material modifies interference. >> congressman, i want to be clear about this. it's statutory language they are asking. there's a process in place for the consumer bureau. you don't want me to shoot from the hip about how i might want to interpret individual language. >> let me ask you about the settlement. it defines it as an unreasonable advantage or taking unreasonable advantage of a consumer's lack of understanding. are there some instances where taking advantage of the consumer's lack of understanding or isn't there? >> congressman, this is the language that congress has adopted in the dodd-frank act. ultimately, it falls to this bureau through a lengthy process to interpret this on case-by-case basis. i believe it would be irresponsible for me to stand here and pop off about how i would interpret particular

words. >> do you believe that there's a duty to educate or a duty to learn on behalf of the consumer? >> i believe the consumers want to learn. i believe they -- >> that's a different question. i didn't ask whornt -- whether or not they want to. dynel there's a duty -- do you believe there's a duty to do it because the consumer's inability to protect their own interest. do you believe there's a duty to educate yourself? >> congressman, as part of our speedometer in the consumer protection financial bureau laws undertaking consumer financial education, and i embrace this. i think it's -- >> is that a yes? is that a yes? >> we are going to help consumers by giving them products where prices are clear, risks are clear, where they can make the comparison. >> is there a duty to educate yourself? yes or no? >> i believe that an empowered consumer is a consumer who cannot only protect himself or herself, but one who can change

the market. >> mr. chairman, i give up. >> thank you. two votes on the house floor, two additional members, and not enough time for them to ask questions. we'll recess until the second vote is cast. we'll come back quickly as possible and have the final members ask their questions and the committee is in recess until we return. >> [inaudible] we have two additional members with questions, and originally this was at two o'clock. are you not able to stay? >> congressman, when you asked to change the time four times in the last 12 hours including waking people up at home last night to change the time again -- >> let me be correct with you.

i never made a single phone calm about this. be clear about what you're saying. we have two additional members. we have eight minutes remaining on the floor to vote. if you won't stay around for the questions, then we're going to stay around and finish this out. >> conkman -- >> i never heard you had to leave at 2:15. >> congressman, have a conversation with your staff. when they asked us to move the hearing, they said the only way i would do it was to leave at 2:15 for a meeting. >> all right, questions now. you are recognized for five minutes. >> thank you, mr. chairman. i'll say for the record i apologize to the witness, dr. warren for the rude and disrespectful behavior of the chair. the comments about a senate race, and the questioning of your veer rasety when there's documented evidence you are totally truthful indicates to me

this hearing is all about impugning you because people are afraid of you and your ability to communicate in clear terms with threats to our consumers and constituents, and possibly very, very effective ways to combat them, so i think in one respect, i congratulate you for instilling such fear in the committee, the majority side, and in some aspects or segments of the business community because they understand how effective you are in getting the message out to the american people that there are better ways to do things. that being said, one of the major questions being asked here is whether there is a need for your agency or the agency that you conceived in light of the fact there are seven related agency all who have thrt in these areas. these agencies have been around

for some time. during the time those seven agencies were around, have financial products gotten easier to understand as has the type got bigger, have they slunk or gotten more income -- >> i believe they have become more complicated and heavily laiden with fine print that effectively make it i want possible for consumers to compare risks and costs. >> in respect to the question asked regarding the comparative salaries, would you take -- be willing to speculate on what the average salary of the people writing financial agreements, mortgages, and credit card agreements for the major corporations compared to what the consumer financial protection bureau would be paying? >> congressman, i couldn't begin to speculate on the difference

between the salaries of the government officials who will be hired into the new consumer agency to try to oversee this market and the salaries of those who are writing the financial products particularly for the wall street and companies. i suspect, sir, there is a large diff rep issue. >> i suspect you're right. i yield back my time in a second to get out of here, but i just want to say that the question of accountability -- >> if the gentleman will yield, the other went to vote and coming back to ask his question. mr. walsh went is vote and you have 20 seconds for my interruption. go ahead. >> that's quite all right. the title of the hearing involves accountability of your agency. i just like you to spend a few seconds talking about what accountability there has been in terms of the credit card companies, mortgage writers, and so forth over the last decade or so because it seems to me that

that's where the real kt accountability issue has been. >> congressman, we have seen very little accountability among the largest financial services providers and among the largely unregulated financial regulator providers both before the crash of 2008 and after the crash of 2008, and i just want to point out that has been really hard on american families. it's hard on them directly when their feet is tangled in payday loans that were deseptemberrive. it's hard on them when they thought they were doing sensible things on mortgages to learn they were going to lose their homes, but it's also hard on others in the economy, people who did nothing to get involved in financial services, but lost their jobs. people -- the companies, the small businesses they are working for, the markets have dried up, and it's also been hard on community banks, on

credit unions who work so hard day in and day out to work with their customers to be the relationship lenders to be there over the long haul, and who are getting crushed in financial turn around that was not their fault. the problems have gone everywhere. the problem of lack of accountability was one that is swirling on the industry, and this consumer agency will do its best to turn it around. thank you for your service. >> gentleman, your staff made an agreement with professor warren that she would be available to committee for one hour. if she accompanied your late-breaking request made by your staff at 9 p.m. request shoulders she appear at an earlier time, you allow her to leave one hour after that at 2:15 p.m. in keeping with the agreement. it is 2:15 now. she kept her side of the bargain, and it's time for you

to keep yours. mr. chairman, i respect -- respect her schedule and the flexibility she showed to accommodate your request. you should now dismiss the witness and get on with the remainder of the hearing. in fairness. i mean, we were here. >> i appreciate it, and in reaction to you, ranking member, the original agreement was that we'd have a 2 p.m. hearing in order to accommodate votes to which we expected to be at 1:30. knowing that the professor is very busy, we don't want to keep witnesses here while we residents seases -- recess to vote. we changed the time in anticipation of the vote we're about to have. rather than gavel in and have opening statements and go to vote and come back 30 minutes later with an hour of questions, rather than do that, we tried to work with the witness, and exchanging of e-mails, your staffer, your government affairs

staffer talked to mr. holler on the committee staff and asked for confirmation on this. he called you up, the government relations head did not respond to the e-mail, called you up to do his best to get you out of there, but we need to accommodate people's questions. that's where we are today. mr. cummings, i understand. >> i know you sound like you decided, but a quick thing. peter allen on my staff changed the time a few times and bent over backwards to move things around and agreed to 1:15 to 2:15. she needs out of here at 2:15. that's constant. the staff knew this, so -- >> peter holler, you said? okay. ..

simply allow for a few additional minutes. >> the only thing i'm saying is that the rate we are going it looks like it would be about 20 of fae and -- >> i anticipate the two former members will have five minutes

apiece and as the gentleman knows i kept folks to the time frame to date. so with that i'm not trying to cause you problems and if you want to stick around we will have two more members with questions and then see off. it will be just fine. >> you are causing problems. we had an agreement for a later hearing. your staff asked us to move around so we had to change everything on the schedule to try to accommodate. >> the agreement is i would be out at 2:15 because there are other things now scheduled to: to:30. >> there was a request but we moved the hearing see you could get the questions in. >> congressman, you told us one thing. >> i did not tell you anything. >> we have no one here to ask questions, mr. chairman. we have no one here to ask questions. >> i have other obligations to based on the representations of

your staff and our effort to try to accommodate you and rearrange your schedule to accommodate you. >> it was a simple request. your staff had a request. my staff said we are trying to accommodate you. we are going to get you out in ten minutes. >> we had an agreement. >> you had no agreement. >> we had an agreement with time this hearing would occur. >> you're making that -- this is not the case. >> mr. chairman, you just did something that i'm trying to be cordial but to just accused her of lying. >> she is making an agreement i never made. >> we need to clear this up with a staff they've moved this thing around 50 million times and has to go to another hearing. >> not to another hearing, another meeting. >> congressmen, i would be glad to answer questions for the record. we can do that on the -- if you will send questions for the record we are glad to answer

them and they will be a matter of the public record. >> i certainly appreciate that, and i've tried to accommodate you. i just want to be clear to make sure this is on the record. there was no agreement about departure time, and i want to make sure the ranking member that i didn't make those representations. i confirmed with my staff before this thing started the reason why we moved the time is so that she wouldn't have to wait during a vote in the middle of a hearing. with that, i understand -- i understand your frustration. but i just ask you to see to my side of this as well because we thought we had you for more time. i thought i had you for more time. if the gentleman will -- >> of course. no, no, i cool. i just want to make sure she's treated fairly. >> i understand. we've had more debate than the questions remain. so, with that, you know, -- ms. warren, i appreciate your service to our government, i do.

>> thank you. >> and, you know, i'm just trying to get on the record a few of these things we've seen counter to my questions of you back in march of this year. and it is informative and instructive for this committee on the construct of this enormous bureau that your constructing. and so, that's why congress wants to have this oversight. i think you for your testimony. i will dispense you now and ask the two members that are not being given the opportunity to ask questions to submit theirs for the record and i would ask you to turnaround the questions as quickly as you possibly could. >> thank you. >> thank you very much. >> we are going to recess for votes and come back for the second panel. [inaudible conversations]

>> [inaudible conversations] [inaudible conversations] [inaudible conversations] >> the hearing will come back to order. we now recognize the second panel. we have mr. zywicki is the professor of law at george mason university. dr. david evans is the director

of the university of chicago law school. mr. adam levitin is professor of law at georgetown law center. mr. andrew pincus is a partner at mayer brown rowe and maw lp. with that, as is pursuant to the committee rules, all witnesses are sworn before they testify. if you will stand and raise your right hand. do you solemnly swear or affirm that the testimony you are about to get will be the truth, the whole truth and nothing but the truth? all right. have a seat. the record will reflect that all witnesses answered in the affirmative. in order to facilitate discussion, if you can -- your written statement will be admissible to the record, and you can simply summarize assemble five minutes and at one

minute you get the yellow light which sort of helps you round up and i would love to hear your testimony. mr. speed, we will start with you, sir. >> thank you, mr. chairman. it's a pleasure to be here today. i want to say at the outset that i was in favor of -- strongly in favor of regulatory reform, dealing with consumer financial protection and that sort of thing. i think that we've been much in need of regulatory reform streamlining coherence and that sort of thing. and to this day, i remain disappointed i think with the cpfb we squandered a golden opportunity to create new useful safeguards for consumers the would promote competition, consumer choice and protection simultaneously instead we created a monster of an agency that is going to reduce access to credit and increase the cost of credit, and ironically have

the unintended consequence of probably exposing more consumers to fraud and abuse when it comes to lending products. the truth in lending act was three pages long. now it's grown to thousands and thousands of pages. we've seen duplicative for tiberi enactment of a time and in particular, and years of class-action litigation, heavy-handed regulation legislation have marked up the current system with a lot of counterproductive regulation is unfortunately this isn't going to change that. this year over simultaneously the most political bureaucracy that i have ever been aware of. if it is an independent agency with another independent agency, the federal reserve, it may be the most powerful than its ever been considered to most to be constitutional. has the power to reach every single credit paid a mortgage in america and the potential to impact small businesses that use consumer credit and personal

credit in their operations, and yet an agency with this kind of power presided over by one person, with no effective external oversight, a completely on reviewed and unrevealing will budget with no checks on them accept this loose check by the fsoc. history tells us what happens when we give bureaucrats this much unaccountable power to regulate massive swaths of the economy. this super regulator is like something that we haven't seen since the nixon administration. if there's a good reason why we haven't seen this since the nixon administration is we know what happens when we give this sort of an unaccountable power to bureaucrats to make decisions for consumers as to what kind of products they are allowed to have and what the terms of those products are going to be. it is, as i mentioned, a one-person commission i think it seemed obvious that this should

be a commission rather than a one person sort of thing. i also agree with the proposal to reduce the to ferret majority oversight to a simple majority rule for oversight. following that or in addition to that i think that this should be formally required to undergo some sort of extra will review by awayri or someone else would like to be the really toothless cost-benefit analysis that is included here. and we saw -- the reason we haven't seen this since the nixon administration as we saw what happens when we give this kind of unaccountable to power to bureaucrats. we saw a generation of economic stagnation, stifle innovation, declining american competitiveness and the like. and it's completely predictable. this is what happens to bureaucracies when they like the feedback and accountability from outside. you get tunnel vision, mission created, and you get the hobbyhorses of whoever the person is who happens to be

running the organization is the one who sets the priorities. this is -- what we learned from that experience and the harmid did the american economy is we need accountability come oversight and transparency in our process. why does that matter? because overregulation by this body could inflict huge harm on the american economy. it will -- it will raise costs and reduce access to credit. i'm not familiar with any theory that says increasing the cost of the business could possibly cause prices to go down. and it will increase the cost and reduce access to credit. and what we've learned over time is use simply cannot wish away the need for credit. if somebody needs $500 to repair their transmission to get to work on monday the need $500 to repair the transmission to get to work on monday. what should be done on a layout in my statement, which is the model here is the federal trade commission, a multi member commission with internal checks and balances. one reason that independent agencies typically are not

subject to the review is precisely because there to be cut their commissions that have an internal dillinger of process. this agency will not be subject to any budget oversight. it is not a multi member commission. it is not subject to external review by anybody else, and i think this needs to be fundamentally reviewed. >> thank you for testify in mr. zywicki. dr. evans and five minutes. >> chairman mckenrick, ranking member and members of the subcommittee thank you very much for asking me to testify on cfpb -- professor george wright and i started studying the legislation and the rationale as being put forward. early last year we published an extensive study on the proposed agency. based on their research, i am quite concerned that the cfpb could make it harder and more expensive for consumers to borrow money and for the small businesses to offer a line of credit cards and other lending

products. just because someone puts the board's consumer protection at the title of the administrative agency doesn't mean that is what is going to do. there are two reasons in my view to believe that the cfpb could become an antilending and borrowing bureau that could harm consumers and small businesses and often reduce economic growth. the first is there is an antiborrowing body is built into the cfpb. professor warren cooperative long article in the university of pennsylvania review in 2008. that lead up a rationale for the new agency, and its agenda in some detail. she claimed consumers are rational when it comes to borrowing money. the consumers make lots of mistakes, and consumers end up in the and, borrowing too much. professors bar, nathan, wrote an article that proposed about the regulation for financial services. that included requiring the lenders to offer queen vanilla products as a default. while treasury professor barr was involved in drafting the

cfpa and he was appointed assistant director for research at the cfpb. the professor and i have reviewed the intellectual foundations of the cfpb based on the writings of the people behind its creation. the view that people don't really know what you're doing when they borrow money and that we need to protect consumers from themselves has really become part of the genetic code of the cfpb. unfortunately at least in the writings provided the foundation for the new agency, there is little recognition of the fact that consumer lending has really improved the lives of millions of people and spur job growth in this country. now, the cfpb has the tools to put a highly interventionist agenda described in the foundational papers and to effect. and that's the second reason i'm concerned. this new agency can ban, quote on quote, abusive lending products. what those are are pretty much left to the discretion of the head of the cfpb. the new agency can also steer

financial services companies towards offering plans and oil products, designed by the cfpb, by either banning products that don't conform to the cfpb's view or by making a legally risky and expensive investor for lenders to deviate too far from the product the cfpb ones. ida stand plan and al was excised in the language, but still the possibility of in effect doing it. through provisions, disclosure requirement and fines, the cfpb has the means to place a heavy thumb on the consumer lending products that consumers and small businesses would willingly consume in the financial services companies the offer. there's no dispute that some lenders act very badly and that we need consumer protection. the proponents of the cfpb have made some real contribution and to our understanding of some of the problems and some of the possible solutions and have a lot of respect for the passion and intellect. but regulation needs to be based on the balanced view of the benefits as well as the cost of lending and borrowing. in fact most consumers and small

businesses are responsible, and most consumers and small businesses don't get into trouble. over the last several decades the fraction of consumer loans that banks have had a right off is varied from 1.5 to three-point cyril%. the charge of for the consumer loans rose during the recent deep recession, but they are now coming back down to that level. most lenders provide products that people want and people benefit from. there are serious risks to the economy of restricting consumer credit. let me focus on one of them. between 1992 to 2005, brand new small businesses generated an average of 3 million jobs a year to it access to consumer credit can make or break those entrepreneurs. many of them use personal credit cards for financing. the founders of senator crist companies, google for mexico, had to max out credit cards to stay afloat in the early days. overtime a heavy regulatory thumb and credit availability could therefore pose a significant drag on the employment and economic growth. in closing, i counsel the

subcommittee to ensure that the cfpb has leadership that's balanced and recognizes the great value that lending products provide for consumers and small businesses as well as the occasional problems. i also suggest that congress keep watch over the cfpb to ensure that it doesn't become the antilending and borrowing bureau and harm the very consumers that it was put in power to protect. thank you very much. >> thank you, dr. evans. mr. levitin, you're recognized for five minutes. >> chairman mckenrick, ranking member quigley, my name is adam levitin. i'm a professor at georgetown university. my research focuses on consumer finance and financial regulation. i'm not here representing any financial ledgers or to plead the interest of banks were trading groups. instead line here is an expert on consumer finance and as a scholar whose work is deeply concerned in the financial security of american families. i'm happy to discuss the cfpb's regulatory structure and how it compares with other bank regulators the cfpb with print

the availability of stable credit. it's frankly premature to speculate on this, but i would note that the cfpb is required by statute to do cost-benefit analysis on provisions of financial products. i'm also happy to make the case as i do in my written testimony that cfpb is more accountable than any other federal bank regulator, period. but i think it's important that we all be honest about what's going on here. this hearing really isn't about improving the cfpb or insuring that there's sufficient oversight. those with the laudable goals, but the cfpb hasn't even got in the running it. and by all accounts the cfpb transition team, led by professor warren, is doing an outstanding job. there's simply nothing that suggests there was an oversight problem that needs to be addressed. instead, this hearing is an attempt to hobble the cfpb and render it ineffective because there simply aren't the votes to kill little felt right. this is about politics, not oversight unfortunately. there's no proof of this in the testimony and written testimony mr. pincus on my left on behalf

of the chamber of commerce. mr. pincus expresses concerns the cfpb structure leaves it vulnerable to regulatory capture. riga but recaptures the phenomenon of a regulatory agency advancing the interest of the industry it regulates rather than the public interest. the typical story for gil troy captain is the oil industry capturing the the management service. wall street capturing regulators like the occ. as representative bachus put it washington and regulators are there to serve the banks. so this leaves me wondering who does the chamber fear will capture the cfpb? is the multitude of well-financed consumer groups that have shown themselves to be the terror of capitol hill? is it middle class dozens? military families? seniors? i'm quite perplexed and find a stream for the chamber to express concerns of catcher because regulatory capture is the gebers signature mode of operation. perhaps the chamber simply worries it won't be able to

capture the cfpb and that the cfpb won't be the last of wall street will be a real financial watchdog. the chamber sounding the alarm about the regulatory capture redials the cfpb reform proposals for what they really are, it tends to get the cfpb and render it ineffective because there aren't the votes to kill it outright. does the same reason some members of the subcommittee wanted the cfpb under their appropriations process because if you don't have the votes to kill off an agency can start to get the appropriations by pleading hostile if the budget. let's be frank with this is about. its banks versus families. the issue presented is whether congress cares more about increasing profits of banks or protecting the financial security of american families. which is more important, banks or families? turning to the so-called reform proposals one would replace the single cfpb director with a five person commission. differently, double pos is paying five people to do one person's jobs. where i come from that's called government waste. what's more having five people to one person's job

accountabilities diminished and leadership becomes less effective. polis tickets said reports trading by one of the commissioners rather than an analysis of the issue at hand. there's little evidence a five person commission provides a check against agency overreach and if a single director is good enough for the occ it's good enough for the cfpb. put another way the symbol director is good enough for an agency that protects large banks and it's good enough for an agency that protects american families. another so-called reform proposal would lower the threshold for the stability oversight council to veto cfpb rulemakings. it would require a veto if a cfpb rulemakings were inconsistent with bank safety and soundness. bank safety and soundness is a technical term that means profitability. let me repeat that. bank safety and soundness means bank profitability. it's axiomatic a bank can be safe and sound of it is profitable. the consumer protection is often at loggerheads with profits. the only reason to engage in predatory lending for example is because it's profitable.

it's not done out of spite or malice. what this means is any cfpb rulemakings that affects a bank profitability would therefore be inconsistent in safety and soundness and subject to veto. under this proposal of credit card act of 2009 and title xiv of the dodd-frank act which reforms the mortgage industry could not be implemented because it would affect profitability and inconsistent with being safety and soundness. congress established cfpb to protect families not maximize bank profits. let's let the cfpb have a chance. >> thank you mr. levitin. mr. pincus the subcommittee at the chamber that the chamber represents. let me at the onset correct mr. levitin misperception about what the chambers long-held position has been on this issue. through the debate over dodd-frank, the chamber made it

clear that it strongly supported the sound consumer protection regulations and enhanced consumer protection of the federal level. the chamber, business is just like consumers have a strong interest in the marketplace that's free of fraud and other deceptive and exploitative practices some legitimate businesses can compete on a level playing field. so businesses like consumers don't like predatory practices that hurt consumers. at the same time, what is the essential is to ensure that regulation does not impose duplicative and unjustified burdens that have ill effects. first of all the unjustifiably divert resources that are essentials to fueling economic growth, to comply with rules that are not necessary, and in this context mr. zywicki has mentioned they prevent small businesses from taking the credit they need to expand and create the jobs that our economy needs because the well-documented fact is that small business discredit is

often consumer credit, and misguided regulation of consumer credit that shrinks its availability will shrink the credit that is the lifeblood of small businesses in this country. so the chamber actually looks forward to working with the consumer financial protection bureau once it's up and running to meet these goals and has already had several productive meetings with some of the people that have been designated to take roles of the bureau. but the chamber is concerned that the bureau structure will make it impossible to achieve the goals that have been set out for it. first of all, i think it's important to make it clear of the house and given some of your earlier testimony that the plain fact is that dodd-frank sets up for the bureau an unprecedented structure that consolidates more power and the director than in the head of any of their agency there regulates private individuals and entities. just want to repeat that again, it concentrates more power in a single person than any other

federal agency head of an agency that regulates private individuals and entities. so let me talk a little bit about why that's so and address some of the comparisons that were put on the table earlier. first of all i think we are all familiar with the basic model of the federal agencies like the federal departments headed by a single individual, the secretary or the head of the fda. one individual but there are two important characteristics. it's one individual who serves the president. the president has told power -- total power to fire that person if he or she disagrees with the views and of course for all those executive agencies the appropriations process is there and congress reviews the appropriations. you have independent agencies. the structure for independent agencies virtually uniformly throughout the government is that they are headed by a multi member bipartisan commission who is first served for fixed terms

of there's a built-in compromise. yes, it's true the president doesn't have the unfettered power to fire a member of the ftc or the sec, but neither does one of those people have all the power to run the agency's so there's a built-in checks on the power of any one of those individuals who have protection against the president's discretionary firing. second of all, for most of those agencies, there's still the appropriations process oversight to ensure that there is a second check on what they are doing through the people's elected representatives in the house and in the senate. the bureau of course is headed by a single director who serves for a fixed term and with respect to whom the president is limited in his ability to fire him except for cause, him or her except for cause and there is no appropriations oversight, so it's those three things coming together, single person, limitation on the president's

power to fire except for cause and no appropriations oversight that makes this different than any of their agency and i want to address the occ comparison because that has been floated earlier again in the hearing the occ controller is someone who is subject to firing at the discretion of the president. so again, a critical difference in the checks and ones that exist with respect to that agency and the agency's here and as i detail the secretary of treasury also exercises some oversight authority over the comptroller. finally, to click additional points. first of all, the question of the review of regulations and whether that is unique. i served in the executive branch. the regulatory review process within omb, i'm sorry and running over a little bit. the process brings all of the executive agencies around the table to reach a compromise about what a united you about the executive branch agency regulation should be. second of all i would be happy

to talk about the regulatory capture point mr. levitin said but suffice it to say the banks are not the only special-interest in this debate. there are lots of special interests and the question is how we create a structure that makes sure that the resulting rules are the public interest and not a productive one special-interest or another. >> thank you mr. chairman. thank you for your testimony. i thank all of you for reading and for being here and understanding the congressional schedule tends to link in things. mr. levitin, you mentioned in your testimony, you mention occ is an apt comparison to the cfpb. and ms. warren's testimony she also mentions that as the appropriate comparison. why do you believe that to be the case? >> one of the primary reasons we separate, the congress separated

the consumer finance from the bank safety and soundness is that if all those two did not work well together because safety and soundness always took the foremost position in the consumer protection ended up -- >> y understand your talking about the previous congress, congress intent on this law on the structure of dodd-frank and cfpb in particular. what in particular -- why is occ the appropriate comparison? stomach because occ is the strongest of the federal bank regulators and if we want to have a bank regulator that is able to act efficiently and decisively to protect american families, we want a structure that works like occ. it's been an effective structure in the bank interest we want to structure the interest of american families. >> you speak that these commission structures are not ideal. why? >> when you have a commission structure there are two reasons. first of all with any commission

structure you in-depth often having simply pours trading with the commissioners. commissioners have their issues as the professor zywicki mentioned coming and the result is that sometimes the commission stations and up being based on political trade-offs other than what is the right resolution of the issue. >> and you're saying this to congress? [laughter] >> certainly because congress is a different structure. >> cizik and point -- i didn't mean to interrupt. >> there's an important distinction. it's a political agency man to do that. we do not want regulatory agencies operating that way. >> you're second point? >> the second point is that when you are dealing with -- the traditional model of a five person agency, we don't have as always but in most cases we have the rule that no more than three members of the five person commission can be from any one party. the problem is when you apply that with the partisan division to consumer financial protection, it doesn't work because consumer financial

protection issues to not fall on partisan lines. >> okay. thank you. it is interesting because we were talking access to credit, there is a division. mr. zywicki, you mentioned in your testimony that the comparison to the ftc is the preferable one. compare that to the occ. i'd like to understand the difference here. >> thank you, mr. chairman. that's right the federal trade commission is the obvious analogy here. i worked at the federal trade commission as the director of the office of planning, federal trade commission for a long time has had authority over some pockets of consumer protection. and what we see is that the ftc is the model of how this should be done, which is that it has an internal deliberative process where they can discuss the policy treed of spirit to much consumer protection can be harmful to consumers. you could -- >> why is that?

>> we could make the foreclosure rate as you know if we said you couldn't get a mortgage. and so -- >> people keep their home. >> people wouldn't be able to buy homes because they would have to sit up and get cash before they could buy a home. >> they wouldn't lend to them if they could not -- >> exactly right, exactly, so there is a trade-off in -- there is a trade-off between two good things, consumer protection and consumer choice, competition and lower prices if you raise prices consumers get less -- >> as the panel agreed on a yes or no that there are trade-offs just as mr. zywicki outlines. mr. evans, yes or no? >> yes, there are trade-offs. >> okay, okay. go right ahead. in elaborating on the ftc thing is what we see in the ftc

through the the level of five members process comes up with doing this. we also see the ftc that there is an internal check of competition, consumer choice on one side of the agency, consumer protection on the other side of the agency, and when i think about this the ftc nobody ever said that the ftc is incompetent because they've got an agency -- i never saw horse trading with respect to these things. what i saw was a deliberative process at the internal checks and balances that way all of the considerations here, and when i think about the cfpb, what i think is all i was at the ftc and i know a lot of people worked at the cfpb, and if people had said that consumers would be better off if we took the consumer protection bureau of the cfpb and spun it off and just let eight xu whoever it wanted to come to any regulations without any consideration about other sort of things people would think that you've lost your mind, yet that is the model, that is the

model for the consumer financial protection bureau would be the cfpb consumer protection division standing alone, and that would be a disaster. >> my time is expired. mr. quigley is recognized for five minutes. >> thank you again, mr. chairman. mr. levitin, professor, obviously a significant part of the new agency mission is to help level the playing field between the larger lenders and smaller lenders such as credit unions and small community banks in the district. you published i believe this report in december, 2009 and which you made the point better regulation in the consumer -- of the consumer marketplace would result in both safer and more affordable products. specifically, you mentioned the issue of the incomplete price competition, which makes it very difficult if not impossible for consumers to comparison shop for

products based on total cost. would you explain the concept of incomplete price competition and the effect it has on a consumer finance market? >> sure. i want to start by saying i think the consumer financial protection bureau could end up being a major source -- could end up really benefiting the community banks and credit unions by leveling the competition playing field within the financial services space, that within financial-services there are economies of scale that especially in areas would say credit cards and debit cards. there is economies of scale, smaller financial institutions cannot match. having the consumer financial protection bureau encourage more transparent products where consumers able to compare apples to apples where they can see -- with a don't have to try to guess what is it going to cost me to use this credit card over the course of the gear they can know if i use this cord this will be the cost and if i use

this card this will be the cost. if you make an informed comparison like a digger's restore and unit price is i could make an informed comparison like that than i can make sure i choose the right product and that lets smaller financial institutions that offer really good products and services be able to compete fairly because they don't have to compete with him in price terms. their price terms are up front and clear and part of the price terms are that the excellent service often they have to compete with large financial institutions that have an incentive to hide the price terms in small print and make it hard to figure out what is it going to cost to use this product. >> you're talking about improving transparency. >> very much. >> and if you were then how do you do that? what are the steps? how was it so the everyday person can find what you're talking about? >> i think first and foremost a focus on the disclosure of information come the way that we had on consumer protection in the united states since the truth in lending act is focused primarily on disclosure and you

try and improve the disclosure forms as the cfpb has already started to do with reconciling the state settlement procedures act, the truth in lending, the mortgages, started doing that with credit cards trying to boyte -- boyda and the 30 page unit into hopefully what will end up being a one-page unit at you and i can look at in planning question that you don't have to be a lawyer to understand. >> is there some other place that you think that this makes sense to disclose so it's not just in that or is there some online possibility? >> that's one of the possibilities. it's not clear exactly what the right answer is. it's part of the task before the cfpb is going to be to figure out what is the obstacle may not delete -- al qaeda we to do this and i assume cfpb would consider other things having the online comparisons just the way you might consider used cars on car fax would be an option. >> and your best guess on how

the market reacts to these requirements? >> if i were a large financial institution that made a lot of money by hiding the price terms i wouldn't like this. i would be -- i would want to stop this and to what this agency but if i were a small financial institution where my calling card was excellent customer service and straightforward honest product, would increase this wholeheartedly. >> i don't fault them for trying to make profits. i just think it's something that the market always should encourage and that's the competitive aspects that transparency allows. so i would like to think that eventually it increases in the marketing opportunity as you sit like car fax people may get to become advertise we make it easy when you're buying this car. i like to think they would increase it at some point recognizing the cost in dhaka competitive qualities that would bring to bear against them in

some respects. >> transparency is the consumer's best friend. >> thank you. i yield back. >> i recognize myself for five minutes. >> dr. evans, and you mentioned that your concern is that the cfpb would become -- would really put in place and and high credit policy. can you explain why that would be? why would we have an agency with an anticredit, and the darling, antilending policy? >> [inaudible] >> if you would turn your microphone on. >> the philosophy of the people behind the consumer financial protection bureau is really the there are some fundamental problems in the financial market. there is a belief that consumers really don't know what they are doing, consumers - of the sticks and what you need is a super many in effect to be telling consumers what they should be doing. how does that happen?

you basically tell financial institutions what kind of products they should design, what kind of products they should offer to the consumers. if you look to their ridings and a lot of the people involved in the agency, there is a tendency on their part to basically believe that borrowing money is not a great thing and that consumers get sucked into borrowing too much. how do you react to that you are an agency with those beliefs? you put policies in place to make it more difficult for banks to lend money to consumers and put policies in place and one of the things that has been suggested by some of the backers of the cfpb is basically a six delete two sticky off to a policy where you tell the financial institution that they have to tell consumers that this is the product we have to give you and it's difficult for the financial institution to let that consumer take another product. that basically makes it difficult for the financial institutions to lend money to that consumer.

if i might just elaborate just a little bit and respond to professor levitin's points, i think history tells us that the notion that this regulatory agency is going to lower prices to consumers, the massive recovery agency is going to lower the prices to consumers and is going to increase competition i think is extraordinarily naive, and if you look at the facts, we've had the experiment. what have we seen as a result? one of the affects of the car deck in the marketplace is that prices have gone up to consumers and it has been more difficult for consumers to get credit. why is that? one of the things the karnack does, i'm not seeing that it doesn't do good things but one of the things the card act does is it makes a very difficult for the financial institutions to price risk. it is simply not the case that credit is like a car or a toaster. the difference is that when a bank extends credit to

mr. zywicki or esters levitin or to me or to mr. pincus, the chances are each one of us is different risk characteristics and the bank has to figure out a way to price that. the card act in that particular legislation made the difficult to do and one of the consequences of that is banks had to basically increase their prices and reduced the availability of credit. the other examples but i've written on recently of course, and we don't know how this is going to play out is the durbin amendment and the debit card change fees. based on what if i think it is pretty clear from how the market is already operating that that is going to have a very affect on the marketplace. it is going to increase the price that consumers had. i simply don't think that it's possible that this regulatory agency is going to result in lower prices for consumers. i just don't think there's a lot of experience and history that is comported with that particular view. >> the fsoc, the devotee of the

fsoc to overrule the rules of the cfpb. ms. warren says that is basically weakens the agency and a strong regulatory agency because you have to get seven out of ten really excluding director of the cfpb seven out of nine members to vote and the limitation on that of the ruling is that it would have a systemic, provide a systemic risk to the american financial system, high hurdle so that means the cfpb could really eliminate particular businesses and business lines and fsoc wouldn't have the ability to overrule it. you mentioned this about the fsoc. why is fsoc not a powerful tool to overrule cfpb? >> i think for both of the reasons you mentioned mr. chairman first of all the supermajority requirement is very unlikely to be met via the standard that has to be applied is extremely -- it threatens the entire u.s. financial system incredibly high standard.

second of all, the process that is employed, typically the way agencies discuss proposed regulation is there is a process before the rules issue. what this says is the bureau issues its role and if somebody doesn't like it they can start will be a very public process rule and i think there will be an obvious reason why absent something that's almost so cataclysmic it's impossible to think about. nobody's going to want to do that. >> thank you to your testimony and i yield to mr. cummings. >> i was listening to you, dr. evans coming and you, mr. pincus, and i cannot help but think about a rap group that has a song entitled quote get rich or die trying. and the reason i say this is i want to do everything in my power to protect my constituents who are suffering and the

constituents of mr. chairman mchenry by the way and others. and we need to -- i don't want us to throw up our hands and say we can't protect consumers, because we can do it and we can do it effectively and efficiently and ensure that when you were talking about today. you may disconnect from the people i see everyday hupeh to hide and fees and have been messed over and over again and they go to work and get on the early bus at 5:30 in the morning. scriven people's floors, operating elevators and then pay these kind of fees. one of the reasons banks won't even locate them there is because pay loans all throughout the district. people who rent appliances that they could buy a. that's why we need this

protection cfpb and we all need to work to make it work because the american people are paying for this and they deserve to be protected and they need protection. professor levitin, you publish an academic paper in 2009 in the study of the consumer financial protection agency which was a critique of a study by david evans who is one of our guest panelists today and joshua right that found among other things that the cfpa, the section of the dodd-frank consumer financial protection bureau could increase interest rates and reduce new jobs. you explained that the report was just the latest tony -- envoy to quote you because i don't want to think i'm saying this about them -- gist, quote, the latest sony will begin statistics to come out of the banking industry, and of quote come and pointed out that the study was funded by the american

bankers association. is that correct? >> it is correct, and my particular objection in that paper is it tried to estimate an increase in the cost of credit due to the creation of the cfpa and cfpb and the methodology was this and you will see in the office the methodology. secure is another piece of legislation dealing with interstate bank regulation. and one study found that that resulted in an increase of the cost of credit of x basis points. therefore the cfpb will result in an increase in the cost of credit of x times some number they pulled out of the air and it was simply that, just to get multiplying and apply that multiplier to in an opposite study and say that's going to be the effect of the cfpb. i was rather shocked as dr. evans produced excellent academic work previously and this was just very surprising for me to see. >> one more question and then i will get to you, dr. evans --

no, you go ahead because i want to be fair to you. >> with all due respect, professor levitin hasn't done any research and he just testified concerning what's going to happen to the price is based on absolutely nothing. when pressed to say what's going to happen to interest rates and so forth, the reaction we get, and i will quote from his testimony earlier is speculative. we don't really know. what john shibley, the professor and i tried to do was a study not based on perfect evidence, but the particular study that the professor levitin pointed to is an analog. the best and all that we could find, not a perfect analogue, the best analog we could find something comparable to the cfpb. you provide a baseline for the imposition of credit in the economy. that particular study that professor levitin just referred to showed that another regulatory and as a result of the state restrictions on

banking and credit and so forth led to the 80 basis point increase of interest rates. that's what you typically get with regulation. we did a comparison to the cfpb and made the point that cfpb would allow a greater set of regulatory restrictions on lending than that. we took that as a -- >> i've got to cut you off because it's got to get levitin a chance to respond. >> whiteaker the 80 basis points and multiplied by two or three or just some number that was yanked out the air. it's simply not scholarship to just yank a number of the air and say this study was 80 basis points therefore cfpb is going to be 160. we can't do that. this one's 80 basis points and we just don't know yet with the cfpb. we have to get a chance before we find out. >> i see that my time is expired. thank you, mr. chairman. >> thank you, mr. chairman. dr. evans, did you put a member out of the air?

>> nope. if you read the paper and look at our response to professor levitin, which we can certainly make available to you, we use that as a baseline of 80 basis points, and we counted in very careful language we said that this is inaccurate, this is the best we can do given the available evidence, and we give the reader an explanation why they should consider multiples of 80 basis points, priced at three times that based on the lengthy analysis that we did in the paper, pages and pages explaining why the cfpb, y de cfpa has the power and the likelihood and particularly the earlier version of the legislation to increase interest rates. again, with all due respect to professor levitin, he has produced absolutely nothing on this topic. the notion that we are engaging in this exercise creating this mess is agency and the best we

can get is we will just have to see. for me that is not good enough. >> thank you for that testimony. i would concur that it's not good enough for congress either or it shouldn't be good enough for congress. this is not an ocean -- this issue is too important for us to guess how to solve the problem. i think all members of congress want to solve the problem, but i have failed to see how this agency will correct the actions that led up to what you, mr. levitin, talked about that builds up to this, so the one question i guess i would have for you, i think he made some statements that if the cfpb had existed from 2004 to 2008 this could have been averted. it might not have occurred. i heard the testimony earlier in

the first panel as well. so, my question would be even though this entity is supposedly going to have some responsibilities of other entities that should have prevented this or should have maybe suggested this was going to occur and we could have put some stopgap measures in place can you tell me what exactly this agency will do say in the next 12 months to ensure that this would not happen again? >> welcome conagra's already took care of a lot of the first steps itself. title xiv of the dodd-frank act to a major reform of the more tv to mortgage markets including the requirement that for the nonqualified mortgages which is a term regulators have to define that the lenders will have to verify the ability to repay. it seems like a pretty obvious

first step and i'm glad converse ticket. i think it's very important to know that the major step forward with the cfpb is changing the regulatory architecture. previously when bank safety and soundness was yoked together with the consumer protection, consumer protection always in the began the subordinating mission and band entities like the comptroller of the currency who routinely turned a blind eye to predatory lending practices because they were profitable and they didn't want, they didn't want to stop the music of the party. the cfpb doesn't have the bank profitability mission. it's not tasked with maximizing bank profitability. therefore it's an agency that is incentivized to make sure there's good consumer protection >> wasn't that, quote come a good consumer protection, didn't exist in these other agencies? their missions were not to have bank profitability. >> sure they work, safety and soundness and a bank that's not

profitable is not safe and sound. it isn't about profit -- >> so you're saying their focus was bank profitability. there was nothing, no protections, no consumer issue with respect to the consumer to get >> virtually none and i can give you some examples. the federal reserve had the power and the equity protection act to the homeowners to pass regulations that would curb the worst abuses of the sub prime lending. it didn't act. >> what fannie and freddie fall into the category? >> fannie and freddie are complicated and a sad story to this. the problem in the lending market was from the private label securitization. that is then spilled over into fannie and freddie. fannie and freddie were not government agencies tasked with consumer protection and fisa wasn't test of consumer protection either. >> i know my time is expired.

thank you, mr. chairman. >> the ranking member mr. quigley is recognized. >> thank you. dr. evans, professor levitin come i actually appreciate the disagreements here. our judicial system is built on zealous advocates, disagreeing because from that we like to think that we move towards the truth. so, towards that end, while i recognize we are not going to hold hands and sing kumbaya dhaka, it's good to see this warm and fuzzy moment. dr. evans, the professor's comments about transparency, while you may disagree with much of what this agency is about, can you talk about how transparency might help this industry and if you agree or what part of transparency would you improve things from the consumer's point of view as he would be unhappy with the strong competition?

>> that's a very fair question and i appreciate it. let me take that and just start out by saying i'm certainly not suggesting there are not problems to be solved. there are problems in the lending industry. there were certainly lots of problems consumers faced, and i would be the last person to do now i that there is a set of problems that some agency needs to deal with. one of the things that is beneficial for consumers is subject to qualifications is transparency. it's not a good thing when banks hide the ball and it's not a good thing when consumers are tricked into doing things and it is certainly the case there are some members of the financial-services industry that have acted badly, and i am the last person to suggest that this is everything is okay and there are no problems. so i am in favor of consumer protection, consumer financial protection. i think his agency could do lots of good things.

the one qualification i guess the thing i would really like to get across is as with many things, we have to have a perspective on the marketplace, and by and large this is an industry that does a lot of great things. it helps the people in the districts in lots of ways, and we just have to have the perspective that while there are bad things going on that we need to take care of it's also an industry that does a great deal of good for consumers and small businesses and the regulation that we have for this industry needs to be conscious of both the bad things going on but it also needs to really recognize that the bad things are often exceptions and that there are lots of good things we need to make sure we don't harm. >> what you suggested that the bad things we talked about our in large part undertaken by what

was the dean of the shadow banking industry? when the bill was being discussed, many of the largest initial institutions were supportive of it. they were not for this agency, but they were certainly for somebody going after the problems from what was deemed the shadow banking industry. if you want to use a different term, that's fine and -- >> i'm hesitating here because i think one of the things the professor and i agree on is that some of the large financial institutions engaged in practices that probably were not a good thing for consumers. so there are elements of the financial-services industry with its large shadow and so forth. there are certainly issues, and those issues i think should be appropriately da