financial center of the world, without putting at risk our entire economy. i believe we are now within touching distance of that new settlement. if we achieve it, and we move on, and put our country on the path to prosperity, i want the city of london to be a thriving center of enterprise, more interested in serving its customers than in what government might do to it next. u..

>> and a live picture from the afton institute, where in 10 minutes so we expect this to get underway with ron kirk talking about global markets, jobs in the american economy. he'll be joined by former

chairman reserve comment alan greenspan. live coverage starts in 10 minutes here on c-span 2. this morning on "washington journal" we spoke with david wasserman, talking about the political fallout from the resignation of congressman anthony weiner. >> now former congressman from inside "the new york times" amid the chaotic. below that is what we want to focus on. who will succeed in the ninth congressional district? chewiness is david wasserman cardhouse editor for the coat look over it were. appreciate your time as i was on c-span. yesterday indicating this is likely to remain democratic. i know it's early, but whatr ha namesvi have been mentioned as serious contenders for former congressman weiner cbc click a

>> and amazingly enough is going to be the fifth special election in new york state in the last three years.is i think that some special record. we've been busy covering specian elections, were actually we've had to sex scandals already aeatednd special elections special alexians in republican leaning seats in -- specialty elections in republican-leaning seats in upstate. now it is a democrats turn to defend a seat in queens. interestingly enough, this will be more of a tribal election than the of state elections we have seen, which is, the partisan policy dictates of the chair of the political party of the democratic party in queens will be selecting nominees. there will be no primary

election. and governor cuomo will be setting the date for the special election. everyone is watching joseph crowley. he is share of the queens democratic party. he gets the call on who the democratic nominee will be. they will start out with an advantage. but keep in mind, this is the least democratic district in nyc. this is not a foregone conclusion and democrats cannot take the race for granted. host: and his cousin, elizabeth crowley is a councilman. guest: that is true. and there are other names in the house as well. one thing we will be watching is whether, crowley -- is whether crowley has the credibility to mount a campaign. it is a very diverse district.

here is the ranch in this, n.y. is losing a few seats in redistricting, and this is a district that everyone has been looking at since the scandal broke as one district in the city, will most likely have to go. crowley would like to take on more of queens. currently, his district is in the bronx. he would like to take on more of his home base near el morris to. he would benefit from -- neera elmhurst. he would benefit from redistricting. many speculate that he would move into wiener's territory. we do not know of the names that have been mentioned -- you know,

linda calves, it for more city councilwoman, or his cousin. of the names that have been mentioned, we do not know who would be willing to be a caretaker of the seat, but also led a vigorous campaign in a special election against potential republicans. host: you indicated that the governor has wide latitude when it comes to determining when he will hold the special election. when will he know about the newly drawn lines in new york state? guest: we will now know about the lines, most likely, until run against the filing deadlines of the summer of next year. governor cuomo, shelley is over, the assembly speaker who is a

democrat, and the minority leader -- or rather, majority leader in the state senate will all have to hammer hard a deal on redistricting. -- hammered out a deal on redistricting. it will be a situation where most people would expect to run for a seat for a lame duck session as a member of congress before it may be eliminated. as we found out in new york's 26th district, the last time the scandal broke, drawing conclusions about the special election at the outside -- outset of the elections can be hazardous. i do not think that the county clerk what ultimately win that race and how the county can be

preserved by redistricting. there is a greater chance that will be eliminated, but we will have to see whether republicans can mount a credible campaign that puts the democrats in a tough spot. host: david wasserman, who tracks the house of representatives and the politics of congress for the "cook political report." the headlines outside of washington d.c. putting him the winner on the front page. >> a live picture on your screen from the aspen institute here in washington d.c. actually, the aspen institute in dupont circle in washington

d.c., a couple of minutes away from representatives ron kirk and farmers reserve chairman, alan greenspan talking about global markets, jobs in the american economy. we also expect to hear from dan glickman. as you can see, folks making their way in the room. when they sit down, we expect them to start shortly. president obama visited the walter reed medical center. he'll meet with the vice president. vice president patent held previews this week on debt and deficit reduction, amy to produce the deficit reduction deal to pass that would allow it to a ceiling pass to august. white house coverage continues today at 12:40 p.m. eastern. do you see former chairman alan greenspan. the republican leadership conference in new orleans today for the gop presidential candidates michelle bob mann, ron paul and rick santorum. we had that for you in a

competing network, sees -- c-span. [no audio] >> as a way for the event to get underway, house and senate are done for the week. next he could have come a patent

and trademark overhaul bill, a measure that to assist epa approval process for offshore oil and gas during an the 20 tows defense department spending bill. next tuesday can assemble a vote on leon panetta as defense secretary. robert gates stepping down from the position on june 30th. a procedural vote on multiyear reauthorization of the congress to prevent economic development administration that provides aid to economically distressed communities to a man dealing with ethanol tax credit also get those through 2:00 eastern tuesday. that in the senate right here in c-span 2. the house always on c-span. but as former agriculture secretary commit dan glickman making its way over, shaking hands with alan greenspan. we expect the event to get underway shortly. [no audio]

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[inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] >> which is how u.s. trade representative, ron kirk in the room, so we expect the event to get underway attacking the local markets, jobs in the american economy life from the aspen institute in washington d.c. there is mr. curt with agricultural secretary dan glickman. we also saw a alan greenspan in the room. those are the names we expect permissibly think the panel will

start very shortly. live coverage on c-span 2. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

>> all right, hello, everyone. hello? hello, everyone. hello, good afternoon and welcome to the aspen institute. and jamie miller, vice president for public programs than it did great, good fortune to be involved with this project over the course of a couple years. we've been talking about the issues around the innovation economy and we've been lucky to have this work underwritten by intel and to do it in partnership with the pbs news hour, both of which are great privilege is.

kirk and welcome margaret warner and also thank our underwriter intel who has demonstrated a real intellectual interest around these issues over the past couple years and we really appreciate it and hope everyone else does too. i'll pass it over to does not match, vice president and general counsel intel. welcome and thank you everyone for being here. >> thank you, jamie and thank you all for being here this afternoon. i want to express special appreciation to ambassador kirk and margaret warner of the new sewer for leading the discussion this afternoon. since the latest in the series of events that the news hour has organized to discuss a week of the innovation economy and the crucial policy issues that need to be addressed in the united states that will stay at the forefront of the global economy. today's discussion will focus on trade issues. from the perspective of a company like intel, there is something artificial about

taking a trade issues in the conventional way as if they are issues regarding the boundaries between one nation's economy and the economies of other nations. there is something artificial about referring to nations as trading partners. that's because we always live in a single global economy. intel, for example, manufactures more than half of the manufacturing is in the united states and more than 80% of our sales take place outside the united states. it is not as if we manufacture products in one country and import into another. rather, our manufacturing takes place in multiple countries and facilities contribute in different ways to the creation of a single finished project. so, from our perspective, what we think about trade issues, we're not talking about games from the trade across international borders so much as

we are talking about minimizing governmentally created distortions to a single global economy. i am looking forward to our discussion today in hearing from ambassador kirk. i'm a turnover to our moderator, margaret warner. >> thank you, so much doubt. as dad just said, this is an ongoing discussion about how we can foster an innovation economy. the topic today really focuses on how this global -- how do global market and global trade contribute, not only to nurturing innovation economy here at home, but the kind of economy that produces high-paying good jobs for american employees and workers. so our featured guest is special trade representative, ambassador ron kirk, the former mayor of dallas. we were having an off the record talk about the dallas mavericks before you came in, but we promise not to quote them. as a long-time practicing attorney and secretary of state

before serving seven years as mayor, been elected twice. and president obama appointed into this job ipod price once called the best job in washington. i hope people feel that way. right at the outset of the administration. work trying to start with a 15 minute chat between the two of us to lay the table on these issues and then i want to invite everyone in with their questions and comments. a couple notes when you want to speed, you press the red eyed in front of you. it just so i can know who wants to speak, just put your table card -- we'll see if this works, on this side. many stay with you, ambassador kirk by asking, what do you think has been achieved in the last two years through trade policy and practice that has helped foster and innovate our economy, the kind that does create jobs?

>> welcome the first of all, let me say thank you to the aspen institute for welcoming me here. i have the opportunity after my career is mayor to spend a summer in aspen in one of their programs it is a fabulous exchange of ideas and thinking differently about how we govern and become better leaders. thank you for giving me the chance to be with you. we've done a couple things they think may be instructive in terms of this conversation. one, i think to protect the idea and the reality that for the united states going forward, we have to come to grips with the fact that we very much moved that the manufacturing chain to a much more knowledge-based economy and that our ability to compete and win in the future can play outside the realm that people can just throw hundreds of thousands of workers is very much going to be dependent on our ability content to continue to do what president obama

describes his or innovating, at educating, alpo than the rest of the roads and companies like intel, and so many others, even traditional companies like ford and general managers -- general motors their edge comes from innovation. one of the practical things i've done this focus on enforcement of those rights within the global trade in the community. i'll give you an ex-ample. the itc estimates that the last opportunity for u.s. companies inserted the information that you could value anywhere from 48 billion of. now, dan glickman can tell you that might tell you that number is low. david douglas feith argued that this flow from the software. from the bottle mind without negotiating anything else, is combat online piracy and theft of intellectual property, that

could be a $48 billion opportunity and many of those jobs would be gained here in the united states. enforcements the first leg of the store. second, and all of the trade agreements that we have either tried to renegotiate in terms of korea, panama and colombia to have the very strongest intellectual property rights, chapters we can negotiate. in the case of all three of those, we have very strong ip links. we are building on that and what we are looking forward -- going forward in terms of the transpacific per-share. third, we have worked with the group of like-minded countries to conclude something called the anticounterfeiting trade act, with which doesn't include all of the 150 members of the world trade organization. but of those economies involved and help me, i think they're 24 -- 22 of us represent probably 60% of trade and information technology.

so we're using all the tools from a practical standpoint, first of all to protect what we have been trained to use their trade policy to spare the growth of trade and information by finding new markets and making sure we don't lose the downstream benefits that the fight piracy or counterfeiting of that. >> those three trade agreements is now currently submitted to ratification, but the total i think is that their work is 13 billion here and finally doing the math is really only 70, 78,000 jobs. just get us a comdex about really how import and export our to her current job situation, having lost 7 million jobs. >> well, the mayor and me has always careful not to say only

78 million jobs. so we think adding jobs and frankly using trade as a tool to say to the american public that trade can be a component of job creation for the united states going forward is important and korea alone accounts for almost 70,000 of those jobs. the interesting thing about korea is that's pretty evenly distributed across manufacturing and services and agriculture. it is very strong market opening access and by contrast, koreas were economically compelling from the last nine trade agreement we did alone. but for me, the opportunity whether 70,000 jobs for 700 to gain and keep for american exporters the market opening job creating a state, piano and colombia is just as important because right now americans care more about job creation than

anything else. the more important messages that as counterintuitive as it is for some americans, we are now in a period of time that because their economy is so strong, more importantly because barriers to entry to the american market has been for so long and sometimes a design. we just let the oecd in paris celebrating the 50th anniversary, which really was born out of our efforts to help build after world war ii. we hope the road work going forward. everyone of these trade agreements is an opportunity for us to bring very high tariffs and many other companies, which enhances whatever we manufacture, innovate, grow here in the united states. so i don't think we should discount the job numbers. in the bigger picture, trade is roughly 13 to 14% of the u.s.

economy, much less than many other high trade economies like us. if you think it another way, right now trade is considering almost as much to the growth is consumer spending. trade as they to see really punches above its weight. we can take more of what we make your amend the economic benefit. >> how great it be -- should it be if they are yours to trade in a reasonable sense overseas were reduced that way you think would represent equity with what the u.s. allowed? >> i mean, we used the itc number, for example, for some information technology. one of the things that compel me to take the time to move around the united states revenue, just go to geneva and paris and other

places where trade gathers is as cynical as many trade proposition right now, but i heard from them is they are frustrated because they had an intuitive sense everything else is game of the system. i'm getting to your point. my point is if we can get china to fully comply with everything they said david duke, when they enter the world trade organization, if we can get good friends like we can never lose our two is splurging trading partners are mexico and canada. ..

as being not fully in compliance and that has been a fairly effective tool to work with them and say, let's come up with a plan to get you in compliance. >> let me ask a broader question which has been raised by many, many op-eds today and a couple of recent columns of his, how argueable is the premise that global trade actually helps create an innovative

economy here at home that creates good jobs versus the, versus the argument that it undercuts it because as he's written, suddenly in the last ten years there is a market of 400 million workers all over the world, many of them highly skilled, who are just as available at a 1/10 of the wages? i mean, if on balance you think global trade, i know we're down that track and we're not going to roll it back but how much of it actually has turned into a drain and a problem when we're talking just about this kind of innovative, cutting-edge industries, whether they're in purely intellectual area or very, very high-tech manufacturing in new industries, solar, whatever? >> we think it can operate to our benefit if we do the full panoply of things the president's talked about. it isn't just enough to have a strong intellectual

property rights regime which we do have here in the united states and perhaps when we get to the open table, doug and others can speak to the reality but you have to have the workforce to be able to drive that. that's why one element of what we talked about is the necessity to protect it but the other is we have to really look at our invests in education right now more than ever. if you're going to have a knowledge-based economy, frankly you can't drive that. forgive the mayor and me, basically every major urban area in america has one thing in common and roughly half of the african-american hispanic kids enter the 9th grade don't finish high school. we aren't going to be globally competitive against india, asia, africa, that type of environment. you have to look at education. you have to look at everything we do to incentivize research and development. we're lost in a lot of other issues in this week in washington but wasn't a small thing tuesday. the president and the national association of manufacturers announced an effort that we're going to

try to empower half a million community college kids, i mean, graduates with the skills needed, just to help drive our manufacturing engine right now. but we're going to have to look at everything from education, training, workers for the jobs we have. frankly i think at some point we have to have a much more honest conversation of visas for professional workers in math and sciences to take proadvantage of those skills. there is much as likelihood that american companies will want to retain that knowledge structure here and, you know, you aren't seeing it whole scale but you're seeing more and more american countries, companies, particularly in china where many countries said you can come but you will have to transfer all of your licensing, you know, and technology to us. many more companies are beginning to say, if that's what we have to give up, i think i would rather keep that information here and

sell it to the world. but we need to do what we do best first. make sure we provide the necessary environment to have the capital formation that feeds this, the research and development but we really have to get our arms around what we need in terms of the educational infrastructure. >> that opened us up. if you want to ask questions, go ahead and put your cards up or make comments. but currently do you think globalization, how big a factor is globalization in the fact that now for the first time really in our modern history you're seeing a divergence between economic growth and job creation? in other words, that, our economy is back to the size it was in '07, $13.5 trillion but with seven million fewers jobs. how much of that is globalization? >> there are people who are trained as economistss and manug when if you peel it away, at least some of the research i

have read on it there are probably productivity advances in manufacturing have led to, contributed much more to reduction in our workforce than just globalization in and of itself. but from my perspective i guess the retail politician in me that doesn't matter. we have we have, frankly traded off cheaper t-shirts and laptops for jobs going elsewhere, we have to make the compelling case to them, if we do right, that if you have strong enforcement, if you have strong, not only intellectual property right but labor and environmental provisions we can reap the job-producing benefits of our trade agreements here rather than seeing those go elsewhere. >> so, could you turn your card around. i couldn't see. nate herman. >> ambassador, thank you very much for your comments and thank you for your leadership on trade over the last few years. >> did you push your red button? i was supposed to mention there are some members of

the press in the back and this is all on the record. >> ambassador, thank you very much for your comments and for your leadership on trade. nate herman and the american apparel seeing. i want to follow on some of your last few comments that you just made and mention the cheap t-shirts and just talk about where we are as an industry and how many people we still employ in the united states. today 99% of all footwear and 98% of all shoes sold in the united states today are imported, yet our industry still employs over a million and a half u.s. workers. and so, we still have major -- and these aren't just workers, these aren't just sales clerks making minimum wage selling clothes and shoes in the stores. these are high-paid jobs and design, marketing, transportation logistics. and these are direct employment by our industry. this is not all the other industries that benefit from our industry in terms of

technology, in terms of trying to speed up and make the most efficient supply chain possible but we have a lot of jobs in our industry and a lot of these are innovative jobs. in other words, designing new types of clothes. a lot of innovative clothing you've seen. so i agree with you trade is not necessarily a bad thing. it can be a good thing. we have a lot of jobs in our industry even though most of the actual apparel and footwear is assembled overseas. all the knowledge that goes into that apparel and footwear is here in the united states. so i just want to echo that. >> no, i would agree with you. i would say one of the things again, i made the decision after about a year into the job that we weren't going to get and move our trade agenda forward with me just being frankly in geneva and paris. i've been to detroit, i've been to pittsburgh. i'll i've been to maine and north carolina. i've been to the applied

research institute at clemson which if y'all have not been you should go. looking at next generation of polymer. what we're going to win is look into the most productive textiles mills at glen raven in, south carolina that is good story to tell. they have made it plain where we win is innovation and coming up with next generation technology. we have to protect it. if somebody takes it and steals it will be lost. and what is most compelling to us particularly for small businesses it's a bad thing when boeing has to slug it out with airbus over something or when intels goes at it with one -- but if you're one of these small to medium-sized companies which so much of our information economy comes out of on the objects -- entrepreneurs, three and four and five-person firms, the idea of having their work product stolen, whether they don't feel better whether it happens in china, mexico, asia or canada.

that is the death knell for them. it under skors the importance what we do trying to seek the strongest anti-counterfeiting provisions that we can get. >> alan greenspan. >> it's never been clear to me why jobs are the object of trade when historically all of the conceptual frameworks with respect to trade had to do with the division of labor and the highest standards of living. and if you take intel's little model that you just described at the beginning here, we have to think in terms of maximum division of labor throughout the world if we're seeking the maximum level of standard of living. and indeed the simplest case is the one in which there is

a single currency and no tariff barriers and competition, that at least theoretically will engender the highest level of material well-being distributed in, by market forces but the issue that i'm concerned about is jobs are a secondary consequence that they have created by the process and in effect because of the relationship between productivity and the level of standards of living that labor is the denominator of that ratio and one can argue that an endeavor to increase the denominator puts you in a position where you're every deafing on the -- endeavouring on one hand to increase trade for the purpose of increasing employment but on the other hand you're increasing trade to lower

the standards of living by lowering productivity. and i always wonder why we do this? what we're looking for, at least use the word increasing jobs, at least use the word, productive jobs because there is an essential arithmetical contradiction between trying to get the highest standard of living and the maximum number of jobs. you can have everybody in the society employed if half the, half the workforce dig as hole and the other half fills it in. that is low employment. i say it facetiously but i think it makes an important point. i'm frankly curious, how do you fit, i notice everybody is talking in terms of jobs but the question really is, trade policy is always been the issue of essentially

enforcing agreements and lowering tariff barriers and essentially, i mean all the trade negotiations going back to the kennedy round and earlier have all been focusing on removing barriers to trade, which every economist will tell you is a splendid excellent idea. the word jobs, in my recollection has never been in that discussion. and i don't understand why it is we brought it in the way which seems to have, bam more important than rising standards of living. and what we find if you're going to do that sort of thing we've got the chinese who are basically manipulating their currency to get low-quality labor products produced for maximum use of employment. that is doing great damage to china and i don't know why we're accepting that general principle. [laughter] >> no one told me i would be

in an academic debate with alan greenspan. not to be flippant, one, i don't think any of the things we're -- i'm just completely intimidated. i'm trying to buy time. i'm just trying to buy time to collect my thoughts. you know, not to sound flippant, mr. greenspan, i can't help it. i'm not an economist. i'm a retail politician. i was a mayor. >> you were a very good mayor i must say. >> economic theory sounds great but i don't want to be crass but against the backdrop of the sort of economic uncertainty that still grips us and an unemployment rate that most americans think is eight points too high, the only way we will get americans engaged on further liberalization of trade for all the laudatory reasons you articulated is if they believe it isn't just a proxy for the transfer of these jobs to somewhere else because there is job growth

associated with trade, even with the more noble goal of reducing poverty around the world and providing the maximum environment for division of labor and efficiency. americans get that. we understand the consumptive benefits of trade. we don't quarrel with that. but when you look at our trade balance and you look at the reality, and i didn't report it. david: as recently as last fall i think "the wall street journal" and maybe one of the news stations did a poll. all they did was ask americans do you believe the general proposition trade has been good for america? >> "wall street journal" and nbc. >> and when 70% of the americans say no and the single largest block moving in their sin any civil about trade are now white-collar middle class families i think it would be a huge mistake for us not to speak with language that resonates with the american public which we help them

understand the reality that because we are interwoven with the rest of the world, first of all the idea of withdrawing from the global economic community is not one we'll spend any time on. we have to go and compete for the 95% of the world's consumers who now live somewhere else than the united states. the way we get them engaged and committed though, is they have to believe we can do it in a way that some of the jobs stay here in the united states and focusing on innovation, recognizing where we're moving to a higher level of manufacturing. i think is one way we can build that case. so i'm not, far be it from me to disagree with you. i don't think that the inclusion, insertion of the discussion about jobs as a component of trade at all runs counter at all to the more notable goal of lowering tariffs which we have done in this count -- country and seeking highest division of labor. >> can i ask alan greenspan

a question? do you think though that the quote, innovation economy, more innovative industries here would in fact help create higher-paying, more productive jobs here? right now most of the new jobs being created i think have some sort of median income of 19,000. i mean it's, it's quite contrary the jobs that are even being created right now. and if that's the disconnect between the economic growth of our companies which are doing very well and innovating and but that somehow, probably because our workforce isn't, for whatever reason, i won't opine the reason, i'm the moderator here but there is a disconnect. >> [inaudible]. >> no, i'm asking you though, isn't this the first time that economic growth of our leading, you know, our nation as a and economy has gone one way but employment is not following?

>> i would --, there have been many other occasions when that indeed has been the case but remember there is something different going on now and it's basically that we are about to see our and are in the process of seeing the most productive, highly-skilled, educated part of our labor force retiring. it is being displaced by a cohort of very young workers, very young families, and these are the people who scored so poorly in the international educational match-ups of the last 15 years. more disturbing, the average household income ratio, in other words, the income of households now of, with

householders 25 years of age and younger, has been declining relative to the average. this is a reasonably good indication that the productivity of that part of our workforce is declining relative to the average, or more very specifically, to the level of productivity that the baby boomers are phasing out with. and this creates some very major concerns about the quality of the labor force. this is not the subject of the issue today but, i would say that one of the things we do very poorly is import skilled workers. the h-1b restrictions are a disgrace. here we are with a whole bunch of people around this room all not realizing it but their incomes are being

subsidized by the fact that we, we protect them from the competition of highly-skilled people coming from abroad who, whom we need to fill in the productive mechanism to make the whole standard of living go up. so we're confronted with this terrible problem. if you wanted to take the severe increasing inequality of income which i think is a major factor in the debate on trade, one way of handling it is preferably obviously to bring the lower level up. but it also works by all various different types of measures, from a political point of view, to lower the top. and if we opened up or in fact eliminated, i mean, my view is that, you give a green card to everyone who gets an advanced degree, who is not a citizen of the united states when they get

the degree. the proportion of those people who will be terrorists is miniscule. and you know, i heard that argument. i find it bizarre. >> that's the argument, rick levin, thinks when you get advanced degrees you get a green card right then. >> absolutely, that would have a major effect. now the problem, the problem i'm having in all of this suggest -- discussion is that the call quality of jobs are very important but the history tells us to the, to the innovative, cutting-edge industries and those who have the highest technologies go the highest standard of living. that's always been the case. if ours is, if our is slipping it's basically because our educational system is the problem. that's all i have to say. >> kevin richter wanted to

be among -- >> ambassador kirk, i'm going to try to not continue the economics seminar quiz for you but ask the question, in more political terms and that is, in your role and for the administration a lot depends on proper expectations management. and it has been the model of u.s. political dialogue to always talk about us winning, you said in your opening remarks that we want to outcompete the world and i would submit that that's an impossibility because probably these days, intelligence is distributed rather evenly included in places in africa shootings up in amazing fashion. so holding that proposition to americans who are feeling very uncertain at this time, that we're leer to win again and be number one, you didn't say that, but that is the political paradigm, to

me only extends the misery because it is an improbable proposition that you have. so i'm wondering now that you've been into your job for quite some time and you bring this wonderful mixture as mayor and d.c. federal official, don't you think it's really time for some kind of new realism? because the usdr model has always been to be the cowboy, go out into the world and get something from the world because the rest of the world is unfair. my supposition is there is as much unfairness in the united states than in many other countries. so again, this idea to talk about americans being victimized, there are exceptions where there are egregious cases but if we're talking about major economies, i would say like in any good marriage the fault is 50/50. but you propose a different model. so i'm wondering strictly talking about what a mayor knows, political communications and expectations management, whether you'd like to revise

some of your thinking? >> you asked me a lot of questions. but i will start with the proposition that we're okay tends not to be a terribly motivating slogan. that is not going to get people's attention. good or bad. listen, the we do know we're in a horribly competitive environment. we looked at the same results on educational achievement. the chairman greenspan spoke of but and i think the president and his articulation of what americans need to do to win the future, wisely laid out a number of things that have to happen. you can't just do any one of them. i mean we have to continue to invest in research and development and innovation. we have to make our infrastructure as competitive with those of our partners. where the president probably i think wisely focused much attention is honestly on the issue that the chairman talked about is looking at educational requirements of

our workforce, all up and down the chain from grade school, from what i referenced in terms of what we're doing with community colleges. we know we'll have to look at visa reform. i think if you do all of those things, america can continue to innovate and lead. where we had won in the past where we have produced the products, the ideas, the services that the world was desirous of. where i will completely disagree with you is the notion that somehow the united states has been as protectionist as many people perceived our partners to be. and i am told i shouldn't draw attention to our trade deficit but you can not look at our trade balance and conclude that the united states is protectionist. if we are, we're doing a pretty piss poor job of it. we have flunked that test marvlously. i do know, what i am concerned, when i took this job is more and more americans are beginning to rebel against the

proposition we ought to be involved in further trade liberalization. i think that's a losing proposition for us as a country but i don't think you change that attitude by saying oh we're in a world anymore where we can't compete and everybody else is equal to us and we should just accept that. no. we should honestly address some of the concerns we have heard. we opened up our markets. why can't you get them to do theirs? one of the reasons we have opportunity now to pass this korea free-trade agreement, instead of coming into a position where half of congress says agreement is fine. send it up there way it is. other half says you have to be a an idiot to open up our market. we sat down with those concerned and tell me what you're most angry about. we sat down with korea and said, you know, you really can't justify this incredible imbalance in terms of access to your automotive market and ours and we fixed it. instead of letting panama

and colombia linger we listened to those that wanted to move forward. we listened to those that were concerned and tell me what you're upset about. we fixed them with agreements that are much more balanced that will allow us to go forward and reap the economic benefits from them both in terms of more sales but also in jobs and that's the way we're going to have to move forward. but i think in case of a case after case, and, i would agree with you, the united states is not perfect but ours is one of the most open economies in the world. we only want, and we will insist, at least as long as i'm privileged to serve the american public and president obama as u.s. trade representative, we're going to insist our partners do one simple thing. you're going to have to play by the rules and you're going to have to open up your markets where you agreed to. whether we signed a trade agreement with you or whether we allowed you to come into the world trade organization. if you do that, americans aren't looking for special privilege. and we are, i think, maybe, steven, you feel there is a

little bit of american bravado in there. we are a pretty proud and confident people that believe if we have level playing field we think we can compete and win but my job is to make sure we get that level playing field as much as we can. and i do not think that our partners on the whole have been as faithful about opening up their markets to our products as we have been as receptive in many cases to taking those. faking their products. >> i don't know -- taking their products. >> i don't know whose card went up first. >> over half of all teamsters work for ups. and, my question is, why, do the teamsters and longshoreman's unions, not support trade agreements? >> if i was, mr. horrer or

head of longshore industries, those feel they have been hurt by trade disproportionally more than others. i have to let them address that i have gone out of my way to re-engage labor in our trade policy and find out what they like and they don't like. i suffer from no illusion that in 48 months we're going to create an environment in which labor is now in a position they endorse and bless trade here the way they may in germany and others but what i owe them is our best efforts. i am as proud of the fact at least with korea, we did something you hadn't seen happen in this town in a long time. when we announced a agreement, not only did you have it blessed and endorsed by cato and the chamber and the manufactures and others but you had it endorsed and blessed by the united auto workers and united food and commercial workers. . .

>> tanks. alan greenspan's point about trading jobs creation reminds me of the story about milton friedman has said cheney early in their reforms must take colossal civil engineering projects and he was very

strapped. very little heavy machinery speedy's. just thousands of guys with shovels. so he pointed this out instead wired shoe using heavier to equip and so on i visited well,, as job creation. friedman said well, as job creation. whether you take away the shovels and give them spans? that's just on the economics. i've agreed essentially the point mr. greenspan made. i want to put a more political question to you. i understand of course the politics of trade reform is incredibly difficult and you have to make this case to a skeptical public. i know how that is. but isn't there a problem with the emphasis both on opening markets overseas as a way to create jobs? in other words, export equals jobs. combining those especially with this theme, which are priced quite hard about other countries

being -- played in bad faith in this process, but the art doing what they promised. if you establish the u.s. public's mind the equation, exports equals jobs, then you also established the idea that imports equals unemployment. if you do that, you undermine and the long-term sense those of you with the possibility of public support for free trade. >> class, i will tell you i think not. i believe obviously there are doubts and jobs associated with the import of products and that you can make infield -- were interested more in an intellectual academic about trade. but i am interested in trying to find a way to allow us to move forward with these agreements and deal with an increasingly skeptical american public. we can't move forward with them. america doesn't question the

value proposition of trade in terms of the fact we did more diverse projects, better prices. the question is whether or not we benefit from the job creating aspects of it. and focusing on exports is one way to reengage them, i think it's the right thing to do. i mean, part of one of the other licenses and from economic meltdown suffered from anything else since you don't have to be an economist. you ought to see more and we have to make more things. the more we begin to talk about manufacturing of what we do well, i think we can to solve some of concern that some people somehow think we've lost the state manufacturing. i wish i knew the exact number. i mean, we are so much more productive than our counterparts in china. >> pointing out the logical fallacy, i agree with you that politics is the key thing. i'm just trying to press you on

whether, you know, this line is politically going to succeed. i mean, what about the argument that trade is about goods, trade is about how you retired? >> i can't help but hear americans have always understood trade is about cheap goods. they don't want any more thought. what americans want to know is, you know, i'm the proud father of an unemployed graduate of columbia college is in three weeks ago and i'm not alone. americans worry now, are we going to be the first generation to not be a little look at our kids and say you have to have a chance to have a life is good is your mother. that's where people live in what they're most concerned about. what they're looking for as if the leadership and a plan to help us understand how we're going to create the jobs of the future, not so much for us, but our kids and grandkids. and you know, slam them an

argument you can do need to have cheaper t-shirts were unemployed in access to to knowledge you can afford is not a way to get us moving where we want to go. i mean, i welcome others to make that argument. i don't think that's a fairly compelling strategy for us to regain the public's trust. in the broader picture, i don't think you're going to have the continued liberalization of global trade if the united states is sitting on the sideline. >> i'm sorry dan glickman left because i would love people who were in the industry, who wish ustr were doing more or how they can pry open foreign markets to weigh in here. i hope doug will when i get to him. >> thanks, margaret. hello, mr. ambassador. >> i enjoyed your piece in the paper about an investment in using overseas process. >> nicety to mention it. >> i wanted to ask you to segue

from jobs to business. yesterday, commerce secretary locke said that the obama administration is thinking about treating foreign restrictions on the internet is a nontariff trade barrier and that's adapting existing trade tools. i would say that he's on his way out the mini's handing you hot potato and i thought you might want to comment on that. >> i think that same observation. [laughter] that he may be sliding from its purchase favor commerce secretary, you know, the next methane ambassador to china. now, we obviously have had a lot of concerns from contra growth, particularly when this happened in asia and other markets and that is something we're studying, but we haven't made any hard decision on that. our guiding principle on every thing is we want government to be as disengaged from a process

of letting the market determine what not to go where and how it out to be as possible. our broad philosophy just gets government come off the scale. that includes fast. if we can get other economies to do that, we wanted to. we understand their unique challenges because of the weight information moves across the internet and we should not be in the business of trying to trump some other country's legitimate concerns about security. but we also know you can hide the truck behind quote, unquote security for the purchases of distorting the market. so i mean, will study it. we haven't made any firm decision on that. it's one of many elements of what we're looking out across the board in terms of protecting intellectual property. >> josh miller. >> i really wanted to comment, margaret, a much us-made combat before. i want to reply to class cokes

redrick of the trade as an exported trading jabs is a loss of jobs has started a zero-sum game. i think there are two compelling answers. i'll refer to the a positive sum game. it's going to increase the total number of jobs and therefore overall will increase jobs in the united states. second, even if for a zero-sum game for the rules as a whole, the market outside the united states is vastly greater than the market inside the united states. that perhaps was less important generations ago when the wealth gap is the device today. intel for example has had record quarters for three quarters of growth we are not getting it by selling to computers to consumers in the united states. so even if it were a zero-sum game, for not selling the

demands in the services, we are impoverishing the ability of our productive capacity to find markets for its good. margaret, the comment you made about nontariff trade barriers barriers -- they are very serious and they are very real and the technology to regain manifest themselves in and among other things, offers a course to appropriate ip and failure to protect ip if you commented earlier, participate in international standard and used local standards for which foreign or multinational firms i sometimes excluded. in what seems to -- at least the u.s. vantage point to be unnecessarily broad definition of national security. but these are markets for the reason i said a minute ago that are hugely important to the united states. so it doesn't seem to me we should be ideological and insist

on purity before will trade with you. please are quite hardheaded and realistic and do it we can to make these markets open to what we have. >> whoopee for which you have the ustr deal? is there any leverage saying it's as good as they get? as someone who would like -- and then i would like his answer. >> for me say one thing. to leverage american businesses had goes back to one thing i agree with clive and i hate all these things somehow becoming kind of china's century. the biggest leverage we have in china is jabs. i can go bang on the table and say to this. when jeff says if you're going to behave this way, maybe we need to move these jobs somewhere else. that gives china's attention. they've got 600 billion people they are worried about being engaged and productive behavior or something else.

the jobs component is a huge lever to look at the reality of how much american money is invested, whether china, india, africa, that is a huge lover of america has to play in getting this other congress to behave in terms of not engaging in some of these and tvs. we will use the legal tools, but that takes time. nothing is as compelling as an art industry will stand up and say, if you're going to continue to behave this way, we don't have to be here. >> so you are anything but self defeating. >> i think it's not all or nothing. i think a lot of u.s. companies feel they should be participating in this rapidly emerging on larger economies, but perhaps they are not participating quite as robustly as they would be if those economies are more hospitable, both in terms of the legal system in some trade barrier issues i was talking about.

i think it's a question on of better than none at all. >> william davis. >> ostrom lasater, will davis with the united nations. you are a formal local politician. so from that date, i'd be curious to which you have to say about our friends in europe when you have to tackle the political buzz saw of lowering the fed city. we've been told to not windmill to start for a long time and seen as valid as been the major hangup to the doha round, what newcomers bring to the table to help them realize the challenges their situation presents the global trading system? >> one, and this may be some confusion and mr. rick juries that probably no industry to assess project to, that local politicians are more attuned and

agriculture. in the example i gave people, that whether you are an elected member of the united states congress for a parliamentary body in asia, africa, not every elected official has this blessed to say i've been telling my backyard or bowling or texas instrument. just about every elected official in this world has a farmer and a bunch of them. and i mean, i'm low to beat up on someone else as they look at our foreign policies, but again the argument we make to your pieces seem to make to everyone. at least for those of us who have joined the world trade organization, we have to operate with sound, sanitary standards. if the system goes to work. i happen to believe just as you were saying, i think the remarkable debate played out in congress right now over agriculture supports because of the reality that budget

constraints and fiscal responsibility is going to be with us for a while. that will do more, i think, to frankly reform act supports not only the next dates, but europe and other countries around the world and all of the banking we do on one another at the wto is countries will have to really make hard fiscal decisions, can we have word that? i also -- and i was not africa last week for the record will have my counterpart from europe next week. the other thing we have to do is look at the challenge of the global conversation that it's going to add a billion people in the next 20 years and continue to grow, we need to stop looking at out of the competition and realize the number of countries around the world that are blessed enough to defeat themselves in that contribution are going to all be challenged to make sure we find a way to feed and increase in the

expanding population with a lot of that growth coming from economies that are going to be net importers of food. so the more we begin to work with what europe or brazil or other economies that are net active exporters and see this as an opportunity to feed the future, so to speak. i think that can be one way to attack what has been historically a pretty protected environment. >> a lot of people are going to start combining. zoonosis asked you about this and it's so much in the news, the columbia panel on the agreements, what she's talking about how you negotiated successfully with the sides, now the administration says you said at first a month ago that you won't reset it to the unless the republicans agree to do the trade adjustment assistance, the retraining programs for displaced workers. i am just wondering -- are

getting a lot of pushback from the the system i'm not. i am wondering whether -- obviously you do think it's smart, but why do you think it's smart to hamstring our mortgage which you say are very, very important free trade agreements over the taa? >> first of all, we don't see these as hamstringing our mortgage agreements. you're right. we have conditions moving forward on getting the agreement on how we would advance the trade adjustment assistance program. i would make one clarification. this wasn't something we put on the table a month ago. if you go back and look at the very first trade agreement was filed on behalf of the obama administration, we said we do three things. we continue to look for new markets, enforce agreements, but they will reflect our basic values and nowhere was that more important to us than labor and

the environment. from the very beginning, we have tried to engage congress in the need and the imperative and one of the other speakers at the mention that one of the ways we have kept his balance and getting support for increased trade liberalization is recognizing you have to wait -- find a way to help those workers that do no fault of their own are displaced by trade, but are still in very project in years. you now against the backdrop of the figures chairman greenspan gave, with many of our american workers retiring -- skilled workers going to retire over the next five to 10 years. one way to capture this this is through programs like trade adjustment assistance, give them the training they need to be retooled, stan the workforce, particularly since the composite makeup that these workers is a 46-year-old male who is the

single wage earner in that family. we just think it's a smart thing to do. the good news is i think we'll be able to find support. the fact that it makes republicans uncomfortable gives me no comfort. >> when i show up in detroit and man, they didn't have parades for me. [laughter] listen, if this president, you know, with a democratic party that's probably going about 70% against trade can find the courage and the wisdom to build the case that this is the right to do, we don't think of that much of a push for republicans to understand this is equally smart to make sure we keep the covenant. and it's one of the ways you begin to build the new paradigm of support for what we are doing entries. so it's been a part of our trade policies since the 60s. we think is the right thing to do. >> i'm sorry, i can't see your

cards. james w. -- james wilkinson. he can both make your comments or questions. >> i don't mind if you all will be brief. and then i'll respond at the end. >> ambassador bill hughes said the reach of leadership association. welcome. i'd like to take up the specific or postal or suggestion for what you do. currently there is a ttp negotiations going on. one perspective from the retail industry point of view is there's a thought that is important to us. it may be maybe a target gene chip to open up their markets more. other tv one perspective to the issue of jobs and standard of living here. from the retail perspective, we believe change is not ruled to allow, you know, a standard of living. these retail jobs aren't all part-time, minimum-wage jobs. with hundreds of thousands of

jobs at the management level that are $85,000 a year. and the ability to import and provide better business do as they are, there's more of those shots. it's an additional perspective taken cannot just simply balancing. it does the retail and our standard of living to have a better ability to import beardslee perspective and a suggestion there. >> good afternoongood afternoon, and pastor preaching. james wilkinson, international trade organization. my question is less do a trade and more to do with what i hear at our offense, members asking about the backlog of patents being issued and the lag time, at 29 months or longer in some cases or in other countries of the month or so. particularly in the high-tech firm community get this up quickly because you have second and third-generation development before the first generation has

even hit the market to counteract the quickness that the reverse engineering. what is the administration doing and how do you see fitting in your entire ip portfolio things are working on? thank you. >> thank you by much. catherine coleman here at the aspen institute focused on africa trade and development. thank you free much, ambassador curt. i appreciated your thoughts, which is something essential to the conversation as well. i just wanted to ask us to think about emerging markets and how we can innovate even going into those markets in terms of our policy choices, like in africa where there is such tremendous new security challenges, but also a tremendous opportunity in agriculture that is virtually attacked. if you look at other trading partners, they're moving into africa very aggressively in policy choices that are taking risks much differently than we would. so i just wonder whether this might be the time. i'd like to ask is imagine the

security is going to engage in a deeper dialogue on food security and trade them away think sometimes the policies are good at odds with one another and to think creatively about some solutions where we could really open up these market. looking to some of the ideas they themselves have put forward, but be a little more creatively involved as markets develop instead of waiting too long until others have gone and decided how to develop. thank you. >> and kimberly elliott at the center for global development and the fellow boston college alum with the ambassador and pleased to see. glad to be here. just heard a following at some of these comments we've had in the cycle a little bit in lincoln and also to development issues, you know, in addition to agriculture, made some industries apparel, but were also very highly protect it.

these are the remaining areas where the u.s. discriminates against the poor in this country and overseas. and they set up some good work showing how within a closed event footwear is the lower cost items that tend to have the highest tariffs. in fact, maybe it doesn't matter so much to a middle income unemployed person of the cheaper t-shirt, but a poor family trying to buy an expensive footwear for the kids could be very important and it's also the poorest countries in the world most heavily impacted. am i doing about tariffs and the duty-free initiatives could also be the doha round next week. that's one of the key things on the agenda in geneva. i think there will be lots of games from addressing those issues. one final quick comment on what's closer to the topic of today's lunch on innovation and a lot of talk about intellectual property. again, this comes out of my work on development debate concerns about the highest possible

intellectual property protection, but also to say that is relevant to the american economy because the economy as a whole benefits not transferred to the rants that urged the industry that has patents and copyrights, but from the broadest possible expansion -- dissemination and that's how the whole economy really benefits. so it's a balance. it's not the highest, china's intellectual property. it's a balance between innovation and also we want those innovations to get to people who need to have more of a balance and i just want to put that on the table. thanks. >> thank you, ambassador. so basically to relate to what is our deep and sad, i think it's obvious the world is aging. early in september will be the first summit at the u.n. on chronic disease, which opens up tremendous amounts of market to our pharmaceuticals, our devices, intellectual prop needs

to build other countries, particularly resource countries, medical infrastructures. and so we of course do have many pharmaceutical companies have patent issues and all that goes along with it and we've dealt with this, but i think it is an industry in the technology and something america can still look towards his having the system and the opportunities that these are staggering if we can do it right in gaining acceptance and jumping over some barriers for acceptance and countries where the resource countries, low-power sources. so i just put that forward as another opportunity. >> gary, i can't reach her last name. >> ambassador, some of the people around the room are alumni of the treasury department decades ago that we know very well that if he mentioned a trade deficit

feature flap comes as if he mentioned the trade rates that you get tape across their mouths. [laughter] that you may be a retail politician in dallas, but you know very well that the trade deficit is quite closely linked to the trade issue and is the single most powerful impact, both on the deficit and the president's ambition to double exports by 2014. so given those obvious kind of tax in the room, my question to you is whether you feel frustrated by the monopoly at the treasury has long enjoyed as jeff and i were in the treasury on exchange rate issues. maybe they talked a little and secret to the fed, but otherwise they don't talk to you at the commerce department. and secondly, if there is a kernel of frustration, whether

you think when you leave off this you might have changed the dynamic on whose appropriate and especially the exchange rates. that's my question. i do have one comment. he said earlier that agriculture is probably the most protected industry and is certainly high protected, but very relevant to the united states business service sectors across the board are probably more highly protect you and certainly more important to the u.s. position as an export power in the 21st century. >> well, thank you for your comments. many think the aspen institute. we must be getting close. if i can, i'll try to combined some of these. nothing makes me happier than the fact they don't have to deal with exchange rates and i'm quite happy that are besides the treasury and i think secretary geithner is doing a fine job and i will not -- i am more than

happy to defer to him on that. but i will say it what i have to say, not to make light of that. i do think there is a risk for people to believe if we can just get china to address the exchange rate and everything will be okay. i attacked you dan glickman, everyone from goodwill, would you look at the breadth of what you're doing under the heading of indigenous innovation and some of the things you heard douglas talk about, you can't fix the exchange rate and there so many other ways they can try to manipulate their process to the advantage of their manufacturers, we would still be in a disadvantaged position. i would say the exchange rate is one element. the fraud argument for us again is just how government allow as much as they can to market, dictate those forces rather than others. nancy, i think your observations

about our ability to make a contribution to the world in terms of health is laudatory. i do think ms will feed a little into my classmates from boston college about mobile development. that is one of those talents as we traded straight and we want to make sure we can share this incredible american advancing technology, particularly in terms of health care with the world, but we also have to recognize that if you don't have a way for american businesses to amortize extraordinary extensive research and development, release the risk of having those advances and we cannot settle for a world in which the rest of the world gets to hide behind poverty as an excuse to frankly

britt. many people don't know what are some of these coming from economies that are really ripping off american products. so i agree with you. it is a matter of balance, but we think given the importance that innovation plays in our economy, we are coming down on the correct side that we are combating piracy, combating counterfeiting, having the strongest ip regimes. one of the made an observation about patent reform. it was one of the first things that secretary locke and i were struck with when we began to do around tables around the country. i know secretary locke has challenged patent trademark first of all just to reduce the time. i think an right now is like a three year wait to get a patent. they are trying to get that down to less than a year. one of the practical things we been asked to do, just add another office.

i think about two thirds of the panels filed in this country come from west of the mississippi. if you really backloaded, they come from california and texas and yet everyone has to come to washington. that makes no sense. they're looking at everything whether we have additional losses, but also trained to realize we've got to get those patterns into market sooner. there were a number of commerce that retailing ttp. first of all pinocchio strickler, a textile negotiator has spent an extraordinary amount of time with your industry. they would say one of the things are proud of we've had more engagement with stakeholders as we try to develop and table or positions in this proposed transpacific partnership that we have put on the table in a number of ideas he will have brought to us obviously some of our partners are quite ready to go there, but we are committed

to trying to have a textile chapter. we have discussed the foreign rule. i don't want to it i'll lead you to the assumption that that is a closed issue, but it is one we've had a lot of engagement with you on and with respect to africa into security, it was a huge part of our discussion and i recently concluded a goal form. i would tell you i think if you recall the president challenged us about 18 months ago to take a look at all of her aid and development policies, one recognizing that there were some frustration among even our vigorous supporters of aid for trade radley that is just felt like the united states for years had tried one approach, but we are seeing the results we wanted. sakic by recognizing were not in a world where we can say congress givest my money. one of the things he realizes rather than trying to do well in a lot of places, do a little bit

here, but we have to begin to make much more difficult decisions can really weigh and in places we can move the people. so intent in vienna, zambia, for example, can't get it largest beneficiary of the mcc compact. for also working with them through security the same as india am looking at every element of africa's competitiveness as a partner to help us address that. >> i want to thank ambassador kirk. thanks to everyone for engaging in the aspen institute and intel. [applause]

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[inaudible conversations] >> right now, live on c-span the republican leadership conference in new orleans. live coverage continues tomorrow texas governor, rick. kamieniecki a former president george bush, george p. bush and reagan's previous period that begins tomorrow afternoon at 12:50 p.m. eastern

>> new legislation is being proposed to analyze companies that are consumer information breached by hackers. congresswoman mary bono mack, how is congress subcommittee chairs the sponsor. she held a hearing on national standards for data security and notification of the breach. companies would be required to notify consumers and the sbc 48 hours after a data breach or face penalties. hours. [inaudible conversations] >> the subcommittee will now come to order. today, hackers and i'm a geezer giving new meaning to the phrase, silent crying.

it's my hope will join together, raise their voices sound like after peter finch in to the network him a shot at, we're mad as and we're not going to take this anymore. americans deserve nothing less. the chair now recognizes herself an opening statement. sophisticated cyberattacks are increasingly a threat to congress here and around the world. that's why congress must take immediate steps to better protect the personal online information of american consumers. it's time for us to declare war on identity theft and online fraud. the secure and fortified electronic data act, which establishes uniform national standards for data security and recertification is the opening shot. to save data act builds on legislation passed by the house in 2009, but never acted upon in the senate. most importantly reflects the changing landscape of data breaches and data security since that time. it's an upgraded 2.0 version of

data security legislation, encompassing many lessons learned, the aftermath of data breaches at sony in that song, which was more than 100 million consumer accounts at risk and those are just the ones we know about. the subcommittee chairman protection from identity theft and online fraud is one of my top priorities. just last week, citigroup, which has the world's largest financial services network revealed the security breach in which hackers have gained personal information from hundreds of thousands of accounts. according to law-enforcement officials they were able to gain access to customer names, account numbers and contact information such as e-mail addresses. yesterday we learned that next kernel website either wackier plant was victimized by cyberattacks and earlier this week they claimed responsibility for attacks on fox, pbs and 70 also asked the senate's public website. in recent years, cyberattacks intended to gain personal

information about consumers, especially when it comes to their credit card to become one of the fastest-growing enterprises in the united states and across the world. the ftc estimates nearly 9 million americans fell victim to identity theft every year, costing consumers and businesses billions of dollars annually and the problem is only getting worse as online attacks increased frequency, sophistication and boldness. has emphasized the rehearing, e-commerce is a growing part of our economy. we should take steps to embrace and protect them that starts with robust cybersecurity. most importantly, consumers have the right to know when the personal information has been compromised in companies and organizations have an overriding responsibility to promptly alert them. to that end, the save data act first requires companies and other entities to hold personal information to establish and

maintain an appropriate security policy to prevent unauthorized acquisition of the data. it also requires notification of law-enforcement within 48 hours after discovery of the breach, unless was an accident or in averting an unlikely to result in harm. it requires companies and other entities to notify consumers 48 hours after taking steps to prevent further breaches in determining who has to be notified. the safety that gives the ftc authority over nonprofits for purposes of this act only. these organizations often possess a tremendous amount of consumer information in a subject of numerous breaches in the past. at the same time we went to work with those affect it as well as the ftc to make sure any new regulations are not burdensome for small businesses, especially during difficult economic times. we are granting the ftc authority to write rules that

take into account the size and nature of data that is hot online. clearly there's obvious differences between local detail businesses and rules to reflect those differences. the proposed legislation requires businesses to establish a data minimization plan, providing for elimination of consumers personal data it is no longer necessary for business purposes whether the publications. finally, save data act preempt similar state laws to create uniform national standards for data breach notification. we learned during a recent hearings that consumer notification is often hampered by the fact companies must first determine obligations under 47 state regimes. at the end of the day, this legislation will greatly benefit consumers, businesses and the u.s. economy given the growing importance of e-commerce and in everything we do, we can no longer afford to sit back and do nothing. it's time for action is now. at this point, the gentleman from -- okay to inform people we have an overflow room in 2123

for those who prefer to be sitting. 2123 is the overflow room. at this point, but to recognize the gentleman from california, mr. waxman for his opening statement. >> thank you, madam chairman. i said this at her previous hearing and i want to repeat it today. data security is not a partisan issue. it's something all the should care about. last year there were over 597 data breaches that affected over 12.3 million records. congress work together to pass with bipartisan support a data security bill introduced by representative rush. our bill passed the house in december 2009, but the senate never took it up, so it was not completed. the bill was considering today is based on our bipartisan house bill from congress and contains important provisions that require companies to secure

consumers personal data to notify event in the case of reaches. and i commend chairman bono mack present master's bipartisan bill as a starting point. there are new provisions in the chair strive to strengthen congress' bill. for example, the draft contains a potentially valuable new provision requiring companies to have plans to minimize personal data they retain and individuals. unfortunately, there are some changes in the bill that i fear weaken the bill rather than strengthen it. and this is a mistaken one i hope we can fix this we consider this legislation. let me read some of the concerns i have. under this legislation before us, sony would still not have to notify customers about its recent security reach. it did not restore integrity of the data system for at least 43

days after sony discovered the breach and it still has not fully assess the nature and scope of this breach. notice it is not required to the ftc and consumers under the draft until those steps have been completed. that's far too long. it does little good to notify consumers after the identities of 30 been stolen and makes them wait such a long period of time. this bill deletes key provisions on information brokers, which are companies that aggregate personal data about individuals in selling that information. it adds unnecessary burdens to the federal trade commission's rulemaking process, making it more difficult for new pieces of data to be deemed personal. there is significant ambiguity regarding the scope of personal information that a company is required to protect. under this legislation,

companies including an aggregator of data are exempted from requirements to safeguard personal information any time to save data can be found in various local county government buildings. further work on the draft creates an unbeaten playing field with potentially stronger data security and breach notification requirements for retailers than for non-bank financial institutions. there is no reason by financial institutions should be subject to smaller penalties for violations and retailers. so i look at it is not a balanced bill overall. it gives businesses to many protections and consumers not enough. i preempt stronger state laws and replaces them with the weak federal one. i hope these deficiencies in the bill can be fixed and i want to work with the chair and other members of this committee to pass as effective a bill if possible. i'm looking forward to the

promise stakeholder process in today's hearing will give us a chance to get further information about what a bill should and should not have in its details. we have a chance to pass meaningful legislation that actually could make a positive effect on everyone and we shouldn't pass up this opportunity. i look forward to working with you, madam chair. >> i think gentleman and the chair recognizes mr. stearns for two minutes. >> thank you, madam chairwoman. obviously as pointed out by yourself in the ranking member, mr. waxman, it's important we try to get a bipartisan support for this. when i was chairman of the subcommittee, introduced the data act in 2005, six years ago, established to protect unauthorized access to consumer data. this bill is cosponsored by both sides. when market outcome is reported on the full committee by unanimous consent.

obviously i would've preferred he started with my bill, which has i think a bipartisan support product of a broad understanding of security issues and back in 2005. now are working with possibly a third of the different focus though, which could be good, that addresses the recent breaches have occurred and sounding apps on. we have to be concerned, not that we overreact based upon those two cases in both 2006 in 2009 commend bipartisan support for the data act. now weta act, a bill and concerned has very good points, but also may go too far in some other areas. obviously, i work with the subcommittee, lady to improve the bill so it can pass as a bipartisan support but was done in the past. so it the committee and the full house as an opportunity to vote on this.

the four to the debate and to our witnesses. thank you command chair. >> the chair recognizes mr. olson for 20 minutes. >> i think a chair for their tenacious leadership in bringing forward this jobs bill. sthink there is agreement we need to move forward in the federal data security legislation. the federal legislation has been bipartisan. colleagues from florida will put forth a security bill in the 109th congress, which mr. rush introduced in the 110th 111th congresses. our chairman, ms. bono mack has put forth a bill. i appreciate efforts to move us forward on this important issue and i hope we can arrive at a truly bipartisan balanced bill that protects consumers without putting unnecessary burdens on companies are hindering important uses of data. i look forward to continuing our discussion today and hope to build to flesh out issues and

recent testimony. i think the chair and yelled that time. >> i thank the gentleman. the chair recognizes mr. butterfield for five minutes. >> i thank the chairman apologized for being late. the only thing i can say is don't trade to going to union station at 10:00 in the morning. thank you for holding today's hearing on the fortified electronic data act. this bill includes some of the same provisions in h.r. 2221 to which passed the bill the 111th congress. however, the draft also removes key consumer and make it less effective. americans embrace of technology has served as the impetus for rapid growth of online businesses and services. i can buy a car without ever seeing it in person. i can pay my bills from one website and do it my way. i can even have all my data reside in the clouds with his assessable from absolutely

anywhere. in order for e-commerce or a company must be data exchange between customer businesses, including names, addresses, securities, dates of birth and so on. they conduct business is an amazing convenience and no one can do without. the failure of some of these businesses to protect their own network infrastructure and the information demanded of their customers has led to opening to a small but not insignificant group of criminals and the date of these companies hold. even those with strong security systems in place must be vigilant and adapt to pull to new threats. during the 109th congress and subsequent congress and the members of the committee worked in a bipartisan fashion to develop the data accountability and trust act to address the issue of data security. unless congress, my friend and former chairman of the committee introduced a data bill, which ultimately pass the house of the

senate failed to act. the bill included special requirements for information brokers, including brokers to submit security policies to the ftc and requiring an annual audit of worker security practices among other things. striking this key provisions from the bill, significantly weaken consumer protections it is supposed to provide. further, the draft bill defines personal information to exclude information publicly available. in doing so, the bill gives the greenlight to data aggregators to continue with business as usual without being required to have safeguards in place to protect the data. madam chairman, with over 2500 data breaches have occurred since 2005, it is clear the serious work of protecting consumers data is something that has taken a back seat in congress for too long. a federal standard is important. i'll say that again.

a federal standard is important in the save data act as a start. i am sorry we are not starting with what passed the house in the last congress. over the last few weeks -- over the next two weeks, madam chairman, i hope you'll work with me and my staff to string in this draft bill. together we can ensure consumer protections while allowing businesses flexibility to adopt policies and procedures in today's rapidly evolving information age. thank you for having this hearing. i think the commissioner for your presence today and i think i might deserve my time. i'm told the gentlelady from illinois is coming. she's not here. i yield back. >> i thank the gentleman. i want to remind them reinforce to the entire panel that we intend on having a full on bipartisan to the best of our ability. now i'd like to turn our focus to the witness table. we have two panels today. in the first panel we are

honored to have honorable at saturday, commissioner of the ftc. thank you for being here. to be recognized for five minutes to some lesser statement and i'm sure you are familiar with the timeclock, yellow, green, red can a concept. when the light turns yellow your one minute to start your clothes. at this point we're happy to recognize you for your five-minute statement. >> good morning. chairman bono mack can the ranking members trant ties and waxman, i'm edith ramirez, of the federal trade commission. i appreciate the testimony and data security. but to thank you and the chairman bono mack and the committee for your leadership on this important issue. before i continue, i'd like to note the written testimony represents the use of the federal trade commission, both oral remarks and responses to questions they may have and may

not reflect the commission as a whole or other commissioners. at the nation's consumer protection agency, the fcc is committed to protecting consumer privacy and data security and to protect your. if companies do not protect personal information they collect and store, information could fall into the wrong hands, resulting in fraud and other harm and consumers could lose confidence in the marketplace. other data security has been in the news, that's not a new priority for the ftc. to the contrary, for a decade the ftc is undertaken substantial efforts to promote data security in the air through law enforcement, education, policy initiatives and recommendations to enact legislation in the area. since 2001, the ftc has brought 34 cases for businesses that have failed to protect personal information. this includes the final sentiment the commission is announcing today again providian corp., a large payroll processor.

caribbean uploads their information, including social security numbers and bank account numbers stored on ceridian's network. the ftc's complaint charged that ceridian did not maintain reasonable safeguards to protect us employ information. as a result, a hacker was able to gain access to it. the ftc has ordered the radiant to implement a data security program and routine audits for 20 years. the commission promotes better data security to the consumer and business education. her example in the consumer education front, we sponsor on guard on guard on my tummy to educate consumers about basic computer security. since its launch in 2005, there've been over 14 million visits to undermine and spanish-language counterpart. we also conduct outreach to businesses come especially small businesses to provide practical advice about data security.

the commission is in securities to promote data security. last december, ftc staff issued a planner report is a new framework to approve consumer data protection. among other things, the report advocates privacy by design for much of that subtle principles to data security. first, companies no matter what their side should employ reasonable, physical, to glenn minister gets it right to protect information about consumers. second, companies select all that information for which they have a legitimate business need. third business should retain data only find it necessary to fulfill business purpose for which it was collected and should promptly dispose of data they no longer need. as the legislation, the commission supports legislation similar to draft proposal that would impose data security standards on companies and require companies in appropriate circumstances to notify consumers when there's a security breach. reasonable security practices are critical to preventing data

breaches. .. >> i am pleased to answer any of your questions. >> thank you very much. the chair now recognizes yourself for five minutes for questioning. the first question i have come you say the commission support

for prompt notice to consumers. i think it's the crux of what we're all about it. what you consider prompt and you think the consumer notification requirement in the legislation is quick enough? >> i believe that notification needs to be provided as soon as possible. i do have some concerns about the provision relating to notification in the draft a bill. let me highlight the two key concerns. my first concern is the bill requires that there be a risk assessment performed, and the conclusion of that risk assessment accompanies an obligation to provide notice to consumers and to the ftc 48 hours, within 48 hours following that. my concern is that the requirement, that is no deadline in which to complete a risk assessment and, therefore, that could take an indefinite amount of time without having some type of limits placed on that i think it places consumers in

significant risk. another concern that we have is that there is also no time limit that's placed in connection with law enforcement, that can also be an open-ended deadline that could delay prompted notification to consumers. and again, there ought to be some form of a cutoff period to ensure that consumers receive appropriate notification within an appropriate amount of time so that they can take steps to mitigate any harms that may result from a data breach. i would also like to emphasize that providing prompt notice to the ftc is also very critical, and in our view, nose to the ftc should be provided the same time it is provided to other law enforcement agencies. >> the ftc has experienced under gramm-leach-bliley with implantation of safeguard rule for financial institutions under jurisdiction. the ftc also provide a comprehensive guidance for entities to understand how they can comply with the rule.

do those guidelines provided sufficient indication of the rules for data security, the ftc would write under section two of this legislation? >> i think they provide the guidance to companies, in addition to particular enforcement matters and consent orders, the commission makes public, the commission provides many, many different resources online to companies so that they can take appropriate measures to adequately protect consumer information. >> under section two of the draft legislation does the ftc have the latitude to write rules that take into account the different types of entities, their level of sophistication and the amount of type of information they hold? >> it does and we appreciate that the story being provided the ftc. >> do you envision writing different guidance to address the concerns that a one size fits all approach is not appropriate? >> during the rulemaking process we be seeking input from stakeholders, and fashioning

rules in light of the input that we receive we believe would be a perfect to protect consumer. >> you need different standard for small nonprofits, for example? >> we believe that companies no matter what the size need to provide solid and good data security measures. at the same time, the standards that the ftc employs, this is enforcement work, is a reasonableness standard we do take into account the size of the company, the nature of information that's been placed at risk and other factors that may weigh in on that calculus. >> since we first started this process six years ago, 46 state laws have emerged. nearly everyone of them including california have exemptions from the definition of the personal information for information made publicly available by the government. in some cases information made public by the media. the exemption included in this draft can find information they publicly available by the government. have you seen any problems of unlawful activities associate

with publicly available information? >> yes, and we do have concerns about there being an exemption for public, for all public information. the difficulty is that these days there are data brokers that collect information that in the past one would have to go to very significant measures to collect -- you go to the courthouse and collect information through other means, but the aggregate this information and with the information which may very well be public is in collected, gathered and aggregated, and impose their unique privacy challenges. so, we do have concerns about there not being a mechanism to address these issues related to that. >> user privacy challenges. do you. do you mean security challenge is challenges. >> i yield back five seconds of my time and the chair recognizes mr. butterfield for five minutes. >> thank you very much. the republican discussion draft

makes a change from h.r. 2221 to the definition of personal information, that seems like a simple and minor change but it actually is not. it excludes public record information from the definition of personal information, given that technology has made access to an aggregation of numerous tax records cheap and easy. the consequences of this change are quite significant. before it became chiefly to store vast amount of this information in one place no one thought about going out a click and his record. to see these records you have to, as you said a moment ago, go from town hall to townhall, courthouse to courthouse and look at them one at a time, but now millions and millions of records regarding millions of our constituents are kept on servers used to launch information brokers but if you're a criminal wanting to do harm to lots of people in one swoop, the draft will be an advantage to you. this collection and aggregation in one place has changed the

value of information and its acceptability to criminal misuse and its concerns me that this draft bill leads this information unprotected. because of the change to the definition of personal information to exclude public record information, and there's no longer an obligation to provide any protection at all with this information. have i said it correctly, commissioner? or have i misspoken? >> we agree with that concern. >> do you believe that just because information could have been collected elsewhere, a covered person should be relieved of the obligation to protect this information when they collect and aggregate information in one place and make it more viable and potentially more dangerous? please help you with that. >> i believe that information even if it is public information, it is personal information of the consumer that information ought to be protected and ought to be appropriate. >> want to take your attention

to notification. do you believe notification to consumers should also be required involving this kind of information? >> yes. >> the republican discussion draft like h.r. 2221 before it provides the ftc, your commission, with the ability to modify the definition of personal information. only information that is within the meaning of that term is covered by the bills and breach notification requirements. but unlike 2221 discussion draft seems to set up an overly burdensome and unclear process modify that definition. if the ftc wanted to change the definition for the purposes of either the data security and notification section it would have to find among other things that modification would not unreasonably impede internet or other technical logical innovation or otherwise adversely affect interstate commerce, end of quote. question, do you believe this language regarding impediments to innovation provides the ftc

with much of a clear standard, again wish to determine whether a modification is appropriate? >> i do have concerns about the standards that are imposed, in addition to the limitation on changes to the definition that could indeed innovation as you mentioned. it also requires that the commission only make a change when there's a technological change at issue and in connection with the data security peace of the proposed bill. so that does way concern because we feel there are issues with the definition of personal information to its tuner and we would not be able to address those concerns. >> what would you do? how would you make that determination to? if you are called upon to do so. >> again, we want to work with the committee on establishing an appropriate limitation, but let me articulate a couple of concerns that we have with the personal information limitation. in addition to the public

records exemption. two things. first we believe the financial, the provision focuses solely on financial related information and doesn't take into account, for instance, other information that would be sensitive to a consumer. for instance, health information that would not otherwise be protected under hip would not be covered by the language in the draft bill. so that would be a concern that we would not be able to address through the rulemaking that is provided in the draft bill. >> what about the language that speaks to npd innovation? i don't know how you define that. >> that would be a difficult and also to apply, and rules by the commission could be challenged by parties arguing that the change in definition could impede and make other arguments are would place an undue burden we believe on the commission. >> thank you. i yield back. >> i want to thank them very much for pointing out the few

bright points in the legislation will be specifically bracketed them because we do have questions in the draft, so appreciate the clarification and i appreciate the chairman taking opportunity. the chair recognizes mr. stearns for five minutes. >> thank you, madam chairman. one thing i just thought we cleared the bank of federal preemption in my bill in 2005 and the bill that passed in the rush have a change. so as i understand, i just want to ask counsel, is that true that federal preemption have not changed at any criticism that would be brought from that side because of that, that they haven't changed at all? >> yes, sir, that is correct. >> okay. mr. ramirez, as you're aware in the go federal trade commission has the authority to change the very fundamental definition of personally identifiable information. so this gives you this broad

latitude. i think a lot of us are a little concerned about. do you think there's an opportunity with the federal trade commission under any circumstances would trigger the need for them to alter, to update, change, that basic definition, how is coming drafted in the bill now? because we got his definition of people understand in the bill, yet you have the authority to change it. under what circumstances would you change it and perhaps you could explain what would cause it to? >> when circumstances could arise, there could be changes in technology that could require additional information and the -- >> but isn't it pretty much -- [talking over each other] it represents an understanding of the privacy of the individual? >> i think the precise scope may be hard to define, but what the commission is absolutely willing to work with committee to come

up with a definition that would meet everyone, satisfies everyone's concern. the current definition we believe is too narrow. we also believe that the rulemaking that is provided is too limited. i will say that the rulemaking process that the commission employs is a process by which we do seek input from stakeholders, and we believe that through the rulemaking process we would be able to address the need for change, at the same time take into account any concerns that you and others may have, congressman. >> i think that's probably if i were initially i would be concerned that the government, the congress is turning over this power to you and you might make these changes without commentary. there may be changes that may affect a business that would make it much more difficult. let me go onto my second question. in the bill that added data minimization provisions. now, this is something new in my

bill and also its new from the russian bill. how do you see this provision playing out for memories and people who don't understand? this is basically forcing industry to get rid of information that perhaps they would like to keep. it's not a decision they make. it's a mandate such as included in the bill as i understand gets i guess the question is how do you see this provision playing out and what role do you believe if any the ftc should have in ensuring that companies are complying? you have this mandate, companies might not agree, so if they don't do it, how are you going to check it and how we make them comply? >> what the commission advocates is that companies only retain information that they have a legitimate business need to retain. >> who determines that? >> they also only retain it for -- >> who determines that? >> i think we would appoint a reasonableness standard which is --

>> what kind of standard? >> reasonable standard. >> so this reasonable standard in your mind is pretty much established at the ftc, so everybody in industry would understand today what it is? >> it's a standard that would be -- i believe it's an issue that may need to be fleshed out. again, the commission is willing to work with the committee. in order to do that any rulemaking that does take place would entail a commentary, actually entail a commentary. i think the ftc has a very solid track record in terms of its rulemaking. so i think this is an area again. the standards the ftc has always applied in areas that security is one of reasonableness. taking into account the nature of information, how sensitive it is, potential risk to consumers. so it would be a reasonable standard that would be applied. >> do you think that the congress should set the broad

outline for this data minimization provision and not given any authority to the ftc, or do you think you need to have that authority to make that decision? >> i think it would be appropriate to give authority and flexibly to the ftc to provide additional guidance to companies. >> thank you. >> the gentleness time is expired. the chair recognizes mr. waxman for five minutes. >> thank you, madam chair. again, looking at this draft bill i have questions so that we can get your input on it. as i look at the draft bill, there's a notice that must be given to the federal trade commission and consumers where there's been an electronic data breach. but it's only required after that covered person, people, the company who has a data information has been certain things in connection with the breach. that covered person must come

one, assess the nature and scope of the breach, make sense, take steps to further prevent breach or unauthorized disclosure. and then restore the integrity of the data system. those clearly are the priorities for the company itself. after they have done all of that, that covered person must determine the risk to the consumer. and after they've reached that conclusion within 48 hours, they are supposed to get a notice the ftc and the consumer. but there is no limit in this draft bill for how long a person can take to complete steps one, two and three. this is no limit the covered person, company, knows about a breach. it could take a week, a year, maybe five years. and then within 48 hours of that, provide notice to the federal trade commission and consumers. the bill from the last congress included an outer limit of 60

days from the discovery of the breach to provide notice of the breach. that outer limit has been dropped in this discussion draft. if we were to include an outer limit, how long should that limit the, in your opinion? >> in my view and in the commission's view, the time for notification should be as soon as practically possible. that may differ depending on circumstances. i believe that 60 days should be at most an outer limit. again, our view is that sooner would be the better, the sooner the notice is provided, the sooner a consumer can take appropriate steps to protect and try to mitigate any harm that may result from a breach. so i don't believe there's a particular number that i can give you sitting here today because it may depend on the circumstances, the nature of the breach, the size of the company. but i would say that 60 days

will be at most an outer limit. >> sixty days would be an outer limit, but as soon as practicable in? >> yes. >> information on to go to the consumers that their identity has been compromised, security leak. >> that's correct. >> thank you for the. the discussion in the draft provides an exemption for the bill's data security requirements for entities that are subject to data security requirements under different deals. the gramm-leach-bliley, or the health insurance portability and accountability act, or for any activities governed by the gop and hipaa. this is a departure from last year's bill. last year's bill only said that compliance with these two other statutes major and compliance with the requirements of this legislation, as he was drafted. provided that requirements, geo b. and hip were similar or greater than those required under last year's bill.

language was not phrased as exemption for the subject to ftc jurisdiction but rather as an alternative of compliance. it's unclear to me whether under the draft bill the federal trade commission maintains the ability to enforce any data security requirements against those entities, or the safeguards in those other laws must meet or exceed those of the discussion draft. you believe this exemption could potentially limit the federal trade commission federal trade commission's enforcement abilities with respect to entities subject to the other two statutes, those other two statutes? and could you explain your answer? >> under my reading of the bill, i do believe that it creates a gap in authority because it does exempt entities that are subject to ftc jurisdiction from having breach notification requirements which are not required under

gramm-leach-bliley. so that is a concern about there being a potential gap. >> do you believe this would lead to a disparity for non-bank financial institutions and it would else under this? >> i just get what your understanding of the effect of the phrase any activities governed by the glb are hipaa on the scope of this exemption? what is gramm-leach-bliley activity? is that just issuing privacy notices, does that follow the safeguards, rules or is that marketing? >> again, that activity-based exemption, it's a little bit unclear exactly how broadly it might be interpreted. but i think the key point is that it does create disparity between the obligation of certain financial institutions so that is a concern about the authorities provide. >> madam chair, i just want to point this out as an area where

we need to work together to make sure that there is no ambiguity or poor drafting that would undermine what we're trying to get. >> i thank the gentleman very much. i agree with this question and agree with his assessment about where we can modify the bill, and i look for to working with you on the. the chair is happy to recognize mr. olson for five minutes. >> i thank the chair. commissioner ramirez, welcome to thank you for your time today. as you know, the saved data act would require notification of profit as possible, that's a quote. individuals whose personal information was acquired or assessed in a breach following an assessment. and a notification should be based on risk of harm. not just on the facts data breach had occurred. otherwise we would find ourselves in a situation where consumers are flooded with notices that become desensitized

and then may not take action to protect themselves. there's a real risk due to a significant breach where personal identifiable information was stolen. identity theft could occur. as currently drafted this legislation stand is the risk is quote free of mr. market in response to my colleagues questions you said that is the stand that the ftc supports. do you think consumers would be better served in the long run if the standard for change to significant risk of harm? and what in your opinion is the difference between a reasonable risk of harm and a significant risk of armed? >> i don't think that consumers would be better served if the standard of work to be elevated to a significant risk. i think the key objective is as i understand of the draft bill, is to ensure that consumers are probably protected if there is a breach, and my concern would be that by imposing a higher

standard, that key objective would be undermined. so i think it's appropriate to apply a reasonableness standard. but my fear is by using the were significant, it might just be the standard that might be too high and that it would risk undermining the ability of consumers to take effective steps to protect themselves if there is a breach in security. >> and one more question, commissioner. does the commission to the concerns about the dangers of over notification, or as my 14 year old daughter and 11 year-old son would say, spam? >> in my view the greater danger is that consumers not be provided adequate notice to protect themselves against data breach as i don't believe that over notification is a serious issue. i would be more concerned about not providing adequate protection is the standard were to be elevated.

>> anchovy can agree there some balance there between over notification and -- >> that site and i avoid a reasonableness standard accommodates that. >> one final question. what does the ftc feel so strong about attaining authority over nonprofits universities or data security breaches? >> the issue there is regardless of the nature of the particular entity, if the entity does have personal information about the consumer and as a data breach, there is harm to consumer regardless of whether the entity is either a nonprofit or a for-profit entity. so that distinction in our view would not provide adequate protection. so we are pleased to see the draft bill does provide coverage for nonprofits. >> yes, ma'am. i'm hearing some concerns from the nonprofit sector and universities about this provision, and i'd like to work with you and a chairman to resolve these concerns back over people i represent. >> we would be pleased to do so. >> yield back my time.

>> i thank the gentleman and the chair recognizes mr. gonzalez for five minutes. >> thank you very much madam chairman, chairwoman. to my colleagues have worked on this for the past few years, again just that we continue down this road and have been successful yet, we pass things out of the house and we can say that much about controlling anything that this than it does but it does mean we will not be moving timely and aggressively. mr. stearns, thank you for your leadership. i started way back when we used to say don't collected if you can't protected. remember we used to say that? i think we are still saying that. and what a stress but since that time is we haven't had the safeguards. we haven't had to review and a protections of course, and we just have what have we had? we've had more breaches. i like to think have a have something in place we would not have the occurrences that have transpired recently. commissioner ramirez, thank you

very much for being here today. my question is going to go to information brokers. and if you want to compare past efforts with the present effort and hopefully we can even improve what we have in the initial draft. h.r. 2221 had a lot as related to information brokers. and i just want to get your opinion as to whether any new version of legislation should maybe also include some of these responsibilities that information brokers should be charged with. we had accuracy access, dispute resolution, aspects or provisions when it came to brokers. but i'm going to be more specific on some things that i believe, at this early date, the draft would not include and i'm going to ask whether you think it be important that we would include these particular provisions. 2221 required information brokers to submit its security policies to the ftc.

is that a good idea to? >> i think generally data secure to brokers need to be covered under any appropriate legislation. just as any other entity would be. if they collect information about a consumer they ought to be covered. >> 2221 permitted the ftc to conduct an audit are required each information broker to conduct an odd of its security practices. good provision? >> again, i think the data security measures that apply to other entities ought to apply equally to data brokers because any entity that collect, gathers and uses personal information of consumers need to have appropriate protected data security measure. >> maybe even more so since that's a primary objective and activity, is it not, as opposed to someone else that again, relative to the own commercial transaction may require information that is personal in

nature, and his be protected. we talked about information brokers, the very purpose of their existence is to do what? >> i understand the point. all i'm trying to say is all entities that gather informati information, that is personal to consumers, create a potential risk of harm when there's a data breach. so from the commission's perspective we don't want to draw distinctions if an entity collects and uses consumer information that ought to be appropriate data security measure. and absolutely they ought to apply to data brokers. >> we would agree with you of course. the last two because i have about a minute and have. requires the ftc to promulgate rules required information brokers to establish measures facilitating the investigation of breaches. would that be important? >> yes. >> prohibiting information brokers, the practice of obtaining information through false representations or. >> yes. >> thank you very much. i yield back.

>> thank you, gentlemen, and the chair recognizes mr. pompeo for five minutes. >> thank you, madam chair. thank you for being here today. you talk about your concern for the exemption for public available information that you said now with current technology it is increase the value of that information. can you give me an example of what you are thinking of? >> i think there are a number of companies that gather information about consumers because it may pay for instantly connect with advertising online behavioral advertising in particular. so i know "the wall street journal" theories has identified a number of companies that do this. it's an area of significant concern to the commission. and again regardless of the fact that the information may be publicly available, given that it is now aggregated and they can access technologically and much more easily, it raises significant data security concerns. >> what kind of information is you are concerned about?

is addresses? tell me what it is that is probably a fable that you're about this aggregation of this information and answer these people you think are going to do harm. >> it could be addresses, it could be, it may be family members that reside in a house. akamai with other information could potentially lead to security concerns. >> thank you. i want to come back to something congressman stearns was talking about, the definition in the draft of legitimate business purposes. and if i understood your testament correctly you want to retain the authority to your the ftc to retain the authority to define that, that is to say we're going to apply every double standards, is that chris? >> that's right. >> forgive me for my skepticism. i have spent 16 years in business and when the federal government says don't worry, we will be reasonable, it causes an alarm bell to go. >> perhaps if i can articulate a

concern to any of these data breach cases, we find that information has been maintained for a very lengthy periods of time. win back the company really had no reason to maintain that information. so that's why and i personally believe that companies need to be, take greater care in ensuring that the consumer information that they maintain is needed. and if it's no longer needed, they should dispose of the information safely, otherwise it just increases the potential for harm should there be a breach. >> suppose combat information and they had no real current use for it, but they thought there might be value in the information 20 years from now, they might be able to sell the business and someone else might be able to use the information but they couldn't touch today what exactly it is they thought the value of that was. by legitimate business owner, i think there's value there. i worked to get that information, i obtained that

information lawfully and an of possessive. i would just like to hang onto it because i think there may be a good lawful use for the information sometime down the road. would you consider that after 10 or 20 years, would you consider that a legitimate business purpose in retaining the information? >> i would be concerned that there are many companies that do make that statement. my concern is that is at odds with the desire to have adequate security. because again, the more that you keep information, the greater danger that it creates. so i'm not going to sit here and say it can only be after five years. i think there needs to be an appropriate assessment under particular facts and circumstances. what we do advocate and it presently is that companies need to take a greater look at the practices, their data security practices to ensure that they minimize the possible risk of harm to consumers spent on a speaking to the practice in terms of securing that day. i'm simply speaking to the desire to hold onto this thing that they view as their

property. this thing is paid for and worked for and worked really hard to maintain and they are engaged the most capable security process you can imagine. they've not had a breach in ottawa to do is hold onto their property, but as i hear you, there's some risk the ftc will come in and said sorry, not legitimate. >> no. again, the standard to be applied is reasonable and i think with the ftc, and i personally believe as a company just something needs to take a stronger look and ask the question, do we really need this information, and not simply use the concept of we may need it down the line. without care to ask important questions about whether that information is entirely needed. >> thank you. i have no problem -- >> our focus is on information. i can give you an example. i highlighted one case today with social signals were being retained for a period when they were no longer needed in that particular instance.

again, there was no need to maintain this speed when using the comp in your mind as opposed to the companies my? >> the company now had desperate no one ever you to maintain social security numbers. there was a breach. >> thank you. my time has expired. >> the chair is pleased to recognize the chairman emeritus of the committee, mr. dingell, for five minutes. >> thank you, madam chair. welcome, commissioner ramirez. i will be asking yes or no questions. so i'd appreciate your cooperation because time is short. now, the draft legislation pending our consideration exempt entities in less comply with gramm-leach-bliley act, or glb. the federal trade commission's rules implement the data privacy requirements of glb a is known as the safeguard will, is that correct? >> yes. >> commissioner graham does the safeguard will require the covered entity under the

jurisdiction of ftc notified a consumer of a data breach with a certain period of time? yes or no. >> know it does not. >> commissioner, so an entity regulate by ftc that is covered under glba but not the draft bill is under no statutory or regulatory obligation to notify consumers of a data breach within a time certain, is that correct? >> yes. >> it would seem to me that we should consider removing the drafts bills glb a. exemption as well as to include h.r. 2221, 60 day backstop notification in the interest of improving consumer protection. the draft bill allows the commission to modify the definition of the term personal information according to the administrative procedure act, or aapa, which i applaud. i'm worried however though that the bill imposes a conditions on the commission to be satisfied

before it can commence a rulemaking. i fear the effect would be that the commission may never and the definition of personal information. now, commissioner, has the commission examined this matter, and if so, does the commission share my opinion on the matter of? >> we do have concerns about the ability of the ftc to modify the definition of personal information as a articulate earlier in my testimony spent i would suggest -- -- >> i understand the draft bill does not treat data brokers any different from other entities that collect or store personal information. this is a change of h.r. 2221 which, by the way, passed the house overwhelmingly, which describes additional requirements for data brokers. the bill does not contain

provisions that allow consumers have reasonable access to information data brokers who collect information about them, is that correct? >> yes. >> commissioner, does the commission believe that progress should be subject to more stringent data security and breach notification requirements than other entities that collect and store personal information, yes or no? >> in my view, yes. >> would you submit certification for that as you might deem appropriate? >> yes. >> now commissioner, does the commission leave a consumer should have a statutory right to reasonable access of the personal information the data brokers collect about them, yes or no? >> in my view, yes. >> i believe you would say that's the only way you're going to ensure that they will have that right to access, is that right? >> in my view, yes.

>> madam chair, i appreciate your work on the bill so far but i want to thank you for this appears to as my questions are vindicated i believe there parts of the bill that can be improved. i stand by to work with you and am ready to assist you and the rest of our colleagues in order to reap reported by parsing consensus builder offers consumers the best protection possible. and i would observe just quickly wants more, the ftc has substantial experience in the protection of personal privacy from data collectors and things of that kind, is that not so? >> yes. >> so, madam chair, i thank you for the courtesy, and i yield back the balance of my time, which constitutes 37 seconds. think you. >> i thank the gentleman very much, and recognize mr. guthrie for five minutes. >> thank you very much. thank you madam commissioner for being here.

this is a serious issue that we have to address and it looks like there's going to be significant work to do this in a way that is bipartisan. some of the things and what i learned in a state legislator and i've invite law and so forth is that we have to be as clear as we can because you see things, just an example, laws written 50, 60 years ago they're being used i think through interpretations by decency that were never intended. and so we just want to be careful that we are not just -- we know each other but we've got to think what's going to happen as they go down the road. so, in fact, you've been there and we have had ftc here before. we are trying to solve uncertainty. this may have to be decided in court if what we're doing is right. reasonableness, just kind understanding what we're thinking. and so i know we talk a reasonable risk and that data security significant risk, and

if you would kind of talk about the differences of those two and the cost of complying i guess for e-business, or in the level of security for consumers. we've got to decide if to give the consumer the security they have with the business having the knowledge or the certainty, what it will cost them to do so they can plan. >> in my mind the concern that i had was using to what significant would elevate the standards, and the result would be that it would undermine protection to the consumer. the ftc has applied a reasonableness standard throughout its enforcement history in this arena. and it really does depend on the particular circumstances. we would like to take into account again the nature of information that might be at issue, the size of a company, the costs that may be involved. so i believe that taking flexible approach allows us to fashion the right balance

between the costs and burdens imposed on business as well as making sure that we have robust protection for consumers. i also want to highlight that the key that was brought into this arena has been combat related to very basic and fundamental failures in data security. these have not been close calls. so i hope that provide some assurance to those who may have concerned. >> i'm not an attorney. i did have one law school class, and the questions are not usually the obvious things. usually there's some area, that's what ends up in court, someone had data for social security numbers and no need for them. as the medevac the extent of what a breach cost a company, i wouldn't want to hold onto the information if i didn't have a purpose or need for it. and one thing and i will yield back. you talked earlier about the time for notification was too long i guess in the draft.

you thought it was too long. did you say what you thought was reasonable for that are what you would suggest? >> our view is that notifications are to be provided as soon as practically feasible because again, the circumstances may change. it may be appropriate to have a short requirement, just a few days. and other situations there may be a need for a company to take more time to provide notification. so i think the ought to be and outer limit, and i suggested 60 days would be an outer limit. but again that's an outer limit. our view is the sooner the better because that allows for consumers to take appropriate steps to mitigate any potential harm. >> i agree. >> i think it's important to preserve some flexibility because it may differ depend on particular facts and circumstances. >> i think there's one testimony in a previous hearing, trying to figure out what happened and they were trying to go through the. but you're right. i would want to know as soon as practical, one of those words,

practical and practicable. i look for to working with the chairwoman and thank you for your could. >> thank the gentlemen for not being a lawyer. you play one well on tv. the chairs happy to recognize ms. schakowsky for five minutes. >> thank you, madam chairman. let me just say that this committee has a history of working in a bipartisan basis, and the house did pass out h.r. 21 -- whatever that rushville was that i was a cosponsor of the. we worked very closely together, and as mr. stearns said, it's been going on since 2005. and so hopeful that we will be able to craft a bill. i feel confident that we will be able to craft a bill some respect on this draft is even better. the quickness of certain

notification, but we need to focus on i think whether those differences are. so, let me just ask a couple of questions, ms. ramirez. the republican discussion draft includes language that i'm concerned could have a narrowing effect that we don't totally understand. the draft narrows application of the bill data security requirements to persons engaged in interstate commerce with personal information quote related to that commercial activity, unquote. so let's take someone, a company like amazon that's in the business of selling books. and in the process generally collection of full name, address, credit card number and security code. but what if they also ask for your social security number quite i don't think they need that to sell a book, and if they did ask before, it probably

wouldn't be able to say that the. and what about other informati information, within the meaning of personal information like an ip address? so, i know this is a fairly technical point, so you may not have an answer right now, but to the extent you can, do not the ftc would interpret and implement this related to that commercial activity? >> i think would interpret that was a jurisdiction over entities that engage in interstate commerce but i think it would be relatively broadly interpreted. again, this scope of the definition is an area where we can be happy to work with the committee to ensure that we assist in anything coming up with a suitable definition that addresses the concerns that i have articulated could. >> i'm just worried that it is ambiguous language, and we may want to work with you and work with the committee to tighten

that up spent we would absolutely be pleased to work with you on that language. >> h.r. 2221, the last congress, the republicans discussion draft of the safety act required notice to the ftc and consumers of an electronic data breach only if the covered person has determined that the breach quote presents a reasonable risk of identity theft, fraud, or other unlawful conduct. i know that others have asked this but i wonder if one more time, do you believe this trigger for notification based on reasonable risk, et cetera, is appropriate? >> i do. i think the standard of reasonable risk is it appropriate flexibility, and to accommodate both the need to protect consumers as well as the need to take into account any burdens, excessive burdens on business. >> and it falls on the covered person to determine whether or not the trigger has been, for

notification to the ftc, and consumers, has been made. do you believe it is appropriate for the covered person to make the ultimate determination about the risk posed to consumers from a data breach, and whether notice to the ftc and consumers is required? and if not, who should make that determination and how should they go about doing that? >> that's a serious concern that we have. we believe the ftc ought to be notified at the same time as other law-enforcement agencies so we can also examine the issue and determine if there ought to be notification, that may differ from information made by the company. >> thank you. and finally, in a few seconds i have, h.r. 2021 requires notice to law enforcement of the ftc and consumers in the event of a data breach involving electronic records.

this new requirement for notice in the event of a data breach involving paper records. dvd the scope of the notification requirement should be expanded to include data breaches involving paper records? >> i do. i believe paper records can also pose serious concerns and risk to consumers. >> thank you, and i yield back the. >> at zero. thank the generally. that your data i was going to give christmas presents to people, like christmas gifts would be value for the time to give back to the chairs happy to recognize mr. harper for five minutes. >> thank you, madam chair. and thank you, commissioner, for being here and giving us your insight. into this. if i could just talk a little bit more about reasonable risk or significant risk, and you've indicated you support the reasonable risk standard. how do you define that reasonable risk? what do you see that being?

>> i think the information that is at issue is potentially going to be, can be misused to harm consumers. i think there ought to be a presumption that there ought to be notification. again, i do want to highlight that the agency has done significant work in this arena, and enforcement actions and consent orders that we've entered into i think can't elaborate more fully on the situations that we have found where action was necessary. but again i think there needs to be flexibility. i think reasonableness i can't wish is that, and i would be concerned about changing that standard. >> you said the commission has done significant work versus reasonable work. >> we have great experience in the area of data security. >> so how would we vary with significant -- if the standard were significant risk, how would you view that different than --

>> i think it's a flexible concept and they don't have any magic word to her taking it today, but i think in my mind the key is how do we best protect consumers, and if that's the aim of the legislation, i believe that we ought to err in favor of protecting consumers, given that we notice incidents of identity theft and data breach by the way is one significant cause of again identity theft, continue to be such a significant concern. it is the most -- we received the most complaints relating to identity theft than any other complaint. that's been the last decade. so it remains a very significant concern. >> reasonable would be in the eye of the beholder in some instances how we define this? >> i believe you can establish objective standards, the reasonable this is a concept, well defined in many different areas and using many different

areas. i think it is one that can be employed in a way that i think would address concerns, i think maintains appropriate flexibility and allows one to balance potentially competing interest. >> i know as we go to the discussion draft and we look at is going to be that discussion between reasonable and significant risk. you know, of course as you know in the practice of law, you have preponderance of evidence, or in a criminal case beyond a reasonable doubt. but also there's clear and convincing pics i think you will have that tug back and forth between reasonable and significant. wanted to protect the consumers but also looking at how the business will deal with this. i appreciate your input on that. as we look at the notification of when you believe ftc should be notified, do you believe they should be notified at the same time as law enforcement? >> i do, yes. >> and white period of time do

you think is the optimum time for you to get that notification? >> i think as soon as the breach takes place. i am now remembering -- essentially the very outset when other law-enforcement agencies are notified. >> when we look at a specific time limit, these are certainly great concern as you stated and as we know, data breach is something everybody is concerned about. and with this age that we have, so, tell me why you believe that the ftc should be notified prior to the consumers. >> as a law-enforcement agency, i think it's important that the ftc be provided prop notification so it can take appropriate action if necessary. in addition i think that waiting for the outcome of the company to engage in its own risk

assessment with a situation where a company may perhaps conclude that notification will not be necessary to consumers, the ftc may have a dish of you of it and provide an additional level of assurance or and protection for consumers. >> let me end with this quickly. t. believe that this legislation, that will address the current and the evolving if i'm at with respect to cloud computing? >> i'm sorry, can you repeat that? >> do you think this legislation appropriate addresses the current and evolving environment with respect to cloud computing? >> i do. i think i can, cloud computing is of course the wave of the future, but datastream measures ought to apply to cloud computing. this would be due to other methods of storage. >> i yield back. >> the chair recognizes dr. cassidy for five minutes. >> ms. ramirez, example of health and those not covered by

hipaa, can you give me those? >> let me give you an example of one of the matter is that ftc handled. the eli lilly matter which involved the release of information about individuals who had kozak. hipaa only covered particular entities such as hospitals, doctors offices, not covered entities. >> so this may answer my next question. i'm trying to understand this, you in effect have two debts of seven. one with unique identifiers, and the other this came from publicly accessible information that you have a similar concern even though it may not have a unique identifier, is that correct? >> well, it's not the unique identifier. when it comes to public records, our concern is that once you compile information come you gather information that in past my been very difficult to collect. once it's collected in one place, that can then raise very

serious concerns. >> so what are those concerned? >> when you have data aggregators that are gathering information about -- >> i understand what a data aggregator is. so they get all the data about mortgages being sold in washington, d.c.. >> one example could be that they may have information that might, can be given to a payday lender because that information that may refill have indications of that income level. that information can then be used by a payday lead or someone who aims to engage in some kind of fraudulent activity in. >> payday lender is not inherently fraudulent. >> no, no, no. but my point is it can be used by persons who want to miss use that information, it's -- >> that's true of all information in a true society, correct? i'm nervous about limiting access to publicly unveil the information. i don't necessary disagree with you but it always seems like we should have a bias towards,

knowing that -- so, why she would not have this bias towards openness if it is, if it had not been used for fraudulent and if it isn't anti-and if it is publicly available otherwise? >> the key is to ensure that appropriate measures are taken to protect information that has been aggregated. you know have an ability with these data aggregator to gather to treasure trove information, again praising may not have been accessible. >> you keep xanga and i understand. i understand that issue. what i don't know is what danger you see with that. and asking openly. >> the danger can be that it can be misused for a number of reasons. >> that's all information that can be misused. all information can be misused. so i'm just trying to understand. >> the fundamental point is that information needs to be protected and if the information, if there's been a breach, consumer ought to be

notified and in the case of data brokers, i believe that there ought to be a additional requirements were a consumer may have access to -- >> just so i understand there because clearly i'm struggling. can you give me a specific example, just so i can understand, i'm not challenging unjust i do understand, a specific example where data aggregator had data does breach that did not include a credit card number, security code, it was just like bill cassidy, congressman from baton rouge, he has three kids et cetera, et cetera. >> let me give you one example. information relating to income, for instance, is information that might be gathered or somehow ascertained through the axis of publicly of able information. >> when i saw all these catalogs i was getting back, that they looked at my census tract and they said he's a pretty good since his dry. so, therefore, i surging an incredible number of catalogs are going to restrict the ability of someone to know what census tract i live in?

>> no, but i think you can provide access rights so that for instance, let me go back -- >> the access rights is a separate issue. access rights i gather from mr. dingell's thoughts, i could see them use from the. but again, i'm wondering what is the inherent damage to -- >> we would simply want there to be adequate security measures to protect information and we would want there to be notification to the consumer in appropriate circumstances. and in light of potential use of information, additional requirements such as access would maybe one way of addressing -- i'm not advocating that limitation on the ability. ..

>> i yield back. >> thank the gentleman. recognize mr. rush for five minutes. >> [inaudible] congressman now has data breaches that will and could occur, and we had news in legislation to make these breaches more difficult to perpetuate and make consumers as closest to whole as possible when they piece back together their personal lives and

adeptties. the trust agent that i reintroduced in may along with congressman martin is essentially the same bill that was passed out in this committee in december 2009 in the 111th congress as hr2221. that bill passed out of the hill on suspension and referred to the senate congress. when i became chair of the subcommittee in the 110th congress, i introduced hr998 which has been shaped and network technologies and emerging formats for storing consumer data. these technologies and formats improve consumer's lives and make new and exciting businesses and revenue models viable, but it's been important in our approach to maintain

technologically neutral so we also are cognizant of the unique natures of the business models and realities and find that service providers and their data bases. madam commissioner, i only have a few minutes so i'll ask you a few questions, and i intend to ask each panel the question. if i can get a yes or no answer, that would help me. if i can't ask the question, i have some i'll refer to you in writing for the record. should commercial entities that do business in interstate and commerce under laws protect individual's personal information by securing and protecting it from improper access? >> yes. >> when these entities contract

with a concerned party to maintain that personal data should further be required to establish and implement implementation security policies and procedures? >> yes. >> should the fcc be authorized to prescribe what those policies and procedures ought to be? >> yes. >> should personal information be defined to include an individual's first name or initial and last name or address or phone number in combination with any one or more of the following -- an individual's social security number? >> i believe that that would be too narrow a definition. >> yes or no, yes or no. >> no. >> a driver's license number? >> no.

>> passport number, military number, similar identification number issued on a government document for verifying identity? >> no. >> a financial account number? >> no. >> a credit card number. >> no. >> a debit card number in >> no. >> any security access code or password needed to assess the account? >> no. >> should information brokers be required to submit in their data security policies to the fcc? >> yes. >> should information be required to establish procedures that consumers may follow to review, and if necessary, dispute the accuracy of their personal data? >> in my view, yes. >> thank you very much, and you've been kind and helpful, and with that, i yield back the period of my time. >> the chair recognizes

ms.backman for five minutes. >> thank you, madam chair, and thank you for being here with us today. i want to stay with this personally identified information because i think that that gets to kind of the crux of the matter when you talk to our constituents, and you look at how they've reacted to what has transpired and the amount of time that was required to inform people there and go back to the tbx breach and the amount of time and inconvenience caused to individuals there so what i think we have to do is that our goal should be to define this legislation in a way that is very clear and very meaningful to our constituents and to

policymakers, and i know mr. sterns talked about ftc control and authority, and some people believe that we should not give the ftc the control to make the policy specifically the ftc with the rule making process, and having the ability to set what is personally identified information and many think we should define that in law and not give it to the ftc. i want to stay with this. i want you to define for me, just go down the tick list as of making rules what you would put sequence what would be personally identified information, how you would see that in the rule making authority. >> i think the touchstone here

is information that can be uniquely tied to an individual. i'm afraid i just can't rattle off a list here, but my staff is very happy to work with you to articulate in more specific terms, but, again, the key would be information that can then be used to identify someone, and i believe it would be broader than the definition that's currently used in the draft bill. >> okay, what i would like you to do then is submit that to us in writing because i think this is an area where we're going to need to focus, put some attention on what this is, who owns that online presence and we hear from them daily on the data searching and selling, all of these issues that are becoming intertwined even with the piracy

and say even a unique tie could be a simple concise answer to give, but it does not provide the depth that we're going to need and have as we go through this so i would ask you to do that. okay. the chair talked about declaring war on io tenty -- identity theft and online fraud, and i think she is exactly right with this because i agree with her on this and our constituents look at this virtual market place that's out there, and they look at the relationship they have had with brick and mortar retails and with entities and click and mortar businesses and also virtual. let's talk about people who have become the victim of identity theft. what services do you think

should be made available to them. people realize a free credit report doesn't do it, credit monitoring doesn't cut it. what do you think for those who have been harmed for identity theft, what services should be available to them? >> i think credit monitors is important aspect of the protection, but what the consumer needs to be is be vigilant, monitoring their financialing thes, billing statements, and if they see anything -- >> personal responsibility? >> it's an element of it. we provide guidance to consumers about what they ought to do. >> more of providing guidance on that? >> consumer education is a significant piece of what the ftc does, and we provide information to consumers helping them take steps if they identity has been stolen or if there was a risk of that to be taken themselves. >> one other thing, the bill we're considering, should it apply to government systems?

>> this -- the bill should apply to commercial activity that the jurisdiction that the ftc has to commercial entities so that's the scope of our jurisdiction. >> you don't think we should apply it to government entities? >> it's an area outside the scope of what the ftc does. >> i respect that answer. thank you very much, i yield back. >> i thank the gentle lady very much, and with that, we conclude the first part, and thank you for the answers, and we'll take a five minute break while we reseat the second panel. there is an overflow room in 2123 for anyone who wants to sit rather than stand. thank you for your time today. >> thank you. >> y'all have five minutes. [inaudible conversations] [inaudible conversations]

[inaudible conversations] >> this weekend on the communicators, former fcc chairman michael powell heads the national cable and telecommunications association. the communicators saturday evening at 6:30 eastern. right now live on c-span, the republican leadership conference from new orleans. a number of presidential candidates are speaking. live coverage continuing tomorrow with rick perry, the nephew of former president bush and national committee chairman beginning tomorrow afternoon at 12:50 eastern.

>> the senate agriculture committee --

>> the senate agriculture committee is looking into implementation of the law that president obama signed last july. members want to know the effect of that legislation on the commodities and derivatives markets. they heard this week from gary ginsler and born. debbie stabenow chairs this two and a half hour hearing.

>> well, good morning. the meeting will come to order on agriculture, new triecious and forestry. we welcome the witnesses today and thank you to everyone joining us for our second and ongoing effort to do oversight related to financial services reform. we're here today to continue discussion of title vii in the wall street reform act, and one year after passing reform, i think it's important to take a moment to remember why congress to pass this historic legislation. in 2008, the world held its breath as we watched financial markets collapse and global financial institutions crumble. by the time the crisis subsided, millions of jobs were loss, not only did hard working americans lose their jobs, but many lost their homes and life savings in the process. make no mistake, the united

states experienced an unparalleled crisis that required bold action. the reforms in the wall street reform and consumer protection act and the actions in the derivatives title were passed a public systemic risk, promote competition, and decrease costs for companies who use the markets to hedge their risks. looking forward to the testimony today and discussion to hear from regulators and markets with the implementation of title vii. this will impact global financial markets and our economy which is why we must take the time to get the rules right. and not unnecessarily delaying important reform. to that end, i want to thank the tftc for phasing in the reforms, providing temporary relief for

regulatory requirements, and allowing market participants to weigh in on the rules as a whole. we've seen a remarkable amount of work coming from the regulators in the past year, and i'd like to commend everyone involved in their staff for what i know is a tremendous amount of hard work moving forward. i have several concerns that i hope the witnesses will address today as well. while we give substantial new authority to the regulators, it will remain critical that the rules reflect congressional intent. the rules must maintain market liquidity, provide the ability of hedge users to use and manage risk, and foster transparent competitive markets. regulators must also harmonize regulations not only domestically between agencies, but also internationally without jurisdictions. we must promote international harmization to ensure we do not

undermind strong reforms to the financial markets. these oversight hearings are an important part of the process, and i look forward to working with my colleagues and agencies and market participants to ensure that we never allow the failures of the past to be repeated. again, welcome, and it's now my pleasure to turn to senator roberts, my partner on the agriculture committee. senator roberts. >> madam chairwoman, i appreciate you calling the hearing today and the oversight is a critically important function of this committee, and i'm looking forward to hearing from the witnesses today with regard to the implementation of the dodd-frank act especially since we're a month away from the act's effective date. roughly 11 months ago, the more than 800 page dodd-frank bill was passed and appears to be a reengineering of our financial markets.

what's followed is 385 new rules and thousands of pages of new regulations to cover areas i think well beyond the scope of the financial crisis of the dodd-frank legislation. 51 of the new rules proposed by the tftc's 31 different rule making teams still in operation i'm sure. i fear some may suffer a classic case as a fear, and i wonder if the regulations will fix the mess created by non-market forces in the housing market, and if any in-depth cost benefit analysis as some of the rules have been done ordered by the president and his executive order of january 18. i'm concerned with yet another agency putting out a litany of regulations to raise transaction costs, stifle legitimate economic activity, increase unemployment, and create new risks and uncertainty where it didn't exist before. some of these regulations

reengineer the principles base risked management of future markets that did not cause the financial crisis and operated well for decades. madam chairwoman, raising compliance costs and manage the risk in today's global marketplace are not the objective of this committee, and i don't believe this administration as well. i have a real concern that choking off innovation by increasing the cost of entering into a swap transaction at a time when u.s. firms are struggling to compete glebally cause u.s. forms to seek distant shores for relief. i'm worried the fed, ftc have spent too much time in their own fox holes not coordinating the overall regulatory impact of this act, and i'm particularly concerned as we expressed in a recent letter that our regulatory process is headed for trouble internationally. here are just a couple of the

pieces i'm interesting in exploring today. all three former chairman of this committee and a committee on the house sent a letter concerned that the dodd-frank act creates a black hole with swaps and transactions after july 16 this year, a swaps purgatory if you will. what happens next? i'm expecting chairman ginsler will fill us in today for members own edification. the chairman and ftc made the "wall street journal" above the fold. congratulations at least on, you know, honing in on that. come to think of it, we could probably read this and not have the hearing, but that's not what we're going to do. [laughter] secondly, here i have an unusual letter from the financial services agency of japan asking why u.s. regulations would apply to japanese financial

institutions operating in japan, and i think that's a fair question. they said i don't know what's going on. my third question today has me wondering why fundamental and commonly used methods of futures markets, not swaps, but wheat and corn futures markets who have been in operation for decades without incident had nothing to do with the financial crisis would suddenly be considered speculation by one of the rules proposed by the tftc. more on that later. i suggest instead of looking back over the past year that this hearing today, we should be examing the overall effect of all the new regulations on our economy and globally over the next ten years. i thank you. >> thank you very much, and i'm going to turn -- we have three excellent panels today. i'll turn to our witnesses. i want to say any opening remarks would be pleased to enter into the record, and

senator reports and i because of the importance this hearing agree the first panel we'll lengthen the questioning from the regular five minutes to seven minutes to allow more time rather than going to a second round because we have three panels today, and that would make it difficult in the time allowed. we agreed to lengthen for the first panel to seven minute rounds, and so i appreciate that. >> madam chairman? >> yes? >> can i ask unanimous concept the letters from japan follow my comments and be inserted in the record at that point? >> without objection, absolutely. let me turn now and welcome our first panelists, and, of course, chairman gensler, no stranger to the commission. we welcome you back. chairman ginsler spent time in

the accounting industry and corporate governments and we thank you very much for joining us today. our second panelist is michael gibson, a senior associate director within the division of research and statistics and the federal reserve board. mr. gibson joined the fed after completing economics at mit and been there sense focused on risk management financial markets and corporate finance. we welcome both of you today. we'll ask chairman ginsler to begin. >> good morning chairwoman and other members of the committee. i thank you for allowing me to testify on behalf of the futures commodity trading commission. though the financial crisis in 2008 had many causes, it's clear that the swaps mart did play a central role. swaps leveraged the financial system with more risk backed by less capital and contributed particularly through credit

default swaps to the bubble, the asset bubble in the housing market and helped accelerate the crisis when we got closer to it. i believe they also contributed to a system where large financial institutions which had been thought too big to fail all the sudden, this new term "too interconnected to fail" so that swaps initially developed to help and manage and lower risk, and that's what they do for most of america. they also concentrated heightened risk in the economy into the public, and ultimately millions of americans found themselves out of work due to the crisis. it's essential that oversight ensures integrity, transparency, openness, competition free of fraud and manipulation and make sure as has been true for 100-plus years that futures and later swaps can be used to lock in a price and interest rate or currency rate so businesses can foe qus on what they want to

focus on and innovate and lay arrest to the market place somewhere else. the tftc completed the proposal phase of the rule writing taking us nine or so months. the public had an opportunity to look at the entire mosaic. we opened the rules for 30 days of comment, and those periods closed june 3. we'll consider final rules after staff can analyze all the comments. we have about 20,000 comments to date, 12,000 on one rule position limits, but the others are spread across 50 other rules. we're consider the comments, but the commissioners will weigh in individually. we have a wonderful commission, and they will weigh in the 50 or so rules. we'll start taking up some this summer, but no doubt we'll be at this well into the fall and may will be since it takes a bit of time. we are coordinating and consulting with domestic

regulators and international regulators. michelle was here a couple weeks ago, and europe looks to be moving on similar approach to us. it's debated in the european parliament now, and they look to try to finalize their legislative package this fall and clearing data repositories, capital, and the like. we addressed the issue that i thank the three senators, it was a very timely letter, and we agreed with your letter. we addressed this issue of what happens with regard to july 16, and what in essence we did yesterday was the law says that those things that are subject to a mandatory rule did not go into effect on july 16 so until we finish these rules, they don't go into effect, and we published the list of what we thought were the mandatory rules, but on those things that are

self-effectuating, those things that would go into effect, we published relief in a proposed order until december 31st of this year. we'll get public comment over two weeks, see what the public has to say about the proposed order, and finalized an order of relief before july 16 so that the market has this certainty it needs over this period of time. if we come to november, and there's still things that we have not dope, we can look and tailor appropriate relief at that time as we continue on this process. we will be finalize it things over the course of the summer and fall as i say, and you were kind enough and congress gave the tftc flexibility on phasing implementation dates. it's our belief we lower risk and lower cost to phase the implementation rather than having it all at one time. we had a 60-day comment period, two days of round tables on this.

that comment period closed last week. we're trying to pull together thoughts on the phasing moving forward. with that, i look forward to taking any questions. >> [inaudible] >> thank you, chairwoman stabenow, commissioner roberts, and other members, i thank you to provide my views on the dodd-frank act. the board's responsibilities with respect to otc derivatives fall into three broad areas, consultation and coordination with other authorities, efforts to strengthen the infrastructure of derivatives markets, and supervision of many derivative dealers and market participants. our consultation and coordination with other authorities consists of both domestic and international activities. domestically dodd-frank requires that the tftc and stc consult with the board on many of the title vii rule makings.

staff of the commission and board fashioned a process for this consultation, and to date, federal reserve staff have commented on the proposed rules of the commissions at each stage of their development. internationally, the g20 leaders have set out reform commitments that will form a broadly consistent international regulatory approach. the board also participates in international groups such as the basel committee on banking supervision, and the committee on banking and settlement systems that are coordinating policies relating to derivatives markets. the goal of the efforts is to develop consistent approaches to the regulation and supervisions of derivative products and market infrastructures to promote financial stability and fair competitive conditions to the fullest extent possible. dodd-frank gives central counterparties an expanded rule in the clearing and settling of the derivative transactions, and the board believings benefits

can flow from the reform. if they are properly designed, managed, and overseen, central counterparties can reduce risk to market participants and to the financial system. central counterparties that are designated as systemically important by the oversight counsel will be subject to heightened supervisory oversight. title vi requires that the tftc, stc, and prudential regulators adopt comal and requirements for the swap dealer as major participants. the board and other regulators released a proposed rule on capital and margin requirements. our proposal is currently out for public comment. our proposal proposes margin requirements on the non-cleared swaps held by swap dealer or major swap participants who have a prudential regulator. for swaps with a non-financial

nonuser party, the proposed rule does not specify a minimum requirement. rather in keeping with the statute, it establishes a risk-based rule to allow a banking organization that is is a dealer or major participant to establish an exposure threshold which the end user would not have to post margin. the proposed rule would not impose caps on the thresholds for end counterparties. in contrast with swaps with other counterparties, the proposal would cap the allowable thresholds. thank you, and i look forward to answering your questions. >> thank you very much. again, we will use a seven minute question period for the first panel. chairman ginsler, i want to talk for a moment about pensions and business conduct standards. we continue to hear a lot of concern from the pension committee that the proposed

business conduct rules conflict with the department of labors proposed judiciary rules. as a result of this, there's a lot of concern that banks may not enter into swaps with pensions in part because of the concerns about legal risk. it's important that we don't create a situation where the protection of pensions and other entities, special entities uninterntionally limit their ability to use swaps. i wonder what you're doing to address the issue? can you provide us with certainty that pensions will continue to be able to hedge their risks using swaps? >> i think it was clear intent of congress that pensions would be ail to -- would be able to use swaps to hedge risk. they use it to hedge fluxuations in bond riskings. we've been working with the

department oflabor to be sure they are harmonious with what they're doing, and in essence a swap dealer working working with with a special entity and complying with dodd-frank with special entities is not a fiduciary under a list of rules. we have a specific letter, a public letter that i believe you all have that as well, which we think addresses much of this, but we continue to talk with the pension industry, talk with the department labor on remaining concerns that they have. >> and i very much appreciate in general the commission's efforts to provide legal certainty for swap transactions to mitigate disruptions in the market, but it's important to provide certainty to market participants regarding the timing and scope of the new requirements as well, and i know you've spoken to this, but i'm concerned that we have not seen enough clarity on

the order and the timing of implementation to help market participants prepare for the changes. does the tftc have sufficient authority in your mind to do all the phase reforms that you believe need to be done, and how do you provide -- how do you plan to provide that certainty needed to allow the market apartments to real be able to plan going forward since that's so important as we phase in these rules in terms of the ability to avoid disruption? >> we do believe that we have sufficient legal authority. congress said that any rule can go effective no sooner than 60 days after the rule, but we feel we can phase after that. we put concepts out publicly in late april, 13 key con cements how the phasing, and we had two full days of round tables in the 60-day comment period that people commented. what we are looking to do is through each of the final rules

to provide timing, but we might also summarize that which we've brought together from the round tables and comment periods and so forth, and provide that with further guy dance to the market place overall. we think it's very important that the data repositories, the clearinghouses, and the various execution platforms be what we've come to call "registration ready" or "open for business" have the rule books in place before there's mandatory trading or mandatory clearing and trading, clearing, transaction compliance be phased after that and have the marketplace have sufficient time. >> and let me also ask you to speak a little more about what's happening globally and this is something i'm hearing a great deal of concern about in terms of the international harm hair

minnization. we sent a letter to our european counterparts when look at what's happening given the importance of our financial industry in a global economy to having international coordination and the need for a holistic understanding of the rules. how are you addressing the different time lines if there's significant differences in the rules themselves? what steps are you taking to avoid regulatory arbitrage, and from a profitable stand point, how do you plan on regulating global financial institutions? particularly in this time of limited resources. to me, this is a very important piece of how we move forward. >> all great questions to which you can have a whole hearing, but first, the president and the heads of 19 other nations came together in september of 2009 and committed to mandatory

clearing and the trading, and some of the keys that were in dodd-frank. some nations moved ahead of us. japan as senator roberts mentioned, but japan, canada's ready. we're moving about it. europe is looking to move the legislative package through by this fall on clearing and many of the key issues on the trading components, they are taking it up probably in the fall and into next year. we, of course, are a little -- we're taking some more time to get our rules in place, and it's appropriate. some of the timing will come aligned, but also we're setting up work streams with the europeans in particular to look at any differences. we are an agency of only about 675 people now. we need a lot more resources, but we've had a long history of doing mutual recognition agreements where we recognize comparable and consistent regulation overseas and defer to overseas regulators. the best example might be in

london where the largest clearinghouse actually they exist today is registered with us, but we've sort of deferred to the british regulator the fsa who take the lead on that clearinghouse that clears swaps, so we look to enter into maybe 15-20 mutual understanding arrangements with foreign regulators where we sort of defer where we can as long as there's enough comparable. it doesn't have to be exact, but that's the standard approach we've taken. >> thank you very much. in a short time, mr. gibson, i'm concerned as we go forward about the intent regarding and protecting end users by providing exemptions by clearing margin rules. i want to follow up with you, and i'll do that in writing in order to respected the time we have here, but i am concerned about the divergence of interpretation of the statute between the fftc in the

stringency in the approach taken and very concerning to me and i know to the ranking member and others on the committee that full legislative intent is followed related to this issue so i will follow-up with you in writing on that. senator roberts. >> thank you, madam chairwoman. the industry from growers to buyers is concerned with your proposal, mr. chairman. what constitutes a bon mid hedge, i want to give you an example and get your thoughts, if i may. a sumner county elevator expects to enter into contracts at a fix price with delivery at a later date. to hedge it, the elevator is short on wheat futures. under the tftc's proposals, this makes the future transaction a speculative one, and therefore not eligible for the commercial hedge exemption from any position limits since at the time the elevator's future

position was taken and there, in fact, was not an underlying physical contract. this example seems to be a normal transz action by a person who deals in the physical commodity, and he was trying to help farmers manage the risk. this is not aig. this scenario is real and current. we are cuts wheat back home, and we need clarity. are they hedging or not? >> what you described is a hedge so i'm -- i think that's my answer. what you described -- somebody in the wheat markets whether they are farmer, wheat elevator operator or anyone in the supply chain merchant producer, they can take that physical grain into their ownership, enters into a forward or for that matter enters into a future. they have, for a long time, and it was consistent what congress did with dodd-frank is a bone

fied edger under the bo -- >> that would be eligible? >> there's a number of hedge exceptions. congress addressed -- i'm asking because of the transaction of position limits? >> yes. >> as you described it, senator, i believe so. if there's ambiguity in the language, i'd love to follow-up with your staff, and we know your staff very well. thank you, by the way, he's very good. you took him from us, but he's good. [laughter] we'd be delighted to follow-up to understand the ambiguity. >> they are not on loan, by the way. we sent you a letter may 27 asking for clarity on what happens on the effective date of title vii in dodd-frank, and you said to wait for the meeting yesterday. yesterday, you said to wait until the details are made public. i finally saw your answer just this morning. we had one staffer without seven

o'clock last night going through 23 pages and are starting to digest it. i tried to digest it this morning, but got indigestion. i believe -- this is not the way to deal with a committee hearing. now, madam chairman, i don't think we can have this kind of -- i don't want to call it a cavalier attitude, but that's about what it amounts to is, in fact, you send a letter, respond a week later, have a meeting, and the next day we're here and still don't know the details. i'm going to recommend strongly we have additional hearings. i know we have seven minutes, but we need 17 to get into this. from what i understand, you included a sunset date of december 3 # 1 of this year even if the rules are still not in place. that means there's a six month purgatory. well, went that put -- won't that put us back to the state of uncertainty as the date draws near?

why does it make sense to provide certainty until the new regulations become effective? >> senator, any regulation called for in the statute does not go into effect until the statute is finalized. the six month date is for things that otherwise might be self-executing. the clearing rules, business conduct rules, position limit rules, and many of the rules, if the statute says write a rule, it doesn't happen until the pressure is on us to finish that, but that doesn't happen even if it's march of next year. this sunset of december 3 1*s are on the things that might otherwise be self-executed, and we'll take a look again in november, and i'm committed to take a look in november to see if there's things that we should do, and working with this committee k, and working with apartments if there's tailored appropriate relief at that time. >> i appreciate that. the tftc proposed over 50 rules since the passage of dodd-frank

comprising thousands of pages of materials. as i understand, the act major provisions to a proposed rule require an agency repropose the rule for further comment. who at the fftc will make the ultimate determination on what changes require a rule to be reproposed? are you encouraging interested parties to suggest changes to rules that would not require reproposal? we have heard this from various market participants. will you be willing to repropose rules if necessary or the only changes made to the original proposed rule those made without requiring reproposing? my commentary would be suspect really getting the rules right the most important thing, not timing? >> i would agree with you getting the rules right. the american public, though, is also still unprotected. there's a balancing of, and we're focused on getting the rules completed. on your central question, with

51 proposed rules, there's no doubt there's some that will be reproposed. that's the nature of rule writing, and it doesn't, i don't think -- i'm very proud of the tftc, but really what we asked the market to do is give us their best comments given this statutory construction, we don't want to overread the law or underread it. we want to do what congress intended us to do, and i think that most of our rule, the final rules will have come changes to them, and as final rules will be logical outgrowth of what we proposed, but if it's more than a logical outgrowth, if it's something new and the add min straitive procedure act says you repropose. >> i'm concerned that the large number of regulations at the tftc is proposing and the huge regulatory costs that will be imposed on industry will threaten the economic utility of derivatives. is there a detailed analysis?

has tftc done any of the detailed analysis of the cost imposed on this financial system and the impact of those participation of the market? that's what the president intended on his january 18 directive to all federal agencies. there were some question as to whether or not independent agencies like you're were included. he clarified that sense and said, yes, they are, and i give him a lot of credit for that. if tftc did the work, can you provide it to this committee? >> we work to comply with the cost benefit considerations as laid out by section 15a of our statute. that's -- you may have well worked on it years ago helping us get that. subsequent to the president's executive order which you're correctly saying does not come over us, we had our chief economist and our general counsel issue new guidance to all of these 30 or so teams as to how to comply with 15a, but

also take in mind what the president said, and that's what we'll be following for our final rule making and any new proposes. >> i really appreciate that, and you will please provide it to the committee in terms of the analytical work, who's doing it, the detailed analysis of the cost, ie, the cost benefit? just show us the -- >> we include the cost benefit considerations in each of the rules. we have in the proposals, we'll continue to do that in the times. we have new guidance which we're glad to share with the committee. >> appreciate that, thank you. >> thank you very much. we will go to senator klobuchar and then senator lugar. >> thank you very much, madam chairwoman, and thank you for holding this hear. i think we all know that reckless trading of unregulated over-the-counter derivatives played a role in the crisis of

2008 bringing transparency and accountability to the market is essential, and that's why i'm glad we have this oversight hearing and that you're here to talk about the implementation of wall street reform. i think it's also important to remember as i think both of you know that while many financial institutions gambled in the over-the-counter derivatives market, farmers, manufactures, and a host of other businesses that produce goods and provide services were successfully using derivatives to reduce risk in their business. derivatives when used properly and backed by sufficient collateral play a crucial role in our financial and economic system. now, my questions are first about the speculation in the oil market. i don't think you're surprised by the first question. chairman ginlsle, we had an deny chairman ginsler, we had an ongoing conversation about it. they were required by law to

implement limits by legislation adopted by this congress passed in january, back in january, these position limits, the rules were supposed to be put in place, and i'm concerned that we have not been moving ahead at least in the energy markets. we have seen some recent drop in gas prices, but i also think that we know that the recent run up has already had a significant impact on our economic recovery. we all know speculation alone cannot be blamed for the rising price of oil, but i think the evidence is clear back in 2008 and now that excessive speculation can contribute to sol tillty in the -- volatility in the market and a spike in prices that we've seen more and more of the speculation in the hands of hedge funds and others and not in the hands of the people like delta airlines that are legitimately hedging their bets. can you explain the reasons behind the way and how you're going to address this to get this done?

>> one of the critical components of the dodd-frank act is congressman dated that we, as the senator say, get this done. we have position limit authority since the 1930s, but congress specifically broadened that to include part of the swaps market and also narrowed certain exemptions from it. we proposed these rules in january of this year, received a little over 12,000 comments on them, put significant resources on summarizing those comments so we can comply with the administrative procedures agent and get the best judgments from the public as well. we're trying to bring that together in a way to put a version of this, a document in front of our commissioners and get commissioner feedback based upon what to do with these 12,000 comments. there is nothing that would please me more if i could tell you they were vote on that next week. i can't tell you that with

12,000 comments, but we're moving forward on large trader reporting. i think we'll vote on that in the next month, and that's an important piece of this to get the data in on these position limits, and we're going to try to move this as soon as we humanly can. >> i would appreciate that. i continue to be concerned, and we've, you know, biofuels are now 10% in this country, and there's concern and discussion about that and sud p changes that -- sudden changes that could affect the price of gas. i hope to move forward quickly with that speculation issue. there's agricultural co-ops in the country, and there's been a concern that they could be classified as a swap dealer under the new rules as the co-chair with senator thune of the congressional farmer co-op caucus, i don't know if you know that exists, but it does. [laughter] >> i've known it from you. [laughter] >> i believe that we must maintain the ability of farmers

to band together to market products and manage their risk. i know the farmer co-ops have been in to meet with you as well as commission staff to discuss the issue. how do you see agricultural co-ops and risk management tools of the members fitting into the new regulatory structure? do you think they're classified as a swap dealer? >> we've been working, i think, very actively and cruetively with them. most of what they do are actually probably not even swaps. they are forwards, and under our product definition rule, looking to get comments on, i think that will be clarified. to the extent they do swaps with only their members in the agricultural space. we are looking through how we can sort of define that into the swap dealer definition so that it's out, not in. congress gave us authorities under di min miss definitions, and we're working with the various members, not just from your state but other states as well.

>> well, thank you, because i hope there's a way to uniquely define farmer co-ops so they can continue to do the things they do. dr. gibbson, i want your take and post margins in the federal reserve as long as the other proposed rules that exempt end users up to a certain threshold exposure and the margin is collected. can you take me through the federal reserve's thought process? i like the entire federal reserve's thought process on this proposed rule and what effect you think it will have on the end users? >> yes, so as required by the statute, the proposed rule of the prudential regulators applies to all swaps of a swap dealer, and also as required by the statute, it takes a risk-based approach so it divides the swap dealers counterparties into three groups. other deal r or swap participants, a high-risk group, financial end users are in the middle, and commercial end users are the low risk group because

we believe the commercial end users pose little or no systemic risk so that justifies putting them in the low risk group. our proposed rule like the tftc's proposed rule requirement does not have end users as long as the exposure is below a threshold that the bank swap dealer established which we believe is consistent with the status quo where banks set limits on their exposures to all their customers, limits above which they would not be comfortable having exposure, so we believe the general structure we've proposed is consistent with the status quo of users. also, the tftcs the rules require trading documentation including an agreement or csa. we understand that would be a change for some commercial end users that do not have that trading documentation. that's an additional burden, both of our rule and the tftc's

rule, but in keeping with the general improved transparency and regulation of the derivatives market, we meal that's a reasonable requirement, so that's it. >> okay, thank you very much. >> senator lugar. >> thank you, madam chairwoman. you mentioned as many as 15 agreements may have been coordinated with trading commissioners in other countries, but my question comes from this letter that's been mentioned from the chairman of the japan financial services agency which expressed, "a concern regarding exeter tore yal application of rules referring to the dodd-frank act especially in regard to registration and clearing requirements." leaving aside the specifics of the japanese concern, what

concerns do you have or what has already developed as far as traders in the united states or others who might use the tftc deciding to use other country's mechanisms? to what extent, in other words, has there been deliberate evasion or really plans simply to express whatever they want to do through these swap markets in some other situation? >> well, money and capital and risk don't know geographic border boundaries in today's modern financial system and modern communications can be moved anywhere so that's why it's so important that we seek to work with other regulators and harmonize what we're doing. i don't know the specifics of that one letter, but i think

dodd-frank act is specific on it in a section of title vii where if it has a direct effect, you know, if there's a u.s. counterparty in the mix, it's not a japanese bank doing a trade with the japanese insurance company, but if it's u.s. counter parties that may come under that. i say may because there's lots of specifics that could be aligned with that so if a foreign bank is doing business here in the u.s., they may have to register as a swap dealer, but we also were given authority by the congress to be able to recognize some foreign regulators if they're consistent regulation or comparable, if they have the capital regime or clearing regime. geep, it doesn't have -- again, it doesn't have to be identical, but comparable enough to recognize those regimes. >> in what extent if there was a crisis that occurred really

through the swaps, could those who created the crisis in the united states simply transfer their operations to another country? in other words, have we suppressed the specifics of at least american situations, but simply transferred to the international community as somebody who may come back to bite us in another way? >> i now understand the question. i think the worst example one might say is aig. aig financial products operated in connecticut and london. the gentleman who ran it ran it in london because he was in london. it's the american taxpayers on the hook for $180 billion so because capital can be placed anywhere around the globe, yes, it can hurt the u.s. economy. i think what we're looking at and what congress asked us to look at if it has a direct effect on u.s. or u.s. economy,

we have to consider that and ensure that the public's protected and there's the transparency and openness to that transaction. >> given that predicament as not too late ever to amend the dodd-frank act, but from your experience looking at the problems that occurred in the markets they are trying to regulate, what should congress have done here? was an attempt made to overregulate situations that really don't require that and simply violate the situation or is there legitimate concerns on your part that the dodd-frank act was necessary and can you give some feel for our markets? >> i think that the title vii, the derivatives title, was necessary. ..

>> how do you manage at that point? >> it would be bad for the american public. we will get these rules done. anyone who's thinking of the lead in cutting our budget is a good way to slow that down. i think that would be -- sort of

unlikely. we will find a way, even if we are cut, but the immediate effect of cutting the budget 15% is that we would have to cut staff. would only a larger than we were in the 1990s. we are 675 people. we are taking on the market seven times the size. you know, from a great state but think of seven more states that your police force has to take on. and you need more funding. we've asked for about 50% more funding, and given our nation's budget, deficits, and a little hesitant to ask for that feature% more, but we are taking on seven times the size. so that's i think a good investment for the american public. account to our funding would mean we could not oversee these markets. we will get the rules done but not only could we not oversee and be a cop on the beat but all those questions that market participants, some of the later panels, we won't have the people

to answer the telephone. there will be more market uncertainty in 2012 than necessary. we would rather have the lawyers and economists and accountants to answer the questions, give interpretations and actually work to make sure this is a smooth transition. >> thank you very much. >> thank you very much. senator johanns. >> thank you, madam chair. mr. chairman, let me start out by reading into the record just a couple of paragraphs from an article that very, very recently. in fact, within the last 10 days. this article says europe's relatively pragmatic approach to reforming derivatives regulations offers a quote terrific opportunity at the expense of the united states. which risk quote one of the biggest goals in financial markets history, unquote, a senior banker said.

goes on to say the u.s. through dodd-frank and other means is excessively focus on the derivatives market. chief executive of deutsche bank's operations in the united kingdom told the recent annual conference of international capital market association. he goes onto say, he said europe's reforms of over-the-counter derivatives were so for more pragmatic than those in the u.s., and much more in tune with the derivatives markets. derivatives are like cars and guns, and this is a quote from him, not inherently bad. it's what you do with them, he said. if they do what they should do, they play a very important role. europe understands this, he says. the u.s. has failed to understand it, unquote. now, you know, i listened to the

testimony today, and you through these phrases around like the rest of the administration, to be honest with you. i sit on banking, i sit on a. this parade of people, and taxpayers on the hook for $180 billion. i'm so tempted to walk through where that money went to with you, but i will spare everybody that. you talk about the american public is currently unprotected. you talk about capital and risk know no boundaries, et cetera. all of the right things to say. but i sit here and listen as a former cabinet member, former governor, trying to promote economic development, et cetera. and they say to myself, how did a wheat farmer in a co-op in kansas get tangled up in this? and you see, timmy and the average person out there, that makes no sense whatsoever.

they just go this is ludicrous. but most importantly what's happening out there in my personal opinion is this, you are seizing of the marketplace. people can't decide what to do next. they don't know if you're going to be regulating them, not regulating them, what the extent of the regulations or. and i think it's having a depressing impact on the whole economy, and i'm not just talking about the kansas wheat farmer. i'm talking about the entire financial markets. they are just freezing up from his fear of what dodd-frank is turning into. let me just ask you directly. don't you think we over did it here? >> with all respect, i think that the dodd-frank derivatives title was very necessary. a market that is so large does affect the wheat farmer.

that wheat farmer in can't is not going to be a swap dealer, not going to have to come into clearing or post margin on a proposed rules. if there's any doubts about the co-ops, we are working with the co-ops. because that's clear. that's congressional intent, but it is lowering risk because that wheat farmer actually lost out. they lost out when the financial system failed in 2008. and by the way, the regulatory system feel. it wasn't just wall street. it was the regular failed, too. and so that's i think is what's necessary. and appropriate. based upon a lot of public input we're going to get the rules finished and balanced. we've given more time here. i think that balance is important. but i think that this was very much appropriate because millions of americans were put at risk by a financial system that at least in part failed due

to derivatives. there was a lot of other reasons as well. >> you know in my response to that is there you go again. you just create this impression that if we're not out their regulating everything and in eliminating risk from the marketplace, that somehow the wheat farmer in kansas is going to get punished again. and all i'm asking you, and i think it's a very fair question here, doesn't it occur to you that with risk of losing this business literally forcing jobs and capital to the place of least resistance, which holy smokes, that might be europe. i mean, can you imagine? haven't we just gone too far? aren't we just crazy and out over regulation here? isn't there some place where you would just give me a little victory here and say, i think maybe we did too much year. because it looks to me like we have punished everybody for no

good reason. >> i think that congress took a balanced approach in title vii. and that there's going to be more transparency and more competition in the marketplace, in the markets work best when there is that transparency and competition in the marketplace. we are going to work closely with european regulators to harmonize, and while he can within the statute, try to harmonize and bring it together. they're certainly things that we're doing to try to interpret the statute in a way to harmonize, there's a good question the chairmen and ranking member raised about indian education and the data repositories that chairman schapiro and we have come together to try to wind away, thread the needle to lower that concerned of the europeans. so where we can we are looking to try to harmonize as best we

can. to bring alignment, but also to make sure that our financial markets are strong and that the taxpayer still stand behind the large financial institutions as they unfortunately have. and a perverse outcome of the crisis is a lot of people in marketing its even more likely that taxpayers will bail these companies out because they are even larger. they are larger as a percentage of the economy now. and we did it once. we did it in '08. and that perception and title vii helps to address that in part. >> thank you, madam chair. >> thank you. senator chambliss. >> thank you, madam chair come and chairman gensler, i'd like, good to see both of you. mr. chairman, you recall leading up the debate on dodd-frank as well as throughout the debate, you and i had tons of conversations in my office and

by telephone and in this committee room about the implication of these drastic changes in the regulation and have the impact of it was just as senator roberts, senator lugar and senator johanns just alluded to, it's going to drive business offshore. we are very concerned about that and you kept reassuring us as well as secretary geithner cute reassuring us that no, no, that's not going to happen, europeans will fall us. the asians will follow us and everybody will be happy everybody will have the same amount of business. well, i hear you defending the language in dodd-frank with respect to the over regulation, in my opinion, of the swaps and derivatives market. and the europeans are still going to come along, but be honest, the facts are not on your site. >> the letter senator lugar referred to earlier was dated back in april. it came from the head of japan's financial services agency.

in that letter he says they have a concern regarding the extraterritorial application of rules relating to the u.s. dodd-frank act. he went on to voice particular concern over registration and clearing acquirements. the letter concludes by saying that japanese institutions might have to avoid trading with u.s. institutions, exactly the concern that we had back then. last week, secretary geithner gave a speech in which he said the u.k. had set a tragic example through light touch regulation, and he warned it was a center for european and asian jurisdictions to fall in line. the united states on derivatives regulations. well, what did the europeans do? the gentleman from european regulator from britain, martin wheatley, responded in this way. to suggest that the united states sets a gold standard that of the market follow is

nonsense. i mean, mr. chairman, if we continue down the road of overregulating this industry, and certainly there was some participation by this industry and the collapse of 2008 but it was not the sole reason. there were many, many other reasons why the collapse occurred. and if we continue down the road of over regulation, it's pretty obvious the concerns that a number of us have that were attempted to be waived by you, our fears are going to come true. and our true today. we are seeing swaps and derivatives traded around the world and markets even in like panama, and we're supposed to take some confidence in the fact that because we are going to overregulate the financial markets in the united states, that everything is going to be safe and secure in the future. i'd like your comment to that. >> well, i think that what

happened in 2008 and what was addressed by congress was to ensure that the transparency comes to these markets and we lower risk in the markets if u.s. commerce is affected, directly and significantly directed is i think the words of the statute. so if it's a transaction, whether it's in panama, germany, japan and it's between germans, panamanians and japanese, that's not what is under this. but it relates to the u.s. commerce to have that transparency, to have that openness in the marketplace, and that's going, that's the core of it. we are going to work very closely with the securities and exchange commission, with the other domestic regulators like the federal reserve but also with the international regulators on this harmonization.

we share just about all of our draft rules with the europeans, and sometimes with the canadians and japanese and have them take a look and give his comments even before we have published them as for proposals. we've got a lot of constructive feedback. we meet with the most senior folks and the staff folks. with ongoing work streams with him on this. and so though we're not going to end up identical and certainly if there's a transaction in germany between gentleman parties, that's not what we're covering here. but actually related to u.s. commercial and derivatives markets. >> i appreciate your response, very also i don't think that it's good enough to provide security in the u.s. marketplace. for example, it's my understanding that 54% of the credit default swaps that have been issued by financial institutions in greece are owned by u.s. financial institutions.

we know what's going on in greece, and if the economy of greece collapses, the financial institutions increased collapse. i'm not sure what impact that will have but i would like your comment on whether or not that is, in fact, the case, what regulatory measures do you have in place to ensure that u.s. institutions don't get overloaded in countries that are on the brink of collapse like greece, and what would be the impact of the collapse of the greek economy as to our financial institutions? >> last part of it i might let the federal reserve answer, but i think that's an example why you would want u.s. regulators to be looking at u.s. banks for the credit default swaps they might write, as you say increase for any of the country. because if they are providing insurance, and that's in essence what a credit default swaps does it insures against the threat

against a default. if they'll come back in her the capital base of u.s. banks and maybe hurt taxpayers in the u.s., you would want the banking regulators and the appropriate market regulars to be looking at the. i don't know if it the 54% number is active. we could try to get back to you on that specifically, but if it were accurate i think that's an example of why you would want u.s. regulators, banking regulation particularly to be able to see into those banks and make sure there's enough capital and marching behind this credit default swaps. >> i can add we have been looking closely at exposure just banks to greece in particular for a number of months, and exactly as chairman gensler said, making sure we're comfortable with the exposures are kept in check relative to the capital and resources available. >> do you know if that number is correct? >> i don't know about the specific number you cited that we can look into that. >> are you concerned about the

amount of money that u.s. banks hold on greece issued a credit default swaps? >> we've been monitoring it closely for a number of months, and our efforts are designed to make sure that whatever exposures there are are manageable. >> thank you, madam chair. >> thank you very much. as we conclude the first panel, thank you very much for joining us today. we take oversight responsibility very seriously. and we'll continue to work with you, appreciate all the efforts and responsibilities that have been given to the new statute, and we also know that we continue to have to work together on these international issues, which are very important as we make sure that first and foremost we are focused on the american consumer, the american taxpayer, an american citizen in terms of how this system is going forward, but we are impacted. as you can tell from the questions by the committee, out

-- we are concerned about how this will proceed in the implications of it when we're involved in the challenges of harmonizing. with various countries around the globe. so thank you both very much. we look forward to working with you. >> thank you. we look forward to continue working closely with you. >> thank you very much. we will ask our second panel to come forward. very pleased to have two additional distinguished leaders with us to speak about this topic and it will have a third panel today as well. so ask the patient of the committee. we have a lot of important information to be gathered from hearing today.

>> [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] a countr[inaudible conversation] [inaudible conversations] >> good morning. we are so pleased the both of you with us this morning. let me introduce our first witness on our second panel. brooksley born, we welcome you -- looking you to the committee, appreciate your leadership over the years. recently a member of the financial crisis inquiry commission, a group tasked with investigating the causes of the

recent financial crisis. also, a former chair of the cftc under president clinton, and someone who has extensive experience with the derivatives markets and certainly the issues leading up to the crisis that our country faced. so we welcome you this morning. i look forward to your testimony. we also want to welcome dan roth. mr. roth is the president and ceo of the national futures association, where he has been for over 25 years. and we all know that the nsa is a congressionally authorized organization intended to self regulate and protect the integrity of the derivatives market. so we welcome both of you. we would ask ms. born to proceed. >> thank you very much, chairwoman stab in no, ranking member roberts, and members of the committee. thank you so much for inviting me to appear before you to

discuss the implementation of the derivatives provisions of the wall street reform and consumer protection act, effective and prompt implementation of these provisions is critically important to protect the american public and our financial system. the financial crisis inquiry commission on which i served recently issued its report on the causes of the financial and economic crisis in the united states. in that report, the commission concluded that profound failures in financial regulation and supervision, along with failures of corporate governance and risk management at major financial firms were among the prime causes of the financial crisis. the dodd-frank act addresses a number of the causes of the financial crisis found by the

commission, including the unregulated over-the-counter derivatives market. the commission in its report specifically concluded that otc derivatives contributed significantly to the financial crisis. the commission found that this enormous market was characterized by uncontrolled leverage, lack of transparency, lack of capital and margin requirements, speculation, interconnections among firms and concentrations of risk. the commission concluded that derivatives known as credit default swaps fueled the securitization frenzy and the housing bubble by encouraging investors and mortgage related securities to believe that they were protected against default, and also were used to create synthetic cdos, which were

merely bets on real mortgage security, and amplified the losses from the collapse of the housing bubble. insurance giant aig's sale of the credit default swaps on mortgage related cdos, without adequate capital reserves, brought it to the brink of failure and necessitated its rescue by the government, which ultimately committed more than $180 billion because of concerns that aig's collapse would trigger cascading losses throughout the financial system. in addition, the existence of millions of otc derivatives of all kinds, not merely credit default swaps, created into connections among a vast web of systemically important of firms through counterparty credit risk, exposing the financial

system, to contagion and helping to participate the massive government bailouts. the financial regulatory reforms in title vii of the dodd-frank act our final to strengthening the financial system, and reducing systemic risks posed by this unregulated market. however, there now appears to be a concerted effort by some large financial institutions and their trade association to prevent full implementation and enforcement of title vii and other provisions of the dodd-frank act. bills are pending in congress that would weaken or repeal the act, efforts to persuade or require agencies to issue water down regulations or to delay or to otherwise fail to fully implement provisions of the act are underway.

the cftc is threatened with funding cuts that will end their its ability to implement and enforce title vii. the political power of the financial sector is still enormous, and policymakers in congress and the executive branch must have the political will to resist these efforts to derail regulatory reform. if we as a country do not learn from the financial crisis and put in place the regulatory reforms needed to address its causes, we may be doomed to suffer future financial crises. the american people deserve better. thank you. >> thank you very much. mr. roth, welcome. >> thank you, madam chair. for the last three years or so nfa has acted as the self-regulatory organization,

the industrywide self-regulatory organization for the u.s. futures industry. it looks like we may be taken on some significant additional responsibilities in light of the cftc's dodd-frank rulemaking. what i wanted to do today if i could was spend time talking about the new responsibilities that may be coming in the face way in what we're doing to prepare for those responsibility. the first involves the registration process. the cftc has proposed that nfa healthy process for also updated and made his operatives that. frankly, for the last 25 years without the registration process for every category of registration under the commodity exchange act so this isn't anything that is particularly me to us. we've already made the changes necessary to our web-based registration system to accommodate these new categories of registration, and we can begin promising accepting and processing applications and conducting necessary background checks whenever the cftc asks us to do that. the trickier part of the process

is going to calm as the cftc's new rules under section 4-f our implement it. what the commission is proposed is that each firm would become a professionally registered as a swap meet or major swapper to spend. but there is each of the new rules kicks in the applicant would have to submit to nfa its policies and procedures that are reasonably designed to demonstrate that they will be in compliance with the new rule. and nfa will then have to review those fairly voluminous submissions in a thorough and meaningful and timely manner. so this is going to require us to really bring on additional staff from outside of nfa. we will have to redeploy some of our existing resources temporarily to handle that charge, and were going to have to develop very clear guidance for our staff to review those submissions. and will be working very closely with the cftc. but we cannot really complete that process and develop the guidance for our staff until the

rules itself are adopted in their final form. in addition to the registration process, the cftc has proposed that all swap dealers and major swapper disciplines become members of national futures association. and our responsibility our basic responsibly would be to monitor those firms for compliance with the applicable regulation. obviously for some of the major bank firms that have prudential regulars i responsibility might be somewhat more limited. in order to take on that additional responsibility we've got to the cottage three basic undertakings that i described in my written testimony. we have to revamp our governing structure at abbottabad, pakistan make sure that our board structure has enough checks and balances to deal with the issues that i described in my written testimony. we had a committee working on that. we've made progress on that. we can't complete that process until we have final definition of the term swap dealers and major swapper disappeared

secondly we have to work at a funding mechanism to make sure the nfa recovers its cost of performing his predatory function. again, we can't say for certain what those costs are. you don't know until you know. you don't know what to see how my friends walked to the door and having of you actually have. we're working under this section -- under the assange that we will have to double the size of our compliance department and generate some in the mid of $25 million a year in order to recover our costs. the third thing we have to do is just prepared to do the work itself. we have to recruit and hire and train a staff that have experience in these markets. we need to trade existing staff at nfa to perform some of these functions, and we need to prepare audit modules and programs to our staff goes out into the field, they can monitor compliance with the rules in a manner that is very effective and yet very efficient and a smart way to approach the work. we have to develop those modules. we can't complete that work again until the guidance is complete.

one final thing i want to make a third area of responsibly for nfa will involve swap execution facilities. dodd-frank imposes certain celebratory functions and surveillance responsibilities on swap execution facilities. the cftc has proposed allowing those to outsource that function to an organization like nfa it is a software been doing for the last 10 years with respect to some of the smaller contract market. we know this is a very different sort of business model. we have to revise our surveillance programs to accommodate those changes. we've been working very closely with the cftc to try to determine the exact audit trail of information we will need to perform that function and continue to work with them and the commission to try to make sure we can take on that responsibility when the time comes there is a very different time for nfa. new responsibility come away but we look forward to working very close with the commission and industry defined solutions that hopefully work for everybody. thank you.

.. >> well, as the financial crisis inquiry commission found, the statute in 2000, the commodity futures modernization act that deregulated the over-the-counter derivatives market was, we believe, a key turning point in the process going toward the financial crisis.

i think the most important reforms in title vii are the central clearing provisions and the exchange trading provisions. what we saw in the financial crisis in 2008 was an enormous market of more than $670 trillion worldwide that was not transparent. it was opaque. regulators, market participants, traders in the marketplace did not have a picture of the market itself. they did not know the amount of exposure of their counterparties transparency is provided by exchange trading. price discovery was also lacking

in many aspects of the market. there was an inability to price many transactions, exchange trading provides price discovery in a meaningful way. counterparty credit risk was what added to the panic in the fall of the 2008. it is the reason that the derivatives market froze up, that the credit markets froze up, and we were on the brink of being plunged into another great depression. central clearing provides protection against counterparty credit risk in a significant way and will make a big difference. >> thanks very much. i wonder again, with your experience at the cftc, if you might speak a bit about what is happening in terms of the debate around the budget for the cftc?

there is a lot of debate about the funding and about reducing the budgets, and a concerned that this will actually create more delays or more uncertainty or potentially more damage to financial markets if they are not able to fully address the concerns and a timely manner and move forward in a way where the implementation is done in the right way. but i wonder if you might speak to whether or not from your judgment you think that the current budget is sufficient to implement the reforms to oversee the global market issues that we have been talking about and what impact it would have on our ability to protect consumers if we were to see what they house passed, which i believe was a 44% cut in funding to the cftc. if that actually were to happen, how would that impact what we

are all concerned about in terms of implementing these changes in the right way? >> well, i believe that the cftc needs more resources in the next fiscal year than it has in this fiscal year and that it should have a substantial increase rather than any decrease. the size and resources of the cftc is not -- are not that much bigger than they were in the late 1990s when i was chair. there was a 10 year period where there was little or no expansion of staff. indeed, the staff fell below the staffing levels in the late '90s. the staffing level is now back up to a bout what i had or slightly above it, but of course

the regulated futures and options markets have grown exponentially in the 10 to 12 years since i was chair, and the responsibility for the over-the-counter derivatives market, which approaches $300 trillion in notional amount, just in the united states, united states, is an enormous new responsibilities. i think that, to be really affect the in full implementation and enforcement of the act, the cftc needs more resources. >> thank you. senator roberts. >> mr. roth, regarding the registration of swap dealers and major swap participants, in your

testimony you mentioned that the cftc's proposed rules allow provisional registration for swap dealers and major swap participants before all the rules are finalized. as each rule is finalized in compliance with the new rule by each provisional swap dealer and major swap participant, do you think this process, this provisional registration process is the most effective means of registering new swap dealers and major swap participants or could there be a better or more efficient process in your view? >> i think the provisional registration process is actually workable and that it is an opportunity to first begin the registration process while allowing the cftc two-phase in the full requirements over a

period of time. the provisional registration process provides that those have to be made. there is not a specific clock or deadline by which those submissions have to be reviewed and approved so i think there is some flexibility built into that system that will allow the registration process to occur while these rules are being phased in. so i ask without it was a fairly workable approach. >> not to minimize the effort that is going to be involved for the firms. >> i'm glad you added that last part. i notice that your testimony suggested the phased in approach to regulatory requirements for swap execution facilities. everything has to be an acronym in this town. so nfa would not have to attempt to begin to reform regulatory services for all interested staff on the same day. do you have any indication that the cftc would agree with your suggestion in the absence of a

phase-in. how would one determine which would receive your regulatory services first, thus perhaps providing a competitive advantage to the nsf? >> and his proposal the cftc proposed to avoid exactly the sort of competitive advantage that we are talking about in our testimony by providing all applications are in by certain dates would be able to continue to operate while their applications were being reviewed. i think the approach that we are suggesting with our testimony is completely consistent with that, which is again that these sets should be allowed to continue to operate while to the extent they are contracting with nfa for us to conform the service is what we face in that operation. they should be allowed to continue to operate, to avoid an artificial competitive advantage from those who were there first. so i think the commission is a

stone it's real proposal i think they are sympathetic with their view and i would certainly hope that they would be. >> i appreciate that. thank you mr. chairman. >> thank you very much. senator gillibrand. >> thank you madam chairwoman for holding this hearing and thank you for your testimony both of you. i have two areas of questions. the first is the extraterritorial application of margins. i don't know if you have seen it but a number of senators we sent a letter to chairman gensler and other agencies asking them specifically about whether they intended to have the same margin requirements on subsidiaries operating abroad in non-u.s. firms because obviously the concern is that it creates an enormous competitive edge for competitors if we have to satisfy the margin requirements in those markets. i would like your thoughts on that issue. >> well, i haven't done much

thinking specifically on that issue. you know, it was a subsidiary, a foreign subsidiary of a u.s. company that brought down aig. most of the aig financial products activities were in london, and they entered into an enormous for folio of credit default swaps without putting forth collateral, without putting forth margin, without putting aside capital reserves. so, one should keep in mind about this issue that this can threaten the u.s. pair and. it can threaten the u.s. financial system. >> can i just mention that regulatory arbitrage is always going to be an issue.

i think and chairman gensler alluded to this if you look at the cftc previous experience in dealing with regulations. if they are subject to rigorous regime that is comparable to the u.s. regulatory regime, that part 30 regime has been in place for a long time and has worked extraordinarily well i think. but a key ingredient of it is again assessing the overall comparability of regulation and to the extent that a particular jurisdiction for example has margin requirements that were far less rigid than ours, then i think we would not qualify for that sort of reciprocal recognition. >> further to that question, in the aig example a lot of their contracts were with u.s. counterparts of that is one of the reasons why and granted they had all contracts in one directions assuming the real industry would never go down in value. that his assumption that some of those contracts were with the

u.s. counterparts and under the regulatory framework that we talked about in dodd-frank, those u.s. counterparts would have capital requirements as well and 100% disclosure, so if you know enough details about the aig example, do you see those protections as being sufficient if we didn't have capital requirements for the non-u.s. agencies? >> well, aig financial products also had enormous credit default swaps commitments to european banks. i do agree with mr. roth however that international discussions, international harmonization can be a solution here. certainly when i was at the cftc, we worked very closely with european regulators to try to harmonize number one,

harmonize derivatives regulations but also secondly, to recognize equivalent regulatory schemes abroad. and we entered into a number of memoranda of understanding with european countries, regulators, that recognized that they are regulatory scheme essentially comparable. and i think that is what the united states regulators and secretary geithner are working toward today. >> i agree that is what they said and i also agree that we made efforts with memorandum of understanding, but unfortunately we have also heard from foreign regulators that they think that they are skeptical of the u.s. approach, that they don't necessarily follow the approach or they are skeptical about the pace of reform so my concern is that if we don't make it a priority, because i really believe we have to have

international harmonization because if we don't there will be immediate regulatory arbitrage and i would be very devastating to the u.s. economy. if you have billions of dollars in transactions that normally originate in the u.s. being conducted abroad, that is an enormous amount of, or less invested in the u.s. and our economy at a time when everything we are trying to do here in washington is to create a greater opportunity for job creation, to make a greater landscape for economic growth. so what should our regulators be doing now or what should the administration be doing now to make it more likely that we will have harmonization in a timely fashion, because even chairman gensler said this morning he expects the regulatory reform to take an additional six months from his july deadline. but, how do we expect to have harmonization within the next six months and what do we do to make that more like a? >> and i will ask you to be brief. >> thank you madam chairwoman. >> well, for my view and i have talked to both u.s. regulators

who are working on this, and i've met with a number of your e.u. personnel who are involved. i think there is a very good faith, strong effort going on right now and i believe that there will be adequate harmonization. of course as chairman gensler said, some countries are ahead of us. for example canada. >> senator lugar. >> thank you madam chairman. chairman born in testimony before a committee of the time the dodd-frank bill was being drafted we had many persons coming in and saying, we are just regular businesses in the united states doing manufacturing and trying to at least at some pricing of commodities, or we are wheat farmers are corn farmers or what

have you. we are not aig and we are not very sophisticated people and as a matter fact they were drawing a distinction between persons in the backroom at aig or sophisticated bankers trying to figure out how to game the system. in due course as you have pointed out brought it to a crashing hault. was there any way drafting dodd-frank in ways that recognized these more modest uses of swaps and derivatives as opposed to some defense mechanism toward the cleverest of all may still be thinking even as we are talking today about how to outsmart dodd-frank or the systems we are talking about. in other words, is the idea of transparency very important in trading on exchanges? is there any potential differentiation between the

sophisticated bankers and the regular businesses and farmers? >> well, i think dodd-frank, title vii, actually recognizes the difference with the end-user exemption, senator. you know, commercial entities that are using these contracts for hedging purposes should be treated somewhat differently, but they too need transparency. they need protection against counterparty credit risk, so i think it is very important that the market as a whole should come under the regulatory regime are ghosts be the end-user situation, in other words you believe does make this differentiation so that this is not quite so onerous to people. >> indeed. yes, not only does it allow them an exemption if they wish from

clearing, but also both the sec at and the cftc chairs have said that margin will not be imposed on those contracts as well. >> mr. roth you have described working through your organization as a great amount of additional applications. folks will be involved in -- does this create such a burden at u.s. firms that are likely to be competitively affected? in other words, have you imposed by attempting to do the right thing, the united states as we see it, substantial costs that we really are not competitive with regard to people abroad, leaving aside the desire of evasion. it would just simply be easier to do business and a country

that didn't have regulations and forms. >> to discuss that in general terms, any form of regulation imposes additional cost, and the balancing act obviously is always bad in the long-term perspective, the more well-regulated, not over not over regulated overregulate bedwell regulated jurisdictions are the ones that thrive over time and that is a very difficult balancing act and there is ours the temptation i think to move one way or the other and missed the mark i over regulating or under regulating. but clearly, additional regulation imposes additional costs. the question that everybody has to answer is whether over a long period of time those additional costs are a good investment. >> are you going to be able to identify as we have future hearing, and we certainly will, are you able to quantify those costs in metrics so we understand that this is reasonable, excessive outreach?

>> we certainly can provide updated information on what the costs are. frankly, the problem when we do rulemaking, sometimes when you are trying to do across benefit analysis it is hard to measure the impact of something you have prevented. you know how many firms didn't go under? how many customers were defrauded? there is an inherently difficult process of trying to measure in a neck at it and that complicates the process but we can certainly provide additional data as it becomes available on the costs. >> thank you very much. thank you madam chair. >> thank you. senator boozman. >> thank you madam chair. mr. roth, i want to follow up on senator lugar's line. i lot of our -- i am thinking of a manufacturing the manufacturing business that makes motors and you know hedges on the materials that they use

for that. i don't think right now that they really understand the impact of what is going to happen. i guess my question to you would be, do you think there is enough clarity at this point? is there enough information now that is a correct statement? >> senator i certainly think until the final definition of the term swap dealer and major swap participant are promulgated certain firms aren't going to know what side of the line they are on. and therefore don't know what additional costs they will be taking on are not taking on, so i think to the extent the question is how much can people assess the impact of the regulations on them i think it is hard to do that until you know what the final definitions are. >> i guess the next question then is if that is true, how can they make the necessary changes that they are going to need to do for compliance? >> and i think the approach there has to be, that is why i

think it is important to phase in regulations. a rule people cannot comply with is a bad rule and i know that from personal experience because i've written some of them. [laughter] and that is why i think the phase-in approach is so important. and that is i think the commission is consistent with that in very supportive of the concept of facing these regulations in and they have to be phased in where it takes into account both importance to public policy and difficulty of coming into compliance. firms have to have that time. use credibility if you have rules that can't be complied with. >> thank you madam chair. >> senator thune. >> thank you madam chair and i want to to thank you in the ranking member for holding this important hearing today and i appreciate the panels that are testifying. we have a lot of concerns about dodd-frank and hope to correct some of those. i think it is important that

this committee here work together to try and monitor the work that is done by the cftc, the fed and the sec to make sure these troubles with the bill, the concerns that we have are not compounded. i am a particular concerned about the limited definition the cftc is looking to end state for de minimis of final swap dealers. i understand there has been some discussion with the first panel and chairman gensler. there are a lot of elevators and local co-ops that provide for producers that are hardly the large systemically important entities that congress intended to be regulated by this law. including them in the definition of swap dealers will only raise prices for producers and limit their chances to engage and modified hedging. so, i say that just as sort of a preparatory remark, but i'm interested in knowing -- i think is was perhaps answer by the previous panel but if you could shed some light on whether you

think farm cooperatives poses systemic risk to our economy and should they be regulated? >> well, i certainly think that they should be trading in regulated markets and it is important to have the dodd-frank derivatives, reforms in place to protect them by providing more transparency, protection against counterparty credit risk, open and fair access to markets. >> mr. roth can you comment on that? >> i certainly agree with the chairman. if there is a farmer's co-op that poses a systemic risk to the economy i have not lumped into it yet. >> okay, well put. i would like to ask you a little bit about the factors the cftc

ought to consider when making the state capitol margin requirements. obviously should they consider whether an institution systemically is important and i think that is probably a given. should they consider the economic cost of tying up capital margin requirements? >> well, i think there should be some cost-benefit analysis done, but i think in terms of assessing the benefits of having margins and collateral requirements, we need to focus on what happened in 2008, when the lack of such requirement played a significant role in bringing the financial system to a standstill. >> do you think they ought to

consider the benefit of price discovery that comes from having many investors in a liquid market? >> absolutely and that is why transparency is necessary, and price discovery is best, effectuated through exchange trading. so i think the higher the percentage of transactions that actually exchange for everybody, all market participants, all commercial entities, can see what the prices are, the better. >> should and users who are hedging financial risks be given an exemption? >> and exemption from clearing? >> yes. they have been given the exemption. if it had been up to me, and it wasn't, i would have been concerned because of course they won't have the protections of central clearing, which reduces

counterparty credit risk. they won't have the advantages of transparency, which would reduce their costs. but congress and the president of the united states made that decision and i accept it. >> will the users who are not or should users were not systemically important be allowed to invest capital? >> to have less capital themselves? >> less capital, right. >> well i think you need to distinguish between capital requirements and marginal requirements. i think they need to put up margins. i don't think the capital requirements of small participants is as significant. >> final question as my time is running out but i direct this to either one of you. do you believe the limits being proposed by the cftc will raise costs for smaller investors who have money and commodity mutual

funds? >> i haven't thought of it in those terms. i do think that the position limits are critically important to stem excessive speculation which i think we have seen in a number of commodity markets. recently, we certainly saw it in a the financial crisis inquiry commission discusses this. we saw it in the summer of 2008 and it certainly made the financial syste