launch right in to a discussion about derivatives, which is coors are near and dear to our hearts -- everyone's tired species since the financial crisis. .. so you can focus on at your company's things that you do

best, and best, enervate, compete with other companies. and so, they are absolutely critical. i think that the core of dodd-frank is to bring the market benefits of transparency and risk reduction to this marketplace. it's existed for 150 years, derivatives. it started coming in this country at least in chicago, around hedging and locking in the price of grain. a farmer wanted to lock in the price at harvest time. but the swaps market place has been largely unregulated here and in europe and asia. i think that dodd-frank will give cfo the benefit of greater transparency. while avoiding you will be out of clearing, out of margin in regimes. i'm sure there will be a question or two about end user margin in. >> you're saying there will be a benefit. >> i think there will be fundamentally a benefit in the hedging market pleases will be

transparent. islamic the benefit would come in the form of transparency which would mean lower cost. >> transparency and competition. right now this is a marketplace when you enter into bilateral swap transaction most of you have a handful at most ten counterparties that you go to come and it might be three or four, and they are the largest financial institutions largely of this country, and i think that openness and competition will come into this market place one, because transparency, but number two, because for most of the market's it will have to be centrally clear, not for cfos of nonfinancial companies but the other 90% of the market that is essentially cleared, then the credit risk will be not inherent in the transaction. there will be more competition in the marketplace. >> let me ask you something. do you -- do you want to seek less use of swaps by companies? do you think that is part of the

objective here is reducing the systemic risk? >> no, i think companies and municipalities need to use whatever tools are available to them to lower the risk, and i think that swaps are a product that helped lower risk, but unfortunately the financial crisis shows they can also concentrate risk. so i would ask a show of hands how many people made their 2009 budget? so five, seven, eight of you made your 2009 budget or media made after the crisis because you reroute the budget in january. [laughter] maybe my question wasn't right. but the swaps were part of this crisis. so there is risk reducing tools and they should be, but they also concentrated in heightened risk and aig and other institutions. it's the second point, we want to look for that risk through transparency and a clearinghouse.

>> let me see a show of hands then, how many of you were aig counterparties for financial data evidence, not insurance products but for financial derivatives? anyone? so i guess the question then becomes why they would need to pay the price for banks failures to manage risk, and i know you said that -- >> they did. i think every american to a price for banks and aig's failure to manage that risk coming and we all paid a price for the regulatory system that failed. i wasn't just wall street, it was the regulatory system, and i think that's what we do. that's what a great democracy does, it comes together and says we need a stronger regulatory system. like in the 1930's when president roosevelt recommended what became the securities exchange commission, or our predecessor. it's in that i think. >> what about the concern of cash margin? it seems to us that the cftc and

the fdic have given very, very conflicting signals to release this public in terms of the need for cash margin on the part of the non-financial. >> so the question is for end-users of derivatives, not financial firms, will it be any new requirement to come in a clearing house. the answer is no, congress decided that categorically. and we've put out rules to that. the next question comes to the banks have to collect collateral , collect margin? we put out a proposed rule in april saying consistent with congressional intent. no, the banks don't need to collect marchant from and users. the bank regulators did the same thing that the added a sentence that has gotten some attention that just says that banks should be extending credit consistent with credit policies, and that's the one sentence. but that's because they are

banks. >> this a contradiction potentially at least in terms of stipulation to birds -- >> welford number of reasons i think not. one is the bank regulators and the cftc said and users are not required to post margin. number two, these are just proposals. you all have an opportunity, and i know your associations have spoken to the bank regulators on the point. so, these are just proposals. probably in the course of these things we will finalize these margin in rules toward the end of this year so we have some time to look at these. >> what's your relationship like with sheila bair? is she as difficult to get along with as she might seem to be? [laughter] >> i think that she has served this nation very well. i think we are all going to miss her. her last day is july 8th, and i consider myself honored to be with her. speak to the dhaka >> the july 16th deadline speaking of july, you raised a magic wand there, so to speak,

in terms of dodd-frank's deadline. but there are some legal experts out there who suggested deals going forward might be challenged. are you -- are you actually leaving the the rule making up to judges in this area as a result? >> well, congress gave us one year to complete the task of writing rules along with the securities and exchange commission for this 300 trillion-dollar market place. very proud of the cftc, with a little over 600 people, has substantially completed the proposal phase. we did that in about nine months. so, you keep budgets and time budgets and completed the proposals in nine months we are not going to complete the final rules in 12 months, the we want to get these right. we want to hear from the public. we've got an 21,000 comments on these proposals. and we are going to take our final rules throughout the rest of this year working internationally working with the

sec. so it's brought us back to the question what happens on the one-year anniversary? and so we've used our xm authority to say as to basically what happens on the one-year anniversary is that everybody, the marketplace, gets to wait until we finalize the rules. that's roughly what we said through this exempted authority. and i think it works, but we put that at the public comment and you or your associations might write in in the next week to say if we missed something. >> legal challenges are not an issue you don't think? >> with regard to this xm to order, we think it's quite strong, but we live in this great democracy many things will be taken to court, and that's the nature of our society, and i were approached the rule of writing is to do what congress said to do, not to over read the law or under. there are many people who come in on either side who might say

can you shave it here, can you do something less, just clarify my company out of this. or there are some people who push the other way. we are just trying to get in the middle. >> given the complexity, and the fact is it seems we can't define at this point with a swap is -- >> we know what is what is, if there's anybody in the room that doesn't know what an interest rate swap means? [laughter] congress went on for a significant number of pages to find what a slot is. they then said that the sec and cftc through the rules should, quote, further define it. so we ask the public how should we further define it, and we got 80 comments letters that read like legal briefs. and then we put out 300 page document to further define it, but i -- >> what about the dealer and end user? >> congress was pretty specific as to what a dealer is. it's somebody that is making

markets, holds them in the sort of risk management techniques. we put out a joint proposal. i don't know the other companies represented here. there may be one or two dealers because there may be one or two banks in the room, but i suspect nonbanks in the room are not dealers but again, i don't know all the companies. if you have five or ten or even 15 counterparties in a swap market, pretty good chance you're not a dealer. if you have a few hundred counterparties in the swap market, it's possible you might want to read the statute. i mean, it may be that, you know, you're helping others to risk management. >> we put chuck on the spot if you don't mind. what do you make on the intent of your organization? >> and chuck, you are with? >> bank of america. >> welcome as you might expect, we are monitoring all of the rulemaking across dodd-frank pretty closely, and have views on each and certainly the area

of the cftc. we are watching that. we think it will be important to our business, but not overly disruptive. >> as you mentioned the profit at 30 million? >> the news report this morning so it was on my mind. >> wall street makes on derivatives you figure it would decline to 27, and so -- >> no, i don't know what it would decline to. [laughter] i mean, what we know is the derivatives market place today, the swaps market place is concentrated, its competitive but concentrated along a large financial institutions. dodd-frank modestly shifts the needelman formation. why is that? because congress what markets are cedar and more efficient with that transparency. in a number of ways. after the transaction, you'll

want to get real-time reporting of transactions. that is the new law post trade transparency. you get that on various screens and in various ways. pre-trade, some of the market will come to execution platforms, not the dominant part of it, but it has to be cleared, it has to not be a block trade, it has to be between financial institutions. but some portion of the market will have some pretreat transferred and see where the buyers and sellers meet on the platform. those two forms of transparency will modestly shift some of the information. i don't know what will happen to the wall street profits but it's not a goal of ours to rise them, lower them. that's not -- mabey chuck and others think it might be, but it's not. they will make it up in volume. [laughter] but i feel that when you shift the intermission a vantage markets work better. you sort of democratize the market's a bit more.

it will be more open and competitive. the clearinghouses will be more open. more people. the smaller banks might compete for corporate america's business with some of the larger banks and so forth. >> given the complexity, the complexity of the challenges involved here in meeting that july 16th deadline, i can't help but wonder whether -- especially for companies that are just hedging -- whether, in fact, you know, with swabs, whether it wouldn't have been preferable for congress to have in fact drawn a line between speculating and hedging by banning naked swaps. wouldn't have been able to cut through the cheese on this issue by doing that? >> well, hedgers and speculators meet in the marketplace, so rolling all the way back to the 1860's, when the farmer wanted to lock in a price at harvest time, that farmers hedging and the person on the oversight who

is going to guarantee the price at harvest time, is often a speculator. today, 150 years later, it can be one of these companies want to lock in an interest rate or your exporting goods and want to lock in the value of the aig versus the dollar and there is uncertainty in europe and you want to lock in. on the other side of the market there may be a speculator. our role as market regulators is to ensure when the hedgers and speculators meet its transparent, free of fraud and manipulation, that its competitors and its open. and that is as a regulator we have enough resources in our funding is strong enough to have a call on the beach. but it's not -- its to allow those parties to meet the free of fraud and abuse and in the commodity there is in the markets have a commodity markets where we are supposed to set the position limits to protect

against some of the burdens that might come from excessive speculation. >> well, i guess in the situation you just described, one party had the economic interest, so that would be -- would not be a naked swap. so i guess my point is it seems to me it could have been a clean solution to all this. what part of the original proposals in the legislation of course didn't make it through. >> yeah, reminding me of the great debate in the 17 fifties. [laughter] i wasn't around but king george ii have the debate whether an insurable interest and then they said you know what happened is there were a lot of ships going down, and -- >> that left the station in the u.s. law and told the cftc, if i'm not mistaken -- >> it still exists on paper on

humans and homes and things like that. it doesn't exist on credit redefault swaps on companies, and that's where this debate, not the securities and exchange commission was given a lot more authority to police for manipulation and fraud in a crowded fraud swap market to even position limits if they chose to. those authorities are moving to the ftc. >> let me ask another show of hands, and this is on the basic question of whether or how many of you in this room will actually reduce your use of swaps as a result of dodd-frank. anyone, any show of hands? mabey the concerns are being expressed in the media are perhaps overstated. >> i think that -- i think we've got a lot to do at the cftc but we are committed that we need to

move in this market to be safe. we get a lot of flexibility from congress to save the implementation and the cost and lower risk, but also the way is on the goal that end-users and what's usually called the byside, pension funds and asset managers and so forth continue to be able to hedge complex risks and standard risk and to get more transparency and benefit from markets that are opening competitive and transparent. i think that is core of dodd-frank and learning risk of the big financial when institutions so that they use on their standard transaction the benefits of what is called the central clearing. that's the goal we are committed to. >> let me ask a personal question. [laughter] you were known when you're at

goldman and as a staunch believer in free financial markets, obviously you are seen as a proponent of strong regulation now. is the change simply a matter of what had you are wearing or was the financial crisis an inflection point so to speak on your road to damascus? [laughter] >> i like your use of words, believe in markets. i believe the regulated markets work fast that some of the great reforms of the 30's or even later reforms start in the merger and acquisition, and i remember often a board of directors would say for their lawyers would do we have to do? we have to take that high your price or can we go with these people we like over here and the lawyers would say no, delaware courts and securities law we say you have to consider come you don't necessarily have to take it but you have to consider that

higher price. so those rules in the road actually were good for shareholders and investors. so, i think there's a lot of the markets are what this nation survives on, but it's well regulated markets, and i do think that the crisis highlighted the we had a fast market, the swaps market. there's $20 of swaps for every $20 of economists and so it's 300 plus trillion dollars of swaps. >> and its leverage. >> that's what? >> that's leverage. >> that's leverage, a lot of lowering of risks for companies, but it's also concentrating of risk in the financial system. so i think the crisis certainly informed me that we should get some of these transparency and risk reducing that we already have in the securities market and futures markets. >> there are i think i heard reports may be just rumors that you're also parting soon or is

that incorrect? >> i'm just terrifically honored to be in this job. number two, there's an awful lot more to do. we have a lot more to do. the royal riding, we are restructuring the agency. i'm in this job as long as president obama once the in this job. it's a great job. it's an honor. >> we can open up for questions now. >> that we ask a question, chairman, because we were talking about human-resources a minute ago. i have a human resource question for you. if what happened in 2007, 2008 was partly a failure of regulation, we seem to send the best and the brightest in this country to wall street, in part to figure out how to get around the regulators. do you have the people that you need? no one questions your qualifications for the jobs you hold, but do you have the people that the cftc to really keep on top of this incredibly intricate

as you point out huge market and you've got the kind of people you do on the other side trying to figure out how to trick you? >> first, let me thank you for that wonderful validation right in the middle. >> we are a small agency about 675 people which is just slightly more than we were in the 1990's. we peaked in 1993 or '94 with 635 people and then shot all the way down to about 430. so we were an agency that was shrunk and we have just gotten back. the futures market that we've traditionally overseen has grown five or sixfold in that timeframe. and now we are being asked to take on a market that is seven times the size, $320 trillion based on control of the currency figures. i say, like if we are -- if we were policing louisiana we just got alabama, mississippi, missouri, omaha, i don't know,

seven states in the south. so no, we do not have the resources. we very much need more. the president asked for about 50% more funding. we are 202 million-dollar agency funding. we only spend about 37 million a year on technology. i suspect many of the firms in this room spend far greater than that, and so the answer is no, we do not. very talented people but that's not enough people. >> i'm asking about the number of people but also the quality of the people. can you get people who -- this obviously as we saw a very complex market. people are playing very intricate games. can you get the quality of people that can match up with -- to get the players on the other side? >> we get very talented people. and it might be a sign of the rough economy and the uncertain economy. the post for jobs, and we often get more than 100 resume is proposing.

and sometimes multiple to that. but there is no doubt when you pay government pages, you know, that's different than wall street wages by a country mile. so, there's some difference is there. but we get very good people. it's mostly about resources to meet >> why don't we open it up to questions, comments in that and identify yourself to the chairman, please. >> chuck wallace, advisers. i hear all of these clearinghouses. how will the american held and managed to credit risk of the bank's? >> clearinghouses exist in this country since the 1890's and the act as standing between a by year and a seller of a contract that will be outstanding for months or years to harvest time. what they do is if one of the

plots will complete the transaction and how do they do that? there's two key things to get one is every single day devalue the transactions based upon marketplace pricing. so it's a daily valuation. and never to come and collect collateral for margin that which a lot of corporate in users grow, not me i don't want to do that. so by daily valuation and collecting margin in case one of those to party defaults, then they can unwind the trade. what's critical is that the clearinghouses stand in the middle on transactions that have available pricing, reliable available pricing because if you can't price the asset maybe it shouldn't go on to the clearinghouse and that there's some of liquidity you can actually online to the position. there's international standards. this is actually one area that's a pretty good set of international standards, rule writing is consistent with of those standards. we've been regulating clearing

houses for decades. the largest interest rate swaps clearing house has been registered with us for ten years. it's out of london and we co regulated with the u.k. regulators that it has close to $300 trillion of interest rate swaps and voluntarily than the mandatory things will come later. does that help? >> does it change the margin requirements? >> we've just gotten that in dodd-frank. we haven't had it until dodd-frank, but dodd-frank says we can set policies and procedures to protect the safety and soundness of the clearing house. it goes to the safety and soundness of the clearing house. it does not go to trying to affect -- we are not a pricing agency and some people asked about margin regimes in terms of leverage and margin in for what it might do to the market's. dodd-frank was free careful and clear it's just about the safety

and soundness of the clearinghouse for safety and soundness of the dealers. and they were just supposed to do the policies and procedures and then they set the individual margins. and we've done that. we propose a rule last december and we are hoping to finalize that role this fall. >> other questions or comments? yes. >> our business is very physical at the basic level. we buy natural gas we burnet and produce electricity, but we also serve a customized physical product and the use financial swaps to head our position. sometimes we have to take both sides of the trade because the market knows our natural position, and if you read the rules, there is an argument we could be viewed as a dealer even though there's an end user

exception. how do you view that position and what is your take on that? >> i don't know the business well enough so i don't think on camera and you would want a determination as to whether you are a swap dealer. but most commercial enterprises, the vast majority are not swap dealers. some within the physical commodity area deal with what's called for words. we do not oversee four words come and congress clearly set out to. that is where somebody actually has an intent to deliver electricity in your case. but if it's only financially settled, it's never an intent to deliver it may be what is called a swap under the statute. and then move to a proposed rule we put out relates to other make markets, with 30 or accommodating demand of others instead of fulfilling others hedging but accommodating

demand, and i don't know. i sometimes think of it as if another electricity company is accommodating the demand and has hundreds of sort of downstream folks it's possible you should come in and see the stuff and comment on the role. the one area that this has come up and has sort of been a very constructive part of dialogue is electricity companies. a lot of what you do is really forwards, but there may be this portion, and we've asked a lot of questions and we are getting a lot of feedback. >> [inaudible] >> good. good. >> over here. we are and independent oil refining marketer. there's a lot of talk about the effect of oil prices on the economy and the economic

recovery. there's also a lot of talk about the affect the speculative traders have on the markets for markets perhaps on the price of oil and poured gasoline unnecessarily or replaced not tied to the supply and demand. can you comment on the efforts to limit speculative trading in these markets? >> the markets we oversee our markets where hedgers and speculators meet in the market, and we back in the 1930's congress gave us the authority and actually directed us to set limits on the position of the key leaders in the market, so i guess the words were to eliminate or prevent the burdens that might come from excess of speculation. congress didn't do any more defining. that was kind of the court. in dodd-frank that was extended to the swaps market, and then the definition of the exemption, exceptions for the boehner site

hedgers' probably like yourself got narrow particularly with the swap dealers would have a hard time being a bonified hedger. as we proposed rules in january this year. we got over 12,000 comments. we are looking to try to finalize that rule. i think it's critical that we do this. congress has mandated that we do this. and we are working on that but with 12,000 comments it takes a little bit of time. ..

the president and 19 other heads of state came together in september 09. there will be mandatory central clearing and mandatory trading as appropriate and higher standard capital for standardized swaps. europe is moving forward. i think we'll have largely consistent but not identical regimes. >> thanks, chairman gensler. thank you very much. >> thank you. >> combing up in half an hour, remarks from sheila bair, outgoing head of the federal deposit insurance corporation. she is speaking at the "national press club" about her time as chairman and the enactment of dodd-frank financial regulation law which granted the fdcic more large, systematically important financial institutions. we'll have that live for you at 1:00 p.m. eastern here on

c-span2. earlier today president obama traveled to carnegie mellon university in pittsburgh. there he launched the advanced manufacturing partnership, a national effort to bring together industry, universities and the federal government to invest in emerging technologies that they hope will create manufacturing jobs. this is half an hour. >> ladies and gentlemen, the president of the united states. [applause] >> hello, hello. thank you very much. thank you.

thank you very much. everybody please have a seat. thank you. hello, pittsburgh. it is good to be back. thank you senator casey and mayor ravenstahl and county executive dan odordano, jack wagner and for all of you having me back here at carnegie mellon. it is good to be here and it seems like every time i'm here i learn something. so for those of you who are thinking about carnegie mellon, it is a terrific place and you guys are doing just great work. i just met with folks from some cutting-edge companies and saw some of their inventions here in your national robotics engineering center. but that's not the only reason i'm here. you might not know this but but one of my responsibilities as

commander-in-chief is to keep an eye on robots. and i'm pleased to report that the robots you manufacture here seem peaceful. [laughter] at least for now. this is a city, that knows something about manufacturing. for generations of americans it was the ticket to a middle class life. here and across america's industrial heartland, millions clocked in each day at foundries and on assembly lines to make things, and the stuff we made, steel, cars, planes, was the stuff that made america what it is. the jobs were good, they paid enough to own a home, to raise kids, send them to

college, to retire. there were jobs that told us something more important than just how much money we made, or in our paycheck. these jobs also told us that we were meeting our responsibilities to our family and to our neighborhoods in building our communities and in building our country but for better or worse, our generation has been pounded by wave after wave of profound economic change. revolutions in technology have transformed the way we live and the way we work. businesses and industries can relocate anywhere in the world, anywhere that there are skilled workers. anywhere that there is an internet connection. and companies have learned to become more efficient with fewer employees. in pittsburgh you know this as well as anybody. steel mills that once needed

1,000 workers now do the same work with 100. while these changes have resulted in great wealth for some americans and have drastically increased productivity, they have also caused major disruptions for many others. today a high school diploma no longer garp tees you a job. over the past 13 years about a third of our manufacturing jobs have vanished. meanwhile the typical workers wages barely kept up with the rising cost of everything else. and all this was even before a financial crisis and recession that pound pounded the middle class even more. now we've made some tough decisions that have turned our economy in a positive direction over the past two years. we created more than two million new jobs in the private sector over the past 15 months alone, including almost 250,000 in

manufacturinging. but we still have to confront those underlying problems. they weren't caused overnight and we won't solve them overnight. but we will solve them. and we're starting to solve them right here in pittsburgh and right here at carnegie mellon. [applause] and by the way that's why i ran for president, not just to get us back to where we were. i ran for president to get us to where we need to be. i have a larger vision for america, one where working families feel secure, feel like they are moving forward and they know their dreams are within reach. an america where our businesses lead the world in new technologies like clean energy. where we work together, democrats and republicans,

to live within our means, to cut our deficit and debt but also to invest in what our economy needs to grow. world class education, cutting-edge research, and building the best transportation and communications infrastructure anywhere in the world. that's what it is going to take for us to win the future and winning the future begins with getting our economy moving right now. and that's why we're here. carnegie mellon is a great example what it means to move forward. at its founding no one would have imagined that a trade school for the sons and daughters of steelworkerses would won day become the region's largest, one of the region's largest employers and a global research university. and yet innovations led by your professors and your students have created more than 300 companies and 9,000 jobs over the past 15 years. companies like carnegie

robotics. but more important than the ideas that they have incubated are what those whyeds have become. they have become products made right here in america and in many cases sold all over the world. and that's in our blood. that's who we are. we are inventers and we are makers and we are doers. if we want a robust, growing economy and we need a robust, growing manufacturing sector. that's why we told the auto industry two years ago, that if they were willing to adapt, we would stand by them. today, they're profitable, they're creating jobs and they're repaying taxpayers ahead of schedule. that's why -- [applause] that's why we've launched a partnership to reach, retrain workers with new skills. that's why we've invested in

clean energy manufacturing rand new jobs building wind turbines and solar panels and advanced batteries. we have not run out of stuff to make. we've just got to reinvigorate our manufacturing sector so that it leads the world the way it always has, from paper and steel and cars to new products that we haven't even dreamed up yet. that's how we're going to strengthen existing industries. that is how we're going to spark new ones, create jobs, grow the middle class and secure our economic leadership. and this is why i asked my council of advisors on science and technology. what we call pcast, to look at the state of american manufacturing and the promise of advanced manufacturing. my concept of advanced manufacturing is not complicated. it means how do we do things better, faster, cheaper, to design and manufacture

superior products that allow us to compete all over the world. and so these very smart folks, many of whom are represented here, wrote up a report which is now up on the white house website. but we didn't want to just issue a report. we wanted to actually get something done. so we've launched an all hands on deck effort between our brightest academic minds, some of our boldest business leaders an our most dedicated public servants from science and technology agencies, all with one big goal. and that is the renaissance of american manufacturing. we're calling it amp, the advanced manufacturing partnership. it is made up of some of the most advanced engineering university like carnegie mellon, georgia tech, stanford, berkeley, michigan. some of our most innovative manufacturers from johnson & johnson to honeywell, stryker, to

allegheny technologies. i've asked susan hatfield, the president of mit who is here. there's susan. [applause] and andrew livoris, the ceo of dow chemical. [applause] to lead this partnership and to work with my own advisors on science, technology, and manufacturing. throughout our history, our greatest break throughs have often come from partnerships just like this one. american innovation has always been sparked by individual scientists and entrepreneurs, often at universities like carnegie mellon or georgia tech or berkeley or stanford. but a lot of companies don't invest in early ideas because it won't pay off right away and that's where government can step in.

that's how we ended up with some of the world-changing inno he visions that fueled our growth and prosperity and created countless jobs. the mobile phone, the internet, gps, more than 150 drugs and vaccines over the last 40 years, was all because we were able to in strategic ways, bring people together and make some critical investments. i'll take one example. the national science foundation helped fund stanford's digital library project in the 1990s. the idea was to develop a universal digital library that anybody could access. so two enterprising ph.d students got excited about the research that was being done at stanford. this is funded by nsf. so these two ph.d students, they moved from campus to a friend's garage and they launched this company called google. and when the private sector

runs with the ball, it then leads to jobs, building and selling that is successful all over the world. this new partnership that we've created will make sure tomorrow's breakthroughs are american breakthroughs. we're teaming up to foster -- [applause] we're teaming up to foster the kind of collaborative r&d that resulted in those same early discoveries and to create the kind of innovation infrastructure necessary to get ideas from the drawing board to the manufacturing floor, to the market more rapidly. all of which will make our businesses more competitive and create new, high-quality manufacturing jobs. now to help businesses operate at less cost, the energy department will develop new manufacturing

processes and materials that use half as much energy. that will free up more money for companies to hire new workers or buy new equipment. to help businesses discover, develop and deploy new materials twice as fast we're launching what we call the materials genome initiative. the invention of silicon circuits and lithium-ion batteries made computers and ipads and ipads possible but it took years to get those technologies from the drawing board to the marketplace. we can do it faster. to help everyone from factory workers to astronauts carry out more complicated tasks. nasa and other agencies will support research into next generation robotics. and i just met with folks from a local company, red zone robotics, who make robots that explore water and sewer pipes and i have to say, it is fascinating stuff. when you watch the robots is about this big. it can go through any sewer

system. it's, operated remotely by the municipal worker. it has got a camera attached so it can film everything that it is seeing. it then transmits the data that goes into a citywide database and can enhance the productivity of these workers by three or fourfold and help the city make even better decisions potentially this can save cities millions in infrastructure costs. companies also are training new workers to operate the robots and analysts to pour through the data that's being collected. to help smaller manufacture you ares compete federal agencies are working with private companies to make powerful, often unaffordable modeling and simulation software easier to access. and i just saw an example. a few years ago proctor & gamble teamed up with the

researchers at los alamos national labs to adapt software developed for war to figure out what's happening with nuclear particles and they're using these simulators to dramatically boost the performance of diapers. yes, diapers. folks chuckle but those who have been parents are always on the lookout for indestructible, military-grade diapers. [laughter] [applause] so, but, here's what's remarkable. using this simulation software that was developed in los alamos, proctor & gamble has saved $500 million, half a billion dollars, as a consequence of the simulator. now through the new partnership that we're setting up, proctor & gamble

is offering its powerful fluid dynamic simulator to smaller manufacture you ares and is doing it for free. now this is not just because proctor & gamble wants to do good. it's also, they have got thousands of suppliers and they're thinking to themselves, if we can apply this simulation technology to our smaller suppliers, they will be able to make their products cheaper and better and that in turn will save us even more money and it has a ripple effect throughout the economy. starting this summer federal agencies will partner with industries to boost manufacturing in areas critical to our national security. i just saw an example backstage. the defense department scientists, we call it darpa, the folks who brought us stealth technology and by the way, who brought us the

internet, wanted to see if it was possible to design defense systems cheaper and faster. so they found a small company in arizona called local motors and they gave them a test. you have onemont to design a new combat support vehicle and you've got three months to build it. their ceo, jay rogers, is here today and as an ex-marine who lost a couple of buddies in combat, understood the importance of increasing the speed and adaptability and flexibility of our manufacturing process for vehicles that are used in theater. so local motors solicited design ideas on their website. chose the best out of 162 it received, built and brought this new vehicle here ahead of schedule. we just took a look at it. not only could this change the way the government uses your tax dollars, think

about it. instead of a ten-year lead time to develop a piece of equipment, with all kinds of changing specs and a moving target, if we were able to collapse the pace at which that manufacturing takes place, that could save taxpayers billions of dollars, but it also could get products out to theater faster. which could save lives more quickly. and could then, be used to transfer into the private sector more rapidly, which means we could get better products and services that we can sell and export around the world. so it's good for american companies. it's good for american jobs. it's good for taxpayers. and it may save some lives in places like afghanistan for our soldiers. so that's what this is all about. as futuristic and, let's face it as cool as some of this stuff is, as much as we are planning for america's

future, this partnership is about new, cutting-edge ideas to create new jobs, spark new break throughs, reinvigorate american manufacturing today, right now. not somewhere off in the future. right now. it's about making sure our workers and businesses have the skills and the tools they need to compete better, faster and smarter than anybody else. that's what we're about. we are america and we don't just keep up with changing times, we set the pace for changing times. [applause] we adapt, we innovate, we lead the way forward. it's worth remembering there was a time when steel was about as advanced as manufacturing got. but when the namesake of this university, and drew carnegie, an immigrant by the way, discovered new ways

to mass-produce steel cheaply, everything changed. just 20 years after founding company, not only was it the largest, and most profitable in the world, america had become the number one steel-maker in the world. now imagine if america was first to develop and mass produce a new stream -- treatment that kills cancer cells but leaves healthy ones untouched? or solar cells. brush onto a house for the same cost as paint? flexible display soldiers, flexible displays that soldiers can wear on their arms or a car that drives itself? imagine how many workers and businesses an consumers would prosper for those break throughs. those things aren't science fiction. they're real. they're being developed and deployed in labs and factories and on test tracks right now.

they sprang from the imagination of students and scientists and entrepreneurs like all of you and the purpose of this partnership is to prove that the united states of america has your back, is going to be supporting you because that's the kind of adventurous pioneering spirit we need right now. [applause] that's the spirit that has given us the tools and toughness to overcome every obstacle and to adapt to every circumstance and if we remember that spirit, if we combine our creativity, our innovation, and our optimism, if we come together in common cause as we've done so many times before, then we will thrive again. we will get to where we need to be. and we will make this century the american century just like the last one was. thank you very much, everybody, god bless you and

god bless the united states of america. [applause] ♪ ♪ .

♪ . ♪.

♪ . ♪ .

♪ .

muzak ♪ ♪ ♪ ♪ ♪ ♪ ♪ ♪

♪ ♪ ♪ ♪ >> aymara tamarac batch of >> live now to the national press club for remarks by outgoing chairman of the federal deposit and corporate separation , sheila bair future reflects on her career for the nation's financial sector and her work to bolster public confidence and system stability. this is live coverage on

c-span 2. >> visit our website at press.org and donate to programs through the national journalism library as well. on behalf of our members worldwide, the two baltimore speaker today as well as those attending the event at the table. our table does include is a very speaker as well as working journalists who are caught members and we'd like to note the members of the general public are here today as well. the not necessarily evidence of the lack of journalistic objectivity if you happen to hear positive. i'd also like to welcome her c-span on public radio audiences, legends features at a member weekly broadcast in the national press club available for free download on itunes. you can also follow the action on twitter using the hash tag pound npc lunch. after a guest he have time permits. now it is time to introduce the head table -- and i would ask each of you to stand up or

easily as your is announced. we begin from there right. skip calton hiser the financial administrator, also for the international verse ossetian who went to law school with our guest beeker today. ron oral is a banking reporter at dow jones marketwatch. mark schatz junior, reporter for investment news and is also the chair of our npc publications committee. jennifer schomburg or is a staff writer with kiplinger's personal finance, housing a member of the club and were thankful for that. richard brown is our guest speaker's chief economist. the rain willard is a reporter covering housing and financial service policy for bloomberg news. scott cooper is here and among the other things he does, he is has been a very guest speaker today. [laughter] skip over the podium come out come out and pitch of the stature of the nbc's akers committee and reporter for bloomberg news.

we perryman works for "the associated press" it is the speaker member who organized today's event, did a fantastic job. thanks to much kamali. i was a viet reality guest speakers chief of staff joe adler is reporter for american mainstream media. 10 on them editor in charge for thomson reuters. aaron kirch is dirt cheap for the nightly business report. jim parenti is associated tenet torched on university. now you can get a round of applause to our head table. [applause] our guest speaker today at the 19th chairman of the federal deposit insurance corporation. her term ends on july 8, just two weeks from today and i am told this is the last majors beachy will give. we're grateful she's choosing the national press club today that.

she's often described as outspoken, aggressive, forceful, direct, candid, compassionate, optimistic and realistic yet generally wary of politics. appointed by president bush in 2006 comers started the fdic was generally uneventful and then came the financial crisis that pushed her onto center stage. in 2008 in 2009, "forbes" magazine named her the second most powerful woman in the world. in 2000 day she tapped "the wall street journal"'s 50 women to watch list. in 2009, she was named one of time magazine's 100 most influential people and received the john f. kennedy hubert humphrey writes the word. in 2010 she was featured on the cover of "time" magazine as one of the new share it as one of the new share it as one of the new share it. she is a kansas native who grew up in the small town of independence. just so happens 12 miles from coffeyville, our high schools

were archrivals in sports and everything else but that's another story. our guest speaker worked as a bank teller in college, later in the 1970s she was an instructor at the universe of arkansas law school and as member in the u.s. department of health education and welfare. to meet anyone one which occurred by bob dole to work on his washington staff or she was deputy told in counseling research for the campaign pitch end of the decade with the new york stock exchange. in 1990 she ran for public and congressional seat in kansas the last way fewer than 1000 votes, trying attention during the campaign by writing the bicycle around the district. she served as commissioner and acting chairman of the commodities future trading commission for government relations at the nist for financial institutions. before joining the fdic she taught about financial regulation at the university of massachusetts. our guest speaker did play a key role in managing the reaction to the two and a financial meltdown

and was praised for foresight in issuing warnings about the dangers of wall street investment in subprime loans. system stability implemented programs that provided temporary liquidity measures and guarantees to unfreeze credit market and increased deposit insurance limits. during her tenure, the ftse closed the most thing since the savings and loan crisis. she led the fdic resolution strategies to sell failing banks to healthier institution, curbing insurance from office. under her leadership the fdic ratepayers in the best places to work in government for 2009 and received a nonqualified or claim 2010 audit from the gao, which are office calls remarkable considering demands on the agent need for rapid expansion, lots exposure involving over 350 failed banks representing over $640 billion in assets. this year our guest actor was in fact did in the university of kansas women's hall of fame and

received the distinguished award from the native sons and daughters of kansas. she also received several honors for published work on financial issues and has written two children's books on financial fans. she received a bachelor's degree from the university of kansas and got her jd from the deep school of law. she and her husband scott have two children. we think are accepting our invitation to speak in offering parter remarks. please offer a warm national press club welcome to fdic chairman, sheila bair. [laughter] [applause] [applause] the mac thank you. that was a nice introduction. i spoke recently to my daughter's elementary school and the principal introduced me and we went through a lot of that, especially the number two in the

most powerful ring cavewoman in 2008 in 2009. i started making my bill in banks and compound interest amounting i like to talk to young pete labatt and i started to take the question are the first was who was number one. so they are tough to impress these days. it was angela merkel if you were all wondering. and i did drive to 15 this year behind lad gaga. i think the banks are healing, for surely not as much as i like. him going to ascribe that to good news is life: in my power status. before i would like to begin the speech, i'd like to thank some of the staff here with me. rich brown in particular, chief economist who has also been drafted repeatedly as chiefs a traitor was done wonderful work and had a big can of the speech today.

i do want to thank him for this and all the wonderful work you do in the past five years. an integrated many of you know are ahead of public affairs is out here somewhere, who is just again been with me the whole five years and done such a fabulous job in his deputy, michelle heller. just to be arielle, chief of staff who i drafted who work for me on my treasury days and again has been on my side through what has been an incredible experience. and finally may have been scott cooper who has been supportive of everything, including obligations that i was not there is much as i wanted to be in helping the speech writing on more than one occasion. he's a wonderful editor as well. and deeply honored in thank you for inviting me here to be at the national press club to deliver my last speech of fdic chairman. as they close on my term, you cannot reflect on charges we have faced over the last five years and some of the lessons we

have learned in the process. our nation has suffered its most serious financial crisis and economic downturn since the great depression. the aftereffects will be filled for many years to come. their many causes of the crisis, some i will address my remarks today. in my opinion, the overarching lessons of the christ is the pervasive short-term thinking that helped to bring it about. short term is and is a serious and growing problem of both business and government. i would like to develop my remarks to explaining what i mean by this and discussing how i think it plays into the policy challenges arising from the crisis. what is short-term of them in one of the devise click short-term sn requires two but we all share to unduly discount outcomes that occur far into the future. my decision-making is a familiar concept. it's further into patterns of inconsistency and economic

decision-making. investors do not escalate over a value of short-term payoffs and pass up investment opportunities that could be done much better off in the longer-term. too much short-term thinking can be very costly. as a market market failure that leads to investment and valuable projects that long payout. part of our tendency toward short-term as it appears to be biological. while the mathematical sense in our brain makes tearful calculations of risk and reward over time, the more primal emotional parts of our brain tend to focus on the here and now. which part of the brain do you think becomes active in research subjects are presented with real life decision involving risk and reward. you guessed it. it's a more primitive system which understands creed and is less focused on long-term consequences. short-term is some also grows out of the institutional rules that govern our behavior. on executive compensation varies according to current year

earnings are stock prices or create incentives to maximize short-term result, even at the expense of longer-term considerations. short-term incentives can be on the chain of accountability if an investment center steve is some volume and i am very set as often as with current performance, the path of least resistance is to compensate managers based on current results. ask yourself if this investment fund as part of your 401(k), wouldn't you prefer a venture fund manager be compensated at least in part based on long-term performance. i probably don't need to tell you that short-term and some also holds weight in the realm of politics. the virtue of our electoral process is the incumbent space market discipline at regular intervals. the drawback is that those facing reelection have little in tempted to take a longer view with the issues and. the voting public doesn't regard the runway federal debt in their highest concern, elected leaders

probably won't either. it's a particular challenge under a system to commit to projects that will pay off long after they have left office. americans are naturally cautious when it comes to the ability of government to direct capital to long-term investments with uncertain outcomes and yet we can easily think of many examples were farsighted government investments have yielded large returns for generations to come. think of the fed of land that criminally preserves the beauty and creator of our national landscape. government investments have linked our company through the interstate highway system in the internet. as a nation with investments that have allowed us to defend the peace tonight for the moon, eradicate disease in the human genome. while we can clearly see wisdom of those investments in retrospect, there many areas of our national life of public and private were short-term sn appears to be on the rise. the average holding period on

the new york stock exchange fell from seven years in 1942 just seven months by 2007. the average tenure of the parties he has declined by nearly 30% between 1995 and 2009. not surprising not, ceo turnover was to be highest among companies whose stock price performance lagged industry. the short-term sms also technology. we may simply have more latitude to express their innate short-term preferences only one dead. for example, a well-developed consumer debt market provides more options for households to act on their inclination to borrow from the future to meet short-term needs. as we know, credit cards can be either extremely useful are highly distraught with tools, depending on how their use. well-developed capital markets have expanded the opportunities for financial come face to an

returns from transaction fees and trading activities as opposed to the patient work of lending and long-term investing. the term patient capital seems quaint as hedge funds and high trading finally unless you've been too busy updating your facebook status come you're probably already in for the short-term is and is also driven by informational fact there's peer in a 24 hour news cycle we are costly bombarded with information of action, not patients. the guilt and pressure is way executives in advance chairs the constant flow of information only heightened their possession. the short-term performance at the expense of longer-term goals. at this point you may be asking what all this has to do with the financial crisis in the answer is plenty. as has been the case at most previous crises come a central cause of this crisis was excessive debt and leverage across our financial system. the decade leading up to 2006, when u.s. home prices reached their peak, total u.s. mortgage

debt increased by 180% and average u.s. home prices rose almost 190%. rising home prices prompted temporarily invaded were relaxed underwriting standards that traditionally insured the buyer could repay the loan over time. most of the subprime loans made at the height of the boom and post a large upward adjustment in the interest rate and monthly payment after two or three years, freedom freak them in making loans available. as long as home prices kept rising, they could usually be financed. after prices leveled off and then begin pollen, subprime borrowers defaulted in record numbers. the reason they were landed for these loans in the recent security issuers were willing to fund nunn if they knew they would be paid up front. works investors and homeowners than those with are the long-term consequence is. arrangements like this gave rise to the acronym ibg ibg, meaning

i'll be gone, you'll be gone, a watchword for short-term sn in the mortgage industry during the boom. homeowners responded to rising home prices, flexible terms and tax advantages, cashing out to the tune at the peak of the boom. meanwhile, financial institutions for going back to maximize their leverage. they sometimes move asset to shabbily off-balance structures for regulation and capital requirements for less stringent. that strategy worked brilliantly until the eventual collapse of investor confidence and market liquidity force these assets back on the balance sheet where there is not enough capital on hand to support them. leading financial companies proved in that that new loan structures and funding strategies in the years leading up to the crisis, but all too often these innovation left participants are badly misaligned economic incentives. the compensation of officers, are probably of managers and

ceos is typically based with little regard for the risk were building not the system. most damaging of all, some of the largest and most complex financial companies are exempt from the discipline of the market place because their size, complexity and interconnectedness made them too big to fail under the resolution processes in place at the time. the expectation the largest financial companies enjoy the implicit backing of the federal government allowed the managers of those companies to book short-term profit while ignoring the buildup inherent in the complex mortgage instruments they held. the financial market chaos at lehman brothers, the expectation of government support for systemically important financial and duchenne were to fly up -- sifes by the spring of 2009. direct assistance to the

institution is a short-term crisis in the intermarket and our financial system began to function again. the policymakers fail to effectively attack the root cause of the problem, which was the enormous backlog of unaffordable and underwater mortgage loans that continues to slow the recovery of our housing markets and our economy. bailouts resulted in a host of adverse consequences for financials system over the long term. they undermine market discipline and promote risk-taking. they inhibit restructuring of troubled financial companies and the recognition of losses. they keep substandard management in place and preserve a sub optimal allocation of capital. they are inherently unfair to well-run banks. the bailouts of 2008 tainted reputation of the entire banking industry and tilted the competitive balance in favor of some mega-bank. on the first quarter this year, the cost of earning assets is

only half as high for banks with more than 100 assets as it was for a community banks with assets under $1 billion. in the end, bailouts violate principles of limited government on which our free enterprise system is rounded. that is why the fdic was so determined to press for a more robust in effect give sifes resolution of the dodd-frank resolution that was enacted last summer. titles won in two and.frank authorize creation of such a resolution framework that can make the sifes resolvable in a crisis. the stories of the authority to designate large banking organizations and certain nonbank companies as sifes and higher capital requirements in relation to the risk they pose to the financial system. these companies will also be required to maintain liquidation plan so that they will then show how they could be resolved in a crisis without a bailout and the

outlawing of the financial system. far from being an assault on the free market, these provisions are designed to restore discipline of the market place megabanks to and their ability to take risk at the expense of the public and eliminate the competitive advantage they enjoy over smaller institutions. some of the rhetoric in the financials reform debate has been shortsighted or is in plan accurate. as part of the reforms we advocated and ordered liquidation for sifes, like the authority refused for years to resolve fdic insured to two shins. this ola is expressly designed to facilitate the failure of one of these companies without a bailout, which is expressly prohibited by the new law. but what is the soundbite i keep hearing about this provision? bailout as far as the eye can see. we need to spread the word as to what this is a revolution framework is really all about and what's at stake if we don't see the new authority is fully implemented before the next

crisis. the resolution plan required of the sifes under.frank will be critically important to obtaining information we need to carry out an order the resolution to place las olas zen shareholders and titleholders which is where they belong. the fdic and the federal reserve are going to need it to their guns and insist these companies simplify their structure is necessary to ensure they can be resolved without a bailout and some future crisis. that will most likely take place when markets are calm and possibility of crisis seems remote. what again, people ask why now? why are we making private-sector financial institution and we need to explain the alternative is to risk another financial crisis that could someday for millions of people out of work in rucker public finances. short-term as it is also and well over capital requirements. some banking industry representatives claim higher

require parens will raise the cost of credit and could derail the economic stanchion. two static short term thinking that got us in this mess in the first place. there's a lot of research that shows will have a very modest effect on credit. it will create a large net improvement in long-term economic growth by having more capital, less frequent and severity of an inch of christ needs. if your time arises as anything longer than six months or so, i think that a very good trade-off. the fact is i mostly the same as those in existence before the crisis. risk aversion on their part and reduce our demand. they have plenty of capacity to land. large banks have been raising capital since the crisis that most meet the basel three standards or well-positioned to do so solely through returned

earnings. things that need more time will benefit from the extended season. designed to ensure a seamless transition to the new standards, including any sife surcharge. another.frank mandate is a rule requiring issues of mortgage-backed securities to retain 5% of the credit risk of the pool. risk retention is necessary to give issuers in long-term interest in the performance of the underlying mortgages. i have to say i resist great progress carved an exemption for mortgages as defined by the repertory agencies. everyone it seems the least that their market should receive disqualifying residential mortgage work you are and status and and from the small premium for result from risk retention. the connection they are not making this a small extra cost in the short-term to the equity and marketers and provide across a repeat of the mortgage crisis

in the future. we also need solid long-term thinking on other important national policy issues. too often the response of subpar economic growth has been another tax credit or interest rate that feels good for a while but does nothing to enhance long-term performance of the economy. the political divisions appear to have stabbed her will to make the type of long-term investments in education and public infrastructure that will pay dividends over many years. programs of national service like the civilian conservation was provided jobs as they work to conserve and develop our natural resources. we still see the species you can work in national parks and forests that the country. the sense of pride and purpose instilled by programs like this is certainly greater designed to put consumer pockets, much of which is purchased foreign goods. we need to get serious about entitlement reform that will

make our system of old-age insurance and health care sustainable over run as longevity rises and the baby boomers retire. the longer and healthier life most of us will be compared to previous generation is a wonderful and much underappreciated historical development. with this blessing comes a need to make choices that involve short-term sacrifices. we have to work longer, pay more into the system and perhaps impose means to have some benefit or more likely all three. similarly, our loophole ridden tax system, which favors debt financing over equity in the whole building over long-term investments is badly in need of an overhaul. closing the loopholes will result in a more efficient allocation of cat bill and allow us to reduce marginal tax rates while raising more revenue that can be used to help pay down our national debt. some of us are going to have to give something up in the short term in order to secure those long-term advantages. where will the focus be when

this question is debated in congress? reported in newspapers and ranted in the blogs. in a world obsessed with instant gratification like enron debates, we are in dire need of leadership, both public and private bella champion patience and sacrifice now in return for a brighter and more stable future for us and our progeny. the media plays a critical role in all of this. you report the facts to leathers can make informed decisions and you know better than anyone picketing his story is factually correct accuracy of claims. there is no shortage of frederick reid to investigate. rappers today to the truth and story will help the public get beyond the soundbite of the day in the long-term consequences of the policy choices and personal choice as all of us must make there are signs the mood of the public is changing in terms of personal decision-making.

total household debt down by 5% from pre-crisis levels of the personal savings rate has risen to his's highest. in this historic venue i'm reminded of advice i received i took the job as fdic chairman five years ago. it came from one of my predecessors, the late bill seidman whom i'm sure many of you knew well. the fdic is its possibilities to maintain public confidence in the banking system he said. we are the ultimate guarantor of the people's money. today we ensure some $6.4 trillion on deposit in dozens of banks across america and the literally thousands of fdic insured institutions have sailed over the years, nobody has ever lost a penny and insured deposit. bill emphasized me one of the keys to public confidence is transparency. as you'd expect, much of what the fdic does an bank supervision and closings is confidential as it pertains to individual institutions.

the fdic chairman needs to be visible to the public, accessible to journalists and fully engaged in the policy debate that took this advice to heart and affinity noah tried my best to talk reporters to be a reliable source for the information you need to tell stories of accuracy in perspective. i think it has been a constructive relationship that assert the public interest. even at the height of the crisis, easily the worst since the 1930s come you didn't see massive runs on banks. working together, we averted a panic. people left their money and their insured deposit. is a good example of how americans can be counted on to make wise choice is to benefit themselves and their country when they are armed with the facts and encouraged to consider the long view. thank you very much. [applause]

>> thank you very much. now we'll engage in the give-and-take you just mentioned about the news media. we have a lot of questions from audience, some of them are specifically stemming from the speech, some of them were handed to me beef or became in. you know, we have an interesting mix here this afternoon. we have a lot of very focused financial journalists who can really get in on the new one in micro aspect of things. we have members i'm sure the general public, international visitors here and what the great angst about your ability as he directly in a way that's understandable that's not always shared by regulators or politicians. let's start with the big picture. here we are several years out of financial crisis and he talked about some lingering effects mr. bernanke talked about risk this week that the problems are particularly persistent seem to be continuing and may raise the

risk of the slowdown that we seem to be experiencing at the moment persists. what anxiety level do you think is appropriate for the public and policymakers right now as we look out to the risk that we see that seemed to be percolating over the horizon on any number of different fronts? >> well, i think these are risks, but they are subject to our control and influence if we take some action and make some decisions. i think what the housing market we still have a problem. these loans either need to be restructured where it makes economic sense, whether the distressed borrower can make an economically viable payment or if not there needs to be relocation assistance or some other mechanism to clear the market because clearly the foreclosure process is breaking down. our fiscal situation again is an issue come is at risk the financial system, but that's within our control -- congress'

control. they need to make some tough decisions that they can do it. it's the same problem in europe. you know, perhaps that needs to be restructured and people need to understand they're going to have to take some losses. these are tough decisions people don't want to make. but it's not getting resolved and you just need to bite the bullet sometime. so i don't think they should be anxious because these problems are ones we are aware of other ways to approach them assault them, but it takes political courage to do that. if i were -- citizens and voters, it would be worried more about the leadership in the will to take action as opposed to these problems in and of themselves because there are solutions people are willing to undertake. >> he went on a bit of a laundry list in terms of the risk in the near term. you mention the modification process and i remember when we were in your office it seems like early 2009 that we were sort of sane voice, it would be

great if we could get into that process and essentially try to resolve the housing crisis, foreclosure crisis as soon as possible. is it fair to say as a whole that the governments reaction to that has been wholly inadequate? >> well, i wouldn't say a wholly inadequate. i think it could've been better. i still think it can be better. i think the housing market to things. we need to understand the housing market became too big of a part of our economies embrace persons have to be allocated. it still remains a big part of our economy needs to clear intern before we really get a more solid economic footing. this requires very senior-level attention. we have a dysfunctional foreclosure market now. we need to streamline the modification process and they need to have better quality

controls come a time of her where they version of faith qualified oral explore other alternatives. but i think the industry -- this is another problem with this line incentives because they don't have the direct economic incentive to mitigate loss to affect the service is about the problem here that's where the government has to step in were assertively because the system market price down. and it's much more senior-level attention and lucas and resources in a not sure a not sure that's happening right now. the mappable ysr? because we think back several years ago where it and deserves the hope was we could contain the crisis but okasan on the housing market and yet here we are and you talk to the foreclosure experts and they don't really -- they can write the data points and say that is hopeful, right? nobody is willing to say i see the end anywhere in the near

future. is it because there is a sense of intervention fatigue in the public and not political will and leadership to try to make a selling point for something that needs to be done? >> yes, i think it gets back route to the short-term is something. unless we can see a quick easy fix, we don't do anything. said during the crisis, a lot of s. and large institutions it didn't fix the long-term problem. i think that's why we like the political will >> you reference the great crisis. mr. bernanke was asked this week essentially what is the wrist or a banking system is indeed a worst-case scenario there plays out anonymously those political process is very yet to be

resolved. would you take the risk is first of all to the banking system and the broader economy with respect to the situation? >> well, if europe can mess up the political will to make hard choices to stabilize situation if it gets out of control can be pretty ugly. karen here. there's a knot about a draft exposure to great that. there's a lot of exposure and as relationships between our banking system and yours. the whole debate on capital we have been arguing for a long time against a basel iii implemented in europe in the early 2000 someone to really quite precipitous declines in capital levels they are, basically allows banks to set their own risk waves under assets for capital purposes in their own internal models. so we've been pushing hard you try to get a leverage ratio, which we serve as a binding

constraint on capital being too low to get the ratio is higher, quality of capital better, but also objective parameters on the use of those -- these advanced approaches to staunch the decline and get capital levels up in europe. instead, i find myself and others try to have a stable capital base here where i wish the u.s. political will would be to engage in europe and say you need to get -- your banks need to do that rich more. the entire capital cushion and this is complicating their ability to solve the great situations because many banks or two under leverage. >> you're headed for discussions on the subject in the near term. you are among those trying to set the highest bar for the capital requirements? >> we are trying to set a high bar. i think we are trying to cut a barbie is achievable on an international basis because again, we can always do what we think we need to do here in the u.s.

the fed has the authority to set capital levels where they feel they need to be for large banking organizations. again, the bigger challenge is to make sure we get capital levels up in europe. i've publicly said they think a 300 basis points are charged you have a 10% comedy ratio for the largest financial institutions is something we can and should do and it's achievable. >> here's a direct follow up to your speech. one person asked him a wide use the euphemism short-term is some instead of greed and financial institutions act solely for profit with complete disregard for consequences of their actions, and historically been referred to as greed and not short-term is an eerie good point? >> well, it is a good point, but it goes beyond that. our political process now is also suffering from short-term is. i don't tank that's great. i think that is perhaps more concerned about your immediate reelection next on the longer-term consequences for the country.

i guess if you're worried about keeping your job come you could turn that into analysis that may be a bit of a stretch. i think reid is certainly a good example of short-term thinking, but there is the fact that plagued and so that's why i use that could be more on company. >> more congenial in the spirit relate to promote here at the national press club. first data showed a year-over-year decline in revenue in 18830 interest rate policy hurting banks profitability and is that impeding the lending environment and by extension should interest rates then be raised to help assist? the >> well, that's an interesting debate and i certainly hear that from bankers are actual increase in interest rates come incremental increase could make would be more profitable and therefore provide more profits for lending.

the federal reserve board is very aware. there's a counterfeit argument terms of economic impact, but maybe it's time to think about what we have been doing has not been giving us the impetus we were hoping for, so maybe something to think about more. >> a variation on that question. a couple weeks ago, jpmorgan ceo jamie denton asked in bernanke whether regulators understand the full impact that sort of the forthcoming regulatory environment and it is a common criticism from some quarters that people say over regulation is making us less able to complete. is there any validity to that earned, that criticism? >> well, going back to i. think we have done a lot of costs benefit analysis and the overwhelming weight of the literature on the shows that what i've been calling for us in the moderate range of what the study was justified based on the cost benefit analysis comparing

payoffs in terms of system stability reduce the severity of the next crises with incremental impact of landing craft. i think we've done a very good job. some of the thick stems more from the interplay of derivatives regulation, poker rules and i think square that is going to be more of a phased in approach and perhaps under the auspices of the headstock oversight council we could do analysis of these rules. that isn't to say we shouldn't go forward. understanding relationships to make sure the rules working together will achieve the intended outcomes makes some sense. by itself, analysis relationships with that, but it would want that to be a reason for not engaging in reforms we know are needed and certainly a capitalist and studied already.

>> someone is asking about another downside. as you look at implementations of the affairs of dodd-frank, when you see the greatest pitfalls? >> boy, that's a really good question. i think this oversight is very important in that area or by agency has to lead. i think it's extremely important and i hope very much that congress gives this agency the money they need to implement very important and needed reforms and derivative strains are in oversight. the cds market in particular continues to be far opaque for purposes of assuring system stability and it was a key driver during the crisis and so i would hope that things would be available to implement because they think they're very important. more generally get in, maintain the political will is a lot of

the misha and a lot of pushback on things that are so obviously needed like higher capital. one of the things i hope to do when i leave us try to engage the public more generally on issues and explain them in terms everyone can understand what important, why they need to be engaged in paying attention to what their elected officials are doing this for. this crisis hurt us all terribly and i don't ever want to see it repeated. >> one of the responses was to take some traditional brokerage houses and make them commercial banks. we've all had situations when the breath of these enterprises are seeking return on investment by essentially taking depositors money invested in the market. does that mean increased financial risk their? >> that's a lot of what the poker rule is trying to address. but no one process to be done for proprietary trading.

the volcker rule strengthens prohibitions on uninsured banks and holding companies as well which is important in banks have now become bank holding companies in a larger depository institutions. so again covers tools are there to make sure insured deposit are not used for proprietary trading in another area where we need to very robust implementation. suggested to go further and separate out investment banks and commercial banks they don't getting traction here in the u.s. though i have suggested as part of these resolution plans at the regulators will be requiring a large financial organization not perhaps part of those shows greater legal and financial autonomy between the investment banking commercial banks to reinforce broker restrictions. >> with regard to dodd-frank, there does seem to be so much political pushback and it might

ask you a question about that specifically a moment. as the debate about the lack of job creation and study says the recovery have potential to overtake implementation? >> there again, i would implore the media to really drill down when people are just starting to blame financial regulators for a broader economic problem. i'm sorry, but most of these rules have even been finalized yet. haven't had any impact and it seems to me this is enough for to blame the regulators for something that has nothing to do so and is completely outside of our control and what the regulators are trying to do now is provide more stable systems do when you get into the next inevitable downturn we walk out to severe impact on the real economy that we had in this most recent craze. you know, these financial reports provide a healthy long-term sustainable growing

economy. they help redirect financial services towards supporting the real economy and credit intermediation. the capital rules. the higher capital charges are much more significant on the trading book assets than on the banking book with a lesser cat. capital incentives will be for lending vis-à-vis trading and marketing committees. again, what the financial regulators are doing supports a healthy vibrant stable economy, not the other way around. when you hear this, i just hope people will scratch the surface. >> some banks any way too big to financials unraveling cases involving wall street billionaires and sometimes seemingly difficult to prosecute. hobbled larger banks regain confidence of american public and does not come as several problem? >> well, i think it is. this is why it hope the more response to the members of the industry would work with

regulators as opposed to against us and rain and trade groups and their paid lobbyists here because i think it's in their interests. what kind of reputational damage has been done by the industry from these bailouts? is in their interest to have a more stable system that weed out the bad players in the industry. it is in their interest as much as ours. you now, the intensity of cynicism and anger towards the bank if there continues to be quite problematic. so i wish the industry would see it in their interest work with regulators to get this fixed. >> there is speculation after president obama was elected that you might be packed his treasury secretary were critical of the policies and the crisis particularly guarded housing and really for underwater berbers spirit of a listen close enough to your views and what it is that you offer your success or any other independent regulators in terms of speaking up in such

a way? >> well, i am not a part of the administration. i'm ahead of an independent agency. i was appointed in the previous administration and i don't think it their obligation. i'm not an adviser to the president and it's not his obligation to listen to me or give any credence to my views. i speak out when i see risk to the banking systems and am hopeful to have some input on ryder public policy decision-making. outcome of the president has the right to choose i'm sure he is confident in who is supervising him and there are frustrations we've had again on the intensity of effort on the housing problem, but i wish him well and i wish the administration well. >> that was again a very cordial statement in keeping with the spirit of the national press club. i guess someone else here recently in another subject who

was in a comparable position what kind of grades they would give the current administration with regard to let say management of the financial crisis in on the current situation. let's just say for the administration is full, what kind of letter grade do you get as one who's been in the academic sector? >> you really think i'm going to answer that? [laughter] >> you want us to drill down. >> you know, it's a good question i won't answer it because look, and trying to speak on policy and i don't want anything i say or position and may articulate to look like they are pro or con any candidate or political party. x-ray for that impression i'm were defaced or i start grading not get into that i'm going to take a pass. we might have got a couple weeks where you might consider taking another approach. the sec's pastorals that consider assess with high credit ratings by because interest rates are so low in the u.s.

come in a money market fund managers have found that in some european banks which have exposure to greece. i you read the money market funds will obviously be had if the situation continues to unravel? >> well, i worry people understand where their money is put in a house money in money market funds, they should do some checking and the sec's improve disclosure rules and don't have exposure to pains, but others do. first and foremost, people should check and understand where money and in effect consistent with their comfort level. longer-term, i think unfortunately folks to think of this money is somehow guaranteed and again that was reinforced by the crisis when the government said an napster is the reserve fund group. so i think making a float design mutual funds do will provide better clarity and understanding in many markets funds about the safety for the relative risk of investment.

i do think this underscores this is a problem with the sec's leadership. >> one of the most are mac events occurred in the crisis is the failure of lehman brothers. do you think gore should have been done to save it to the extent the government then build out aig and take the next. civilly and into the two dag decision? >> now, i don't think moore should have been done, but i think we need better tools and i think even looking back at this situation -- i think that creative expect patience. i'll say we were far removed that it was an investment bank that a couple small insured banks that were solvents and operating within the bankruptcy. and so, you know, we didn't have direct involvement or not, but i

do think it surprised me when i saw the market reaction because the place was so sick for so long. i thought everybody understood and they didn't. i wonder if part of that was because of the bailout expectation. bear stearns had a government assisted deal done for it and even though shareholders took some loss, they still are kept alive and everybody else was protect it. hindsight is always 2020, but going forward we pursue art or resolution authority. one of the other problems the layman a grip see is the way derivative contracts are treated. with our process we can require deliberative and a bankruptcy at the right to close other positions and pull their collateral out. that led to a lot of disruption with the lehman bankruptcy. the best lesson learned is how to take step toward colleges which is what we try to do with providing broader powers for what we call title ii fdic's

style resolution authority site comprise those operation economies you just don't get in banks. >> one question some of his efforts among republicans now to water down some reforms as one who is a member of the gop, are you particularly disappointed about that? [inaudible] >> well, you know, at this point it with democrats. i think, you know, regulators will never be glamorous people. we'll never be popular people and it's easy to beat up on ice we'll never be popular people and it's easy to beat up on ice and so we get pushback and it not just republicans. and risk retention will this lead democrats pushing back as well. i am disappointed in a lot of people and we are really so harshly criticized going up to the crisis and some about was justified. now we are trying to fix it, if there is a lot of amnesia setting and.

i just hope the congress to let us exercise judgment authorities given to us under dodd-frank. they pay regulators to make these decisions and set inc. regulatory agencies and the fcc limits the fdic's so they can make decisions that sometimes will be politically unpopular that i hope at the end of the date members of both parties to let agencies do their work. >> singer at the national press club in earlier mentioned not to pay too much attention to the need for sound bites, which was a particularly painful thing for a fellow broadcast journalist he appeared in all seriousness, as one who has run for congress and the relatively gentle shadow of the kansas press, as well as having been subject to international scrutiny, how do you feel you've been treated by the news media? >> i think pretty fairly overall. there have been a couple times where i've had some real issues, but for the most part i think we've been treated fairly and i

inc. in situations while we felt our story didn't accurately or fairly present all the respect is, including ours. we found the press to be responsive to that. overwrought way about a good relationship. i hope you feel the same way. we have put a high emphasis on transparency. it's important to understand what the fdic does because it had them directly. i want them to understand what we do and that's one of the reasons why we fear pretty well in public opinion as well because we understood what they do and appreciate and if i do say so myself and privy to the other 8000 staff, we've done a pretty well. >> so, you reference public opinion and not played into the fortunate or unfortunate aspect went unsuccessful on run back in the day depending on how you view faith. bob dole has been quoted as saying one and the played into that website you are a single woman running for office.

it just so happens your husband is very close to the podium today in so that is very visible that you're married now. would that mean the political landscape might have shifted over the years and you might be a more political -- viable political candidate in the future? >> well, scott and i were dating during that campaign and he's a democrat. [laughter] so he would come visit me and we would hide him actually. issue shows how much love this man has for me and i have for him. with a big bear cost to produce and parades. and it they you put that on so no one knows who it was. they had a care bear sash on it and the kids loved it. the thank you, dear. and i don't know. i don't think i really want to run for anything again. the reason as i'll tell you i love campaigning. i love interacting with voters. i hated the fund raising. i spent half of my time in the phone asking people for money and that was the single most

accreting thing i ever had to do and i think it's a shame that would put members of congress or to do this. i don't know what the answer is, but the money has really overcome this process and i think also other people who might otherwise want to serve getting into it. >> thank you. well a. rossetto time. before you slice question of a couple housekeeping matters to take care of. first of all, and like to you about our upcoming luncheon. there's a special foundation to help causes around the military. on july 1st, mr. charles there's a special foundation to help causes around the military. on july 1st, mr. charles there's a special foundation to help causes around the military. on july 1st, mr. charles administrator for nasa will discuss the future they simply is to extend human presence beyond low earth orbit. we also know the retiring astronaut mark kelley will be at our head table that day and ted leung sister jasmine a couple of interesting draft picks for the washington wizards and of course the majority owner as well as the washington capitals will be

here on july 13. in terms that would be formalities, next up is that you present you with their highly sought-after national press club coffee mug as a token of our affection. thank you. thank you. a question for speaker. your plan to read a book after he leaves office. we are wondering whether he will take us behind the scenes of other critical decision-making in the financial crisis. will it be a tell-all or is there an angler message to average people you'd like to get across and about blacks >> so, it will not be a tell-all. look, i think everybody worked very hard in this crisis with the best of motives and they were certainly different at different velocities and it's important for those to be explained to the readership and that's really what i'm trying to accomplish. also it's not the crisis, but some of the things that happen after the crisis in some of the problems we need to work through and reforms that it important to enact. i hope much with this book i

would engage the general population on issues that have traditionally been just the domain of banking regulators because it's important for people understand it's relevant to them impacts them and they need to be engaged. >> thank you. how about a round of applause for a guest speaker today? [applause] i'd like to thank our national press club staff including a libra and broadcast center for helping to organize today's event. there's her mind recombined up or about what's going on at the national press club on her website. you can get a copy of today's program from www.press.org. thank you. we are adjourned. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

..

>> we are trying to reach people who have interested in how the world works. that everybody from a high

school student. . sunday night at 8 eastern and pacific on c-span's q&a. >> secretary of state hillary clinton said thursday that the u.s. is in the preliminary stages of diplomatic outreach to the taliban trying to find a political solution to the war in afghanistan. the secretary said reconciliation is "not a pleasant business, but a necessary one." she spoke out in full support of president obama's plan to bring occupy 33,000 troops by september 2012 and participated in a vigorous debate in the white house over the timing of that withdrawal. it came during a hearing on afghanistan and pakistan.

[inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] >> the hearing will come to order, please. madam secretary being bombarded with technology from both sides. [laughter] it's a terrific pleasure to

welcome secretary clinton back to the committee, and i know madam secretary, that you are literally fresh back from south america, the caribbean, and we appreciate very, very much your willingness to take the time from an incredibly hectic schedule in order to join us. your leadership in south asia has been important to in many different ways, and so we're particularly looking forward to your assessments of where we are, and i know you had to rearrange your schedule in order to be here. i want to express my gratitude to sheryl mills in order to make that happen and you will being to do this just withstanding getting off of a plane. i think you're aware that as soon as we have ten members here, we're going to do something i know you want us to do which is quickly have a business meeting in order to approve the nominations,

hopefully approve, debty secretary of state bill burns of the ambassador to china and afghanistan, all important, and then we have another business meeting skeet yule -- scheduled for next tuesday to take up other pending nominations, and i think that clears the docket of nominations. last night, the president kept a commitment that he made to the american people 18 months ago at west point, and because of the gains made in afghanistan in the intervening months, i believe it was from a position of strength that the president was able to lay out the next phase of our strategy, a transition to afghan control that begins by withdrawing a significant number of our troops between next month and september of 2012. the ability to reap the serge dividend and bring home 30,000

troops in the next months i think, and i think people agree with me, a testament to the courage and sacrifices of our young men and women in uniform, and their civilian counterparts. every time i have visited the reason from kabul to hell monde, i'm -- hellmond, i'm impressed by our troops yet they are all steadfast performing their duties with professionalism. i know you'll agree, madam secretary, it is their efforts that helped to bring us to this historic transition point. i think it's important also to acknowledge nowithsubstantiating the contribute -- not with standing the criticisms from the right and left that if you stop and think about it, we have met our major goals in afghanistan as articulateed by

the president. we reduced al-qaeda's presence in the country, and the job, though not finished, we have come to the point where this mission can transition. bin laden's death last month was the capstone of the president's original objective. this gave the afghans the opportunity to build their own country, something they've done incidentally for centuries without our help. senator lugar and i hope this contributes to the public dialogue on afghanistan. since 2009, we have held 20 hearings and helped to focus attention on critical issues, and during that process, i think it's fair to say that all the members of the committee developed conclusions that we believe will continue to have an

impact on the remaining challenges. obviously, the remaining challenges are significant. the most important one, as i have said many times -- i think the secretary agrees -- is really pakistan where we have a complicated relationship, we have to work with the pakistanis where our interests converge, and frankly, we have to understand where they don't converge and work to bring those interests together to find the commonground where even if there are some different goals that we're able to overcome the obstacles. for sure, the pakistanis have reacted very strongly to the events of may 2nd. they clamped down on visas making it difficult for military personnel and civilians to do their jobs, but now with

secretary of defense leon panetta's recent visit there, there's been movement, but coupled with the high level diplomacy hillary clinton engaged in last month, should open the door for new talks on a range of top i topics from reconciliation to shutting down extremists. the bottom line is this -- no number of troops will resolve the challenge of afghanistan. every military leader has said there is no military solution so now is the time to work with all of the parties and all of the neighbors to find the political solution to this conflict. we cannot do this in a vacuum. as we talk with the taliban, we have to pursue a vigorous diplomatic strategy with pakistan, india, russia, china, and other nations in the region,

and we need to listen closely, especially to the afghans and the pakistanis and work with them to protect our national interests. the drawdown therefore should not just be about the number of troops. we need to ensure that our diplomatic and development strategies are aligned with our political and military goals. the state department and u.s.-aid performed admirably in a very, very tough environment, hostile to say the least, but as we've said in our committee report earlier this month, we want to work constructively with the administration to ensure our aide strategies are as effective as they can be. as ambassador karl ichenberry wraps up his tour, i want to thank you for his tour in and out of uniform and thank him for continuing to tell the truth in

high pressure situations. he's been helpful to me and this committee on each of my visits and he and his wife, ching, really served the president well in my judgment. secretary clinton, i want to thank you again very, very much for being here. you've been deeply immersed in both sides of the duran line. i know you're respected in both pakistan and afghanistan and the leaders there and so we particularly look forward to your comments today. >> senator lugar. >> thank you -- >> before you do your opening, we'll do our quorum, go to the meeting. we have three nominees, bill burns to bed undersecretary, ryan crocker, ambassador to afghanistan, and who have i left out? carry locke to be the ambassador

to china. is there any debate for the no ? if not, we build on block. seconded? all those in favor say aye. it will be sent to the floor for disposition. senator lugar. i thank you my colleagues for making that happen quickly. senator senator lugar. >> i thank you for joining us once again and since the committee chairman mentioned has taken a series of hearings on afghanistan and pakistan during the last two months that illuminated many issues. we look forward today for the first time in this series of hearings the administration's assessment of the situations in those countries and plans for moving forward. much of the discussion about united states policy in the region has been focused on the specific question of how many

troops should be withdrawn from afghanistan. i believe troop withdrawals are warranted at this stage, but our policy in afghanistan is in need of much more than troop reduction on a political timetable. the president should put forward a plan that includes a more narrow definition of success in afghanistan based on united states vital interests on a sober analysis of what is possible to achieve. they should eliminate ambiguity about united states goals and make clear we are not engaged in broad nation building. it should include an explanation of what metrics must be satisfied to acomeef the -- achieve the original intent of the mission, namely to prevent the afghanistan territory from being used as a terrorist safe haven. such a plan should designate and e eliminate those activities not

intrinsic to our core counterinsurgency and counterterrorism objectives. it is essential that afghanistan be viewed in the broader strategic context. if we determine to reapportion our worldwide military and diplomatic assets without reference to where they are now, no rational review would commit nearly 100,000 troops and $1 # 00 billion a year to afghanistan. an additional 31,000 troops are in the region supporting afghanistan operations. the country does not hold that level of strategic value in my judgment for us, especially at a time when our nation is confronting a debt crisis and our armed forces are strained by repeated combat deployments. administration officials have testified that yemen is most likely source of a terrorist attack against american interests in the short term.

further we know that al-qaeda has far more significant presence in pakistan than in afghanistan. to the extent our purpose in afghanistan is to confront the global terrorist threat, we should be refocusing resources on pakistan, yemen, somalia, parts of north africa, and other locations. neither political optics nor inertia should compel us to exist in outside missions that declined strategic importance. the coalition reduced some noticeable progress that's measurable in relative terms, but in many parts of afghanistan, measuring success according to relative progress has limited meaning. undoubtedly we'll make some progress and we're spending over $100 billion per year in that country. the more important question is whether we have an efficient strategy for protecting our

vital interests over the long term. that does not involve massive open-ended expenditure or require us to have more faith than is justified in afghan constitutions. the pakistan side of the border has a fundamentally different dynamic. despite the deaths of osama bin laden, al-qaeda, and other terrorist groups maintain a strong presence and there's no question the threat of these groups combined with worry about state collapse, a pakistani war with india, the safety of the pakistani nuclear arsenal, and pakistan's intersection with other states in the region make it a strategically vital country worth the coast of engagement. the question is how the united states navigates the conversations inherent dealing with the pakistani government and society to ensure that our resources and our diplomacy advance our objectives

efficiently. i appreciate very much your willingness to be with us today, and we look forward to our discussion. >> i thank you, mr. chairman. >> thank you very much, senator lugar. madam secretary, we welcome your testimony as you know and your full testimony will be submitted into the record like read in full. >> thank you very much senator kerry and senator lugar and all the members of the committee. it's a pleasure to be with you back here in the senate. as the president said last night, united states is meeting the goals he set for our three-track strategy in afghanistan and pakistan. the military serge has ramped up pressure on al-qaeda and taliban insurgents. the civilian serge bullserred the governments, economies, and civil societies and undercut the pull of the insurgency. the diplomatic serge is

supporting afghan-led efforts to reach a political solution that will chart a more secure future. all three serges -- military, civilian, and diplomatic -- are part of the vision for transition that nato endorsed in lisbon last december and that president obama reaffirmed last night as he said, afghans must take responsibility for their own future. today i want to amplify on the president's statement and update you specifically on our civilian efforts, and i also look forward to answering your questions about the road ahead. because despite the progress, we have to stay focused on the mission. as the president said, we have to put al-qaeda on a path to defeat, and we will not relent until the job is done. first, let me say a word about the military effort.

last night, the president explained his plan to begin drawing down our forces next month and transitioning to afghan responsibility. i will leave it to my colleagues from the defense department to discuss the specifics, but the bottom line as the president said is that we have broken the taliban's momentum so we do begin this drawdown from a position of strength. with respect to the civilian serge, we greatly appreciate the attention that this committee has devoted to it because improving governments, creating economic opportunity, supporting civil society is vital to solidifying our military gains and advancing our political and diplomatic goals. since january 2009, we have tripled the number of diplomats, experts, and other civilians on the ground in afghanistan and expanded our presence out in the

field nearly six-fold, and these new civilians changed the way we do business focusing on key ministries and sectors and holding ourselves and partners to higher standards, and there should be no doubt about the results of our investment. despite the very difficult circumstances that you all know so well. economic growth is up. opium production is down. under the taliban, only 900,000 boys and no girls were enrolled in schools. by 2010, 7.1 million students were enrolled and nearly 40% of them girls. hundreds of thousands of farmers have been trained and equipped with new seeds and other techniques. afghan women have used more than 100,000 microfinance loans, infant mortality is down 22%. now, what do these numbers and

others that i could quote tell us? first, that despite the many challenges that remain, life is better for most afghans, and the karzai government has many failings to be sure, but more people in every research analysis we are privy to say they see progress in their streets, their schools, their fields, and we remain committed to fighting corruption and strengthening the rule of law in a very challenging environment. the aim of the civilian serge was to give afghans a stake in their country's future and provide credible al tern tiffs to extremism and insur sen ji. it was not, nor was it ever designed to solve all of the develop problems. measureing the goals we set and the obstacles we face, we should

be encouraged by what we accomplished. most important, the civilian serge helped advance our military and political objectives. let me offer just one example. last example us-aid began funding the reconstruction of irrigation systems in wardock province providing water to hundreds of farmers. in march, a few monthings ago, insurgents demanded that the people abandoned the project and support the spring offenses. the people refused. why? because they asked themselves, should we trade new opportunities for a better life for more violence and chaos? frustrated, the insurgents threatened to attack the project. local shurras mobilized and sent back a clear message. we want this work to continue. interfere, and you will become our enemy, and the insurgents backed down. we have now reached the height of the civilian serge.

any effort of this size and scope will face considerable logistical challenges, and we've worked hard in two and a half years to improve oversight and effectiveness and frankly learned many lessons are and applying them. the efforts of the civilians working on the ground in some of the most difficult conditions imaginable continues to be nothing short of extraordinary. looking ahead as the transition proceeds, we are shifting our efforts from short term stablization projects largely as part of the military strategy to longer term sustainable development that focuses on spurring growth and integrating afghanistan into south central asia's economy. now, the third serge is the diplomatic serge. it is diplomatic efforts in support of an afghan-led political process that aims to shatter the alliance between the

taliban and al-qaeda and the insurgency and hope to produce more stability. to begin, we are working with the afghans on a new strategic partnership declare ration to provide a long term framework for bilateral cooperation and nato cooperation as agreed to again at lisbon. it will bolster afghan and regional confidence that afghanistan will not again become a safe haven for terrorists and an arena for competing regional interests. as the president said last night, this ensures we'll be able to continue targeting terrorists and supporting a sovereign afghan government. it will also provide a backdrop of reconciliation with insurgents who must meet clear red lines, abandon violence and al-qaeda and io bide by the constitution of afghanistan including protections for women. as i said in february in the

speech outlining this strategy, these are the necessary outcomes of any negotiation. in the last four months, this afghan-led political process gainedded momentum. twenty-seven provenn issue peace counsels established and the afghan high peace counsel stepped up for women as it also begins reaching out to insurgents. let me underscore something and i say it not because of my personal feelings, but because of my strategic assessment. including women and civil society in this process is not just the right thing to do; it is the smart and strategic thing to do as well. any potential for peace will be subverted if women or ethnic minorities are marginalized or silenced and we will not abandon our values or support a political process that undoes the social progress that has

been made in the past decade, but bebelieve that a political -- we believe that a political solution that meets these conditions is possible. united states has a broad range of contacts in many levels across the region that we are leveraging to support this effort including preliminary outreach of members in the taliban. this is not a pleasant business, but a necessary one because history tells us that a combination of military pressure, economic opportunity, and an inclusive political and diplomatic process is the best way to end insurgencies. with bin laden dead and al-qaeda's remaining leadership under enormous pressure, the choice facing the taliban is clear -- be part of afghanistan's future or face unrelenting assault. they cannot escape this choice. special representative mark grossman is leading an active

project for solution. what we call the core group, afghanistan, pakistan, and the united states, has met twice and meeting next week. at the same time, we are engaging the region around a common vision of an independent, stable afghanistan and a region free of al-qaeda. we believe we've made progress with all of the neighbors including india, russia, and even iran. just this past friday, the united nations security counsel voted unanimously to support reconciliation by splitting its sanctions on al-qaeda and the taliban into two separate lists underscoring that the door is open for the insurgents to abandoned the terrorists and choose a different path. we welcome these steps and for the united states, the key diplomatic priority and indeed a lynch pen of the entire effort is closing the gap between kabul and islambad.

we must be part of the country. earlier this month, we launched a joint peace commission holding talks at the highest levels. also very significant was the full implementation on june 12th of the transit trade agreement which will create new economic opportunity on both sides of the duran line and lay the foundation for a broader vision of regional, economic integration and cooperation. this agreement started being negotiated in the early 1960s. it therefore took decades including great heroic efforts by the late richard holbrooke and his teams, but the trucks are now rolling across the border. i recently visited pakistan and had, as we say in diplo-speak, very candid conversations with the leaders. we have clear obligations for

the leadership and the united states will never tolerate a safe haven for those who kill americans. we are looking to pakistan to take concrete actions on the goals we share defeating violent extremism which has also taken so many innocent pakistani lives, ending the conflict in afghanistan, and securing a stable democratic prosperous future. now, these are obviously tough questions to ask of the pakistanis and there are many causes for frustration, but we should not overlook the positive steps of just recent weeks since may 2nd. counterterrorism cooperation continues and very several key extremists have been killed or captured. as i told the pakistanis, america should not and cannot try to solve pakistan's problem. they eventually have to do that themselves, but nor can we walk

away from this relationship and ignore the consequences for all the reasons that senator lugar outlined in the opening statement. pakistan is a nuclear armed state sitting at the crossroads of a strategic region, and we have seen this movie before. we have seen the cost of disengaging from the region. as secretary gates, who was there at that time, stressed we cannot repeat the mistakes of 1989. that's why it's important. we have the resources to continue implementing our strategy. the state department is following the pentagon's model in creating a special emergency fund, an overseas con contingency's operation account that separates normal operationing costs from extraordinary wartime expenses. now, i will hasten to say we are painfully aware of today's fiscal reality, and i know that it is tempting for some to peel

off the civilian and diplomatic elements of our strategy. they obviously make fewer headlines, people don't know as much about them, and it would be a terrible mistake, and i'm not saying that just for myself, but as our commanders on the ground will tell you. the three serges were canned in hand. you can want cut and limit -- you cannot cut one and limit the other two to succeed. ultimately, i believe we're saving money and much more importantly lives by investing now. let's not forget an entire year of civilian assistance in afghanistan costs americans the same amount as ten days of military operations. mr. chairman, senator lugar, members, i thank you for this opportunity to discuss our strategy. there have been a lot of developments in the last months,

and i feel that what we are doing is working, but it is obviously important that we ask the hard questions and i look forward to working with you to improve the strategy and work together to implement it. thank you very much. >> thank you very much, secretary clinton. we really appreciate those opening comments and the opportunity now to ask some questions. let me, if i can, follow-up a little bit on the pakistan side of things. yesterday, there was a pew poll that found most of the pakistanis consider us an enny, extraordinarily a lot of americans respond appropriately with a huge question mark to that. only 12% of pakistanis express a

positive view of the united states notwithstanding what we're doing that, and balancing that, it's interesting that only 12% have a positive view of al-qaeda or the taliban. now, in many ways, the afghanistan war, and i don't mean to insult afghanistan or say anything pa seniortive -- to seniortive about the efforts there, but in many ways the afghan war is a side show to the main event if you will that's next door. pakistan has 187 million people. afghanistan, 30 million. pakistan has a nuclear arsenal estimated at more than 100 weapons which is doubled according to just public unclassified statistics, doubles since 2007. it has a much more combustible brew of terrorists extremist

groups than afghanistan, and it is using its territory today -- i should rephrase that. its territory is being used today to plot attacks against neighbors as well as against america and europe. it is judged that perhaps there are 50 or 60 al-qaeda fighters of some kind. it's hard to really measure that in afghanistan versus countless numbers of foreign fighters of various nationalities in pakistan. yet it seems that pakistan has received less attention in the regular inner agency reviews and strategic planning sessions comparedded to afghanistan, and more importantly, there's $120 billion a year going into afghanistan, and i think it was about $2.8 billion that went

into pakistan last year. notwithstanding, it's an economic extremist, and there's enormous capacity needs on several different levels, so i wonder given the conversations you had there, and i know you're aware, very aware, of the sensitivity of pakistani's to this sort of disparity. i wonder if you'll sort of share with us how you came away from your most recent meetings, and what you see as a more effective, i mean, it's fair to say that every member of the senate is asking questions about this relationship, and the appropriations people are particularly troubled as they try to figure out, you know, what's real here in the relationship, so if you could share with the committee your perceptions of the way forward, i think it would be very helpful. >> well, chairman kerry, i think

the dilemma we face is one well-known to you and other members of this committee. we have had over many years a difficult relationship with pakistan. in part because starting with president kennedy and the extraordinary setting of the then president of pakistan at mt. vernon all the way to the present day, we have had a difficult challenge in staying on any single course with the pakistanis. as you remember very well because of their nuclear program and other reasons, the congress passed what was called the pressler amendment cutting off all contact with them and particularly military contact with them that meant we were not involved with their military

training and the relationship building with their military officers, and we also have seen, you know, using aid on the one hand to try to influence behavior, withdrawing it in the face of our disapproval, so if a pakistani official were sitting here, he, and they would most likely be he, although i think they're about to name a woman foreign minister, he would say we don't know what you want of us. we don't know what to expect from you, and we can't count on you because you're here today and gone tomorrow. now, i would argue that is only part of the story because clearly, there is at work in pakistani society and particularly among the elite, which let us remember manipulate

public opinion to a great extent to further what they view as either national or sectoral or even personal interests, so i think we have to recognize that the overriding strategic framework in which pakistan thinks of itself is its relationship with india, and every time we make a move toward improving our relationship with india, which we started in great -- a great commitment to back in the 90s and it's been bipartisan with both president clinton and president obama and president bush, the pakistanis find that creates a lot of cognitive deference. are you there are are you not there? it's a zero-sum game. what we tried toot in the obama

-- to do in the obama's administration since the beginning of his term is look at afghanistan and pakistan and the entire region as a whole, and not just afghanistan or just pakistan, but also to try to understand what the drivers of certain behaviors were and how we could develop a more strategic partnership with pakistan. i remember testifying here back in early 2009, and let's remember where we were at that time. the pakistani government had made basically a deal with the pack stage n -- pakistani taliban to see territory. they were have responsibility over large swaths of territories, moving towards us lawn. a urged them to get into the fight, which they did. from their perspective, they have had extraordinary losses in

the military and in the civilian attacks that have occurred by the taliban, and they are trying to figure out as people do when they feel their survival is somehow at risk, how to manage many different factors coming at them all at once. that's not to make any excuses for their behavior, but it's to try to put it in some explanatory context because we would not disagree at all with senator lugar's comment that this is a very strategic situation for us, for the united states, and we have to do more to get it right, so we're going to continue to make clear our expectations. we're going to continue to try to work with them across the entire political spectrum. we're going to demand more from them, but we are not going to

expect any miracles overnight. this is a long term, frustrating, frankly sometimes very outramminging kind of -- outrages kind of experience which you know first, mr. chairman, which i don't see in other option. i see our involvement in afghanistan obviously also as a vital national security interest, but i also see it as part of our relationship with pakistan. you know, they would be perfectly happy if we picked up and left tomorrow, but what would we get for it, and what would they do with it? i think the answers to those two questions means the president's approach, which is this steadied careful transition while we try to work the diplomatic and political piece of this which includes pakistan, is exactly the right way to go. >> well, i think your last focus there is really thee principle focus, and i think an area where we need to really be very, very

intense and focused, and you and i mentioned before the hearing, i really look forward to following up with you personally on that subject because i think that's critical for our withdrawal process, for afghanistan, and obviously, for the stability. i know you know that so i look forward to working with you on. senator lugar. >> secretary clinton, it was a coincidence, but the aspen institute had a breakfast with the former ambassador to afghanistan, and i -- he could make the case better than i could, but you've already -- >> i apologize, senator lugar, for interrupting you. i just asked one question, and obviously we took a fair amount of time to answer it, and i appreciate that, but i'm just reminded that secretary needs to be at the white house for a debriefing there at about 12:15, so if colleagues are okay with

the idea of, you know, we'd probably have to limit the questioning about 6 minutes each if that meets everybody's approval. >> fine. >> thanks, appreciate it. thank you, senator. >> the ambassador strongly commended the idea that the president and you have initiated with the late richard holbrooke and the special ambassador role for the region, and likewise, now the appointment of mark grossman to undertake that. now, beyond that, he suggested, and i think you have testified upon this in your testimony, that afghanistan is a part of a much larger diplomatic pattern and set of relationships. for example, whether it be comparable to the congress of vienna or however one must characterize this, you and the

president might very well try to pull together, not overnight, but over the course of time, the united states, afghanistan, and pakistan into a congress of sorts, but include also india in that group, and russia, and perhaps even saudi saudi arabia. maybe that's not the exclusive list, but these -- that indicates that each of these countries for a variety of reasons have an interest in each other, also an interest in us. let's say, for example, that at the end of the day without making predicks, the united states was to have a residual force in afghanistan. that would be an irritating rash to some, maybe to all of the above parties. although, for a variety of reasons some might find that to be per tiewtous, but as a stands, our advantage comes from

enhancing our relationships with all of the above in addition to working simply on afghanistan or pakistan problem simply because there are these unmet issues of india and pakistan, obviously, both nuclear powers, and for a variety of reasons, and i mentioned saudi arabia ties there in terms of all of these are important. i mention this because as you perhaps could give a different figure, but my understanding is that the pakistanis have now been more difficult in only about 60% of our supplies for afghanistan can get across pakistan opposed to maybe 90% a few weeks ago. we have become more reliant upon russia as a place that we can transport goods and services to

afghanistan. in short, this is a regional problem that is going to have to have that kind of rather broad diplomatic solution. now, this does not preclude the fact fighting is still going on. as the president pointed out, we have a lot of work to do in the military field, and you mentioned the three serges and so forth, so i'm not arguing against any of the above, although i would suggest as we all have been today that probably the resources of our nation are not unlimited in this respect, and as we begin thinking down the trail towards our own budget problems as well as not just afghanistan, but pakistan as the chairman pointed out, and ongoing relationships with all of the above, we need to really begin to stress this regional diplomacy idea. do you have any thoughts beyond that reflect on this morning? >> well, senator, i agree completely with that. i think that the congress of

vienna is an interesting historical example because there was a packed maid among regional powers that in effect left the countries as a free zone so to speak, and certainly if we can get to that point with the regional powers in south asia that would not recommence with the great game in afghanistan, that would be a very worthy outcome. to that end, we have formed exactly the kind of group that ambassador recommended. we do have this so-called core group of the united states, afghanistan, and pakistan. it has met twice. it will meet again next week. richard holbrooke first, mark grossman second, have been working very hard over the last two and a half years to create this regional approach toward solving the props in afghanistan -- problems in afghanistan. i think the countries you named,

india, russia, saudi arabia are all ones at the table. in fact, the most recent meeting of all the countries with an interest was actually hosted in saudi arabia. we are bringing many of these countries to the the broad negotiations about the way forward. now, there will be some other actors who you cannot ignore including iran. iran is a big player in the region and has a long border with both afghanistan and pakistan. how they are involved and what they're willing to do, we don't obviously at this point know. ewe beck stan has a lot of worries about what goes on in afghanistan, and you're well aware that one of the issues we're all watching for is how the usbeck and others respond to

the outreach. i was there a few months ago, and the government there is very worried about what happens. there are a lot of players who can act independently or in concert with one another, but you are absolutely right, senator, the only way we're going to get a political resolution is through this kind of intensive diplomatic outreach, and that's what we're engaged in, and i know you understand it, but i do hope that everybody in the congress and the press and the public understands that you don't end wars by talking only to people with whom you agree or who are, you know, good actors. you end wars by, unfortunately, but the fact is talking with people whose interests and values are very much opposite of yours. what you described is what we're in the midst of working on. >> i appreciate that.

>> senator boxer. >> thank you so much. i want you to know we're proud of you and we thank you for all your work. you're just -- you just give this all you have, and issues are so difficult. i'm going to ask you about the pace of our drawdown from afghanistan, and them i'm going to ask you a little bit about the women, and i'm so glad you included them in the opening remarks. let me just lay this out. everyone at this table who is in the united states senate after we were attacked by al-qaeda voted to go to war and get bin laden and decimate al-qaeda in afghanistan, and i think it's fair to say with the incredible leadership of our president and our amazing special forces, you know, finally getting, you know, bin laden was a huge moment for us, and according to leon panetta and reiterated by

chairman kerry, we're down to about 50 al al-qaeda in afghanistan so as i look at it, you know, i -- before i vote to go to war and every one of us here, that's the most difficult vote you ever make, i mean, i feel that we did what we said we wanted to do, and now, as i hear the president's words, i agree with everything he said, and you reiterated today -- you said, and he said yesterday, "it's time for afghans to take control of their own future." and i think there's a big difference in doing that in 18 months or 12 months and waiting until 2014, and so i want to ask you a question about that when i get to the end of this. we have trained 290,000 security forces in afghanistan, and i could break it down to 126,000

police and 164,000 army. we have spent $30 billion training them. now, i'm the chairman of the environment public works committee. you served on that proudly. we are desperately seeking $6 billion to keep the highway program going for a year, and people are saying, oh, my goodness, $6 billion, and we're spending, well, $12 billion a month right now in afghanistan and iraq is my understanding, a month. i need $6 billion a year to keep people working, so this issue of the drawdown, it's -- it's really a matter of not only the lives of our soldiers but everything else, the money, and the fact that karzai has said on many occasions this is a sovereign nation. he said, his last quote i have

is the afghan's trust in the afghan army and police is growing every day, and the preservation of this country is the job of afghans. you put it all together, and you wonder why we're looking at 2014, and i was hopeful that this serge that was, you know, essentially temporary, i was hopeful that 33,000 could be moved out this year. having said that, i respect the president. i know he's got everybody telling him their ideas, and we have to be humble if we don't agree, but i think it's important to state that i think this is leaving 70,000 troops so my question to you is what are those 70,000 troops going to do? i thought since we have trained all of these afghans, we turn it over to them, and that we would shift to counterterrorism mission which will help us with

pakistan which is so dangerous opposed to counter insurgency. that's the first question. the second question has to do with women, and then i'll stop and have you answer. i had the distipght privilege of meeting with a delegation of afghan women. you know how courageous and brave they are. arisk everything to come forward, and we remember of the days of all those things and the taliban leading that country, and just the women suffered, and, yes, i'm so proud of progress they've made because of what we've done, frankly, along with them, so there, i said what do you need from us, and they were very clear. they didn't ask for one more troop or not even another day of war. they don't want that. they want a seat at that peace jurga and reconciliation. i said, how many seats do you

have? they said nine seats out of 70 slots. i said id do everything in my power including legislation, which susan david davis wrote, to tie our aid at the table. how can you have a situation that's fair? the people who were hurt the most were those women and those girls, and to have so few of them at the tail is not just -- table is just not right. how are we getting more women at the table, and can you explain to me what are the 70,000 troops going to be doing until 2014? >> senator, first on the troop withdrawal, i think that as the president explained last night, the serge was you remember he announced in december of 2009 at west point, was intended to provide additional military support for the troops we already had there, and to

accelerate certain aspects of the mission like greater training of the afghans which had been languishing and now has quite impress the the trainer -- impressed the trainers on the ground to get a force that will be sufficient so when the serge leaves as the president announced last night, we'll be back to where we were when he announced it. it's a bit of a misnomer to say we can do ct or coin. in effect, we've been doing counterterrorism the whole time, targeting high-value targets, going after taliban leaders, and we have been using the extra troops to hold a territory that was finally taken back from the taliban of the what the remaining troops will do for the remaining time they're there,

because remember there's a hard stop with our nato allies of 201, is they will be continuing training, continuing mentoring the afghans who are going to be taking the lead responsibility. they will continue in combat to some extent, but in a much more limited field, and it is the assessment of the president and those of us in the administration along with our military commanders that this is the right pace of withdrawal, and as the defense department will tell you, we're on a downward trajectory of military spending because of the drawdown in iraq and because of the drawdown now in afghanistan so that the defense department will be spending many billions of dollars less even in the next 18-4 months, but i think that -- 18-24 months, but i think the

way this is laid out including with our allies because the i think the decision at lisbon was agreed unanimously by everybody is the right way to proceed, and there will be continuing missions that will be important as we transition to afghan lead. ..

that it would have otherwise. we saw that in central america. we've seen that in african conflicts and we will see it in afghanistan. so it's not only because we admire these women that we want them to have a place at the table, it's because they have to be part of making a lasting resolution in afghanistan. >> senator corker. >> thank you, mr. chairman and, madam secretary, i thank you for your service. i know we had a nice conversation out back and subject for another day.

i don't know how the administration could have purposely more so created unnecessarily a conflict over libya the way that it has. but as usual your frankness and transparency is disarming and i look forward to that conversation happening at another time. but, i do appreciate your service in the way you handle yourself and the tremendous effort you put out on behalf of our country. let me ask you, do you 100% agree with what the president had to say last night? >> yes i do. >> in every facet. >> yes, i do, senator. and this was a very open, candid discussion within the national security team. obviously people, forthrightly presented their own views. it will not surprise you that the views ranged across the spectrum about what should be done and what should not be done but i think that the president,

you know, with his decision, has hit the mark. he has answered what is a very legitimate concern, not only of this congress but of the american public, that this has been a very long conflict for the united states. our own internal domestic needs are very pressing. at the same time, we have made a difference in the last 2 1/2 years. it's not been at all easy but and it has been at the loss of many young americans but he made the right decision. >> i "got it. i don't want to be rude. i have a limited amount of --. you agree? >> yes, sir. >> so the nature of our, i think many of us were concerned about what is the nature of what it is we're going to be doing on the ground? and i think what you said today is we're going to continue with lesser troops on a counter insurgency, not a counterterrorism effort? >> no. both. i was trying to make the both we've been doing both.

every night special operators go out. every night we are targeting people in a counterterrorism effort. and we're holding territory. so we'll continue doing both. >> and, those same navy seals we're so proud of doing outstanding job every night doing the counterterrorism piece but the counter insurgency piece leads us continually, toward a quote, this is an old term in your perspective, but it is continuing doing the nation-building, state-building kinds of things in libya i think many of us are concerned about being able to sustain not only while we're there but after we leave. you're comfortable with continuing, quote, the nation-building? i know you use a different term. what i understand the effort taking place in afghanistan? >> well, i amount -- am comfortable with our continuing to interact with and support afghan

leadership at all levels. for example, senator, our assessment is that about 75% of the governors now that have been appointed in the last year or two are actually performing well. that was not the case 2 1/2 years ago. and part of the reason we think they're performing well is that they have been mentored by both military and civilian personnel. i don't think we, i mean, i know that so-called, nation-building rightly raises a lot of questions in people's minds. that's not what we think we're doing and that's not our intention but what we are doing is, you know, a young captain or a young officer getting in there and helping these people know what it means to actually run a government, make decisions, i think is in our interest because it gives them a stake in the kind of future we're building with our military efforts. >> i think we end up with a country because of the

distortive cultural things we're doing, some of which are very good. i thought you had a very nice exchange. some of which though create a situation where afghanistan is a supplicant or, afghanistan doesn't exist ever without u.s. involvement and i see that as what we're doing there and obviously that's concerning. let me move to the last point. i know i'm getting close on time. i've been here four years and five months and our reasons for being in afghanistan have continued to evolve. one of the main reasons we're there is because we're there at this point. and there was a concern that, you know, the partnership that our partners, the afghans, pakistanis would not view us as a reliable partner if we left. that was, sort of the code a couple years ago i think. about the time the holbrooke

doctrine, if you will, came into play. so we created this af-pac doctrine and we have this partnership underway that you're talking about. and one of the reasons we continued to be there the way that we have is we didn't want to destablize pakistan by leaving behind a destablized afghanistan. but now we understand that and of course there is no pakistani voice. i mean, it's not a country that speaks with one voice. it is not really ruled. it is ruled by disparate entities which is one of the problems we have with them. now we're understanding that many of the leaders of pakistan, really don't want to see a stablized afghanistan and so, our interests, while we've given them billions and billions of dollars of aid, is different from ours. what struck me was your last comment. that is, that pakistan would just assume we leave afghanistan immediately.

now, that, you know from my perspective, that's 180 degrees from where we were two years ago under the administration which i'm not criticizing. it is just, everybody has had trouble with afghanistan. but, if you will reconcile that with me? >> yeah. i'll start there and then i want to circle back if i have time to the future in afghanistan and its present status as kind of a supplicant in your words. look, i think that pakistan wants to be sure that whatever happens in afghanistan will not affect its strategic interests. it wants what it calls strategic depth in afghanistan. but that it means, number one, it wants a regime in kabul and it wants a border that is not going to challenge its interests. so it is particularly focused on having the pashtun population on the

afghan side of the duran line and the pashtun population on the pakistani side of the duran line not coming together in any way that threatens islamabad. so it has in the past invested in a certain amount of instability in afghanistan. it also does not want afghanistan to become a satellite of india. you know, india and afghanistan have a historical affinity and, historically afghanistan has supported elements within afghanistan which pakistan has seen as inimaple to its own interests. if pakistan could be assured what would be left would be favorable to and even in their view, subservient to pakistani interests, that would be fine with them. the indians aren't going to sit around and accept that.

the uzbeks and tajiks are not going to sit around and just accept that. so part of what we have been doing is to try to build up capacity within afghanistan so it is strong enough to defend itself against all-comers but without falling back into civil war because particularly the northern alliance constituents believe that they are threatened by pakistan and the pashtuns. so when i say, yeah, they would be happy if we left as long as it ended up the way they want it, i think that's just an obvious statement but it won't end up that way, in the absence of some kind of political resolution. and without the strength of, ability within the afghan government to defend itself going forward. so, you're right, senator, this is a, this is a rue bigs -- rubik's cube of political

complexity. i'm sure you hear different things from different members of the administration or very well-informed members of congress but i don't think that they are necessarily contradictary. i think they are all part of what is an incredibly complex situation we're trying to get our arms around and attempting to move in a direction that will leave a stable afghanistan, not a perfect, you know, nation-state but a stable afghanistan, with the interests of, to be able to defend itself against both overt and covert challenges to its security. and, let's finally, you know, i think it's important for us to maybe take a step back and look at other countries that the united states made investments in over long periods of time. and there were different historical reasons. we all know. but you know, you look at the decades of our investment in south korea.

and you look at the coups that took place. you look at the stop and start efforts of democracy. you look at the massive corruption. you look at the thousands of american troops that we kept there and we not only provided military protection against north korea, we also, in effect, helped to model and support what is now a vibrant democracy and a very strong economy. can we look back and say, you know, we could have left in 1967 or 1979 or 1984 and, let them fend for themselves? knowing that they were in a very dangerous neighborhood? i think it's been in america's strategic interests and in america's values to have, withstood the test of time here and i think it's not a comparable situation but i do believe that looking at historical examples to see where american investment percent veered is important.

-- percent veered is important >> i do not want to diminish at all the amount of time we're able to apply to these answers because i think it is very important and very interesting but i do have to note we have about nine senators or ten senators left and at six minutes that takes us into the secretary's white house briefing time. most of the times have been more around ten minutes than the six minutes on both sides. >> that's my fault mostly. >> madam secretary, it's important to get these on the record. i regret that we have the back end, you know, pressure but hopefully everybody can try to hold to it. senator menendez. >> thank you, mr. chairman. madam secretary, you know as a long-term supporter of yours i think you're an extraordinary secretary of state at an incredibly momentous time in history where there are few ton nick

shifts taking place in different parts of world. i very much appreciate your service. but that does not abide a deep and nagging set of concerns i have on the course that we are on both where we send the sons and daughters of america to fight and sometimes die and in the national treasure of the united states. so i want to express those concerns that i have. we went into afghanistan for very clear reasons, reasons that i supported when i was in the house of representatives. these were the perpetrators of september 11th. that you and i vividly understand from the number of citizens that we lost both as americans and from our respective states. this is where usama bin laden was at the time. this is the where al qaeda was. they were the perpetrators. bin laden is dead. there are less than 100 al qaeda fighters in afghanistan.

i look at this $10 billion a month in a counterinsurgency effort to prop up a government that i believe is corrupt. that in fact we have spent, we will have spent the next, the end of next fiscal year about $38 billion to prop up and to train a afghan security force that is now about 290,000, to fight 20,000 taliban fighters. that is a 14 to one ratio. in a country that we have spent $19 billion in development assistance which, development assistance has come under criticism by a staff report of this committee and by the, commission on war contracting, war-time contracting and i listened to president karzai talk about us as an occupying

force. and i see a country sitting on a trillion dollars of mineral deposits including lithium, could fuel its own prosperity, take care of its own security. when the first contract is let out it is let out to the chinese who have not dropped one shed of blood in behalf of afghan freedom. and i just say to myself, notwithstanding that i appreciate where the president started last night, that we do not seem to be transitioning out. and in a way that really deals with the national security and interests of the united states. i agree with senator lugar. if we were to set, reapportion our worldwide military and diplomatic assets to where we are today, it would be hard-pressed to say we should spend $120 billion in afghanistan and have 100,000 troops. and then i turn to pakistan, and i just got an answer today from a letter we had september you. it was answered by ambassador grossman. several of my colleagues joined us, saying we're

concerned especially after we see bin laden's capture and killing in pakistan and the letter says, we see no evidence to indicate that anyone at highest levels of the government of pakistan knew bin laden was living in pakistan. that may be true but i don't think there is an american who believes that. and i look at it in the context of the assistance pakistan, is now the third largest recipient of u.s. security assistance, $2.7 billion in 20 ten alen. 140% increase since 2007. and i get concerned between the reality of someone that knew bin laden was there or high target value and i look at the concerns of, you know, pakistan and getting intelligence that supposedly we gave them in mid-may about insurgent bomb factories in the tribal regions and leaked and

facilities were abandoned before military strikes could take place. i wonder when see the pakistani intelligence service arresting pakistanis who provided information that led to our finding of bin laden. and i'm saying wow, $2.7 billion of u.s. taxpayer monies. do we not see the need to alter in some direction both in terms of the civil development assistance and our security assistance in a way that can have me say, to the fiduciary responsibility i have to the taxpayers of my state and this country, that we are going to have a much better result? >> well, senator, i read the speech you gave recently, i think it was on the floor and you have echoed some of the main concerns today and i can only tell you that those concerns are ones that we take very seriously. with respect specifically to

bin laden, we have looked very hard and we have scrubbed all of the intelligence that we have and certainly in a classified session we can go into greater detail but the conclusion ambassador grossman gave you in the letter is the one we have reached. we did not start out there. we were not sure what we would find. but, we do believe that at the highest levels. however i have said and i know other members of the administration have said, we do not in any way rule out or absolve those who are at lower levels who may very well have been enablers and protect terse. now, the fair question is, well, were they protecting their higher-ups? could be. was it one of these a wink and a nod? maybe so. but in looking at every scrap of information we have,

we think that the highest levels of the government were genuinely surprised. if they, if they had reason to believe he was there, they believed that he was certainly in the tribal areas, protected by the taliban or by the haqqani network, by somebody but they did not know and we have no reason to believe that they are running some massive deception on us to that, to that point. but your larger concerns, senator, are ones that are totally legitimate and all i can tell you is that despite the difficulties that we face in our relationship with pakistan, it is our conclusion that we have to continue to try to pull and push to get it more right than wrong. so for example, when it comes to our military aid, which you pointed out as

quite significant, we are not prepared to continue providing that at the pace we were providing it, unless and until we see certain steps taken. so, we're trying to, you know, place this orchestra the best we can where we, you know, look in one direction and say to those who we think are largely responsible for the difficulties we know, that exist within pakistan. you know, you can't continue doing that. but on the other hand, we have a democratically elected government which has made some courageous decisions despite the challenges. they have made some courageous economic decisions. they have made some courageous civil decisions in terms of pushing the military to go after the taliban and, in my very emotional meeting with president zardari, he basically said, look,

al qaeda was in league with the people who killed my wife. i would never have turned a blind eye if i had known anything. now is it a strong democratic government? no. but it is a step in the right direction. again i go back to historical precedent. we've been there before. we have supported governments and supported countries that just drove us crazy over a long period of time because they just didn't quite grasp what we thought was necessary for democratic institution-building and rule of law. some of them have worked out well over time but it took a lot of patience. >> thank you. and i look forward to following up with you on afghanistan and how we're spending our money. >> i would like to do that. >> thank you, senator menendez. senator risch. >> thank you, mr. chairman, secretary clinton, thank you so much for coming today and i think everyone here is expressing frustrations and, you know, when i first came

here and looked at all this, i was struck by what a rubik's cube this is and perhaps a rubik's cube you can't ever totally resolve. and it's frustrating when you talk with the american people. they ask me, well, explain our strategy. explain our objectives. it is very, very difficult to do. for one reason it has been changing. we're becoming more realistic. i notice what has crept into our dialogue now has been that it will never be perfect and thank goodness we finally recognize that. that clearly is a fact of life. the frustrations with the two governments in both countries is, is just overwhelming. and, we started in afghanistan with a, with motives as everyone said, that, were great and, we always hear people talk about winning in afghanistan. well, we won a long time ago. our objective there was to, was to beat al qaeda.

we did it. reference has been made there is less than 100 of them left in the country. so we're left fighting the taliban. who will fight us for centuries, if we are so inclined. they fight whoever is there. and, so, we've got to find, we've got to find a way to articulate what the objective is and then move on. and my question, that i would like you to focus on and, please, don't take this as being argumentative or anything in that regard, this is, this is very, very pragmatic. when we leave afghanistan and we will, at some point in time, we're going to be left with the karzai government i suppose. and a military and, security forces that should hold all this together. and one of the problems i have is from a purely,

purely pragmatic standpoint, the just, just the salaries for those security people far exceeds the gross national product of the country. as i understand it, by multiples. how is this going to work? because clearly there has got to be security forces. there is no possible way that karzai can hold on or whoever it is that is the successor. there is no way you keep fragmented country like it is together without very substantial payments to security forces. i just don't see how that's possible. you hear the talk about the, about their natural resources and what you. right now they seem to be relying on the poppy for their income. what's your, from a purely pragmatic basis, what's your vision of how they're going to keep enough security forces paid and on the ground to hold this whole thing together? >> i think it's a very fair

question, senator. i would answer it with the following points. first of all, you're right, that, they are going to have to have a security force to protect the country and, that's what we've been trying to train up. and it is not only the united states. we have a number of partners who have been contributing and paying of these security forces. so the formal afghan mail terri and -- military and afghan police forces will be a continuing source of assistance provided by a number of countries and it will be something that is a lot cheaper than what we're doing now and is going to be essentially continuing to try to maintain a security presence there. but there is a trust fund for paying the security

forces. that countries like japan that don't have any military on the ground have contributed to. so that's one of the issues we're going to be negotiating as we go forward. secondly, a lot of the security is going to be provided by local militias, local police. you know, general petraeus has invested a lot of effort in helping to create what our essentially village patrols so that people will be train and armed to protect themselves, not connect the to national military or police force and we think that's a very good line of defense and that doesn't really cost us anything once the initial investment is made because people themselves will pick that up. thirdly, we do think that there is an opportunity for afghanistan to fund some of its own security needs. the reference to the mineral wealth and some other sources, so we are, we are

discussing that right now, with the afghan government. at the present time, president karzai has said he will not stay in office, which we think is the appropriate decision. that he will leave when is term is up. and so, there will be a great effort made to insure that there's a free and fair election and assuming there can be such an election, a lot of this responsibility will fall to whoever succeeds him. so we will continue to support afghanistan and its security but, we're going to be doing it on a conditions-based analysis. >> i think that is probably the best answer there is to that and i really appreciate that. but i would urge someone to sit down with a pad and a pencil to come up with some specific numbers. the frustration here is obvious, we're not going to continue to pour the money in there for that and the numbers i've seen, the estimates i've seen are just

staggering. so i would like to see somebody do that. thank you, mr. chair. >> thank you, senator. >> thank you very much, senator rich. senator cardin. >> thank you, mr. chairman. secretary clinton i think there is total agreement on this committee how proud we are that you represent our nation globally. you give great credibility to the position of secretary of state and the leadership and we thank you for your service. i also want to applaud your efforts, working with president obama and secretary gates, understanding the importance of national security being more than just our military but also including our civilian and diplomacy. i couldn't agree with you more these are three tools in our tool box that need to be deployed in a coordinated way. but let me just get to the resources for one moment. the amount of resources that we're currently expanding on the military aspects of afghanistan is really draining our capacity as a nation in so many different

areas and has as been pointed out by several members of this committee, if we were using allocation today as to our greatest risks i don't think we would be spending as much as we are in afghanistan. . . >> if we can save money on the military side, at least part of that can be invested on the

sievian side -- civilian side of the solution. we addressed accountability several times in response to questions and also in your statements, but i want to get to pakistan for one moment because the chairman mentioned our 12% popularity among the pakistan people, and i don't want to overestimate the importance of being popular in the countries we operate, but i don't think we should underestimate that. if we are trying to advance values that are universal, and there's a low opinion of the united states, it makes it difficult for our values to have the ability to be effective in that country. i think we need to be concerned about it. also in pack pakistan, we have the unusual issue that we're supplying a lot of money to a country where there is clear evidence that their intelligence agency, isi, is assisting and funding a terrorist group, let,

and that's inconsistent with our laws. my question to you is as we share your vision of a more robust u.s. involvement globally on the civilian side to deal with the security interests, we have to have accountability even with countries we have strategic interests because if we don't, i think it really affects our credibility as a nation. how do we reck nile that? >> well, that is, senator cardin, a very difficult question to answer. from time to time, you know, we do a lot of business around the world with governments that don't meet our values, don't share our interests, but with whom we believe we have strategic security concerns and it is not -- it is not easy to explain to people, and it is something that we're constantly evaluating. there's nothing new about it in this administration. it goes back to the founding of

our country, but i guess i would say that we do try to marry accountability with our on thives, and -- objectives, and we do it in a way to try to get the attention with the leaders whom we are working with and trying to influence, and there's always the tough question of how far do you go? i mean, in retrospect people who know much about pakistan say the pressler amendment went too far. at the time, it seemed absolutely clear we had to come down with a big hammer of the accountability because of the behavior we disapproved of so trying to modulate this to expectations and actions is an ongoing part of the diplomatic process, and i guess i would just conclude by saying specifically when it comes to pakistan, there is a ledger, and there on one side of the listeninger are a lot --

ledger are a lot of actions we disapprove of to our values and our interests, and then on the other side of the ledger, there are actions that are very much in line with what we are seeking and want, so we're constantly balancing and weighing that, and we've made the assessment in this administration that despite the challenges, we have to continue to engage. we have to continue to work with, and we have to continue to try to influence pakistani behavior. >> well, i'll use my last 30 seconds to suggest i think all of usment to engage with pakistan. we're not asking to isolate america from pakistan, but i think our policies have not. as effective as they need to be in developing the type of partnership in that country that will advance our values, and that the popularity issue speaks to whether we have effectively used our civilian efforts in a way that will advance more long

standing gains for the united states. thank you, mr. chairman. >> thank you senator cardin. >> thank you, mr. chairman. i understand, i know, and expect that our military folks are supportive of the decision and implement it, but could you share with us, is it possible to share with us what general petraeus' recommendation was regard to the timetable and the numbers? >> senator, i'm not going to be able to do that, but i can tell you that the decision that the president made was supported by the national security team, and i think it would be totally understandable that a military commander would want as many troops for as long as he could get them, but any military commander with the level of expertise and experience that general petraeus has also knows what he wants is just part of

the overall decision matrix, and that there's other factors at work so at the end of the day, i think the president made the right decision. you heard from colleagues here and heard within the national security apparatus, out now, out by the beginning of the year, and then there were those who said let's wait until the end of the next year. the president decided to get through the next fighting season in effect which we think should be sufficient. >> the next question, the logic behind the september 2012 date for the full serge pull back. what was the logic behind that date? >> i think the logic as the president explained last night, is that when he announced the serge, he said he would start withdrawing in july 2011 and try to recover the serge within a period of time that reflected the amount of time it took to put the serge in. it took about 18 months to put

the serge out, takes about 18 months to get the serge out, but that giving the commanders the opportunity to stage the withdrawal in the midst of another fighting season i think is what persuaded the president that that was the right place for him to be despite frankly having lots of competing opinions coming at him from all sides. i would also just add, senator, because i think it's important to note that when the president became president, there waiting on his desks were requests for additional troops. at the time president obama was inaugust rated there was give or take 30,000-plus troops, and there was no doubt that our attention had shifted to iraq in the preceding years, and that in iraq, there had been a

negotiated agreement with the iraqi government by our government, the bush administration, as to when our troops would come out so the president looked at that enaccelerated it to some extent, but basically the framework was there. with afghanistan, there was nothing. there was an open-ended commitment. there were evidence of our losing ground to the taliban so he not only put in the serge, he put in an additional 38,000 troops so i think when all is said and done, we will still have more than twice as many troops as when he took office in january of 2009. >> okay. the -- my other thing i'm interested in you discussed an open and frank discussion process to arrive at this decision. clearly, we can't be there forever and there has to be a strategy to transition over to the afghan people and afghan control increasingly so and

that's an ongoing process always being weighed. on the other hand, this is a region described as a reaming of folks who like to hedge their bets. within afghanistan, both tribal leaders, government leaders who sometimes question how long the u.s. and how committed the u.s. is and perhaps they hedge their bets, and it's more true, i think, with pakistan, and you eluded to that or describes that in some of your statements in getting pakistan to help us on some things, obviously not all of it, but some is explained by their stated doubt about our commitments. how do you weigh -- how was that weighed in the decision making process? how do we arrive at a strategy to begin to transition without creating a situation where people are afraid to work with us because i think thal ban will come back or pack standpoint doesn't work with -- pakistan doesn't work with us because they need to hedge the

bets to be happy. how was that handleed? >> you're right. that was part of the discussion. our goal here is to have an afghanistan that can defend itself and provide sufficient security to fend off all of the regional and other players that wish to influence it, and it was our assessment that we are balancing two competing concerns. on the one hand, afghanistan has to take its responsibility seriously, and it has to be prepared to really instill in its own people the obligation of self-defense and security so the longer they felt that they department have to accept -- didn't have to accept that responsibility, the longer the timeline would be pushed out, and so the lisbon decision of 2014 was the first signal agreed to by the afghans, and the president's assessment that we

would have to begin to show our resolve to withdrawal in order to get them to really face up to their own responsibilities is the second part of that. at the same time, we believe that there will be some continuing presence of nato in afghanistan following 2014 which is in the process of being negotiated through the strategic partnership deck declaration so there will be an american presence to continue ct operations, to, you know, support the afghans when needed, to send a signal to the region that there's not a free shot available here, so we think we have tried to balance all of these competing concerns, but historically, this is a region where hedging is an art form, and what we're trying to do is say through the diplomatic efforts there's going to be a resolution here where all the players are going to be watching

each other, where there's going to be -- because look, i'll just be very clear about this -- pakistan knows that if afghanistan gets too worried by what it is and is not doing, it will turn to india, and we know that india supported the northern alliance in previous times so there are lots of moving parts here to try to put together so that everybody is checkmated from hedging that could upset the afghan security profile that we're trying to leave them with. >> senator casey. >> thank you, mr. chairman. >> madam secretary, thank you for your testimony and extraordinary work not only on these difficult issues, but so many others. let me commend you as well on the work you've done with me and others on focusing the pakistani leadership, their government, on a critically important issue that involves the strategies to

prevent the killing of our troops by way of the ied's that come from and have the origin in the nitrate which is flooding into afghanistan from pakistan so i appreciate your work on that and your reporting back when you raise the issue with the pack -- pakistani leadership. i have one basic question. it's a a focus question on the certification that you must provide pursuant to the enhanced partnership with pakistan act we know by kerry-lugar-berman. i'm reading with the certification section 203, the certification required by the subsection is a certification by the secretary of state under the direction of the president to the appropriate congressional committees, and then in

pertinent part that pakistan "has demonstrated a sustained commitment to and is making significant efforts towards combating terrorist groups. the second part in defining what that progress is the following can be taken into consideration -- number one, cease and supporting inning any element within the pakistani military or its intelligence agency to extremists or terrorist groups. that's pertinent part of number one. number two -- preventing al-qaeda, taliban, and sorted terrorist groups like let and others from operating in the territory of pakistan. that's the basis of the certification. can i just ask a fundamental question even though i know the next certification is not due yet, and you made one i goes as of the end of 2010, but is it your current assessment that

pakistan, the government of pakistan has met these criteria outlined in section 203 for continued u.s. assistance? >> well, senator, you're right. i provided congress with a certification on security-related assistance to pakistan in march as required by the kerry-lugar-berman bill, and i will not be required to make another certification until later when we look back on 2011. i will follow the rules that the law sets forth and try it again to balance and weigh what they've done and what they have failed to do. we did say after bin laden's death that, you know, our close counterterrorism cooperation with pakistan did help us in tracking him down over many

years. we also have seen some significant actions that have led to unprecedented additional pressure on al-qaeda and the deaths of some top extremists, and so we will be once again trying to balance this. i don't want to get ahead of myself, but i can assure you that, you know, i will do my very best to, you know, follow the rules set out in the laws passed by this body. >> if you were -- i guess what i'm trying to get to is even though you don't have a current statutory requirement, just to give people a sense of where we are in that assessment because you're hearing in this committee, you've heard a lot about this topic about the question of accountability and how we justify support that the pakistani government benefits from so i'd urge you in any way

you can in addition to the statutory certification to be able to report back to the american people. i wanted to -- i only have another minute or so, but i wanted to ask you another question. it's broader, not as focused, but just in terms of the question of governments in afghanistan which has been one of the areas of real focus we got to make continuous assessments about, and in particular the karzai government, i and others have been critical over a long period of time. there's still not just the perception, but i think the irrefutable reality there's corruption. i wanted to get your sense of what you're -- let me get your sense of that challenge we have right now. how would you gray them or rate them or -- how would you grade them or rate them and car city's efforts -- karzai's efforts to root out corruption which is a problem throughout in >> i would give

them a grade of incomplete, senator. i think we have seen some progress, but nothing like what we would either expect to see or want to see from them. we have continued to keep the pressure on, and we, of course, have learned a lot over the last decade about how better to deliver the assistance we do because it is fair to say that a lot of the corruption is tied to contracts that come from united states, nato partners and others, and so we have been trying to get to what is a good enough standard because we are dealing with a society that has a very old history of how to deal with people and how to get tribal loyalties and family and clan loyalties, and so i think we have to recognize that we're in a very tough environment when it comes to corruption as it is

in many other parts of the world that we deal with. i mean, we, you know, we have been watching closely because of our own interests, but we give military and civilian aid to a lot of countries that hardly measure up to any high standard against enforcement of corruption. it's one the biggest problems we face in the world right now because it's a cancer and it underminds good government in the rule of law and so much else. it's an up complete. we -- incomplete. we see some things in the right direction, and then we see a lot that we're very unhappy with. >> thank you very much. >> [inaudible] >> thank you, mr. chairman, and secretary, welcome. i've only got six minutes, so i'll try to talk fast to make sure all the colleagues get their chance to also make some comments. let me begin my just saying i wouldn't want the record to show i was in total agreement with your analogy comparing our situation in korea, our long

term commitment with korea of what might take place in afghanistan. our situation in korea is in one of the most vital areas commercially and in terms of large powers in the world. it's the only -- the korean peninsula is the only place where the direct interest of the united states, china, japan, and russia intersect. korea is the bull's eye in the middle of that, and for all the questions that i have had about the engagements in this other part of the world, i think you and i both know how strongly i believe that this is a critical moment in east asia in terms of the potential volatility of our relations there, and in that regard, i want to say again i appreciate the comment you made last july relating to the sovereignty issues in the south

china sea, and as you know, this is a very live issue today. i also would like to just point out, i keep hearing the analogy, and i take it to the point to a certain extent with the situation in 1989 where we could have done more in afghanistan and in that region, and we didn't, but we also should be mineful that the geopolitical circumstances today are quite different than they were in 1989 and the fact we could have done more in 1989 does not in and of itself justify the methods that are being used today. i have to express my agreement with senator lugar's comment that if we were doing a military model right now, i don't think any of us would say it's 100,000 troops spending $120 billion a year in afghanistan, and it --

it's almost like ground hog day. i keep coming back to how we began this, and if you really look at who defeated the taliban in 2001, the afghanis defeated the taliban with a handful of very competent americans, special operators and air controllers, but the afghanis beat them, and if we look at the model that we're going to be moving forward with in places like somalia in yemen, the model is much, much different model so i think that the questions that people are asking about, you know, what senator corker calls nation building, i tend to agree with him and where this is going to go are valid questions. with respect to pakistan, the

word we haven't heard very much today is china. the day that chairman kerry left pakistan, the prime minister of pakistan went up to china saying china is our number one friend. in the "washington post" there's an article in there again today where pakistan is clearly courting china, and i would dpen express my hopes as one area where i think china seriously could do more to legitimize the status that it now has in consonance with the economic and military power that's grown and in a way that could be positive. they're going to be a great beneficiary if this region does regain the stability, and they clearly need to be more overt or i would hope they would be more overt in trying to bring about a solution. now, i want to say two things really quickly here, and then i'm sorry, i'm afraid if i ask

you a question, i'm going to run out of time, but the first is in your statement. you mentioned this new strategic partnership declaration, and i met with the afghani ambassador yesterday. he mentioned this. he said that they are seeing this as an executive agreement, and that they -- they, the afghanis, believe there's going to be some sort of a document within the next couple months. you and i had conversations with respect to the framework agreement that the previous administration worked up with iraq where the congress didn't have a chance to really fully vet it, and i hope we will get a chance to examine this and give our input to -- because, you know, clearly, the question is where i started this comment in terms of what our long term relationship in afghanistan should look like is something we need to be talking about before

this agreement goes into place, and then the final thing that i would say is again with your comment on page 4 of your testimony regarding this core group that special representative grossman is putting into place to help in hopes of building political support, you have india, russia, iran, i hope you can get china, and with that, i have nine seconds left, and i yield back the balance of my time. [laughter] >> five seconds, senator webb, we're working hard to get china to play a more productive role with pakistan. we agree with that, and someday i'd love to talk to you about, you know, analogies whether or not we agree with them, but to just go through them. i appreciate what you said. >> any time. thank you very much. >> secretary clinton, thank you for being here, and i join my

colleagues in all of our appreciation for the job you're doing as secretary of state. a little earlier in responding to senator rubio and the decision about what happens after 2014, you talked about the continuing presence of nato, and shortly after the president's speech last night, france announced two plans to begin drawing down troops, and obviously, several weeks ago secretary gates talked about the challenges with our nato allies and so given that situation, do you believe that our allies in nato will continue to step up and to help us in afghanistan through 2014 and what assurances do we have that that will

happen? >> well, senator, that was the agreement at lisbon,ing and i think -- lisbon, and i think a number of our nato staff allies will be doing drawdowns proportioned to the number of troops that they have. there is a planning process within nato as how to manage that because some are in areas where we have no u.s. presence, but there certainly has been an agreement that following 2014, there will be some kind of continuing presence, and i think that the president mentioned last night that the united states will host the nato heads of state next year in chicago, and it will be the time where we will take stock of where we are and the way forward. >> and given the operations in libya and the pressure that that's putting on both our capacity and the capability of nato, is there concern that that

will in the interim have an effect that will change our calculations for what's happening on the ground and afghanistan? >> i don't think so, senator. i think that certainly from nato's perspective, they joined with us in the afghan mission, and they were very anxious to have us join with them in the libyan mission, and so i think there's a not necessarily a connection, direct line between the two, but the larger questions that secretary gates has been raising which are not afghan related or libya related specificically about the commitment of nato or ones that are going to have to be addressed. >> looking at the potential for a negotiated solution in afghanistan, and i certainly

understand and agree with you that, and we've heard from everybody who testified before this committee that this is not a military solution. it's got to be a political and negotiated solution, but ambassador gnuman testify -- newman testified before this committee that he was skeptical of certain agreements and they last as long as it takes for one side to get in order to break it. do you share this assessment, and do you think that there really is the possibility for any kind of an agreement with the taliban? >> i think there is, but i think we're a long way from knowing what the realistic elements of what such an agreement would be. i think that ambassador newman

expresses a very common view that power sharing agreements are often just a weigh station between fighting and a resumption of fighting if parties cannot maneuver out their opposition. i think it's too soon to say how this could play out in afghanistan, but, you know, i can only stress we are committed to pursuing it because it is the only path forward. there is no other path forward. nobody is strong enough to really assert control. they can go back to a civil war. they can go back to, you know, all kinds of fighting between them, but i think a resolution is not in the interest of the parties as well. we just have to work to determine what the elements would be. >> and to come back to your discussion of the civilian serge, obviously, we're talking about the need to draw dop the military --

draw down the military serge now. how do you look at the reduction of that civilian serge that's happened, and several weeks ago this committee issued a report that talked about the false economy that's being created and the amount of money that's being created and what that's doing to the afghan economy so looking at that and looking at the civilian efforts and the economic efforts that we put in there, how do you see that being drawn down, or do you as we get closer to 2014? >> well, we do. i think that, you know, the recommendations that the committee made are ones that we are, you know, very seriously looking at. you know, the committee recommended that the administration and congress should consider working together

own multiyear civilian assistance. well, there's a big problem with that. we don't get multiyear civilian stance. we get multiyear military commitments, and we have no disagreement it would be great if we could and kerry-lugar-berman with the first multiyear commitment to afghanistan, but we certainly are going to be looking at the programs we're running that are in conflict zones. i mean, one of the other points the committee made was, you know, why 80% of the funding is spent in coin regions, and it's because, you know, the military was very insis tent that there needed to be a marrying up of civilian efforts. the example i gave in my testimony is a very good example, and then finally, we need to focus on stainability of our programs so that the afghans can continue them, and we're looking at that as well so, you

know, we don't agree with all the recommendations or all the conclusions of the committee report, but we wish we could get multiyear programs that could be implemented and we had the flexibility and agility -- i mean, the committee, for example, talks about commander response funds. well, we don't have those. i mean, i can't send a diplomat or development expert out with $50,000-$150,000 in his back pocket, but young majors can do that, and we've learned a lot from this and we'll do our very best to implement those lessons, and i working with our team and rashad have been wrestling to the ground how to get more accountability and issuable out-- measurable outcomes and also in the light of the lessons we've learn. >> thank you. >> madam secretary, thank you

for your testimony here today. it's been engaminging and -- engaging, compelling, broad ranging and i thank you, chairman, for holing this hearing. it provided insights that's helpful to me and i know every member of the committee. after attending near nearly all the hearings and traveling to pakistan and afghanistan back in february, continuing to have deployment ceremonies, i've spent a lot of time wrestling what is the best path forward as have all the members of the committee and concluded with some real hesitation and regret ultimately that we need to make a change in strategy in afghanistan, and while i welcome the president's decision to redeploy all of the serge troops by next summer, my view is that we should not focus on the number of the troops as much as the strategy driving them, and i think for a variety of reasons

we heard discussed in great detail today, a counter strategy is not likely no matter how many years we pursue it to succeed in developing a truly secure and stable afghanistan so for a number of reasons i've advocated for a change to a counterterrorism strategy. one of the reasons is in order to have the resources, the diplomatic resources, the focus, the capacity for lots of other important threats to deal with yes , ma'am then -- yemen and somalia and nuclear emerging iran and pakistan. i do think we see al-qaeda beginning to emerge in yemen in a way that's really challenging for us, and i'm really concerned about points that have been raised by other members here about the very destabilizing impact in pakistan with our role in afghanistan and the lack of the resources to really make the engagement with pakistan as successful. let me move to three relatively

brief questions around this. first, i just -- i wonder about what additional steps we can and should take to engage india more effectively in stabilizing what i think you very compellingly described as a really difficult complex relationship with pakistan, and i'd be interested in hearing from you what you're doing in the department of what you're doing to successfully engage in it. second, in the core group passage that senator webb referred to, i was struck to hear you make reference to iran as being one of the regional parties that's being engaged successfully in the political resolution. obviously, they did work with us in overthrowing the taliban. they have a real shared interest with us in ending narcotics and trafficking out of afghanistan, but they are emerging as a real threat, the nuclear power, one the great challenges all of us

face, not for the region, but the world and our critical ally, israel, so i'd be interested in how you assess the degree we could have aligned interests with iran in developing some political resolution in afghanistan, and then last, any input you'd like to offer about how we could refocus our efforts to bring more vitality and energy to the engagement with pakistan given the very troubling recent developments there. >> senator, those are all very excellent and quite complex questions. let me start by saying, you know, i think this debate between coin and counterterrorism is to some extent unfortunate because there is no real contradiction between the two in so much as there is a phasing from one to the otherment i think that the president decided and i agree that back in 2009 that if we didn't have a significant enough

presence, we would have one off ct victories, but we would not change the momentum of the taliban, and we would be facing a situation that would have been very difficult for us to control. i think what the president has decided now, which i also agree, is that, you know, we have made substantial progress in reversing taliban momentum, and now we have to see how sustainable it is by relying on the afghans themselves and by not only withdrawing our troops, but to begin to somewhat reshape their mission, so i don't think it's an either/or, but a both/and. we have been running ct operations consistently. it's not like we just had big brigades of marines and soldiers, but we've also had a very aggressive effort against taliban and al-qaeda and their

allies. with respect to india, we're working very hard on our strategic partnership with india. you know, i think it's fair to say that, you know, india looks at pakistan and, you know, believes that their continuing support for elements of insurgency against india in kashmir makes it difficult to know what path to choose, but i've been encouraged by the diplomatic diplomacy between prime minister singh and the talks that had broken off in 2008, and we urged both sides to go as far as they could to build more confidence and to try to be able to develop an atmosphere of greater cooperation. i don't want to -- i don't want to be misunderstood about iran. i'm not saying that iran is a

partner in this process or is playing a constructive role. i'm merely saying that iran is a player, and the core group is strictly the core -- afghanistan, pakistan, the united states, but then there is a concentric circle that goes out and gets wider and wider and in that has to be china, iran, central asia, ect.. i mean, one of the insights that holbrooke brought to this was, you know, you have to have a lot of buy-in from a large group of nations and institutions in order to pull every lever possible. so, for example, for the last so-called srap group held by the islamic conference. that never would have happened two and a half years ago. why? because all the sudden they think they have a stake to help push towards some political resolution, and finally, you know, with respect to pakistan, we're going to focus and refocus and refocus again because it's an important relationship, and it's one that, you know,

requires a lot of effort, and there's no easy course forward, but there's many different approaches we're trying within the context of trying to enlist them in a resolution in afghanistan. >> thank you very much. >> madam secretary, thank you for being here. i thank you for your service. there was a week we shared in our public lives which we will never forget. it began with the tramming diplomatic of 9/11 -- tragedy of 9/11 and ended three days later when we goated for the resolution for the president of the united states to find those responsible and those supporting them and bring them to jut. justice. i voted for that like you did. i don't vote for many wars, but that was the right one. if somebody said to me on

september 14, 2001, we're still going to be there ten years from now, you wove lost 16 million american lives, possibly more, not to mention the casualties and injuries, we would be spending $120 billion a year, roughly four times as much in military spending in afghanistan as their gross national product, their annual gross national product, and the end would still be years away, i would have found it hard to believe. we were going after osama bin laden and al-qaeda and the people who made his evil opportunity possible. now we're doing something else, and i would have to join in what was said earlier by senator menendez, i have skepticism about our mission in afghanistan at this moment. i do not have great confidence

about the leadership in afghanistan either in its competence or honesty. i worry about the money that we are shoveling into this country in sums that are unimaginable in this poor underdeveloped country. i've gotten reports and seen the contractors we are paying to go there to do things, and even this committee says the accountability is very limited in what we are trying to achieve. i've seen it firsthand. you talked about captains and majors with thousands of dollars to spend. they took me to coast to show me a city haul and a community building they built with those funds. it was empty. the afghans were not looking for that, but we built it anyway, so i come to this with some skepticism, and i bring another element to it as well. if we cannot win this from a

military basis, senator kerry said no military solution. you said in your speech, we will never kill enough up sur gent -- insurgents to end this war. thousands of americans are risking their lives as we sit there and tell them you can't win this, but perform your mission. i go back to the point raised by senator shaheen. i want to ask more questions about it. what is the likelihood we can use the standard you set out in your asia society speech to engage the taliban in a meaningful discussion to come up with a political solution? >> well, senator, your comments took me back to that very difficult time we shared together as members of the senate, and i certainly agree with you that we committed to going after al-qaeda, but we

also, in my view, did not follow through the way we should have early on, and that's not meant as criticism. it's just a statement of fact, and i think that president obama, whom you know very well, faced an incredibly difficult choice. it was difficult politically. it was difficult sub stapp tiely -- substantively. it was difficult personally, but upon very careful reflection and review, he made the decisions that i thought were the right decisions given what he had inherited, and i think he is now on the right path towards resolving our involvement in afghanistan, and the best way possible out of a lot of difficult choices, so i would answer the question in this way. i don't think it's a matter of

winning or losing. i think it's a matter of how we measure the success we're seeking in afghanistan, and i do believe it is possible to construct a political and diplomatic resolution. i will know more about that at the end of this year than i know now because we were not in a position, frankly, to pursue that until recently. why? because the taliban were not interested in talking to us because they thought they were going to make a big comeback, and i remember when president george w. bush basically said to omar and the taliban, look, turn over bin laden and al-qaeda, and we're done. we're not going to come after you, and they would not do it, and they never have agreed to do it, and only now are we beginning to see the kind of outreach that evidences a

willingness to discuss the future. i don't think we would have gotten there absent president obama's very difficult, tough assessment that led to his decisions. good people and very smart people can disagree about the way forward, and that's what this hearing has demonstrated. i have the highest regard for every member of this committee, and i know that every single man and woman wants to do what's best for america, what's best for our troops, wants to do what's best for our future, and it is our very reasoned assessment taking into account everything we have all discussed today that we now have a chance to bring this to a political and diplomatic end, but the president has started us on a path that will lead to the bringing home of our troops over the next years, so it's a tough call, senator, and there's no

easy formula that any of us can follow at this point. i wish it were six years, seven years, eight years ago, and we had made different choices then, but, you know, we don't get that luxury, and it's deeply regrettable, but presidents have a make the tough calls, and this president has made it. >> i'll just conclude by saying thank you and urge you to use -- i know you will because i know you -- use all of your skills to pursue the diplomatic end to bring our troops more quickly than the president suggested last night. i'll do everything i can to support that. thank you. >> thank you, senator clinton, for being here, and thank you very much for your service to our country, and i can't emphasize that enough, and i think all of our colleagues here

very much appreciate your service. i don't want to repeat a lot of what was said, but i agree very much with what senator durebin said about -- durbin said today. the president said this last night that if you look at the situation we're in and why we went in and the focus was on a government, as you have said in your testimony, that was sheltering terrorists, there were training camps, there were -- they had organized this terrorist attack on us -- that's all gone, and bin laden has been brought to justice, and it just seems to me that we're at the point where should be looking at the point that many of our nato

allies -- i remember over and over again in the period when president bush was there and organizing the nato allies, they said over and over, this needs to be afghan-led in terms of the security. this needs to be afghan-led. i don't know how we get to that point on the after gaps leading on security unless you have some kind of deadline. senator levin, i don't know, the armed services chairman said several times a deadline focuses the mind. it obviously lets us know when we pass off and it lets them know. do you think we have a deadline right now in terms of when all of our combat forces will be out of afghanistan and when they will really take the lead on security? >> senator, i certainly do. i think that has been the agreed upon path that was adopted at

lisbon. we have a time deadline of 014, the afghans accepted it. we made it very clear that that was it, and we have a glide path to 2014 that the president promised in his west point speech which he is now beginning to order the implementation of, so i agree with you that we needed to set a deadline in order to make it clear to the afghans that there would be a transition, and i would also just, you know, underscore that, you know, with two and a half years ago when the president began this assessment, there was so little to the afghan security forces. it just was not even credible, and, you know, for whatever reason what had been done before had not worked, but i think it is absolutely fair to say that it is working. there is still a lot that has to

be done in terms of building up and professionalizing, but afghans in some areas now are in the lead. they've had the lead in kabul for a year. you know, i remember talking to general petraeus after he took command in afghanistan. he said, you know, kabul is a lot more peaceful than baghdad was when he started so i know how frustrating it is because we have been there for ten years, and there's lots of factors that we can't, you know, really hold accountable or manage the way we would like, but i also think it's only fair to look at what has been accomplished, and it has been accomplished in part against the backdrop of the deadline, so, yes, we have a deadline, and we are acting upon it. >> in your sense, is our deadline is at the end of 2014 that all of combat forces for the united states will be out of

afghanistan? that's -- >> that was the agreement, and that was the agreement with nato isaf and the agreement with the afghans. >> now, you know, we use the term a lot, and you hear this about conditions on the ground, and the thing that is dependent here, if you use the term, well, it's going to depend on conditions on the ground, then we're going to talk about how prepared their forces are to step up to the plate, and from all of the reportings i have heard, and you just mentioned this a minute ago, that they have come along, but they may not be ready, and i know that there was a -- a u.n. i remember, a high u.n. official, and he was a controversial one, he left, and he gave a talk on "60 minutes," an interview, and

in his opinion it would take 100 years to get the police and the afghan police and army to the point where we would feel it was acceptable so i just hope that we're not going down a road where we do have a dead lynn, but it's based on conditions on the ground, and we were going to change -- we're going to change directions based on the fact that the afghan army and police in our judgment are not able to take this over, and as senator durbin said, i hope that we can quicken this. i hope that we can move more quickly to an accelerated transition, afghan security, and if you're able to do that, i'm going to be here to support you, and i once again thank you for your service and thank you, chairman kerry, for holing these hearings and allowing all of us to participate. thank you. >> thank you senator udall.

madam secretary, thank you. i know we've gone over time and your staff is sitting there chafing trying to get you down there. i apologize for that. i also want to say to you that i think it's been really very constructive and very healthy to have this exchange and for our colleagues to sort of put their thats on the -- thoughts on the tail as you remember well and also to hear your answers. i thank you for being as thorough and generous in your answers as you have been. i think it's been really constructive. also just to personally tell you thank you for your many curtesies, and also i echo my colleagues in saying what a terrific job you are doing, and we're grateful for you for your seemingly endless reserve of energy so thank you very, very much. i look forward to following up on the other conversations. >> good. thank you, chairman. >> thank you.

[inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] >> coming up, marvin and deborah kalb look at how the vietnam war changed presidential decisions to go to war since 1975, co-authors of "haunting legacy"

interviewedded live at booktv.org. tomorrow, live coverage of the fourth circuit court of appeals conference taking place at the greenbriar resort in west virginia. it will start with a conversation by john roberts and a panel of law professors talking about supreme court decisions from last term. it begins 9 a.m. eastern on c-span and c-span rood. >> next, the status of u.s. forces in afghanistan. the house armed services committee herd from joint chiefs of staff admiral mike mullen who supports president obama's plan to reduce troops in afghanistan. starting next months, 10,000 troops will be returning home by the end of the year, and a total of 33,000 troops by the end of

september. >> the decision to withdraw 10,000 troops from afghanistan by the end of the year, and the remaining 23,000 serge forces by next summer. my position on the war effort has remained consistent. afghanistan's stability is vital to our national security. any removal of forces should be based on conditions on the ground and consistent with the advice of our senior military leaders. based on the president's speech last night, it's not clear to me that this decision was based on either. at west point in 2009, the president committed to a comprehensive counterinsurgency strategy in afghanistan by serging # 3,000 -- 33,000 troops. every witness in the committee testified this is beginning to bear fruit by seizing momentum from the taliban. many members have been to afghanistan and seen the progress for themselves. districts that were once taliban's strongholds are now being contested and once

contentious regions are handed over to afghan security forces. the afghan national army and police are growing in number and beginning to develop the capabilities to secure their country. these gains are significant. we should guard them jealously. i'm deeply concerned, therefore, about the aggressive troop withdrawals proposed by president obama. the president's decision could jeopardize the hard won gains our troops and allies made over the past 18 months and potentially the safety of the remaining forces. this announcement also puts at risk a negotiated settlement with reconcilable elements of the taliban who now believe they can wait out the departure of u.s. forces and return to their strongholds. today, i hope to hear more about the details underpinning the president's plan, that we've allowed enough time to achieve success, that this drawdown is a military, not a political

consideration, and that it does not put our remaining forces at risk. ..

>> and those injuries is enormous. we are weary of the war without question and we want our troops to come home as soon as possible. but the second thing that we want is we want to make sure that afghanistan does not descend back into chaos as in the late '80s and early '90s. we understand the threat to

national security that comes from the afghanistan that is chaos. the safe havens available to al qaeda and taliban and other allies that clearly question us. the challenge and the president and others face is how do you balance those two things? i think the president has struck a very, very responsible balance in the plan. it's important to point out even with the drawdown that is announced, we will have vastly more troops in afghanistan at the end of the drawdown late next year than we had when obama took office, nearly twice as many u.s. troops will be there. it is a relatively modest drawdown over the next year and a half. and the other point that i hope folks will understand, yes, there is a risk in us leaving. but that will always be the case. if we had 150,000 troops there and kept them from ten years, ten years from now when we decided to draw them down, there would be a risk. this is not a historically stable part of the world. that risk will be there. what fails tour understood and i

applaud, is the risk involved in staying too long. and not just in terms of the cost that we will bear as a country and certainly the cost that the men and women in uniform, but to the very security of afghanistan itself on a daily bases, we hear complaints from the afghan people about our military presence. about civilian deaths, about the simple fact of having 100,000, or add the nato folks in there, 150,000 u.s. troops in your country. it's not a pleasant experience. it not your government reliant on the 150,000 foreign troops and muslim country, particularly 150,000 western troops in your country. that too has a risk attached to it. so you have to strike the balance. if we were to say to the afghan people tomorrow, we are going to stay here for as long as we feel like it, that too would undermine the national security

interest. the balance must be struck. i think in the president's speech last night, he struck the balance. if i have a concern, it's that we maybe staying there too long into next year. so i can certainly understand why our two witnesses and the president and all of those who put together the decision have a difficult balance to strike. i too look forward to hearing from the witnesses about how that plan is going to play out over the course of the next year and a half and beyond. because there is no question that afghanistan and pakistan are central to our national security interests, they are also -- there's also no question, i think, we all wish they weren't. it's a very, very difficult part of the world. we have to manage a plan to protect our national security interest. i applaud the president for taking steps in that direction, i look forward to hearing from the witnesses that will further elaborate on the plans. >> thank you. i want to thank the witnesses for being here today. i know this is very short notice. but it's timely, i appreciate you making the extraordinary effort to get statements out and

to be here today. we're fortunate to have with us the honorable michelle flournoy, the undersecretary of defense, and admiral michael mullen, the chairman of the chiefs of staff. we were talking the other day and he made the comment that people kind of figure -- have made comments you are going to coast through the next so many months. yes, like i've coasted through the last four months. people -- when they were preparing the new year's resolution probably weren't thinking about egypt, yemen, libya, all of the different things that are happening. so again i want to thank you for your many years of service and for making the extraordinary effort to be with us here today. we'll listen now to miss flournoy. or who -- who -- >> yeah, excuse me.

>> admiral mullen. >> good morning, chairman, representative smith, distinguished members of the committee thank you for the opportunity to discuss with you the president's decisions regarding the beginning of our drawdown in afghanistan and our continue to transfer responsibility to the afghan national security forces. let me start by saying that i support the president's decisions, as do general generas and petraeus. as has been the case throughout the execution of the pakistan strategy, the commander in chief presided over a conclusive and comprehensive discussion over what to do next. i'm grateful for that. next to everyone's mind was preserving the success the troops and the civilian counterparts have achieved thus far. we believe back when the strategy was established in december of 2009 that it would

be about now this summer before we could determine whether or not we had it right. whether the resources were enough and the counter insurgency focus was appropriate. we know we did have it right. the strategy is working. al qaeda is on their heels and in the south they, checked. we've made extraordinary progress against the mission we have been assigned and are therefore now in a position to begin responsible transition out of afghanistan. we will, as the president has ordered, withdraw 10,000 american troops by the end of this year and complete the withdraw of the remaining 23,000 surge troops by the end of the next you remember. general petraeus and his successor will be given the flexibility inside the deadlines to determine the pace of this withdrawal and the rearrangement of remaining forces inside the country. there's no jumping ship here. quite the contrary. we will have at our disposal,

the great bulk of the surge forces throughout this and most of the next fighting season. i'm comfortable that conditions on the ground will dominate as they have dominated. future decisions about our force posture in afghanistan. let me be candid, however, no commander ever wants to sacrifice fighting power in the middle of a war. and no decision to demand that sacrifice is ever without risk. this is particularly true in a counterinsurgency where success is achieved not solely by technological prowless or conventional superiority, but the whit and wisconsin wisconsi- wisconsin come of our people. fire power is man power. i do not intend to discuss the specifics of the private advise i rendered with respect to these decisions. as i said, i support them. what i can tell you is the

president's decisions are more aggressive and incur more risk than i was originally prepared to accept. more force for more time is without doubt the safer course. but that does not necessarily make it the best course. only the president in the end can really determine the acceptable level of risk we must take. i believe he has done so. the truth is, we would have run other kinds of risk by keeping more forces in afghanistan longer. we would have made it easier for the karzai administration to increase their dependency on us, we would have denied the afghanistan security forces who have grown in capables opportunities to further exercise that capability and to lead. we would have signaled to the enemy and to our regional partners that the taliban still possess strength enough to warrant a full measure of our presence. they do not. we would have also continued to limit our own freedom of action there and in other places around the world. globally, the president's decisions allow us to reset the

forces more quickly as well as to reduce the not inconsiderable cost of deploying those forces. in some, we have earned this opportunity, though not without risk, it is not without it's rewards. and so we will take that risk and we will reap those rewards. the war in afghanistan will enter a new phase and we will continue to fight it. we will continue to need the assistance, persistence, and expertise of our allies and partners. the president said it well last night, huge challenges remain. this is the beginning, not the end of our effort to wind down this war. no one in uniform is under any illusion that there will not be more violence, more casualties, more struggling, or more challenges as we continue to accomplish the mission there. we know that the progress we have made though considerable can still be reversed without our constant leadership, the contributions of our partners and regional nations, and a more

concerted effort by the afghan government to address corruption in their ranks and deliver basic goods and services to their people. but the strategy remains the right one. this transition in the concurrent focus on developing the afghan national security forces was always a part of that strategy. in fact, if you consider the continue growth of the ansf, the taliban could well face more combined force in terms of man power in 2012 than they did this year. and capable enough if the ansf has strong leadership and continued outside support. going forward, we also know we need to support an afghan political process that includes reconciliation with the taliban who break with al qaeda, renounce violence, and accept the afghan contribution. and we know -- we know we need to continue building a strategic partnership with afghanistan one base not on military footprint,

but on mutual friendship. our troop presence will diminish as it should. the partnership between our two nations will and must endure. that is ultimately the way we win in afghanistan. not by how much we do, but how much they do for themselves, and for their country. not by how much our representative soldiers fight, but by how much our statesman lead. thank you, mr. chairman, i stand ready to take your questions. >> thank you very much. mr. flournoy? >> mr. chairman, ranking member smith, distinguished members of the committee, thank you for inviting us both here today to update you on afghanistan. as you all know in his december 2009 speech at west pointe, president obama announced a surge of 30,000 u.s. troops with the clear objectives of seizing the initiative from the taliban and reversing the momentum for the campaign on the ground. at that time, the president

specified the surge would not be open ended. he would begin to reduce u.s. forces beginning in july 2011. last night true to his word, president obama announced that the united states is beginning a deliberate, responsible drawdown of our surge forces in afghanistan. an official drawdown of 10,000 troops will occur over the course of this year. with a further drawdown of the remainder of the surge by the end of the summer 2012. secretary gates believes this decision provides our commanders with the right mix of flexibility, resources, and time to continue building on our significant progress on the ground. even after the recovery of the surge forces, totally about 33,000, we will still have 68,000 u.s. service members in

afghanistan. that is more than twice the number as when president obama took office. clearly this is not a rush to the exhibits that will jeopardize our security gains. more importantly, at the end of the summer 2012 with all of the surge forces are out, there will actually be more afghan and coalition forces in the fight than there are today. that's because by the time we complete our drawdown, we anticipate the afghan national security forces will have added another 55,000 plus members. not including the afghan local police. the growth in the quantity and the quality of the ansf which has fielded more than 100,000 additional forces over the past 18 months is one the critical conditions that is enabling the drawdown of the u.s. surge forces. more broadly, as the admiral said, our strategy in afghanistan is working as designed. the momentum has shifted to the

afghanistan forces and together we have degraded the capability and achieved significant security gains. especially in the taliban's heartland, in the south. these security gains are enabling key political initiatives to make progress. we've begun a transition process that will ultimately put afghans in the lead for security nationwide by 2014. we are beginning to see reintegration and reconciliation gain traction and we are in discussions with afghans about a strategic partner that will signal the enduring commitment to the people and regional peace and stability. together these initiatives promises a future afghanistan that is stable, peaceful, and secure. so i want to emphasis that this announcement in no way marks a change in american policy or strategy in afghanistan.

it is holy consistent with the goals that president obama and our allies agreed to at lisbon, the nato summit at lisbon last year. there we committed to the gradual transfer to the afghans by the end of the 2012 and enduring commitment to partnership with afghanistan to ensure that we never again repeat the mistake of simply abandoning that nation to it's fate and risking the reestablishment of al qaeda's safe havens there. i want to emphasis that although our progress in afghanistan has certainly been substantial and our strategy is on track, there are significant challenges that remain. in the months ahead, we will be confronted by an enemy that will try to regain the momentum and the territory that it has lost to coalition forces. however, that enemy will face an afghan population that is

increasingly experiencing the benefit of security and self-governance. and those benefits will only become clearer as we begin the transition to full afghan security responsibility in selected areas. those communities will provide us with useful lessons on security and governance as well as a potential model for other parts of the country. finally let me emphasize how crucial it is for us to maintain the continuing role of our coalition partners in afghanistan. 48 countries with some 47,000 troops along our side. these partner nations have made significant contributions and significant sacrifices. even as we recognize the progress that we and our partners have made towards our shared goal of destroying terrorists safe havens, we must sustain this partnership to ensure that we ultimately leave behind an afghanistan that will never again serve as a base for terrorists attacks against the

united states or our allies. thank you, mr. chairman, mr. smith, and distinguished members of the committee, that concludes my remarks. we look forward to your questions. >> thank you very much. you know, there's not a single member of congress who does not want our troops to come home as soon as possible. personally, i believe the objective of transitioning to an afghan lead on security within three years is both desirable and achievable objective. the last visit that i made compared to the one before i saw significant progress. areas that we weren't able to go into before, we were able to go and walk down the streets in marjah without body armour. we opened a school while we were there. i think we've made significant gains. this will enable as we transition -- it will enable our forces to come home. however, i'm concerned that the

drawdown plan announced by the president last night will significantly undermine our ability to responsibility enact this transition. i'm concerned with the gains that we've made in the south, we've been holding as i understand more of a holding pattern in the north and in the east and the plan was that i thought to move more of those forces as we solidified the gains in the south to move them to the north and the east. and i'm concerned that this drawdown may not let us do all that we could in that area. admiral mullen, based on the best professional judgment and that of or commanders, how many of the forces to be drawdown will be combat forces? and i'll ask these and you can answer them. is the president's plan to redeploy all 33,000 surge forces by next summer aggressive? what regional commands will these forces be drawn from? does it put our recent security

gains at risk? and does it risk the security and safety of our remains forces? >> let me -- let me talk about broadly the approach, clearly as you've said, chairman, we've made significant gains over the source of the last 16 months. really since the president made the decision to put the surge forces in. and particularly in the south. we're in the whole phase now and, in fact, moving into a phase where the afghans have the lead. so that was -- that was where we were with respect to literally the most recent discussions and meetings with respect to what to do next. and we understand that. the south consciously has been the main effort. and it is that focus that has

allowed us to achieve the gains that we have. not insignificant when we debated this in 2009 was the very small chance that everybody -- an awful lot of people gave us in terms of building the afghan national security forces, because of the illiterate si challenge, because of the infrastructure, because we didn't have noncommission officer leaders, et cetera, the extraordinary progress that has been made with respect to setting up the infrastructure and fielding forces. miss north now -- miss flournoy said 35,000. some 35,000 are literally in training by the end of this week. by the end of the next year, we will have afghan units that are manned at the nco level to the 85% level across the board. so extraordinary changes with respect to that. when we talk about whether gains

or reversible and fragile, these gains can only be made irreversible by the afghan national security forces and the afghan people. in the end. so that's where this is headed. we've made great progress with respect to that. the secondary effort was the east. and i wouldn't describe it over the course of the last year as a holding action at all. in fact, what david petraeus and others have done out there is reconfigure forces to deal with the challenges of that very rugged territory and, in fact, it is not to take a lot of our -- the plan is not to take a lot of our forces and put them in the east. but -- it is as dave petraeus says, it provides the jet stream between the safe havens in pakistan for the accounting network in particular and getting to kabul.

and kabul, 20% -- roughly 20% of the afghan population has been secured, afghans are in the lead, and obviously you want to keep it that way with respect to the capitol of that country. so what general petraeus has done over the course of the last year is reconfigure those forces, look at a -- an adjustment in literally strategy on the ground if you will to layer the forces in a way so that that jet stream is really cut off. it has made much more difficult on the enemy. and there are layers forces from the border right through to kabul which are now doing that. i'm actually more confident in what we have with respect to the east than we had a year ago. because i think we understand it. that doesn't mean it's not hugely challenging. it clearly is. but there was never an intent to do exactly in the east what we have done in the south with respect to our forces. and i think that all lies within

this overall strategic approach. all of us knew going into this that the surge forces were going to come out next year at some point in time. so the discussion about exactly when is obviously relevant, but in terms of numbers of months and getting through the fighting season, the end of the september is almost all the way through the fighting season. there already those that argue october is a tough month. it is. but it's winding down in october. so what we have is the vast majority of our forces for the next two fighting seasons not unlike what i said in 2009. we put 10,000 marines in helmand in 2009. if we didn't have a good handle on what was going on in 18 to 24 months based on strategy and as well as what's happening on the ground, we probably have to change our strategy. we -- this -- i believe these decisions and our strategy gives

us time to understand how good the afghan security forces are going to be, how well the government actually stands up, how does president karzai get at corruption, how well are we dealing with the risks associated with safe havens, and is there political state space -- political space that it buys and start and move it where it is right now in the beginning stages where you can continue reintegration and former taliban who have -- who are now being reintegrated. in essence and ways from my perspective, we are talking about the margins here after a lot of progress, good strategy, and continued focus in that direction. i think i would be remised if i said publicly where the forces are going to come from. because i'm not anxious to give up anything to the enemy in that

regard. i'd be happy to go through that with us. but most importantly, i think where the forces come from next year will depend on what happens this year. and that will be conditions based inside obviously the deadline set. and that general petraeus and rodriguez and their reliefs will make the determinations given the -- given the mission they've been -- given to carry out and obviously the direction from the president. >> thank you. would you term the redeployment for this summer aggressive? >> actually not the words as you know we all have to choose our words very carefully. you used significant earlier? i think it's well within reason for us to be able to do this. as i said in my opening statement, it was more aggressive and it has more risks

than i was originally prepared -- than i recommended. that said, in totality, it's within the ability to sustain the mission, focus on the objectives, and execute. >> i didn't mean when i asked whether the forces would be withdrawn to pin point locations. i was referring to -- and i'm glad that you answered that the way you did, but what i was talking about, will they be coming from the fighting forces, the -- >> they are combat forces is a term that's been broadened dramatically in these wars. i've been asked as recently as a couple of days ago will they be the enablers. enablers are every bit the combat force anybody else is in the classic sense. so -- and so in ways are our

support forces. because the threat is a 360 threat often times. i can't actually tell you, mr. chairman, where they are going to come from. clearly the commander on the ground is going to keep as much fighting power, whatever that means, given the situation as he possibly can for as long as he can. i'm sure general petraeus and if confirmed general allen will proceed. i just don't have the specifics yet. >> thank you very much. mr. smith. >> thank you, mr. chairman. you had mentioned in your opening remarks about the number of afghan security forces that have been trained over the course of the last 18 months now since the surge began. i've heard the statistic 100,000 on the afghan army. i know we also made significant improvements in the police force. one the logical things that occurs to us. if we have that many more afghan troops available, that much more afghan security, how does that

figure in and help us? how capable? how reliable? how can we move them in and take over some of the responsibilities? because if we are adding 100,000 afghan troops, i don't know what the figure is on the police force and this year, the next six months is plan is to drawdown a total of 4,000 u.s. forces. seems to me we are still in good shape. one piece of that, nato, the other nato forces are going to be keeping roughly the same amount for the rest of this is my understanding. can you confirm that and comment on how the afghan forces add into the mix? >> well, let me go to the second question first. we were in both consultation and contact with our nato allies over time. and there are -- they were obviously focused very much on what the united states was going to do and any decisions that they were going to make were clearly going to be informed by this decision that the president has made.