we assume the people who put the mouse organization into what are people like tim pawlenty and rick santorum, people that are betting on lot on the straw poll. they have not done well in traditional polling. if they do not do very well, it could be very tough for them. i think we will see the first willing of the field with that straw poll. host: james pindell, as mitt romney steps up his efforts in new hampshire, will you go to the small gatherings where the candidates go to small parties and shake hands, and what will you listen for? guest: i looked at the reaction on people's faces. are they engaged, laughing about this guy's answer over here? mitt romney will begin small forms monday night. you get a sense from the crowd

sizes. there is an ability to draw interest and the able to -- and be able to draw people into hear the message. we might

[inaudible conversations]

next, a briefing from wednesday on the role of weather satellites in predicting severe storms. the american geophysical union and the american meteorological society posted this event looking at how polar orbit satellites are able to protect the safety, property and welfare of the american public. this is an hour and a half. >> good afternoon, everyone, and thank you for being with us on this afternoon in washington, d.c. after we have had a lot of really interesting times over the past two months. it's great to have you with us. - christine mcentee of the

geophysical union and i'd like to thank the american meteorological society and aerospace for working with us on bringing to you what we think is a really, really distinguished panel and also some really important information to convey to everyone here. even though it's typically out of sight and out of mind, americans across the country rely on polar orbiting satellite systems more than menino. in addition to the impact on everything from agriculture to aviation safety to the oil and gas industry, the satellites facilitate our ability to issue timely and accurate warnings during other events like tornadoes and hurricanes. and this certainly has been a really interesting weather year for the united states. the three to five dss warnings we are able to give when severe weather strikes depends on the data from the polar orbiting satellites and other things at which are used to interpret this data which you will hear about

from our panel. we saw how beneficial as a country these advanced warnings can be earlier this year when tornadoes swept through the southern u.s. and in joplin misery. all weather forecasting systems rely on the data provided by noaa and the national weather service and the polar satellite provide 90 present of the data that is used in weather service forecast models. maintaining reliable data mandates is that we maintain our polar orbiting satellite system including the next jpss -- excuse me for a minute. the next generation system which as many of you was the joint polar satellite system or jpss. each year as weather is the direct cause of thousands of deaths of injuries and billions of dollars in damage today we are going to discuss how these satellites protect not only public safety but they also protect national security and

our economy. i'm going to introduce the panel and then turn it over to dr. berrien moore who's the director as well as the chesapeake energy corporation chair and climate study for the university of oklahoma school of meteorology and the dean of the denver city college fought mustered in the geographic study and vice president of the schools weather and climate programs, and he will begin to moderate the panel as soon as i introduce them to you. with us today in addition to dr. moore, we have dr. 9-1-1 sullivan as you know the assistant secretary of commerce for environmental observation and production and deputy head minister of the national oceanic and atmospheric administration. jim stefkovich, as a meteorologist in charge of the national weather service in birmingham alabama, blah, blah and, a wjla meteorologist.

the climate communications person who's getting his doctorate at george mason university, working on his doctorate -- at george mason university here in the washington, d.c. area, and edward eddie hicks was the emergency management director in morgan county alabama and president of the u.s. council of the international association of emergency managers. and with that i am going to turn it over to berrien. >> thank you. appreciate that. >> i >> thank you. appreciate that. >> i am delighted to be here. as you can tell from the introduction of the panel we are going to range from noaa's role on the observation that forecast

to the role of the forecaster and then to the role of what do people do with the information. so having eddie hicks here to be able to tell us what it's like to be at ground zero is a particular important part of this panel. i had some experience with that this past year in norman oklahoma. as the director of the national weather center this was my first year and my first day on the job if you will in tornado season. in fact that almost indicates my east coast bias that i had never really been in a tornado alley, and so the white had joined the university in june in 2010 my

first spring in normandy and on may 24 for kavanagh and others from the production center and the national laboratory called me at 8:30 and said the models are converging and we need to brief the vice president that between 5:30 and 6:30 on the i35 corridor 20 miles south to 20 miles north of oklahoma city we are going to have severe tornado conditions. this is 8:30 morning. spinning there wasn't a cloud in the sky. the golf course was crowded the students left for the summer, people were taking picnics, it was a beautiful springtime day and norman oklahoma. the governor was called we

waited for the mid morning past of the polar satellite, the models continue to converge and the data was being integrated but there was no need at this stage to bring in the radar data because it is a crystal clear day and the pooler afternoon platform led by regarding the data the network started to kick in. so these models are now beginning to assimilate different datasets. at 3:00 the government sets the state down. there wasn't a cloud in the sky. on i called over to the golf course to brief the professor and said yes we already know about that but we feel like we can get people off the course in the next hour. 4 o'clock in the afternoon a few clouds began to appear in the sky. at 5:15, we began to have to evacuate the second floor into safe areas leaving open only the

forecast office because by this time we were now beginning to see the radar take in. at 5:48 tornadoes touches down north of oklahoma city and the corridor. another tornado touch is done between oklahoma city and normandy and the third tornado 2 miles south of campus touches down about 6:45. 7:00 we get the all clear. i walk out side and not a cloud in the sky. i thought i had never seen science quite like this, to see the observation of computing scientific systems say something at 9:00 in the morning, 5:30 and six time kofi that we were going to have severe conditions. the bp for the research and meteorologist was a little disappointed that the third

would kicking in at 6:45 and we would miss the forecast. now this is extraordinary for the country to have this kind of capability to actually go through that sequence and what are the elements of that sequence and then how do we communicate the information is something we need to do not only today but a number of times this next year. so, my first question is to dr. sullivan, and that is tell us what noaa does in all of this and tell us what is the state of the system right now in all of this. >> thanks. who can say it better than that first-person account. and by the way, i'd like to say for the members of all the stuff here i can't tell you how fun it is to be in the chamber and speaking to people without a five minute timer in front of

me. laughter could it's absolutely extraordinary.w we are facing a differentwwww direction. that doesn't hurt. so i was in kansas city arriving in kansas city on the day berrien just told you about. i was on route to a couple places on was to kansas city to visit our central region forecast office which is the central control and coordinating authority for all of the weather forecast offices that had just been experiencing and preparing people for what berrien described and about ten days earlier had been serving in a similar role as tornadoes last for joplin missouri, quite a devastating in that community 115i believe the final count was lives lost, thousands of structures at 1800-acre fields that is to be people's homes and hospitals. it was quite an experience and in fact the day that we were driving from kansas city down to springfield and the joplin area tornadoes were running through

the southeastern part of kansas city and we were relying on the same forecast skills, the san chain berrien described to the models, the expert forecasters to provide the guidance and in the media from the apple on our iphone to the radio and television to get the word out that last mile so that we all know not just with the models say because we don't care what the models say. what we care about is what is about to happen in your neighborhood. and how can i explain that to you in a way that says you know henry lee right where you are, not in the county generally, but along the ice 35 corridor plus or minus a few miles. so you can add that into your sense of where you are very readily and determine what actions to take. we got off the highway. we were looking at all the information to the radiologists and the lot better geologists in the car looking at all the data looking at all the sources, the highway is the worst place to be

we got off the highway. we said let's at least start with a large structure like a restaurant. we've walked in and it was an apple these -- applebees. she says we are serving, we have the freezers, we are not seeing anybody by the window, we know the drill and we are paying attention, too. the restaurant is relying on the same information to be sure they make the right decision can we continue to serve customers or not. when we have to take the business loss and do the right thing and in that window because we do have large firms structures like freezers, how can we help structure people, they, are there, they are already at that point. people survived in joplin taking refuge in freezers and large food freezers and restaurants and stores. i'm sure the same is true of alabama. so, you know, i would like to amplify again that chain and may

be introduced a metaphor that is anchored on when end and absolutely remarkable and berrien user right adjectives the concrete salles whitcomb blight foundation of expertise come observational to the the the the advanced modeling capability that the united states owns and operates as a federal public good platform. this is not what the weather channel does, this is not what kgla does, this is what we, as a nation, do, to ensure that for all citizens with the technical and expertise foundation that lets this sort of observation transform to knowledge, transform to information that matters and move in a timely fashion in a channel that clicks with who you are and where you are so that you can take the right action to protect yourself, your business, your

home, your family and connects the folks like eddie hicks here so that they can help put the word out and prepare first responders. and that's the one of the link to this change that i would alert you to. berrien told a story putting people out of harm's way in the precautionary sense, get people out of the way in advance. at the same time that that word was reaching him, because he happens to live in a very -- one of the nation's best meteorology departments, our central region and local forecast offices are activating circuits and relationships they work on an everyday basis to keep in good touch. they are calling emergency managers, they are tied into fema and red cross. bigger telling those first responders the same thing, too, so they can run through the prepared this checklist and think where the command post structures are and the stocks and stores. the probability of the hits are going and what supply chains, retailers from wal-mart and other vendors can the alert we may need your help in this

corridor over the next couple of days if they really hit, so think about being on the ground after the storm winds through and in a footprint where it did touch ground. the place i don't want to be. think about being that person coming out of that restaurant freezer or out of your cellar to the blue sky and the fix that used to be your home. thanks again to the chance to believe and communication, the people who are losing out to respond to you knew in advance, was staged in advance has been on their tiptoes ready to advance. we can't make what has happened to those decisions go away, but we certainly can bring the response in to play hours if not days faster. we can think of other natural disasters sometimes in this country, sometimes overseas, in that window of time from eight hits and has passed from finally someone is here to help me and it has been measured in days if

not weeks, the potential for disease goes up, casualty numbers go up as people suffer more severe consequences of early injuries. we have some remarkable ability in this country to confine and lesson that cascade with further cascading consequences. so what does noaa do? noaa is the agency that has been charged with that federal foundation responsibility. we are charged with operating satellites and polar orbits that deutsch scans are around the planet and the planet rotates underneath. we work in partnership with the defense department and the egg european meteorological. he mentioned the pass and the impleader satellite path. there was a european satellite and in the morning it was the noaa and in the afternoon that is the kind of international collaboration on the observations characterized in the enterprise if i may use that term for more than a century. the united states makes myriad

measurements from satellites and other systems every day multiple times a day. characterizes the atmosphere and weather patterns over our country. satellites of course are indispensable for many reasons including the upstream areas over the pacific ocean that are going to become the united states three, four, five days on the road. they make vertical profiles of the key atmospheric constituents that are the essential ingredients in the models. we share that data freely and with the media of local services of every other country on the plan that really a simple reason. we absolutely also have to have their data to feed our models and the cost of trying to inspire the to implement the world to the scale that we need to do with your forecasting has prohibited. it is a remarkable partnership that the data exchanges have endured through times of hostility, for times of open warfare where the data has still been exchange. as we operate the satellites.

i will come back to the constellation and the moment and the stationary satellite as well. we installed and operate the fundamental backbone radar network of about 88 sites across the united states and for the trust territories. we are on certain other targeted more local scale instrument networks partly for smaller scale measurements to help characterize how the pattern is scaled down to regions and partly for the research to improve operations. we also around the national centers for the environmental protection and the storm prediction center which is located with the weather center is one of those centers. the tropical prediction center which you know was the national hurricane center is another one. so some focus centers the work of developing the expertise and the modeling capability to get comfortable lead potent forecasts for different weather phenomena. out of all of that

infrastructure the super computers that run the models and the forecasters at process and produce the outlook guidance, that outlook guidance produce the certified if you will national forecast data that is put out an abundance of the information products. we have called them the family of services. anybody coming you can come to the web site and find and pick up any of those products yourself if you would like. but what we all do more commonly is that an application on our iphone or have favored meteorologist or some other source that fills the gap for us and those the extra translation. noaa doesn't try to transmit the products all the way into the kind of format you get them for your personal use we turn to our partners in the private-sector to do that and rely on them tremendously to make sure the ground is saturated and covered and a free betty, every one

possible has heard about it. i would say to other things on that point and then i am sure my five minutes are up. [laughter] one is if you ever hear -- if you ever hear these phrases, they have absolutely positively by mutual agreement with our private sector partners as well as national mandates the have come only from noaa. if you ever hear special with her statements that is a sort of good housekeeping seal of approval that tells you national forecasters looking at the public safety and economic benefit has escalated tension around the other circumstances. if you ever hear watch or warning, those are only -- that is only your country warning you and alerting you heads up something might be in your area or something is in your area and you need to be acting now to protect your business and your life and your home and our partners in the private sector helped pass that on to all of you.

>> one other small question and then i want to go to the other part of the panel. we all have just come through another severe weather event, úd and that's the budget, and i waú wondering in this severe weather have we come out of the storm ú shelter yet, and what we look@ around when we see what the@@ ptatus of your system in terms0@ of both the geostationarydú satellite and the low earthp orbit satellite as well as the other observation systems, howñ are we in that situation? >> i am in peeking out from the storm shelter but not entirely convinced yet to leave. so, with respect to the satellite constellations as happens with both the polar and the jeal satellite series at points in a milestone where there are new satellites in the design of the pertinent process to get up on the order in the

2015 from 16 come 17 timeframe the target always has been to be to have the satellite ready on station to take over from the one that has been in place to not have a feel we're on the order that leaves you with a gap in the data streams that we have been talking about, so for the polar satellites, we have a satellite that is built close to ready to go in colorado at the air base by the name of npp and our target is to get off the ground in october of this year for the five-year life of a ticket for 2016. the joint polar satellite that was mentioned has been queued up to be the successor and takes the baton from npp in the 2016 timeframe. the current year fiscally 11 funding challenges with budgets that didn't reach federal agencies until the fourth quarter shorted the budget required to the procurement with gps s by a very substantial amount that was requested was

just over a billion dollars, 1.07 billion, the satellite happens to be that point you have to step up into actually building things. the number refers, it came out on the appropriation was 382 million, quite the gap. the administration and others realize and the severity of the gap we worked together over a number of months and managed to move that north to 471 million. nonetheless, that our best estimates now say that has moved the on or bet rate in the state buy something on the order of a year and raises a very real risk almost a certainty that there will be a gap in the data for the afternoon or bit. the european union, a unit that has continuing to work to sustain the warning orbit we might have a gap, we might not get that second look at berrien mentioned for a period of about a year. we don't know the budget for the next fiscal year fy 12 yet.

our proposals have been marked up by the house. we again came asking for the amount we need, 1,000,000,000.6. the house market was close to that in the 900 million range. we don't know yet what the final outcome will be in the senate awaiting their number and of course, the outlook for 13 is certainly as we are hearing at any rate the outlook is nobody's budget is likely to go up but staying flat will be some degree of a victory. as of the challenge here is for noaa although this is not the noaa alone problem how we deal with being at a critical juncture for these absolute critical satellite observing systems the jeal system is coming along as well. how to be a comedy that, how do we get that done? within the constraints that the agencies are looking at? on the radar site i will quickly add the next system is in pretty

good shape. our scientific cadre that keeps improving our ability to extract information from it is pressured by these budgets and really spectacular advances, technical advances in the radar system that are just at hand, the ability to step into those and go to the dual polarization and stolid radars i think those prospective advances, which others at this table can tell you really would revolutionize the short term accuracy with things like tornadoes. that is certainly threatened by these budget pressures. >> okay. let me shift now to three of our forecasters, and i would like them to just take the general topic of a forecast, and in particular dhaka brian and jim and joe it's been my experience and maybe this is a game, the fact that i have not been in the

area necessary lee sevier whether, i don't remember as often where the forecast was that one day in and today's out, but i guess that in the area where these are real issues, the one and today out forecast is a reality. i would like to talk about that as well as the in how do you shift over to when it becomes now we are in the warning phase, out of the watch phase. at the 30 minutes and the 45 minute stages. talk to us a little about your role and what your response of the czar and when you are looking at. maybe start with bob. >> on the chain and the continuity, and it gives me an opportunity not to necessarily do it myself, but to give a little bit of a history, my synoptic professor and the synoptics are the basis of the forecasting, was one of the

great pioneers from the school of meteorology that began with rossby, and before i got into this side of the business from the opportunity to be in the research for a while i met a man who was one of the great hour original fundamental driving forces behind the miracle of weather forecasting, rather than using analytical techniques and with the art form is, and i've been fortunate to know people like that who are one of the great pioneers in the radar meteorology. and course byrne who was one of the great pioneers between satellite meteorology. so what has been for me exciting to start looking at years ago the beer truck model that jardine was used as the first model process, and to see the

evolution and to see the tremendous advance and application of the science that i started laughing as a ten year old boy that loves snowstorms, and here we are today. so, i think the application and the utility across the science itself from everything from the short term life critical decision making to the longer term planning economically and for two to three to four it is out and to see that being accepted across every sector of the united states and worldwide and what we do has a surface and as perhaps a fundamental service of government, that is the protection of life and property, that is the weather community has been so satisfying to me to see coming and as i have grown into this and then to be able to now be a part of that community that we all share, that is how

do we help people one, understand what will be happening and then how do we help them make the best decision. whether it is the one hour with a two hour and ten minute decision or the decision for three or four weeks ahead of time, as now people in oklahoma are having to deal with ever more economically and personally challenging things from heat waves. so by that as a little background, what we have seen is the fundamental application of so many parts of the science. that is the data which is so critical, and rick anthony used the analogy of what we do as a three leggitt school. the data from their remote sensing, the satellites that are now all 51-years-old when we first began to where we are now, those data, the fundamental understanding of the meteorology what is going on, and the use of

the computer systems such as the great pioneers of snider and cno charlie had so that the medical forecasting has indeed now advanced to the way we do business. it is no longer an art form, it is a science that benefits everybody in every sector and in every part of the country, and the service that we render as the nation to the world for that matter with cooperation and the sharing of data. so it has been a continuity if you will, and the continuity that must continue. sometimes i think we lose sight of how rapidly we have arrived at the point we are now in the application of the science and where we have yet to go. the forecasting problem is not solved, and we cannot lose sight that we need to maintain and devotee of its those critical,

critical elements, be they ever more powerful computers, be they the continuity and the maintenance of the critical satellite data, be they the education of all of us or be faith in the use of all of the new communication tools that we now have at our disposal from our public and private partnerships to the emergency managers so that indeed people can make the right decisions. so, seeing that and then maintaining it and continuing at is at the core of the government should do. so i don't think we can lose sight of the risk that there is this perception. we have solved the forecasting problem. let's move on to the next. the forecasting problem is not solved. we can only have a chance, and as we can see to get that tornado warning 30 minutes out, one hour out down to specific

neighborhoods have people make again the right decision. advance so that we can, ten days ahead of time, begin to have some planning for a hurricane or for an economically devastating and changing what people do for winter storms. and this is the economic payoff, and the economic benefit to the country to the individual is huge in terms of cost benefit, and again, this government, and we are all part of that, then the citizens i never heard someone come up to me and say you know what, we are paying too much for our weather services. i don't think i'm getting my money's worth as a tax payer. they have never said that. so, it's been a very exciting career that life had come and gratifying to see one,

cooperation that exists across all sectors. but importantly, the afghans and where we've come from from those early beginnings and the advance and acceptance of our science by so many decision makers in the public that the then take what we say and believe it and take the action. but the job is not over. we have to as a community make sure that we maintain this and don't have any gaps that are -- the public if they hear that there is a gap coming up that's going too deteriorated and have a regression, they would say what the heck is going on? that something that's important to me. so we are all in the same boat together. >> pick up on that a little bit from us and then i would like to go to jim to tell us from the alabama perspective and particularly the relationship that you and eddie have had but i would like to go to joe first. from your experience, but things

stand out in your mind as a forecaster and the role of the forecaster. >> - cui are all on the steamboat. in fact i can remember back in seattle, 1970i just started out in tv. we would go down the national??? weather service office and take? a four by five polaroid???????? black-and-white image of what??? was happening from clouds and??? looking down on the clouds over? the pacific. we have little data???? coming ? the pacific a few ships here and there and so for us it was pretty fuzzy at the same time and our technology has grown so quickly and so fast things to the wonderful scientific world we have in this country. remember when we thought getting a better forecast by telephone was so cool like it filed a

number to get weather forecast try that with and a tornado approaching it just wouldn't work and then we had a mobile phones come along and could get the weather on the mobile phones and now where are we? we are now with the iphone and the technology of the iphone you can go to bob's website and i can see the every are right here and i can see the satellite technology and the doppler radar technology so if we come this far in that short period of time what can science do for us in the short term near future it's been to the explosion of technology, knowledge in the computer power that we will be able to do much better when it comes to warnings ahead of time, specifically for tornadoes. we show the doppler radar without the doppler radar us tv folks would be much in the dark.

doppler radar has done so much for us we still have a challenge trying to figure out what is snow and rain and where is that line that is always a challenge but with the new sensors in the near future with many more channels of information coming and we will be able to decipher much better what are those particles or those water droplets are they high clouds or low clouds or mid-level clouds? and so the expansion of the capability that we have and that is one thing that i have learned being around the scientists at the campus was that knowledge base that is building and especially with the younger people coming out and it's in a way the way i look at it as a television person that was like a thousand words to me that in 1970 and there is an old chinese saying that modified says tell

me and i probably will forget, but show me and i might remember and that is the role that we play sort of feeling that link of the chain of using the wonderful signings the national weather service of noaa provides and then linking the that information with the graphic power that we have from the satellites from the radar to including the viewers, the visitors' understanding that and one of the things i do is understanding the strands of informal the education how people learn about science, the first strand is give them the moment and that is exactly what the satellite imagery does in their radar imagery does to look at some of those things, some of those images and we get the tool radar lenni you see the vertical profiles that is really and i know there's a tornado or severe storm there and then the of the third strand is if people can learn how to use scientific

reasoning, then they are a part of the science and that is what this technology is doing we are able to show the people and they can look at some of these images now and understand what he is showing that when he talks about this is a major severe storm, and this is the one we really have to watch so it is that visualization that every door and the satellite give and have given in the past and have the capability in the near future to give us much, much more. >> tying together what actually happens because of the observation systems that are in place in the satellites, a full six days in advance we started talking about the potential for severe weather. this started coming out of the noaa center as dr. sullivan said the national center. the information that gets passed on to us and what is called the weather forecasting office. we are one of 122 offices in the

nation. we have four offices that serve the state of alabama, and speed is in the state served by a huntsville office and so we are just in the south of birmingham. from there if we started talking about the possibility and the likelihood of a strong to the long trek tornadoes three days in advance. that is unheard of starting out in my career years ago, a long time ago. that information then gets really to the managers, to our television partners come to the public through our web sites through social media come through our forecasts and other services. we also have an 800 megahertz system we can talk directly to the emergency management with. from then a, when we have to we started getting into the sand, people took notice. the night before the event actually on folded we have

schools that closed across the state of alabama in anticipation. the morning of the event, we had the state emergency management office at the feet like a land fall hurricane was about to occur. the governor for the state of alabama actually signed an emergency declaration or proclamation about the oncoming weather. so, what happened when it got down to the field level is because of our relationship that we have with our media emergency management and our other partners, they believed us and they started taking action of what was about to occur. we don't have slides or video that i wish i could show you. but for alabama, it truly was a terrific event. we had for the state actually came in three waves of severe weather. it started in the early morning about 3:00 or 4 o'clock in the morning. we had another waiver around noon. and then the final wave a lot of people saw in tuscaloosa and birmingham occurred in the late afternoon and into the evening hours we had a 24-hour period of

severe weather. most -- about the southern half of the state of alabama was affected. between the two offices we issued about 200 mornings. that is tornado warnings combined and hundreds of fallout as dr. sullivan mentioned a follow-up to let folks know the progress of each individual storm. and so that information got conveyed with an average lead time for all of the tornadoes about 24 minutes to read it is almost double the national average that we have for the tornado warnings nationwide. so, people knew that it was coming. people prepared. we had people off the roads, and then when we got to the eve and we were working closely with emergency management during the yvette relating information. and then finally, we talked about the actual warning process itself. but it doesn't end there at the weather service because we spent the early weeks doing damage surveys because we actually go on the field and damage all of

the surveys, damage, excuse me, surveys of all the damage out there at the beginning points and endpoints with intensity, dr. hayes was out visiting our offices in alabama and that took weeks and to put this in perspective if we took all 62 tornado tracks that occurred in the state of alabama in the end was put in perspective, that is going from birmingham to boston on the road, and that is just all in the state of alabama so that is a horrific even. we have about 10 billion cubic yards of damage since in alabama we are big on football that is a football field of damage a mile high and that is all the damage so for weeks afterwards where again working with emergency management and first responders, thousands of first responders local, state, federal partners we are helping first responders

minute by minute forecasts using again all the systems because we have severe weather after the 27th of april. so we have to really minute by minute information to keep these people say if only the folks that lost their homes, approximately 13,000 homes and alabama were completely destroyed or major damage uninhabitable. but also to protect first responders out there. so literally for those of us of the field level, the severe weather ease and began in mid to late april and it didn't wrap up until just recently with all of the surveys, all of the information provided to the first responders and i will go to eddie on that. >> i can tell you that what we have is true of the partnership between the media and the weather service offices and the local offices. there are a couple of things we do in preparation for these events.

we work with the weather service on a severe weather storms potter class's and that isn't really to get all the folks out there to get all excited about chasing storms, but its practical training where we have our police officers, fire folks, ems people, school representatives that are going to have to be around any way, and we train them, we all train them, not me, we just provide the room, and they would actually train them where to look in the system and what to look for and how to report what they are seeing. so the radar image is good, but we are able to tell, to take that radar image and what is happening on the ground with the radar image. so it is ground prove reporting. the other thing that we do in preparation for this is our county will go out and actually do severe weather surveys in the

different facilities. some of my counterparts won't do that because of the liability, and i can tell you my response back to that. if i'm going to get food i'm going to get it for doing something instead of nothing. so, just to a number of you are going to sue me for that. [laughter] we are not professionals and that we tell them up front that the best thing to do is get an engineer to come in but from our perspective, these rooms are what we feel like are the safest areas, and there has been places some of these buildings we just say we are sorry, we can't find a place that we consider safe at all and what we tell those if you were going to do any additional construction, that is the time to provide shelter at that time because it is a mere fraction of the cost if you do it passed a part of the building construction. and so, it is a process that we go through there. now, what happens with our

weather service partners is we start regular briefings from officials and it's not just the emergency management offices. we bring our superintendent of education, we bring our law enforcement fire and so it is nothing to have 30 or 40 people in the operations center just before the briefing, and it really all depends on how serious, how much you scared us as to what is going on, but you know, it really depends on that. but they aren't getting a firsthand from the weather service what to expect, and i can tell you that just like you were talking about the details that they had when this system started, we knew that it was going to start sometime after midnight. it started about 3:00 was the first warning that started. that was absolutely not a surprise for us. we had already determined about what time we were going to

activate our emergency operations center. based on what we were told by the weather service, we didn't bring all hands in the cooking to every emergency operations center. we brought 86 - in there because based on what we were told by the professionals, they would be in three ways, and it was. we knew that the third wave was the one that we really had to gear up for, so each wave that came through we added a few additional people, and the rationale behind that is we don't want to wear everybody ought because you are talking about 18 hours is what this day -- i don't want to live through it again that it was 18 hours a lot of times the intent response. when we talk about activating our emergency operations centers we bring representatives from law enforcement to fight your ems, red cross, salvation army,

our volunteer organizations active in disaster and an hour county we bring industrial representatives rescue squad volunteer fire reps and of education. those are just the ones the we will bring in and then the reason we do that is because we know that if we get hit like we are anticipating that we need to start an immediate response. and so, we don't want to lose the two hours that would take to assemble levity that are already there and ready to respond. i can tell you that the huntsville weather service office issued 20 separate tornado warnings just from my county, 20 separate tornado warnings, and the favorite thing that they told me was they would get on and say morgan county we are issuing another tornado warning for your county.

and one thing we do, we don't want to cry wolf, with the warnings of the weather service has done that is something that you are not warning for the entire county any longer it is just a section of the county the storm is and will be affecting. we are one of the ones in the state that only try to send our sirens in that warning area and so what happens with the big storms that came through, we are big on redundancy of our systems. if one system goes down, we have a backup system in its place. so, what we have in place for four different tv stations that we could monitor the radar. we got access to two different feeds on the over the internet from the weather service and a commercial service that we depend on.

well, the cable went out, so that took out four of the systems there. in the internet went out. so, we could not take that box as the weather service issued for the western portion of the county that didn't mean anything to me what part of the western part of the county because i need to sound of those sirens. so i would have to go in and get them to verbally tell me over the radio what communities were affected, then i was able to go back and and sound of sirens just in that area. but i can tell you when your power goes out because we were fortunate with morgan county the five contiguous counties around my county had anywhere from ten to 20 times damage that we had. we were forcing it in that we were put in the southwestern corner about 3 miles across their to a 60-mile track a clip

from one county, 3 miles in my county and then into another county, and then in fun north western corner they got a 3-mile track there, same thing from one county to the other. 100 houses were affected in my county. the other counties were anywhere from, you know, 300 or 400 to 0,000 or whatever. so we were so fortunate that all of our -- we were so fortunate compared with any of my neighbors there and so we were able to help and offer response to the other counties. one of the things that happened, we have another little s the zeros we had three tornadoes that hit the county. that was what, 75 miles per hour? it took out five of the major transmission's coming into the county. it took out all of the power to the county and they said it would be at least two weeks before we got power back, it was

five days but they made us feel better, a whole lot better. but you know, with our response, it was definitely there were no real surprises other than the one numbers that were dealt with, but the timing was right on target. we had the stuffing committee and the public knew what was going on because for days the untold what to expect from that and unfortunately we have loss of life and that is one of the things we need to take from this what is the next step because we had adequate warnings but we still have a loss of life, so we've got to take that and learn from this. >> i think that polygon points out what you have been talking been able to narrow things down from a timing standpoint maybe you could expand on that.

>> shortridge for those who don't know how polygon is a multi cited of warning and we have all seen these hurricanes about to make land fall it shows the cone of where we expect the track to be. we do that with individual stores. so we only worn a certain sections of the county or a number of counties based on where we expect that severe weather to be and that is why because it polygon warnings, so we are getting down to the fine scale of exactly where we think the severe weather is going to be so we are reducing, greatly reducing our false alarm rate area of all of our individual warnings. >> i want to ask you to do one other thing. it's a great description of these amazing defense. one might have listened to that and got the sense of the forecast office does is just received satellite imagery in the model law output and pick up the phone and talk to the emergency folks. would you unpacked a little more? what is the actual process of your experts, professional experts of the weather service

and to take that communications step. >> the data was wonderful but conveying that through the customers is vital to get the information that the public. for this event, we have never seen the parameters. i personally have never seen in my 30 year career the parameters leading to this event for an outbreak of this magnitude. i used words like armageddon, death and destruction. i heard from emergency management as we gave statewide briefings of how the tone of my voice i never heard that type of tone before. we also talked about it with the media as well. our media in alabama, you were not there, goes wall-to-wall with all of the tornado warnings. so whether they were on a wall to wall without the interruption from 3 a.m. in the morning until almost midnight, we were using things like the national weather service chad, instant messaging deutsch and emergency managers and media partners, storm

spotters, the web information. seóul this is being conveyed to the boots on the ground type of concept is this information was great, but those of us on the field who were working with these folks are really into that and developing the trust relationships so people, when they hear it, listen to us. >> but how do you convert the central guidance you get from the national center for environmental protection and the satellite? what are the technical steps as converting that into the knowledge that starts you down that through the public on and talk to people pass? what is the part in between? >> we will take the signs being written in the center of the information and start putting them into our own what is called a reena forecast discussion's coming year of a logical discussions but we expect the event to be and we will then start talking about the placement of what type of severe weather we expect, where we expected and as mentioned, time frame to actually honed in where folks can understand what we are expecting. once the warnings become issued, then we are starting to talk about the polygons and in

describing in the term that goes on the radio and that goes out as a tone alert for those and i of the congressman bacchus couldn't make it but he has the legislation to put the manufactured homes, so that information goes out in the multiple means to basically tell people exactly where the storm is and where it's going and we will update the warnings frequently every several minutes to give updates of where the storm is and also talk about the intensity. we will also be gathering information from emergency management media in real time instant messaging. it's among the things we used was the television cameras out on the field and some of our folks to solve that. it was emotional. some of our staff members became very emotionally overcome in this event. they have never been in something like this and it's something we didn't anticipate coming and i will see first hand that we expected strong tornadoes. we never expected the magnitude. we never expected a total of 11

violent trade was across the state in that day. it was just a horrific event. .. >> let me point out, and i think a loss of data can lead to a loss of accuracy. if we have a set back in accuracy, we lose, we may lose the confidence of the person making the decision in the forecast, and once we lose that

confidence in the forecast as with anything, it takes a long time to get that confidence back. we can want risk a loss, any loss of data. we cannot risk having a set back that then will lead to a greater loss of life, and the thought came to mind there's been a number of studies to try and put the perspectives of the terrible outbreaks and historical perspectives and what if it happened back in the 20s and 30s with something of this magnitude, the loss of life may have been in the tens of thousands as tragic as it was in the hundreds. all of us involved in the enterprise have never seen anything like that. in a historical perspective before the modern tools, before the data, before the system in place, the loss of life would have been hoer horrendous. >> maybe i can just comment on

one experiment that we've done to try to understand rigorously what it would mean if we didn't have that afternoon polar satellite. so we took severe snow event of 2010, and we archive all the data from that event. we can take all the data gathered and processed in the real event and reprocess it. we did that except we took out the polar afternoon satellite data. in the reel event, in the actual event, it was in the tornado alley, but in the winter time, drenches rains, far enough north dumped 19-22 inches of snow. the forecast, again, five days out, high probability, severe storm. storm tracks like this. the contour lines say heavy rain expected here and heavy snow expected here. three days out, refining the

contour lines, numbers on them. the forecast track was on the money for where the storm went. the storm amount range was 18-22 inches. it was 19 inches in the fact in the bull's eye where the forecast predicted the most intense snowfall. that's how the real forecast went in the real event with the full data set. what happens when you pull the amp polar data out, when you blinded the satellite system by one eye that has a chance of being blinded in 2016? the track was off tens of miles. the amount of snow forecast was under forecast. the analysis was low by 50 #%. imagine being the eddy hicks here in the metro area, a three-day outlook there could be snow, but in the front range, not a big deal for the city.

that's wrong, and it slams the city. imagine there's an outlook that there's eight on nine inches of snow. that's one class response. if you know what the kind of accuracy that we've been talking about here on tornadoes on this day starting at about that time, an intense snowfall event leaving you 22 inches of snow on the ground, you'll behave differently. if you're the personnel manager, you encourage them to get out of town so there's not thousands of people stranded in cars on the highway in a severe cold event, ect., ect.. that's one example. that illustrates the scale of sensitivity that the forecast can have to this loss of data. we're not talking about slightly wrong. we're talking potentially 50% less good on where a storm is going or what the consequences it dumps on the ground may be.

you know, human beings are pattern response people. one or two times you tell me you can count on this, it's going here, and it comes and hits me here? all of us -- all of us will begin to not respond to warnings. >> following on that theme then in the context of this pending data gap perhaps, the 2016, this gps system has a pretty long pedigree. colorado rocky road with impose. given that and what you discussed, the vital importance of not losing that afternoon, when is noaa thinking about in terms of a different model for placing a polar orbiting satellite in space in the future so there's not as much of a risk of losing that given budgetary

constraints or anything else. what system is out there with a shorter timeline but gives good data or adequate data so you are not facing this 2016 blind spot if you will? >> so, that's a great question. we're looking at all of those questions, and we find that buy a variety of necessities are seeking false into two-time domains. there is the gps system was for a number of years managed in a different arrangement with what is now jpfs that involved the relationship with the department of defense. that was proved very difficult to make work. there were cost overruns that have been refaced and broken apart so there's a distinct weather and military program. having said that, there's still years of development. we are well down the road towards the specific satellite. as we look at that program in

2011 and how to get to a 2015-16 time frame, anyone who knows complex system engineering and procurement and development, you actually begin to raise the risk dramatically the more you keep churning the program around and shifting courses on it. you have a lot of momentum. contract expertise, spacecraft already under way, so it appears to us that on the one hand the least risk profile to minimize controlling gaps as much as possible is to stabilize and carry on with the jpfs program. there may need to be takes in the particulars of the program. your question in my view pertains to and what's next after that? are there -- there are emerging and different capabilities in the private sector space community now than before. there's been fascinating experiments. there have been e peermts with

constellations and formations of smaller satellites so what instruments could you do, what capability could they have? most of the instruments thus far is what people brought to our attention to consider. i would say noaa put out several requests for information. we formally gorp the pro-- begun the process of talking with industry and academia. it is demanding. you know, the center needs to be starring at the right place and scanning the right things at the right time. that tends to narrow the range of pay lord opportunity you might do. somebody is putting a gps satellite up, and says i can give you acreage, and most of the time your instrument can look here, but i might have to do something else with the satellite. it's a complex picture.

we'll continue to work with it, work with partners, and work for pathways and assess their technical and cost capabilities. >> question? >> yes, rick lopez. one thing i wanted to say is that based on your presentation it's obvious what you guys do is more valuable than all the instruments we bail out on wall street to our congress. [laughter] now, it seems also to me it's apparent that cutting the budget on this technology is outright criminal and murder against our population, so should citizens demand the removal of politicians who impose brutal pos tearty and including president obama who forget to mention he played a role in cutting the satellites. >> dr. sullivan, do you want to

answer that question? [laughter] >> i'll be happy to answer it too. i've been that 10-year-old kid who loved snowstorms. when the president gave the speech on the economy did mention two words "weather satellites" as being important and part of something that should not be cut. in all candor had not heard those two words before in a presidential speech and almost fell off my chair. i think he pointed out the vital importance and that as being one of the critical functions of government that should be maintained. >> i guess i would say in my experience as a private citizen for the last 15 years because i only returned from government service 90 days ago. it was remarkable to me -- i guess like any infrastructure, you know, out of sight is a bit out of mind; right? there's a evening forecast on tv, i can count on it.

the lights will come on when i flip the switch. i can count on it. what, why, and how that magic actually depends on, we all just put in the background, and we tend not to think about it and take it for granted. there's been a tendency as well, and i say this intending exactly no blame to anybody, but there's been a tendency that i've encountered in my community in ohio to think about if someone thinks about noaa at all, they say, i don't know what you do. i get my weather from the weather channel. [laughter] okay, so i think that general disawareness, if you will, of the reality that the way this enterprise works is it stands on this foundation, this public service, public good foundation, this tremendously vibrant commercial sector from weather channel to my friend here object left draws on that data. it's a fap by louse --

fabulous market segment and low barriers to entry. i bet there's 13 students at the dp now coming up with the next clever apps for phones. i hope they all succeed and have a new business. that all springs off of this public good, public available foundation, so we lose the bubble on that. we think fedex delivers the freight and the highway system has nothing to do with it. [laughter] in my experience over the past 90 days, i'd say the rate at which the awareness has been growing as perhaps we have done a better job of making communities an interested stake holder, that has been happening. the president has mentioned it in a couple of speeches. i can tell you it's mentioned in cabinet meetings by other

cabinet secretaries, in context of these events, secretary sebelius and we're growing of the awareness. the awareness comes after when you actually needed the awareness, and you have to deal with how do we recover as much of that lapse in times as we can. we've seen good support within the administration so far and working hard on the problem including support from our fellow cabinet agency and agencies like fema, so i don't have that complaint. >> i would add also in the question that this is a month of the most bipartisan of areas. senator shelby certainly from alabama, ed hoff from oklahoma. these are staunch republican senators from staunch republican

areas, and the satellite weather forecast chain is as strong there as any place in the country, and i think we recognize that. other questions? >> tornadoes don't know which party they are on. [laughter] >> julie campbell, the campbell group. this is for dr. sullivan. when we're talking about how ten uos the programs are and the advanced warnings for preparing for severe weather, what is your wish list or priority for increasing the robustness of the system and are there any data sets that you would like to increase the capabilities of somewhere down the line? >> julie, are you -- you mean satellites per se with your question or the full infrastructure of the weather

foreclosure enterprise? 93% of the data invested by the weather models are satellite data, and the bulk of that by far is something around 85% of that segment comes from the polar satellites. with the responsibility to do all we can to maintain the accuracy of national public forecast, i would have to place the polar satellites highest on our list. geostationary and the founders and instruments there are not far behind, but there's other elements within the infrastructure that noaa relies on to do its portion of this job. there's other key infrastructure points. we obviously depend critically on a telecommunications backbone and architecture to get the data to the right places, to the prediction, down to the satellites. there are risky points in that system, in keeping that current and robust so there's not

multiple embedded single point failures is something we pay close attention to. when you get down to the shorter -- well, let me go the rest of the way down the chain. when the weather data, the central guidance model, images arrive at a weather forecast office, jim and his colleagues use a workstation called the advanced weather processing system, awps. he's been humble and gracious of dodging the question of how awesome he is towards tipping his hands in the communications challenge, but point of fact the workstation competing power to mesh the models, mesh the data to bring in nets and other local and regional scale data fuse that together, look at the calculated vertical index sighs and bring ology of that together -- bring all that together in front

of a forecaster focused on a roajal scale to spot where to think about drawing the polygons and why it's drawn here. that's a remarkable fusion of data. it's a fabulous step forward the weather channel achieved in the early 90s. that's another critical step in the infrastructure, and then finally the instrumentation that lets the very short time frame, smaller scale insight about the dynamics happen, and that's where the radars come into play. someone -- i apologize, i forget who, commented -- joe commented i think, still struggling a bit where the snow line is. you also struggle with which reflection pool is a bird. the current radars send out waves in just one plane like that. there are radars that can send and receive with both the shape

of a wave, and that's dual polarization, and that kind of advance lets you discern far more accurately the particular motion of particles and you are sure if it's rain, snow, hail, or birds or even crickets. [laughter] that's one of the advances that's we're on the doorstep of it. it's under test and evaluation. we know a lot about it. we know about how to bring it into service. it's a capital expense. it's a budget question, and, you know, a migration path to bring it fully up to the service level that the weather forecast office folks would need. i'll touch on another radar advance. it's a little further down the hoer horizon, but it exists and is in test at norman. it's a multifunction phase array. the multifunctions are dishes that spin rapidly, you can move them in elevation, but it takes time to do a circuit and get you

a 360 degree picture of the sky. solid state phased arrays, this really is an analog, your clunky disk job that was a tape moving in your machine and a flash drive. that technology is on our threshold as well as inconstitution to the forecasting system. that would take scan times for folks like jim and ed with tornadoes instead of volume measured in minutes, it's in seconds. you would have an ability to hone in on a portion of the storm complex that you knew you needed to see much finer scale on and almost sort of stare at it in fine scale and track areas of concern. i worry mainly about sustaining. i'm obliged to care about sustaining and the capability we provide the nation today and do everything we can to be sure there's not a retreat in that capability, and secondly, i worry about the progressive

incremental slow judicious technology refresh, and i worry if there's enough 10-year-old boys and girls fascinated by hurricanes, storms, and tornadoes and can come through a strong science pipeline and continue this enterprise in the future. >> a quick comments on hurricanes in particular rmt one of the things in the future is we'll have better night vision. sometimes we had what's called morning surprise. oh, what we saw with infrared in the nighttime is different between the upper level of the hurricane and the lower level where the eye is. the event is in the future. it will give night capability and no surprise in the morning. could be 100 miles. >> another question here? [inaudible conversations] >> thanks. i'm julia edwards with national journal, and i was just reminded

of all the extreme weather events we've had in the past decade, year even, and just thinking about how these vests have been archived and with budget cuts, would you see less accuracy -- would you be able to discern with less accuracy weather patterns happening across the world? would there be a loss of data there with cuts? >> noaa's national climate data is one of the key depositories for all the data and increasingly for the output, the model output because that's our best description of what was the actual weather on a given day often is the model output, so, i mean, yes. no news to anybody who's been breathing in the last few weeks, every piece and corner of the federal budget is under pressure. the non-discretionary budgets

are under pressure and have been for a number of years. i would say that has not yet in a draconian way affected our ability to continue the archiving that we've been doing, but when we bring even the npp satellite and jps and the next generation on to line, they do generate higher precision, more fine skilled channels, more definition in the spectrum you're looking at. the data volumes take a step function forward, and we will be having to work hard to have the storage capacity and the access capacity to serve the scientific community and our own research base to try to extract value out of that, so the other piece of all of this enterprise that i fret about is, you know, we should be -- and we are doing a good job of this -- but i want us to continually work on this

as well and advance it. the nation -- we invest in observations to make measurements to turn into information that matters. it's -- we should continually strive to do the measure once, use many times, and so the archiving, the access for researchers, for private sector partners, for firms, firms that want to mine that data base and tell an agricultural concern, what's the longer term pattern here? is past still good for you in the next ten year planning horizon? should you base it on the last five year ten year average? anything shifting in the way to adjust accordingly? the data says the answer to that question is yes. it is true that trends are shifting and past is not as good a prologue as it's been in our historical lifetimes, so how do we continue to support the ability to measure once and use many times so that the country

gets the maximum possible total value out of investment we make in the observing infrastructure. >> i'll mention quickly that the national science foundation also in terms of fundamental response supports a number of things. at the university of oklahoma they compile for six weeks in the spring at every kilometer, every five minutes for the 48 states, what the weather is like so you have every kilometer every five minutes including the vertical profile what the weather is like, and as someone said in typical, it is like having all the game fields to go back and study. why do we make the interpretation, the touch down, what did the game films look like? you can imagine for this past year, these films will be viewed

many times as we go back to try to understand everything that was happening. it's very good question. >> reminds me coming here that we had a somewhat similar debate more than 20 years ago with the weather service going through the modernization, and there was a move -- do we need this next red? it's costing too much. what's the application of it? fortunately, the program was maintained, continued, the funding was continued even though there were some voices were overrun a bit, pull it back, but imagine if more than 20 years ago the nonfunding was undertaken? what would have happened this year? what is it about? if we don't remember history, we're doomed to repeat it. let's hope we don't repeat it and remember what happened more than 22 years ago with the modernization funding that was a very spirited discussion at that time. >> question here and then here.

>> martha brad it national association of emergency managers, and we're always concerned about the local weather offices and the staffing of the local weather offices because those are just a matter of life safety to us. in the current budget situation, if it -- what you already know of your 2012, will you will able to maintain all of the local forecast offices and fully staff them? >> looking for a wiping -- wink and a nod from the national weather service here. [laughter] certainly what we know of fy11 and i think what we can see -- remember, we only have the mark up from the house of representatives currently for 12, but certainly under the president's budget for fy12, we would not face any forcing functions that require any substantial realignment of any

number of offices or staffing, and as you know, we work closely with beth the wfo personnel and the national weather service employees organization on those kinds of questions. >> hi, chris mackente,. dr. sullivan and the panel, you did a great job talking about why this is a safety issue with dramatic weather events this year and it's not a partisan issue. expand a little bit perhaps on other uses of the data coming from weather satellites that's important to the nation in terms of aviation industry, fishery, agricultures, what the air force does with it. i think it's important for others to hear that this is important public safety issue, but also an important national security and economic engine for us as a country. >> dr. sullivan is excellent, but let me also say for those of

us living in the great plains right now, just the day-to-day is severe weather, just the day-to-day that we're having. >> thank you for pointing another dimension of this. it was stated some years ago that one-third of the united states gdp is weathercepstive. you -- weather sensitive. you touched on sectors that that applies to. there's also economic analysis that quantify the proportion of aviation weather delays that cost hundreds of billions of dollars a year primarily due to weather. i have to confess at the moment that fig escapes me, but in the 50% range of aviation delays that are weather related, so if you think about the way we make decisions today not just in the

life and safety sector, but in the operating of the major enterprises down to small businesses that are the economic vitality of this country, i can't think of anyone -- thinking of the last 15 years living in the midwest in ohio, i can't think of anybody who i knew in sectors ranging from retail distribution to banking to utility generation who were not paying very close attention to weather, to weather outlooks, weather trends, and refining their business operating decisions accordingly. it has become environmental intelligence which is another critical strand of business intelligence is the way i would sum it all up, and i think that statement has something between huge validity and significant validity across almost every sector of our economy if we delve into it. >> just a quick point. we remember the significant delays with volcano activities in iceland and europe.

there's volcanos in the western u.s. and alaska and the new satellite will give us a 3-d view, can we fly above or below? is it a narrow band? we'll have benter observations of aerosols or the particles from the volcanos. >> what i'd like to do now is to draw this phase of the discussion, and i'm delighted that it has become a discussion to a brief closure, but we'd like to move the discussion to room 2325 to have a face-to-face discussion. as i do close the program, i want to mention one final story from oklahoma and an acknowledgement. i mentioned my first day when i saw severe weather. i had been in oklahoma 11 months and about three quarters of a month, and we had the may 24th

outbreak. i did not know what was all going to go on, but i recounted most of it except for the very final part, and that was when we evacuated off the top floors down to the first floor into the large lecture rooms which have special construction, left the skeleton crew and the weather forecast office on the second floor: we essentially tracked what was happening on the internet on very large screens. there were children in there, dogs, cats that were in there, elderly people in wheelchairs were in there, and we watched what was happening. we watched the polygon come up. everyone got quiet. it came up just south of the national weather center almost touching it. the polygon stayed lit where the

tornado touched down, and what i did not realize was the police force in oklahoma have helicopters that are deployed and orchestrated in to observe what is happening, and so the tornado passed through, the police force helicopter came in, and what we saw was the following: there was a house completely gone, completely gone. tv camera dwelled on that, and then we saw a door open, and two small children got out, the mother and father got out, and the cat got out, and there was no house, and they just looked at one another, and i thought they would have all five been dead without what we had, and it was the polygon that simply said go to ground, and they did. that is a real event.

in my final acknowledgement, i'd like to thank also not only the hu, but the ams and john malay, president of ams that is here, and dave taylor, president of bal is here. we want to move to room 2325 for a continued discussion face-to-fashion. thank you to everyone and i particularly thank the panel. [applause] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations] >> coming up tonight here on c-span2, a hearing looks at the soundness of the u.s. financial industry.

>> eight, nine -- >> eight, seven, six, five, four, three, two, one, zero.

these are the stakes -- to make a world in which all of god's chirp -- children can live. we must either love each other or we must die. >> vote for president johnson on november 3rd. >> this weekend, looking at the history of political campaign ads and also former homicide detective on the day jack ruby killed the man under his protection and former speech writers were president nixon review how his speeches were crafted. get the complete schedule at c-span.org/history. >>

>> nobel prize winning economist said banks and other financial institutions do not have enough capital to prevent future defaults and big banks are still relying on the government to step in during times of trouble. professor testified before the senate banking subcommittee on financial institutions along with three other scholars of the financial industry. this is an hour and 25 minutes. >> i thank you for joining us,

the subcommittee and financial institutions. the hearing will come to order. thank you for joining us, the four witnesses, audience, and staff, thank you, i know when you schedule a hearing, you don't always know, but when there's one that happens when people leave town, there's no not telling what happens. i'm honored you showed up and the staff of both sides showed up and were helpful in the planning of this hearing. i will do an opening statement and have each of you do the same, and the question and answers may be more free flowing and in another hearing you'll reply to each other's statement and observations, and you are all four highly respected in these fields and have thought about this and reflected a lot about this, and so it should be an interesting discussion for an hour or so. the recent debate that we just

concluded and mercifully is concluded, or at least round one is, obviously was fixated on the national debt, but it's more than the national debt we should be worried about. people in the washington forgot about the debt that put us in the deep recession and cost our country and almost everyone in it so much, and that's the debt of the financial sector. cbo estimates the entire cost of rescuing the failing banking system, new spending programs in response to the troubled economy and interest payments will cost our nation some $8.6 trillion means eight thousands trail dollars. that's more than 6% of the gdp. this played and caused the deepest recession since the great depression, and that's the purpose of this hearing. in nearly the last century and a

half, u.s. capital rates declined from 25% and all of you wrote and thought about this a lot declined to 5% of total assets. in the last two decades, the ten largest banks doubled leverage. that is they have halved assets available to pay off that debt. the time of the financial crisis in 2007 and 2008, four of our five largest investment banks were leveraged 35 and in one case 40 to 1. when assets decline by the smallest amount, they are unable to cover -- pay their debts. this overreliance of borrowing from other businesses makes the financial system so interconnectedded and interdependent that the failure of one firm can bring down one sector and the entire economy. this gives companies an incentive to engage in what economists have called looting.

companies can risk bankruptcy via the risk of the society. according to kansas city president, the 20 banks that are highly leveraged than the community bank competitors, if i can use the word "competitors" in this case. it's assumed the government will step in to prevent them from failing. as a result, the largest banks make bigger profits than those who do not enjoy government subsidies. they are least able to weather economic down tuns because of that leverage, and not surprisingly, the largest banks are before. prior to 2006, they held 68% of total bank assets. by 2010, they held 77% of total banking assets. were there another economic calamity, bailing the banks out again imposes an even higher cost on taxpayers.

this is not capitalism in any sense of the word. to prevent the need of bailouts is simple is requiring banks to hold reserves. they require banks to fund themselves using their own money instead of other people's moneys. last tuesday the ranking member of the full committee said one of the lessons of the financial crisis should be the importance of maintaining strong capital requirements especially for large global banks. i couldn't agree more. the least we can do is ask the financial sector have have its own money to cover its own losses. we require as much of the community banks, much less a threat to our system and the same rule should apply to everyone. that's why we're having this hearing today and testifying are some of the nation's greatest economic minds that have great insight into all of this. let me introduce the four of you, and we'll then call on all four of you. joseph stiglitz, born in gary,

indiana in 1943, was professor at oxford. he's not awe university of the columbia and chair of the global thought, koa-funder of the csh koa founder there and awarded the nobel prize with information and lead author of the ?if intergovernmental panel on climate change that shared the 2007 nobel peace prize. he was a member of the advisers in the early clinton years serving as chair from ?aif to 1997 and was chief economist and senior vice president of the world bank from 1997 to 2000. thank you for joining us. edward kane, professor of boston college, economics of ohio state university with the bad judgment to leave. he consults for the world bank

and in the senator for financial research. he consulted for numerous agency including components of the federal reserve system. he's consulted for the congressional budget office, and office of technology assessment when we had one in the u.s. congress. eugene ludwig is chief executive officer of prom story financial group. prior to founding that company, he was officer of bankers trust, deutsche bank. he served as five years of controller of the currency and headed the office of the federal agency responsible for supervising the per. last, paul pfleiderer has been

teaching at stanford for some 30 years; is that right? research is jointly pursued with another professor of finance at the school and generally concerned with issues that arrise when agents acting in financial markets are differentially informed. his current research involves corporate governance and consulted for various companies, banks, involved in developing risk models and on the -- software for managers. dr. stiglitz, if you'd begin. >> thank you for the opportunity to address the descrur of the banking -- address the structure of the banking system. thank you, senator brown, for holding these hearings. two fundamental analytic insights by empirical observations should inform our

thinking about the appropriate regulation of banks including risk taking. the first is when information is imperfect and risk markets in complete, there is no presumption that markets will result in efficient outcomes. actions give rise to consequences not born by those undertaking them. there is a systematic misalignment of social and private returns. this result is of sinful importance in banking and finance because the very rational rises from information necessary for the efficient allocation of capital. the extraalties consequent to the risk taking manifest. it is not just the cost of the bailout and millions of americans who lost their homes, but the trillions of lost output of the economy's actual and potential output and the fallout of the crisis. the results sulfuring including that of 25 million americans who would like a full time job and

can't get one is incall cue lable. it is facing the country is no small measure as a result of the revenue devine that follows. it is well-known that recovery is slow and painful. this crisis not only demonstrated the importance of the extraalties of which failures give rise, but what economists call agency problems, those like bank officials who have to take action on behalf of others, have a fiduciary responsibility with incentives to lead them to take action to benefit themselves at the expense of those they should serve. the second insight is increased lev rages does not create value, but shifts risk. as leverage increases, risk is placed in the equity base. this is the insight of the miller theorem. in the 1950s and 70s i saw the result was far more general than thought, but there were limitations too that caution

against excessive leverage. the real cost of bankruptcy, then increased leverage increased the likelihood of costs. in the financial sector, the social costs are of increased leverage are greater because the societal cost associated with extraalties i described earlier. the misalignment is in the case of too big to fail banks, banks so large the potential consequence of allowing them to go bankrupt poses an unacceptable risk. the key empirical obvious observation is markets are not rational at assessing risk. this is true even of the so-called experts, but more so of those who are financially unsophisticated. alan greenspan testified to this before congress in expressing the surprise that the financial markets did not manage risk as well as he expected. while correcting the conclusion they did a bad job, i was

surprised at his surprise. after all, anyone looking at the structures confronting key decision makers should have realized they had incentive for exseesive risk taking and short-sided behavior. beyond that, greenspan made another error. if i mismanage risk, i and my family suffer, but they are unlikely of consequence. if a bank and a large bank mismanages risk, the macroeconomy can be affected. there's extraalties. these provide the government programs and these explain why self-regulation will not work. it is deeply troubling when the country's major financial regulators do not understand the rationale of regulation. the shifted risk and demands differentials. as we see banks increasing live raj, there may be uncertainty about what's driving this. doing so they increase subsidies

from the government? because they do not understand the fundamental risk? is did because they understand the fundamentals of risk but realize their shareholders do not so they can extract more money for themselves? about this, there is no. uncertainty. there's large societal costs, banks, and especially the big banks need to be restrained. indeed the analysis above suggests there's few or no societal costs in doing so and considerable benefits. it's not as if leveraging manufacturers resources out of thin airment lending is risky. it has to be born somehow. it is born by holders to the extent it's not shifted to government, fdic, bondholders, or depositors. it is better distributed begin the high social cost of disruption. research provided considerable support for the views expressed here.

even if there were some increases in lending cost as a result of increased equity requirements it's justify set against the benefits. there's very large societal costs for bank failures as said before. they can reduced by higher equity requirements. some have argued even if it makes sense in the long run to increase capital requirements, doing so in the short run can be costly, especially at a time such as this when the economy is fragile and the banking system weak. this is an argument for a pace increase in capital requirements, and one which would not allow diff deppedz or share by backs or extravagant bonus pools until the ratios are reached. one should, at the same time, be aware of the large risk under the current circumstances of delay. it is because the economy is fragile banks with inadequate capital and the aftermath of the crisis is more concentrated than

before that the risk of a financial catastrophe of the kind experienced in 2008 is so great today. the downside risk of not doing something are especially grave now. i focus my remarks this afternoon on increasing bank's capital. there's a number of other factors effecting the risks posted by the banking and financial sector. i noted the risk of too big to fail banks. we should not allow any bank to grow to a size that poses a risk to the economy, yet, in the aftermath of the crisis as pointed out, the banking sec sector is more concentrated and the risk of too big to fail banks has if anything increased. the actions such as over-the-counter balancing sheet activities and one of the freeze was that everyone knew there was no way they could know the true financial position of most of the banks. while the dodd frank bill

improved matters, it didn't go far enough. the problems continue, and as long as they continue, our economy is at risk. we may never fully protect the economy against the risk of another crisis such as the one we were through, but this much should be clear. the economic and financial system is badly distorted. resources are misallocated before the crisis. no government has ever wasted resources outside of war on the scale that resulted from the failures of america's financial system. we may have begun the work of making the financial system once again be the servant of the society in which it is to serve, but there's a long way to go. lending to medium size enterprises is constrained and risks are posed to the economy economy. we cannot continue, and we learned that in the time following the great depression and in world war ii where a

strong regulatory system was the most prosperous for the country. the question is will we relearn that lesson in the aftermath of the great recession of 2008? >> thank you. dr. kane, thank you for joining us. >> thank you, mr. chairman, it's an honor and privilege -- [inaudible] >> is your microphone on? >> oh. shall i start again? >> go ahead. >> the effects that make taxpayers back up and trash ri and federal reserve bailouts have been ungreatful of the institutions. during the housing bubble in our representative of democracy, the interest of foreign and domestic financial institutions was much better served than interest of society as a whole, as joe has been saying. why were taxpayer interests poorly represented? because of regulatory capture.

the financial industry had loopholes into the requirements and definitions of risk that then and now are to keep financial instability in check. the dodd-frank act left many issues open. it did not define risk or to confront the ongoing foreclosure in fannie and freddy disasters and implementation of strategy with dealing with innovation and for disciplining the lead institutions is left to regular -- regulators. it tells us how hard it has to write rules that truly crack down on politically influential firms. the same gaps exist in reform efforts in the european union. the issue before us is to put reform on a more promising path. this means governments must do three things, redefine the supervisory missions of regulatory agencies, rework

bureaucratic incementives in the agencies, and refocus reporting responsibilities for regulars and the value of institution on safety net support. unless they are embraced explicitly and enforced in an accountable way, it's unreasonable to believe authorities will measure and contain systemic risk in booms and bust let alone in this bust. the first step is to strength, train, and recruit for top regulators. most leave behind them under current employment procedures a trail of debts they have to serve, political debts. if up to me, i would establish the equivalent of an come of financial regular later as -- regulator and train them. they would be trained in the duties they owed the citizenry and how to overcome the political pressures they exert.

the public recognizes the fed and treasury rescue programs placed burdens on the rate. rescuing t.a.r.p. programs against doing nothing at all, high officials say the bailout programs were necessary to save us from an economic depression and made money for the taxpayers. both claims are false in different ways. bailing out firms indiscriminantly, that's the point, it's indiscrime inapt, hampered rather than promote recovery. it gambled against firms, and created uncertainty who would bear the costs of the programs. both effects continue to disrupt the flow of credit in reel investment necessary to trigger and sustain economic recovery. the claim that fed and t.a.r.p. programs made money for the taxpayer is half true. the true part is thanks to the

subsidized parts of the terms, most constitutions repaid the formal obligations they incurred, but the other half of the story is the rescue programs forced taxpayers to provide under funded institutions and the largest as you said were allowed to make themselveses bigger and harder to fail. government support transferred the taxpayer of losses. the authorities chose this path without weighing the costs of rescues against the cost of alternative programs such as prepackaged bankruptcy or tampering nationalization and without documenting differences in the way to deal with costs and benefits across the population of this country. going forward, they delayed capital requirements and capital risk. we want to raise them, but we have to relate them to risk. acting in concert, market and regulatory discipline forces

affirm to carry a capital position that outsiders regard as large enough to support the risk it takes. taxpayers become involved in firms because creditors regard the value of off balancing capital guarantees supply as an option. a taxpayer put serves as the balance sheet capital. it was just capitalized too much with taxpayer options. the root problem is that supervisory conceptions of capital and systemic risks fail to make government officials and officials accountable for the roles played in generating adverse movements in either variable. policymakers need your support of creative forms of risk taking in the firms they supervise and officials liquidity for absorbing risk and those of the

taxpayer. systemic risk can be likened to a disease that has two symptoms. the dodd-frank act and the basal iii act treat some symptoms. the extent they expose themselves and are observable to credit risks that might fly across a chain of connected counterparties, but to be effective, the capital requirements once adopted to take fuller firms of funding patterns, and to create a second and more subtle system. ..

my recommendations for regulatory reform are rooted in the straightforward ethical contention that protected institutions and regulatory officials go fiduciary duties to taxpayers. the existence of a safety net makes taxpayer silent equity partners and major financial firms. not only are they silent heart mayors, they are poorly compensated partner so as the value of their side of the taxpayer put consistent with u.s. securities laws should measure and report under penalties for deception and negligence the value of taxpayers staking their firm on the same quarterly frequency that they report to stockholders and government officials to examine, challenge aggregate and publicize this information.

my two-piece conception of systemic risk clarifies embodied in a course of option like equity invested by taxpayers and the firms the safety never to expert of the valley of taxpayers position varies with the risk that institution might sustain losses that exceed its ownership capital. that is something called tail risk by economist and what the percentage of his tail risk, the government is likely to absorb. it is heads the institution went entails the taxpayer loses. and unfavorably structured claim also provides a metric for tracking systemic risk over time are good that is advantage of it. requiring authorities to calculate disclosed fluctuations in aggregate value the taxpayer puts would make let regulatory operationally accountable and booms and recessions alike. most existing measurement strategy incorporate the the pioneering perspective of robert burton. studies using this approach

could attract the growing correlation of institutional risk exposures as an early warning system for the current crisis. expanding the format for collecting information to include estimates of the potential variability of their returns over different horizons and to improve the precision of systemic risk estimates and officials accountability for regulatory and supervisory performance. accounting standards for recognizing emerging losses make evidence of institutions insolvency under current rules dangerously slow to surface. the safety net menace requires a more sophisticated informational framework than current methods of bank accounting an examination provide. to protect taxpayers and to enhance financial stability examinations and bank accounting reports should focus -- not focused narrowly on measures of tangible capital. they should also develop a reporter asked reporter exquisite estimates of the intangible value but institutions claim on taxpayer

resources. bold financial regulators conscientiously regulators constraints that would make them share this information with the public. thank you mr.. mr. separate thank you for joining us. >> thank you mr. chairman for having me here today. i would like to commend corgan and the other members of the committee for holding this hearing. chairman brown and ranking rest of the members of hard to address the challenges posed by brought important congressional focus financial stability safety and soundness. you passed landmark legislation in this area and continue to we must never lose sight of the tremendous toll that the

financial crisis has taken on our country reeling from lost jobs, lost homes this losses that are low and a terrible tragedy for many families we continue to recover from the financial crisis, to successfully implement dodd-frank. the basel committee and the correctly these new rules they are implemented without a sense of their cumulative impact and without a sense of balance and proportion, these rules will put a drag on our economy and on job growth. furthermore, the implementation

of can actually see a decrease in safety and soundness. i would like to take a moment to and issue i know is of great interest to the subcommittee. clearly, a safe and sound, basel iii in the financial the importance of capital and. through their reforms we now have very tough capital requirements and capital levels under basel iii, banks will and 7%, and equity. on top of that add counter buffer of up to 2.5 of the financial institutions at a

minimum, this is over a revive risk weights are factored into the media equation, three times three and a present, very significant addition. this is an important change because common equity is the highest quality of capital although it is the most expensive for banks is also important to note that prior to the crisis, several of our subject to a much less rigorous capital regime or two being purchased by commercial banks and impart to the ability of as systemically important a number of institutions will marked

increase in while capital is an important tool in the supervisory toolkit, it is only one tool. i believe the cab achieved important reforms involving capital and therefore time it buys any further increases in capital requirements beyond tough basel standards. what i would like to stress so how do you achieve the right balance and ensure that our regulators and regulations so elaborate that they needlessly way i can provide several suggestions and thoughtful congressional oversight. i think this committee as i mentioned, is to be commended for this hearing.

congressional oversight is enormously important for the regulatory mechanism asking the right questions as you are doing today is just critical. number two, support research and is critical role in monitoring systemic risk in promoting, one of the creations of dodd-frank, i think is one of the this piece of legislation. it bubble and it helps financial regulators target their resources in the right direction. that is just getting started, ensuring that three, and shura regulators continue to balanced in their views and devoted to safe and sound banking systems that supports prudent innovation and economic growth. i certainly agree with in which

we don't have important and to date muted degree in on most everything but there's simply no degree program in regulation and supervision which i think is terrible. waste and excess at all costs. in fact, many of our rules and procedures can be much less waste than is currently the case. this is critical because it is not a matter of not having tough regulation regulation that is targeted in ways that actually missed targets resources. number five, periodically review regulatory rules to ensure that they are if regulations articles on a ship and in order to keep the ship sailing off the particles from time to time.

impose international cab akel the quiddity rules for global banks on financial firms at a disadvantage. i think this is a very big issue. we the demanding but we need a level playing field regulate the shadow banking one quarter of the united states financial sector. this is a very big deal because if you of the look of institutions that fail and triggered the shadow banking sector was still is loosely regulated i think is that said i look forward to answering your questions and mr. chairman thank you very much for pfleiderer.

>> thank you chairman brown for allowing me to be here today and what i think is a very important issue to be discussed here. i want to start with a very simple proposition that i and that is the notion that the government should not in produce just to make this particularly wanted to locate one of its plants in a crowded residential area. obviously we would have zoning regulations and other regulations that would prohibit that. the way government had a uranium processing in protections only

if it locates in the crowded residential area policy clearly. quality for the processing plant that we do have when it comes to our reason for that is make the equity expenses. it does that in two main ways. first of all there's is available to all corporations by particularly available the other subsidy is the one that is absolutely critical here and that is there is a too big number of implicit and explicit guarantees that are given in sickly subsidized firms if it affected only a few small banks it would be a our entire

financial system especially too big to fail banks and makes the evidence of what just a few years ago in our crisis and we are seeing seeing morbid play out in europe as create huge externalities in the sense that they create the possibility of of the crisis so there's a huge social cost of this and the question is, is there any social benefit and the answer is no. there's absolutely no social benefit and mistaken notions. the first equity. banks do not hold equity. banks hold the right hand side of the balance sheet make to those providing their funds. the promises and come into sorts

of forms. won his promises that are contractural obligations that then equity holders have no contractural promises made they just get whatever's left. so the problem of course is debt funders of the bank. you get into a situation such as what teetering on the brink with little equity, with more equity we have losses that are privatize. in a capitalistic system we want the latter, not of the important things in this debate social costs. let's go back to the uranium processing firm. imagine the uranium is located

close to a highly populated residential. now the owners of that plant could claim it would say it is costly because we are going to lose tax benefits if we are in a highly populated area. we are going to lose that purely a private cause. you are just simply taken away subsidy. the analogy is perfect with the banks here. if we safety, we are taking away subsidies is not costly from a social cost point of view. there are a number of other fallacies brought up in this debate. one of them is that specifically turn on equity in this equity

fixed, somehow independent of how the up on shows this is a basic fallacy. so that is an argument that is based not on science. is based pretty much on wishful thinking about another thing that we see that a lot of compensation. we can simply go just a back of the envelope calculation. let's imagine we have two managers, very good manager and a very good manager. the good manager adds 10% equity. not a lot, but 10% and manages the bank assets very well and has a 3% return on assets the 2% interest rate paid to its

funders, that is a about safe bank at only the assets rather poorly earning interest. that results in almost a in other words, if you are a bad manager you can make yourself look good and actually betterto some of the incentives for the high leverage we see is often asked is where we'll is an easy question to answer. first of all it doesn't require new resources and it doesn't require new savings. just requires the banks change the promises that they have been making can be built up rather rapidly by venting banks from

paying dividends or other payouts to shareholders. they won't do that voluntarily because it takes away the subsidy that they should be required to do that in the interest statement that is made that we should have a level playing field. i agree with that up we are leveling are playing field by is no way to run analysis is really quite simple here government was involved in the financial sector and to get the lesson ball that up more equity and that's as torch the system and leads to financial crisis. thank you i was there with you. i want to take perhaps another

step with an article he wrote fallacies are relevant facts in the discussion of capital regulation my bank equity go you point typically hold more capital than is required to banks. that is according to research paper by the new york financial firm has equity that exceeds 50% capital ratio of commercial banks are a point questions. why do we much less of their own money and is that sort are we sort of subsidizing an encouraging finance of the economy. let me parenthetically the third-largest manufacturing state in the country and

california in terms of what we produce and in our country only 30 years ago we were about 25 manufacturing and financial services was 10 or 11. that is more or less flipped in the last several years. is that part of of the recent without financial in assets than we do other sectors of the think this comes about through several i nor my co-authors or i think anyone we should have 100% equity. certainly some of the debt that banks use to fund and in particular posits and most particularly deposits have social value. it is used in the payment is a lot of debt that that is just used basically exploits the government subsidies i think one of the things that has happened,

especially probably after 19 this notion of that the investing public the problem feeds on itself because a lot of companies out there would love to have the government ensure their debt as well because that would allow them to issue more debt tax advantage because of the tax advantage. the only sector that can do that is subsidy and that is what what i think is pretty easy to document is that has created incentives for the financial sector to grow far bigger than,

what are the implications for our economy? are very severe. first, up that because of the the too big to fail banks can get access to capital at a you can see it in their cost of bunning said they get one of your manufacturing firms in ohio. and that leads them because the too big to too big to fail banks often don't focus on lending to smes and the community banks, we get a parts of the and small and

relatively starved and funds relative that are engaged in more result of we have been focusing on it is also the case that the kinds of activities go so that for instance, if you have a government guarantee, you are more willing on the to small and medium-sized cds' and if you

gambled big walk off with a profit. if you gambled big and lose the taxpayer picks advantage before crisis the economy is distorted but then of course once the this is what has been you mentioned i think in your losses in privatizing gains you get a this is really undermining the functioning of the market economy and that both the left and the right agree that this is a dr. about at bandaging or

disadvantaging various banks, large banks, small banks, you said loopholes talk through the fact that large banks are community banks. advantages big banks. dr. stiglitz talked about how they less cost than other only manufacturing but smaller banks. talk to me about the advantages that the a result of that if you stiglitz emphasized there was an implicit can hire that the way in which risk is assessed in the capital were seen a number world

fail even though they met the capital risk-weighted assets because the even being counted in the system. and that congress and before the agencies telling in most of the loopholes come from transparency and a fixed weight system that once a set in it is almost a little bit like blackjack or on the part of the variable strategy on the part of the player and if you can i of the

going's and wanted the issues the dodd-frank bill was passed and the depository institutions that have a government guarantee, fdic other words, the extent to which they should be allowed non-transparentit is not clear they would call them is peculiar that the government people's gambling but whether they are insuring for gambling, they are not a lending activity. so what are you have it inside

they have an incentive to month after the crisis it most of the profits they were making were associated with trading, not american people were told the reason for to get lending started. butand access to, close to zero undertake a high leverage highly which they generate high

government-backed stopping them. >> can i make a point about those one of the questions that comes up about the safety net if you go back in time is that nobody these gambles and they were actually making money. what we have seen now in the crisis that this money was actually extracted from the didn't help anyone. in read a finance professor at stanford. she said there is no credible way to do you agree a capital regulator would look at that but i would say a couple of things about capital. first, the high leverage of which has of 40:1 was largely

outside the commercial banking system. i think it is excessive, it shouldn't exist. fortunately you with very strong capital repair its. the second thing i is only one tool. it is almost impossible to have can prevent failures of financial institutions. financial institutions particularly commercial not because of a lack of capital. they fail inadequacies. it is the nature the fractured there were two both dodd-frank and basel who the last year plus on that the banks maintain. but that is yet another tool

multiple tools and what we have lacked in the last decade was the utilization of those tools with sufficient vigor. again, fortunately, because of increase, those tools are think the issue going forward is striking a balance so we have a stable financial system which we much staff. we have a financial system that can support the economy of the united states and i think right now the dangers we face are losing that in the way we implemented it will growth. >> let me follow-up on that. you had said earlier that in your testimony, you said we now have very tough capital standards because of god frank and because the basel iii. i to comment on that, but first tell me what you what the fed

should assume you you right now. give me your thoughts on should impose on financial companies? should they go beyond basel iii and if so give me your thoughts on a range. the national regulator two capital. we are in new territory now and they do lending and the ability of these institutions to support the economy. we take additional steps we want to see what implementation of those tools so that we get again have a higher capital

requirements significantly is as high as some of you recommend on the panel were two things. one is is compared it to his disadvantaged, competitive disadvantage with european would cause banks equity comment on pushback a competitive advantage and would mean u.s. banks would not lend to you describe an

issue that came up here. liquidity is potentially a problem. is always been a problem in the banking only a problem when there was a problem if a bank as a liquidity problem but it is very solvent, in other words has a lot of equity, then there is and pledging assets, taking a big haircut on them and getting liquidity. doesn't put the taxpayer at risk. the real issue and the issue that we had in just a liquidity issue. is really an issue that understanding that potentially a counterparty may the issue in terms of first of banks and also with cutting of all we don't want requires that we put our

whole economy in jeopardy. if banks require a subsidy and it is not clear that they do, but if to give it in a way that doesn't require high leverage. so we could have high if it does take away some subsidies that the banks are now getting. if for some reason we decided that banks need to be subsidized because they are doing something we need to create a fragile to tell us where we are respect, one thing i was going to mention in my opening remarks and didn't the support rating bank of america it would give without government support. so rating agency is factoring

things incorrectly, debt from what would be minimum investment grade up one way to answer the question of how much well, one barometer, one monitor for that would be so the players in the economy including rating agencies don't see government going other words we are not subsidizing banks. >> does jonas -- said banks have fought against capital requirements you as an observer of what this means our competitiveness and our behavior if you to the extent that we unfortunately we can't insulate ourselves from mistakes that are

have an integrated economy and if the that they are very fragile there is created there can spill over into our economy. >> there are surely more fragile than ours. >> they certainly are so i think standards that are much higher but what we shouldn't do is sing to the low standards of the europeans so that we put ourselves in rather we should figure out a way if we need doesn't require high leverage and again that is a proposition that i don't think banks need subsidies but if they do we should do it in a way that doesn't create fragility in our from dr. kane and then dr. stiglitz. >> there are mistakes being come back to the credibility of the

sovereign support. you take ireland. the banks were led to run the government could collect from taxpayers. somebody's going to have to absorb those going to ruin the economy notion that because they have been subsidizing take a business is i think one of the lessons of this crisis, is that people are regulation and choose something they can trust. >> and the primary lesson is higher capital were krementz? >> i think the primary lesson is you have to deal we have to be sure is that the margin we risk-taking. that has to be done around the world. we can have lots of differences

and the cultures of the countries but we want to make sure we are not encouraging people to find ways hide their lack dr. stiglitz? >> first i want to address the second question i want to go back to my a change in the debt equity, change in the financial structure of banks is not really to the extent that there is a to the extent we can put aside the subsidy, the therefore they would would be less lending point. >> do you agree that there would be i will get back to you on the rest of your answer mr. stiglitz

issue here is a practical matter mr. chairman is that so costly and particularly at this time they have raised so much to increase number of the banks will consider instead accommodate. >> are they more reluctant to issue dividends? >> as you know know the dividends have actually been restrained federal regulators. >> recently they were distributed and from simon johnson and some others at the banks because of equity issues and attract enough equity that they ought to hold onto their profits for a period of time that sort of a line of thinking? >> it is a matter balance mr. chairman. they can issue reasonable diffidence it would make it harder to attract capital and

also it seems to me it undercuts the confidence the public they are not in a position to one is not talking about anything excessive here, then i think the public loses confidence in the institution. i think it is a matter regard the opposite. if they have more capital there would be more confidence in the public and as i in fact, there is a how serious it is as hard to ascertain but if there is that dividends and not would allow them to it on a safer the taxpayers underwriting them.

the important point and wanted to. what you are effectively doing is increasing the risk of equity. it's not like it is a fixed-price of that is the fundamental flaw and those who emphasize the high cost of equity, that when you go to high leverage of equity. you are just want to come to a couple of other points related to the question and this debate about when there is a lower equity base there a higher

likelihood that nobody will give that is what caused a liquidity crisis. after rebutting me the banks for solvent, there would be no liquidity problem. is because they get afraid that the bank a solvent that there is a liquidity crisis so these two the risk of a liquidity undermines the economy is related very i want to agree with a race to the bottom and that is what has been going on. but i guess there were two othe, financial institutions coming to the united states we radio it

them as national institutions. they ought to be they become significant and have a subsidiary, the united states. banks will want to operate and they can set the regulations that protect the american economy. that is our first responsibility, protecting the american economy, protecting our jobs and protecting the ability of issue about, first i'm not really if it were the case, this is a -- in terms of many jobs are or latin america? relatively few.

this is not an major industry for the in my view the united states and protecting the profits to go into american banking burns but this is a our economy it in the other extreme, the worst banking regulator in the world. we don't want iceland and terms of american banking regulation so yes the banks are always going to say there has been bought is going to have low

regulation and what we need to do was to be focusing on what is good for if i might say so i couldn't agree with you more but there were three things. number one we don't need to fight the old war. the have much higher capital standards, point number one. agree with you more. we don't want to have a race to the bottom. we don't want to change what regulation supervision. what we want to ensure that the regulation and supervision abroad particularly with respect fairly. we have an anomaly it issue in terms of competitiveness is seems to me is what is going on meets our high standards i would

take issue a number of panels have a panic ensues as you know irrespective of the amount of funds and in part because the genius of is the maturity transformation ability of deposit and they landed for a longer period of time because if you are may and the genius of the banking system is the maturity transformation. that means that the bank is always going to be short if everybody runs to the window and we have seen this in the throughout the great depression. you never have enough in the till. is a is certainly important at all the capital in the world

phoned in and of itself stop thinking runs. banking brands it seems to me public having enough confidence that the regulatory that and that in place. >> if you some say that or reduce the amount is a bit rhetorical, but why not have no that mean more lending our economy would get back on its feet and people could the art of banking and the art of finance is a matter of balance and of the unfortunate externalities

that dr. stiglitz and others have think that is going way too far but the having raise capital so significantly as i mentioned, income inequity they give you to a point which even if it is only a transition. neck and we are in at this point i can face with additional capital requirements are going to start takes up a lot of that balance sheet and a lot of so it is easier for the institutions in terms of these commercial loans which get one to shrink their balance sheets to necessarily raise more money take a lot of i want to say several things. first we don't really have much higher to come we gets to there

being installed. we banking system today numbers mr. ludwig is talking about is the future, not today. >> that is right on paper but what happens is that the markets actually impose pressure on institutions to raise capital short-term so the institutions capital in advance by the regulators directly to push their capital standards of. >> they are being pushed that way but as you know they were trying to we are seeing a lot of pressure coming against the implementation of the i don't think we u.s..

i see that it is under regulated say we have a crisis and you can do we have the runs in this less the soft balance sheet vehicles and structured investment back on bank balance sheets. finally on maturity transformation, were making when interest rates went up. interest rates are going to go up again in this country and when they do we have to be very

concerned. >> thank you. i'm going to conclude. i want to ask mr. ludwig one more question and i want you to or two improvements. i would finish with that's as again they wanted to thoughts of improving dodd-frank in ludwig richard cordray the former attorney general of ohio came to quite known the new, i won't say the new director of confirmation is probably. you said quote at the newly minted consumer financial protection bureau does not have the senate approved later by the first anniversary last the

consequence kicks in the cfpb will be take action against banks with more than $10 billion of assets but that which are end quote. are you saying traditional banks are hurt by efforts to block the appointment as you know mr. chairman a huge supporter of consumer and low moderate income issues and i think it odd anomaly if not confirming mr. cordray is that of consumer rules, but they there want be an imposition of those rules on the the shadow banking out a good thing. i think we have to get a balance moving forward here. >> in conclusion let each of you start one or two improvements

would you make to hard to stay at just two. if i can go a little about today's hearing you have seven days afterward including dr. or gus be the first is the point that i think most of big to fail banks. that is something that should've the. >> i could be for that. >> higher capital requirements us basel iii goes anywhere near far, the point and made before

is that they continue to be engaged in by fdic insured institutions large faction of them continue to be over-the-counter non-transparent and the increasing concerns that the exchanges themselves that were imposed on exchanges so that there goes down we have systemic risk. there and all those trading of exchange for the losses of up. the imf has put forward actually some recommendations along those lines. in the means of payment, the credit card, a major source of

revenue, which merchants throughout our country. there are some cases where of groceries are given to they are paid for by credit card. dr. kane? >> i can many of joe's points would go under my things. mr. ludwig. missing an a very complicated 17

member committee. so i think that we cost taxpayers incur in supporting national and and needs to be assigned to them in this way. i think to help authorities to do this carefully and conscientiously in the long change the way regulators are trained, recruited and incentivize so i believe in national could help in these tasks. >> thank you. a terrific idea. , limit the fact that we dr. stiglitz and and and i advocated for that when we were early on in that have done better, australia, canada and japan during the crisis.

i think that would advance the cause of financial stability in this country markedly. education for financial supervisors is critical and we don't have it adequately i said the college and the third is not a new change of law frank with it will actually not advance the benefits of safety and some is. there are only so many hours in a day and we want our financial on the things that matter most not on those things that are here will put a drag on the economy which we can ill afford at this i'm afraid since i'm going last i probably don't ha