when they say they are losing money,en i can't understand why the number of people line up to buy the franchise. it doesn't make sense. if the league is in dire straits, why would someone come to pay $450 million to guy the warriers? it doesn't make sense to me. there's other teams -- detroit sold for $300 million and i can name several others. ening our league in in good shape. >> by chance if it happens -- >> of course it's significant, but if it happened, then those contracts would have to be liquid somehow, either the league pays them, but i don't think the contracts are bankrupted out. the obligation falls on the remainder of the league. >> it's in your collective bargaining agreements? >> no, we don't. >> look, from a macroeconomic stand point, the viability of different clubs, we've spent

during the course of our negotiation a tremendous amount of time on the macroeconomics of the national football league. on the system of economics of team transition whether teams are maximizing revenue, whether there's some teams, and i'll leave them all nameless, but some teams do a tremendous job of driving revenue, and then it seems like some teams don't, i think that now is the time for all players in every union to become vitally important in the economics of their game because what happens on the owner's side at times, there's this -- there could be this mentality that, you know, what we do on our side, you know, forget what's happening over there and just talk about the players' money. no, we're partners in this business, and if you don't take a very aggressive approach on either the system of economics or the macroeconomics of your business, you're not serving your players well.

>> well, thank you. >> thank you. >> all right. well, first of all on behalf of the national bar association, i thank everybody in the audience for attending this program. look, i want to particularly thank billy and d. i know that for a fact, i mean, on monday i'm in my room, turn on the tv and see billy on espn. man, i don't know if billy's going to make it, you know. [laughter] i know they took a lot -- it was a lot for them to get here, to be on this panel, and we really appreciate you guys being here. you guys are great role models for us as attorneys, african-americans, and we are very proud of the work you do. >> thank you very much. [applause] >> thank you. [applause]

[applause] >> the point of personal privilege, i, president, of the national bar association would like the thank the panelist, terry wiley, william hunter, and demaurice smith for bringing to discussion to the bar association. we encourage your continued approach, and they approached me for the planning for this forum. they took times from their lives to give back and be with us here today. i think we should all give them a standing ovation for being here. [applause] [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

>> six, seven, eight, nine -- >> ten, 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 can live are to go into the dark. we must either love each other or we must die. >> vote for president johnson on november 3rd. >> this weekend, we'll look at the history of political cam pape ads with lsu professor, robert man and the day jack ruby killed the man under his protection and richard nixon am --

analysts review how his messages were crafted. get the full schedule at c-span.org/history. >> did you get eight weeks of vacation so far? i didn't. >> former russia today, now the rt network tries to take a more irrelevant view on washington and the u.s.. >> we are trying to step outside the box, figure out how to make tv newses exciting and intertaping and informative again rather than, i'm sure, but the garbage it's really dwindled down to be. >> she'll talk about her network and show sunday night on c-span's q&a.

live picture from the national prep club here in washington this afternoon. we're here for a discussion on social security and medicare. two public trustees today talk about their roles with the programs. there are a total of six trustees including the secretaries of treasury and health and human services and labor. the social security commissioner and two public trustees appointed by the president. this year's annual report on the program on their financial health of medicare and social security called the two programs financial future challenging and not sustainable. this discussion this afternoon is being hosted by boston

college center for retirement research. >> it's time to get started. [inaudible conversations] steve, sit, please. i, again, have the honor of introducing the lunchon speakers. we are privileged to have robert reischauer, the public trustees the social security and medicare system for three years or more than three years, these slots are vacant and fortunately for all of us, bob and chuck have been selected. as everybody knows, bob has a long career in public policy. he was the directer of the congressional budget office and is now president of the urban institute. chuck started in a strange direction as a ph.d. in quantum chemistry from berkley, but then was on the hill and president bush's national

economic council and now research fellow at the hoover institution. they were chosen for their high level experience, their acute policy insight, and for their many talents, not the least of which a rare ability to command respect across the policy spectrum. chuck will talk about social security. bob has a harder job of talking about medicare. they are both delighted to take questions at the end of their remarks, so let's welcome them here today. [applause] >> thank you so much for that kind and warm introduction, and i thank you as well just for inviting me to participate here. looking through some of the papers in the booklet, and i'd actually wish i'd shown up for more proceedings.

there's, as always, fascinating presentations. i actually spoke to this conference a couple years ago when i was wearing my white house hat, and back then, i was a social security retirement security adviser to president george bush, and when the bush second term ended, you probably thought you were rid of me -- [laughter] but alas, no, president obama and the senate ruined that hope. i'm back in a public trustee for social security and medicare, kind of like a song you're sick of is remade by somebody else as it was disappearing, and then you have to hear it all over again. sorry about that. it is great to be here because we have, i think, very timely and important things to talk about in this setting. for the last several weeks, if not months, washington has been absorbed with the whole debt ceiling crisis, and now that that at least temporarily has passed us, we're able to turn to

other very pressing economic policy concerns. of course, first and foremost are the views of the public trustees on various arcana of science and a lot of the material covered in this event will be increasingly important to policymakers in the months ahead. now, most of you know about the process and know a little bit about what we do, but for the benefit of those not as familiar with it as others, i'll say a little bit about who the trustees are and the functions we perform. there's six trustees, four are government trustees, the secretary of treasury, secretary of labor, secretary of hhs, and the social security commissioner. there are two public trustees, one republican and one democrat. you can guess which one i am at

the end of the proceedings, and these commissions were formed in the 1983 social security amendment, and the basic idea was that there would be two external pairs of eyes looking at the projections on a bipartisan basis, and sub stanuating public confidence they were put together in the most objective possible way. now, those of you who know me know that i've been a long time fan of this process, a long time defender of the process. before i was a trustee, i would participate in the annual debate over the significance and relative accuracy of the trustees' projections. that's an appropriate thing to occur each year. the trustee's projections should be debated and approved from one year to the next, but i've been in the position of saying i thought the process was serving the public well and thought the projections were in a qualitative sense accurate and republican. now that i have a very high

honor as serving as a trustee, that long time confidence and support i had for the process, i have found has been further sub stanuated over the last year. i had the opportunity to participate in it from the inside and to see the rigorous work, and i think the clear commitment of objectivity, general freedom from agendas, partisan, ideological, or otherwise, and it's a gratifying thing to be a part of. as alisha said, i'll talk about social security and bob will talk about medicare because social security is the easy one and medicare is the difficult one. [laughter] i'll begin with a little bit about what the trustees report projects, and before i say how we, as public trustees interagent with these projections, it's worthwhile to at least note what they are. this chart, if you had to pick the single graphic in the social

security trustees report expressing the projections in a nutshell, this is probably the one. there's a tremendous amount of information on this graphic. basically, you see a couple of lines here, everything is expressed as a percent of the program's taxable wage base. you can see the bold line representing system expenditures, and you can see how they are projected to grow very dramatically over the next quarter century as the baby boomers leave the ranks of the work force and enter the ranks of beneficiaries. some of this graph disguys this phenomena a little bit. looking closely at 2008, there's a spike in costs relative to the tax base. that's, of course, when we hit the recession. we also had the typical spike in

disability claims and increases in early retirement claims and other things you see as a consequence of that recession. if not for the spike in costs in 2008, what you would see on the graph is a steady and uninterpreted and fairly sharp increase in program costs relative to the tax base stretching from about 2008 to 2035 directly as a consequence of demographic change. the rapid decline in the ratio of workers, ben beneficiaries as the baby boomers move out of the work force. now, what this chart as shows although it's primarily focused on annual system of operations, you also get important information here about trust fund financing. it showings, if you look at 2036, you see the bold line coming down, and that is the point of trust fund depletion where sud ply there's -- suddenly there's a split in benefits the program is promising and the resources on hand to pay those benefits. this graphic presents the

information that combined trust fund depletion for social security is projected for 2036. you can also see pretty clearly that this is primarily a situation where demographic change is causing costs to rise relative to income, but this phenomena basically crests in the mid 2030's and levels off after that. the events from the 2030s on ward are not really the principle drivers of the imbalance, but rather the increase in costs between now and 2035 creating that imbalance between income and outflow. timely, what the -- finally what the graphic shows is the percentage of benefits taxed from incoming tax rev new. it's taxed and declined to 74 president in years afterward. now, there are a few key summary measures and statistics that appear in the trustees report each year worth reviewing.

this year we project the combined social security trust funds are exhausted in 2036, but, of course, the trust funds -- there's more than one on the social security side. there's the old age and survivors insurance trust fund and the disability insurance trust fund, and they are not in equal measure of health. the one is depleted earlier in 2018. the trees tiews report con tapes projections for what i call the nightmare scenario -- what if we don't do anything until 2036. of course, if we fail to act and correct program finances until then, we would face terrible choices, i am say ridiculous choices. it is not plausible to believe they could enact measures required in 2036. you have to reduce benefits across the board by 23% including people already in retirement as well as those coming on to the rolls or hike

up the tax rate to 16.4%. one of the things, and i'll touch on it later, you don't tend to see qualitative changes in the social security projections from one year to the nextment the projections tend to be relatively stable because most of the factors unlike the medical projections robert reischauer will talk about, they are on projections and in a qualitative way are well known and fairly easy to estimate. if you go back and look at every report stretching back over decades, you see over and over again the same general cost curve. you might say the imbalance move around, but the qualitative shape does not vary much. this year we find that the 75-imbalance of social security is 2.22% of taxable payroll. that's not a qualitative change relative to the previous year's

report projecting 1.92%, but that's 0.3% worsening, the single year deterioration seen by the trustees since 1994 including the 2009 report. no, it's not a qualitative change, but by standards, it's a pretty big one. the reasons for the large single year deterioration this year are presented in the pie chart that came from a presentation that robert reischauer gave, but the vast ma -- about half arrives from changes in longevity. bottom line is we are living longer than previously projected. that's good news, but not great news for social security financing. that's the vast majority of the part of the pie chart that refers to demographic assumptions, mostly longevity changes.

a portion of our updated longevity projections also appear in the methods and other data slice here because as we extrapolate in the immediate future forward from recent experience, we do a at the rate of change in years. there's longevity change in those two slices of the pie, but overall, roughly half of the worse ping in this report is because of long -- longevity data. there's also worse ping because of the sluggish economy and spillover effects reducing immigration, but longevity is the biggest piece of it. okay. now, turning to the matter of what we, as public trustees, have to say about all of this is i would say first and foremost that our primary responsibility as trustees is really to vet assumptions that go into the projections and sign off on them

as being reasonable and objective. reasonable does not mean right. we don't know what's right, but we can make a determination whether or not we are using the most reasonable assumptions. basically what happens is that the economic and demographic variables that fair upon the projections are basically developed by the office of the social security actuary. those recommendations are put before us, and we along with the other trustees review them, edit them if they require editing, or accept them. the same economic and demographic variables are used in the medicare report and the social security report. there's other variables that bear upon the medicare report developed by the medicare actuary office, but these first out of the social security actuary's shop. they present us with recommendations for an intermediate or best guess assumption for each variable and there's also a low cost or high

cost variable representing what would happen if that particular variable broke in a direction that either decreased or increased system costs. now, obviously the first two items you see here, fertility and longevity bearing on demographics, this is very, very important to the long term shape of social security financing. just a couple of notes i make on the others before moving on. net immigration, it's been my experience when people look at the trustees reports, the immigration numbers strike them as looking small. i think that's in part because the net immigration figures, the diff renne reel of people coming into the social security area and out of the social security area: it's not a gross immigration area, and that accounts for why they appear smaller than what many people expect when they first look at the report. productivity is an assumption that is fly specked a lot.

basically what the trustees are assuming that future productivity will be roughly consistent with what it's been over the last several business cycles on average. i often like to remind people you don't fund the system with productivity, but taxes upon wages, and so therefore very the shared pduivityof this is growth that is expressed as real wage growth? this is important, of course, because compensation expressed as real wage growth is taxable by social security whereas compensation coming in forms that are not taxable like other benefits do not result in additional revenue for social security. it's this real wage differential more than the productivity direction relevant to social security finances. on that side, we're basically projecting as the previous trustees have a slight increase in real wage growth going forward based on the projection that the shared growth going

forward that expressed as rising real wages will be higher than it has been in the passed due to in the past having extremely high rapid growth in benefits not subject to tax such as health benefits. a very important additional matter that the trustees have to speak to is not only what the assumption and projections are, but we have to tell policymakers how much confidence they should have in these projections, how certain are they, and there are a lot of different ways that the trustees reports speaks to projection certainty or uncertainty, and one of the ongoing tasks we have as trustees is how we should talk about it and how much emphasis the trustees report should place on different forms of uncertain certainty. now, as indicated previously,

there is a sort of low cost and a high cost scenario built around assumptions, changes in the assumptions. if you took every variable and assumed it broke in the direction that decreased system costs, then you get the low cost scenario. take every variable assuming it breaks in a way increasing system costs, you get the high cost scenario. they are met to be ill los straytive. people have read the report in the past and combed through the report saying here's an area where it's not insolvent. even op-ed writers for the "new york times" do this saying there's a significant chance that this program will never become insolvent at all. that's very much the wrong way to think about the trustee's low kos and high cost sigh their owes. they do not appear within the broad range of fairly likely possibilities for program

finances. to shed light on that, there is an analysis appearing in the trustees report basically rand domely allows the principles to flux wait and somehows wide range results from the flux fluxuations. you can see with respect to the long term direction of the social security trust funds, qualitatively you just do not see that much change even under pretty wide variation in the economic and demographic assumptions. under the medium scenario, the program's combined trust funds are insol vent in the 2030s, but to the 10th percentile, it flux united by a few years. yes, you'll see several years of movement in the insolvency date, but not a qualitative change in the direction for the health department of the social security and the so-called low

cost and high cost scenarios are outside the bounds of that 95% scenario intervals. there's not much basis when you look at the trustee's analysis. under all of these even reasonablebly plausible scenarios, we would be much, much better ave to correct the program finances today than if we waited to a future date. the last thing i would say before turning it over is the trustees always have an issue of deciding what to imp size. few people read them all the way through, and i sufferedded from this as a congressional staffer, by the way, but there's a lot in there and policymakers don't have the time to wade through them. we have to choose what to

emphasize and highlight, and that's a very important role of the trustees. it is expressed in various different ways. when we go to testify before coping -- congress with a five minute statement, we have to choose what to put in the statement. when we talk to the press, at events like this, we have to talk about what is in and out of the presentation, and in the report summary and in the message of the all trustees' message, we have to make choices about what to put into the message. with that in mind, i'll review a couple of the things we as trustees that the two of us or the trustees as a group chose to emphasize this year. one is simply that we'd be better off if legislation corrections are enacted soon. now, you are probably tired of hearing this. this has been said in almost every trustees report long before we were part of the

process, but it's important. it's important policymakers understand it. there's real adverse consequences, especially for potentially vulnerable beneficiaries, the longer we put off dealing with this problem. secondly, this -- especially, well, certainly in social security, but even to a large extent with medicare, the vast majority of the projected cost growth in these programs taken together occurs before 2035. on the social security side, it's almost all by 2035, and then things level off. pre-2035, the driving cost growth is demographic change, and this is not to say health care cost inflation is not a significant problem. it obviously a very significant problem and obviously grows more significant the further out in time one looks, but we have a very immediate problem affecting our ability to get federal finances under control and get

these program's finances under control and coming rapidly playing out entirely over the next quarter century. it's very important to understand that our window of opportunity for action is in many ways defined by the way in which demographic factors are driving program cost growth doing it not over the very long term, but now through the mid-2030s. ..

people want to debate social security medicare's relationship to the larger federal budget. how does it interact with the unified federal budget, how does it not? these are obviously important things to discuss. but, you can really get sucked into an angels on the head of a pin discussion that can distract you from the reality, regardless where you come out in these discussions we have to deal with social security and medicare. i often compare it to the blind men feeling different parts of the elephant. you can talk about the trust fund. okay, i want to talk about the trunk, i want to talk about the side, i want to talk about the tail and they all can be right and want to emphasize different aspects of trust fund. yes it is real asset of social security. no, it is not a net asset of the federal government, et cetera, et cetera. but as soon as you step back

from this trust fund, arcane trust fund discussion and step back from the discussion about how big of a problem is social security with respect to the larger federal budget deficit, the bottom line is, you still come around to the same conclusion. you have to deal with these programs. you're better off dealing with it sooner, rather than later. there is no interpretation on any side of these vary rugs discussions argue i would say very seriously not dealing with the programs in the near term. finally, another point that we make that i think is important, it's difficult to quantify but we make it in words in the report. we can show you technically how the costs of repair rises over time but in many ways we are understating the actual cost of delay because of practical, political constraints and practical policy constraints. we can show you that in 2036 you would have to cut

benefits 23% across the board. fine. when are our politicians ever going to want to cut benefits 23% across the board? they will never want to do that. they don't want to cut 23% benefits to 95-year-old widow, a because she has been retired for several years and b, she is poor widow. if you want a realistic assessment how the cost of delay play out in practice you have to factor in we don't want to cut benefits for people already in retirement. we don't want to have sudden reductions in benefits for low income people. that sort of thing. you put those factors together and explain to policy-makers how is their window of options becoming more narrow with time, the answer is, the window of opportunity to solve these problems is closing much more rapidly than you would ever know from these various across the board illustrations that we do. we make that point in words in the report and i try to stress it when i testify but the bottom line is that when we talk about the costs of

delay and we look at that lens it is much bigger than it first appears. and with that, i will turn it over to my learned colleague to talk about the more complex of the two programs. thank you. [applause] >> thank you. it's pleasure to be here. i've attended a number of these conferences over the years and always been interested in what is being transmitted. i want to start by acknowledging the really tremendous contribution that the retirement research consortium and its constituent parts, boston college, university of michigan and nbr and all of the folks who have worked with them have made over the last 13 years to our understanding of retirement policy and our knowledge of the behavior of those

approaching retirement and in retirement. i also want to congratulate the consortium on producing papers that by and large have been accessible to the nonacademic, have been policy relevant. i think has been over the these 13 years a tremendous investment that will pay even greater dividends in the future as we get around to reforming the nation's retirement programs in ways that reflect the change of social, demographic environment as well as the fiscal realities that we face. chuck and i were asked to say a few words about the roles and responsibilities of the public trustees as well as the challenges that the trustees face in making long-run projections. with respect to the first of these topics, as you might

have suspected, no job description or training manual or briefing in which the roles and responsibilities of the public trustees are laid out exists. when i was first called and asked would i have any interest in being nominated for this position, i asked the individual who called as well as some of his colleagues in the white house what the expectations were and what the responsibilities were and there was silence at the end of the phone. [laughter] being a researcher at heart, i, and with a little help from google, i went next to the statutes and the language there in and discovered there were four duties enumerated for the full board of trustees and just a remind you what they were and to quote, the first of those is, to hold the

trust funds. that's the actual legislative language. i thought, well, i mean do we go out to parkersburg, west virgina, and open the file cabinet and hold the pieces of paper? is that a heavy lift or a light lift [laughing] do we do this every year to judge the situation of the trust fund? but i've been disappointed to find out that's not the case. no trips. second, it is to report to the congress each year on the past and future status of the funds, which basically is what the report, the reports do. third, to report to the congress immediately if the amount in any trust fund is too small. which i guess maybe you have to go to parkersburg and check it out. and finally to review policies followed in managing the trust funds and recommend changes.

there's no, as i said, separate, distinct roles from the, for the public trustees from those of the ex officio trustees. now, as you all know, the public trustees positions aren't particularly visible ones so you can't look at the behavior of incumbents and get an idea of what to expect from an observational standpoint. wouldn't have helped us any way because as alicia pointed out, there were no incumbents to observe. neither can you really call up those who will be your fellow trustees. they being cabinet secretaries who probably have more important things to do than answer questions like this. in any case, none of them, nor any of the political appointees in the departments who serve as their representatives on the working group would have

been able to say too much because for all of the time they had served there had been no public trustees. one can, as i did, consult with hose who held a public trustee position in the past but, what those discussions revealed was that at different times, the public trustees roles have been quite different and there was nothing to generalize about. except there was one comment, message that i heard from all of them and that was that to be most useful to this process and most effective the public trustees should collaborate and develop common positions wherever possible and. chuck and i with one glaring exception, have followed this advice and the glaring exception is that every time we're in a room with more than two beam i become

dr. reischauer and he remains chuck. [laughter] and it sort of amused me for a little while and i realized this was his subtle way of saying i'm a whole heck of a lot younger than you are [laughing] here we are again, dr. reischauer talking to chuck. of course i didn't go through this investigation. i didn't have to go through this to know what the primary responsibility of the public trustees was, and that is as chuck mentioned, to insure to the public both the integrity of the reports and objectivity and high quality of the analysis that underlies them. notwithstanding the independence of actuaries and of social security administration it is possible that political pressures could create incentives to shade the

analysis or massage the projections in optimistic directions. those of you who are older than chuck will remember that during the nixon administration some people in the white house had obsessions with certain data series and tried to tinker with them. so it's not totally fanciful but neither would it be surprising to any of you that, while in theory this is a danger that exists today, in practice it is not something that anyone should lose even a minute's worth of sleep over. the offices of the actuaries are proudly independent and committed to preserving their reputations that have been earned over the years for developing sophisticated methods and producing objective analyses. the departmental staffs that support the ex officio trustees are highly-skilled

professionals who take their mission of objectivity very seriously, as does the staff at ssa. it is also clear from having gone through one cycle and watching the give-and-take that occurs when the reports are put together that there is no administration position. each department and agency has its own perspectives and its own views and as far i can tell feels quite free to express them even when it is a minority view and even when steve goss is frowning or rick is squirming in his chair, showing their displeasure. it's really an extremely open and fun process and to be part of the back and forth of the e-mails at 2:00 a.m. when the final pieces are being put together is

quite interesting. the technical panels are another bulwark here that we have and they're convened periodically. there are two now in process and they help to insure the integrity and quality of these reports. as you all know, and some of you may be in the room, these are the most knowledgeable among them, most knowledgeable analysts and practitioners on social security and medicare and what they do is review the assumptions and methods used in past reports, and make recommendations about how they might be improved in the future. so while at this point in our history the public trustees responsibility for insuring the integrity and objectivity and quality of the trustees reports isn't a huge issue that requires

constant vigilance, there are other roles that we play. and i will talk about them in respect to medicare. the most important of these in my opinion is, as chuck mentioned, to be a fresh set of eyes, looking at the report and asking whether changes should and could be made that would improve their usefulness? only the public trustees are likely to raise such questions. as you have undoubtedly noticed the structure and content of the trustees reports changes little from year to year. if one is familiar with a previous report one can open a new report and find the same analysis, using a fresh set of assumptions and a new base year data in the same place with the same charts and the same supporting analysis. there are many reasons why

maintaining such continuity makes a great deal of sense. but at the same time someone should be asking, from time to time, whether the reports could be shortened, restructured or simplified in ways that would better serve the needs of those to whom the reports are directed. maybe even there will be more people who read the entire report having heard chuck's confession as a staff person and alicia's wink and nod maybe she doesn't sit and read them from cover to cover. the reports, and even the summary document are not very user-friendly. they're not bedtime reading unless you desire to fall asleep quickly. to some extent, you know, this is unavoidable because social security and medicare are large and complex programs and explaining how their funding mechanisms

work and how the financial situations are likely to change over the next 75 years is no easy task. the use of jargon and technical terms is probably unavoidable. over the years the trustees and the actuaries have added more and more information, offering new and useful perspectives and more detailed explanations and analysis. little has been dropped. as a result, the reports have become longer and there's a growing danger that the reports could become confusing and hard to follow for those who have not earned a black belt in entitlement analysis and probably half of those who have are in this room right now. it is also worth noting the communication technology has changed dramatically in the last couple of decades. and i suspect most users now access the reports online. one has to ask whether the

core of the report could be condensed with much of the methodological discussion and material relegated web-based dependencies with links in the main report. by law of course the reports are directed to the congress whose members have knowledgeable staff to help them condense, summarize, and digest the report's conclusions but the information in the reports is also of great interest to the public and various interest groups representing current and future retirees, providers, and other groups and they depend, by and large, on the media to translate the reports for them. this raises a second question worth reviewing, which is, do the reports do enough to insure that the key findings will not be

mischaracterized, exaggerated or minimized? in general the media wants to tell a dramatic story, a simple one, and the more crisis there is really the better. now we'll see the real difference between chuck and me which is technology. there. the projections in the most recent medicare report provided a lot of food for crisis talk. first it revealed that contrary to previous projections, hi spending would exceed income for the indefinite future rather than returning to a surplus which is what the previous report had showed after the economy began to recover. so, we had a great headline, you know, hi underwater and

sinking. the report also projected that the date which the trust fund would be exhausted had advanced by some five years from 2029 to 2024. finally for those who get into the more sophisticated measures of the trust fund's health, the acutarial balance had deteriorated by .13% between the 2010 and 2011 report. well these bits of bad news were widely reported. few focused on the reasons leaving an impression among some that policy changes and a big spending government may have contributed to the worsening out look.

in fact, as you can see from this chart the, all of the deterioration in the 75-year acutarial balance and most of the bad news in the shorter term was attributable to the fact that the economy in the base year, 2010, proved to be weaker than was projected in the previous report, and the recovery was now expected to be less robust. for example, h-i taxable earnings in 2010 were considerably lower than projected in the previous report. not with standing the fact real earnings in the last report and most recent report are assumed to grow somewhat faster over the 2011 to 2024 period, the, h-i payroll tax revenues are expected to be 1.3 percentage points less than they were in the previous report. nor did the press put the news in its proper context.

for example, while the date of the trust fund exhaustion moved as i said from 2029 to 2024, between the two reports, it was rarely pointed out that this was seven years, still seven years later than was projected in the 2009 report, which was the last one that was issued before the affordable care act was enacted. currently the trustees reports do in my opinion an excellent job of providing detailed, balanced, explanations of why key metrics change from one year to the next. the story is rarely a simple one. the changes in the assumptions are listed, and the analysis is laid out but often readers are left to develop their own summary explanation, their one line or 30 second sound bite. in an era when many americans get their information from sound bites from politicians or from

screaming ill-informed hosts on cable television, one wonders whether a greater effort shouldn't be made in the trustees reports to highlight short summary explanations of the changes that take place from year to year in the metrics that receive the most attention by the press. let me conclude by saying a few words about a third question, which is, how the inherent uncertainty of projections can be incorporated into these reports, conveyed without undermining the confidence in the projections or the seriousness of the problems that we face in the future? this is an issue that in medicare really has two dimensions. one common to all of health care and the other one peculiar to medicare. all projections of health care are inherently uncertain because the services being provided are

continually changing and evolving as new interventions, procedures, devices and pharmaceuticals come online and as the delivery systems change. as a result, no one really knows with great deal of confidence what health care will look like in 50 or 75 years or what it will cost. this problem is compounded with respect to medicare because it is a program with a particular structure and payment schedules that set in law and the charge that is given to the trustees is to project the costs of that program under current law. however we can be pretty sure that certain aspects of current law will not be adhered to. the obvious example hear is the sgr, the sustainable growth rate mechanism, under which physician fees will be reduced by some 29.4% in january of 2012 and then held down to a moderate rate of growth for the next 75

years. for the, last nine years, these cuts have been part of the law but congress and the president have waived the discipline of the sgr and it is almost certain that that will happen again. this is a situation that's not unlike the dilemma that the congressional budget office faces. it did projections for many years on the basis of current law but current law of course had the expiration at various points of the 2,000 and 2003 tax kuds and nonindexing of the parameters of the alternative minimum tax and some other changes that everybody knew would not be what was happening. so there's sort of a desperate search for alternative baseline that

was credible but value-free and that is an impossible task. we in a way face the same situation and what trustees reports do is estimate current law and so when you open the trustees report, although there are warnings every 15 pages staring at you, these are numbers for part-b that assume that there's a 29% cut that is going to be extracted, and if that were not the case, the part-b spending in 2012 would be some 12.6 percentage points higher. by 2020 it would be 19% higher and by 2080 it would

be 97% higher. so we're not talking chump change here. these are very, very significant differences. if one provides two sets of projections in the reports, will that be confusing? if one provides a second set, assuming that the sgr is not adhered to, there's the question of what should you use in its place? should you use the underlying law which suggests the medical economic index would be used to update the physician fee schedule? even though over the course of the last nine years the congress and the president have on average selected updates that were not as high as the mei. so this is a huge, i think,

challenge that we face, trying to present information that is useful, that adheres to the requirements in the law and does not confuse the readers. so that, let me stop there and just say that while i have raised some issues with respect to the, to the trustees reports, in no way do i have the answers to these questions. i was part of the discussion that weighed these issues and continues to weigh the issues and as chuck has said many times, just don't know where to come out. there is no particularly good solution. just as a final picture for you, as you know the chief

actuary at cms has raised concerns, not just about the sgr but also about the ability of the nation to adhere to the constraints that are part of the affordable care act and has provided in supplementary material an alternative projection that has the sgr replaced by the medical economic index and the gradual phaseout of the productivity adjustment to provider payments that is included in the affordable care act. and the result of that is that there is a substantial difference in long-run out

look for medicare if we are not able to adhere to these fiscal disciplines that the congress has enacted over the course of the past few years. so on that happy note let me stop. >> thank you very much. [applause] we're almost out of time but why don't we take about two or three questions for dr. reischauer and chuck. and just while somebody is getting a microphone, any questions? i just want to make sure that you know how valuable that summary document is that's put out with the trustees report. in some sense you don't need to mess with the trustees report. just make that better and don't let any reporter see the trustees report. [laughter] >> yes my name is robert. i'm a consulting actuary.

i found both presentations very excellent but i had specific question for dr. reischauer. why do you think the media suppressed the name of mr. foster during the health care debate? i think he was hardly ever heard from at all and it was really kind, i found it kind of almost somewhat -- a little bit --. . .

to additional scrutiny. the funding support seems to be questionable from year to year. can you comment on that? >> that is the kind of question our public trustees have often and put it aside as a former member of the medicare advisory commission. it is still true after the reforms medicare advantage plans are being paid more than it would cost the government if

their members were participating in a fee-for-service medicare. a level playing field is the right way to go unless you can show convincing evidence that the outcomes that are associated with medicare advantage plans are superior. then we would have properly a national debate whether excess payments for additional bonuses through the medicare advantage plan should come out of lower performing services. >> mark, why don't you have the

last word? >> the last panel there was a presentation about some security and the point was made the current generation of retirees basically had gotten away with the avoiding reform, not having their taxes raised because in 1990 and every year since there has been a problem. they are still around. the question is something you stated in your presentation that was very difficult to make changes for current retirees but is that really the case or can that be the payment going forward? >> i agree with your analytical point which is the way things are now we are not heading towards the future of

generational treatment in social security. if you look at the relationship between contributions and benefits for different generations we have postponed reform to the point where young regeneration -- younger generations will be treated worse than the one before them. as for the question how long we can maintain this idea that people who had previously retired should be held harmless my views on this are evolving. if you asked me six months ago i would have given you and did give the view that that will be an enduring political ethic and as time goes on the balance of ultimate changes to security will tilt more to the tax

increase side because of this desire not to affect people -- but if we continue to the lay fiscal repairs i am not sure that holds true. will ultimately get to the place where it is too heavy a lift to repair social security finances. we are past the point where we have a 75 year shortfall. if we delay ten years more we would be at a point where the changes in the short term are already several times larger to preserve financing that you made before in the program. if that happens i think the risk increases that you don't -- you have a system that is subsidized to a degree from the general revenue pool. a considerable political barrier to changes in benefits

disappears. a lot of that is from the separate funding strip. >> if i could add a footnote the exception to affecting people who already retired was the benefit income to taxation. that is still out there. >> a six month delay in cola in 1983. so thank you. [applause] >> will the people on the next panel please come up? [inaudible conversations]

[inaudible conversations] >> rick lowry will speak at the conservative student conference of young america foundation and its expected discuss the future of the republican party. you can see that at 8:15 eastern on c-span. >> 8, 9. >> 10 blogger total 9, 7, 6, 5,

4, 3, 2, one, 0. >> these are the stakes to make a world in which all of god's children can live or go into the dark. we must love each other or we must die. >> vote for president johnson on november 3rd. >> we look at the history of political campaign ads with robert man and former homicide detective james lebow on the day jack ruby kill lee harvey oswald and former speech writer for president nixon reveal how his messages were communicated. american history tv on c-spanfree. >> the house of representatives has been off eight weeks already including this week.

did you get eight weeks vacation this year? >> former russia today host a o alyona minkovski takes an irreverent view on washington and the u.s.. >> we are willing to try something different. figure out how to make tv news exciting and entertaining and informative again rather than the garbage it really is whittled down to be. >> she will talk about her show sunday night on c-span's q&a. >> this weekend on booktv, john farrell on the life of times of clarence darrow and afterwards, and the foreman on the british citizens who fought for the union and the confederates. live sunday at noon eastern three hours of your calls and questions. in depth with ann coulter.

her latest is demonic. look for the schedule at booktv.org and sign up for booktv alert. weekend schedule on your in box. >> the dodd-frank financial regulations law signed last year imposed new oversight over credit rating agencies which determine the degree of risk involved in many corporate and government transactions. the house financial services subcommittee on how government regulators are implementing dodd-frank and what it meant to the industry. witnesses include officials from the sec and the federal reserve. it is about an hour and a half. >> we will call this hearing to order.

your statements can be made part of the record and ask unanimous consent to allow mr. garrett to participate in the hearing and also fdic submitted testimony in writing and made part of the record. we have opening statements and the chair gives himself four minutes. today's hearing is about the rating agencies and topics will be fairly broad and covered a lot of ground. it is an important time to have this hearing. if you go back and look at the financial crisis and dodd-frank and all the things that followed

some people indicated rating agencies had some culpability in the credit crisis. that ratings did not reflect the risks being taken so subsequent to that we passed dodd-frank and a lot of attention was given to the agencies in dodd-frank and those regulations have come out. some have not. one thing that was part of that was there was too much dependence on the rating agencies and particularly the financial institutions. dodd-frank asked the references to those ratings be really expunged and the regulators come up with new criteria for measuring risk that was not tied to the rating agencies. one thing we want to hear from our regulators is where we are

in that process. the other thing of concern to some folks is there continues to be a concentration in three of those agencies. between moody's and standard and poor's they covered 98% of the ratings and 90% of the revenue. some people are concerned access to other entities become -- still limited particularly when you look at the regulation that is coming now and making it more burdensome and difficult for other firms and we will hear something about that today. also of interest to me is when we look at the fact that some say we ended too big to fail with dodd-frank. some of us do not believe that ended too big to fail but many

of us believe it probably contributed to furthering too big to fail. when we look at major financial institutions a lot of people thought they should be smaller. many of these institutions are larger. what we also see within the rating industry is there's a reward for being considered one of those systemically risky financial institutions and these institutions are getting an uptick over other financial institutions which may have a better base line financial rating. these are some of the things we are going to look at. some of my colleagues want to discuss something relevant to these times and that is the role of the rating agencies as it pertains to the united states

sovereign debt. i suspect there will be questions along those lines as well. i look forward to a robust hearing. this is a very important part of our economy. a lot of people put a lot of credence in to these ratings. some feel they lost some credibility and as we move forward one of the things we feel will be extremely important is restoring more certainty in the marketplace. i will recognize my good friend the ranking member mr. capuano. >> welcome to auld our panelists. you want to talk about the removal of references. i am interested in other aspects. it is well known by everybody including all the testimony that the faulty ratings contributed significantly to the recent

economic problems. there is no debate about that any further. i am particularly interested in where we are now and how we go forward. i am interested in how budgetary constraints impacted your agencies relative to implementing dodd-frank and whether it hurts other parts of your activities. that is a very important aspect. doesn't do any good if you cannot enforce regulations or see them. i'm interested in the overall report whether the credit rating agencies are doing their job. whether we should be concerned about -- i know things change but whether they have finally done what we hoped and wanted them to do. i think they have done a better job. they are more reliable and independent and change their models but i want your opinions whether that is a fair assessment. i am interested in your opinions as to how we are doing with the

bill we passed like any bill particularly up major bill. we always knew that any major bill needs to be tweaked as you go forward. what can we do better? the truth is our economic situation right now with the debt limit is crisis of the moment. hopefully we will pass that in the next few weeks but that doesn't solve all our problems and everyone here knows that. we have other things to address and other economic issues related to the credit rating agencies. if they do their job our entire system will work better and that is what i am interested in hearing today. >> i now recognize the chairman of the full committee, mr. bachus. >> thank you for convening this hearing to look at the future of credit rating agencies post dodd-frank. the agencies fail spectacularly

in the years leading up to the financial crisis. government seal of approval for credit rating agencies led to a miss pricing of risk and subsequent collapse of market confidence. house republicans identify this as a significant problem and propose removing references to credit ratings in federal statutes. unlike most of our proposals which were rejected by the majorities this one was adopted and incorporated into the final legislation with bipartisan support. i commend all members of the committee for that. section 939 a of dodd-frank requires all federal agencies to review and replace references to credit ratings in their regulations with alternative measures of credit worthiness. the significance of section 939 a cannot be overstated because

the provision had overwhelming bipartisan support for robert regulatory reform debate. i expect regulators to implement with legislative intent. this provision has been discussed and debated within this committee and on the house and senate floor since 2009. if the regulators have concerns prior to dodd-frank's enactment about the ability to develop alternative to credit rating i am unaware of them having articulated any of those concerns to members of congress. section 939 a is an important step to deemphasized credit rating the dodd-frank act lacks consistency in its approach to credit rating. provisions such as section 939 f. works against the intent of section 939 a. it reinforces the significance of credit rating by requiring the government to establish a

system for the sec to choose the rating agency to evaluate a structural financial product. regulations adopted by the sec under dodd-frank appeared to contradict the goals of an earlier credit rating agency reform law offered by our colleagues in pennsylvania, mr. fitzpatrick. that sought to reduce the barriers to entry for credit rating agencies seeking nationally recognized statistical rating designation. however the 517 pages of rules adopted by the sec in may to implement sections of dodd-frank direct new barriers to entry for prospect of an r s r os. these rules may be

life-threatening to smaller credit rating agencies. it removes the credit rating agencies act. in addition to causing a dislocation in the asset backed securities market abilities than discourages new entries to the rating agency arena. last week this committee approved legislation authored by mr. stivers to repeal this counterproductive -- counterproductive provision. all this shows why today's hearing is important. i look forward to hearing from our witnesses. >> i would like to recognize the vice-chairman of the committee, chairman fitzpatrick who has been a great advocate for making sure we have more competition. i recognize the gentleman for

two minutes. >> thanks for your leadership convening of the hearing. we are looking forward to the testimony from both panels. credit rating agencies have a role to play in the financial system that has not always worked especially for all users. in 2006 the chairman indicated i wrote legislation that credit rating agency reform act opened the door to more participation and competition in your industry so began a process that led to this day but we had a cast -- catastrophic failure in the system that hasten reform. it is striking that one of the few bipartisan understanding is was the reliance on credit ratings have become too pervasive in our statutes but dodd-frank instituted additional provisions that contradict our bipartisan agreement and now create traditional barriers to

competition in the industry. it is time we we are having this discussion in the midst of our debt negotiations. full faith and credit of the united states is on the line. we are at a crossroads where we need to decide to heed the economic warnings or get our fiscal house in order or continue to have the federal government make easy choices. today's hearing will contribute to that debate and i look forward to participating. >> i thank the gentleman and yield one minute to the gentleman from texas, mr. canseco. >> the financial crisis of 2008 reenforce that the largest credit rating agencies carry tremendous influence over our economy largely because the government stamp of approval ratings assigned to securities for nationally recognized statistical rating organization were used as regulatory benchmarks for determining appropriate capital standards.

nrsro's designation was the cause of investor complacency when these rating agencies began to rate complex asset backed securities and collateralized debt obligations. even though they have no experience rating such instruments and as we know now these instruments were not understood by anybody in order to help decrease the dependence on a few organizations that have such an outside influence on the financial system a bipartisan proposal was added to the dodd-frank bill that required regulators to seize their reliance on credit ratings and adopt their own standard of credit worthiness. some banking regulators have not fully embraced this proposal and i have great concern over the impact of the decision. i look forward to hearing from our witnesses on this important matter. >> the gentleman from new jersey, garrett. >> thank you for holding this

hearing. consideration of regulatory reform was very partisan and the overreach from that is restricting economic growth and limiting job creation but one significant area of bipartisanship dealt with credit rating agencies. agencies became overreliant and failed to do their due diligence. by having the government require rating investors -- ratings got a stamp of approval from the federal government. to review this ranking member frank and chairman bachus remove all rating requirements from the regulations. we have been moving forward implementing that and changing to a new system can be difficult for all involved. we can figure out a way to make this system work in the future. as we can see by the discussions

this week surrounding that that debate the rating agency's opinion carries quite a bit of rate. we can play a role evaluating the company's, it should not be -- in conclusion we must continue to work to lessen investors' reliance on rating agencies and disconnect any believe the government -- i yield back. >> i remind the panelists your full opening statement will be made part of the record. our first panel, mr. john ramsey and mr van der weide, senior associate director of banking supervision and regulation of the federal reserve board and mr. david wilson, chief national bank examiner, office of the comptroller of currency.

mr. ramsey, you're recognize. >> members of the subcommittee my name is john ramsey and i am deputy director in the division of trading and markets of the securities and exchange commission. thank you for the opportunity to testify concerning the oversight of credit rating agencies and regulatory treatment of ratings. the commission gained regulatory authority in 2006 with the passage of the credit rating agency reform act which mandated the commission established a registration and oversight program for nationally recognized statistical rating organizations or nrsros yet it is important to note the commission is prohibited from regulating substance of credit ratings or rating agency procedures for methodologies. from 2007 to 2009 the commission adopted rules to address conflicts of interest, establish record-keeping and reporting

requirements and require rating agencies to publish historical and performance data on the ratings they issue. following the financial crisis which highlighted the performance of credit rating agencies the dodd-frank wall street reform and consumer protection act mandated a comprehensive additional set of rules in this area. in may of this year the commission proposed rules under this new authority. the commission has strived to achieve three general goals. to address conflicts of interest and improve integrity of rating processes and methodologies, provide more transparency so investors have better information about trading that can better perform the compare -- rating agencies and promote competition in the market for rating agency services. my written testimony details the commission's regulatory efforts to date i would like to highlight a few of those actions. many of the existing rules are directed to the integrity of the

rating process. the commission's rules require the agencies to manage conflicts of interest and prohibits certain other conflicts. they are prohibited from structuring the same product that they rate and employees that participate in credit ratings are not allowed to participate in fee negotiations. these requirements would be strengthened by prohibiting quitting analysts -- credit analyst from being involved in marketing activities. commission rules require nrsros to make various disclosures about reading histories, methodology and performance statistics among other items with our recent proposals aim to strengthen these requirements by increasing the amount of public data and standardizing the way information is provided to be more useful to investors. each published rating would need to be accompanied by information to make the ratings more

understandable and the rating agencies would be required to adopt procedures to clearly define each rating symbol and make sure symbols are applied consistently. ..

>> the commission has proposed to remove numerous rule references to credit ratings and to substitute other standards of credit worthiness when necessary. finally, the dodd-frank act requires the commission to conduct examinations of each nrsro at least annually and to issue a report summarizing the findings. the staff is currently in the process of concluding the first cycle of these exams. i am pleased to answer any questions you may have. >> thank you. now, mr. van der weide,. >> thank you for the opportunity to discuss credit ratings in section nine 39a of the dodd-frank act. to help achieve important goal of reducing governmental and private sector alliance on credit ratings, section 939a requires all federal agencies to remove reference to credit ratings from the regulations and replace them with appropriate alternative standards of credit

worthiness. for many years before the introduction of credit ratings into federal regulations, investors that use credit ratings in making investment decisions. credit ratings provided uniform market-driven, third party assessment of the credit worthiness of countries, state and local governments, and companies. federal agencies later in corporate credit ratings into the record for frameworks in part because of these same attributes. the reason financial crisis, however, made plain serious flaws and methodologies and processes around the determination of credit ratings, particularly ratings for structured finance positions. these flaws contribute to the issuance of credit ratings that severely underestimated the credit risk of many mortgage-backed securities. investors for their part rely too heavily and and critically on these ratings are making their investment decisions. and downward revaluation of many of these securities between 2007 and 2009 and resulting loss of confidence in the agassi of credit ratings contributed

meaningful into the dynamics of the crisis. section nine through nine a of the dodd-frank act is one of the number of provisions of the statute that are intended to address problems of credit ratings and agencies. the board has identified 46 references to credit ratings in his regulations. most of these references are in the ports risk based capital requirements for statement of banks and bank holding compani companies. the porch greatest challenge in implementing nine 39a is completely removing those credit ratings from a risk based capital rules. to protect the safety and status of individual banking firms and financial stability more broadly, we are developing alternative standards of credit worthiness for use in our capital rules that possess the virtues of credit ratings but not the vices. there are several key characteristics of a good credit within a standard. most importantly the standard should be reliably risk sensitive, it should effectively measure the road of credit risk of various types of financial instruments, second, the stench result in a consistent and

transparent application across different types of financial instruments. third, standard ideally should auto adjust on a timely basis to reflect changes in the credit risk profile instruments and should auto adapter governor financial market practices. finally the stench of the relatively simple to implement and should not increase regulatory burden for banking firms, particularly small banks. credit ratings themselves do not meet all the criteria. in developing good replacements is a difficult task. since the dodd-frank act was signed into law last july the board has been working with the occ and the fdic to carry out the 939a 90. in august of 2101 month after the act was passed the banking agencies issued advance notice of proposed rulemaking for use in our capital rules. in november of last year the board hosted a roundtable discussion with the other banking agencies, academics and private sector participants to solicit views on this issue. public commenters in our 939a

effort express concern about the statutory mandate, have suggested it could lead to competitive distortions across the global banking system and across the banking landscape. and had urged agencies to develop alternatives consistent across banks and easy to implement. we continue to work closely with the other banking agencies to develop a program alternative standards. we are considering a number of approaches including approaches that rely on market-based indicators such as bond spreads, approaches that rely and balance sheet financial ratios, and approaches that rely on an internal assessment and credit risk by banking firms. each of these approaches like the use of credit ratings has strengths and weaknesses. the board anticipates it will proposed amendments to remove references to credit race from our regulations in the near future. the board also has been active in international efforts by the financial stability board in the policy committee to -- although the international financial regulatory community is working to reduce reliance on credit

ratings, but also capital framework continue to incorporate credit ratings in material ways. accordingly we would need to find ways to synchronize our 939a change with the global bank capital reports. the board welcomes input from the public and from members of the subcommittee on this important issue of public policy. thank you for the chance to describe the boards efforts today to implement 939a, and i'm happy to answer any question. >> thank you. mr. wilson. >> chairman doctor barr, ranking member capuano, and members of the subcommittee, i appreciate the opportunity to testify about the initiatives the occ is undertaken and the challenges that we're facing in in our work to implement section 939a of the dodd-frank act. section 99 a. does require each federal agency to review its regulations that refer to require the use of credit ratings and each agency must then modify its regulations to remove any reference to a requirement for reliance on credit ratings and subsidy

alternative standards of credit worthiness that the agency determines is appropriate. section 939a also requires each agency to transmit or report to congress and the occ will be submitting that report today. occ regulations affected by this provision included in the agency risk based capital regulations, and also occ specific regulations pertaining to national bank investment securities activities, securities offerings and international banking act of these. the banking agencies risk based capital standards use credit ratings to determine appropriate capital requirements and design risk ways to securitizations and exposures to qualifying securities firms. credit ratings are used to assign risk adults under the agencies risk rule and to determine the eligibility of certain guarantors and collateral for credit risk mitigation purposes. section 939a could also significantly affect future

implementation of other basel accord capital requirements in the united states. these include a standardized approach for credit risk which relies extensively on credit ratings. to assign risk weights as was 2009 revisions made by the basel committee to enhance and strengthen international risk based capital standards. the occ's investments to his regulations use credit rating for determining credit quality, marketability, appropriate concentration levels, of investment securities purchased and held by national banks. credit ratings are also referenced and used in our regulations governing securities offerings by national banks and the types of assets federal branches and agencies can hold as a capital equivalency deposit. the occ is issued to advance notices of proposed rulemaking to seek input, on how to revise our regulations to implement 939a. an interagency sought comment on

several approaches for developing credit worthiness standards for agencies risk based capital rules. and these approaches buried in complexity and risk sensitivity. we also issued a similar anpr on alternative credit worthiness standards for our non-capital regulations. the agencies as mark said, also hosted a roundtable discussion attended by bankers, academics, asset managers, credit rating staff, and others to discuss alternatives to credit ratings. commenters on the anpr and roundtable participants generally expressed concerns with the removal of credit ratings from our regulations, and asserted that credit race can be a valuable tool for assessing credit worthiness. many commenters believed that the simple approaches outlined in the option due to the lack of risk sensitivity created incentives for inappropriate risk arbitrage. however, commenters were also concerned that the more complex and risk sensitive approaches

due to the depth and type of analysis that would be required pose a disproportionate burden on small banks. commenters also expressed concern that certain alternatives could create competitive in equities and inconsistencies with the international capital standards established by the basel committee. these comments reflect the challenges that the occ and the other federal banking agencies are facing as we work to implement 939a. we believe that with appropriate operational and due diligence requirements, credit ratings can be won by a factor to consider when evaluating the credit worthiness of financial instruments. in our view, an approach that precludes undue or exclusive reliance on credit ratings, rather than imposing an absolute prohibition on the use would strike an appropriate balance between the need to address the problems created by the overreliance on credit ratings with the need to enact sound

regulations that can be consistently implemented. notwithstanding these challenges, we are continuing our work to revise our regulations to be consistent with section 939a. we are being careful and thorough in order to ensure that the result is not a step backward in assuring that banks of all sizes conduct their activities in a safe and sound manner, and that reflect sound credit judgment and adequate capital for the risk they take. thank you. >> thank the gentleman. so, what do we have perjured testimony, 939a basically says that we're going to move away from the references to rating agencies in our financial institutions as a part of regulatory capital. and, mr. ramsay, i think you said that, have you published him have y'all published by definition or -- for your standards of credit worthiness?

where are you all in that? >> mr. chairman, we have currently i think propose to remove references from 11 separate rules, or sets of rules in some cases, nine different forms. actually just yesterday the commission adopted the removal of ratings as a criterion for so-called short form part shelf registration. we're already a long in the process of adopting some of our proposals. it's tricky because each room has to be looked at individually. the right sort of alternative for credit worthiness is not going to be same in all cases. it has to be sort of calibrated, if you will, for the purpose of the particular role. >> mr. van der weide, where is the fed in this process? have y'all developed a definition, for credit

worthiness? >> we are working on that. we issued a first proposal on that last summer. we've been engaging over the past year and extensive discussions with the occ and the fdic on this topic. part of our particular challenge that is causing us to take a little more time is the core regulations said we have to worry about is the bank capital rules. the bank capital rules as i think we learned in part through the crisis are extremely important to ensuring the safety and status of banks and financial stability of the united states. so it's very, we have to be very careful about how we amend our capital. we need to take our time and make sure it gets done right. the capital rules are an area where a fair amount of risk sensitivity is required. it's not an on-off switch. investment grade or not. so it requires a little more work to make sure we have a more granular system like that. of the complexities that we are working on our, it's an interagency process. there's a number of us working on a.

it's not one agency. that will result in a better product again but it will lengthen the process in time a bit for this ever. the final complication that we have is the capital rules are negotiated internationally, the balsa committee, so there's a international accord which we have been implementing in the united states. and as you know there's some tension between the international capital record which does contain references to ratings and what we're trying to do under 1990s we also need synchronous our efforts of international accord. so we're working very hard on a. would have concrete proposals to propose at this time but with us and in the near future. >> mr. wilson's? >> well, the capital rules are an interagency process. so my answer is very similar. but the other thing in the capital rules in addition to what mark mentioned about, we're trying to implement an accord that has been done internationally. this extensive reliance on credit ratings in a standardized approach. this extensive reliance on

securitization. but also importantly, some of them, like especially securitization, is very granular. so it's hard to come up with a definition to meet all that granular to put risk weights into buckets like the basel accord did. but in addition to that, as i've mentioned, we had occ specific rules, primarily in investment securities. that is more of an on-off switch. and we can take an approach and we have proposed an approach similar to what the sec is proposing. and just having a descriptive standard of credit worthiness. >> i appreciate the fact that you're looking at an interagency approach to this, and i think there needs to be some standardization. i think there's a feeling here that this process is not moving extremely swiftly. one of the, i think, concerns is that i have is that under fsoc,

the treasury sector is supposed to come provide leadership to this coordination among the regulars. and i would mention that the secretary, we did ask treasury to provide a witness today, and this is the second hearing in a row that we've had the treasury has elected not to send a representative. we think it's important for the treasury secretary to be engaged in this harmonization within the regulatory framework does we can't go and talk about harmonization, you know, with basel and these other countries if we don't have our own plan. and so i would encourage you to make sure that we move along in that process and make sure that happens. i would just close by this interesting concept, just a quick question. so, if we're going to expunge that really from our capital rules and some of the other rules, what would be responsive if we just did away with the

nrsro designation? mr. ramsay. >> well, i think, i should made as background, the nrsro designation has been used for quite some time. it used to be used as sort of an informal no action letter process, which for many years that's the way that agencies were recognized. >> i'm sorry to interrupt you. my time is unfortunate expiring. could you just give me the short answer? would you support doing away with the nrsro designation? >> i guess the short answer is i think there argues that could be made for and against, but the commission certainly hasn't taken a position. >> and mr. van der weide? >> the fed also does not have a position o on the question. >> could you develop one? >> i will take that back. >> mr. wilson? >> i will take it back. >> thank you.

and with that my time has expired. and the gentleman from north carolina, mr. miller, recognized for five minutes. >> thank you, mr. chairman. one of the lessons i took from the financial crisis, when the folks in the financial sector say everything is under control, there's nothing to worry about, but they have a desperate look in their eyes. i worry. because i think maybe they know something they are not telling. what really happened in september of '08 is described in the press as interbank lending freezing up, and affairs to the press it's pretty hard to explain it any more deeply than that. but in a part of the shadow banking system that hardly any american knows anything about come hard anyone in congress knows anything about, and those who know something about it don't know very much, was the repo market. and as much money as was moving around every night in the repo

market, as there was in bank deposits. bear stearns was getting $70 billion a night in the repo market lending, every night. and what they were doing with that money was making longer-term loans. and using very short term borrowing for longer-term loans is not a formula for financial stability. and what happened is that there was an old-fashioned run, you know, like what you saw him it's a wonderful life that we just have a deposit institutions before it was deposit insurance in the repo market. u.s. treasury seem to be the principal collateral for the repo market, and for the derivatives market. if our debt is downgraded, have any of you giving any thought, to any of you have any clue what effect that might have on the repo market, on the derivatives market, and the use of that debt as collateral in those markets?

>> yes, it is something that we are considered. i mean, it's one of the many things as we try to look at what the impact might be. and you know, the best guess is that there would be an adjustment of the margin required. so, you wouldn't be able to borrow as much through the repo market. there would be more margin, the given amount of collateral that you have. we think that that is manageable in the short term because, you know, even for example, going from a aaa to you still at a very high quality security. and it's still considered one of the safest instance in the world. but who knows what will happen long-term. >> i've got a letter from my state's treasurer saying please please please don't allow federal government debt to be downgraded because north carolina's state it will almost certainly be downgraded as will that happens.

the same is likely true of all manner of other kinds of debt, fannie, freddie, federal home loan bank debt. on and on. you have any sense of what the ripple effect would be and other forms of debt if treasuries are downgraded? >> yeah. the only sense is that would probably happen. the extent of it, just like in 2008 what we saw some of our predictions and what might happen in some of these markets were just blown away with what actually happened. so we believe there will be an effect. the size of the effect is hard to measure. >> and also, somebody else? spent if i could address your previous question on the repo markets. the repo markets are not what they were in 2006 and 2007. there has been a substantial reduction in the amount of short-term funding financing long-term asset to the repo markets over the past few years.

there's been a lot of work done both of the private sector level and on an interagency rate of three bases to make the infrastructure of the repo markets stronger. there's also recognition going forward, the reality now that the bar was in the repo market are much more well-capitalized than they were leading into the crisis. there's also a new predatory framework that is coming online the basel accord, the new capital requirements under basel, new liquidity required was are under basel are designed to make the repo market safer and sad and more stable to do with the potential adverse effects. >> also understand great many, a great many funds require that all the debt they hold be aaa. do we have, do you have any idea of what effect may be on funds? will they have to dump treasuries? what will that have, what effect will that have on the financial system? >> i guess i should say that my understanding is that at least according to our rules, the

rules don't require a aaa rating generally for market money market fund. they require where funds hold government securities or securities that are guaranteed by the full faith and credit, that's sufficient. now on individual funds that investment guidelines that would require a aaa rating. and i think they are in the process of looking at those guidelines in determining whether they should make chang changes. >> i guess one summary question since my time technically has expired but the chairman has not brought the gavel down yet. and the right to worry that this could be real bad if our debt was downgraded? >> you know, it's hard to measure, but i think you're right to worry. i mean, it could happen. it could be a big thing. >> okay. >> my time has expired. >> thanks the gentleman. now the chairman of the full committee, mr. bachus is recognized for five minutes.

>> i think the chairman, and the children from north carolina i think is right to be concerned about a default. i think he would also be prudent to worry about unsustainable spending, which is, although i do fall maybe a more immediate problem. the overwhelming problem is structural long-term changes. and both of those ought to be address, and until both of them are there won't be a lasting solution. i've listen to your testimony, and i've acknowledged that 939a is giving you some problem, particularly the bank regulators, occ and federal

reserve. you cannot move very quick on implementing it eric if you read it, it ask you to replace the reliance on credit rating agency as the sole basis with alternative system of credit worthiness. which could include credit rating. it could include credit rating. but it would be an alternative which would suggest other criteria. if you noticed, you've mentioned your coordination with our european brethren, our international coordination. european countries, the e.u., they're making great efforts to in the reliance, or overreliance on credit rating. in fact, they found i think our

example. -- they followed i think our example. i notice on july 11, 2011, the european commissioner member stated the legislation would address over reliance on credit rating. the financial times just this week said that europe intends to end its reliance on credit ratings. and i think that means over reliance, not reliance i would think. have you been in discussions with them as they are moving towards implementing provisions, are you aware and are you according to your efforts with theirs? >> yes, absolutely. and i want to be clear. i don't think anybody disagrees that we shouldn't reduce reliance on credit ratings. i mean, that is a financial

stability board pronounced. it is something we agree with. it's something that we all think is a good thing. but to address your earlier comment, if we can read 939a to use a credit rating as one component and an overall credit analysis with appropriate due diligence and appropriate verification, that would make our job easier in order to conform to the basel accord. but, you know, even the enhancements that were done in 2009 by the basel committee recognizes this, and put in a lot of additional due diligence and requirements a four you could rely on the credit rating. >> yes, i think what, what one of the goals behind it was you heard investors, you heard particularly in residential

mortgage-backed securities, and i think that was the spectacular failure, unusable bonds, corporate debt, municipal debt, you really, i think the credit rating agencies did a much better job. and i think that's part of your hesitancy, i would think is that in fact, on other asset-backed security, they had a mixed record, but it was if more value -- it was of more value. i think what we didn't want, people telling us that they were required by the regulators to basically make purchases or allocate their assets or the reserves based on that sole criteria. but i would say this, and i did

not hear an expression, i will say this from either the occ or the federal reserve. during the entire debate, i don't recall anyone coming to us and saying this is bad, this is a real problem. so i would say going forward, i would encourage you to have discussions with us. this is not a holy grail. we very much appreciate, as we know up here. and how just ask you to work with us on this. and i have one final suggestion. i have 30 seconds left. i know, i know it is a complicated job, and it's easy to criticize. that you are the professionals, and we did intend to give you discretion, but we also intended to give you direction. and one of those directions is

section 112 where we said that as you cooperate, that the fsoc, which you are members of, that that may be used as a coordinating body it and i don't know whether you have done that. are you aware of section 112. but i'll take take a a look at that. in your efforts. and thank you very much. >> i thank the gentleman. and now mr. carney is recognized for five minutes. >> thank you, mr. chairman. thank you for having this panel today. it's timely given all the things we're looking at here with the dead sea. it's also timing with respect to a hearing that we had in the financial institutions subcommittee last week about h.r. 1539. which as you may know strikes 939g of dodd-frank which would've required a higher level of liability for the rating agencies, and the effect as my colleague from ohio said was to drive the asset-backed

securities markets for big employer in his district, and that was the motivation behind his ill. the sec apparently had regulation or has revelation that requires that ratings be part of the prospectus for such a security. and i understand that they suspended that regulation so that the bargain i guess we come back. the chairman, former chairman, ranking member said the provision of dodd-frank would require the sec to withdraw that regulation to be consistent with the current law. is that your understanding, mr. ramsay? or could you elaborate on this situation? >> sure. i'll try to briefly do so, although it is all a bit of a complicated issue. >> which is why i asked the question. >> we previously actually, the commission, proposed at one point or put out for comment the idea of removing this special exception, if you will, for rating agencies from higher liability standard.

so i think we recognize that there are arguments that could be made for or against. the commission never came to a consensus on that. the congress and essentially made the decision for us. as you know, because the abs market, because our rules require that the rating included in the prospectus, the result of removing the extension meant the rating agencies would have to consent to have the rating information included in the prospectus. they refuse to consent. as a result there was the potential that the register at abs market would be shut down, or that they wouldn't be any deals being done. we thought that that was a bad result for the markets, and for investors. and so we issued a no action letter to allow that visit to continue. and so that no action letter was recently extended. that's where we are --

>> how about the last part claim by the ranking member, mr. frank, that the sec would be required to make its rules and regulations consistent with dodd-frank, and there but i guess withdrawal that requirement? >> well, we haven't done anything to alter the 436-g, or what was done in the statute. the only thing that we did was to issue annual action letter with respect to the abs market. >> you have if you are to other panelists have you on whether the rating agency should be subject to that expert standard? people do listen to the rating agencies. we are seeing that right now. when i was in state government we listen, in fact when the rating agencies said jump, we said how high? and we would go, i was secretary of finance, we go to the legislature and so you can do that because if you did that, it could affect our rating. now we have the debate over the

debt ceiling, and, of course, the big argument is we don't want to default, we don't want to downgrade. so people do listen. some of the discussion and argue it is do they rely on the ratings too much. but what about that standard, the liability standard has a way of disciplining what might be put in a rating and included in a prospectus. >> we don't have a view on it. i think both of those statements are correct. >> does anybody else? if you don't, or if you don't want to offer one that's fine. so let me ask this question been. so what does a different world look like if we have too many -- i frankly think ratings and the opinions that go with them are very meaningful, and have always been in the world that i live in. so what does a different world look like when we don't rely so heavily on ratings, going back to the chair, he is not here,

mr. bachus. does anybody have a view of what the world looks like? >> well, back to mr. bachus his comments and the comments about what the real problems were for the securitization structures, and a view of the world is, you know, there will be some reliance on credit ratings. but it should be additional due diligence. there should be an understanding on the part of the banks would regulate and other investors on what is actually underlying that securitization. that's not a new view for the occ. we had guidance in that area. we have reaffirmed it and strengthen it in 2009. arguably we didn't enforce it as much as we should have, but, you know, i think that's the view is again back to this idea of reducing reliance on credit ratings. >> thank you. i see my time has expired.

>> i thank the gentleman. and now the vice chairman, mr. fitzpatrick for five minutes. >> thank you, mr. chairman. mr. ramsay i want to follow up on chairman neugebauer's plan of questions earlier having to do with the designation process at the sec for recognizing, a natural recognized statistical rating organizations. i think you testified that for years the commission had a policy of issuing a no action letter. can you expand on that, what the process was and what it currently is? >> sure. so i think beginning 1975, if i'm not mistaken, the commissi commission, when the first use of the term nrsro was included in commissions rules, essentially the commission granted what we call no action relief which is essentially a letter issued by the staff that says it would not recommend enforcement action if a private

market participants operated in such a particular way. so, these were letters, were essentially ways of recognizing individual rating agencies and those ratings would then be recognized in particular rules. that process was criticized as being not very transparent. i think probably rightfully so. and so as a result, in 2006 the congress create a structure that created a much more transparent process for applicants to come in and register. since that authority was granted we have registered 10 different entities. we've only turned down one. the only one that we turn down was unable, under the laws of its local jurisdiction, to be able to say that it could provide us with documents and examination authority that we would need. so, we have been trying to use

the registration process and the authority we have been given to encourage competition, but recognizing that we have to be able to make some baseline findings that are required by the statute that the agencies that come to us qualified. >> is it your sense the additional market participants are increasing the quality of information, increasing the quality of what is out there for investors, but also maybe even decreasing the cost? >> well, i would be hesitant about, i'm talking about quality because as i mentioned we are prohibited from regulating the substance of ratings. i think we do believe that the rating process that exists now is more substantially more transparent. that the rating agencies are more accountable. we think the proposed rules that we put out there but make that much more the case. and hopefully more competition will exist as well.

so, we recognize that the rules do we propose will impose some compliance costs. and we've asked those rules are still out for comment. we've asked comment about, there are ways that rules can be crafted so they don't impose a much in the way of costs. we think more competition is a healthy development. >> how but the operative for smaller brain age two to participate in the market? are you guys taking a look at definition of what a small agency would be? >> we are. the rules are relatively new. the authority is relatively new, and so, you know, we have had some people to come into us and we've been in discussions with them. there's not much of a track record there so it's hard to going out where we are so going through the process for the first time. >> there was an executive order and the men ran from president obama unequivocally called for

regulations to be applied in the least burdensome manner in order to reduce unnecessary regulatory and obstacles to competitors in the industry. so given that the three large nrsros control over 80% of the credit rating market, and has significantly large profit margins that allow them to sort of absorb the higher compliance costs, do you believe your rules impact on smaller rating agencies? >> congressman, as i mentioned, the rules are still out for comment here and we've asked for comment. we would you want to hear from people as to whether the costs are excessive, if there are ways we could scale them back. i should be clear that the statute is fairly prescriptive in terms of the things, the kinds of roles that we are required to adopt. we've tried in our proposed rules as much as possible to adopt what i call policies and

procedures approach, which is that we required agencies to adopt policies and procedures to achieve a specific objective rather than trying to dictate the way in which they have to achieve it. so we haven't -- and are aspects of her rules by creating more rating, more information that allow investors to be able to compare performance of rating agencies that we hope over the long haul will actually spur competition. >> thank you. >> i thank the gentleman. now the ranking member, mr. capuano. >> thank you, mr. chairman. thank you, gentlemen. i just want to jump at a couple things. as a set of beginning, nine 39a i think is good, is anything in any rule anyway the primitive the market from looking at a credit rating from anybody? >> no spare so you can't make them do it but you can't stop them from doing it either?

>> it has to be removed from the regulations. it doesn't mean that the investor -- >> that's what i'm suggesting. markets are going to call for a credit rating no matter what we do. i think it's a good thing to get them out. i think it's good to do but i don't want to pretend that's going to be the end of all our troubles. the markets to going to be looking for a credit rating. you think that's a fair statement? does anyone think it's an unfair statement? >> it seems there. >> thank you. i guess on the 939g, again, it's not in the prospectus but am i wrong to think that most credit rating agencies are able to jump up whether it's in the prospectus or not? mr. ramzi? >> i think generally the information desk into the market one way or another. we prefer to have -- well, i should say this is amount that is under review. so we have -- >> right now as a static credit

rating agency are not allowed to register go into the prospectus is because they're concerned about this rule, which is fine, but that doesn't mean that i can't find their rating as a private citizen in a thousand different places. is that a fair statement? >> i believe that's there. >> we're talking to real technical aspect where they don't do one thing and some of prevent themselves from being held liable under one section of the law. that's all we're talking about. >> i -- well, yes. i mean, i think there's nothing that we can't force rating agencies to consent under the scheme that we have. and so a as a result, the failue to consent means that -- >> but their ratings are still able to the public? >> that's correct. >> by vincent monopoly and the prospectus it does mean somehow they're hiding it and putting in the bottom drawer, no one can see it. it just means it's not in a technical piece of document that is technically available, yet it's a failed everyplace else other than that document. >> that's correct. >> there's nothing in this

regulation or any other regulation that number one, and supersede the law of the congress, is that a correct statement? >> i would say that's correct. >> congress has said to get rid of this, the sec has not done it yet but i would argue that it doesn't matter what your regulations say. what matters is what congress says, whether people like it or not. congress has said it's no longer relevant so, therefore, do whatever you want to section 11 doesn't apply. it's an illegal regulation that the sec has hung onto for no particularly good reason. that's never one. number two, relative to section 11 it doesn't relate to the of the library that was put in place by dodd-frank that says a credit rating agency that has now held, can be held liable for knowingly or recklessly conducting their business, is that a fair statement? >> i -- i'm sorry. >> fair enough. i shouldn't, i assume none of you are lawyers, or are you all lawyers? >> i am a lawyer. [laughter]

>> we may all be lawyers. >> i'm not. >> i'm a lawyer. so to good guys and one so-so. [laughter] i the only one who will defend you guys, don't worry. because as far as i see, one labeled in section 11 is a technical aspect, knowingly and recklessly is still there for anybody to use, and nothing to anybody that can stop that. now i know it has been used yet but it is still there. so let's not pretend that section 11 is the only thing that is out there protecting people from the credit rating agencies. >> i agree, congressman. it is there and continues to be. in fact, the dodd-frank act sort of made the pleading standards easy with respect to rating agencies. >> i know it hasn't been used yet. that's fair. >> that is for the courts to sort out. >> i hope it never gets used because all i've ever one is for credit rating agencies to do jumping i want to get back to my opening statement. as you have been going through this, i'd like to get this or this is an opinion question and

you may or may not be comfortable answering it. do you have an opinion whether credit rating agencies in general are doing their job more efficiently, more effectively than they were prior to the crisis? straight up question. put you on the spot. i'm not trying to but what the heck, that's my job. go ahead, mr. wilson. >> i mean, as an opinion, i mean there's obviously been lots of energy devoted to the problems that we all saw, including rating agencies. in addition to that soviet a lot of additional requirements. >> do you think they're doing a better job than they were before? >> yes. >> mr. van der weide? >> i think they are doing a better job. i think they and many of us have reacted to the lessons learned by changing our ways and putting the way we estimate risk and model business i think they are doing better. consistent with comments that dave made early, crucial thing

is that no matter how could we think they are doing we not overlay on them, not the government, not the private sector. that's a goal. >> i think it's fair to say that because the regulations that are in place, they are more consistent in terms of their methodologies, and certainly the amount of disclosure that is out there that investors can use is much greater. >> one final question, mr. ramsay picture agency was tasked with creating an office of credit rating. would you have been able to do this if you don't allow to reprogram your money? >> my understanding, congressman, is that the reprogramming authority that was required from the house has not been granted. and so as result, what we have done is take resources from other areas in order to complete the annual examinations that were required to do this year. we have had to draw resources from investment advisor, from joint investment visor broke a few exams, and those are exams we would like to do more a.

that has imposed some strains on our resources. >> thank you. >> thank the gentleman. and now the chairman from texas, mr. canseco, for five minutes. >> thank you, mr. chairman. mr. wilson, your testimony describes difficulty in identifying a workable replacement for credit rating. among other authorities, section 112 of dodd-frank empowers the financial stability oversight council, fsoc, with the authority to coordinate rule-making and recommend regulatory principles to fsoc members. have you requested assistance from the chairperson of the financial stability oversight council, fsoc, to use its authority under this section to provide assistance in 939a rule-making? >> to my knowledge, we have not in 939a. >> mr. van der weide? >> no, we have not. we have concluded the core coordination that is needed in this process the between the

banking agencies because we have a lot of common regulations, most important the capital ruled that it is good over the agencies coordinate. we are according fairly intimately. we have also consulted with the sec and fdic and other agencies but we can't call that a coronation process but we have consulted with them. there's a lot of coordination and consulting going on. we have not asked the fsoc to get involved. >> mr. ramsay? >> i'm not aware that the fsoc in particular has been involved in this issue. as mark said, the agencies themselves have been talking to each other a fair amount. >> thank you. the sec has made significant progress of removing references to ratings, and even began the process when does seem a likely legislative possibility in 2009. why is the sec able to move forward while you are here only talking about the challenges? are you going to fulfill your statutory duties?

>> yeah, we will have to. i will say that we talked before in our testimony, there's a couple challenges related to the capital ruled that are different than a lot of the other rules. and that would include occ specific rules that are more similar to many of the sec rules, where it's more of an on-off switch, or maybe a two bucket approach. we're, you know, it's either investment-grade or it's not. and that each year to address in the definition away. but when you have capital rules like, for example, our current advance approach securitization rule that has like 12 buckets, it's really hard to distinguish risk between those buckets without something fairly granular. like a credit rating. so that's part of the difficulty that we have to find a solution to. >> thank you. mr. ramsay come in your opinion,

how does making it easier to sue moody's and s&p all about investors to better assess their own risks and reduce the reliance on ratings? >> well, i guess i wouldn't want to proffer an opinion on what you specifically suggested. i think that the potential liability is something that exists for all actors in the markets. section 11 liability is one sort of step up from can be liability and as i said i think they're a policy argument to whether rating agencies should be treated like account for those purposes. the commission had in sort of reach a result that, but 10b liability is available for a variety of factors, and that's basically for the courts to sort out, not for the sec. >> do you think, mr. ramsay, that this cloud of liability

improves the accuracy of the credit agencies -- for the credit rating agencies? >> i guess i'm not sure what the connection might be. i'm not sure of any research on that, and so i wouldn't want to proffer an opinion on what the connection might actually be. >> would you agree with me that the prospect of liability or exposure is a damp rag over the accuracy of credit rating agency? >> i'm not, as i said, i don't think i'm in a position are qualified to offer an opinion on what the relationship between level of liability and sort of the ultimate quality of the ratings might be. >> thank you mr. ramsay. mr. wilson, one last question. do you believe it is good public policy for the government to mandate the use of credit ratings by privately owned

companies, then use those race as the basis for capital requirements? >> it's like one of those where it's the best option we have come and i think that's what the boston committee came to. so it's a hard answer, but i think, you know, and to we can find a better option i think that's at least what the basel committee decided. >> you have an opinion? >> i think it's difficult because i don't have another option that is better. if you want to be risk sensitive. >> thank you very much. yield back. >> i thank the gentleman. now the gentleman from new mexico, mr. pearce for five minutes. >> thank you, mr. chairman. mr. wilson, right as mr. miller was closing, he asked if it was

right to worry about a potential downgrade and your comment was something like it could happen, is that right? >> just. expect the worry is that it could happen. >> we have done a lot of work on this, and talk with a lot of folks, and it's as you know, it's very difficult to assess the impact -- >> i mean, you said the bomb is it could happen. and if it doesn't happen, then it's okay. >> yes. >> okay, okay. i'm going to pursue that and drill down just look at on that if you don't mind. mr. van der weide, you have a page do you have described things that cause ratings to be bad, untested models, flawed assumptions, default frequency, potential conflicts, and then page through you say these flaws contributed to some credit ratings that separate underestimate the credit risk -- anyway, you underestimate the

risk. and so, my question is, is impossible for us to underestimate the risk with regard to the federal government? >> i think there's a fair amount of uncertainty. >> so even if we don't default on august 2, are the uncertainties still lying out there? >> there certainly are uncertainties. and part of our job is bank regulators, the fed, the occ -- >> who is in charge of making sure that those bond ratings, those rating agencies adequately correct the problems on the previous page? who is responsible to make sure that doesn't happen again? >> it's a complicated question. [talking over each other] nobody is responsibly anytime i get the word is competent in washington it means nobody is responsible. >> there are different agencies for responsible. >> if we are all responsible, none of us are responsibly i

know that. we have six brothers and sisters. [talking over each other] >> the banking agencies are responsible for doing their part to remove references. >> as we looked in, i was going to a fascinating process yesterday looking at a failed bank, and it was really a solid looking back, solid, solid, so. they realized they were not adequate judged as simple, not adequately, not look at things and so all of a sudden it skyrocketed in this because the rating agency i think became aware of that. then mr. miller made these very precise comments, and i know that they're accurate about the repo accounts and bear stearns, and they were doing things that were risky. you said richard that risk. so my question, we were you -- would it were you that the asset pool of the u.s. government rethink our debt is actually being printed by the guy sitting next to you, i deal called

quantitative easing. and mr. bernanke came in the day before, or a few days before and said he is fully ready to do it again, quantitative easing three. does that worry -- is mentioned on page two of the testimony that you all do alternative credit worthiness standards. now, i know they have been downgraded and it may not be downgraded on august the second, but you saw the falseness of bear stearns doing what they're doing, the repos. the oversight agencies have seen the falseness of what was going on in banks. is anyone daring to speak -- are you internally developing credit worthiness, standards for the u.s. government? >> we are not. >> that's fine, but we are all participate in a little process here.

we are going to print money and make sure that we can pay the bills and we're going to make sure we pass that legislation so that we don't default because that's a huge deal. we can't stand that. i think in truth the credit worthiness of the u.s. government has never been adequately looked at, and is not being adequately looked at now. so if we pass august 2, i think we still have a system that is very badly out of kilter and we're printing money to make it work, and we're going to act like we can just continue to whistle while we work. and somewhere, somebody ought to get some truth in the system. i yield back, mr. chairman. >> i thank the gentleman. and now i will recognize ms. hayworth for five minutes. >> thank you, mr. chairman. and gentlemen, thank you for being here. the e.u. commission in charge of financial reform is michelle

binet. and last week, i'm going to quote something that he said. cra ratings are too embedded in our legislation, and i intend to reduce as much as possible the references made to those race in our prudential rules. that is my first priority. today. this is lastly. i can all retrieve the first of these measures to limit over reliance will be integrated into the upcoming modification to the capital request directive, and which is the effective translation of basel iii, the e.u. law. i will make his proposals on the 20th of july to limit over reliance we we strengthening the requirement for banks to carry out their own analysis of risk and not rely on external raise and an automatic and mechanical way. and as i understand it, our current statutory requirements are, on our side as well, to limit the weight of cra ratings

in these capital requirements. given that, of course, you know, you rely on the statutory authority from our congress, and you work with our european counterparts to create, you know, the compliance with basel iii, what is your plan to advance -- you have a plan to advance the goal of, not automating and mechanically or not automatically and mechanically having cra ratings be part of how you evaluate that capital? ..

a lot of time occ said fdic working through the different alternatives for removing those ratings from the u.s. implementation, the u.s. form of the global capital court. >> i just would echo almost everything mark said. you know we all agree that this road mechanical reliance on credit ratings was not the right way to go and there is global consensus on that. we are looking for good ideas to reduce reliance. i think again the question is, is at reducing reliance are just

absolutely kind of banning reliance on it? >> thank you both. it certainly sounds as though of course you know there is, speaking as a consumer of information as an investor, it is challenging. i trust that you are working on what we can offer to assure our consumers of financial products that there is in fact a way in which we can reliably use parameters to judge the quality of capital of our institutions. one appeal obviously of having credit rating agencies is that you know, if it works right then you have a standard but the problem seems to have been that unfortunately that's standard was not one on which we could rely scientifically as we thought. is that inaccurate impression?

>> yeah, think that is pretty accurate. one of the core principles that we have got in the interagency working group that has been looking at this issue is to try to find a replacement for credit ratings but is transparent and consistent across different banks and across different financial instruments. we think that is useful to the markets, useful to the banking systems and the regulatory communities of transparency is one of the hallmarks we are striving for. >> thank you all and i yield back my time mr. chairman. >> mr. stivers is recognized for five minutes. >> thank you mr. chairman and i thank the gentleman from delaware earlier said i am steve stivers and i represent columbus ohio and the surrounding areas in my district. we have big honda plant that makes half a million cars a year and employs about 4400 people and uses asset-backed bonds to finance the building and financing of cars. so i have got some questions for mr. ramsay. the first question i have got the gentleman from massachusetts earlier sort of embedded in a

question, assume that the ratings are not introspective, but in fact they are indeed still in the prospectus and the sec is still requiring that aren't they mr. ramsay? >> our rules currently still as i understand it, require ratings in prospectus but that is a topic that we also have out for public discussion. a great comment. >> and the status of that come as their pending proposed rule out there? >> these are yes or no questions if you could. it is real easy. >> yes. >> so it is a proposed rule or is it in draft form? >> i believe there is a proposed rule. >> and it would remove the ratings because i've not seen the proposed rule. i per there is discussion draft that i've not seen a proposed rule. >> i believe the commission yesterday put out a proposed rule to remove at least for the shelf registration abs requirement for ratings. >> thank you.

the next question i've got goes to sort of how these things happen. so, is the credit rating agency involved in preparing a prospectus, reviewing a respected source the credit rating agency just taking it and inserted by attorneys and accountants in the prospectus? >> congressman you are getting out of my depth in terms of the way that those things are prepared. i think the rating agencies have you know, i am not aware that they are involved in the preparation of the prospectus itself. >> that is my understanding as well, so i guess that just goes to the point that you know, the prospectus is not their document. so, let's talk for a second about what you know about section 932 and 933 of dodd-frank. as the gentleman from delaware alluded to this as well as they're not indeed liability for the credit rating agencies under those sections even if 939gg

were to go away? >> in general terms congressmen, yes there are two potential routes for liability. what is section 11 which is the sort of higher standard of liability that exists for accountants and certain other experts and then they are also is sort of general anti-fraud liability under section 10b. >> even before dodd-frank weren't they credit rating agencies sued before that real cause of liability? >> they have been from time to time. >> and successfully sued in cases. >> i'm not aware exactly what the court president is. i'm not aware there is anyone pattern of decisions on this. >> but it's if not then universally unexpected. that is the point is isn't it? we did need to need the new liability in section 932 and 933 of dodd-frank. nobody is proposing that to go away but certainly the 939 provision i think is of concern to a lot of us because it has frozen up the asset backed market.

the market is depending on in definite no action letter from the ftc. i'm excited to hear that yesterday you propose a new rule. i will have to go check that out but i have not seen it. i heard there was a discussion draft but i haven't seen it so i will certainly go look for it today. thank you. >> would the gentleman yield? >> sure. >> thankthank you to the gentlen from ohio. i would just like clarification from mr. ramsay. i thought i heard you say your requirement that the rating be in the prospectus is still in force. is that what you said? >> my understanding congressman is that for asset.deals generally there is still a requirement that the rating information be included. there is no actual letter out. >> so that no action letter and you just mentioned that a minute ago, frankly means that the rating as i understand it are not being included in the prospectus but they are being included in the selling

documents. is that your understanding? >> that is my understanding. >> i just wanted to clarify that for the record. >> that is not my understanding i will tell you. i believe they are being included and frankly, the no action letter applies to the fort -- 939g provisions upholding people liable as experts. is that not correct mr. ramsay? >> congressman at this point perhaps i should have my friends in the division of corporation finance get back to you. >> i am pretty sure. i could be wrong but i am pretty sure that is right. thank you. >> i think that is. >> i yield back mr. chairman. >> i think that is all of the questions from both sides. we want to thank this panel and with that, we will dismiss this panel and call up the second panel.

>> gail smith who serves as director for global development and security council spoke last week at a forum hosted by the

society for international development here in washington. her remarks are about 25 minutes. >> i am so delighted that the labor negotiations between the packers in the nfl have been resolved. i have a fabulous fall to look forward to. we also have a fabulous speaker to look forward to in this opening session. gail smith has -- is well-known to many of you, but let me just do a short introduction to remind those of you who don't know her as well, sort of what she is about and what she is thinking about. i anticipate her contributions to a highly effective and successful world congress will be telling. many of you from the washington chapter will remember a spirited discussion that gail and governor tom ridge lead at the 2008 washington conference,

which was held just before the 2008 presidential election. gail and governor ridge disagreed on some issues, agreed on others, but in general helps us to think about the likely priority that the candidates would give to international development and their administration. they also i think were very honest and straightforward in sharing their own views on some of the specifics that the candidates were bringing to the table. gail also brought her -- a great deal of her own development related experience to the debate building on her involvement with usaid, with the clinton white house, the center for american progress, the enough project, the health commission and the modernizing foreign assistance network. she predicted if i remember correctly, that an obama presidency would take the development challenge seriously, because support for development is simply the right thing to do.

in her current position as special assistant to the president and a senior director of the national security council, where she is responsible for global development, democracy, stabilization and humanitarian assistance issues, she has made good on her prediction that the obama presidency would take the development challenge seriously, because it is the right thing to do. just about this time last year, the president put the finishing touches on the first ever presidential policy directive on global development. this policy is focused on sustainable development outcomes, touching directly on the theme of this congress, a world moving toward sustainable future and emphasizes the process of working together to achieve development goals. gail is clearly committed to bringing this policy to life with the partnership for growth,

just one of the innovative initiatives that she leads in support from her position at the white house. some of you visiting from africa may be more familiar with gail's work as a journalist in the region. for almost 20 years, she lived in the area and what about issues of war, peace, hunger and economic and political development. and even through this professional work, facilitated development efforts. her insight into the politics and economics in the horn of africa was critical to the development work that i and others in usaid did in that region and in the early '90s after the fall of the regime in ethiopia and the birth of a new nation. so with these brief words of introduction, i'm sure you will join me in welcoming gail smith to the podium. gail, we invite you to stimulate or thinking about development issues, share your ideas and experiences with us and really help us as participants in this

congress to begin to build momentum for greater action towards the common challenge that brought us all together here. a world moving toward a sustainable future. with that, welcome. [applause] >> that was a very nice introduction. i was a little appalled that listening to it because it made me add up how old i am. and i want to thank you tersely. i met and made when i had the privilege of working at usaid but also the privilege of being educated by so many of the career men and women who have built that agency over the years so thank you for that kind introduction but also everything you have taught me. and thank you to all of you. one of the reasons that i am excited and determined when i get up in the morning to go do

this wonderful job that i have is because we have got congregations like this of people with expertise, commitment, ability and passion and it makes a huge difference to what we are trying to do. so thank you for that and congratulations on an extraordinary congress. it it is fantastic to see the people you brought together and mr. president it is a pleasure to see you again. congratulations for that. sustainability is the theme you all have talked about and i would like to organize my remarks around that principle. starting with the premise that as it was suggested and dan is well in this moment of internationalness which is a word i will incorporate into my vocabulary i think we are in a profoundly critical moment for development. on the upside, i think we have more leadership in the developing world than we have ever seen before.

at the level of international institutions, governments, civil society, across the gamut we are seeing the emergence of leaders who gives meaning to that notion of country ownership by virtue of the fact that they are owning and leaving. we also have more players in the game and that is a great bang. as dan pointed out, to make this work assistance alone isn't going to do the trick. we have more donors, we have the private sector that has not only embraced social responsibility as corporate members of the community but is increasingly understanding the development is critical to what they want to do. we have constituencies across this country and around the world that range across the political spectrum and across the professional spectrum. in our government, we have constituencies that are much

deeper and broader than i have ever seen. emmy mentioned the rollout of the president's policy directive on development last year, which he personally presented to the world at the united nations. we also held an event in washington to roll it out which included our administrator raj shah, the head of the mcc, the secretaries of state, treasury and defense. development is important to the obama administration. it is embraced in the national security strategy and as emmy said we have presented the first ever policy directive from the president of the united states outlining our development priorities and approach. why is it important? i think there are three key reasons and you can't really disconnect these. one is it is obviously in our national security interest and not just because it is a great counterforce to extremism. but also because it is the thing

that builds that affirmative vision that encompasses hope and that gives people dignity. it is in our economic interest. we need and want a world that works economically, markets that function in all corners of the world and it is in our interest morally. america is known for its generosity, its investments in people and its willingness to partner. so how do we take all this going forward? i would think about sustainability in three ways. first is that funny issue that comes up in the city sometimes called politics. and what apolitical moment we are having. the politics of this, i think we all know it is tricky for those of you who aren't from the united states. we often display this in public debt to give you a little bit of background, foreign aid as the

proxy for our commitment to development has often been a political football. i know that when i was first with emmy and mccaul and others there was a huge, huge battle about whether it was worth the united states investing in the rest of the world. i think we then entered into a different moment, where we started to build a very strong bipartisan, in fact nonpartisan consensus. emmy mentioned the event i did with governor tom ridge and while he did disagree on some things one of the things we joked about afterwards is that may have not been the best campaign event because we agreed on more than we disagreed on. and i think we still have got that foundation of bipartisan, in fact, nonpartisan commitment to development. i think it is time for those of us in the country there is nothing more important we can do that nurture that. and i think it is incumbent upon all of us to avoid the temptation to make this about

politics. and embrace the importance of making this about the fact that development is important for america, regardless of who sits in the white house. that is what will give us the sustainable foundation for the political support we need. the second thing about sustainability is that the centerpiece of the president's new development policy and that is sustainable outcomes. the united states well, as we always have, do everything we can to alleviate poverty but as we found in the nine-month study that involves multiple u.s. government agencies and preceded the issuing of the directives, we weren't doing quite as much that we could look back at and say it was really sustainable, that we were making investments, that we could see five, 10, 15 years later. so we put that at the centerpiece.

we put also at the centerpiece sustainable economic growth. we put at the centerpiece that part of our mission has to be to marry our foreign assistance to a push to drive more private capital into development and work with countries to mobilize the domestic resources they need. emmy mentioned the partnership for growth, which is not an initiative. it is not a budget account. it is and i thank you for using the word innovative. i really think it is. it is a way that we are trying to bring all these tools together and see if we can really do this sustainability piece. we have identified four countries where a colleague of mine in the interagency jokes, and is really revolutionary to base our decisions on facts. we did a qualitative and quantitative analysis of whether these countries were well-positioned to achieve sustainable growth. we have worked with those four

governments jointly to diagnose the binding constraints to growth. we have involved every government agency that has a tool to bring to the table. and we are now in the process of developing action plans that are organized around two things. what do they need to do and what do we need to do? what are the policy changes that are needed, and how do we invest in that change by again using our systems, helping mobilize domestic resources and bringing more private sector capital to the table. we will see. i can tell you what is different about it so far. first, the cooperation among u.s. government agencies in this and quite frankly i will say across the board in implementing this new policy has been extraordinary. second, the dialogue between the united states and these four governments is not a dialogue between donors and in the fisheries. it is a dialogue between partners who are committed to a common goal. and third, we are finding that there is a lot more that we can bring to the table when we marry

all these tools together. the third piece of sustainability has to do with how we do business. if we want to do as much as we can on the development front, we need to do things differently and there are several elements of that i just want to mention to you all today. one and a very important one is strengthening our u.s. agency for international development. over the years, often because it has been a foot wall in the politics of washington, sometimes because the importance of development wasn't understooa really prolonged period of externally motivated decline. it didn't receive the funding it should have. there were times that it was thought politically expedient to cut its operating expenses. is kind of hard to run a

developing agency when you can't operate and it was overtime disempowered. i think we have seen in the rebuilding and strengthening of a.i.d. remarkable progress and it is becoming a leader across the interagency and bringing data and analysis back to the mix, to introducing mainstream too introducing mainstream and institutionalizing innovation to collaborating with other agencies and being back in the game as a modern robust and capable development agency. we have more to do, but i will tell you as somebody who was educated on the working of my government by my first job in government was working with usaid, is something i'm very proud of and it is something we are we are absolutely committed to continuing. the other thing is bringing all these other agencies to bear. we have usaid. we have the millennium challenge corporation. we have a treasury department that engages with the mdb, the world bank and the imf. we have a commerce department. we have opec, the trading and

developing agency, the peace corps, the department of labor, the department of health and the department of agriculture. all of these agencies because our economy is indeed global, are somehow engaged in that global economy and they bring extraordinary tools to the table. i think, through the global development policy committee, we established under the president's direction, we are finding ways to bring those things together. we are also finding ways to cooperate more and better with partners. clear recognition on our part, none of us can do this alone. so what does that mean in terms of collaboration? at means not just for dating with other donors but sitting down with other donors at the outset to say how do we approach problem x or wyden together. it means reaching out more and more often to nontraditional donors. some of them don't bring assistance to the game.

maybe they bring technical assistant to the game, but are growing in number and diversity in ways that are extremely powerful. it means collaborating with the private sector, not only as an investor private capital, but as a part of the development architecture that has a unique skills and capabilities. our foundations community in this country continues to grow and expand its commitment to development and our ngo community continues to grow, to expand policy and to give us additional tools, so we are working much more deliberately at the outset of our approach to a development challenge. who all needs to be in the room and what is the position of labor among us? the third thing that i think is most critical about what we are bringing to the mix is a much greater reliance on data analysis and fact.

i think the development is clearly an aspiration. i think there are a lot of people who still think that is pretty much all that it is. everybody in this room knows that it is also a discipline. that we know what works. we know what doesn't work, and we can make informed choices. we can go to scale where things work and we should stop doing those things that don't work. again, this is one of the things that is hard to see on the outside but i cannot describe to you the shift in the way we are approaching things in this regard. meetings and discussions begin with multiple agencies. increasingly in the business of sitting down and saying here is our objective and here is the fact. we are building analysis and a spectrum and it is our hope and aspiration that we can get to the forefront of leading our development efforts with

something the president referenced in the policy directive which is when he to drive our policy with evidence of impact. ultimately impact is what it is all about. we are committed as we can be to achieving greater and more sustainable impacts and as i close, just want to come back to two things. i think on the challenging side, this is a tough moment. there is more demand for development and we have ever seen. the arab spring, growing number of weekend and failing states, the additions of climate change and resource scarcity to our understanding of the challenge. we have a global economy that is moving, changing, very very quickly in ways that are positive and negative and we have got politics. but what we have also got his commitment, knowledge, the players to get the job done and the people most important who are at the heart of this ready,

able and willing. so i would like to thank all of you for everything you are doing. restate our commitment to working with you in anyway that we can and just reinforce how important it is to show the government here, the world, the american people, our media that there is such a well informed, committed constituency here for development that not only believes that is doing it as well as all of you are so thank you very much. [applause] ..

>> up to 25 years, concerning development, i just have one question. in fact, i'm going to quote who says, i quote, january 20, 1990, the wind and snow rage on pennsylvania avenue when in his inaugural address before congress, president truman called most of the world region. this was born, the concept that

engulfed the diversionty of the southern hemisphere into a single category under the block. by the same token, and for the first time, an important political scene arose as the new world that old people of the world should follow the same path and aspire to a single goal. so what do you think about that? >> first of all, it's lovely to see you. i met him some years ago when i was with a development gap, and i would say -- it's just great to see you and great to see that you are still doing what you are doing. look, what we are looking at is a common enterprise, and i think that while, you know, we talk about and it is all true, it's important to our national security, to our economy, to our

interest in terms of who we are, there's something at the center piece of development which is about dignity. and it's the dignity of the individual, country, governments, world. president obama when he rolled out the policy said in terms of his desire that at some point in the future when you've peeled back the piece of paper and looked at who the real development leaders were among the poorest parts of the world, it wouldn't say they were 60% dependent on assistance. it would show their economies were working. because he says, no head of state wants to walk up to another head of state and ask for money. and so i think the words that you read are still true today. i think that what's different is this notion of developed and developing is changing and changing rapidly. i think the gulf is not as wide, i think the vibrant sea that we

are seeing in development even in parts of the world where if you look just at growth statistics are under developed is such that i don't think that wide distinction works anymore. but as i say, at the heart of it, i think a lot of those words are still true. and thank god you are still at it. i saw in the program, a couple of other people i haven't seen in 20 years. i do feel like this is a reunion. please don't say anything about what happened 20 years ago. yeah. [laughter] >> good morning, i'd be interested to hear your thoughts about the development of afghanistan, particularly with objective, stability, and growth. >> wow. you know, i think that you can look at afghanistan in the lens of afghanistan itself and the policy and the war there. but i think also take a step back and think about afghanistan and the context of what we know

about development. it's a country that on the one hand has enormous development potential. but faces enormous constraint in terms of capacity, and in terms of the conflict and so on and so forth. i think the key to development in afghanistan is two things. one is to take a lesson that i think this community has learned, and i think those beyond this community are learning. development is a very, very long term proposition. in that in afghanistan, we aspire to progress, the people of afghanistan aspire to progress, it's going to be a step by step incremental process. the second is what can be achieved is informed in part by the context. in a country where you have peace, where you are strong institutions, where you have a public and a government that are mobilized and engaged on the issues of development, you can

make more progress more quickly than a country like afghanistan where you've got the constraints that exist. i think it's a mission that is necessary for all of us. i do think it's a mission that is different in terms of how it'll unfold and the way we need to pursue it, than again the way one would approach a development strategy in a country that again is not at war. i mean i'm -- oh. okay. she's looking unsatisfied. i want to satisfy. but i'm not sure if i didn't grasp exactly what you were asking. we can follow up. >> thank you, gayle. >> thank you.

>> thank you, gayle. thank you. >> tonight national review editor rich lowry speaks to the national conservative student conference. you can see it live continue on c-span starting at 8:15 c-span eastern. this weekend on c-span's news makers, a look at the u.s. role in africa. our guest is new jersey republican representative christopher smith, who serves as chairman of the foreign relation subcommittee on africa, human healths and human rights, the topic is on somali and sudan. "news makers" sunday at 10 a.m. and 6 p.m. eastern on c-span. >> eight weeks off this week. did you get eight weeks of vacation? i sure didn't. >> on the nightly tv show,

former russia today hosted alyona, and tries to take a slightly more relative view on washington and u.s. >> we are willing to step outside the box and figure out how to make tv news exciting and entertaining and informative again, rather than, i'm sorry, but like i said, the garbage that it as dwindled down to be. >> she'll talk about her network and her show sunday night on c-span's q and a. >> am i not surprised, the good things come in 2s. c-span with live coverage of the house, or live coverage of the senate on c-span2. you can watch life events online at c-span.org. >> you can see them whenever you want at the c-span video library. >> c-span2 has nonfiction books every weekend. >> and american history on c-span3. >> follow us on twitter.

>> and join us on facebook. >> it's washington your way. with c-span. >> created by cable and provided as a public service. >> the house global house subcommittee heard testimony this week from a doctor behind the surgical procedure that reduced the number of hydrocephalus, it is most commonly at birth and effects 7,000 americans. this hearing is an hour and a half. >> the subcommittee will come to order. i want to thank you for joining us this afternoon for this hearing on a serious and seriously neglected health condition and technological sophisticated advancement for curing it, by one the

distinguish witnesses, benjamin warf. children that suffer from it has heads that are far out of proportion to the size of their small bodies. i was mor if id to -- horrified to learn in africa where superstitions still are widespread, hydrocephalus is commonly perceived as a curse or caused by witchcraft. a child maybe subjected to abuse or even killed as a result. it was therefore a real eye opener to see the effects of hydrocephalus and what we can do to help. it pushes the brain, and fluid removes waste away from the brain. it's drained away and absorbed into blood vessels as a new fluid is produced.

hydrocephalus occurs when the draining process doesn't occur properly. the fluid levels inside the skull rise, causing increased pressure which con presses the brain and potentially enlarges the head. symptoms include headaches, vomits, blurred vision, convulsions, brain damage, and ultimately death. hydrocephalus can occur in adults but is most commonly present at birth. our witnesses will testify there are believed to be more than 4,000 new cases of infant hydrocephalus in uganda and 100 to 375,000 new cases in subsaharan africa each year. by comparison, in the united states, hydrocephalus occurs in one out of every 500 births. another 6,000 children under the age of two develop hydrocephalus annually. u.s. national institutes of health estimates that 700,000 americans have hydrocephalus and

it is a leading cause of brain surgery, it is the leading cause of brain surgery for children in this country. a major difference between the united states and sub-saharan africa are the number of neurosurgeons available to treat this condition. the u.s. has 3500 neurosurgeons, where as uganda has only four. dr. warf has earlier today, and will say in his testimony, the number is about one per 10,000 africans. there's such a dearth of this very important and needed specialty. another major difference between the united states and sub-saharan africa is the technology employed to treat. in the western world, doctors insert a shunt into the brain in order to brain the fluid through the neck and into another part of the body where the flood to be absurded. a shunt is only temporary, and there's a danger that any one of a number of things can go wrong.

for example, the tube may become blocked and infection. catheters may break or malfunction due to calcification or the valve may brain too much or too little fluid. half of all cases, shunts fail within the first two years. when they do, the patient must have immediate access to a medical facility and a doctor who can correct the problem. this prochaos situation is a concern of stress for people in the united states who suffer from hydrocephalus in their families. however, in a place like sub-saharan africa, a shunt is impractical. trained neurosurgeons, as i noted earlier, are extremely few, as are properly equipmented hospitals. and heads and transportations systems on the african continent make travel arduous and long

even under the best of circumstances. a child in a place like uganda, even if they could be treated with a shunt would have little hope of living for more than a couple of years. in march of this year, i had the privilege of leading with dr. john mugamba, one the four neurosurgeons in uganda. with the help of a video such as we will be viewing, he explained the fascinating surgical procedure developed by dr. warf during -- that he is performing several times daily in uganda to cure small children of hydrocephalus. the treatment is being provided at cure children's hospital of uganda, and not only becoming a medical barrier, but it is also serving to education uganda communities the condition is not the result of a curse and not the reason to kill a child. parents who's children have been cured are helping other parents

to identity the conditions early and know where to go for treatment. as i say, one of our witnesses, dr. benjamin warf was the first to identify neonatal infection as the chief cause of pediatric hydrocephalus in a developing country. and he also developed a new surgical technique, epctpc who hold great hope for not only children in africa, but children of developed countries as well. it has never been a public health priority. most infants in africa do not receive treatment, even when treated than succumb to premature develop. it's important to development the causes for a health strategy. i'm welcoming the witnesses, and efforts being under taken to determine the causes of

hydrocephalus, and initiatives to end the suffering caused by the life threatening condition. i would please ask all stakeholders who care about the children of africa, including african ministries of health, nongovernmental organizations and our own u.s. agency for international development to urgently provide support for these efforts and for these initiatives. i'll yield to my good friend and colleague for his opening. >> thank you. let me begin by thanking chairman smith for calling the hearing and helping us to shine a light on the terrible condition that we've heard him describe and that we will be discussing today and certainly appreciate the experts who have given their time to come here today to enlighten us on the situation. chairman smith has mentioned hydrocephalus is an accessive

accumulation of the cerebral spinal fluid in the brain and can be congenital or acquired. congenital maybe caused by parental factors or genetic abnormalities caused by infections, tumors, or head injuries. the disease can be fatal if left untreated. i'm hopeful that by providing prenatal cures, they can help prevent the infection that causes the disease. the prevalence rate of hydrocephalussitis is not well known. however, cure indicated that was roughly 200,000 cases in 2010.

i believe the rate is more due to a high rate of neonatal staff infections. it's estimated 6500 new cases occur, and more than 45,000 in sub-saharan africa. the actual number of hydrocephalus cases in uganda is known. conservative estimates that the number at 1,000 to 2,000 new cases each year occurs. roughly 60% of these are reportedly attributed to neonatal infections. well, dr. warf, c.u.r.e. international, and others are making an impact in uganda, it's clear the innovative inventions are needed. the resources are severely

lacking in africa and the developing world. in addition to the lack of funding and access to health facilities, the expertise needed to combat such a disease is rare. there is an estimated one neurosurgeon for every 10 million people in east africa, and as it's been noted, the number in uganda is one trained neurosurgeon per a million -- 8.6 million. so believe it or not, it's a little bit better in uganda than other east african countries. really if you take other countries in africa, it's even worse because it's documented that there are no trained neurosurgeons in a number of countries in africa. zero. not one. we see that we have a very serious situation where in the u.s. we have 2.67 for her 1,000

people. and for the neurosurgeons we have one neurosurgeon for every 88,000 people in america. so if you see where we have one per 88,000 in the u.s., and one for ten million, or zero for millions, we see why we have such a serious problem. in addition to the lack of, of course, the resources available to combat the disease are severely lacking, as we can see, by the number of physicians. and in addition to the lack of funding and access to health facilities, the expertise needed to combat the disease is rare, as we mention, the lack of the trained people to deal with this. i'm interested in hearing from our experts here today about how the u.s. global health initiative can best promote the training of specialized doctors

and surgeons to combat this disease and ones like it. i'm also interested in learning about what measures can be taken to prevent the disease over -- altogether. because i think we need to really try to work on prevention. it's going to be difficult to get people in to treat and care for. if we can deal with overall prevention. i think our dollars will go much further and really keep a lot of agony from people. so i certainly look forward to hearing the witnesses and actually sort of fact that we lack the training. i want to mention that i am co-sponsoring a bill on african higher education that we call it the african higher education and advancement and development. we hall it the h.e.a.d. act for 2011. we are really trying to deal with higher education in africa,

regardless it's whether it's medicine, basic education, teacher training as we see africa moving more to universal elementary education, most countries now have decided that there is universal elementary free education. although there are still fees for school fees, but minimal. and now that the girl child has finally been recognized as an entity that ought to be included in elementary and secretary education, at least we are seeing a move for girls in elementary education and hopefully we will see it in secondary education, and finally getting into higher ed. i think that we need to try to move forward assistance in higher education so that doctors and neurosurgeons and people that we need to have positioned in africa, africans themselves will be able to have the training to deal with this

issue. so, chairman, i yield back now. thank you. >> thank you very much. we're joined by the chairman of the commerce, science and related agencies, chairman of the appropriations committee, congressman frank wolf. frank? >> thank you. i want to welcome the witnesses, i would thank mr. smith for having the hearings. we were talking about this issue on the floor. i don't serve on this committee. i have to go to another place soon. i wanted to come by and hear your testimony. thank you for invitation. >> chairman, wolf. thank you very much. i'd like to introduced the distinguished panel, beginning with dr. benjamin warf, in 2000, he and his family moved to uganda to help found a hospital for pediatric neurosurgery with a medical mission organization. while at c.u.r.e., he served as medical director and established

the only neurosurgical hospital in sub-sahara, he was the first to identify infection as the chief cause in a developing country, it remains involved in working to uncover the pathogennist. he developed a technique in treating hydrocephalus in infants, since returning, he has investigated the role in north american, and continues to new york in international neurosurgery development. he rejoined the team of children's hospital in '09, and was developed director of neurosurgery. he is associate of professor of surgery at harvard medical school, and has affiliated with social change into the department of global health and social medicine. we will then here from dr.

steven jay schiff, and director of pennsylvania state center in neural engineering. pediatric neurosurgeon with particular information in hydrocephalus and parkinson's. he holds an m.d., and trained in adult and pediatric neurosurgery. he's perhaps the only fellow of both the american physical society and the american college of surgeons, and he served as a divisional of physical review letters. he has been listed in the consumer research to top physicians and surgeons and he played a viola with the

symphony. no time for that today. dr. jim cohick, for 16 yeared he served with hospital networks and for the past dozen, he has been part of internationally focused specially hospitals and organizations. and in 1997, mr. cohick moved to canada to start and return the first c.u.r.e. hospitals. he directed regional operations for east africa for sure, which involved the creation of the two other facilities. returning stateside in 2000, he continued to provide oversight of c.u.r.e. international growing of network of hospitals and initiated a c.u.r.e. global clubfoot program. after completing at school of management, he served at

hospital administertive for shriners and directed to the board of directors in the health care council. a number of committees for illinois hospital and association and continues to be a fellow with the american college of health care executives. now as senior vice president of specialty programs at c.u.r.e. international, mr. cohick provides executive leadership to cure clubfoot worldwide and hydrocephalus. dr. warf, if you could proceed. >> thank you very much, chairman smith, and congressman payne, and members of the committee. it's a great honor to be here today. i appreciate at the opportunityo testify as the devastating condition affecting millions of babies in africa and across the developing world. i'm currently at children's hospital at boston, and associate at harvard medical school. from 2000 to 2006, my family and i lived in uganda as medical missionaries to help start a

school in c.u.r.e. hospital in uganda. from the opening, it was inundated with mothers seeking treatment from hydrocephalus, a condition in which the fluid is unable to circulate out of the brain and be absorbed normally. it leads to mounting pressure, rapid expansion of the infant's head, progressive damage to the developing brain and usually death if untreated. astonished by the patients we were presented with two questions, one, what were the chief causes and burden of disease in this part of the world? and two, what was the best way to treat this condition in the context of rural sub-saharan africa. the burden of hydrocephalus in africa is arresting. we estimate there are between 100,000 and 375,000 new cases of infant hydrocephalus each year in sub-saharan africa.

with untreated from one to tens of billions of dollars depending on the type of economic analysis used. this economic burden is comparable to published estimates of other common conditions, such as ma anything then sis, cad racks, and glaucoma. we are the first to highlight hydrocephalus as a burden in any of the developing region of the world. in the u.s., most infant hydrocephalus is congenital, or related to brain hemorrhage in premature babies. we developed in marketed contrast, the developed countries, 60% of the ugandan cases were caused by infections. mostly within the first month of life, the neonatal period. the infections were characterized by an illness, usually accompanied by seizures, which was followed by rapid enlargement of the infant's head. in addition to the resulting

hydroreceive plus, -- hydrocephalus, the brains of the children con trained flood, puss, and tissue. we could save the vast majority of these children by treating the hydrocephalus, but the primary brain injury from the original infection was often devastating. in a study now in press, we found that 1/3 of these children died by five years, and 1/3 of the survivors had severe disability. the importance of prevention or early treatment was obvious. we were unable to isolate any fluid from the time of treatment. this is where my colleague dr. schiff here and his team at penn state has come to the rescue as he will give testimony. infant hydrocephalus is almost always treated by implanting a tube, shunt, to drain the fluid.

they have three or three applications from shunt failure. it's a life-threatening emergency in children, but in rural africa, accessing emergency neurosurgery care is impossible. we developed a novel way to treat hydrocephalus using a scope that avoided in more than half of these babies overall, including those with postinfection hydrocephalus. the operation makes a new pathway for the fluid to escape the spaces in the brain and cauterizing the tissue, thus decreasing the rate of production. we have since learned to predict which patients are most likely to be treated successfully in this way, and have trained and equipped other surgeons and the technique which will be demonstrated shortly in a brief video. detailed economic analysis estimates a life time treatment cost of around $90 per disability adjusted life year averted, using the treatment

paradigm that we developed use to cure treatment hospital of uganda. this cost prepares favorably to the few other surgical interventions in other countries. hydrocephalus has never been a public health priority in the developing countries. most infants in africa receive no treatment. training and equipping centers in an evidence-based treatment paradigm is essential. and it is imperative that we identify the causes of infections in these babies so that public health strategies for prevention can be constructed and millions of lives saved. these are the challenges that lie before us. thank you very much. and we have a video now that i would like to show. the man you'll hear talking is a ugandan ewe surgeon who i trained in the technique and worked with me for a couple of

years before i came back to u.s. >> the biggest problem is that many people are not well. and they think that the biggest problem ranges from witchcraft to god's cures. the manifestations may range from developmentally, visual impairments, and eventually to die if they are not treated. i direct to treatment children. when i get a smile here and a smile there, i see the child playing, you know, i feel happy. >> this is a scene in our operating room in uganda. just takes up about a minute and a half or so to demonstrate the set up in the operating theater. there's dr. mugamba making the

small insession in the infant's scalp over the soft spot, an anterior fontenelle. then you'll see as he makes the opening to allow the fluid to escape. that's a view from inside the brain on the left side of the screen is actually where the pituitary gland. just off to the right, it is the brain stem. this is the floor of the third ventricle. he's making an opening where the fluid is trapped, and now the fluid will be able to exhibit the new opening which bypassing levels of obstruction and allow the fluid to escape to the outside of the brain into the spaces where it can normally

circulate and be absorbed. this part of the procedure is called the plural cauterizing. we find the success rate was greatly increased by addition of this procedure at the time of surgery. the innovation was combining the two techniques which hadn't been tried before. thank you very much. >> dr. warf, thank you. dr. schiff? >> chairman smith, and congressman payne, thank you very much for the invitation to testify today. i'm a pediatric neurosurgeon that started by career practicing at the children's hospital here and now direct the center at the university seeking solutions to problems that lie at the intersection of medicine, engineering, and science.

i've known dr. warf for many years. and hearing of his efforts to address childhood illnesses, i was with him in 2006 to see how our screening center might help. it was apparent that he and his colleague were inundated with cases of postinfection hydrocephalus. at that time, they had treated over 1,000 patients without being able to culture any of the cause of organism in their laboratory. i asked dr. warf what the single most important problem that he faced at the hospital. he said finding out what causes these cases. i have developed most of my professional effort towards seeking those answers. we began by bringing specimens back to penn state and threw the organisms. we grew nothing. we then turned to dna collection

tools that police use at crime scenes and set up a forensic lab. we gathered dna from the brain at the time of surgery. my penn state colleagues found evidence of back tier your within the brain fluid in nearly every one of these children. the bacterial types were consistent of those found on a farm with animals. it is also noted to change with the various seasons and rainy seasons in ugandan. the most prevalent bacteria was a notorious organization that has caused terrible wound infections in the military personnel in both vietnam and iraq/afghanistan conflicts. we then under took field work to track down the infants in which we had found evidence of the bacteria infection. environmental samples from huds,

dung, and water supplies yielded very close genetic matches for the organisms that we have retrieved. our findings were significant, but did not determine what initially made the infants sick. most of them developed serious infections within the first month of life. the world health organizations estimated that infections lead to the death of 1.6 million newborn infats each year. the majority in sub-saharan africa and southern asia. the cause of bacteria in the developing world appear different from those we see in the u.s. and most of the culture results from septic, african neomates that failed to grow out organisms in any laboratory. we began a study last year at one of uganda's major reference

hospitals. last year we recruited 80 mother/infant pairs and in partnership with their head pediatrician, collecting spinal fluid and blood from the babies and birth canal specimens from the mothers. we're not collaborating with the venter institute near washington, d.c. to performance an exhaustive sequencing of the bacterial and viral content of the samples. since they treat all of the hydrocephalus, once we have studied the efficient number of patients, we will know which infections lead to hydrocephalus, treated at the c.u.r.e. hospital. recently, by fusing dr. warf's case data with u.s. noaa satellite data, we demonstrated a strong link between climate and post infection

hydrocephalus. infants get sick at intermediate levels of rainfall. our work demonstrates that we're benefiting from united states technology in ways we had never anticipating. we are committed to optimally, surgical treat the large numbers of children who have hydrocephalus, however, we will never operate our way out of this problem. a critical long-term goal is more effective treatment of children with neonatal to decrease the brain complications and survivors. once we understand the root causes, we need public health to prevent the infections. hydrocephalus is thus a global health issues well beyond the specifics raised by a small african hospital, great u.s. charitable organizations that brings the highest quality of medical care and compassion to children around the world and

the finest physician i've ever met, dr. warf. of the 130 million children born around the world each year, we are inadequately addressing the million and a half who die of preventible newborn infection. as a physician and scientist and as a father, i'm struck by how much we don't know about newborn infections in developing countries. i am concerned that one reason is that the newborn infants who die there have no political voice. i will offer three conclusions in closing. first, we have not paid sufficient attention to the massive loss of human life from newborn infections in the developing world. second, we now have the technology to shed new light on the causes of a substantial fraction of these deaths. and third, we can now develop sustainable strategies and scalable technologies to more

effectively prevent the deaths and tragic survivals from these devastating illnesses. the fate of millions of lives depends on our actions. thank you. >> dr. schiff, thank you very much. mr. cohick? >> chairman smith and congressman payne, and members of the committee, thank you for inviting me to discuss the problem of hydrocephalus in the developing world and what c.u.r.e. international is doing to help children suffering from the devastating condition. it's an honor to be here with dr. warf and schiff who contributed to the treatment techniques which make possible the healing of infants in the worlds poorest countries. 15 years ago, as the executive director of first c.u.r.e. international hospital in kenya, i opened and ran the hospital for a number of years. i now serve as the senior vice president of specialty programs

for c.u.r.e. international, an nonprofit based organization. our mission is to heal disabilitied children. we operate hospitals throughout the developing world from afghanistan to zambia. cure hydrocephalus is the most ambitious and perhaps most innovative initiative. our unique work at c.u.r.e. children hospital of uganda is the treatment of children with hydrocephalus. that condition is more commonly known as water on the brain which can be presented at birth or caused later by infection. the c.u.r.e. hydrocephalus initiative was born at the hot in uganda because of dr. warf during his tenure as medical director. he also trained the current medical director and over a dozen of other surgeons in the developing world. more than 650 surgical procedures are performed annually at the cure uganda

hospital. more than any other hospital in the world. we estimate that in 2010, there were more than 10,000 cases of hydrocephalus, and nearly 3,000 in the developing world, using the ratio of 3 per 1,000 births. virtually all of them die if left untreated. in the next five years, that means 1.5 million infants in the developing world could die from hydrocephalus. the majority of hydrocephalus cases treated when appropriate involved the two surgical procedures described by dr. warf, commonly known as epvcpc. the epvcpc is a cure for children as it eliminating the need for a shunt in the brain. the standard hydrocephalus treatment which can need a

replacement two to three times, even up to five times over a child's lifetime. as you can imagine, this is a huge logistical and economic charge in developing world locations like uganda. too many children with hydrocephalus no never treated and die. and many treated with a shunt live only a short time before the shunt fails and the families are unable to access further medical care. mr. chairman, hydrocephalus is a global concern widespread in poor countries and vastly unreported. with new techniques, we have the opportunity to save thousands of children and to end the suffering of their families. what's needed is to scale up the proven treatment by increasing training of national surgeons and creating the proper infrastructure to support their ongoing work. to give you a sense of the scale of that problem, there are four trained neurosurgeons in uganda, a country of 33.6 million people. there's approximately one

neurosurgeon for every 10 million people in east africa, as was mentioned before. in the united states, we have 3500 certified neurosurgeons, which means we have 110 times the access to treatment than that of the people living in east africa. the effort to address the problem is summed up in four initiatives. first, strengthening national health systems through training and equipping national surgeons from the developing in advanced treatment. second, enabling those surgeons to use their new skills by providing them the appropriate operative equipment. third, developing the patient care to facilitate research with the partners to develop the understanding of causes, understanding of best practices, and effective methods of prevention of postinfection hydrocephalus.

finally demonstrating compassionate care and concern for the worlds most vulnerable children and their parents and their families by ongoing follow up. training, treatment, research, and prevention and compassionate care will change how hydrocephalus is treated. it will translate into significant cost savings for fragile developing world health systems. mr. chairman. thank you again for your personal interest in the life threatening medical condition and leadership in helping to establish creative and effective ways to save more lives and end the suffering of many thousands of children. my colleagues and i at c.u.r.e. international and our partners are excited to go forward as we are called upon to do so. mr. chairman, i'm not -- this may have already been handled, but i do have a document to submit as part of the record if that would be permitted. >> without objection, it will be

made a part. any additional materials any of our three distinguished witnesses would like to add. >> thank you. >> thank you. >> mr. cohick, thank you for your testimony. do you have any questions, mr. wolf? thank you, chairman. let me begin with opening questions. first of all, i think it needed to be shouted from the rooftops that hydrocephalus is a preventible tragedy and the solutions that you have pioneered and have done so for over a decade need -- remain the best kept secret, i think, in washington. there are many people, african hands who have been working health issues and i've seen it myself and i've raised and handed out some of the materials that you have provided to my office and to me who are shocked. they had no idea the prevalence of the 375,000 as dr. warf, you testified. new cases per year. no idea, frankly, that there is an ongoing and very, very

effective solution that you are employs every day. but you need more people, more resources to expand the solution. so i agree on behalf, i know mr. payne and i and all members of the subcommittee, we thank you for pioneering, humanitarian work that you have done. it is absolutely extraordinary. if you could, perhaps dr. warf, perhaps describe the life cycle of a child with hydrocephalus. you know, as the pressure building, the pain perhaps that he or she may experience? and what is the ultimate consequence if untreated? >> yes, sir. well, as the fluid is trapped in the spaces in the brain, and as the brain continues to make more fluid at rate of about an ounce every hour, the head begins to expand, sometimes to enormous

sizes. the soft spot on the baby's head begins to bulge, veins in the scalp begin to bulge, the children become listless, they feed poorly, they are irritable, they are in pain, they vomit. about half of them will be dead by the age of two. the other half will be severely devastated. sometimes hydrocephalus after it becomes quite advanced can sort of accommodate or spontaneously arrest itself. that's why some of them survive. the bad news is that they all virtually either die or badly disable. the good news is that it's an eminently treatable condition, if hydrocephalus is the only problem. for instance, an congenital cause and you treat early, the

children can be quite normal. in a case where the hydrocephalus is secondary to another event, such as an infection or hemorrhage, there is sometimes varying degrees of primary brain injury, like we described in the children with post infectious hydrocephalus. and i would add that children that are shunt in our own practices here in the united states are fortunate to have access to a safety net, such that when they shunt mall funk -- mall functions -- malfunctions they have access and fix them at 2:00 in the morning or whatever it takes. because it is an emergency. one of the things that drove me to look for other solutions and push the envelope on the endoscopic kinds of treatment, knowing when i put a shunt and they went back in the bush, when

the shunt failed later, when the soft spots of the skull had closed up, they would almostly certainly die because they could find their way to a hospital where anybody could do anything about it. >> thank you. dr. schiff, you talked about the delivery. the most prevalent was a bacteria that caused deaths to wounded military personnel in vietnam, iraq/afghanistan, and is that the only one? and secondly, dr. mugamba, when we met with him in north africa, he said a likely major cause, i think it's based on the work that you have done swell, the breakthrough work, it's the use of cow dung which is cheap to cauterize the umbilical cord

which normally occurs at the mother's home. if that's one way that some of the children are contracting hydrocephalus, you know, infection born. whether or not the ministries of health, for example, of uganda has shown any interest in better birthing practices to mitigate the passage of this terrible infection. >> i hope that in a few years we can come back and be very clear that we truly have worked all of these mysteries out. we find a great deal of evidence for related organisms in the brains of these children. that doesn't tell us though if it's what caused the initial devastating infection that may often have destroyed a great deal of brain and leaving them

in a devastated state. so we are conducting several different clinical trials, trying to untangle this. we have a trial at the c.u.r.e. hospital where we are come compg children with hydrocephalus who have a serious newborn infection, and those that don't. it's entirely possible, we brush our teeth, shower or bodies with bacteria. it maybe the children are exhibiting for us a great deal of the environmental bacteria that they encounter as newborn infants in field work. i must say it is rather an eye opener for one of us to go to the rural settings and understand the conditions that these newborn infants need to survive. the huts are actually lined with dung. purposefully. it's a good insulator against rain and it keeps out ants.

which are unpleasant. the patios around the huts are stripped of individualation and dung is pounded in. granaries are lined with dung or ants and rain. so there's a tremendous exposure, in addition to cultural practices of certain, a lot of people abusing dung on umbilical stumps. so infant are exposed to a great deal of this. one the other things that we need to do is to nail down whether causes the very common scenario that dr. warf mentioned. not just high fevers and a serious infection in the newborn period, but almost all of these children have had epaulettic seizures to go along with it. we have what appears to be organisms that have a predilection to get into the brain. are they bacteria or viruses? one or more early in life that

open things up, so they are very able to show you what they are exposed to in the environment because we then sequence it from the c.u.r.e. hospital. this is an example of the kind of complexity that we face. and being able to work all of this out now is straightforward. we, fortunate, have the ability to go, even in burned out infections and go back and find the fragments of the organtisms, use new tech nooks to do this, i think one of our challenges will be how do we bring this to the next country? you can't have the major science institutes in the united states running very expensive sequences and sampling on every sight in the developing world. but i do think in the coming years, being able to understand how to go into another country, whether it's the africa, southern asia, and the other sites that seem to have many,

many of these cases learn how to uncover the organisms, learn how to keep surveillance in the countries, and do two things. learn how to better treat the infants when they are sick, and most important, be able to institute rational public health strategies to cut down the numbers of these infections. thank you. >> number four seeks to drastically reduce the number of children that die. and i would add morbidity as well. has unicef and other un agencies, ngos in general that deal with health issues, including the usa id, the european union and health issues in africa, have they addressed the hydrocephalus economic that's occurring which is

preventible and very treatable, and preventible if you stopped the infection in the first praise, the children don't get sick, but you also have a solution if they do. are they addressing this? >> to many knowledge, no, sir. there's not been much of a focus on this at all. there are many overwhelming problems, obviously, and i think hydrocephalus has been below the radar screen. i recently attended the world health organization roll out of their report on disability. and many things were mentioned in that report. but hydrocephalus and the infection of these children were not among the thing that is are talked about in that report. so i think that it is something that just needs to be brought of to the attention of the kind of bodies that are able to find work in this area. >> which is what you are doing,

which is an enormous service to the children and parents and siblings. if i could, has the gates foundation or one campaign or any of the other laudable and noble charities, have they joined in as far as you know,? >> not yet. >> not yet. okay. let me ask, with regard to the evpcpc, what is that in the united states? could you compare the cost of shunt, versus the procedure you created? :

>> the idea of combines both procedures was to avoid the constructive problems with the hydrocephalus, by passing the fluid from the brain, allowing exit for that, and also addressing a communicating hydrocephalus which is leftover in babies, and they can't handle absorbing the fluid once it gets

out so by reducing the tissue somewhat and the rate of production, we found in a large study there was a significantly increased success rate with the etv. now, there is a growing acceptance of this in the u.s.. it's our preferred primary treatment of infant hydrocephalus at children's hospital in boston. there's others that have begun to use the technique. the main shift in culture has been a shift away from simply placing a shunt in a baby to thinking could this be avoided by a bit more sophisticated of a technique that takes different skills, but it's very often well worth doing. for instance, a common cause of hydrocephalus in the u.s. is that which is associated with spine biff da --

spina bifida. those children were all treated with shunts until recently. we found the etv by itself was only successful in 35% of those babies, but with the combined procedure, it's successful more than 57-- 75% of the time. that's not only the ewe uganda data, but there's a growing interest in that. it's a matter of practice change, and those things can happen fairly slowly. >> dr. schiff, you talked about data from dr. warf's case and demonstrated between climate and post infectious hydrocephalus, and you pointed out infants get sick at intermediate levels of rainfall. why is that? do we know? >> we don't know for sure yet,

but it's very substantial, and it points to an environmental component to this which we will need to understand and then take into account to know how to rationally reduce the numbers of infections. there are other serious infections in the world where this type of rainfall link has been shown. the one that's most famous is a terrible skin infection in southeast asia and northern australia. it's one that the -- the bacteria is so nasty it's on the select agent list, but no speaking to the doctors who worked that out, they had to learn how the soil, temperature and soil moisture allowed the bacteria to surface certain times of year and infect people directly. those are the kinds of things

that if we need to do that here, then it's straightforward and will give us the answer to design good preventative -- >> has cbc worked with you on this? it seems the beginning of a preventive strategy to reduce the number of children suffering from hydrocephalus. >> not yet, but this is all relatively new findings, and we'll now be in the process of raising the resources that we need to get to the bottom of this. >> mr. payne. >> thank you very much, senator. appreciate your testimony, and just sort of on this whole question of water, water-borne diseases even though it's off the specific topic here, but in your opinion, how much of preventable diseases are actually caused by impure water,

you know, water-borne diseases? things like diarrhea, you know, just diseases in general, especially for newborns and infants and children. in your opinion, what -- investment in clean water, do you think that probably would be one of the greatest preventative methods to preventing many childhood diseases and in particular with what you're talking about although you're talking about rainfall that is a little bit different than the question of clean water and things of that nature. would any of you like to tackle that? >> congressman payne, there's nothing i think i've seen more shocking in my work than unprotected wells in rural

villages in africa and what people need to drink and bathe their children in. there's no question that you're right, that the availability of portable drinking water that's safe is an enormous factor in public health around the world. when i started this work, i thought that was going to be the likely answer to these children, but we see these cases in villages with excellent government drilled bore holes with good water supplies and in villages with terrible water supplies. i'm not going to discount that there may not be an important role for water supplies in this, and if that's what we find, then the answers are going to be straightforward, but my suspicion is it's going to be as everything else in this story more complicated than we had hoped. >> thank you. the -- although it's not

well-documented, general estimates note that the developing world has a significant higher prevalence rate of hydrocephalus than the developed world. is there one form of hydrocephalus that is more common in the developed world versus the developing world, and in your opinion, whatting thes for -- what accounts for such differences? >> i can answer that congressman payne. there's a huge difference. what we showed in uganda, 60% of the cases and this continued on throughout thousands of cases, 60% of the cases we see of infant hydrocephalus are secondary to these infections. we rarely see hydrocephalus from that cause in north america for instance. a common cause of hydrocephalus

here is one that we never see in africa, and that is hydrocephalus secondary to hemorrhage in the brain of prematurely born infants which obviously don't survive in africa because they don't have neonatal intensive care units to keep them alive. i would like to say hydrocephalus is a disease of poverty and prosperity. there's other causes in the u.s. which are common, congenital causes, congenital obstruction of one of the pathways that the fluid has to get out, the hydrocephalus associated with spina bifoda and so forth, but what i suspect is with the high birthrates in africa, we probably see the same incidence

of the other causes of hydrocephalus that we see in developed countries, and then on top of that another 60% from the upfections that we don't see at -- infections that we don't see at all here. >> actually, we -- with the sort of health care costs and in uganda and throughout the developing world, of course we know it's much higher in other places due to lack of resources and the ability of the average income of people, the level of consumer income, what does the u.s. and international community need to do to make treatment more accessible for families and parties in the developing world? what is the differences in terms of cause and technical barriers are using stints versus the atv or to to combine atv and cpc,

and can more be done to prevent the disease and would preventable measures be more cost effective? >> i think preventable measures are certainly more cost effective if we can eliminate the neonatal infections that causes not quite two-thirds of the cases, that would be certainly more cost effective, however, there will always be hydrocephalus and fairly large numbers of it in populations with high birthrates because it's not on uncommon disease of childhood from congenital causes. in regard to the endoscopic treatment and others have done fairly detailed analysis of costs, and what we found is the more patients, hydrocephalus patients that you have in your population with shunts, the less cost effective the treatment. the more cost burden there is

because the shunts require maintenance. the numbers that we used for determining this was based on the type of shunt we were using in uganda, a very inexpensive shunt that cost $35 that's made in india. i did a randomized trial established in 2005 show the outcomes of a year using that shunt are no different than one of the commonly used american shunts that costs $650. the shunts we use in my practice now cost $1,000 which is impossible for children in africa, so even at the cheap shunt numbers, the more children that you can spare shunt dependence and treat endoscopically, the less cost there is. we treat children in the hospital including everything,

keeping lights on, depreciation, including the cost of the shunt, the equipment, and we found the up front cost of treatment to be almost the same. the cost benefit is there. >> actually, what happens to an infant -- i mean, that goes untreated? i mean, in some remote village in a country where there's no care? what happens? does it grow, does the child have excruciating pain? do they die after a certain number of years? what is the life of an untreated person? >> i can give you about three different scenarios. in uganda at least, a baby with

a growing head like that is thought to be the result of a curse, and sometimes those babies are killed, and so they die in that way. we know that to be true. the second scenario is the child who has the progressive head growth, the mother does the best she can. the head gets heavy, child is hard to handle. eventually died directly from the elevation and pressure in the head or dies from failure to thrive because of poor feeding and vomiting and sort of the general effects of being so debilitated, and the third scenario is the child that actually survives the early childhood hydrocephalus, the course rests itself, but the patient, the person has a very large head, is disabled, usually or often blind and spastic, much

like a person you might see that's severely involved with cerebral palsy. before we opened the hospital, i wanted a feel for how things were, and i visited an area where i was told there was a patient with hydrocephalus. this was a teenage girl with a head about the size of a basketball whose mother dragged her out, put her on a mat under the tree with a mango to chew on, and her mother took good care of her, but she was unable to do anything. there's death, and there's also tragedy beyond death. >> thank you, i yield back. >> recognize anne marie by way of background to our witnesses has combined a unique background. former assistant new york state attorney general so she's a

lawyer, but she's also a registered nurse. >> thank you, mr. chairman, and thank you for organizing and hosting this extremely important hearing today. i'm much prouder of my background in nursing. i have to lead with that, but in my profession as attorneys, i represented hospitals, so i spent my life in health care. this is certainly of importance to me. i have a couple questions, and mr. cohick, this is for you and anyone else who might have an answer to it. our country is a very generous country, and we fund hiv aids, malaria, and many other diseases throughout the world, and as you all know and suffered through these debt negotiations and all that's been going on here in washington, money is becoming much more of a premium.

help us to justify this cause in funding for hydrocephalus. >> i think, and personally recognize we're in that situation, and it is a difficult time to indeed bring this type of scenario to you and what can be done. somewhat germane to one of the questions and answers given before, this is very cost effective. the comparison between what we do in uganda and what is done in the u.s. is roughly a 5% cost for the surgery looking at surgery -- one surgery done in uganda versus one surgery dope in the u.s.. it's 5% of what is done in the u.s.. when you take into account the surgeries or those subset of those helped by the etv where it may be one and done versus the

shunts that are two or three or four revisions, that 5% grows or i should say shrinks down to close to 1%. it's very coast effective to go forward. we -- we are -- we've found partnerships to allow us to go forward with the training when dr. warf was there and it continues on with dr. john, his successor, as well. we -- we are eager to do what is the most effective in efficacious manner going forward. it is a difficult thing to ask for a substantial amount of

money at this point in time, but we think and we believe and feel there is strong evidence it is well spent and brings value beyond its numbers. we also concur with those that have come out recently earlier this year that have noted that the public health emphasis on prevention which is absolutely needed needs to be balanced with those efforts to create better abilities, better capacity i should say for technology and for surgery that is wanting in areas because that is a hard price to pay no matter what the economy is. >> thank you. dr. warf? >> yes, thank you very much. i can actually give a few comparative numbers that might help put things into perspective a little bit. this is from a study that's in

the press from harvard medical school department of global health and social med sip. we've been looking at the coast effective treatments of hydrocephalus in uganda and extrapolating that, but we -- depending on what kind of economic analysis you use -- we have reported that in africa if you use one economic model human capital approach, the cost of hydrocephalus is around a billion dollars, and if one uses the value of a statistical life approach, that which i think is used by certain governmental organizations like the epa, it's on the order of tens of billions of dollars, $1.4-$56 billion in economic burden to africa. the other way that we gauge burden of bees and cost

effectiveness is the daily adjusted -- disability adjusted life year, the daly so-called, that's one year of healthy life lost. you can compare the gravity of different diseases by these kinds of assessments using the disability adjusted life year so for instance when we look at treating hydrocephalus and the cost of treatment, it costs us about $37-$80 per disability adjusted life year averted with the initial treatment. that's compared to about $75 per daly averted for treating a person with aids. that's not prevention. prevention's always cheaper. there are few examples of surgeries done in developing countries where these kinds of

analysis have been done. one is with trauma surgery. in nigeria, the published number is $172 per daly averted, in haiti, it's $203 averted per trauma party versus $50daly for treating hydrocephalus. there are hard numbers you get with economists, but there seems to be an enormous burden and the coast ratio is a minimum of seven to one, or cost benefit is one to seven up to 50 in terms of cost benefit to the society. i think those things need to be taken into perspective when comparing them with the high profile diseases. >> thank you. dr. schiff, did you have anything to add? >> i couldn't, no. >> thank you, all, very much.

thank you for being here. i yield back. >> thank you very much. senator -- if i could ask you did you run into problems with care, international effort on hydrocephalus children in uganda, for example? was there a disbelief, lack of buy in from the government or open to the idea when you cited your hospital there? >> well, our hospital began in 2000 and actually we were -- there's a lot of preparation done before the site was selected and actually all those arrangements were made for where we would build and the funding for that as well. i guess to answer your question dr. warf was there at the beginning and i participated with him as well as the other

leadership in overseeing the hospital, and our first goal was to be part of the medical community and the continuum of medical education. we realized we were bringing something new and different, and i think that became more evident as discussions were held with district and others, districts, excuse me, officers of the medical system and others, but if i could allow a segue for dr. warf to describe better his focus on making sure that he was -- his presence in his desire to be part of the community not only in rendering care, but teaching in education i think was well received. it might have been a little skeptical at first because of others who promised similar things, but with his genuine and

consistent manner in staying there and doing what he had promised and looked to share his expertise with those of us who were part of the hospital and hospital system as well as those in the medical teaching community, were well received and became -- our efforts certainly were much more than what were inside of our hospital walls. >> let me just briefly ask you ministries of health, do they show profound interest in what you're doing? do they just allow you to operate or embrace it? when we talk about the number of physicians, you know, clearly there's a capacity problem, and i think you have said, at least

on in previous conversations the skills that a neurosurgeon acquire are host to other trauma and injuries that might occur again desperately lacking in africa. not only are hydrocephalus children getting life enhappensing and life saving treatment, others benefit as well. i hope that's appreciated both in our government, which, you know, has yet to act, and ngo's that could be philanthropic ngos that could be helpful. this is an area of health care that has been ignored. you paveed the way and proved the model particularly in uganda and the bugs are out of it so to speak, and seems replication should be the action word. let's throw this everywhere, but if you could, how many doctors, applicable to the skills of

other trauma and problems? >> right. so to address the first question about min industries of health -- ministries of health, we started in the beginning with a memorandum of understanding with the ministry of health in uganda and worked with them on education and referral from district and reamingal -- regional hospitals. after four years it was recognized we were sort of the national referral center for hydrocephalus and other neurosurgical problems in children, and in recognition of that, the parliament included us in their budget which amounted to about one month of running costs, but it was quite gratifying not so much from just the financial end of it, but the fact they embraced us as part of their medical service. what we always did, and i was the only non-uganda physician

there. it was an all uganda nursing staff other than people coming from prison time for training. we hired people out of medical school and internships to come and work with us and train, and we fostered their training as we go forward, so i think that that was -- we became sort of an integral part of that. other ministries of health are interested in what we're doing. we're currently in conversations with the government of rwanda, and i met with their minister of health and so forth, so i think ministers of health generally do value what we're doing as part of the bigger picture. >> would anybody else like to add anything? mr. payne, do you have any final questions? anne marie? >> only that i commend you for the outstanding work you are doing. i do know that you're in the

right country to move forward with medical attention, as you know, the 30-40 years ago or longer, ewe gap daly was known -- uganda was known for having an outstanding medical school. the medical school where doctors or potential doctors from east africa community would go there to study. i first visited there about 40 years ago and did hear about the medical school, other east african countries, i think kenya had a school where you wanted to be a good lawyer and go there, but uganda was the place to go for good medical attention -- >> that's right. >> i'm glad that they continued and at least tried to give the support and also just have some

appreciation about what uganda's -- this has nothing to do with this in particular, but they provided about 8,000 troops to somalia where the uganda forces are assisting the transition of federal government of somalia which is weak, and without the u.n. support for the uganda and some burudian troops. i think the al-qaeda forces would have probably taken over somalia which would just reek havoc on the horn of africa. as a matter of fact, as you may recall, there was a bombing during the world cup at a restaurant in uganda, and that was primarily because the uganda troops were there in somalia

much of it supported by the u.s. through peace keeping through the u.n., and so it's a long stretch, but the al-qaeda peoples felt that they should do harm and about 20-30 people were killed because uganda was supporting the government of somalia which we support and therefore indirectly should be penalized, so i do appreciate your work there in uganda. have to work a little bit with president, but we are doing some, and i tell him sometimes, you know, he's a farmer and i say go back to the farms. he said i still visit the farms on the weekend. i say, visit it all the time, but i do really commend you for the great work that you're doing.

thank you. >> thank you, mr. chairman. i just have one question in these developing nations. how many centers do you think would it take to address this problem adequately? >> i would probably have to do a little bit of math, but probably two per country depending on the size of the country. a price like congo would need more, more like half a dozen. smaller countries maybe one, but it depends on the size of the country, the population density, and how bad the infrastructure is for transportation obviously, but i think -- i think that a huge impact would be made by starting with the goal of one center per country and more in the bigger countries like congo.

>> part of the plan is to continue and expand the training we have where there are treatment centers in place because of those surgeons that have been trained. as we have the capacity to allow those that have the desire, willingness, and abilities to become training centers themselves, obviously helping in that whole scenario, so somewhat akin to what dr. warf has said. >> what we want to do is come into existing government hospitals with what you might call a vertical program and you train and equip the people there who have a commitment to taking care of the children anyway, and just don't have the tools, and we've done some of that, and we hope to do more of that. >> sure.

dr. schiff >> i add we might have a similar way of allowing countries to do the appropriate discovery of their organisms, surveillance, and institute both bether treatment of the sick infants as well as prevention strategies without having to rely on what is a very large scale at present effort to do that, and i think that's very doable. one could attack both the children who need surgery and both simultaneously and parallel with that address the root causes. >> thank you. if you did what you're talking about and you found existing centers and you dropped in the vertical program, have we talked about how much that costs? >> it's -- for the record, we submitted a plan, and it is scalable.

the plan itself as presented is multiyear and multimillions of dollars, but results in over 100 surgeons being trained and going on and over that course of time close to 27,000 surgers done at that point, but having an ongoing rate of at least 10,000 at that point and obviously growing more if it were to continue on its course, but that is at least the plan that is in consideration. again, it's scalable to become the right size as needed. >> thank you. i just want to echo my colleague, mr. payne, in thanking all of you for your efforts and hard work and for undertaking this and paving the way and giving these children a

chance and opportunity to survive and to live normal lives, so thank you very much. thanks for being here today as well. i yield back. >> thank you. let me just ask a final question. the ranking of the countries of africa, do you have a sense of what countries have the most compelling need that goes up -- unmet? >> yes, sir. the drc to my knowledge has one near surgeon i met that said he was the only one. i know of two mission hospitals in congo that see a stream of these children and don't have the wherewithall to treat them, so that's one place. >> what do they do when a child presents? >> well, send them away, say there's nothing to do. >> all right. obviously, we have a huge challenge of capacity building.

>> yes, sir. >> and prioritization within our government and the ngo community which you provided extreme leadership on for years which has gone underrecognized i would say by congress, by the white house, and by the state department no matter who is at the helm. i think you wanted something? >> right. of course, once again, not anything to do with the hearing here, but i'd like to commend you all for your testimony, but i would just looking at a uganda little league team that was qualified for playing in williams port and defeated a saudi arabia team, played in poland on july 16th, my birthday, and they won. kids at 11 and 13, and our state department just declined to allow them to come to play in

the world series, and it's a real world series because now they bring in taiwanese kids with the championships, and we watch these games. going to dash off a letter to state department to ask them why are they denying these young kids from uganda if there's a question about aids. sometimes that becomes an issue, but they won't disclose what the issues are, so, and they come from the reverend john's foundation, so it can't be any better than that i guess and reverend john sounds good to me. i'm going to follow-up to find out why the little leaguers -- it would be great to finally have an african baseball team to go back to their country. it's also a great experience for third world kids to have the opportunity to visit our country

because sometimes that's the greatest ambassador for democracy when they get back and see how it is here, and then they can be ambassadors in their country, but once again, thank you, and thank you, mr. chairman, for calling this important hearing. >> again, anything to add before we conclude? >> i would like to say how much we all appreciate this. i mean, it's the kind thing i never thought i'd have a chance to do and i'm honored and humbled by the whole thing and i just want to tell you thank you. >> i just want to echo dr. warf's sentiment. >> thank you -- >> my thanks. thank you so much. >> again, you are path finders each and every day, we need to expand capacity, and i know this subcommittee stands ready to leave no stone unturned to help kids suffering from this

debilitating but treatable and preventable disease known as hydrocephalus. thank you very much, and the hearing is adjourned. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

>> six, eight, nine -- nine -- >> ten, nine, eight, seven, six, five, four, three, two, one, zero. >> these are the stakes, to make a world in which all of god's children can live are to go into the dark. 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 james luvelle talks and

speech writers reveal how presidential speeches were crafted and delivered. get the complete schedule at c-span.org/history. >> the senate foreign relations committee tuesday heard testimony from nominees to be ambassadors to turkey and the czech republic. they served in a temporary role since december and still awaiting a confirmation from the senate. this hearing is about an hour and 20 # minutes. [inaudible conversations] >> this hearing will come to order. good afternoon, everyone. today, we have two panels of nominees, but we're doing this a little differently today, so

we're actually going to hear from all three nominees in the first panel, and then we'll do questioning of mr. ford in the second panel. we're fortunate to have senator luger here with us, and we want to try to accommodate his schedule as well as senator lieberman's schedule. on the first panel we're considering nomination of norman eisen and francis ricciardone to be ambassador to the republic of turkey, and on our second panel, we're considering the nomination of robert ford to be ambassador to syria. senator casey from pennsylvania will be here. he chairs the subcommittee on middle eastern affairs, and he will chair ambassador ford's questioning portions of the second panel.

all of the posts being considered today are critical in strengthening u.s. influence and safeguarding american interests around the globe. i look forward to discussing the challenges and opportunities the united states faces in these three important countries. now, as i said ring we're doing this a little bit differently today, and one of the differences is that both of our nominees on the first panel were nominated last year to serve in these same positions. i think i chaired one of those nomination hearings last year, but those nominations were thoroughly considered and approved by the senate foreign relations committee and held up on the senate floor and not ultimately confirmed by the full senate. seeing the importance of having an ambassador in these critical countries, the president chose to recess appoint both

ambassadors to their positions. as a result, the two men have been serving as ambassadors in prague over the course of the last seven months. a recessed appointment by the president lasts for only one calendar year, so these men have been renominated, and the committee will reconsider their nomination. as the subcommittee chair on european affairs, i was supportive of those nominations last year, and i intend to support their nominations once again. since both men have been serving in these roles, we'll have an excellent chance to hear from them directly about the challenges they've already seen and plans for the future. welcome back to the committee, gentlemen, and thunk both for being willing to go through the process again and take on the difficult responsibilities at a very important time for our country, so first today we will consider the u.s. relationship

with the czech republic. as an important ally of the united states and central europe, the czech republic demonstrated exceptional leadership in europe particularly with respect to engaging the region's eastern neighborhood and pressing for further european integration. the czech republic made impressive contributions to international peace keeping efforts in afghanistan, iraq, and kosovo. in addition the country's unique experience with democratic transitions to provide lessons for the united states as we navigate the ongoing transitions in the middle east and north africa. today, we also consider the u.s. relationship with turkey. turkey remains a critical nato ally with a predominantly muslim population and a volatile geopolitically part of the world. recent events in the middle east increased turkey's strategic importance as a center of power in the region.

there's little doubt turkey will continue to play a role in many of the national security threats facing the united states. i remain a proponent of a strong bilater rail relationship with turkey and continued integration into europe, however, it's important to recognize where we have differences. troops continue to occupy the island of cyprus, and there needs to be a just solution? cyprus. they vote against the fourth ran of sanctions in the u.n. security counsel raises concern that the u.s. and turkey do not share the same threat assessment with respect to iran's nuclear situation. i know senator lieberman is here to provide an introduction, and i'll let him do most of that introduction. senator casey will be introducing the second panel no

, ma'am tee, ambassador ford, when he gets here. i want to welcome ambassador and former am ambassador to afghanistan and served in turkey and throughout the middle east and speaks a number of languages incoming turkish and arabic and finally most importantly from my perspective he's a graduate from dartmouth college in new hampshire. congratulations again to all of you for your nominations and appreciate your willingness to come before the committee. we're fortunate to have senator lugar here this afternoon, and i know he'd like to make a statement. senator lugar. >> i'm very pleased to join you, madam chairman, in working the nominees to three important

countries, and our relationships with these countries are excellent, but we will have an opportunity to review events in each of the three as we welcome ambassadors to this committee once again. turkey is at the center of several issues underscoring importance as an ally. in particular, i hope that perspectives on the recent resignations of turkey's top military leaders and the effect this has on political stability will be a part of our discussion. we're interesting to hear about the dynamics of the upheaval in syria and turkey's participation in regional diplomacy with the southern energy corridor. the czech republic remains important ally of ours in central europe and excited to

hear about the european phase adaptive approach to missile defense. regional energy in the czech republic is fundamental to the united states and european efforts to improve energy security for the region. finally, this hearing is an important opportunity for the committee to review events in syria. the regime appears committed to the use of violence to oppress the will of its people. in the last few months alope, more than 1700 people have been killed with more than 10,000 imprisoned. the toll on civilians including children gets worse day by day. despite the regime's effort to cut off the internet, cell phones, and other forms of communication, the images get out, and the world has born witness to the brutalities.

the causes of peace, stability, and economic advancement would benefit from a swift transition to new leadership and representative government for all the people of syria. it is asserting a cycle of ever-wide violation. they sought the aid of tahran to hold on to power. we have to work with those around him and say the violence must stop and a rather credible political transition of reform must begin immediately. i note the government of turkey has taken a strong stance in this regard given the potential for increasing refugee woes. they must understand the current path will only deepen their isolation and intensify

consequences for the regime and its leaders. i look forward to our discussion with the nominees on these issues and others they will bring forward from their vast experience in american diplomacy, thank you. >> senator lieberman, delighted to have you with us. >> thank you very much, madam chair. senator lieu lugar, i commend you for not leaving washington after the vote on noon, and thank you for convening the hearing. here to recognize ambassador eisen and i'd be remiss to say if i didn't get to know francis ricciardone and ambassador ford. they are great courageous foreign representatives of the united states in the countries in which they served and are serving now.

i'm really honored to be here to introduce norman eisen. this is not a political duty. it's really a personal pleasure because ambassador eisen, wife, and daughter are personal friends of me and my family. as you mentioned, i guess the reason i'm asked is that norman is one of those stateless people who lives in washington, d.c. so i occasionally do double duty by introducing such people. as you mentioned, senator, shaheen, ambassador eisen was nominated and given post at the end of last year and had a distinguished career as a lawyer here in washington and was in governmental reform in the white house. i regret it was necessary for the president to make a recessed appointment in this case, but perhaps there is a silver lining here in that we can now judge

ambassador eisen based on performance over the last six months, and that i have heard has been exemplary. there's been a whirl wind of activity in probing from the czech government to the american chamber of commerce whose leader has said, and i quote, "in the short time in the country, you have already made a significant impact and proven to be one of the most effective ambassadors to hold this post." he's been a tireless advocate in the czech republic with regard to imposing sanctions against iran or winning contracts for american companies, and with your permission i want to insert a list of thank you's and testimonials from american companies doing business in the czech republic. >> without objection. >> for more than two years

before ambassador arrived in prague, the u.s. had no ambassador in the czech republic which spurred doubts and fears among our czech allies, and as you said they are great allies about their commitment to their country. this is not a situation that we in our national interest should repeat, so i hope that we can confirm, give a full confirmation to ambassador eisen this time. they have been a great partner through wars in iraq and afghanistan to the promotion of democracy worldwide. the czechs are really now among our best friends and allies in europe, and they deserve to have an ambassador from our country that's confirmed by the full senate. timely, as you may know, norman eisen has a deep personal connection to the czech republic, his mother born there and she and his father survived the holocaust, and it is a

historical act of justice that the ambassador's residence in prague, originally built by a jewish family that was forced to flee prague by the nazi's who in turn the nazis took over that house as their headquarters, now 70 years later is occupied by norman and his family, and personal privilege and they observe the sabbath there every friday night and saturday so if you need evidence that there is a god, i offer that to you. the story of norman eisen and his family and path back to europe is a classic american story, reflection of what our country is about at the very best which is also precisely why the ambassador has proven an effective representative of our nation, interests, and our values. again, i hope the committee can lead the senate in sending him

back to prague as our ambassador as quickly as possible. thank you very much for giving me that opportunity. >> are there members of the family? >> yes, i think we should ask as you're giving testimony that you should feel free to introduce your families and let us welcome them as well. >> thank you, madam chair. senator lugar? >> senator lieberman, thank you for sharing the last story about the residence about the ambassador. as i said, we are going to begin the panel with ambassadors francis ricciardone and norman eisen and hearing the opening statement from ambassador ford and saving his question and answer period for the second panel. i'll ask you if you could begin, mr. eisen, and, again feel free

to introduce family and friends who are here with you. >> madam chair, senator lugar, senator coons, member of the committee, thank you for the opportunity to be here again in connection with my nomination by president obama to continue serving as the united states ambassador to the czech republic. i am honored to have the confidence and trust of the president, of secretary clinton in representing our country. since you asked, i would like to introduce my wife, lindsay, associate professor of english at georgetown university, and our daughter, tomar, and representing the united states in prague is a family effort, and i believe the czech people have come to appreciate my family as much as i do. well, almost as much as i do. when i was last before the

committee, i reflected upon my extraordinary good four chan as -- fortune as a first generation american from the vantage point of our small fast food restaurant in los angeles where i grew up. my mother was a czech holocaust survivor, and my father, an immigrant from poland, could never have imagined their son would serve as united states ambassador. as senator lieberman noted and my mother put it recently just a little more directly, the nazis took us away in cattle cars, and now my son returned representing the mightiest nation on earth. as that sentiment suggests, my mission in the czech republic is strongly informed by my deep sense of obligation to this country, to the united states. since my arrival in prague in