>> congressman, this is not a unique model in the sense that training and equipping partner force is something that we have done for many years in many parts of the world. las.. >> i think it's in the context if you look at africa as far as

a really good cooperation and coordination between the department of defense and department of state and looking at how we can do training on not a specific area, but also continent wide. for instance, the state department is trained about 160,000 troops for peace operations in 24 countries. we use that also with the department of defense for guidance and advice and coordination. in this context as well if you have the state department helping to do diplomatic coordination or doing also assistance as far as money-wise to provide logistical support and, of course, the dod is providing the actual individuals to do some training and equipping, so those are issues that were kind of a model for this area, but also we're looking at other areas in parts of africa. >> thank you very much. >> thank you, madam chair, i yield back. >> thank you. >> thank you very much.

ambassador, i read your report, and i'm a little confused in it. at one point on age 4, you refer this is nothing more than that what we already do with the afr africno thin we have place in africa, and i studied it, and unless i'm wrong, it's an educational thing we use to help african nations to develop a more professional military. we do building of schools and hospitals on the ground, but you add in the report the reason we had to go, the president had to go to congress is because there might be a potential need to defend themselves, the troops on the ground, and therefore the war powers resolution was put in place. what confuses me is is this what we do under africon, or is this

different? there's always the danger they have to defend themselves, so there wouldn't be a need to come to congress to say the war powers act would be invoked, or are we really, and not just anticipating, by expecting some conflict to arise and so this is a head's up? that's question number one. question number two -- in your report, you felt we'd ask what the end purpose is and the deployment and how to judge success of the mission, and yet i didn't hear any real clear answers as to what success is or the timing of the deployment. my final is, i think somebody should know what the cost is per day for these troops to be on the ground. just real costs right now an anticipated costs for conflict. those are my three questions.

>> thank you, congressman. good questions. i'm sorry if my statement confused you a bit. i think when we say this is not fundamentally different from previous missions, it's because the overall concept of trains, advising, and assisting forces is a watch word. we do it in other parts of the world too, but i think -- >> right, we created africon because we wanted more specific attention to the region. >> and develop a greater expertise and deal with the region rather than borrowing forces from other combat and commanders. >> exactly. >> this is different from some of the specifics in the sense that we don't always put our advisers and trainers in the field with the forces carrying out the actual military operations, and that's what in this specific case led to the

judgment by our military planners and commanders, and then by the president when he approved this that despite their mission not including any engagement in combat, they could be in a hostile environment in some circumstances and they should be carrying the weapons needed to defend themself, and that's what, in turn, triggered the war powers note any cation, -- notification, but we don't anticipate they'll get into the midst of conflict, but we don't exclude that possibility, but they have the capabilities to defend themselves if the need should arise. in terms of defining success, and i think beyond the very specific metric of capturing or killing joseph coney and other commanders, it's a judgment call as to whether our partners are making substantial gains, they

are making effective use of the additional training that they've learned the fusion of intelligence and operational planning that we think is the missing piece that has prevented them from going to reducing the rate to actually eliminating the threat, but we will consult with the congress and inform you of our assessment of the operation as it unfolds because, as i said, this is a unique example of legislative collaboration, so we want to work with you all the way along. in terms of the cost, i apologize for not having the bottom line. i can actually say more about the state department expenses than the dod expenses. u.s.-africon is drawing on forces and we are still working on an overall expense on a day by day estimate once we have the estimate refined. >> do you have any idea when

we'll get that cost? is it tomorrow, the next die? it should be relatively easy. >> i don't want to give you a specific commitment. it will be very soon. >> thank you. >> thank you. mr. conley is recognized. >> thank you, mrs. chairman. i'm sure you understand the sensitivity up here about the cost of military operations, the previous administration lowballed the cost of iraq and afghanistan, and here we are well in excess of a trillion dollars later, a significant contributor to the united states debt which so many of my colleagues expressed concern about, and yet we accepted false assurances or very lose insurances about the cost of those engagements, so i think it's a reasonable question to ask what is this going to cost or what is the estimate of what it's going to cost, and to get that information, obviously, in a timely fashion. let me ask, what is the

rationale for putting troops, u.s. military advisers, into uganda? what is the goal? >> well, congressman, first of all, to reiterate, we'll get you the cost figures as soon as we can. >> thank you. >> but this will be modest than the costs of actual combat operations. as for the reasons why we're there, you know, there's a continued threat to civilians and a threat to stability in the region. we think that this very discreet specific increase in the scam and form of our military assistance can make a difference in ending the threat of the lra. >> okay. mr. assistant secretary, so is the goal, given what you just said, to, in fact, defeat the lra and disband it or is the

goal to lessen the threat to civilian control in the region? >> we would certainly hope that this additional support will lead to the breakthrough of capture of joseph and the other commanders and the literal destruction of the lra, but we will not necessarily wait for that to happen. this will be an operation that runs in the months, not an open-ended operation, and we will evaluate whether the assistance has achieved its purpose in terms of raising the capacity of our partners, and we may disengage even as they continue to fight on their own. >> what -- okay, but is the ultimate goal the -- you know -- the deposing of mr. coney and the dismemberment of the lra? >> yeah, that is the stated goal. that's one of the four parts of the strategy -- >> okay.

>> removing him from the battlefield. >> it's important to have a clear mission. >> there's also a broader objective we're supporting which is to support partners in africa so they can address the threats 20 their citizens to achieve stability and become productive contributors to security in the region and more broadly. we've seen some step up as mentioned in somalia with great risk of loss of life. this is a problem that is debilitating for several countries, so to the extent we it help them end the threat i think helps their security and makes them better partners for us going forward. >> was there an exception in the making the decisions the partners were on their own not capable of meeting that goal? >> i think, yes, congressman. the judgment was while they made progress, we've seen the size reduced substantially, going

that final distance to destruction of the lra was something that they were not quite capable of, and that this assistance could make the critical difference. we thought it was a worthwhile investment to make. >> all right. moving to 30,000 feet, a devil's advocate question for you as well, mr. ambassador. what is the strategic interest of the united states in this, in doing this? i mean, there's lots of unpleasant, lots of insurgencies and terrorist movements in the world, and the united states can want try to dethrown every one of them. what's the strategic interest here? >> well, i would say that we've seen in today's world that everything is increasingly connected to the extent that eastern and northeastern africa

is unstable, underdeveloped, an ungoverned state in which these extremists and terrorists can run amuck. it ultimately can affect our interests. it creates the conditions in which other radical threats could emerge. we've seen the worst case in somalia with both the break down of governance and the rise of the al-shabab terrorist movement, and while that's not directly linked to the lra movement, it's a movement in the region that ultimately jeopardizes our interests. i think -- >> thank you. >> thank you, mr. conley. mr. turner is recognized for five minutes. >> thank you, madam chair. question for ambassador vershbow. if the stated goal is to decapitate the leadership of the lra, as i understand from your

question before, we are not using air yell drones, and are we authorized to use predators to take out the leadership if they were seen and observed? >> congress nan, at the present time, the use of drones 1 not envisioned in this operation. i think that the kind of intelligence that is most important to the success of this operation is the human intelligence gathered on the ground, that depends on closer ties between the military forces of the country's involved, and the local population, and so our training and assistance as part of broader objectives helping them to acquire and make better use of that kind of ground

intelligence to make the difference. the questions of authorities for drone strikes against extremists and terrorists, is a more delicate matter, not suitable for commenting on in this open session, but, again, the focus is on advising and assisting forces on the ground so they can gather and use intelligence more effectively to do the job. >> thank you, i yield back. >> thank you very much, mr. foreman turner. mr. higgins of new york also is recognized. >> thank you. it emerged from northern uganda in the 1990s. since that time has murdered, killed, mutilated tens of thousands of people coney was

indicted for war crimes and crimes against humanity and the tribunal at the hague. coney is also designated as a specially designated global terrorist. some 300 fighters originating out of uganda, now more prevalent in central africa. i mean, the united states deploys 100 military advisers who happen to be special forces. you know, i think we should just call this what it is. it's a kill and capture mission. i would ask you to comment on that. >> well, congressman, i think we certainly are trying to enhance the capacity of our partners to capture or kill, but they will be doing the actually military

mission on the ground and advising and assisting them to be more effective in doing it, so, yes, i don't disagree with you on terms of the end results of this if it work, but i think it makes sense from the united states point of view to enable partners to act when they have the capability to do so. they have some capacity, and they've done a lot, and we've helped them get to this stage, but to go to the final distance requires 24 additional support, and we believe it's a good investment in our long term security and theirs. >> ambassador? >> yes, you're absolutely correct. the main objective is to support these countries to do the jobs themselves and to build the capacity, and that's what we've been trying to do for the last decade. >> yeah. i just think that there's a tendency sometimes to dance around this stuff, and

obviously, john coney is a bad guy doing bad things to otherwise good people in a region that is strategically important to us, and i just think, you know, sometimes we need to call it what it is, and this clearly to me, not unlike, you know, our involvement with military advisers in other regions, troubled regions of that region of central africa, north africa, and the moos, we send advisers there, obviously, very well-trained, have a particular expertise at doing certain things, and in particular taking bad people out, and i think that, you know, this is indicative of that. you know, it's a religious group, the lords resis tans army, presumably islamist -- >> it's not religious. >> published reports indicate that it is. >> images or statements is an

ideology to justify their terror. i know that koney said in the early days he was related to christ, but that's -- >> any relationship to al-qaeda? >> we have not -- >> any relationship to the -- >> no, no. >> okay. i yield back. >> thank you. using the lord's name in vain, not a good thing. >> correct. >> pleased to yield to mr. thorntonberry. >> thank you, madam chair. we have to make sure our presence in the region is not peace meal, and we requested through a number of hearings the reappointment to the great lakes reason, and ambassador, you said we'll continue to make that under advisement. we've gone this direction before, but can you explain if you are resistant as to are why

this has not happened, or are there other concerns we nay not be aware of? >> you know, we had the special envoy who did a fantastic job, and i think after that the issue is to assess where do we go from here? we heard loud and clear a special enjoy is needed, and we're taking that -- >> how long has the position been vacant though? >> i think -- >> it's been some time. >> over a year now, a year now. >> well, again, given the heightened intensity of these issues, i think this is the proposal time to revisit this question with a certain sense of urgency. let's return also to gain a broader understanding who are the other international partners involved here. specifically in military operations. we talked about other international donors for relief work, and then specifically,

what is the uganda army's effort going to be? has been in the past, a specifically demobilized, joseph coney and the lra? >> the specific -- you are absolutely correct. the specific amount of assistance of militarily supporting the udsf in this effort has been the united states. i mean, $40 million from the united states in the last three years specifically aimedded at providing logistical support as the lra moved from -- uganda. other countries are providing other types of support owner the military. >> you're talking affected countries not other international donors 1234 >> other international donors, that's right. >> make the distinction. >> as far as the other countries are concerned. uganda itself is providing assistance, their own equipment, and the military and, of course, the troops itself. the car, that has a coordination

effort with the fca troops by the uganda and the car because the troops are in the car in a sovereign country, and that's a coordination between the presidents to work out the logistical issues. >> those two countries, then, in a coordinated effort are the primary drivers currently of the military operation; correct? >> but also the drc is getting involved because the car has been going out between them. >> any other international countries such as france who engaged militarily? >> only in as far as training the car troops. >> so france is involved in the car? >> yeah. >> all right. what other international actors are involved beyond the military operation to coordinate

disarmerment efforts and reintegration efforts? >> the united nations and the african union. the united nations from the drc side which was the establishment or the reestablishment basically to coordinate efforts between the drc and the updf in uganda. >> i think we should stop using acronyms because it gets confusing. >> it's the congo east troops to coordinate together. >> okay, but the african union's involvement? >> the african union is not as extensive as the u.k.. it's talking to the leaders. >> i'm sorry, explain that further? >> in other words, to discuss with the presidents and the leadership in this countries on the lra problem and what more they need to get the job done. >> so african union effectively is not involved other than than

conversations >> >> just discussions. >> is that a potential development? >> that's right, it is. >> the reason for pressing the issue is clearly that the united states cannot solve all problems for all people, and you have been authorized by congress to engage in this activity, and, again, we're all hopeful for a positive and quick outcome, but to continue to press the international community for swift engagement as appropriate as well needs to be a part of the this broader comprehensive effort. thank you, madam chair. >> thank you. >> thank you, very much, madam chairman. first of all, let me just note that i'm -- i don't know if i'm disappointed or what, but not even having a cost estimate for us, coming before congress letting us know that there is a military operation, i -- have the 100 troops already been sent? are they on the way?

>> only some of the initial personnel have arrive the. the full hundred have not deployed. >> okay, so the mission is actually underway. some people have been sent, but you don't have a cost estimate of what it would cost? even an estimate? >> i apologize, congressman. i'm embarrassed not to have a more specific answer for you. the forces that are already there are funded by regular operations and maintenance funds, but when we get further along, there will be more cost incurred, and we'll definitely have that estimate to you. >> i take it the hundred troops are bringing with them their equipment? >> correct. >> now, i don't think it's our place to ask about specific equipment going into a combat area, but that's considerably costly as well. i noticed in your testimony it said that this lra is -- has

been reduced to approximately 200 core fighters? so it might be significant for us too know if -- to know if the cost of this mission's going to be $500 million or whether it's going to be $100 million or $20 million in terms of the cost of getting 200 fighters who are people or criminals we can call them, 200 organized criminals in central africa, and i take it also that if they reduce to 200 men and what we've got are the armies of these various countries you're talking about, we're talking about 200 men who are now fighting thousands of other

armed troops, but we feel compelled to send 200 of our own troops there. i'm not sure whether or not that -- i'll look closely at this, you know, and i think the american people will as well as to whether or not this was the right decision or not. would you say that tribal loyalties have anything to do with the ongoing strength of the lra? >> i'll defer to my colleague who knows more about the context. >> the lra was originally a northern uganda chill lay base, but it does have groups from southern sudan, congo -- >> do tribal allegiances have something to do with the survivability of this and the effectiveness of the lra? >> it's the open areas that are

terribly hard to track people. that's his cover. that's how he's escaped for two decades without capture. >> i take that as a yes. so we're sending our troops to take on, head on this whole tribal challenge in africa. let me just note that that doesn't sound very good to me in terms of possible success, but, then again, this force may be evil enough to justify sending our troops in. let me ask you, you were involved in ethiopia, you were our ambassador no ethiopia. >> yeah. >> during that time period, there was a border dispute between ethiopia, went up to arbitration. >> yeah. >> the arbitration ended up deciding what? on whose favor? >> the bbc made the determination on the board between eat ethiopia which dissh >> and they decided basically

that arytria had the rightful position; is that correct? >> only in the bottom area. the other area went to ethiopia. >> okay, so did our government at that time, while you were ambassador, recommend that et ethiopia respect the arbiters or -- >> we did. >> we did. and when ethiopia rejected the arbitration after our advice, what did we do, and what was your position while -- what was our government's position on ethiopia considering that we have sense the time that they decided not to settle through arbitration, but thumbed their nose at arbiters, have we provided ethiopia with weapons and training and guns since then? >> we have not provided weapons, but training because of their forces in darfur, and now in

avenue you. >> right, but we have to the given weapons? >> no, no weapons. >> thank you. >> thank you very much. mr. marino will now be recognized, and i thank him because he'll be asking questions that have been submitted through our committee's website which connects our constituents more directly to our work in congress, and we're also asking the public to enter their questions when we have the honor of having secretary clinton appear before the committee on thursday, so thank you, mr. marino for using those questions. >> thank you, madam chair. in addition to the questions submitted by the committee, i have a website for my direct, and i asked my constituents to send questions to me prior to my hearings. the questions i'll ask are repetitive, but if you could answer them in a different light, please, bear in mind, i

have less than four and a half minutes. whoever feels they can answer the question to satisfy my constituents, please jump up. first question from sharon. who will be paying for this troop deployment, and what is the anticipated cost, and how many troops will be involved for how long? >> okay. the united states will be paying for the operation, and as i said sheepishly, we don't have precise costs, but i can assure it's likely to be in the tens of millions of dollars, not the hundreds or the 500 billions of dollars. it's an investment worth making in terms of just advising and assisting forces, we can eliminate an evil force from the earth. >> from titus, how will forces in central africa address widespread development needs of the region, and if the lra is removed without making improvements to the economical and social stability of the

region, then another military force could easily replace it. >> yeah. it's not so much the military as it is the efforts of us-aid, the diplomatic efforts in coordination with the international donor community, international organizations, and the regional states to look at how we can establish, you know, economically develop the countries. >> okay. for michael, what are the europeans and other allies doing to help stop the lra? >> raising consciousness, supporting and assisting with reconciliation, rehabilitation of victim, and also supporting the governments in their efforts to go after the lra. >> what about any money? >> assistance, and, again, our money for the region has been around $50 million in total for the last three years. just on the lra operations, but

overall on the lra operations, the europeans, the u.n., and other organizations are also contributing money, and i don't have the specific amount. >> okay. this is from greg. is this a peace keeping/mission, or more of an advisory role? >> it's clearly an advisory mission helps to prepare partner forces to do the job themselves more effectively, but it certainly has a humanitarian motivation, mainly there's long suffering for more than two decades at the hands of the lord's resis tans army. >> this is from danielle. first of all to cover both sides of the story here, thank you to the members of congress who have decided that the destruction of human life in central africa at the hands of the lra matters and have taken important action steps towards bringing peace to those affected. could you gentlemen be more specific about the ways in which the troops deployed have been

trained to advise, specifically in the hunt forever coney opposed to other large scale tactical planning? >> again, it should be understood that our forces are going there to help train and improve the capabilities of the local militaries who then carry out the actual operations in the field. the key thing we're hepping to help with is infusing the intelligence information with the operational plans so that they can quickly respond to purports that the lra is active and engaged and we hope eliminate the remaining leadership of the lra. we're not taking on a come base role ourselves. >> most of the questions were from my con stitch wents in pennsylvania so 10, but here's my question. do you have an exit strategy?

>> we do because we said from the jut set this is not an open ended mission in terms of goals or duration. we certainly hope it achieves the overarching goal, eliminating joseph and other commanders from the battlefield, but we'll not go on indefinitely even if that's not achieved. we'll judge whether we're effective in improving our partner's capacity to deal with the threat, engage the lra, encourage defections, and substantially reduce the threat, and then we will pull back as we hope they will be able to continue with this experience and training to finish the job. >> okay, and quickly, a yes or no from both of you. are we following the money or just handing the check over? >> following. >> are we following the money or just handing a check over? >> we're accounting. >> we're following the money because we will be there on the ground ensuring that what we use

the taxpayers' money for is achieving positive results. >> thank you, gentlemen, thank you, madam chair. >> thank you. i don't know how that could have been answered with a yes or no begin the two choices, but well done. [laughter] you have very wise constituents. they asked excellent question, and i encourage all members to bring in our constituents to the committee process. thank you. >> it's working out. >> thank you. i'm so glad. mr. sherman from california is recognized. >> thank you. in this enterprise, are we introducing american armed forces into hostilities or into situations where imminent involvement in hostilities is clearly indicated? >> siting the war -- citing the war powers agent. >> the reason why they are there is that it's mainly for advice and support and assistance, however, if, of obviously, to defend themselves, they have to be fully equipped.

>> well, the u.s. marines and the lone ton embassy would defend themselves. in vietnam, we used the term "training" to mean american troops going out on cam bat missions when accompanied by indigenous forces. are they in safe areas training or are they out engaged -- training through engaging the enemy? >> i'll defer to you. >> congressman, the training will take place in safe areas of bases far removed from the area of conflict, but under the mission approved by the president, forces will have the possibility based on what the commanders' judge to be most effective and based on what the partners feel would be most effective to deploy to the field to advise and assist at the front line level, but we don't

believe that it is highly likely forces are engaged. >> will we be shooting at the enemy? >> only in self-defense. >> will we will placing ourselves within 100 yards of the enemy? such that self-defense would obviously be necessary? >> congressman, i honestly don't know whether they're within 100 yards or 200 -- at this point it's hypothetical because it's the early stages. >> yeah. the constitution says provides congress with authority to declare war, engaging war, and now you said the decision is made by lieutenants. my -- we've seen in libya a terrible lesson brought home to the american people. 23 you sled the war powers provision of the constitutions, good things happen in the

world. my fear is you're teaching the american people this lesson a sec time which is to say you may well accomplish something good in eastern africa, but will we do so in a way that constitutes a second intention name violation of the war powers act? both of you have been rather vague on what our forces are going to do except that hue tents and -- lieutenants, captains, and majors on the ground decide what to do. are these combat officers authorized to bring their forces into hostilityies? mr. vershbow? >> the short answer is no. the only condition to use the weapons they carry is if they are fired upon in the act of

self-defense, so i would ask to defer to my legal experts. >> that will be -- >> exactly what -- >> that's as good as an answer as i'm likely to get. let's say the mission changes, and, in fact, it is necessary to introduce the armed forces of the united states into situations where hostilities is clearly indicated by the circumstances. will we, the administration, follow the war powers act? >> we're following the war powers act in this instance. >> are you acting in ser renne dipty acting parallel to the war powers act or conforming to the war powers act? is that act the law of the land that you are following? >> yeah, we are respecting the intent of the u.s. congress in providing that.

>> are you respecting the law or the free floating intent? >> oh, no, the law. >> it's the law of the land, and you're going to follow it; is that correct? >> yes. >> thank you, that's all i needed. i yield back. >> thank you. my colleague from florida is recognized. >> thank you, madam chair, and with your permission, may i yield to the subcommittee chair? >> absolutely. >> thank you very much. let me just state for the record, even though we have questions that are pointed questions, that should not necessarily indicate whether we support or oppose this particular mission. i happen to believe that missions like this are positive african-american can play a positive role and a positive cold strategy -- post cold war strategy should be helping other people fight for their freedom. the cost is really an important factor because the united states can't afford to pay the price to

when everybody elses freedom in the world. the libyan operation that this administration just engaminged us in perhaps is a good example of that, and if, up deed, the libyans now, and i would challenge the libyan authorities now to step forward and announce they will repay the united states for every dime that we spent in helping them win freedom, we are in a financial crisis. they are sitting on the biggest deposits of oil and gas in the world. they should repay us. if, indeed, they do, then it was the right thing for us to help libya overthrow their tyrant. if, indeed, the cost of this mission is repaid to us from those who benefit from it, then this type of mission, helping others fight against evil forces

in the world is justified and speaks well of the united states of america. what does not speak well of us is when we become intertwined with dictatorship, and that's why i'm asking questions about eat ethiopia and i would ask the former ambassador to ethiopia, was there an election held why you were ambassador in ethiopia? >> i came in after the election. >> after the election. was that an election that happened right before you became ambassador, did the winners of that election then take over the government, or did they arrest those who won the election? >> they -- >> they arrested those who won. >> the parliament took up the seats because the negotiations was in behind the scenes to do so. the issue was the city hall who refused to take up their seats, and in the context they were arrested, and we worked with the

government and the communities -- >> the answer to the question was they arrested the ones who won the lerks. those who lost the election stayed in power, and those who won the election were put in jail. during that time period, opec decided there were several cases in ethiopia that had -- of where american citizens owned property, and that the eat yoachian government now run by those who did not win the election, but imprisoned those who did, that the ethiopian government had this exappropriated property of americans and was illegally refusioning to give it back to them. do you believe, and opec still has that standard, by the way, still has that finding. do you agree with that finding 3 >> the congress -- first, they declared the election the winners, the winners.

>> the government declared that. >> no, carter's center. >> okay, well -- >> and we abide by what they stated. >> okay. >> the second issue is as far as the opec, the person you're referring to, his property -- >> i'm not talking about a person, but the general theory that americans have property claims that have not been adjudicated by the ethiopian government have let sit. >> we've tried to help adjudicate with the government -- >> we have, that's correct, but opec, and that was right, opec declared ethiopia was now no longer eligible for opec loan guarantees. they have not yet changed that policy; correct? >> because of restrictions. >> right. restrictions were based on the fact that american citizens have property claims not met, and now

back to eat ethiopia. there was an agreement between them by an arbitration. in the end, it is my understanding that the arbiters actually decided, at least for a major part of that, in artra's favor, and yet we have follow the arbiters; correct? >> no, in 2003, we announced the party said so, and so therefore we held both parties accountable to the results. >> thank you very much. the time expired. i want to thank our witnesses for appearing before us. we look forward to your written answers, and i remind the committee members if you could join me to say hello to evelyn apoco, it's a true delight and honor to have you here with us. thank you.

the committee is now adjourned. [inaudible conversations] [inaudible conversations] [inaudible conversations]

>> thank you, mr. chairman. thank you for being here, madam secretary. the gao has reported that 44% of the border is somewhat secure, 56% is not secure. do you agree with that statistic? >> no, and i don't think that's exactly what they said, and i testified to this several time, representative. they were using the phrase "operational control," a term of art within the border control. it's somewhat misleading because it doesn't capture not just the border patrol, but the technology and infrastructure that goes along with it -- >> what do you say is secure? >> it's not an accurate statement.

>> okay, so who controls the other 56% if we don't have operational control? >> no, we have the responsibility for that entire border, as you know. it includes -- >> who controls -- >> manpower and technology and infrastructure, we have put down at the boarder. it's a different border than defense three or four years ago. >> i agree, it's worse. >> you can see all of this hearing tonight at 9:40 eastern on c-span2-rbgs. it's also available to watch online at c-span.org/video library. now, former treasury secretary talks u.s. relations with china and the global economy. he spoke yesterday at the johns hopkins school of advanced international studies for about an hour. [applause]

>> jess, i got to thank you so much for that introduction. it's great to be back at cise. just terrific to be here. now, i'm sure you've all noticed that the world economy continues to face tough challenges. in the united states, banks and capital markets are more stable and better capitalized than they were in 2008. government regulators have appropriate new authorities that they lacked just three years ago. we need to restore economic growth, and that challenge is made more difficult because our government has an unsustainable fiscal deficit. what's more? american families have too much debt, and they'll be working to reduce that debt for some time. in europe, leaders are wrestling with the difficult fiscal condition of several e.u. members as well as some complex challenges around the structure

of the european union. they are working to stabilize their banks. there are not any easy answers here, and the outcome in europe will affect us all. this much is clear -- three leading economies, not just two, now confront growing vulnerabilities and thus have special responsibilities. china has cemented its place with the united states and europe as one of three principle engines of the global economy. that means that the world increasingly looks to china as well to help power global growth, to reinvigorate global demand, to rebalance its own economy, and in doing so, help rebalance global investment flows and ultimately help speed up the global recomp ri. don't get me wrong, the united states is still the largest and

richest economy with a gdp more than twice the size of china's. we're the most important source of trade in investment, and america is the leader innovator and builder. we have a particular speedometer, working close -- responsibility, working closely with europe and others to find a pathway of recovery from the current crisis, but i'll be blunt. we need china to get ahead of its growing challenges which now threaten its record of economic success in recent decades. china's success in sustaining growth, figging inflation, transitioning from an economic model dependent on exports and fixed economics is closely related to our own success, nor can we afford to have all three

world principle growth engines face a crisis simultaneously. problems in any one of these three economies makes it that much harder for the other two, and every one of today's principle economic challenges can be addressed more effectively if we work with china in complement ways. we don't always to have work jointly, but take steps, most individually, sometimes together, to have the mutual effect of supporting and sustains economic growth. let me ask this deceptively simple question. can the united states and china address today's dynamic and considerable economic challenges with a policy we have currently? the answer, i believe, is no. so today, i'm going to speak about how to put the american and chinese economies and by extension, the global economy,

on a more sustainable footing. the bottom line is this -- we're missing opportunities to benefit from one another's strengths. for our part, we need a level playing field in china for u.s. firms, but we also need more investment from china which is, after all, sitting on over $3 trillion in foreign exchange reserves, much of it in u.s. dollars with billions more in the hands of corporations eager to invest here and become global companies. why wouldn't we want those dollars back to be invested in productive ways that credit american jobs and boost the american economy. that's why we should be more opened to chinese investment, but it's also why chinese investments would be on a sounder footing here if they helped to establish good jobs for american workers. for its part, chinaments a fair

shot at u.s. markets, too. the chinese want policy change that will allow better access to technology for one and for another, a clearer, more predictable process for investing in the united states. both nations can help themselves and each other to succeed for mutual benefit. to do this, i believe we'll need to overhaul the frame work that guides our economic relations. how? i've worked with chinese leaders for nearly two decades as a banker, treasury secretary, and as a conservationist, and reflecting on those experiences, i've distilled them into five special principles, and by the way, these five principles will not just help put the economies on a sounder footing, but they help assure a more complementry footing as well. number one -- unlock the promise of capital across investment.

for the united states, this means assuring greater openness to chinese investment leading to the creation of american jobs. for china, it means undertaken financial reforms now that beijing might prefer to kick down the road. principle number two, assure financial markets that are transparent with strong oversight. for the united states, this means clarifying new regulations and implementing sensible regulatory practices. it also means creeing flawed policies that led to massive consumer debt, a housing bubble, and unsustainable household leverage ratios. for china, it means speeding up financial reforms and strengthening oversight and transparency of non-bank lending, and it also means correcting flawed practices that led to massive producer bt and

the misallocation of capital. principle three -- work to strengthen market confidence in our economies. for the united states, this means overcoming the market's lack of confidence in our government's ability to take the necessary steps 20 protect our economy -- to protect our economy and keep it competitive. for china, it means overcoming a lack of transparency, not least a derth of trust in government da data and questions about corporate accounting and disclosure. principle four -- free up bilateral trade. for the yids, this argues for moving towards bilateral trade organizations with china. the route is going nowhere fast, and it also means granting china marketing status on a sector by sector basis. for china, this means getting serious about three things.

first, boosting domestic consumption so its market is a bigger export destination for u.s. products. second, expanding market access including completing residual wto comi.s, and third, ending 234 array of discriminatory and anticompetitive practices. principle five -- help technology flow more efficiently and promote innovation. for the united states, this means reforming our outdated export control system while assuring national security. too often, we restrict trade that would create u.s. jobs and is in our national interest. separately, the clean energy policy challenge is now so great, that we should have a u.s.-china pilot project relying on scientific input and evidence to make it easier for the world's two largest economies, energy consumers, and carbon emitters to use the best

technologies. for china, it means republicking and enforcing -- respecting and enforcing intellectual property commitments, but ultimately, it means making the shift from a consumer to a producer of intellectual property by legitimate means, not using access to its market as a back door to obtain intellectual property developed by others. only when china innovates, not assimilates technology, will it have enduring incentives to protect it. now, why do i believe these five principles are so important, and how do we fulfill them? well, let's start with the first principle. unlocking the promise of capital and cost investments. as jessica said on the capitalist, i devoted my career to the principle that world class markets are essential to economic success. capital markets fund entrepreneurs and businesses of

every size and scope, and strong capital markets make average families richer by generating returns on savings. with china already bumping up against the limits of its existing growth model, financial sector development is essential if the leaders are to realize their goals at the heart of their own blue print of the future, the 15 five-year plan. that plan aims to ease china's transition into an economy less reliant on investment and exports. .. china should shift from one mod toll another. today, china lends money to cheaply to state-owned businesses, sometimes with little prospect of remain. instead, china should ensure that domestic savers, who are often families, get a fairer return. the lack of good investment options for ordinary chinese,

coupled with inflation and low interest rates on deposit accounts, means the return on their savings is probably negative, but chinese companies, especially state-owned enterprises supported by the government, can access cash at rates that are cheaper than what the market should support. this isn't good for the long-term competitiveness of the companies nor is it good for the efficiency of the chinese economy. in fact recent economic events and current global challenge demonstrat the need for even bolder financial reforms as well, like liberalize the capital account, enshoing and showing greater flexibility in the exchange rate. i've worked with the chinese leaders for more than two decades, and they do understand the need for well-developed capital markets. they also made significant progress in some areas. from restructuring banks to developing domestic and equity

markets, asset managers, and a regulatory system. in chinese leaders are committed to currency reform because they recognize that capital markets won't function efficiently otherwise. bit while the commitments are there, a global economy appears to have eliminated in the sense of urgency for such reforms. friends in beijing tell me china has reform fatigue, that china has accomplished so much that the moment behind reform is fading fast. in my view, china needs to fight through that skepticism. i agree with those in china who argue, in the speeding up of reforms will give them a valuable tool to fight inflation and meet other macthrow economic challenges. here's something else to feel better. what is happening in europe is china's second warning bill in as many years. china is just too big an

economy, and still too dependent on exports, to ignore what is happening in their own markets whose demand pass powered champions growth for so long, and frankly, the present crisis should make financial reforms more, not less urgent for china. china has been able to wall off its financial system in the past. during the asian financial crisis, for example, and again more recently. but can a $6 trillion chinese economy deeply integrated into the global system, remain forever immune to what is happening in the $30 trillion economies of europe and the united states? it cannot. so, by putting the right financial tools in place today, china will be better positioned to responsible to the current crisis while preventing china's own crisis down the road. china has a choice. it can maintain its intervention

in the currency markets or speed up a reform toward a market currency. if it does the first, china will continue to accumulate foreign exchange reserves, buying more treasuries and bonds, but in doing so, it will become an even bigger funder of the structural deficits in the europe and the united states. so, instead it should pursue a market determined remedy and an accelerated timetable for capital didn't liberalization and that would give beijing the economic tools it needs in a large and increasingly complex economy. i know convertibility and capital account reforms and an open -- and a more open financial system aren't popular in china. many in beijing believe these reforms will make china more, not less vulnerable to future crisis, but china can play

defense or it can play offense, or if you prefer, china can continue its single-mined focus on it five year plan, slowly unrolling reforms, when it needs reforms today that into give beijing the tools to effectively respond to future crisis. in the fall of 2008, chain had just one tool to deal with a crisis. massive spending to support growth. and while, yes, that helped cushion the impact of the slower expects as global trade shrank, china's response would be years if it hat the full suite of financial poll skis that ultimately requires convertible currency. i realize currency value is a political issue in both countries and it's an important trade issue, too but i have

always believed that all to turnery value is a contributor to trade def circuit it's just one. we have a trade deficit with the world. it's a necessary part of reducing the economic distortions that can create credit risks, bubbles, and domestic imbalances that threaten stability in china. so, that's another reason to accelerate evidents to diversify and modernize china's financial system. open and efficient capital markets go hand in hand with a market-determineed currency, and other reforms would be useful as well. eliminating remaining geographic descriptions -- restrictions on financial service firms. and allowing financial service firms to operate in china as they do in other leading financial service centers

subject to domestic regulation. but modernizing china's system isn't the end of the story. to unlock the promise of capital, americans also need to think hard about our own openness to investment, and including investment from a china that is sitting on huge pools of prospective capital. but it's largely one way, from the united states to champion u.s. government statistics show in 2010. chinese fdi stock in the u.s. was $5.9 million, just about one-tenth of the 50 billion of u.s. stock in china. that grows moe more and faster chinese capital to sustain jobs. many americans reaction

negatively to chinese investment, and for that matter, any foreign investment, even though foreign direct investment is, in my judgment, the up mat vote of confidence in our system. fdi creates good jobs in the united states. 5.6 million, including over 2 million in manufacturing, and the average salary of these jobs is 33% higher than the national average. but the u.s. government estimates affiliates of chinese firms in the u.s. implied little more than 4,000 americans in 2009. so, there's plenty of room to grow, not least because chinese companies have been reluctant to invest, judging they won't be welcomed here, because they don't understand the investment process. there's a lesson here. chinese leads the world in foreign holdings of u.s. treasury securities with

$1.14 trillion. but it would strengthen our economic relation if china put more of those dollars to work in higher return investments that create jobs in the united states. of course, we'll need to maintain an environment open to investment from all countries. we need to make sure that the process for investing here is clear, open, and fair. when i was treasury secretary, we streamlined the process to ensure that the rules for investing here would be as clear and fair as possible. but five years have passed. so the administration should update its examples and guidelines for successful review, drawing on experience from the first few years of the new law. we should publish more and clearer illustrative examples of investments that passed or failed the new review process, hoping to demystify the process and further clarify how it

works. and since china's state-owned enterprises want to invest here, weed in a process to divide principles. like the santiago principles. discussion of such principles is underway right now in two forms. oecd and the transpacific partnership. but china isn't a principle in either group, so i encourage our governments to seek ad hoc mechanisms to involve beijing in the discussions. and finally, we need to finalize the bilateral investment treaty. how can we have a -- not have a treaty in place to protect u.s. investments in china. china signed 120 investment treaties, including with our closest economic partners, japan, germany and britain, and some of those give foreign

investors strong protections, including the absence of binding international arbitration for investment disputes. shouldn't we want that for our companies? now consider the second principle. we need efficient and transparent markets with strong oversight. well-functioning markets get money where it's needed but they also prevent financial systems from creating hidden accesses or bubbles which are counterproductive and can be destabilizing. so, this principle requires first that we change incentives that have led to bad behaviors. in the united states, government policies helped to fuel the credit housing bubble and unsustainable household leverage ratios. indeed in the runup the crisis, household debt as a percentage of an american family's disposable income more than doubled from historic levels and

households still have a long way to go to pay down their debt, reach a sustainable level, and start spending again to support growth. but the crisis demonstrated the dangers of insufficient transparency or oversight and credit default swaps, securitization and the repo market. i support deficient risk management and problems in the credit-rating agencies. ... 11 in this part of our financial system. in the american sovereign

capital into the bank's unfreezing credit in the bolstering confidence. in the lighter since china is like the united states in that no one questions whether it is strong enough to stabilize the banks. china's nonbanking lending is going to be a challenge.knorr my and the aftermath of beijing's b mamet 2009 base lending stimulus, the countryammo iths e understandable in the difficult side effects not least of which inflationfficulside-effects noth inflation. in these challenges are hard to deal with for two reasons. first, with official intervention leading to an artificially weak currency, the central bank has been denied useful monitoring tool to fight inflation. second, without sufficient oversight of non-bank lending it is more difficult for chinese policy makers to effectively joined liquidity. so the so-called shuttle landing is also problematic because it

is on transport and it creates risks and potentially bubbles. raising this i don't want to minimize the progress china has made. it's remarkable, for example, china's banks which were fought ten years ago have come so far they can serve as a vehicle through which beijing injected stimulus lending into the economy in 2009. that was a critical step for sustaining growth in china and became an growth in the entire world. for china as all state owned enterprises, the next step -- the next challenge is to run them as commercial enterprises. for the financial system more broadly, assuring that transparency and oversight will mean dealing with among other things problems of unapproved one bank lending. such lending poses an important risk to the chinese economy,

because it has the same macroeconomic landing as chinese big banks but without the same level of transparency and oversight. china is a wash in unregulated capital. everyone is lending. not just banks but asset management companies, local government investment vehicles and even state owned enterprises some economists argue formal lending was responsible for as much as 40% of new credit creation in 2010 and the first half of 2011. and much of that appears to be company to company lending. at least one estimate i seen puts this intracompany loans at 4 trillion outstanding at the end of 2010. that's more than $600 billion. nearly doubling from the end of 2008. these loans are esoteric like

the securities and help create credit risk in the united states and they are filling an important gap by cutting the capitol into the hands of those such as private firms that cannot easily get it from the chinese big state banks which lend disproportionately to the state-owned enterprises. recent reports of the faults demonstrate the risk at year end and the sum authorized loans. beyond the questions of oversight, the chinese investors also need a variety of well regulated products to invest so china and the financial innovation and liberalization, but it needs strong financial oversight and more transparency, too. the third principle, working complementary ways to strengthen the market confidence. by that i mean bolstering trust respective economic choices.

i've talked a lot about transparency today because it is the lifeblood of confidence and good markets. markets are built on trust. transparency foster's it. a lack of transparency and erodes it. look at the u.s. experience. in the crisis of 2007, 2008, the market's lost confidence in the mortgage securitizations and perhaps all securitizations because they were so complex. credit ratings lost their meaning to the credit rating agencies lost their credibility particularly with regard to the securitized products. and one institution after the matter said they were healthy right up until the warrant and the field. in the u.s. we are still working hard to restore that trust. but assuring trust is the challenge for china, too. here's an example. recently outright fraud in a number of chinese companies that

were that were listed in the united states has morphed into concerns about the transparency of chinese banks. meanwhile, everyone knows the chinese economy is growing rapidly. but there is less confidence in the chinese economic dat. so to restore trust, beijing needs to rectify problems with government and the corporate accounting and disclosure. then there's the second reading of bolstering market confidence. we need a stronger government commitment to addressing our respective economic challenges. for china it means deepening its commitment not just of growth but also to rebalancing and thus to sustainable growth. we've difficult decisions to make, too. we must forge a political consensus to haskell our fiscal deficit, and we need fundamental reform to restore our

competitiveness including but not limited to entitlements, taxes, immigration, housing, education and training, education and the tort system. taking action requires bipartisan cooperation and compromise. we are a rich country coming and if we act soon we can deal with our fiscal deficit and other economic challenges with shared sacrifice, but without any segment of our society having to sacrifice too much. the longer we wait, the more painful the medicine will be, and if we wait too long, the market will force it upon us. we need to free up and rebalanced street. that's the fourth principle. trade has benefited and continues to benefit both the united states and china. at this moment of the greatest economic challenge, we need more, not less than we need fewer barriers, not more

hurdles. this year marks the tenth anniversary of the chinese succession to the wto. much has been achieved but frankly, trade with china should be more important source of economic growth in the united states. the scope and scale of our bilateral trade falls below the potential. our first challenge is to rebalance our economics and thus our trade flow, it isn't rebalanced our economy and thus our trade flow. china saves too much, produces too much, cells too much to us and others and consumes too little on its own. the u.s. saves too little, consumes too much and would like to produce more and to sell more of what we produce to china. so why are we falling short? well, we need to understand first that there is good news about trade. u.s. exports to china have nearly quintupled since china entered the wto ten years ago to

almost 100 billion in 2010. our exports have grown more quickly than our imports from china, and china is our fastest growing export market. consider this, when u.s. exports as a whole dropped by almost 18% in 2009 during the financial crisis, our exports to china jumped by less than 1%. it's a demonstration of china's's potential to become a two-man driver for u.s. products over the long haul. yet our trade deficit for china has widened over the past ten years. so, we must press harder for market access for american goods and services. and in doing so, even as we applaud chinese remarkable growth, which is lifting millions of poverty and it is worth asking our chinese friends what they think chinese growth trajectory would have been at

its major trading partners employed the same practices china does. we need to press hard for changes to the chinese regulatory framework and we must aggressively enforce our existing trade agreements with china. american companies can't for example be expected to trade to transfer proprietary technologies when china assets on ferre domestic content rules. no one has worked harder than i to open chinese markets and fight for a level playing field for u.s. firms. but i am also a free trader. ultimately, i believe what we need is an affirmative agenda to enlarge the entire pie. so with the doha around going nowhere, it means beginning bilateral negotiations with china and the most important sectors including clean energy technology and seeking to include china with a broader group of like-minded countries

as well we should work within the wto from work. but much as we did with japan in the 1990's we should also aim to identify and resolve structural impediments to enter trade and contribute to the bilateral global top balances. another useful step would be to begin immediately granting china market economy status on a sector by sector basis. this would allow china to recognize the economy the past ten years, but it will also force china to discover requirements and opening its markets. china is still not a market economy in some ways. it retains legacies of central planning, industrial policy and state control. but there are parts of the chinese economy that function according to the market economy rules. china's chief of small and medium-sized enterprises for the simple including many exporters are largely excluded from the realm of the state loans and in

put subsidies. so to encourage china to move in the right direction, we should recognize progress with an expectation that all players and sector's current market economies that this act on commercial principles. here is the fifth and final principle. but all want technology in more areas of mutual benefit, and ultimately we want both sides to promote innovation so that china moves beyond assimilating technology developed by others and u.s. intellectual property is respected and protected. americans want to do this but in a way that protect the national security and intellectual property rights and assures our competitiveness and leads to more jobs and exports. there is currently an effort underway in the u.s. government to reform and streamline a

cumbersome export control bureaucracy. i applaud this initiative. but it seems to have lost steam. it should be completed as soon as possible. it is also good reason to experiment in areas that are decidedly in our national interest. like helping china meet certain environmental goals. why? well, china has an economy - energy intensity but low in energy efficiency. china's leaders have committed in the plan to change during the efficiency diversifying resources and reducing carbon intensity. if china doesn't meet these goals, in whole world including the united states will pay the price. so we should be willing to export innovative technology that can help china reed is its energy consumption and grow into

the future. but we can't do that meaningfully if china fails to respect and enforce intellectual property rights. beijing needs to meet its commitment in this area real and needs to change the system that is often looked the other way or complice it in intellectual property theft. we also need enhanced end user programs with china to ensure that our technology exports are being used as intended and not in ways that threaten our national security. and separately we need to listen to the best scientific of fice available as we seek to overcome pressing environmental challenges. so, i propose a pilot project with china which would convene a team of technical experts of both countries to focus on existing and emerging clean energy technologies. there are expert input can guide officials in both countries but will also be useful as a u.s. to expedite the licensing process.

over the long term we want china to become more of a technology innovator not just because it could lead to breakthroughs that won't be a public benefit, but also because it will change the incentives in china to protect the fruits of its labor. china that consumes rather than produce is intellectual property will never sure the underlying approach to the intellectual property protection that has developed in the end of enervate economy -- innovative economy. we are approaching a election while china faces its own succession and the growth are the number one issue in both countries. these five principles of the recommendations associated with them or intended to help our economy is sure growth and expand opportunity. they will require china to reform, perhaps at a faster pace than the leaders are comfortable

with, but and i believe reforming poses a greater risk to china's economic stability that many in china believed to be for our part, they require the restoration of our own economy and addressing our fiscal deficit and growth outlook and that can only be achieved in the fundamental reform based on a bipartisan cooperation. the era of the over conception of the united states is gone forever and with hindsight, we can see that like all, it wasn't sustainable. as american families' repair their balance sheets, consumer spending won't need growth as it has in the past. but i have an abiding faith in the resilience of the u.s. economy we have by far the world's richest and largest economies, and although we face significant problems, the challenges we face start with those confronting china and virtually every other nation. and our problems are of our own making.

our continued leadership will be a function of our ability to make required policy adjustments it is our choices that matter most as we seek to remain globally competitive and economically strong. thank you. [applause] if i had known we were in that much of the trade i would have raised an honorary degree. [laughter] anyway, secretary paulson has kindly agreed to take some questions with an overflow audience. what we ask you to do, and especially if anybody still has a cell phone on, turn those of, please, when you are called on ask a question, one question. if you give two of them he will choose his own.

give your name and an affiliation either as a student or if you are working elsewhere. so please, let's see a show of hands and we will start the questions. maybe the students back there to read and speak into the microphone so they can hear you. >> i'm from the chinese media net. my question is regarding the chinese currency bill. in 2005 it suggested that the chinese currency appreciates by 27.5% by since then appreciated by 5% but the u.s. is still yet to be recovered from the financial crisis and the employment rate is still not satisfactory. do you think that the chinese currency bill is well adjusted,

and do you think that the idea of a chinese currency will is in part to avoid the responsibilities of the u.s. financial system and to let china take the what? thank you. >> but several questions but i will try to answer them all. first of all, i believe as you can see from my speech very strongly that it's in china's's best interest to reform and move to a market determined to currency that reflects economic conditions and that will help china make the transition the need to make to an economy with more consumption or the benefits are spread more broadly and help them fight inflation, so it is in china's best interest. and i think that is the right tactic to take because getting to the currency bill, but i

don't believe that the right approach is an effective approach for one sovereign nation to essentially try to dictate to another and then say if you don't do this i'm going to threaten to the punishment. i don't think that would be very effective someone dealing with of the united states. i don't think we would react very well to someone telling us how they would punish us if we don't change. i think the approach that i try to get to in my speech is an approach the will be helpful to all americans i don't think and approach the lead to the trade war would be way to go. i think we need in the affirmative agenda you to

enlarge the pie. but don't get me wrong. i very much believe that china should be moving to a market currency, and china is an anomaly. it is a positive anomaly but never in the history of the world have we had an economic power in the developing country or have a country that is so integrated into the global economic system in terms of the trade in goods and services but not in terms of financial markets and currency. so i think it is a model for interest for china to speed up and reform but i don't think that the currency legislation is in my judgment the right way to go about it.

>> [inaudible] >> i'm sorry. it was here. >> thank you so much from psychiatry paulson and congratulations. i'm steve clemency of the atlantic. china plans to rise about 400 more -- 400 million more people than 20 years and the will be the largest economic event in mankind's history, and it raises the question in the partnership you talk about, how can the west, how can america and the west continue to define in any way kind of global economic gravity? because china is essentially making the global weather in that and it fundamentally raises the question that little partnership sounds great, the leverage points that we have in the west seem to be diminishing and i would love to hear how he would balance that out. >> first of all i would think -- and this is a real bit different. i'm going to get to your question in a minute. but i think again, we are by far

the world's largest and richest economy. no doubt about that. and i do believe that our ability to maintain our status globally and strength as a nation is rooted in our economic strength. i think it is with every nation. so i think over time we certainly are going to need to take steps to restore our competitiveness. i certainly have always been an advocate for being strong militarily, economically, diplomatically, etc.. now let's get to what's going on in china. this is going to be a huge challenge for china, and for the rest of the world because, you know, in some ways we've given

china if lot model. there are not enough resources in the world for 1.3 billion chinese to live the way we live in the united states, and so they are working hard to deal with the challenge that you for lead out. how do they come up with new growth models? how do they come up with new energy models? how do they make this work? my experience in china has been it just doesn't need to be combative. the great thing about the leaders and the people, they are looking everywhere they can find for the best models the best way to tackle their problems, and i think if we don't engage, shame on us because there's no way just talking about something like the climate, no matter what

we do in this country unless we develop new alternative sources of clean technology that can be deployed in scale and in the developing world on a cost-effective manner we are not going to get their. >> let's take one from this side. yes, please. >> find a second of year student concentrating in china. i'm kind of curious. you have outlined the promise of markets for china but there is another challenge or chicken in the a type of problem and opening up the capitol account and stabilizing the financial system. since the asian financial crisis a member of the countries of kind of learned the lesson of self injuring that's part of the

reason why we've had these huge immolations of the foreign reserves. and china today has been using them through the central beijing to capitalize their banking system. so how does join us and those abroad to the united states while it is trying to use them to create the stability in its own financial system and how, going forward, is it going to be able to be confident in opening up its capital account given the recent financial system the past experience of other countries and the volatility that still exists in the global financial system? >> that's what -- that's the 64 those in dollar question needless to say. when i was your age -- [laughter] i said it was funny but not that funny. [laughter] i guess in an economic speech anything is funny, right? [laughter]

that's what i try to address in my speech because i think that particularly after the financial crisis to step back there is no doubt the principles that we are espousing here are harder to sell after the financial crisis. as my counterpart and the scd used to say to me i used to listen carefully to you but you were my teacher. maybe now my teacher doesn't seem so why is. [laughter] after the problems you had. so, what i always try to explain is you should be careful what lessons you take away made a lot of mistakes and we can learn from those mistakes. but what i try to say in my speech is i don't believe that any country in that as big and integrated into a global system as china is can define the economic laws of gravity and

that wall themselves of and be as integrated in terms of trade and not be integrated in terms of markets and currency and capital accounts. so as you have rightly said, that's why i pushed a very hard for opening up financial markets to greater competition when i was a treasury secretary. and i didn't do it because i came from wall street and i wanted to do a favor to wall street. i did it because to understand where china needed to get the needed to have more better developed, more efficient, more mature capital markets before they could -- before they could take the next step. and i still think they need to do that. and my own judgment is now more than ever their economy is so large and complex and the global

economy has got so many challenges i think that they are just -- there is more rest to china in going to slow that there would be in going to fast. and to understand the chinese, you just need to understand lens they are going to look through of stability coming and they are going to take the choice that they think is in the greatest and so for what they've done, they look at it, you know, it worked during the asian crisis. they were largely will off. they've been largely walled off to some extent during this crisis. but again, as i said, how long can a 6 trillion-dollar economy stayed walled off from the u.s. and europe and i think they are going to need to speed up the process. but that is -- a case that needs to be made and i try to begin making it in my speech.

.. the federal reserve issued a 16 trillion in the credit. how did it do this without prevail in its balance sheet? >> well, i'm not here to answer questions for the fed. ben bernanke does a good job but what i will say i think what the american people should be asking is how can we thank the fed for being as successful as they were at preventing the collapse ofre thesenting financial system and everything that i've read leads me to believe that those dollars are coming back. these so this was -- these were investments that were made to

protect the american people. it wasn't made for wall street o or the banks but it was to prevent a catastrophe. and so i think it has been managed the impact that it's prevented. >> great. okay. we're going to start, i don't know if there's anyone back there, but here we go. [inaudible conversations] >> hank, congratulations on your institute, very important. hank, neocash carry flings the representative from treasury when you were secretary. wall street due diligence released that the new york stock exchange documented with national suggestive validated and green buildings are less risky and preferred by investors and they'll create a trillion dollar private sector business and new wages, new job, and a 20

year business model for the investment banks. most importantly and finally, it documented that these securities will stop dangerous climate change from going irreversible and the results ongoing sis stemmatic market risks already apparent in the insurance government, fisheries, and forest sector. the u.s. starts green buildings in china. my question is is the investment bank ceos working diligently to launch these securities all got fired because of the credit crisis, and do you have thoughts on how to get their attention again at the banks? >> i'm not spending a lot of time on banks these days, and i think what you need to ask is not so much -- i think you can assume that banks will be

involved when there's a real demand and the proper incentives, and so when we start looking at green buildings or all series of other environmentally fiesht products, i think what you need to do is let's just start with government policies. i think you need proper government policy, and i think that companies need to hear from their investors, from their customers, from their employers, and i think that's why most major companies do these sorts of things they do when they do positive things that have a beneficial impact on the environment, and they think it's good business, and i think that -- and i think markets develop when there's a demand

and there's investors and clients who want them. i don't think there's banks creating a market if there's not a basis for it. >> thank you for coming back. i'm sure you remember me. [laughter] i was wondering in the next 12 months with the leadup to the election giving the ease of scoring partisan points by bashing china in taking away american jobs whether you anticipate anything agreesessive happening before that time and following the election, if you think there's a greater chance of greater integration under a second obama administration or a republican president. thanks. >> i'll say this -- elections are about choices, and the voters, you know, i don't care whether it's either party, voters respond to or elected officials respond to the voters that put them there, so my own

judgment is, although i don't want to sound without hope, and i'm still hoping that the super committee is going to positively surprise us all with some of the things they're going to do before the election, and even if it's only $1.5 trillion, and, again, that's not a heavy lift over ten years on a $40 trillion budget or deficit, at least it's a start. but my own view is that we're going to have a better chance after the election because what voters are going to have to do, they're going to have to send a message, and the message in my judgment, the right message is not let's go change government or let's just cut spending, cutting spending is quite important. it's necessary, but not sufficient. voters are going to have to want

fundamental reform, and that takes bipartisan cooperation and compromise as i said, and that's the hope -- that's what we need to make us competitive, and when you look at this -- you know, my speech was -- i mentioned in number of areas where we really need this and to make real progress in the trade area, i think it's easier to get some things done after the election, and let's not forget, china's got their own, you know, change in government, which is also a process where there's a fair amount of scrutiny, and brings attention to public sentiments so i think it's easier to do these things afterwards, but that's a long time to rate, but discouraging. we have to hope for any progress we can get. >> last question.

>> jimman, author here, i want to ask you about the subtle problem of low expectations that we have an that china encourages us to have sometimes. on trade, it's true as you say that exports have risen in percentage terms more than china's exports to the united states, but that's against a frame work where they are multiples higher than our exports to china, so the percentages are cast in a different right there. on currency values, we're in a situation where, as you say, the current currency is quite a bit in our estimation, quite a bit under valued, so that over the past four or five years, they have made some small responses, and they get treated as, you know, as more than really they

are, and not what they need to be, so do we look at china with two low expectations of what they can and should do? >> well, i sure -- maybe i failed with my speech here because i sure hoped to set the bar high and set some high expectations, and that is what we really need to do. we need to -- and i'm not -- anyone that knows me, i'm -- i fight pretty hard, and for opportunity, but i think there's a right way to go about it, and none of our expectations will be met if the chinese economy doesn't continue to grow, and i

think the first place to start off with high expectations -- when you said "low expectations" i thought you were talking about the u.s. government for a minute -- [laughter] because we need to set the bar and really are going to need strong leaders on economic issues and bipartisan major effort here in washington because no matter what china does or doesn't do, we got our work set out for us, and we have to do that, and then in terms of china, i think that is -- we need to have high expectations, and we need to be clear about what we want, and i think a lot of this is so easy to sink into the -- when you look at u.s.-china into all the myriad issues you have on a day-to-day basis rather than stepping back and having a frame work, and

when i tried to say there's a frame work to prioritize and say what are the really important things to push for and then working to get progress, but i think we take our eye off the ball and get all tied up in things that will not make as big of a difference, and so the -- so that's really what i tried to get to, but i sort of understand your comment and your frustration. >> so as we conclude, let me say that hank pallson made his impact in new york and made his impact in washington, but he left his heart in chicago. [laughter] our complements to the university of chicago which now has the pallson institute and hope this will be home away from home. thank you very much. >> thank you. [applause] [inaudible conversations] >> thank you. [inaudible conversations]

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thank you, mr. sherman for being here madame secretary. the gao has reported a 44% of the border somewhat secure, 56% is not secure. do you agree with that statistic? >> i don't think that is exactly what they've said and i testified to this several times. they were using the phrase operational control, which is a term within the border patrol that's somewhat misleading because it doesn't capture not

just the border patrol but the technology infrastructure of that goes along with it. >> would you say is secure? it is not accuracy? >> it is not accuracy. >> who controls the other 56% if we don't have operational control? >> we have the responsibility for the entire border as you know. it includes manpower and technology and infrastructure we have put down at the border. it's a very different border than it was even three or four years ago. >> i agree, it's worse. now a hearing on the obama administration's decision to suspend the community living assistance program. for rhode island, patrick kennedy testified about the

challenges of long-term health care. this joint house subcommittee hearing is in our. [inaudible conversations] the subcommittee will come to order. the chair recognizes himself for five minutes for an opening statement. on october 14th, 2011 after 19 months of review and $15 million, hhs announced what most people including many members of congress, independent analysts and cms's own actuary have known about the class program since before the healthcare bill became law. it is completely unsustainable. after determining that the class program cannot meet the last 75 years sovereignty requirement hhs has decided not to implement

this provision of the law. this shouldn't be a surprise months before it became law, the warning was being sounded. on july 9th, 2000 - cms actuary richard foster wrote, quote, 36 years of actuarial experience lead me to believe that this program would collapse in short order and require significant federal subsidies to continue. also that month, the american academy of actuaries wrote to the senate help committee, quote, the proposed structure and premium requirements within the class act plan are not sustainable. ..

cbo estimated including the class act would reduce the ten year cost of the legislation by $70 billion. by february 16 of this year, even secretary sebelius admitted the class act is "totally insustainable." it was doomed from the start. we have a very serious long term care problem in this country. costs are driving people into description and weighing down an already overburdened medicaid program. the class act should not only be shelfed; it should be repealed. i'd like to, at this time, yield to the gentleman from nebraska,

mr. terry, the remainder of my time. >> thank you, mr. chairman, and the failure of the class act is of no surprise. most of the people in the room knew the class program was flawed from inception. there's no way the incoming premiums could cover the benefits to be paid out. the unhealthy and disabled would have rushed into the program in sitgreat numbers they would have immediately increased premiums immediately for everyone enrolled. they raised a red flag on class because they saw these flaws and understood the high likelihood that taxpayers later fansing a class -- financing a class bailout. so, the ultimate question is was that a purposeful ruse by hhs and the administration to make the accountable affordable care act look better, therefore, passing or is this just plain old add min straitive income tent? hopefully, we'll have a clearer

view on which one of those it is. i yield back to you, mr. chairman. >> chair thanks the gentleman and recognizes the ranking member on the subcommittee for five minutes 23-r an opening statement. >> thank you, mr. chairman. on march 23rd, 2010, our government knead a promise to the -- made a promise to the american people to improve health care in this country by enacting the affordable care act, landmark legislation that expanded coverage in the country. this promise included the class act giving hhs the authority to develop a voluntary long term care inurns option for working families. the goal is to provide americans with an affordable method of obtaining long term care benefits. unfortunately, secretary announced hhs will not move forward with implementing class, but if we do not move forward with the implementation of the class act, we will be turning

our backs on the millions of americans that are in need of a solution for finding long term care support. an estimated 15 million people are expected to need 1078 form of long term care support by 2020. today, more than 200 million lack long term care insurance and currently medicaid pays 50% of the costs of long term services, and that price tag is quickly rising every year. persons that develop functional impairment are force thed to quit their jobs and fail to qualify for the support they need. this is designed to take personal for their care and obtain support they need to potentially remain in their communities and remain active in their jobs. instead of allowing this population an opportunity to remain self-sufficient, we're sentence k them to unnecessary policy to receive care they need. if we, as a country, do not

invest in fixing long term care, people with functional impairments will return to costly settings for potentially preventable conditions. we cannot sit back and do nothing. hhs completed their work in implementing class. mr. abortion lee's dismiss sal last month, a signal they were abandoning the program, gave the department a path toward to implement class. the statement is, "the class benefit plan can be designed to be a value, proposition to the american workers as prescribed." mr. lee developed options with adverse selection. one of the options is what he calls phased enrollment in which large employers offer the plan first before individuals can sign up. another option is temporary exclusion. no benefits for 15 # years of the need for help arises for a serious medical condition that

already existed with someone enrolled. he is an optimist. he explains how hhs should move forward, so why does the department take such a negative approach and close the door of implementation when the work has not been completed 1234 the act requires that the class act implementation proposes be reviewed by the class counsel which hhs has yet to establish. this counsel should be convened immediately in order to better inform the efforts of the department and represent the interest of stake holders that have been up vested in class for overa decade. the department is not supposed to abandon class without convening the advisory county. the counsel may reveal other worken options for care the department has not considered. the class act is the first step towards immoving the long term problem and has a structure to be implemented. this was an important part of health care reform.

i refuse to give up on class just like i refuse to give up on health care reform. my colleagues want to give up on it all and repeal everything, the whole affordable care act, but i have to say, mr. chairman, i'm tired of the republican rhetoric that says congress and the government in general can't do anything. the last two speakers on the other side, and i wrote it done used terms like "gloom" "failure" "can't do," and "no way." you know, why can't we do things? part of what makes us america is we're can-do people. we can have affordable insurance and long term care insurance. i don't think the department should play into the same negative theme that i keep hearing every day from my opponents and that's disappointing to me is to see the hhs play the same negative thing. we can't do this. we can't do that. you know, i look on the floor today, mr. chairman, what are we doing this week in congress?

we're not doing anything? that's the attitude that's pervasive that we can't do anything. we can do things like have affordable health care, plan for long term care, and i just wish that we understand that the american part-time expect us to do -- people expect us to do something and not just say we're fail failures. let's do the class act. go back to the dprawing board. be optimistic and come up with a plan. thank you, mr. chairman. >> the chair thanks the gentleman and recognizes the chairman of the subcommittee on oversight and investigation for five minutes. >> thank you, mr. chairman, and i welcome this opportunity to have the joint hearing between your subcommittee and mine, and i address the gentleman from new jersey who refuses the give up, and, of course, this is something that all of his democrat colleagues many, both in the house and senate all indicate they have grave concerns about this new entitlement program, too much

stepping, and i suspect that he wishes to continue the program in light of the fact that it is going to be a budget-buster, and we are doing something here in congress. we're trying to balance the budget. we convene the hearing of the committee to address the energy and commerce committee's long standing inquiry into the circumstances under which the class act was passed. a program recently pronounced dead. the community living assisted service and support act or the class agent as we call it is a long term care program included in the president's health care law. it was moment to be self-funding. individuals paying premiums into the program would cover the cost of individuals receiving benefits. however, my colleagues, even before the passage of obamacare, republicans recognizeed the

class act had a critical design flaw. class would never be self-sustaining and would eventually go bankrupt. some senate democrats joined us saying they, quote, "had grave concerns that the real effect of the class act would be to create a new federal entitlement program with large, long term spending increases that far exceed the revenues." perhaps the most damning indictment was from senate budget chairman who characterized class act as a "ponzi scheme of the first order." and "the kind of thing that madoff would have been proud of." as with other provisions of obamacare, democrats didn't bother to fix the class act. they had every opportunity, and they didn't work with republicans to find commonground too busy using tricks to cram through a law before even the public could realize what was in

it. they didn't quietly sneak the act in. they had the audacity to claim that it would provide $70 billion in deficit savings. democrats braisingly stated that they knew better, and the act would have saved the american people money. they were ignoring the truth about the class act. democrats overstated the physical conditions of the program intentionally. the $70 billion was crucial, crucial to passing the health care law, and this administration promised the american people that the bill would result in $140 billion in savings, half of the savings from the class act, and the other half were from tax increases and cuts to medicare. after 19 months of trying, secretary sebelius announced she

does not, quote, "see a path viable to go forward to pass class." why did it take the administration so long to figure out what everybody else, even the cms chief actuary has known for many, many years? hhs and the administration seem to have gone to extraordinary length. to ignore the truth so they could continue to sell the false savings on this program to the american people. even staff at hhs knew long ago that the class act was a financial disaster. it would cost money and simply not save it. this committee conducted a comprehensive investigation with senator thune, congressman ryanberg and others from the house and senate and discovered 150 pages of e-mails and documents from hhs questioning the stainability of the class

act as early as may 2009. staff and officials within hhs called the program a recipe for disaster that would collapse in short order. this is going back to 2009. these are from 150 pages of detailed documents and e-mails. while voices of reason questioned the program privately, secretary and other administration officials publicly proclaim their support. we've seen it before first with the waiver, and now with the class act, the obama administration overpromises, underdelivers, and waits until implementation to admit policy failures. under cbo rules, the class failure will cost the american payers $86 billion, the most recent cbo projection of savings from the class act. if class was in effect, it would have increased the deficit by the third decade. how much will the rest of obamacare cost us? what's the hidden long term costs? when will the administration tell us the truth about that?

>> the chair thanks the gentleman and recognize the ranking member of the subcommittee in oversight and investigation, mrs. degette for five minutes. >> thank you, mr. chairman. i want to thank the colleagues, present and past here today, patrick kennedy, it's good to see you here today. i know we all feel that way. i hope this helps us to develop a blain -- plan to provide and pay for long term care. many individuals and families face this challenge today and tens of millions more face it in the future. the class agent was an effort to address these burdens. the program was added to the health care bill in this committee on a bipartisan voice vote designed as a voluntary insurance program to provide beneficiaries with the cash benefit to help pay for institutional care or assistance to live independently in the community. now, as we've all been discussing, the administration

announced last week that it would not move forward with the implementation of the class program because it was currently unable to do so in an actuarially sustainable fashion. i'm interested in hearing from the administration's representatives about how they came to this conclusion and what potential they have in moving forward. now, from this side of the aisle, the reaction is one of disappointment. we understood the scope of the nation's long term care problems and the impact that the problems had on seniors and the disabled and their families, and we were hopeful when we passed the affordable care act that the class program was the solution. now, as you heard from today's opening statements, some on the other side of the aisle seem positively gleeful that this class program has been set aside, and that view, in my -- that view, in my opinion, is really short sided because we've got to keep looking for solutions to the long term care

problem, and we've got to do it in a bipartisan way. we cannot and should not give up. 10 million americans need long term care now, and this number is expected to grow by 50% over the next decade. long term care, as we also know, is expensive. it witches out senior savings and forces many to go on medicaid costing stating and taxpayers billions of dollars. the present situation is both fiscally and morally wrong. mr. chairman, many opponents of the health care law are using the announcement as an opportunity to attack the entire law. in the context of those claims, i want to set the record straight on two important subjects. first, with or without class, the health care reform bill continues to be a financially responsible law that will reduce the nation's debt. when we passed that bill, cbo told us it would save $200

billion over the next decade. class was responsible for about $70 billion of that savings. that means even without class, the numbers still add up. the health care law will save taxpayers over $120 billion over the next decade, and more in the decade after that. second, i want to address the myth that the administration announcement somehow hobbles the health care law. it does not. the class program was an important part of the law that provided a new and important long term benefit, but even though the administration has decided not to move guard with this program, the rest of the bill's benefits continue to pile up. millions of seniors are enjoying discounts on prescription drugs in the part d donut hole, young adults retain their health insurance through their parents' plans, taxpayers are saving money because of the bill's initiatives to cut medicare and medicaid fraud, waste, and abuse. millions of americans are

protected from the worst abuses of the insurance industry. small businesses are receiving valuable tax credits to provide health care coverage, and by the time the health care bill is fully implemented, over 30 million otherwise unensured americans will have access to good affordable health care law or health care coverage. now, i'm disappointed about the outcome of class, but even without this part, the health care law will continue to provide critical benefits for millions of americans. my hope was this would help solve our problems in providing and paying for long term care and still have hope it's part of the solution. it really has to be. i want to hear from the administration today exactly where we are, but more importantly, i want both of these subcommittees and the full committee to explore together how we move forward. can the administration ultimately find a way to make class a workable solution? are there legislative solutions that can help make class a

workable and sustainable program? the committee and the congress have a responsibility to help the elderly and disabled 234 our societies who need long term care. i hope 24 hearing will -- i hope this hearing will help us meet this responsibility. >> the chair thanks the gentle lady and now recognizes the gentleman from georgia for five minutes. >> thank you, and i'll admit to be gleeful this morning. it's hard not to be when we just rescued $80 billion from a democratic sink hole and now returned that money to the american taxpayer. yes, indeed, i'm gleeful, but to quote the president of the national coalition on health care and "politico" yesterday, i quote, "the best strategy is to keep class act on the books until health reform takes hold and hopes the program is tweaked into shape." that, frankly, sounds like a recipe for disaster. plmp, when a pharmaceutical drug does not work like intended, it's not kept on the market to

be tweaked one day. it's recalled, plain and simple. this is not unlike a defective drug, and it's a repeal towards successful long term care reform, and i agree with that. class does not work. the administration can want -- cannot fix it without massive bailouts, and as long as it survives on the books, it's a threat to the current entitlement program, and especially to medicare. additionally a congressional report released last month on class presents evidence that former staffers and administration officials ignored foster's repeated warnings on the solvency of the program and ignored studies by the american academy of actuaries and the association of actuaries supporting foster's concerns. it was, "decide she does not think she needs additional work

on the actuary side." and then allegedly told staffer she had a score from cbo on class that was actuarially sound, and, yes, it kept going. one month later, frank, deputy assistant secretary at hhs stated publicly that, "we in the department, modeled class extensive lier, and we're persuaded that financial solvency over the 75 year period can be maintained, yet to my knowledge, no model from cbo orb ored administration suggesting class is sol vent was introduced publicly even by repeated requestses. that is unacceptable. if the warnings were ignored, this committee in the american public need to know where they were ignored. we simply cannot afford to let this administration hide behind any back room deals and secret handshakes any longer. mr. chairman, i believe that this committee must continue to

seek the friewt from the am -- from the obama administration on the modeling used to sell us on the class act in obama care and, indeed, on the entire bill that was sol to the american people, and further, i once again call on this congress, pass hr1173, a bill that my good friend and fellow physician introduced to repeal the class act, and mr. chairman, with that, i yield the banse of my time to my colleague from tennessee. >> thank you, mr. chairman. i thank the gentleman from georgia. we appreciate having the hearing today, and in reviewing what is taking place with the class act. i think that it is apparent that despite the best efforts of the federal government, it is very clear to all of us that there's no way this federal government more effectively or efficiently runs a health care program than the private sector. as we went through the entire debate, and former colleagues, i

remind you, there's no example in the united states of where the federal government has run this effectively and saved money. when you look at care, you see costs overrun. there's no example where the near term expenses yield you a long term savings. it has not happened, not in tennessee, not in massachusetts, not in new jersey with guaranteed issue. it does bring up other problems that exist with the class act, and, indeed, the budget gimmick there throughout the entire obamacare bill, what else is in the bill that's gimmicks that is yielded as savings? this is something we need to look at as a committee, get to the bottom of. i think, also, the other thing that it highlights 1 the red flags that many of our colleagues have mentioned. indeed, this being called a recipe for disaster, which now it is quite apparent that it is. then i think that another concern that we will want to

address is the lack of transparency that existed in hhs as they moved forward with discrepancies in public and private statements. we want to get to the bottom of that. they spent 19 months implementing an unworkable program, and i appreciate we're having a hearing to get to the bottom of it. i yield back. >> the chair recognizes mr. waxman for five minutes. >> the republicans are gleeful, and happy to admit that. if they are gleeful, it's because they want to repeal the affordable care act and this particular provision which attempts to deal with the issues of long term care. a lot of people around the country do not realize if they have health insurance, even medicare, it doesn't pay for their assistance when they need long term care, and if they

repeal the class act, they will have the following status quo continued. right now over 10 million americans are in need of some form long term care, and this number of's expected to increase to 15 million by 2020. seven in ten people in the country will need help with basic daily living activities at some point in their lives because of a functional disability. the cost of long term care is astronomical. the average nursing home bill currently stands at excess of $70,000 a year. monthly charges for home health services averages out at $1800. private health insurance, which my republican colleague says is the way to solve the problem, well, most insurance policies are too expensive or difficult to purchase. as a result, less than 10% of the pop pielation --

population holds these policies. by far and away, the largest spend r for long term care comes from the medicaid program. 234 miscall year -- in fiscal year 2010 alone, the price tag for these services was some $120 billion. that's a publicly financed program. the republicans would allow this program that's financed to be the only hope for seniors that cannot afford a policy to cover them for the long term care needs. they started off this year by saying we want to repeal the affordable care act, and then we'll replace it. we've never heard what their replacement is. they have no idea how to deal with this problem, only to tear down the attempts to make the

problem more managen for millions of americans who face the dilemma of how to pay for their long term care or the long term care costs of their family. well, it was for this problem that congressmen worked to establish an effort to meet the long term needs of the elderly and disabled citizens and their families as well as to provide fiscal relief to the medicaid program. the assisted living services and supports initiative, the class program, was made part of the affordable care act. this remitted the first real attempt at the national level to tackle the long term care puzzle and eluded us for decades because the complexity and expensive price tag. we should not lose sight of this

even as the program struggles to get off the ground. no doubt it's crafted perfectly. no piece of legislation is, especially not one so novel and unique of class. everybody acknowledges that, but regrettably, republicans called this hearing today to dwell on the problems that stifled implementation of class, not how to fix the problems to deliver the promising future that could lie ahead for the class program. ten days ago, secretary announced sthees putting class on -- she's putting class on hold because of unintended flaws in the statutory authority. she feels she could not, at this time, fully implement the law. i find that disappointing, but until she finds a path forward, the action taken is the responsible thing to do, fiscally and otherwise. the calling for a timeout is not the equivalent of throwing in the towel as republicans would have the public believe.

contrary to the republican title of this hearing, class has not been canceled. rather, it's in recess. the republicans complain ignoring the truth. well, they're ignoring the truth of the plight of millions of people to finance their long term care. they talk about the financial disaster. what about the financial disaster for those families facing this issue. recipe for disaster, doing nothing and repealing the class agent is a recipe for disaster. they talk about over promising and underdelivering. they promised to repeal and replace, and they've never told us what they would do. all they've done is pass a law that would make the medicare program a -- not a guarantee, but something that may be straibl in the future -- available in the future, but for most people, it may not. i want to put it in perspective,

and look forward to the hearing today. >> the chair thanks the gentleman age recognizes the vice chairman of the health subcommittee for five minutes. >> i thank the chairman for yielding. welcome to the panelists this morning, a great bipartisan group of members and former member, and i also welcome the second panel from the agencies, and we look forward to hearing your testimony this morning. i'm believer in long term health insurance, and this hear is more about the budgetary gimmicks used to force through the affordable care act, which really, 23 i can't remove the affordable care act, i'd like to remove the word "affordable" from the title, but nevertheless, this is a hearing about the classic question of who done it, what did you know and when did you know it? i'm a believer in long term care policy. i purchased one long before i came to congress after i turned 50, and i encourage others to do the same. one says it's too expensive.

my premium is less than $100 a month. i don't know what the premiums would have been in the class act, but they would not have been benefits as substantial as the ones that i've purchased in the private sector, and i'm not always dependent upon the federal government to end up doing the right thing. we heard it talked about a 15 year exclusion. well, i didn't have a 15 year exclues on the policy i bought. now, congress could do something to make it easier. let me pay for that with pretax dollars, full deductibility of long term health insurance. why don't we do that? let me pay for it out of my health savings act? these are simple things within our reach and grasp that i frankly do not understand why we won't tackle and mr. palloen talked about the words use. i was encouraged to hear the word "premium support," and yeah, that's a good idea. he referred to us as opponents. i remember that night in july of 2009 when the class act first

appeared in the hearing room. the class act appeared at the last minute as a place holder of language that mr. pallone brought to the mark up, never had a hearing on it, never called a witness on it. we were just presented with this information, and, oh, well, we'll fill in the details later. well, now it's later. we're filling in those details, and some of the details don't look too encouraging. it looks like the class act was a budgetary deception to mask the actual cost of the affordable care act, and people are rightly asking now, would we have passed the affordable care act had the true extent of the budgetary impact been known? again, what did they known, and when did they know did? in the spring of 2009, mai 19th to be precise, the chief actuary for medicaid services talked about the financial structure of the program would be "a terminal problem for the program." he knew that in may of 2009. why not discuss that in july

when doing the mark up on hr3200? that would have been a service to the committee and a service to the people if we couch had those hearings, but we didn't, so here we are. it's a fact of life. we all age, and at some time we have to rely only some form of long term care insurance. again, i can think of no more loving gift than parents to leave for their children than take care of their needs if that were to arise and relieve the children of that burden. we never got a chance to fully debate this. mr. waxman, i would say class dismissed, and then we need to work on canceling. i yield the balance of my time to mr. murphy of pennsylvania. >> thank you. you know, i've been concerned about the way this program doubles premiums as long term health insurance and the so-called savings of health care law. as far as back in march, i said if any insurance company began collecting premiums and spend

before paying a single penny in benefits, they would be prosecuted as a ponzi scheme. what's of concern here is the lack of forthrightness on behalf of hhs and the administration concerning the insolvency of the program. throughout the debate of the health care bill, i and republicans and even democrats questioned the long term solvency of the program, but the administration insisted solvency was not in question and the program would significantly reduce the deficit. in fact, the original cbo score of the class act projected savings of $70 billioning thing for half of the toe -- total deduction. secretary says now it's totally insustainable and the promised savings evaporated. the greatest concern as we uncovered evidence the committee knew it was not sustainable in spring 2009 prior to passing of the health care law. we are left with serious questions about what the administration knew and when they knew it. certainly it appears the administration knowingly

promoted it as a cost saver when they knew the savings would never be achieved. i yield back. >> the chair thanks the gentleman, and now recognizes the gentleman from texas for five minutes. >> thank you, mr. chairman, and thank my colleagues. i welcome the colleagues here, three of them we see all the time, still, but i want to particularly welcome patrick kennedy, and we worked together on lots of issues over the year, and i want to thank you for your service to the american people, and particularly to your district in riled, but also thank you for your service to your father. without your father's work in the senate, i don't have enough fingers and toes to list the issues that would not be in the law today including the class act, and just the regimely thank you for the service of your family, and all of us thank you for that, and particularly

knowing you and your service in the house. i think it's correct the class act was added by voice vote working on the affordable care act, but i don't want to use the class agent as a reason to oppose the affordable care act. there are thousands of people in our country who do not have the same opportunities that federal employees have or state employees or bar association or american medical association members to purchase a long term care plan, and that's what the class act was supposed to be about, to give a lot of people to do what dr. burr guess talked about, to give a gift to our children so we have that opportunity. it's difficult to fund it, and i know we've heard the quote about "ponzi scheme," and i thought that was only with the social security, but, you know, insurance could be considered a ponzi scheme because you hope you pay the premiumings for all these years and you'll be able to collect it, but that's not

what this is about. it was to give people an opportunity who may not have the same opportunities we do as federal employees or state employees in the state of texas i know have that opportunity, and a lot of businesses have that, but most people don't through their employer, and that's what the class act was about. is it perfect? nothing in the act is perfect. i continue to disagree by calling it obamacare because this committee drafted that bill. the president did not send us up a bill. now, i know it's popular to call it obamacare because it's a good message, but we drafted that bill in this committee after a lot of mark up, late night mark ups. it was not dissimilar to 2003 with the prescription drug plan that the majority now pushed that a lot of us didn't support because of problems in the bill, but you have not seen us repealing that prescription drug plan. we want to perfect it, and i know we need to perfect the affordable care act, and so and

that's what we need to look at. if we can perfect the affordable care act and make it better, let's sit down across the aisle, but for ten months in this congress, all we've seen is repeal. i guessed that happened after social security was passed in 1935. a lot of people said we needed to repeal social security. thank goodsness they didn't do that. i yield my time to my colleague. >> thank you, congressman, green. i welcome my colleagues, and good to see you, patrick. a lot of claims have been made about the class savings taxpayer dollars, but it's my understanding the cbo director reported that repealing class would have no impact on the federal budget so the claim otherwise is just not true, but it has a profound effect as howard wrote, and i agree. "while class act is deeply flawed, as tennessee townt to

transform long term care to an insurance based system." if repealed that opportunity is lost, and millions of americans find themselves with only a shrinking medicaid benefit to support them in their frail old age or if they are disabled adds a younger age. our seniors and disabled need us to mend it, and not end it. i yield my time. >> thank you, so much. we don't have a long term care policy in the united states of america. the only thing we have is finally medicaid when people run out of all of their money, and so the 10 million americans who are in need of long term care and services and support really need a program like this, and it is disturbing to me that when my colleague says "class dismissed". no, if there are problems with this legislation, we're willing

to sit down and figure out how to perhaps do it better, but the very idea that we're going to take away better choices for americans, you know, already, one out of six people who reach the age of 65 will spend more than $100,000 on long term care. in this country, that's a disgrace. you need a long term care policy, and class act is a good start. i yield back. >> the chair thanks the gentle lady. 245 concludes the opening statement. the chair has a unanimous concept request to enter into the record a statement by senator john thune. the ranking members looked at this without objection, so ordered. our first order of business today will be our members panel. i'd like to welcome our members and former member and all the witnesses today, but our first panel includes congressman ray burke from montana. he's the chairman of the

subcommittee on labor, health, and hunt services of related agencies at the house appropriations committee. next is congressman from louisiana. he's a doctor, so he'll have plenty of company here at the energy and commerce committee. also with us is congressman tad deutsche from the great state of florida, and then congressman from rhode island and then patrick kennedy. welcome. we are happy to have you here today, and we'll start with congressman ray burke. >> thank you for the invitation to testify here today. i want to thank the members of the class act working group, especially chairman stearns, chairman pitts, and i see mr. upton is not here, probably has something else on his mind at this time. senator thune's leadership is also extrough ordinary.

this -- extraordinary. if you think about the work, it's unfolded like an episode of "law and order," and those shows begin with a mystery. in 2010, the american public was handed a mystery when president obama signed into law the affordable care act weighing in more than 2500 pages calling for thousands of pages of more regulatory rule making, even the bill's authors did not read it. we'll told we have to pass the bill before we could find out what's in it. that's what the working group was all about. we followed clues, questioned witnesses, and used authority of the congress to track paper trails. as the chairman of the house of appropriations committee that oversees the department of health and human services, i requested internal hhs documents revealing the insol vent nature of the program. when it passed. we were told that class is a true insurance program where the premiums cover the benefits paid out, but as we dug deeper, that cover story began to fall

apart. new factings came to light. every actuary agreed that as currently written, class simply will not work or pay for itself. the government is exposed to tens of billions of dollars of cost according to the cbo, and then earlier this month, we got the equivalent of a full confession. the department of health and human services rightfully decided to cancel the program. thftion a profound -- this was a profound development. once we stripped away the spin, brushed off budget gimmicks and cut through the bureaucratic jungle, there was a president's health care law for what it really was, truly a ponzi scheme that apparently was included in the bill solely to help the bill appear deficit neutral. there's a problem. class is not gone. not yet. the secretary can claim she has the authority to in effect rewrite it. there will be temptation for some in congress to slip

additional authority into an unremitted bill to turn class into something it was never intended to be. that's why we're here today. the facts are out. now we have to decide what is to be done. i'm here because i don't think class should be rewritten or redesigned by the bureaucracy. at a time we're struggling to save the entitlement programs we have, good programs like social security and medicare, we simply can't afford massive new government programs like class. the potential cost to the government of the employers is so agreed great that any consideration of a program of this type needs to be fully considered in a transparent and open way by the public and by congress. in just as with the other entitlements, a new program of this type makes the task of savings existing entitlement programs more difficult. in week, i introduced a bill to repeal class and other new entitlement programmings as well as co-sponsoring the class

repeal bill. colleagues, the most important responsibility congress has today is to create an environment for the economy to thrive, to do what we must do to reduce government spending and regulations. out of control government stepping leads to higher taxes, lower government debt ratings, and uncertainty in erroneous regulations leading to higher cost of doing business and barriers to business growth. this is the final act of the episode. we've seen the crime, uncovered what happened, got the confession, and now it's time to pass sentence. congress has a chance to act decisively to practice the taxpayer from the consequences of an unsustainable new government program. thank you, mr. chairman. >> chair thanks the gentleman. we'll go in the order in which you're seated, and the chair recognizes congressman deutsche for five minutes at this time. >> thank you, chairman pitts and

stearns and for the opportunity to discuss the class act. i'm pleased to be joined by mr. kennedy and grateful for the commitment to making the late senator kennedy's dream of dignity and hope for elderly, disabled, and others a reality. they captured the failure of the long term care system in saying "too often they have to give up the american dream, the dignity of a job, a home, and a family so they can qualify for medicaid, the only program that will support them. " class brought so many americans hope because it was the first real path to delivering real affordable long term care. just 10% of americans over age 50 have long term care insurance, yet 70% of them need long term care at some point. the remaining 90% of americans rely on medicaid, and that's why over a third of its dollars go towards long term care and cuts demand we make affordable cost effective long term care

insurance available to the american people. the current system incentivizes poverty and forces seniors to blow through their life savings and spend down. this forces struggling families into unthinkable positions. take, for example, a 3457b in his 50s with early alzheimer's, and he's ineligible for medicaid. at $50,000 a year, her salary is too high for medicaid, but not enough to pay for the nursing home care that can cost up to $90,000 annually in florida. she can leave her job to fall into poverty, divorce her sick husband leaving him destitute, but eligible for long term care through medicaid. the choices are not unique, but the current systems' insenttives. save nothing, pass what you have to your children before you get sick, own little property, do not purchase long term care

insurance policy, follow this plan, and you'll be ill gibel for expensive long term care through medicaid. the suspension of class do nothing for the grandmother in my direct choosing between her grandson paying for college or her tuition at a nursing home. cheering this does nothing for working familying i represent with no way of paying for the long term care their elderly loved ones need. i visit homes in florida and pained to here con stitch wenting saying they miss their homes. sadly, medicaid steers them into constitutional care despite their preference for less costly in-home care and other community based options. i heard from seniors faces disclosure because of nursing home billings and young families can want afford quality care for the parents they love, and yet long term care insurance is out of reach for most americans.

no one is immune from the frailty of old age. anyone can fall ill or become disabled. take, for example, the case of allen brown, a 20-year-old in 1988 when he was struck by a strong ocean wave that damaged his spinal cord lf -- leaving him paralyzed. from the care, his costs are as no , ma'am call, and with two jobs, a struggles to get back. those who are young and healthy, may not always be. any one of us can become disabled, and the inevidentability of age. class focuses on stainability. if that is a concern, let's fix it. hhs was given statutory latitude, and i join the class actuary and class advocates in believing that the secretary has enough authority to make the program work. others disagree.

they imply a legislative fix is needed. let's fix it. just as social security succeeded as a wage insurance, reducing elderly poverty from 50% to 10%, americans should have an affordable way to finance long term care. for the 200,000 seniors represent, the jovial reaction to the suspension of class was disheartening and predictable. mr. chairman, my constituents, our constituents deserve more. we must seize this opportunity to get long term care right in america, and together i believe we can improve upon a promising idea, reduce entitlement spending and ensure americans greater financial security. i thank, mr. chairman, and i yield back. >> the chair thanks the gentleman and pleased to welcome our former colleague for five minutes. >> thank you, chairman pitts,

stearns, and all those welcoming me back today. it's an opportunity to testify. let's just think for a moment, step back, and use our common sense. all of our family members are going to need supportive living services, and the question is not how and what program we're going to put those costs on. is it going to be at the state lev, the local level or the federal level. the notion is you can't turn away from this problem and think that the problem's going to go away. someone's going to have to be there for our people and our families who are going to need sportive living services, so the question for congress is really how are they going to address this problem? you can say that actuary say, oh, class agent costs money, but

the whole point of health care reform is we take a broader look at all of the cost associated with health care, and really see the forest from the trees, so we're well aware the health care system is about cost shifting. you take the uncompensated care, and you put it on the private pay, and you hope that someone pays for the bills of those who cannot afford to pay. when are we going to start to be realistic about this? because just turning away from the problem is not going to make the problem go away, so people will say, oh, this is a program that costs money. you know, many my father's case who needed supportive living services, and my uncle's case who needed it with dementia, it was non-medical supportive living services that helped them in their lives. it was the guy that helped my u.n. --

uncle sarming up from the living room into the dining room and who helped him, you know, get transported around. this was someone who didn't have a medical degree, doesn't have big student loans because they went to get a doctor's degree or nursing degree, but they were the most essential person in my uncle sarge's life in giving him dignity and giving him a life, and guess what? it's the least expensive. i should be getting all the support from my republican friends. if you want to reduce medical costs, try using nonmedical support services, so you'll hear a lot about, oh, well, you know, this is going to cost money. let's just step back and understand it's going to -- someone's going to pay. someone's going to pay, and so let's be realistic here.

let's also do the right thing by our family members and give them the kind of lives of dignity that they deserve that we would want for any one of our family members, and i hope that we get away from this notion that let's place the blame game because we're, you know, washington's good at that, but at the end of the day, our country is facing a demographic tsunami. it's going to bury this country in red ink, and the question is do you want to take all of your tools out of your tool box now because class act can be would be of the tools that you use to help address the overall costs of trying to take care of long term care, and in my mind, you can either pay high price, acute care, institutionalized care costs, or you can pay for non-medical sportive living

service costs to keep people out of acute care settings. the whole notion of health care reform was to move us from a sick care system to a health care system because it's less expensive at the end of the day to keep people independent and not dependent, if you will, on our medical system which is costly. class act is a tool, and let's make it work for all of your constituents who are going it need the sportive services that give them the human dignity that each of us want for our own family members. thank you, mr. chairman. >> the chair thanks the gentleman. >> thank you, chairman pitts, ranking member, members of the energy and commerce committee for allowing me to testify today. chairman pitt, i ask unanimous concept my full statement is made part of the full record.

>> without objection, so ordered. >> i appreciate you allowing me to testify in support of hr1173. the bill is really simple. it repeals the class act as the program has been shown to be fatally flawed, fiscally inresponsible, and irreparable. i worked to hying like the problems and flaws of the program, and i can tell you as chairman of the oversight subcommittee on house ways and means committee, the bicameral congressional oversight efforts were vigorous, extensive, committed, and necessary to expose the truth about this program. in fact, mr. chairman, this is a victory, a congressional oversight victory on behalf of the american taxpayer. leaving the statute on the books is irresponsible and must be removed. keeping the law on the books gives bureaucrats a creative license to try to keep -- to keep trying to implement it, and it's an opening for congress to keep trying to tweak a failed

program. class is unsustainable. a new unfunded entitlement that we cannot afford. i agree with employer groups and taxpayer add vo calculates -- advocates who have no doubt class will return if congress fails 20 strike it from the books. they insist hhs has the broad legal authority to fix the program by excluding eligible americans from the program. mr. chairman, i have to say i'm deeply disappointed that secretary sebelius refused to testify today. she should come here and explain why she ignored warnings of the insolvency of the program and falsely claimed she had the authority to change the program. law make #ers -- lawmakers consistently ignored warnings by the congressional budget office, the chief medicare actuary, and the american academy of actuaries when they inserted this budget gimmick in the affordable care act.

after months of refusing to answer questions, hhs finally, finally conceded it lacks the legal authority to make class sustainable. congress should repeal it rather than waiting for bureaucrats to change their mind. mr. chairman, cbo's credibility should also be called into question for scoring the program as a saver with a new -- it would need a bailout. in fact, i want to quote from former cbo official, jim capretta. he wrote, i quote, "what remains so perplexing in this episode is why cbo played along with the class charade. they had access to all the same actuary data as everyone else. their own numbers showed the program was unstable beyond ten years. the agree amendment gave them the perfect excuse to conclude that class would never be launched because it could never be viable without massive taxpayer sub subsidies, and yet

they kept showing the $70 billion ten year surplus in their estimate. among the many questions about the sorry episode that are worth pursuing is the role are cbo surely won." mr. chairman, as a physician who has dealt with many, many patients, i was a cardiac surgeon, and i saw a lot of these complex conditions, and i saw the entire spectrum of care and the needs that are out there. i can assurely tell you as a physician, there's many, many other options that are much more responsible, fiscally responsible, and more sustainable than this program was. there's a number of options never entertained as we went through this process, so beyond class, we must continue to encourage middle class americans to plan. that's fundamental issue here is

planning ahead, starting at an early age and planning for the kinds of things. you can't do this at a late stage. planning for retirement security, purchasing long term care insurance policies. we can do a number of things to make that even better if we look at the options very carefully. timely, on a personal note, i tell you from dealing with my own tower and my -- fawsh and my wife's stepfather, there's viable ways to deal with this, and what we need to do now is be responsible, let's repeal this failed program, move forward, and come up with responsible policies that will move the ball forward in health care. mr. chairman, i thank you for the opportunity to testify. >> the chair thanks the gentleman and each witness for your testimony. at this time, we'll dismiss the first panel, and we'll call the second panel to the witness table and the chair will turn