january 4th 2010. prior to joining the position he served under hamilton where he was an expert on broker-dealer and market regulations. the director of the office of plans and some inspections examinations on jenner 25th 2010. prior to joining the commission was the practice and price waterhouse coopers. while in private practice one of price waterhouse nationally leaders and corporate government and regulatory compliance and ethics and has also led numerous fraud and corruption investigations nationally and internationally. finally, the director and chief economist of the division of risk strategy. serve in this position since june 2011. as the madison as whittington professor of finance, the school

of management, corporate finance and economics since 1983 in his been on the back of the vendor bills as 1986. in addition to teaching he published research on volatility in stock, adequacy, a unease management, policy, executive compensation, disclosure, and behavior by equity analysts. your written testimony has already been submitted. i would ask that you take five minutes and make in all presentations. >> thank you. the director of a division of enforcement and thank you for the opportunity to testify today concern new management and structural reforms that the sec. when i arrived in the sec in early 2009 to lead the enforcement division the as is mr. going to come to terms with the impact of the financial

crisis. our job and our challenge of the division of enforcement was to investigate and hold accountable those who contributed to the financial crisis. we took the challenge head-on. we immediately set to work investigating conduct that may have injured it to the financial crisis and at the same time launched an ambitious plan to reform the organizational structure of the division so that we can work smarter and more efficiently than we have in the past. through hard work and innovation we have now completed was the most significant restructuring in the history of the division of enforcement. although the conventional wisdom was that this location cause buses significant organizational changes would undermine our productivity, that, in fact, did not happen. in fiscal year 2011 we filed a record 735 enforcement actions, more than ever filed in a single year in the history of the securities and exchange commission. those actions included 57 insider-trading actions and nearly 8% increase over last

year's total, 146 enforcement actions related to investment visors and companies, a single year record and 30 percent increase over fiscal year 2010. 112 in for some actions related to broker-dealers, 60 percent increase over last year. our focus on financial crisis cases have continued during the two and a half years, the last two and a half years, we filed 36 separate financial crisis related actions against 81 defendants, nearly half of whom are ceos are cfo's or other senior officials that came to nearly $2 billion in financial sanctions including actions against goldman sacks, city, and senior executives and american home mortgage. equally and perhaps more importantly, record number of cases including many of highly complex transactions, products, and market practices. in the past fiscal year refiled actions and deeds j.p. morgan for misleading investors, the

ceo of the housing market began to plummet. what covina for misconduct in the sale of two ceos tied to the performance of residential mortgage backed securities, two firms involved in the sale of uncivil ceos to five wisconsin school districts, and charges against six executives akbar corporation and three executives at and? for misleading investors about their financial condition. in addition to deprive the wrongdoers and to different -- deter future misconduct we obtained judgments totaling almost 3 billion which was a 170% increase. we have also distributed nearly three and a half billion in penalties of the last two years to harmed investors. at the same time we were doing this reinstituted the organizational changes in our division, fund management structure, revamp the way that we handle tips and complaints, facilitated the prosecution of wrongdoers to a formal program that encourages individuals and

companies to cooperate in the sec investigations and created five national specialized units focused on prior dirty areas involved in high-risk and have hired many industry experts, not lawyers with genuine market expertise and specialized experience to assist in our investigation. today, someone testifying, improper bond valuations, there is a good chance the city across the table from them, someone who used to value bonds for a living and one cannot overestimate the clarity and candor that brings to witness testimony. we also focused on thinking creatively and proactively to find emerging threats stopping fraud earlier before the become more destructive. so just using investment advisers as an example, we are now viewing registration documents were eye-risk advisors to determine who lies about things like their education or business affiliations or assets under management under the

theory that if they come face-to-face with enforcement authorities early on for a relatively small matters there going to know that we're watching and be less likely to graduate to bigger frauds. reviewing a mutual-fund fee arrangements by analyzing databases to find funds that is of a poor performance, i fee arrangement, and sub advisory arrangements, all of which might suggest excessive fee arrangements and inadequate oversight. we have used the border work using risk factors, overseas auditing affiliate's and oversight capability to identify those u.s. other firms with foreign clients that may be engaged in financial reporting violations. as a result of our focus on initiatives and our pro-active strategies and hiring of experts , we are better equipped to stop fraud center. the continue innovation, they must keep pace with its possibilities. we have achieved these results in light of relatively flat budget amounts that have

constrain our ability to backfills lost a minor administrative staff and upgrade i t. we need those resources to continue those efforts, but with that and our new ideas and structure i think we will continue to be aggressively prosecuting fraud. thank you. >> thank you, very much. >> good morning. my name is meredith cross, and i am the director of the division of corporation finance. i am pleased to testify today along with my fellow directors on behalf of the commission to discuss the division's activities and responsibilities and challenges that lie ahead. the division of corporation finance core function is revealing company filings, making law making recommendations to the commission that relate to corporate finance managed and providing interpretive advice to the public about the security and corresponding regulations for corporate finance matters. with the staff of approximately 470, we are responsible for the review of nearly 10,000 reporting companies, including tens of thousands of disclosure

documents each year plus initial public offerings and other public capital market transactions of corporate issuers, a public asset backed securities offerings and proxy statements, but mergers, acquisitions, and tender offers. approximately 80 percent of the staff of the division is the sides of the review function. requiring the commission to review disclosures, particularly the financial statement of exchange reporting companies at least once every three years and are frequently with circumstances warrant. this is no small task. following enactment of the act in 2003, the division revised its review program to meet the new review mandate and hired significant numbers of new staff accounts, which has enabled us to meet the review mandate each year. we also reviewed the disclosures that many companies more often than once every few years. for example, the largest company. these and the largest financial institutions currently overvalued continuously on a real-time basis. corporation finance has been

working to enhance the disclosure review program including by increasing the focus on largely financially significant and achieving additional efficiencies in our reviews as a smaller company. our increased focus requires greater resources and traditional disclosure reviews and our ability to implement this enhancement turning on whether rare able to aliquot sufficient resources balancing of the division's. during the 2011 fiscal year the division established three new offices, structured finance which focuses on disclosure reviews and policy-making for asset backed security, the office of capital market trend, which evaluates trends in security offerings in the capital markets to determine whether our rules and regulations and review approach are adequately addressing them, and a new review group and disclosure operation that focuses on the largest financial restitution. the division has staffed these offices almost entirely by transferring existing staff to them. resources permit, we plan to hire to fully staff these

offices in the middle and to carry out their intended work. corporation finance recommends new rules or changes to existing rules for the commission to address areas a needed change. the division is reason greuel has focused on asset backed securities, corporate governance disclosure and dodd-frank act implementation. responsible for preparing a wide variety of roles to implement a significant number of dodd-frank act requirements which include, for example, rules for corporate governance and effective compensation including golden parachutes, disclosure of papers, performance, ratios, and employee injector hedging policies and was extended for compensation committees and consultants and for erroneously awarded compensation. also specialize disclosure rules for complex minerals, safety, and payments to government by resource, regulation of asset backed securities and revision to accredited investor in

disqualification of offerings involving bad actors from relying on the private regulations. the division is undertaking a significant new initiative to look for ways to reduce regulatory burden on small business capitol formation in a manner consistent with the best protection. products include the triggers for public reporting generally known as the 500 cheryl greuel, restrictions on communications and private offerings, in particular this restriction and general solicitation, communication and public offering, and new capital rating strategies such as crown funding of the scope of our existing rules to regulate capital. thank you for inviting me to appear before you today. i would be happy to answer any questions you may have. >> if you could, please. >> good morning. my name is robert cook, and i am the director of the division of trading and markets, and it is a pleasure to appear here to there with my colleagues from the commission staff.

the division of trading and markets irresponsible for developing rules and standards for our markets and markets intermediaries, including securities exchanges, alternative trading systems, broker-dealers to my clearing agencies, transfer agents, and self-regulatory organizations such as been run in the ms rb. the exponential growth and the size and the complexity of the u.s. securities market in recent years has traded special challenges with a business mission. in the past year the division has focused on several key initiatives to improve the oversight and function of our equity market. the commission adopted a new rule to ban access arrangements under which producers to provide certain customers with unfettered access to the security markets without any controls to protect market stability. second, the commission adopted large trade reporting requirements that would help identify and obtain trading information on the largest participants in the u.s. securities market. third, we are preparing a recommendation that the

commission for greuel to create and implement command maintain a consolidated on the trail to address significant shortcomings in the agency's present ability to select among the trade data in inefficient and scalable manner. fourth, the division's work and implementation of several fish adjust to address significant market volatility such as occurred on may 6 of last year. a disorderly market and have coordinated proposed efforts to implement a limit of coming down functionality for equity markets that will help prevent change outside the scope -- specified parameters following trading to continue. in addition, the division has assisted an appropriation a proposed update to the existing marketwide circuit breakers. the division's core function has expanded substantially in the past year under the gun-frank act. all told the division has primarily been a fossil 47 separate rulemaking initiatives

of which the commissioners published 21 for public comment. the division is also substantially involved in 12 cities of which seven have been completed. most notably we have been charged with responsibility for developing the registration and regulatory regime for participants in the security based otc derivatives market, including data repository, dealers, major participants, execution facilities, and clearing agencies. going forward, this will mean that trading and markets and coordination of the other divisions and offices will be registering these new entities, maturing market developments, and promulgating new rules modifications, and guidance were needed. today the commission's proposed 13 rules related to otc derivatives. once the proposal phase is complete the division is planning to recommend the commission seek public comment on an implementation plan that will facilitate a rollout of a new requirement in a logical, progressive, timely, and efficient manner that minimizes

unnecessary disruption and cost of the market. the division is impossible for many provisions of the act relating to proprietary trading activities, and has to oversight of financial markets utilities such as clearing agencies, and new procedural requirements for processing proposed rule changes pending the new offices for credit rating agencies and municipal securities the division has continued to work with them to carry out existing functions in these areas, including the appropriation of rules required. in conclusion, the division's workload is dominated by eight rivers range of functions that are vital for protecting investors and markets. the scope of these functions has expanded tremendously. many of our currency initiatives will extend well into target : beyond. thank you for inviting me to be here, and no accord to answering your questions. >> thank you very much.

>> chairman, ranking member, members of the subcommittee, let me join my colleagues from the commission and thanking you for the opportunity to testify today . it has been nine months since i joined the sec. the director of the division of investment management. before coming to the commission and over 30 years of experience in asset management as a portfolio manager and a portfolio team. the division assists the commission in its oversight and regulation of america's $43 trillion investment management in st. in doing this we administer the investment company act of 1940 in the investment advisers act of 1940. we oversee and develop regulatory policy for investment advisers and funds. the division has devoted the last year to implementing the provisions of the dog-frank act as it relates to investment advisers. the act significantly change the regulatory wednesday for the

entities. first, it increase the statutory threshold for sec registration for 25 million to $100 million in assets under management. second, it eliminated a registration exemption for advisers to hedge funds and other private funds and finally required advisers that are not registered to submit reports to the commission. as a result build to not meet the new asset threshold and after withdrawal and register instead in their home states. advisers to hedge funds and other private funds will be required to register with the commission were to qualify for one of the narrower exemptions added by the dawn-frank act. in june the commission adopted rules to implement these changes we anticipate adding approximately 750 new private fund advisers to the sec registrants will. we will see and estimate an overall decline of 28% in

adviser registrants overall. under new rules that will report more detailed information of their operation, including information about the private funds that the managed which will allow us for the first time to obtain much-needed information. following the implementation of these rules to my anticipate that the division will shift more work to its disclosure, and to prevent bias, and exempted relief programs. another important area we are working on is to implement the retirement -- requirement of the dodd-frank act that consensus to the press reporting. the dodd-frank act mandated commission require private fund advisers, including advisers to hedge fund and private equity to report information about the private funds that they managed for stocks systemic risk assessment. recently the commission adopted a rule that requires registered investment advisers managing of least $150 million in private fund assets to report system at

risk information on a new form called form pf. the initial stages of this reporting will begin next year for some of the very largest private fund advisers. the division is also working on a number of important initiatives in other areas outside of this agenda. one of which i will highlight. prior to my arrival at the sec and in response to the run on money-market funds during the financial crisis the commission adopted important reform in the area of money-market fund regulation. these reforms include a requirement for money-market funds to report detailed portfolio holdings in the nation on a monthly basis. using this data the division is able to monitor and discuss trends and the associated risks with the commission and with member staff. given the structural fragility is that remain in money-market fund this but the commission's reform the division continues to consult with member staff on

additional regulatory reform steps. in addition to our role and commission rule making a large part of our administration of the investment company act and the investment advisers act consists of providing legal guidance in the form of interpretive and no action letters. as well as incentive relief from the provisions of both acts. we also review filings and investment companies in order to both monitor and enhance compliance with disclosure and accounting requirements. pursuant to the requirements under the act of 2002, the division reviews the annual reports of all investment companies, no less frequently than once every three years. the division also provides legal and policy guidance to the is an unfortunate. again, thank you for the opportunity to testify and i am having answer any questions you may have. >> thank you very much.

>> chairman, ranking member, members of the subcommittee mine in his crib louis, and i am the chief economist and director of the division of strategy and financial innovation. thank you for the opportunity to testify on behalf of the securities and exchange commission regarding this business operations activities and challenges. i joined the division as director in june of this year before coming on board was a professor of finance at the graduate school of management at vanderbilt university where i focus on research and teaching. primarily in the area of corporate finance. also a ph.d. economist. the division was created as part of the agency's modernization initiative to share expertise and bring together critical data from across the agency. it was established in september september 2009 to provide the commission and its staff a sophisticated analysis that integrates economic, financial and legal expertise which then provides economic analyses which is part of the commission's rule making progress and supports of

examination and enforcement with data-driven wrist-based analytical models. it also oversees the commission's pcr and interactive did a program. the division has been especially focused on the agency's increased use of computerized risk analysis and data sharing. the division participates in the rule making process by helping to develop the conceptual framing for and assisting in the subsequent writing of the economic consequences of the rules of the commission promulgates. where appropriate the sec considers in addition to the investment of investors whether the action will promote efficiency, competition, and capital formation and gays in rulemaking. economic analysis of business rules considers the key economic effects of the various alternatives that should be considered in developing regulation. analysis of the likely economic effects of the proposed rules while critical to the rule making process to be challenged. certain costs or benefits may be

difficult to quantify or value with precision, particularly those that are in direct or intangible. the division is committed to continuously improving economic analysis and commission rule making and to the integration of the economists into the room making progress. of the division is striving to fully comply with these increased demands, it faces challenges in its ability to do so giving current resources. the second core function of the division is to administer a number of data driven responsibilities and initiatives. for example, the division currently provides economic and statistical analysis to support all aspects of enforcement and litigation matters for the commission. it also has developed innovative software tools and uses cutting edge and analytic methods to identify potential problem areas associated with investment managers. the interactive data program provides information contained in certain documents filed with the commission and structured format that make the underlying

data readily available for analysis. the division has a number of responsibilities that include promoting the use of interactive data, developing the infrastructure, and supporting role writing to implement did teddy requirements. to improve efficiency the division has been reorganized to reassign staffa have expertise in data analysis and risk assessment in to the newly formed office of quantitative research, which will be responsible for designing quantitative risk assessment models. this office has begun to build a data infrastructure to facilitate the development and support for the analytics. going forward, the division would like to expand capabilities to developers this as models and to build a scalable data infrastructure to support risk-based initiatives. although the division plans to pursue these objectives simultaneously in has existing employees with the necessary expertise to work on these projects, resource constraints and hit progress and significantly slow the rate of innovation. for example, a project to

develop a model to detect accounting fraud has been delayed due to resource constraints. while the division has made significant progress since its inception in 2009, the scope of its responsibilities has been significantly expanded as it continues to find new ways to assist other divisions and as it addresses the additional obligations that have been mended by the dodd-frank act. thank you for inviting me to share with you the work of the division of rest strategy and financial innovation. i like fourth to answer your questions. >> thank you very much. >> good morning, chairman and ranking member and members of the subcommittee. let me join my colleagues in thinking you for the opportunity to testify today on behalf of the u.s. securities exchange commission. my name is carlo di florio, and then director of the office of compliance, inspections, and examinations. i joined the sec on january 205th 2010, prior to which i was a partner in the financial services regulatory practice, price waterhouse coopers knew york.

since joining the sec i have enjoyed working with colleagues who are so dedicated and committed to furthering the sec important mission. the sec national exam program helps protect investors and is sure market integrity by examining for fraud to monitor risk, promoting compliance, and ensuring market integrity. informing the sec of the eyes and ears of the sec in the field. hour exams assess whether they're treating investors fairly and complying with the securities, loss, and regulations that is designed to protect investors and prevent fraud. the 830 supervisors and examiners in the national exam program take a risk-based approach to examining $25 plus registrants, including investment advisers, investment companies, broker-dealers, derivatives registrants, has funds, mutual funds, credit rating agencies, as are zero, national exchanges, clearing agencies, and transfer agents.

under the direction of the nearly 18 the o.c. has undertaken at top to bottom review and launched over 20 improvement initiatives to strengthen our strategy, structure, people, processes, technology. accomplishments over the past year include the following, we have recruited experts and launched new specialty groups that ran deep needed expertise and specialization in program areas such as derivatives and structured products. hedge funds, credit rating agencies, high-frequency trading, and risk management. we have conducted over 1600 exams that have better targeted preventing fraud at, identifying regulations, and addressing higher risk firms, products, and practices. we have implemented a new large for monitoring group to focus on systemic risk firms, and a new risk analysis and surveillance unit to enhance our ability to

monitor risk trends and target of those firms and practices represent the greatest risks to investors to markets, and capital formation. we have created a national government structure that breaks down silos and facilitates coordination and the insistence, effectiveness command accountability across the country. we have streamlined an automated our ace in process with new technology. we have clearly defined expectations and a new exam manuel and have implemented a new internal compliance program to monitor our performance and ensure our accountability. we are working to design and implement a new exam and a training program that establishes technical training and certification standards across the country. no matter how much we improve our current program, however, the fact remains that our 830 examiners and supervisors can only cover a small portion of the 25,000 plus registrants that we are responsible for

overseeing. this results in a ratio of only one examiner for every 30 registrants. .. and automating our exam process is to be as efficient as possible and maximize the use of resources we have provided. nevertheless, resources that

enable us to more effectively fulfill her new responsibilities, protect investors and ensure market integrity. thank you and it welcomed the opportunity to answer questions. >> thank you. i want to thank the witnesses for separate testimony. your collective testimony illustrates the range, the complexity and the vital importance of what you do and also underscores the need to be properly resourced to do a very complicated job, which can complicated each and everyday but innovations in the marketplace can do for thank you again for what you are doing, what you continue to do. i think one final point on this area, if you don't have these resources, you cannot affect if they provide direction and guidance in the marketplace. perhaps professor lewis can comment. it's more efficient than any found alastair not getting

guidance to make appropriate decisions. let's begin by opening and i have lots of questions i asked first before any. mr. khuzami, one of the most notorious incidents of the last two years with the made-up scandal. recently, the final act has been undertaken, which has been disposition of allegations against members of the fcc, their behavior, people in the enforcement division was involved. there have been sanctions, but no one has been dismissed. that is a question which is forefront in many people's minds. accountability -- u.s. for accountability in the marketplace. the american public is asking for accountability to the sec. can you count on it on the disposition whether or not you feel that was appropriate?

>> yes, senator. accountability is our obligation as well and with respect to olathe madoff a matter with many of the forward-looking reforms and changes in organization revisions that you've heard this morning with respect to a very wise decisions. the inspector general's report identified a total of 21% approximately who you believed warranted follow-up for possible disciplinary actions. at about 10 of those left the division since the report was issued. and the sec has no ability to discipline ex-employees who have departed, so that left approximately 11. we conducted an extremely aero process to make these decisions, including bringing an independent offered to come in

and connected to an independent investigation and then make recommendations to the proposing officials and ultimately deciding officials because it is an agency decision. all of the 11 persons who are recommended, nine are recommended for actions by the law firm and action was in fact taken against all nine. in a couple of cases, it was i think two cases perhaps, less than what the law firm had recommended and i think i will defer to mr. to florio, who i think it was in the oc program at the individual with a proposal that should be terminated. in fact, a different result was achieved. generally, all persons recommended by the law firm suffered a range of discipline. >> mr. di florio, can you

comment? >> as my colleague, mr. khuzami noted -- are you able to hear me okay? as my colleague, mr. khuzami indicated, a serious review was undertaken in all of the individuals were identified were discipline. in one instance, the law firm recommended termination of an individual or if termination would have a significant negative impact on the operation said the sec, then to fashion the alternative remedy that would significantly change that individual roles and responsibilities such as demotion and reduction in pay. so the fcc followed the recommendation of the law firm and refashion rose of the individual. they no longer have supervisory responsibilities. there'll is reduced. they received a reduction in pay

and a suspension of 30 days. i would also just assure the congress and the american people that we have taken the lessons learned and have implemented improvements to prevent fraud so we can ensure american integrity. >> could you just follow quickly on some of the steps you take i'm looking forward based upon the experience was madoff. >> sure, we have undertaken significant training for all examiners and investigators in the sec of fraud techniques, fraud tools and make sure that our forces truly understand the scenarios that are out there and how to act quickly to shut them down. i think our results as articulated by mr. khuzami and some results identify demonstrate how we begin to have been in hot.

in addition they brought technology to bear, so we have a new system for tips, complaint and referrals for command and make sure we have the right people triage and following up on it. i'm bringing technology, better resources, better people to the job. >> thank you very much. mr. khuzami, judge ray goff has reason question about the appropriateness of the settlement you have proposed the city court. but it raises a few questions. do you raise allegations against the company that there are no individuals that have been pursued in this case another case is peered into a lot of people on the street, they wonder how a company can commit serious violations of securities laws and yet no individuals are

involved or assessed. and i think that is at the heart of one of the concerns that judge breakoff fast. can you comment on that? >> sure, senator. we focus first and foremost for the reasons you identify. individuals. in the citigroup case itself, we charge the individual who is responsible for the particular transaction and wherein education. recharged the firm that represented that was independently select in the portfolio when in fact i was not the case. two individuals were charged in this case. overall across her credit crisis as they can approximately 26 individuals and entities are high-ranking officers.

the entirety of the executive suite of new century and in the mac and other companies and individuals who have sold these have been charged, part of the concern has been gone up to the executive suite and why haven't the heads of banks that charge. it's a difficult challenge in transactional cases because what is going on occurs to come it three and four levels about the executive suite. if you are selling a cbo, it is being put together by individuals working on the tasks and disclosures written by individuals who are not at the executive level. so the evidence of their duties and applications don't always write software to the top in the executive suite unlike an accounting fraud or financial statement or a couple were

ceos and cfos may sign up on the accuracy of financial statements. so to some degree by the second earned him as the function of the nature of the cases come up with aggressively charged over half of the individuals in these cases, 40 to 50 high-ranking ceos, cfos and executives. >> is a follow-up on one additional question before a recognize senator merkley and then senator menendez. you are of course talking a civil charges, which is your responsibility. but there's been many other who have raised the issue of wired or any criminal charges because there are at least suggestions, allegations of criminal violations as well as civil violations. as i understand it, you would have to refer those cases to the department of justice. but the record is not -- there are very few i can think of, criminal cases that have been taken in the wake of the worst

financial crisis in the history of the country and behavior, which at least is the outside observer seems to be highly questionable. have you been making referrals? and has the chest is being systematically turning you down? how can you comment on this relationship? >> senator, we're picturing a close with the justice department and other offices than i can assure you they are keenly interested in cases arising under the credit crisis and look extremely closely at the evidence in these matters conduct their own inquiries and reach their own determinations. it is a hurdle for them. they have a higher standard of proof in a criminal case. they must prove a case beyond a reasonable doubt. and so, some of the challenges we face, the face even more forcefully because of the higher standard of proof. but i can assure you, it is not for a lack of dedication or to

professionalism or talent that criminal cases have been filed. >> i present for me and today he was made referrals, but they have not been followed through because of the judgment they have to make independently. >> we work very closely with them. we don't just take a case and referred and wash her hands of it. we are in constant communications and discussions in reviewing evidence and working collaboratively. >> thank you very much. there'll be an additional round of questioning. but they recognize senator merkley for his questions. >> thank you, mr. chairman. it in a statement, but i do have questions about appropriate. i wanted to start to get anyone's opinion on congressman defazio's proposal on high frequency trading, which goes back to kind of thinking a little bit about the flash crash. i believe what he had in his most recent proposal is a three

basis points see that discourages, if you will, the multitudinous high-speed trains for having very little impact on great other investors. and he put about that? >> mr. cook. >> thank you a senator. i am not familiar with the details of that, but i think the proposal or versions of it have been raised several times anything fair number of interesting issues that it raises. obviously there are concerns about the extent to which the traffic that is generated by high-frequency traders is that it's so interfering with the effective functioning of the markets and to some extent, some type of fee whether it is a message the, order cancellation

fee, various versions this might take. that might be hopeful in addressing that. i think the challenges are first pick in the right metrics for when that would have been, when it would kick in and what the type of fee would be. and second or more appropriately would be to not undermine the liquidity in the market that may be very important and certainly during normal circumstances. given the prevalence of high-frequency trading in our markets today, this is an area where we have to move very carefully to ensure whatever changes we introduce to a significant portion of the volume in the markets is very carefully considered to avoid any unintended consequences. >> anyone else want to weigh in on that? >> very good. thank you. the second issue i wanted to get some insights on as the crowd

funding of companies. as they move to the center now for a come as people become familiar with peer-to-peer lending, certainly this is a very different as anything traditional and investing from a very different for investors and very different for the companies. in some ways it's very exciting possibility, but also poses risk related to fraud. and how does -- any insights on how this gets pursued, supported or guided so that it will be a win for investors and a win for companies? >> i will start off. first of all, i have to note i am not purchase a beating because of my prior work for a peer-to-peer lender. in general with regard to the capital raising strategy ideas being can be carried in congress and also that the commission,

the key here is to make sure whatever is told doesn't become thought with fried said that it economies -- so investor confidence is destroyed and people want to invest in up markets in that rubble of deregulation help anyone. so we are working with market participants and the various pieces of legislation to help put in safeguards that we keep from happening. i think one of the ideas is the possibility of intermediaries as a means of protect investors than i can let mr. cook addressed that. >> so when we think of investors purchasing securities, one of the traditional tools we have to provide protections for them as registration and regulation of the party who is doing the selling. and registering as a broker

dealer. if some of the factors we think about when we think about whether that is appropriate include, does the broker of a salesman stake in the transaction? either conflicts of interest that might arise? is the intermediary handling customer funds and securities. and so, in our experience in this area, i think a couple of observations. one is that fact patterns matter and are different for in which the intermediaries may really to investors. i think in some cases, we have given guidance that they are not subject to registration or wouldn't be because the regulatory policy concerns have not been triggered. i think another area we need to think about is whether we have sufficient of the respectable regime because the type that

might be appropriate for one type of entity may not be appropriate for traditional brokerage house for example. i think if there were a regulatory regime in place here, i think that would be a key area in which a lot of flexibility to tailor requirements to the specific facts and circumstances. >> my time is up, so you just going to say appreciate your feedback on both of those. there's about 10 other topics i'd be happy to defer the conversation on. >> thank you, mr. chairman. mr. cross, africa 953 of the sub one which requires to disclose that. third media worker compared to the ceo. and we waited with the sec earlier this year about both her intention that this provision and where it is that you are at. we got an answer that was less than satisfied jury. because it was a nonanswer as far as i can turn. so can you tell me where it is

bad you are at in terms of being on track for finishing this rule and this provision by the end of this year? >> i am happy to do so. right now the division is in the process of preparing the recommendation for the commission so they can act on a proposal. we are trying mightily to make it by the end of the year. that is the schedule. that is the goal upon our public website and i can assure you we do everything we can to get there. we have a lot of things are trying to do right now and this is one of the very important ones. but i can assure you we try our hardest make the year-end. >> i would hope we see happening across the country and people's concerns about inequality was spurred the sec to have a mere transparency. we've had testimony here, particularly from those who have come from the dirt about how it

will be and they do not believe it's that difficult to produce the information, so i hope we understand particularly in light of actions being taken by citizens across this country about how important -- i know you have a lot of work. we gave you a lot of work. i understand that. this is something that clearly people look forward to having transparency and have it sooner rather than later. so we are looking forward to you achieving it by the end of the year for bringing it before the commission. >> we do our best he said. >> that means that they had done before the end of the year. let me ask you this as well. earlier this year introduce a shareholder protection act for several of my colleagues to disclose corporate spending in elections in the wake of what i believe is a misguided decision on citizens united. since then, my staff has been

told by sec attorneys that the sec already has the authority to implement rules that would require corporations to disclose their political spending to shareholders. is that accurate? >> if command is accurate that the commission has the authority to require that disclosure if they decide to do so through rulemaking. i know that the citizens united cases certainly peaked in interest this topic. we have to rulemaking petitions pending at the commission right now asking us to consider providing requiring disclosure about political spending. i also note this is an area where the market is moving in that direction as well. a recent report shows more than half of the s&p 100 is already providing this disclosure. also shareholder proposals are included under our rules and proxy statements for the shareholders vote on whether they want this, so this is

certainly an area of great interest. staff is considering this as we think about the issue. >> well come i hope the sec believes this disclosure would be helpful for investors. in october 202010, they found that 77% of corporations to disclose the direct vendor put all expenditures. is that sent in the sec with? i can't speak i'm not. >> we are united on your recommendation? >> we haven't concluded what we should recommend. i think we are reviewing petitions and considering the issue. >> many large companies, microsoft, wells fargo, have already taken steps to disclose their political expenditures and to me it illustrates the ease at which it can be done. and so i am hoping that the sec

looks for that to be for shareholders across the board to reality. so i am looking forward to what your recommendations are. mr. cook, let ask you one question. what is the sec's timeframe for proposed rules like optional requirements for security bass slaps under title vii of the sub one? >> of those who refer to, which are the final rules in the subsidy proposal phase of rotc regulation are at the top of the list for otc deliberative works. the goal is to get them done by the end of the year. whether he hit better than i am not sure, but that is probably the next item out of the commission on the otc derivatives. >> so, let's say for argument's sake do you reach at the end of the year. what is your overall

implementation, scheduler proposed implementation rules for its final rules? >> well, we propose to do after we propose substantive rules is to issue two release is underway now so that we can get them out as quickly as possible. one is a release that discusses how our rules would apply internationally, so cross-border release of looking across each of the different substantive rulemaking, whether it's execution facility circular registration are clearing agencies and talk about how those rules apply in the cross-border context because it's a very important piece of the implementation. the second would be to issue an implementation plan. both of these are for public comment they would lay the process in which we propose to lay out the new framework in a timely, efficient matter with the goal of sort of approaching this as a project management tasks, where if we are can be as

thoughtful in how we roll it out, we look at two dmr quickly and efficiently. >> all right, mr. chairman. >> thank you, senator menendez. then they begin to the second round by asking again in the context of this recent litigation under judge breakoff with the fact two city core and this is not exclusive to one company, but typically you will reach a settlement in which the corporation neither admits nor denies. and it strikes a lot of people oddly why if you don't have any culpability you are paying a million dollars. have you reconsidered whether or not that is at all perspective or what role of ways? that is one question. in the second question would be they typically also say that they will never do this again. and i am not using the precise

language of the finding. and then you find -- and again, not troubling patterns of behavior emerge in the future maybe not exactly identical, but certainly within the same sort of context. and yet, there doesn't seem to be action in your division to take people up on their commitment and never do it again or anything like it again. are you rethinking what you can do in terms of the settlements on both of those points? >> senator, let me explain our approach in these areas. first, the bottom line is we settle cases where we believe that the sanctions we can obtain, including the monetary sanctions in the business reforms, et cetera but we could legally obtain should the case go to trail taking into account the risk, strength of the evidence, law et cetera.

in monetary sanctions, which is another matter that has been discussed, i make it clear that we do not obtain penalties in the amount of investor losses. we are limited by law to getting disclosure meant, which is the ill-gotten gains of the perpetrator and a penalty and generally equal to the amount of that gain. so if you have someone who earned $20 for defrauded investors of 100, we can get 100 representing a gain for the perpetrator -- excuse me, we can get 20 and another 20 in a penalty, but we cannot get 100 in most circumstances. so to some degree there's a commentary about settlements that they don't seem to be significant enough in terms of financial sanctions. that reflects our view of the strength of the evidence in the case of the risks associated, the statutory restrictions on the amount on a weekend day. in addition to that, but the fact to know two dogmatic, note

tonight, our goal is to get money in the hands of investors as of investors as soon as possible. if we were to demand admissions in every case and keep in mind it is admit nor deny which means companies cannot deny liability. they're not required to admit it, but they cannot deny liability as well. so under that provision if we were to insist because of the collateral when finances of those omissions with respect to private civil litigation and even criminal exposure, companies will open themselves up to that kind of exposure. i don't have any particular sympathy. it is just a reality of the negotiation process that they will not settle cases and they will take more cases to trial. so we're left with a situation that if we can subtly case now for the amount of money and the range of sanctions that we believe reasonably approximate what we could if we are successful without the risks of

a trioval and most importantly get money in the hands of investors today rather than tears from our three years from now for four years from now in the case goes to trial any of the market goes to repeal in most importantly we've added more resources to attack the next fraud because there is opportunity in everything we do. if we are prosecuting a casea, we are not prosecuting case be. and so, it is cold comfort to other victims of other fraud if we are putting all of our resources, taking a case to trial and one is not suddenly when their cases not being prosecuted if we are getting a package of remedies that are stronger than a meaningful message. i would also say in our cases we issue a complete with very detailed allegations. the company pays a large amount of money. they agree to business reforms. they cannot deny liability. my view is while i certainly understand desire for people wanting someone to stand up and

admit to wrongdoing, there's not a lot of history that the company is engaged in wrongdoing. they wouldn't be writing a check for $300 million in the face of these very pointed and specific allegations of what happened. so in balance, trying to serve many values, we adopt like the ftc, like the department of justice civil division, lake cftc and the national credit union at industry should settle the case for $300 million for mortgage related problems on a know it midgut diathesis supreme court has embraced it. so while i understand the desire in the cases where i might like to see it as well as we do review our policy, the fact of the matter is we have to choose among some competing goals that we try to accomplish and that's where we come out. with respect to repeat

offenders, this deals with the question of content and i think there's a misconception around our authority. in 2005 it agrees not to do it again by way of an injunction and a 2008 cells a securities product that violates the law, we are not -- we can only get civil contempt. for the content is only available if there's an ongoing front so we can go into court and say your honor, this company is engaged in combat now that violates their previous promise not to break the law again. you have to stop them from doing this right now. that only works at the common good is ongoing. there is no ongoing fraud, nothing to order compliance with. and that is the vast majority of cases. there has to be content action. in addition commanded us to get from a judge is to stop doing what you're doing out.

with authority over there's nothing to get. what most people want in this area is criminal contempt, which is punitive, which is sanctions were sent the violating the previous order. and only the department of justice department of justice has authority to do. we pay no means taken on the recidivism. what kind of business reforms may need to be adopted in other packages. so we rarely take into account part misconduct, but content is a poor vehicle to accomplish that. >> one quick follow-up question. i promise i will ask the other panelists when i return questions, recently you have used language in the sarbanes-oxley legislation to call back gains that although he was not correctly charged with any type of violation, is that a practice that you were going to

pursue a with more frequency going forward? >> yes, senator. section 304 the sarbanes-oxley allows us to sue and requires ceo or cfo to claw back certain incentive taste bonuses and equity awards as well as certain stock sale profits when the company that they work for it fails to comply with certain financial reporting requirements as a result of misconduct. we have used that to limit our cases to whether or not the tool is appropriate. it is a strong tool because blakey say, these are standalone actions. the ceo or cfo doesn't have to be involved in the misconduct. if the company they work for does at the compensation can be clawed back. so we look at it closely. it is not without some issues obviously. ceos and cfos are differently position. some are completely absent t.

and don't do their at all. i misconduct occurs. others may be very active, maybe been following best practices that may be misconduct occurs. so you need to be exercising a range of discretion in your cases, but it's a totally look up close and brought a number of actions in this area. >> senator merkley. >> thank you very much, mr. chair. i wanted to turn to mf global, which if i understand, mf global was for dealers was regulated by the cftc i believe is on the future decide that the issue of client accounts is the question that their accounts in a proprietary trading or hedge fund style operation and violation of the sanctity of this individual accounts.

it is very confusing to the public, certainly to s., but recognizing to sec to do things wrong on the broker-dealer siders are broker-dealers i deeply impacted if you will by which the future decide -- how is the cftc coordinate this type of conflict firm? >> senator, as you noted, the firm wasn't duly registered as both a broker-dealer and futures commission merchant. but that means is those agencies and the self-regulatory organizations under them have oversight over the firm. in some respects, our oversight about certain activities with focus on securities and the cftc

under the future is that dvds. we both have rules of wealth that would apply to the end of fable. capital rules to be subject to have to comply with both sets of rules. been jointly registered means you have to comply with the rules equitable to perpendicular angles applicable. as he noted the shortfall that has received a great deal of attention in the press and that's a significant concern is on the future side, the segregation of customer assets related to futures positions. your question, does that affect broker-dealer cited think of course it is one entity and is now in broker-dealer cited think of course it is one entity and is now in broker-dealer cited think of course it is one entity and is now in broker-dealer cited think of course it is one entity and is now in in any customer protection regime. we are continuing to work with the trustee as with the cftc to

help identify exactly what is the position of the firm both on the security setting future side because one of the challenges here is the books and records of the firms appear to be challenging in terms of getting to the bottom of some of these questions. i think just having been in close contact with other regulators through the weekend when the firm was exploring strategic options, i think absent the shortfall been identified, there would've been a significant chance of a deal happening that would have transferred the customer accounts out in the way it's meant to have been. so with broker-dealers fail, sometimes their course to make sure that happens. there is a credible and reliable way to protect customers. and that only works if the

customer assets are available to transfer to a new firm. so in that sense, the shortfall obviously impacts the firm. >> does that happen on the broker-dealers site? >> on the customer in terms of customers who stocks are placed orders through the security broker-dealers site? either accounts transferred to some other firms? >> not yet. there many more future customers. so i think the trustee has transferred 17,000 futures accounts that have positions. there are more that he seeking to compensate they did not positions, but had collateral by way of contrast on the security side, he has solicited interest in acquiring 450 securities accounts. so it is a much smaller number of effect to customers. the trustee has solicited interest from potential transferees of those accounts so

that they and their property could move forward. >> so is it likely that the account holders on the broker-dealers site our whole and undamaged? >> i wouldn't want to provide any assurance that this time. i could tell you that with the firm self-reported as a shortfall in the future side. the firm's calculations on the security side with respect to their customers segregation requirements indicated that they were in compliance with the securities customers segregation rules. but as you can imagine, we are not taking that at face value. we are currently working hard to try to verify exactly whose they are to provide assurance. >> i'm over my time now, so i'll just summarize this. the reason i push this point is try to understand whether

there's insite care about complexities of regulate enough for that is both broker-dealer and the futures dealer, whether there needs to be stronger firewalls between the two halves of the business in order to ensure both the coherence of regulation and the security of one side of the firm from fraud on the other side. i will look forward to maybe 19 continuing the conversation with you about insights that can be derived. >> absolutely. >> thank you senator barkley. let me resume. senator crapo indicated his interest in the formation of capital, particularly to small countries. could you let us know your latest efforts in terms those formation, particularly the small enterprises? >> absolutely. so a chairmanship euros request

request, last spring we started an initiative to take a fresh look at our rules to see if there are steps we can take to reduce regulatory burdens that would help facilitate capital formation by smaller companies. ithaca be done consistent with investor protection. as i noted, if investors are confident they won't invest of destiny to actually help anyone raise capital. so in everything we do we try to balance the capital formation but the best admission. this staff has several work streams going rate now that are in the works. one is to do a study of whether the 500 shareholder thresholds for reporting should be changed. in 1964 when congress did not adopt the 500 shareholder thresholds, they had passed the sec do in a row by study. so we are doing that again with help from craig's group. so that is one of the pieces. we are working on a concept release on the general citation

issue in private offerings and we are looking at whether a various ways we can extend some of the benefits they give to larger companies in capital raising extended to smaller companies. easier access to shelf registration, things like that. we are hoped tremendously in this effort by jaramillo advisory committee on small emerging companies that had its kickoff meeting two weeks ago and they are already working on recommendations having considered the topics brought forward to them at the first meeting. tomorrow is the 30th of the annual of government business for them on small business capital formation being held at the commission. i think every commissioners speaking out and attending it, so there's obviously great interest in the topic. >> ms. lewis, you have an increasingly challenging role to

play. relevant legislation supplies publication of a rule for the fcc to consider market effects. but given the recent court rulings, it is hard to tell what consider means. in fact, there seems to be suggestion now and rhetoric that that is sorted to teach a course benefit analysis when every conceivable option, which goes far beyond the literal turn to consider. can you talk about your role in providing that kind of analysis? you alluded to it in your opening remarks, but also if you have a practical difficulty of getting cooperation and giving you the data you need, which sorted sets up a catch-22, you can't do the analysis to promulgate a regulation unless either co-op duration, you don't get cooperation so now you're vulnerable for a challenge. can you comment? >> s., chairman.

as you can imagine the recent ruling on the privacy access case provides significant challenges to the division sort of reassessing the way it conducts cost-benefit analysis. i think the d.c. circuit court took issues with the way cost-benefit analysis has been conduct. historically at the sec. there are lessons they think what they are really asking us is to take a look at the way you actually conducts cost-benefit analysis. they take away from a lot of the recent decisions in my opinion is we need to buy at a more wholesome discussion about the various alternatives that are on the table of wholesome cost-benefit analysis around the proposed rule, but also run viable alternatives to the rule. part of that will be to provide a complete discussion, not only at the cost of benefits we are able to quantify, but the qualitative cost of benefits.

that is really one of the roads in trying to analyze cost-benefit analysis is that so many of the benefits that are associated with the particular rules simply don't lend themselves to ready quantification. it's really not feasible in a lot of situations. i think the other take away from the privacy access decision his father is currently the typical part this is to involve the phd economist at the sec in very early stages of the rulemaking process, i think we need to formalize that process and bring them in at a more formal prescriptive way. >> any comment about access to information from proprietary information that could be decisive in your analysis? >> yes, that is one of the challenges we face because to quantify benefits or costs associated with the rule, you have to avail yourselves today to. if data is not publicly

available, many times the only way you can get it is to try to request the data through the comment. process for market participants. and so, when we proposed rules, we frequently well-designed questions that are designed to give us the data. if you have mentioned real problem with that process is frequently their ip incentives to provide the data on the price of market participants, so if you don't get the data it difficult to do the subsequent analysis. >> thank you very much. i want to begin with ms. rominger in this question, but it looks like all of the panel to weigh in if appropriate. so much of what you do depends on having a feel for the marketplace real-time information data or intelligence and particularly with your supervision of funds, one of the issues today sweeping across the atlantic is the sovereign wealth

funds and who is holding what et cetera. can you just comment in general terms about how uto with making sure you have access to the most relevant information in real time to make these judgments to supervising your case in the case of other investment advisors, broker-dealers et cetera. you can begin, ms. rominger. >> i will start by saying we are giving additional information has been very helpful to us. that is in the area of money market fund of regulation and oversight. money market funds, as i mentioned in my opening comments, the structural fragility and that they accept the bull as a sign of september 2008. and the first round of money market funds required early in 2010, there is required to put in place for money market funds

to disclose holdings information to the sec in the mud basis. and we have started receiving the information exactly year ago. so at the end of november 2010. so we now have mud at holdings for money market funds. i think an instance we have this data provided is very important information to the ways the sense i structured and implications with respect to systemic risk. it is a subject of much conversation amongst the sec and in other regulators who are involved in systemic risk work. so i think that is a good example of where it could be put to good purpose. i think as i look at our responsibilities and think about where our greatest needs are, i think it is with respect to experts, technical experts, market experts, experts in analyzing complex financial strategies. i thank the chairman has

identified that as an area of increasing focus and increasing resource needs for the need and that is certainly true in the investment management decision. >> in terms of access to data as i indicated in my opening remarks, one of the key challenges we face in monitoring the securities markets, the listed equity markets in particular is just the enormous volume of data that is they are the relatively significant job between our accessibility to analyze the data and an inefficient way. so we are working on a number of initiatives to try to narrow that gap. it is the rulemaking process to make sure they will simply place or a structure in place to get that data to the regulators. that would be the consolidated audit trail, the large trigger

reporting system, where we will have better access to data. but the second piece is really having resources internally to be able to make something of that data. so we work closely with colleagues in other divisions when it comes to the audit trail to make sure what we are designing is going to be useful for the examination program as well as their own market oversight program. but it requires both people and elegy to ultimately realize the promise of some of these data enhancement initiatives. another key when we work at is in the swaps market and we have a a machine for reporting of all slots to data repositories. but that will present opportunities and challenges for us again in terms of having greater access to information. but knowing the people and technology to leverage that information be market regulators.

>> i would just add, chairman reid, there's been a tremendous amount of improvement with the division over strategy and financial innovation to really help the d. think about taking it to thicken amounts of data and doing more sophisticated analytics around that data. >> that's been very helpful in offering to come with us on the program to make sure we are agile based on old data, that doing analytics analyses them about drugs or risk being agile and directing efforts there. it's also been helpful in the division of trading and markets to say that what is data we is data we may be altogether because we are in the field every day. we think we need. for instance, exposure to europe, but we could not only can't data in raw form, but of

critical dialogues with the firms. that would make sense and had us be able to make a significant response. >> mr. lewis, ms. cross. i would announce a wee focus resources on it recently is lucky not to largest companies on a real-time basis. so historically we would take them up on fear, look at their thing and get some comments and perhaps move on after they responded in what we have figured out is if we have our accountants and lawyers looking on most of what they say and do over the course of the year, we are able to pick up trends and improve the disclosures across all areas of industry based on what we are saying with leading come to us and this is a great innovation that we hope to do more of it. that is worth picking up a company and giving up his

comments. >> if i could just give an example of the cooperation of the efforts we have with carlos division and what we have done and taken the data initiatives in my division. and the idea is to build risk assessment tools that can be used to essentially score investment management companies as to certain classes of risks. so we are taking a layered approach and what we do as we begin by discussing what the needs are in the division but the key risks are and start it was fairly simple models that perform basic screening. as we learn more about the risk in this space, we develop increasingly sophisticated analytic models. so we know from screening techniques to regression-based techniques in that order. >> and a comments? >> from enforcement perspective is slightly different.

but we do everything that we can to get access to data and analyze it, but we are seriously behind the curve in our ability to do that. i mean, if you want -- if you want to conduct a fair and proper inciting trading investigation into sure you get all the parties who may be involved in an illicit scheme, you'd love to have ready access to trading data and derivatives data, debt data and overlay of chronology of market moving events and new deal to see patterns and trends. we are trying to do some of that, but it is difficult. we need better tools not only in analytics, but to be able to upload information and manipulate data. it can take weeks and months to upload the massive amounts of information make it in their investigation without the proper tools to analyze it the way we

played two. >> i have two final questions. senator berkley, do you have additional questions? let me analyze you now. >> thank you, mr. chairman. i want to continue this conversation on information, but really focus on derivatives. and certainly, we didn't have a very good understanding of the writing of derivatives or states. and i am not sure that we have a very good understanding of the currently and abroad. conversations with icebergs from our rating companies with the response but we didn't understand who is writing, this holding, how they are set at regarding the credit default swaps being written on a host of european firms in sovereign debt. so i wanted to start by

realizing this is a world where the credit default -- the suave producer decided with interest in foreign exchange swaps on the cftc site, on the fcc site. so you all have a piece of this picture. what do we know about european credit default swaps. and if we don't know enough, what needs to change clicks >> senator can initiate conservative and then invite mr. lewis to comment a little bit. the primary entities that we regulate that would likely to take on direct exposures to this, at least in my world, are the broker-dealers. and it totally and through our impression is that is not

significant exposure to capital rules that make it expensive to book a credit default swap in a broker-dealers. however, obviously those transactions can be booked at other entities that are also a general regulatory interest whether the banks are holding company for financial institutions. other regulators may have access to some of that information as well. but i think overall there is a gap in our knowledge of this and i think the solution that we are working on and the cftc is as well as the development of a mandatory trade reporting machine pursuant to title seven of the dodd-frank at, which would require all soft transactions to be reported to a data repository and that would be available to regulators. there is a separate piece about

that reporting to the marketplace, which is a transparency piece. in terms of credentials for stomach oversight of the markets and the risks -- >> let me hold you for just a secondary. on that repository, when do we expect to have it up and operating? >> we have our proposed rules for the data repository and is a earlier, we need to finish our proposal phase for title vii and begin adopting. so we likely see adopting a thoreau role sometime in 2012, but i am not exactly sure. the order in which we adopted this is one of the things in which we want to get public comment. i will say that most parties we have spoken to has suggested the site to be one of the first things we do because it will enhance our information that we have this regulators about what is out there and may help inform

our rulemaking in other areas. >> in the context of what is going on in europe, it seems that a critical element and one of the simpler elements that are to be able to be put in place. is there any parallel effort on the european or asian side? >> there are efforts to develop in other jurisdictions. some of this information is available today through the trade warehouse that is operated in the u.s. and mr. lewis' group has done work in analyzing some of that data. it is not complete and that is so we are trying to get to is a complete picture. >> let me briefly tell you, senator, about some of the work my division has done in the credit default swap data. this has been provided by the data warehouse. one of the projects that we have worked on is to care to rise the position send exposures of the

participants and one of the takeaways that we have going up through the data virtue not 2011 is that financial institutions have been unwinding their exposures to basically sovereign european debt, one of the issues that is critical if we want to consider and evaluate systemic risk is that we need to have a complete picture of all of the parties that transact in this space. to give you an example of why i think this is important, one of the experiments he conducted in our group to see how important this issue might be if we look that positions by only considering u.s. financial institutions in u.s. counterparties. and then, but excluded u.s. affiliates in foreign domiciles.

so, take an investment bank, new york investment bake, consider their u.k. affiliate. ignore the u.k. affiliate transactions and you get a picture of what the exposures are, what the positions look like a cross counterparties. chris exposures in that. and then, run the experiment again and including exposures by also including the trades that occur in the international or foreign affiliates. ..

>> i have actually had discussions with the office of financial research and alerted alert them to this issue and i believe that they are actually working on it. it is certainly a suggestion i have made that they should investigate. >> thank you. >> thank you senator merkley and let me just say that it would be even more responsive if the headache confirmed head of the office of financial research and that is a message to the public. a final question and i think it is an important one to ask and it is in two parts. one is there has been criticism against the at sec about being too close to the institutions

and the businesses that you regulate. related is the issue of a revolving door process and beginning with the comment on how you sort of deal with that in terms of making sure that does not affect your ability to effectively perform your duties on behalf of the public and then a related question and i asked this once and trepidation because if anybody asks my company i would shudder a little bit in terms of what they might say that but you might also indicate just what you sense is the morale in your division because of those two related issues? >> sure. for senator reid we are very cognizant of the revolving door issues and have put in place a number of significant controls

that really focus on that issue. we have an office that is reporting directly to the chairman and has a new head and is very focused on ensuring that there are effective policies and procedures. there are limitations on how people can interact with the sec once they leave the sec. they need to maintain a dialogue with the office of ethics so there is a lot of rules both civil and criminal that govern our conduct with regard to the open door. in addition to that we have our own conduct that adds additional requirements. we want to make sure that examiners don't present that conflict of interest and there is additional controls that require supervisors to be dialoguing with individuals on their team involves and make sure there aren't any complex relationships. i would make an observation on the flipside which is that we

have been able to bring in some terrific talent to the sec that makes us relevant and current with regard to complex structured products, derivatives, hedge funds because we are able to recruit people who have their finger on the pulse of industry practices. my observation in my own view has been that individuals that we brought in with industry expertise and experience against some of our most effective and aggressive examiners, because they understand the gains that can be played and they are focused on targeting our efforts exactly to those high-risk points of product and making sure we we are identifying this issue so i think when it works well are dedicated an existing team at the sec coupled with incoming individuals from industry to bring new expertise and experience really strikes a terrific balance and makes us

more effective in protecting investors come ensuring market integrity and staying in front of issues and being able to protect the markets. and investors. >> the second issue about morale, i think that is a terrific question and something that we are very focused on at the sec. chairman shapiro has fostered a very open up culture of teamwork and collaboration i think that is stronger than it has probably ever been at the sec. at the same time we have incredible workload with dodd-frank and request for more resources to help us make that meet that workload and i think that tension can create some morale challenges that we need to be very cognizant of. there is a relationship between resources and morale and the ability to do the job well. at the same time we initiated

throughout the agency human capital surveys to make sure we are keeping our finger on the pulse of morale, what are the root causes of morale concerns or issues and putting in place action plans every year that are monitored to follow-up on the morale issues. i think that is something we all need to make a priority as directors of the various divisions and offices. i known the national exam program people, culture and morale are the top priorities this year. >> thank you. mr. lewis please, any comments. >> with respect to the issue of morale or people coming in and out? you are somewhat removed because of your analytical responsibilities but those two topics, comments you might have. >> if i do comment on the revolving door i would say it is a good thing for economist because they basically go back to the academic institutions when they revolve back out and

actually if we can engage financial economists and becoming interested in regulation that creates a lot more opportunities to receive church being, independent research being conducted around rulemaking space so you can argue it's a positive for my division with respect to morale. i have been in the office since june but i would like to think that things are going pretty well. >> great. >> in the division of investment management, there are very few people in the division with the exception of myself who have calm from the asset management industry. frankly i think we need additional people from the industry as it is grown much more complex over time. some of the challenges we are facing today are you know quite different than the challenges that the division faced five or 10 years ago and with that increasing complexity, we need

people on board who understand how these instruments and how the strategies actually work in the real world. and so we absolutely must have the correct protections in place to make sure we have the appropriate distance as regulators but we do need that expertise. so with respect to morale, in my nine months at the sec i found that most of the people i work with are motivated to engage in public service because of their strong desire that they can make things better and that is what drives them and motivates them. and i think you know morale is quite good because i think they get a sense that there is a great deal of positive change occurring in the agency right now. >> thank you. >> thank you. i think the markets in keeping up to speed with what the latest developments are is critical to

our effective implementation and responsibilities and we do that for a variety of ways including the comment process in meetings with our participants but the ability to bring in folks who have been on the other side and have -- know where the issues lurk is really crucial. i echo comment of my colleagues about how it is obviously crucial to manage the ethical obligations associated with that but i think that can be done. and i think it is really enhanced and enriched our ability to try to get the rules right. in terms of morale, i would just add that i am, having come from outside of government into government i am truly amazed by the dedication of the staff and their long hours that they put in on the tasks that we give them, the productivity or division is many multiples of what it has been in prior years. the same number of people, much

more being asked of them and it is truly remarkable how far they're willing to go. to some extent this is why they are there. this is the great time to be working at the agencies in working on these key issues that i would echo the concerns mentioned already but how ultimately people do need to feel they have the resources to do their jobs respectively and it is tart -- hard to take the hill if you don't have the right equipment and manpower. >> i agree with everything that has been said about the revolving door, the fresh insights that come in from people who have recently been in industry to help us do our job better and we are extremely careful about the ethical concerns. certainly we have mentioned recusal today. there is no shame in saying i can't work on something because i had a contact with it in my prior job and that regularly occurs and that is important. >> one of the concerns are the people coming in and the people

going out. >> i think on the going out front i would say since i've done that, i think that the overall invest in public benefits because people have worked at the commission have an appreciation of what it is that we are trying to do and i think the sec alumni are especially careful practitioners. i think they go out and populate the security as far as people who want to do the right thing so i think actually it is a very positive development and i would hope it will continue. on the morale point, i would like to echo what robert said about the incredibly hard work the staff is currently doing. i worry sometimes that we don't say enough about how much we appreciate them. we have to stop and take a deep breath and remember to do that a lot because they have all been sacrificing their personal lives to work through the dodd-frank and before that we were very busy in my division with

lawmaking. it's two and a half year since i've been there. on the review program i'm amazed every day at how enthusiastic and fresh they remain when they pick up a company and they look at the filing and they search the internet to see what else the company saying and come up with good comments that improves disclosures. and i think you know i hope morale is good. it's hard to know with as many people as we have but i would say i know i appreciate how hard they are working. >> thank you. >> thank you mr. chairman. i agree with the sentiments expressed here. with respect to the expertise it is critically important. it wasn't very long ago it all but everyone was criticizing the sec for lacking the expertise in order to deal with complex products and transactions and markets and we have done that. we have you know as good if not other set of ethical restrictions on the way out with respect to permit bans on involvement in matters that you

participated in. once you leave, two-year ban on being involved in being involved a matter zero supervised. second of all, in my experience both in the department of justice and here particularly the sec, the ability of one person even if they were so inclined not to do anything other than follow a case on its merits and make a recommendation indecision and take investigative steps that were in the best interest of the case. it is virtually impossible to two. we worked on teams with great levels of review with also pull people, farrell oversight. one person, it would be very difficult to one -- for one person to do that even if they were so inclined and i haven't met such a person. in addition that is not the way you would gain any respect within the division and within the commission. you are respected if you are

hard-driving hard driving and thorough and professional and disciplined and intelligent man to do anything else hurts your reputation, hurts your ability in the outside world when and if you were to leave and lastly the people that leave the sec are really ambassadors for compliance and good practices. i mean they go to firms in the advice clients and they know the consequences of what can happen if they cross the line. we have to leverage those people so some ceo who may be inclined to take a shortcut will listen to their general counsel and compliance efforts and here's what can happen to you and here's what the sec might do if you don't have to properly. i think it is a win-win all the way around. gao looked at our revolving door issues as part of dodd-frank and came away with a single recommendation that we should better document or ethics advice. i think all in all the arrangement is the right one for investigators. with respect to morale people work incredibly hard and are

incredibly committed. the undifferentiated -- takes its toll quite honestly. people are not afraid of being told they can do things better. we restructure the entire enforcement division and people responded in the way that is in the best traditions of anybody in the public or private sector. don't shoot the messenger. look at what's the right thing to do and make changes that are necessary. that has occurred up and down throughout the division. what happened is eventually if the market turns and people don't have the resources they need, they will be more attracted to jobs on the outside and that would be a terrible i think result for investor protection in our efforts because our employees are highly valued. experience. they want to be at the sec. they want to be public servants. can be difficult if you are at the machine at 11:00 at night photocopying your own trial

exhibits. that's what happens. >> thank you all very much for all of your responses and testimonies in your dedicated public service and particularly your patience. thank you all. if my colleagues have their own written statements or additional questions, witnesses that they should be submitted no later than next wednesday november 23 and i would ask the panel to respond as quickly as possible and any written questions you may receive. all the written testimony that you submit will become part of the record and again i thank you for your service and for your testimony this morning. with that, the hearing is adjourned. [inaudible conversations]

[inaudible conversations] [inaudible conversations] up next on c-span2 our interview with national review contributing editor, yuval levin. energy secretary steven chu will face questions tomorrow but government loans to solyndra. the energy department guaranteed $535 million in loans to the now

bankrupt solar company. live coverage begins at 10:00 a.m. eastern on c-span3. c-span radio and c-span.org. >> for those who say that we are rushing this issue of civil rights, i say to them, we are 172 years late. for those who say, for those who say that the civil rights program is an infringement on spaceflight i say this. the time has arrived in america for the democratic hardy to get out of the shadows of states rights and to walk forthrightly into the bright sunshine of human rights. hubert humphrey spoke those words nearly 20 years before champing the 19th of 64 civil rights bill into law. the two-term mayor of minneapolis and longtime u.s.

senator was vice president of the lyndon johnson and later ran for president in 1968 and lost. we will look at his influence on american politics this week on c-span series the contenders. from the minnesota historical society and same paul live friday at 8:00 p.m. eastern. "washington journal" features a magazine article and its author. today we spoke with national review contributing editor, yuval levin about his cover story, what is constitutional conservatism. this is 40 minutes.

>> host: we feature a recent magazine piece and this week we are actually talking with national review contributing editor and national affairs editor, yuval levin to talk about a story of what is constitutional conservatism? this is a piece that appeared in this week's issue of national review and i think the best way to start would be the cover photo. it says neither populace nor technocrats for the constitution so maybe we should start with defining what a constitutional conservative is and what are some examples of a populace in a technocrat that you go through in your piece? >> guest: the basic idea that peace is it tries to dig below the surface of our politics to think about the ideas that are implicit that underlie a lot of our familiar debates. so from the puzzling fact that the democrats today simultaneously make both

technocratic and populist arguments. to answer your question let me talk about what those two words really mean in our politics. we see for instance the technocratic attitude on display when someone argues an important governing decision should be handed over to a panel of experts that is shielded from public opinion. to make a decision that doesn't have to be directly answerable to the voters that we see a lot of that in a legislative agenda the first two years of the obama administration for example. for instance in september budget director peter orszag made a case literally saying we need less democracy and his point is if you believe there are tough decisions to the congress alone is going to be messed. they are not going to deal get done what they need to be be done to the argues for handing over more of the decisions to panels of experts, technical experts. >> host: is that the federal agencies and the regulatory agencies?

>> guest: sometimes the creation of a standing panels of experts. the health health care passed i9 we see the decisions about how to cut medicare costs are handed over to a panel of 15 experts and they are supposed to be people or expert in health care financing and accounting and health care itself and they will make the judgment and congress can vote up or down on that judgment. that is the epitome of the technocratic solution to a problem is to save these governing problems or technical problems and they should be addressed by technical left birds. >> host: so the populace then. >> guest: the same time we see people on the left at this point making arguments that are very populace which is to say they are arguments that say the mass of the public should make decisions is directly as possible that is because the mass of the public is in some way being denied its rights or its interest or desires by some kind of insular minority and often time papua say the minority is the minority of the wealthy so you see the president

going around around the country in the last couple months saying that the wealthiest americans have too much power in our political system that we need to get the mass of public that can charge. again as an argument that is made a lot by democratic all editions. it's an argument that is at the center of the occupy wall street but for example. >> host: are these two sides competing? >> guest: that is the puzzle i started within this essay which is demi kratz and often the same people serious intelligent people in our politics make oath of these arguments at the same time so would seem on the surface as though that is it profoundly contradictory incoherent way to make a political case because these would seem to be two opposing ends of the question, who should govern in america? the many are the few. >> host: what i find do and what the essay lays out if you put that question to the context of american history and of our political tradition you actually discover these are not necessarily contradictory impulses that in fact have been tied together very frequently. the progressives, the original progressives of the earliest

20th century made a much more explicit case and in most ways a much more radical case for both technocratic and populist solutions to our governing problems and they argue that these held together because the fundamental problem of the american system is the change is too difficult to institute. our constitution is too resistant to change and that empowers the already powerful, the people who are to have a lot of power and the to argue that these are mostly the wealthy in our country have their power protected by constitutional system that makes change very difficult. so they argue that technocratic solutions and populist solutions were both ways to get around that constitutional barrier to change. >> host: let's bring in the constitutional conservatism and where they fit into this puzzle. >> guest: well so the fact that the progressives take on the constitution should lead us to look at the constitution and what you find when you look at the framers of our constitution and this is the general view of

constitutional conservatism, what defined am saying is that they agree that populism and technocracy are not opposite. they are two sides of the same coin and they oppose both. constitutional system is grounded in the view that both technocratic solutions to governing problems and populist solutions are going to be very problematic and the reason for that is that neither of the many are the few have exactly the right answers to our governing problems because we are all human beings and we just don't have perfect answers. so they set up a system that opposes interest to one another. >> host: i want to read a piece that gets to that point. from your story on what is constitutional conservatism. you write expert should not govern nor should the people do so directly but rather the people's representative should govern in a system filled with institutions designed to force us to see problems and propose solutions from a variety of

angles simultaneously and as alexander hamilton puts it, in federalist 73, to increase the chances in favor of a community against the passing of bad laws through hayes, inadvertence for design. >> guest: that i think is an expression of the basic logic behind our constitutional system. says that it is much easier to get things wrong than to get things right so we need a system that slows things down and forces us to look at problems from a variety of angles simultaneously and that helps us avoid making large mistake so that when we make big changes they happen only when there is a broad consensus that lasts for a long time so ed said to our decision. >> host: your senses the gridlock is a good thing? >> guest: i think gridlock within certain bounds is a good thing and are kind of goodlatte -- gridlock, the complaints are vastly overstated most complaints don't only come from less. they come from whichever party is in power and wants to get them what it wants to get done

and finds it's more difficult than you would imagine even have to win an election but i think gridlock is actually one of the wonderful elements of the american system because again it helps us avoid making terrible mistakes. it's not the case that we don't make decisions in american politics and we don't institute their policies if we don't make big changes. we do but we make them slowly and we find them and make them to quickly we make mistakes and i think we are going to find that was the case with the health care bill passed two years ago. >> host: you also write that we can see the system taking place in the economic system that we have. explained that. >> guest: you have the same debate so our economic system when it works properly, the markets as and when works properly empowers neither the many over the ridge nor the rich over the many. what it does is create a market system or competition decides who wins and who loses so the rules are the essence of it, not the players are the essence of it. you see complaints of our system from the same two directions from a populace traction which

is again the wealthy have too much power and we should take from from the rich and give to everybody else. again that is the argument we hear made now by the president others but also from people is in the market shouldn't be deciding who wins or loses in our economic system. there should be a centralized system in washington for decided winners and losers, for deciding which market players act in the public interest. again you have a technocratic approach, kind of populist approach but in the middle when it works right you have a system that allows competition to decide who is offering the best product for the market or decide who is offering the best ideas for the political system. is a very unusual idea, this notion that neither the many nor that he should govern but there ought to be a system that helps us to think our way through problems. it's an idea that begins on the humility about the ability of human beings to know everything. that i.d. is the essence of our conscience on system and i think the debate about whether that idea is right or wrong is that

the center of a lot of our political debates. what i argue in the piece is that conservatives should take up the case for the constitution and should not be to populist and not to technocratic. their clinicians to both on the right is what the left but the place of conservatism in our system should be to defend our conscious usual system. >> host: if you have comments about this piece of of your breaded or some other, said mr. levin has bragged give a call and the democratic line in the republican line (202)737-0002. independence to (202)628-0205 and if you are outside the u.s. (202)628-0184. let's give people practical examples of some pieces of legislation that fit into the system. when one that came to mind is the reins act, the regulations from the executive essentially adding a political element to the end of the regulatory system

that congress has to vote on any major piece of wrigley shumpert does this fit into your theory? >> guest: part of the way in which our system has become vastly more technocratic in recent years and really recent decades has to do with the growing power of the regulatory agencies so decisions that are really fundamentally governing will have enormous implications for the way we live are made not by our elected representatives directly but i agencies that are in part independent even from the executive let alone answerable to the congress and voters in these agencies make extremely important extremely confiscated technical decisions that turn out not to be a think sufficiently answerable to congress. part of what i think the house is drenched do is with the reins act is to bring the largest of those decisions under some kind of control by our constitutional system. >> host: let's bring in a few colors, jerry on the independent line from minnesota. good morning. >> caller: good morning, thain for taking my call. yeah we have to get back to

simplify our discussion here, i am a constitutionalist and i believe eshoo we should go back to constitutional government. that is, we should get back to what the founders set up, limiting the power the federal government and right now we have too many branches and departments and bureaus and the federal government such as amtrak, planned parenthood funding, department of energy, department of education all those things that the founding fathers never intended the federal government to get involved in. i used to, so the conservative, but when i see people like george w. bush and the elder bush and karl rove and john mccain and bob dole and those kinds of people calling themselves conservatives and governing gleick liberals i don't call myself a conservative. i love your comment about the records are a problem in this country and article i, the very first sentence of the constitution is all legislative

authority is vested in the congress of the united states. we must get back to that and eliminate the bureaucracies that are just mentioning get back to what the founding fathers intended for this country. >> host: the regulatory system we have in place now, the federal agency that have come up in the last few decades and than 100 years, what are the constitutional's conservative saying about that? >> guest: there are two ways to think about the constitution. when is a specific set of rules laid out in the words of the constitution and one is as a worldview that is the embodiment of the constitution. the constitution permits some growth in government. doesn't defined any in particular but allows the president to form a cabinet. the congress certainly does have the rights to create new cabinet departments. the problem is when congress begins to delegate his authority, the caller says quite rightly the opening words in the constitution say all legislative

authorities -- and by legislative authority, it is not a circular statement. doesn't say congress can do everything congress does. says congress decides what the executive does. in the last 50 years or so there has been an enormous amount of delegation, legislative authority by the congress to the executive and a lot of that is done by both parties not just by democrats. a lot of that is done frankly because members of congress want to avoid making difficult decisions. they want to build a say we have this and it was a decision made by the epa. there is an enormous amount of shirking of responsibility. i would say consumers are anybody concerned for the character of our constitutional system should think if there ought to be significantly less delegation of legislative authority to the regulatory agencies and aren't going to be more legislative oversight.

>> host: you want congress making more decisions? >> guest: in this respect i'm different from conan -- some good service. i think our system was set up in a way that congress not by accident. is not a coincidence article i of the constitution describes the congress, not of the supreme court. i think our system works best when the legislative process makes large decisions. there are such things as small decisions. decisions that really are about how to implement laws passed by congress but to many of the decisions that are now delegated to congress are fundamentally legislated from the congress or -- and those need to go back to where they belong. >> let's go back to bob and independent from columbus georgia. good morning. >> caller: good morning. i feel like i'm in a class on conservative and government. this is a little off track. in the beginning there was a time when conservative was really popular. they left at the john birch

society and i'm trying to find out why. would you mind telling me why the birch's were left out just for my own interest i guess? i will take my answer off the air. thank you very much. >> host: explain the background a little bit. >> guest: william f. buckley made a concerted effort to exclude from what was considered the conservative movement some fringe elements and more radical elements including the john birch society. is reason for that as i understand it was that he took their virtues to be far too extreme. they argued for example almost every politician in washington was a communist agent and wide eisenhower was a nation nation of soviet union. i think william f. buckley argued that people who were that paranoid don't belong in a political movement that wants to play a serious role in governing the country. he didn't make that decision himself. he made an argument that was the case and a lot of people agreed with him. in any case that is the story of

the birch's. >> host: there questions out there about the constitution and whether it applies still today. mavy on twitter rights we needed 21st century constitution and not a document widely open from his interpretation to preserve and serve certain interest. >> host: . >> guest: i would say that is a great encapsulation of the progressive argument. the progresses in the early 20th century and they are successors today argue that our constitution is not kept up with the changes in the world and the changes in politics or changes in our country and essentially it is outdated and needs to be rethought. that was one important reason why they needed to be ways of getting around restrictions on change and the limits on change. that is their argument against the fundamental idea that they change should be difficult to make. i would argue the constitution is by no means outdated. the constitution is grounded in some timeless principles about human nature and human society

and especially as i say in the idea that human beings are always going to be in perfect governance of themselves so there has to be a system and play that forces us to carefully think through large decisions. that is the essence of the constitutional system and that is not change by any means. i think is more true than it used to be. >> host: listed go to herald on her public mind from westwood nurtures it. >> caller: good morning. i couldn't agree more with what has been said by this very intelligent gentleman. however, specifically what are we going to do to help our beloved country? essentially what we obviously must do is kill or repair a bad bill. that is far more important in passing a good bill. we are in big, big trouble. not only that, but what this administration has done is trying to destroy life, liberty and the pursuit of happiness.

but even more important is that the judiciary back in 1973, they took away our right to life, liberty and the pursuit of happiness and not only that was a violation of our constitution and our founding principles. the supreme court passed new legislation. how can we reverse new legislation that the judiciary past. the supreme court had no right to pass new legislation. >> host: mr. love and how does the court fit into the argument you are making here? it is mostly based on congress. >> guest: that's true. it is really about as i say the underlying view of government that underlies the constitution. is not just about the words of the constitution but i certainly agree with a lot of what the caller is that. there is a way in which the fact that our constitutional system of has gotten out of balance is

put a lot more authority in the hands of the supreme court. the fact the government does a lot more than the framers thought the national government should do is put a lot of complicated question in the hands of the supreme court and frankly we have come to believe and we have come to argue that the final arbiter of the meeting of the constitution is always a supreme court. there are many answers instances when that is true but the court functions as a court and that is when it is empowered to decide the meaning of legislation in comparison to the meaning of the constitution. the course decisions need to be final by legislators and presidents have had to take seriously their responsibility to uphold the constitution. the president swears an oath to uphold the constitution. that means he is to have himself or herself an understanding of the constitution and a sense of what the responsibilities of the president and the congress and the court are. too often we see people shirking that responsibility and again it

is not just democrats by any stretch. the most explicit example i can think of this president george w. bush with whom i worked for who said when he signed the mccain-feingold winans law that he thought parts of the law were unconstitutional but he was signing it anyway because he figured the supreme court would figure that out. that is the shirking of responsibility of the president. i think every member of all is the branches of government have to take seriously their obligations to the constitution as they understand them. >> host: you work for the president. would she do for him? >> guest: i was a member of the domestic policy staff at the white house and worked on health care issues but a variety of other domestication says well. prior to that i was in the bush administration as well and the chief of chief of staff on bioethics for a few years. now i work in the the public policy center and in the editor of national affairs which is a quarterly magazine of public policy. >> host: end date contributing

editor to national review and what we are talking about our weekly spotlight. let's go right to kalamazoo michigan, ralph is a democrat. good morning. >> caller: yes, it to if two different areas of comment. i'm wondering one, what does the guests think about the overflow of money in campaigns and now we have lots of private money. we have got anonymous money and i think we are going -- we are veering away from a democracy toward a plutocracy, where money is sorted done all off of c-span. you don't see what lobbing goes on. i would like him to comment on the effect of money in politics and the other question i have is the gridlock in the senate.

the senate can't pass bills without a supermajority. it has to pass a budget bill. we are now $15 trillion in debt and it's getting worse. we have a supercommittee and the supercommittee can't pass the budget, can't manage to come up with a budget so i think we have a problem in the senate which is an action rather than action. the other thing is there is no debate in the senate any more. >> host: you seem to indicate that an action is a good thing in some ways. >> guest: look i think there has been a problem in action by the senate but i don't think it is the function of the senate rules for the constitution. >> been a function of the unwillingness of the senate leadership in the past several years to move major legislation. especially in the past year with a republican house. senate has not passed a budget. the senate has not proposed a budget be there. no budget has failed because they haven't move major legislation. i think that is a conscious decision by the senate

leadership. >> host: rob had a question about how campaign finance is unconstitutional. >> guest: the most significant part of a the problem we talked about anonymous funding. i think the solution to the bulk of the problem of money in politics would actually be a system of transparency, of all funding of all campaigns being made visible to all on the internet, on any other way you might get added. every campaign donation should be absolutely public. >> host: the super pack is a report. >> guest: their donors and all of their donations come everything should be public. i'm not a believer in strict limits on strict campaign donations. it is one way in which citizens have a say and not just big corporations and not big unions. is a lot of individual citizens. these are playing around with the rules people who want to game the system will always find ways and people who want to admit legitimate influence on the system will have trouble

doing it. i think messing around with that level of detail importer -- empowers people who can afford levelers. what we have to do is make everything visible to everyone. that is not the case today and i think that's a problem. >> host: coming back to your story on what is constitutional conservatism. i understand how the tea party fits into this debate here. is that not a populist movement? >> guest: it's an important question an important part of what is trying to do in the essay. without question the tea party as a populist movement. it is however very unusual populist movement. its it's populist in its tone and populist in its method but the substance of what it argues for is not what american populace usually argue for. it argues for limited government. it doesn't argue for taking from the rich and giving to the few as populist on the left and giving to the many is the populace on the left generally argue. doesn't really argue for middle-class tax cuts. is populace on the right.

it rather argues for restraint on government for smaller government that began with concerns about the bailout in his progress with concerns about the budget in general. it argues for less giveaways and it argues for less inflation. it argues for smaller government and the grounds itself in the language and the terms of the imagery of the constitution and the way it that is very unusual for an american populist movement. in my mind what is most important is the substance rather than a populist component i think the conservatives and people who consider themselves tea party members need to focus on the constitutionalism and focus on the recovery of the american constitutional system rather than on the populist methods of the tea party movement which of course have been useful in many ways and have brought a lot of energy. they can be dangerous too because they can easily.away from a conscious usual system towards a kind of resentment of the cultural elite on the left who are essentially a technocracy which is not the right answer i think.

>> host: not to give away the ending of your piece in the "national review" but i do want to go through your question. because of the left has been so much more technocratic the right's response is naturally a populist tone. that is appropriate and has been effective but the tone was not overwhelm the substance of the wright's critique. in this time of grave challenges conservatives must work to protect the fundamentally constitutional character of the tea party and of the conservative movement avoiding the excesses of those populism and technocracy abu work to undo the damage done by both and to recover the american project. i want to go right to the phones. joe was joe was on the on the republican line from fort worth texas. cocoa good morning to you both. mr. levin i'm looking for to reading your article. seems to hike the constitution whenever sports there's respective agendas. very constrained by their public and said is today regarding obama's policies would have been

valid during the bush demonstration on issues like wiretapping and torture and unfounded unauthorized military involvement around the world. i have started paying attention to the presidential candidate ron paul. the "national review" has written some about him, mostly as a fringe candidate with views for the constitution that are labeled as a throwback or obsolete. he appears to be gaining in the polls in the subject of more google searches on other candidates. seems like the media is attempting to stifle his meshes and that could be described as more firmly based in the constitution and the other candidates. deeply that this is because of an anti-constitutional agenda or if you could just speak on that as a writer of really appreciate it. >> guest: ron paul has been a member of congress for many years and has been a prominent voice in our republican debates for many years. ron paul is a libertarian in that respect he is different from many other conservatives in various ways. i would differ with the notion

that ron paul is a constitutionalist candidate. it is true he talks more about the constitution than most other candidates do but i think ron paul has emphasized the limited nature of the federal government and certainly an important element of the constitution but he emphasizes it to the exclusion of the fact of the constitution also envisions a fairly energetic federal government within its proper bounds. the question is, where should the reach of the federal government extended and where should it not? to my mind, to limit the ron paul wants to place him in power for president in the power of the congress are based in a field government that is not exactly the view of the framers of the constitution. it's a much more radical individual view and a limited view in some respects a it technocratic view which says if you beat the market everything will will work -- work well but to mind that is not the view of the constitution and not the view of capitalist system either. the markets you need to be regulated in the government has to exercise authority in some

realm but those realms aren't limited in those regulations have to be limited. we have to set up the rules, not the winners and losers. to me that is a distinction and ron paul goes further than i would in articulating limits on their reach of congress and the reach of a president. >> host: if it's not ron paul is their consideration -- constitutional conservative now? >> guest: i think most of the republican candidates fall into this general description part of the reason for that -- >> host:cohost or their degree y you can see? >> guest: yeah come without endorsing or picking and choosing i would say the fact that the left for most of the 20th century and most of the century so far has taken the view that we need to overcome the limitations imposed by the constitution has meant that the right has become the defender of the constitution and the modern

conservative movement is the constitutional movement. most of the candidates in various ways express views that i would describe as articulating a defense of the system of rules we have come a system of limitations on governmental power, system the limitations on the power of any particular party within our public life that exercises governing power directly. you hear from newt gingrich and romney and rick perry. you hear it in some respects from everybody including ron paul but i think there are differences within the proper bounds of the constitution how much government should do and those differences are are permissible under the system that was set up. i think is generally not fundamental differences. >> host: do you want to say who you think is the best constitutional conservative? >> guest: those kinds of things come clear so we do have some instances where i think someone like matt romney has showed himself to have a concern for the constitutional structure

and certainly rick perry, the governor of texas has shown a deep concern for federalism which is an important way that it sets up competing governing centers and that is a very important facet. newt gingrich when he was speaker did much the same in terms of federalism and the federal system and the constitutional system. they have all the different way shown it. don't know it will be easy to rank them. >> host: let's go to matt on the democratic line from berlin new jersey. good morning. >> caller: good morning. the supreme court doesn't care about the people of the country and they care about the corporations. second of all. [inaudible] third of all y. is good when the

constitution -- conservatives don't get the way they want to amend it. >> guest: is versus supreme court, shouldn't be a question of whether they care about the public or the corporation. that is their job and what their priority should be. to the question of amendments the constitution of course in itself contains an amendment process. the amendment process is a very arduous, very complicated constitutional process like all of the decision processes in the constitution sets up. there've been times in our history, 27 times when we decided to amend the constitution. constitution. it is always taken a long time. insides taken a broad consensus in the public and i think it still would and i think that is an appropriate way to make large decisions when we believe our system of government has to be adjusted in some way rather than to haphazardly in innate affect the way amend the constitution, certainly violating the system that sets up and delegating

power to the regulatory agency or group of experts not empowered by voters. it seems to me it is a better way to change our system when we need to change your system which happens rarely but does happen. >> host: it is how long discussion about the balanced budget amendment. do you think the framers -- >> guest: i think that we ever had a majority we wouldn't need it. the balanced budget amendment is basically a way to deal with the fact that congress has not done its job in recent years. the federal system, and i agree with it, the reason we have a deficit is congress and presidents of both parties have spent more than the government is taking them. is true that at the constitution requires them to do otherwise they would probably do otherwise. the constitution and 49 to 50 states requires a balanced budget and the governors and legislatures do accordingly. to get there would have to pass

it through the congress and the stay. bp at two-thirds of congress to say when we need a balanced budget they have to pass a balanced budget which they haven't done quite a while. >> host: and in some way to sound like you are agreeing with the statement of administrative policy on the balance budget amendment from the obama adventures that came out yesterday. the white house race we do not need to amend the constitution to do the job of restoring fiscal discipline. said a requires us as members of both parties to move beyond politics as usual and find bipartisan common ground to restore us to a sustainable fiscal path. >> guest: that is certainly an instance where a great. i think it would be nice if they put their money where their mouth wasn't actually propose to balance budget which they certainly haven't done. they have budget they propose for fiscal year 2012 would increase the deficit and the debt over last year but it's true, i would be reticent to amend the constitution with specific fiscal policy constraint. i think that begins to reach a level of specificity that is probably excessive in the

constitution. if it turns out we simply can't do it any other way maybe we could but i think if that is the case and don't think this congress will pass a balanced budget so again if we can do it we have to pass the balanced budget. >> host: craig on the republican line from florida. good morning craig. are you there? i think we lost craig. mitchell on the independent line from chicago, illinois. >> caller: hello, and my own. >> host: you are on. go ahead. >> caller: i have a quick question in response to the caller from new jersey that mentioned but mentioned the 1973 court case. i think i know who he is referring to in the conservatives or conservatism which generally at least a day speaks of invented rights or restriction rights and how that jibes with the ninth amendment.

>> guest: well you know the case you are talking about his roe v. wade which is often held up as the epitome of judicial overreach by the supreme court where the court decided by combining the fringes of some of the constitution should shall rights articulated via prior courts and the prior decade they found a right to privacy that thing could be understand -- understood as a right of abortion. that certainly is an example of judicial overreach. it certainly is an example of informally in my opinion, been formally amending the constitution in creating the right that is not actually in the constitution. now, as far as how it relates to the implicit limits placed on the constitutional system by both the ninth and 10th amendment which basically say that rice that are not essentially enumerated are assumed to be relegated to the states and the people. i think that, i think that the

roe v. wade is said an example of exactly what those were intended to do, which is the question of abortion can be a question for government to decide the ground at the federal level. the constitution said there things that enumerates those in article i, section 8 and describes the powers of congress. but it then ended 10th amendment asserts exclusively that the rights that are not enumerated in the powers that are not enumerated are assumed to reside either with the states or the people. i think the abortion issue is one that should go back to the states. >> host: let's try to get in one more caller. allen is independent from estes park, colorado. good morning. >> caller: good morning. >> host: caller we only have about a minute left here. >> caller: my position is, used to be conservative but i had to move over to being an independent because the republicans have signed up for

dictatorship under grover norquist and i am not in favor of the united states moving into dictatorship. secondly i did want to quickly comment on the issue of roe v. wade was not about abortion. it was about a woman's right to choose. nothing in roe v. wade is mentioned the word abortion. there were many issues and pieces of legislation that were presented at the time that were never passed by the supreme court. >> host: we will have to give mr. levin a chance to respond. >> guest: if you read the roe v. wade decision is all about abortion and discusses discusses in great detail the abortion procedure and a woman's right to choose is a matter of choosing abortion. to the first question about grover norquist, it has been interesting to watch how grover norquist has become so prominent

in the criticisms of congressional conservatives. i think it is vastly overstated. grover norquist and a lot of c-span viewers know has a pledge that he has any office seeker who wants to uphold to say they won't raise the net rate on the american public. if you raise taxes you have to lower other taxes. the reason politicians stick to that is because they believed their voters want them to, not because they have signed with blood some kind of grover norquist petition and i think the actual, the actual insistence of republicans on that is actual understandable. we have seen it in just the past week. the republicans on the supercommittee offered up a proposal that does increase revenue and presumably the leadership in both houses believe they ought to propose that. republicans have been willing to do that in the past. what they want in return at this point is entitlement reform. the democrats so far not willing

to do that. there is no grover norquist on the left making people signed petitions not to -- entitlement reform. it is easier to understand our politics to be think about why politicians do what they do rather than to look at other people who might put their views into words in a petition. grover norquist is not the reason the republicans oppose taxes. the author of the reasons all the time. >> host: in a time we have left, are you optimistic that the supercommittee can come up with something in a manner that the constitutional conservatives can accept? >> guest: you know the supercommittee is not very appealing to conservatives in general because it is the way the congress delegating authority that it has in general to a few of its members in particular. coarser runs into the same problems it runs into when the congress is dealing with these issues. i think the supercommittee probably will propose something, some combination of kicking the can down the road basically sending the issues back to the congressional committee together

with some cuts and spending. is probably better than nothing but i don't think we can expect delegation of power in the larger congress to settle the problems that congress alone can result. this has to be worked out by congress and that means it has to the worked out way the republican congress. .. >> host: it's what is a constitutional -- what is constitutional conservatism.

thanks so much. >> guest: thank you. >> there's a story i was told from inside the administration when obama was given the first budget and there was 6,000 earmarks in it, his first instinct, he said, was to veto that budget, and he was told by his obvious, you know, capitol hill, they said there's no way you can do that, you can't cut the ties with the democrats. i think had he vetoed that, he would have been the tea party. had he signaled his fundamental desire to change the system and change the way that washington

works, he could have continued to rally the reform movement that now breaks out all over literally the world because of its frustration with the current way that democracy doesn't function. >> harvard law professor on money and its influence on washington, sunday night on c-span's q&a. >> at wednesday's defense department briefing, spokesman george little and captain john kirby spoke to reporters about the military mission in afghanistan and the pentagon budget. this is 35 minutes. [laughter] >> much better. [laughter] >> i like that. [laughter] [laughter] >> good afternoon, everybody. [laughter] i'm just going to have an opening -- [laughter] open up with a couple of words, and then we'll get right to it.

>> this is a little different, john. [laughter] >> i think i needed a bigger book. [laughter] >> tomorrow -- >> are you sitting on a book? >> i am. i couldn't find a phone book, but i found this really big management of security assistance document. [laughter] the only thing i used it for. [laughter] [laughter] >> there is a taller version. [laughter] >> i am so not going to have a job later. [laughter] tomorrow, as many of you know, secretary panetta is departing to a two day trip to connecticut and then nova scotia. the secretary will be visiting the general dynamics electric boat shipyards where class submarines are built. he'll receive a briefing on the construction. the process, get the tour at the precommissioning unit, the mississippi, and also looking at the forward engine room of the

north dakota. while there, he'll be able to talk to workers and navy personnel, take questions. that's an open press event. then we'll leave and go to halifax for the third annual halifax forum. it brings together ministers from across the world to discuss key defense and security issues and it's focusing on looking at progress from the past year and discussing challenges ahead. while there, he'll meet with canadian minister of defense, peter mckay, to discuss the strong bilateral relationship with canada, and he'll have the opportunity to meet with french general stefan, the nato supreme commander for transformation, and with his israeli minister defense. israel has been a consistent participant in the halifax forums, and this provides an opportunity for the two leaders to have their fourth meeting. the secretary will also deliver a speech there at the forum primarily about the importance

of multilateral alliances and partnerships particularly in the western hemisphere, and with that, leah? >> one quick housekeeping thing, and then 5 question. the secretary yesterday said 29,000 troops in kuwait when he reeled off the troops in the region that added up to substantially more than 40 # ,000. -- 40,000. has there been a bump in kuwait? >> i think the number was somewhat in error yesterday. it's somewhat more than 24,000. >> okay. on afghanistan, i'm sure you have seen the comments by president karzai at the start of their meeting, and i was wondering if you had reactions to his comment about the fact that he is looking forward to a permanent process of u.s. troops with certain conditions including no night raids and having detainees turned over to afghan control. can you talk about what the u.s. reaction is to that and where

things stand in the negotiations 1234 >> we're watching it closely. this is an important traditional afghan constitution, and we welcome president karzai's endorsement of the partnership. united states and afghanistan have been working closely together 20 frame a long term strategic partnership, and those discussions are ongoing and will go on for some time. on the specific issue of night raids, the key point for us is that these operations are conducted jointly with the afghans. we expect afghan participation and night raids to increase over time, and it's worth noting that 85% of these operations are conducted without a single shot being fired. >> is that a deal breaker though? is that a point where the u.s. would draw the line, that, no, there's not an agreement that includes anything on night operations?

>> i don't think we're looking at the 3r0 seases now -- process now or the future of the defense or the partnership we want to have with afghanistan in terms of deal breakers or red lines. i mean, the night raids do perform a very valuable and necessary function, and we do understand and president karzai has been clear over the last several years about his concern with night raids, and we share those concerns. nobody wants to see innocent civilians hurt, but as george pointed out, they are effective, and they don't result in a great number of civilian casualty, but we're not looking at -- what we're trying to do with afghanistan is get -- develop a strong partnership moving forward, and that's what our focus is on, and we're not looking at that in terms of deal breakers or red lines. >> dan? >> on that same issue, there's been a lot of concern and criticism that u.s. policy is not sufficiently clear to the

country's in the region when it comes to the long term u.s. military presence there after 2014. some people say the u.s. needs to come out and say clearly there will be some kind of a military presence there after 20 14, is that the department's view that there's going to be a military presence there? >> we don't want to get out ahead of any discussions taking place, dan. yes, we want to have a long term strategic partnership with specific components of that partnership still to be defined. we obviously want to work closely in concert with the government of afghanistan to define the parameters of that enduring partnership, but it's too early to say. we're in 20111, and our commitment, you know, per lisbon , goes on to 2014, and we hope beyond that, but in terms of u.s. military presence beyond

2014, it's too early to define those specifics. justin? >> changing the subject. back to afghanistan and the night raids. the u.s. has said repeatedly that the afghan government signed off -- [inaudible] have they stopped signing off on these raids, or has there been a change in the number of raids they sign off on? >> not that i'm aware of. >> no that i'm aware of either, just p. >> they are involved as realm. >> so presumably the people who sign off on the raids in the afghan government are in favor of the raids? there's a disclaimer within the afghan government -- >> we can speak to what the views inside the afghan government are, and sort those out if there's disagreements, but, you know, we laid out our belief that these operations are

effective, and they are joint with the afghans, and we involve increasing afghan participation over time. just as we, you know, have tried very hard and are having some success in transferring afghan leader responsibility for different parts of the country to the afghans. >> is it a fact that the afghan government signs off on every raid? >> i think the best way to put this is these are partnered operations. these are partnered operations. >> on the same focus, do you know what are the areas that nato and u.s. forces are planning to hand over to local security control and when this will happen? >> you mean the second tranche of areas 1234 >> those have not been announced yet, and i would not get ahead of president car psi on that. we expect an announcement on that relatively soon, but that's

up to the karzai administration. >> there's areas in capped hair and pro-- kandahar and provipses in the south? >> i'm not getting into that yet. >> do you know how many troops will be sent to reenforce the fight? >> i don't have the specifics. do you, john? >> no, i mean, that question sort of implies there's some sort of decision point coming. >> alan suggested -- >> indeed, they have. they have already moved some forces from the south to the east as conditions require, and, as you know, they've been very aggressive in the last month or so in going after the hakani network. the theater commander has the ability and responsibility to move forces as he sees fit, and i think that's going to continue. i'm not aware of any, like, big decision point coming up here. >> another afghanistan question quickly. how does the pentagon approach

the question there's the 1230 report saying overall initiative attacks are down in 2011, but on the other hand the united nations say clearly they believe violence is on the rise. how do you reconcile the two narratives? >> well, we're very comfortable with the data that we've been collecting, and i am not an expert on what the u.n. is saying. i'm aware there's that disperty. i think isaf is quantifying them as enemy-initiated attacks, and there's data that shows they're on the decline and that they, in general, tended to be that what, especially when you compare right now to this time last year, so we're very comfortable, i think, when we say 245 the security -- that the security situation is better, and in many places improving, but we've also been very clear it's not just about the violence, whether it's up or down, that the real progress in

afghanistan is determined not by military success, but by political, social, and economic success, and there are significant challenges remaining with regard to governance and corruption. >> but on the question of violence, is the u.n. wrong? i mean, it's hard to understand how both of those narratives -- >> i'm not picking apart of the u.n. report, but we are comfortable with what we presented to the congress and the data in there. >> i think the important thing on afghanistan is stepping back, you know, from the two narratives as you described them, and this is a much different fighting season than seen in previous years, and we've seen tactics of the enemy change, and we believe that's in large part due to the significant pressure we brought to bear on them. we still have difficult challenges in front of us, but the secretary has full confidence in general alan's leadership in what he's doing to

bring pressure on the taliban and the hakanis and others disrupting afghan life and attacking the united states and our partner nations. >> one more quickly -- hakani network and also tensions and international communication concerning afghanistan, also many have feel there's another time for the u.s. to announce a withdrawal because the terrorists get the wrong message, so what i'm asking you, what are you hearing from the government that are they ready? >> well, they are ready to assume control? well, that's something we're all working toward with close partnership of the afghan government. that's absolutely the goal

certainly by the end of 014, and supporting the security afghanistan will continue to be a goal for the united states beyond 2014. now, how we do that, we still need to determine in concert with the afghans. in terms of the hakanis, it's important that the nato-led isaf forces continue to bring pressure on them, and that's what general alan is doing, and they are, i think, suffering as a result, and just need to keep it up. justin? >> you've been talking with india and concerned, secretary talking about it with officials, and they were here also. is india getting involved now more than what they have been doing in afghanistan after 2014 or after next year? >> i'm not going to comment on what india may or may not do in afghanistan. justin? >> what message should china take from the marine build up in

australia that the president announced today? >> it's an important initiative we've been working with our australian allies for a long time. to put it into con tech, the united states, the president on his trip said that asia-pacific is a priority, a top priority for the united states in our security needs going forward. the secretary said similar things on his recent trip to the asia-pacific region. we have a 60-year alliance with the australians, and this is an effort to further our ties to the australian military, and put this into context. this is a training and exercise presence that will be based, over time, you know, we'll start with 250 or so marines. i think beginning next year. then we'll grow to some level.

the exact time frame is not known at this time, but the focus of this mission, which will occur on australian bases, is to work closely with the australian military on training and exercises. >> okay. >> it's not about china. >> the message is not for china, but our commitment to the region and allies and partners throughout the asia-pacific. >> are you surprised china interpreted it as an aggressive build up directed towards them? >> i'm not sure whether they've actually said that or not. >> actually, they have today, yeah. they have not reacted timely to it to say. >> this is about meeting our commitments to partners in the region. 12k3w4r this is about -- >> is about building a architecture in the asia-pacific region protecting u.s. interests and the interest of our allies. >> yesterday, secretary panetta, or two days ago now, a letter to

cut major weapon programs to cut the f-35 and land bases. why is this training mission more of a priority than, perhaps those programs? i mean, why is this such a big deal? why does this need to happen now? >> well, let's just be clear on what the letter actually was intended to do, and that was to address the potential impacts of secretary panetta -- sequester. >> it was not deemed to be a threat to cut anything, but a statement of fact about what kinds of things we have to look at should the supercommittee, you know, not -- >> just back to the question. the administration officials say, and maybe mr. obama said this as well, but they said in the background or around the speech today, they said the pentagon is going to shield from cuts, you know, the u.s. presence in the pacific, that that would be not subjected to

the same level of cuts that the rest of the budget was, but what does that mean? are you familiar with that? is pa net is a say the thing thing? is it about bases 234 asia or the navy budget versus the army budget? what's that mean? >> i think the clear message that the president and secretary delivered is that the asia-pacific region is important for our security interests, not just our security interests, by the way, but our economic and political interest, and that the united states is in the asia-pacific region to stay. the particulars of how we're going to engage with the partners in the region have not been worked out yet, particularly in the context of the budget. the secretary said we are going to engage in a strategy-driven process to identify savings in the defense budget. now, that strategy has not yet been completed. we think it'll be completed

soon. from there, you'll look at particular cuts that may or may not be made, so we have a ways to go here, but the message should be loud and clear, and that is that we will remain a pacific power. >> mr. gates had said is prior to the -- to the -- to the bigger cuts said one part of the budget that was protected was anti-antiaccess denial stuff, so -- >> modern -- yeah, you got that. [laughter] >> well, no, countering access airline denial stuff, and ship jammers against missiles, other programs to protect carriers and stuff like that -- things -- are those sort of modernization programs aimed at countering

anti-access devices in the sort of -- in a protected class within the budget because of their utility in the pacific? >> in terms of the budget, there are no decisions yesterday about anything. everything remains on the table. a2ad remains an important principle that we think we need to continue to look at closely, but in terms of the budget, no decisions have been made. >> that said, that said, these are very important kates. -- capabilities. as you know, we formally stood up an air-sea office primarily charged with developing a con cement of operations for the military that is all about helping improve our capabilities in this arena because they are growing capabilities that we remain concerned about globally, not just in the asia pacific,

and they are capabilities that we also need the ability to improve pop. >> with that question, i mean, it sounds like clearly part of the strategy has, indeed, been solidified here, and that is the u.s., at least militarily, is focusing, and the strategy overall, focuses more on the asia-pacific and that raises the question not only what you're going to cut there, but if you're not going to cut programs and preaces specific -- programs regarding asia-pacific, does that mean things in other regions, formations in europe and troops and other things in the middle east, doesn't that mean that those instead with deal with the brunt of the cuts? >> in terms of our commitments, you know, to other regions, i mean, let's just be clear, yes, asia-pacific is a priority. we had a long standing presence in the middle east, and we'll continue to have a presence in the middle east. that's an enduring commitment. our commitment to our european

partners is unshakable, so, you know, how the budget cuts, you know, affect our capabilities or relationships in particular regions, i don't think that's really, at this point, been defined, and our -- the important thing to realize is that our commitment is not measured in dollars. it's measured in our partnerships. it's measured in our alliances. it's measured in our commitments. it's not measured in numbers of of troops or dollars that we send. it's also measured in alliances. there are, you know, is no question but that we will main maintain our commitments around the world. tough decisions will have to be made eventually, but that's the nature of this very difficult process. >> it's not just about shielding. it's about investing, and in some cases divesting where it's

necessary, and in the very austere fiscal environment we're heading into, we have to be honest about the things that the joint force can do, should do, and must do, and those things they can no longer do or should no longer do. as george said, no final decisions have been made, but under that umbrella, it's going to include programs, things, it's probably going to include people, and i don't just mean in terms of raw numbers, but the skill sets you are investing in and where that balance comes up. it's also going to have to include where we operate, where we train, who we train with, but we just aren't there yet. matthew? >> can you explain to -- the u.s. defense spending represent nearly 40% of the world's military expenditures. we have nearly doubled since

9/11. secretary panetta in the letter said that if the worst case scenario was triggered, it would face cuts by 20% over the next ten years, so is the pentagon overstating the problem or inefficient in spending its money with fewer ships and aircraft ten years ago? >> we're absolutely not overstating the devastating consequence, and you're not naive at all. don't take issue with that. the secretary made clear in his letter to senator mccain and senator graham that there would be serious consequences to flow from the sequester, and just a point of clarification, some people, i think, are concerned that sequester is taking effect next week if congress does not reach a deal. we hope they reach a deal by the

end of the year. the sequester doesn't arrive until january of the following year. that being said, this is a large department, and we have to plan for those cuts nearly right away, but our focus right now is on avoiding that and on feeding the fy13 budget build in the absence of sequester. in terms of the budget growth since 2001, yes, an absolute dollar terms, the budget has grown, but if you look at the defense budget as a pie, the pieces the pie have shifted, and the percentages of the defense budget that are required for supporting military personnel and benefits, those percentages have grown dramatically, so the per sen tamings inside the budget of 2001 are not the same

per sedge tajes we see today, and that's an important thing to bear in mind. >> some of those costs have outstripped inflation. personnel costs, for instance, 85% growth in the cost of manpower just since 2001. it's in weapons as well. some of these costs just outstrip inflation. >> [inaudible] where does he stand with negotiations with singapore on the naval basing deal that secretary discussed when he was in asia? things nearing conclusion on that? how would you compare the strategic importance of what's at stake in singapore and what's being discussed 24 about possibly -- there about possibly combat ships there about the deployment of marines to australia? >> i don't have updates for you, craig. >> we'll get back to you on that one. >> yeah, kevin? >> on the detainee provisions overnight from yesterday,

secretary's letter was harsh, and the chairman from intel and judiciary opposing even the revised version. what do you prepared to recognize, anything to stop this? does the secretary recommend a veto to the bill? secondly, senator mccain says that the changes they made are quite expansive including the waiver to allow the defense secretary to wipe away requirements for any detainees. >> well, the department and the secretary are concerned about maintaining maximum flexibility when can -- when it comes to where a detainee ends up in a judicial process. that was the point of the letter that he delivered yesterday to the hill, and he believes that