>> as i look at that list, that's the list of the countries we have the greatest concern about except to greece. was there a rationale for not trading also in speculating in the bonds of greece as well as the other sovereign nations that

i've talked about? >> if one could up a detailed credit analysis of the underlying sovereigns, which not only people at mf global but other financial analysts would have contributed, greece seemed as a country that could potentially with a significant operability go through a restructuring process spent substantially less solvent than the other countries the? >> substantially higher debt to gdp, much more unreliable statistics in which one could -- >> i know the clock is ticking,

and i talk faster than most of the folks in this capitol, but the investment in the other countries, wasn't made with the anticipation that greece would be bailed out? >> the investments in those five countries were made because there was a judgment, as i said, it was a challenge judgment both by people and -- >> was part of that judgment greece was likely to be bailed out? >> the answer is no to the. >> i would just go back to some of the other history that sticks in my mind here. the news reports about the investments in new jersey and lehman brothers shortly before the economic situation we all know so well in the fall of 2008, do you have an aspirin or a number on how much money was lost over that investment in the

lehman brothers but shortly before the fall, if i can refer to that? >> i don't recollect the amount of loss eric and as i think -- >> will you be in the rate of $100 million? >> it may very well have been, but i would suggest that we had an investment department that was separate from the government department. >> then when governor christie alleged there were hundreds of millions of dollars that were transferred in the last hours before he was sworn in as governor of new jersey and that you have spoken to him and promised him he had a $500 million surplus going in, turned out to be less than that. i think he said in his report, $2.2 billion but i think you at 500 that that comes direct $2.7 billion in shortfall. i want to give you an opportunity publicly to respond to the. i don't think i've seen a response in the media. >> first of all, i think my former treasurer did respond to those numbers, and there is a

difference about the timing on when one was making those judgments and i would have to go back and prepare myself to speak to that. >> would you state though that the current governor's allegations are substantially correct or incorrect? >> i don't accept the analysis exactly as he has explained it. there was a growing shortfall, as you know, in the winter of 2009 and 2010. the economy was falling dramatically, and revenues were falling, and estimates with regard to what revenues would be collected were off in most states spent and perhaps a compulsion to take risk. thank you, mr. chairman. i yield back. >> the gentleman's time has expired. mr. cardoza. >> thank you, mr. chairman. mr. corzine, governor corzine, my grandmother, an immigrant in

this country in the 1920s, did not benefit from our fantastic education that both you and i benefited from, used to give me some great advice. she would admonish the day when she was still alive to always do the right thing when no one was looking. can you, sir, tell us today that while you've been ahead of this organization, mf global, that you always did the right thing when no one was looking? >> every effort, and 10 in my actions, were to do the right thing. >> the wheels start coming off your company, did you set up a war room to try to deal with the financial crisis and figure out what was going on? did you bring your folks around you in the corporate room? how did you handle yourself at that point?

>> there were constant meetings, including with the board. >> that's what i asked the question. and my next question is, there was a point in time where you got the first inkling that there was a substantial amount of money that had disappeared, been stolen, we don't know what happened to it. that's one of the things that happen. at that very second that you get the first inkling that there was substantial loss in your corporation and that you're going to be held liable, or your company was going to have to take a tremendous hit, what was the first thing you thought of him did? did you call the police? did you run to the bathroom and threw up? i mean, to me lose a billion or $2 billion. >> congressman, in those late hours, and i think i said this earlier, to the other question,

really was disbelief, stunned disbelief that this could be the case, when many hundreds of millions was reported to be missing. and go back and check your work, what is the first response -- >> i understand, but i mean, did you call and tell your cfo, expletive, expletive expletive? where's the money? what was the first thing you did, do you remember the? >> the first thing that follow from this conversation was let's get the people to reject the figures, make sure that we have done everything we can to appropriately confirm what you're suggesting. it wasn't, it was, it wasn't as if all expectations had been

closed. there was still a hunt that i probably would have gone to the restroom and thrown up myself. thank you for the answer. a few years ago when i first came to congress i introduced an ethics bill that said if you break the public trust, as a member of congress, as a member of the public societies, police officer, any portion of the publics trust and you commit a crime in that public trust, and this came in response to my dealings with ken lay from enron and california as a state legislator, i said you should do double the penalty. we passed that bill in the house picked it didn't get through in the senate, but i just am having looked back on your career in government and in business, because i think the price of business is low. when you're in a position of public trust, do you agree with me that we have a higher standard to the public?

and if we don't rebuild a public trust in our governmental and business institutions, that we're going to have a very difficult time in this country to succeed in the future? >> i do agree with you, congressman, and as an elected public official, the oath of office that i have taken, deeply impact how i tried to address the efforts i fulfilled when i served in those offices. and i believe that to tell the truth, as you know it, is a responsibility of all of us. and certainly one of those issues that i believe the public is concerned that they don't get a fair shake on today. >> thank you for your answer and thank you for being here.

>> the gentleman's time has expired. the chair now recognizes the gentleman from texas, mr. noggle bauer for five minutes. >> thank you, mr. chairman. mr. corzine, i want to go back to some earlier testimony because i think the question was asked you, did you authorize the transfer of funds from the sake of your accounts to other places. and you didn't, the anti-gay was no, i did not. you said i never intended to violate any rules. so i -- >> i would repeat that in the context that there were people who handle the transfer of funds, and i'm not one of those. there are people -- >> that wasn't the question. the question was, did you ever in the heat of the moment in those last days when you were trying to sell this company tried to keep his company afloat, to make the transfer, hopefully pull the rabbit out of the hat, did you ever authorize

any of your people -- >> i never intended to authorize anyone. >> so you never intended to, but you may have? >> if it did, it was a misunderstanding because there is no intention under any context that i can think of that i was authorizing tapping into segregated funds. >> so the answer that you get to this question, so i don't want to mischaracterize it is, is you give orders and you don't know what you get it or not? >> nonot? >> no, that is not, not what, since i don't have access to records or phone records or anything that i could rely upon, i can only say i know i had no intention to ever authorize the transfer of segregated monies. >> so the answer is, is you don't know whether you did or not? >> i certainly couldn't confirm based on what i have available

to me today, that i know what my intentions are. >> earlier in the year you were granted primary dealer status by the federal reserve bank of new york, is that correct? >> yes, sir. >> you are proud of the fact you all were able to achieve that. there some reports, and again as you said there's a lot of reports out there, on a conference call you were extorting the fact that you would be able to take the company to a new level with the status. what was the strategy that being a primary dealer would give you? >> congressman, i don't, i don't recall framing it the way you are suggesting. as a matter of fact, it would be in my view inappropriate and probably would have been criticized by the fed if i had. now, i asked a question on calls, what does it mean to have

primary dealer status. it does mean that you have access at the financing arrangements with some clients that you might not otherwise have. you have the ability to transact business with people around the globe that you would not otherwise be able to transact business with. it does give you the chance when the federal reserve is executing its open market operations to do that directly without having and intermediary to do that, which is certainly constructed. i'm not, i'm not walking away from the fact that it's better to have them not to have, in the context of our clients and others would see you. >> there's only i think 20 companies -- >> i think our 21 today. >> so what would be the criteria? i mean, that's a fairly -- >> i'm sorry?

>> that's a very prestigious designation. what is the criteria that your company had that would have caused the fed to give you that status? >> well, first of all the fed test you for a very long time to see whether you're transacting business in treasury securities, agency securities with customers. are you financing customers, are you doing repurchase agreements, reverse repurchase agreements for clients so they can facilitate access to the market. i'm under the impression that they have. i'm under, don't recall the exact number, but they have capital requirements. they review your systems and operations with on site reviews and other things, and i observed your participation in markets. >> do you think it's a little strange that a company that had

been showing consistent, consistently losing money which would indicate to me would be, the company that is deteriorating would get such a status to that? >> my own perspective on this is that, that we were at the time, had gone over better part of 18 months, then demonstrating that we were participating with clients at levels that were significantly higher than some of the other people recognized. we have adequate capital, and while him as i indicated in my written testimony, our historical earnings hadn't been so good. they had gotten slightly better. >> but two of your rating agencies, sec and federal, had

question with you adequate capital or not. >> those questions came well after the designation, which i believe was early in 2010, finra challenge which in august 2010 if i'm not mistaken and that was in regard to the interpretation of the capital charges were applied to your sovereign. >> the gentleman's time has expired. the chair now turns to the gentleman from georgia, mr. scott, for five minutes. >> mr. corzine, welcome to the committee. i must say at the outset it is really the height of disbelief that you as a former senator, former governor, you're the former head of probably the premier, most prestigious investment banking operation in the whole world. and to sit there and to say that

under your watch as executive for $1.2 billion of customers money, you know nothing about it. now, the key, the key to finding out where my constituents money went, i represent georgia, a lot of farmers. they are sitting here watching trying to figure am i going to get my money back. the key to this issue. you're the ceo. now, mr. corzine, who at mf global was ultimately responsible for determining which products the company invested in on its behalf? now, i would think that you as the ceo, am i right about that? >> ultimately the board of directors at the recommendation of management, which i was the lead manager of the, makes those decisions, delegate authority

and then the company operates within those authorities. >> tell me this. what did you do at this company? wasn't run by the board? who made these decisions? who made the decision -- >> decisions are always on the recommendation, and i take full responsibility for the recommendation that went before that board. i tried to say otherwise, and so those investment decisions are ones that, particularly as it relates to the european sovereign rt imposition, rests on my judgment. >> rest in your area. now explain to me when you came in, you make that decision, you had been in the company a relatively short prayer time. and when you came in, your holdings in foreign sovereign debt was about 1.5 billion. and 11 months, that was as of

october fletcher. now october of this year, that holding has ballooned up to $6.3 billion. and foreign sovereign debt at a time with each of these foreign companies that you're getting the debt are teetering on disaster. was that your decision? >> i take responsibility for that decision. in my oral statement, congressman, i tried to give, i mean in my written statement, some perspective on why i thought it was at the time that we took those decisions. somewhat difficult how one might assess it. >> mr. corzine, did you cominco customer funds with proprietary fund's? >> the -- >> yes or no speakers on going to answer this question the same

way, there is never any directed intent to cominco those funds. >> snored you could have. drop is hearing i can count the time the word you use never intent, not to my knowledge, not to iraq on the, never intended to. and i understand the position that you are in, but mr. kowsar and, we've got to find that money. we've got to get at $1.2 billion get it back out to our customers and to my clients into my farmers in georgia. and as i said before, we've got to get better answers than this from you because you are the ceo. let me ask you this, mr. corzine. did use client funds to pay for or to pay off mf global's debt and bolster the 6.3 billion purchase of sovereign european debt that led to your bankruptcy?

>> i'm going to repeat what i said before. i have no recollection whatsoever of client monies being used, the client monies out of that fcm to be used to purchase sovereigns. the europe sovereign position held in the broker-dealer spent did you ever use your customer funds to buy foreign sovereign debt? >> client dollars that were in the fcm, to my knowledge, were not financed out of the fcm. >> then why did you lobby the cftc against proposed changes to the cftc regulation that would have prevented futures commission from and testing customer funds and obligations and foreign governments? if he never did that, never intended to do that, why did you when you want to put tighter

controls on that? >> the meeting that you're referencing, i presume, is the july 20 meeting with mr. gensler. actually of the conference call, was about the percentages that, concentration percentages, actually i was more in support of the cftc's recommendations, that they should be modified a bit but i was more in support of, and it related to the interim repurchase agreements that cftc just ruled on this last monday. >> and if you want the one responsible or had a role in playing about the misappropriation and the loss of this $1.2 billion, somebody is. who would that be? >> the gentleman's time has expired. the witness my answer.

>> as i've said repeatedly, we've had people, policy and procedures, and as i have said in my testimony, i don't know whether this is inadvertent. i don't know whether in the flows of transactions that were occurring and there were more flows of transactions and typically occur at mf global in the last chaotic days, whether someone held onto some of the funds that were rightfully to have been delivered to a mf global. i, i, without being able to look in detail into those records, those are options. and i don't, i don't have the ability other than to speculate where they would be. >> the gentleman's time has expired.

>> thank you, sir. >> the chair now recognizes the gentleman from texas, mr. connolly, for five minutes. >> you've testified that you were not an expert in all aspects of any business, no one really does. but help us understand your appreciation for the duty that fcm's have to maintain segregated accounts. wasn't something you are aware of? >> yes or spent was a summit in our position that when the report was prepared, the next morning after yesterday's close of business, that was out of whack, there jobless, and she down and show that you? did the issue of segregated funds rise in your mind's? >> if they were an outage it would be brought up, and exception. >> would that have been something yo you would have been made aware of or is that someone else in your organization? >> if there would have been an unreconciled circumstance, i believe it would have been

raised to my attention. >> just trying to get a sense of how important mf global's team felt sucker your accounts were. that's the one area of this aspect that we are supposed to be paying attention to. in terms of tone from the top, many organizations take on the attitude of their leadership with respect to compliance, with respect to regulations and those kinds of things. the wall street reporter place you places on sovereign debt which is a totally difficult or station but in the placing of those orders did you go to all the normal routine anybody who has authority to place orders on behalf of mf global would have gone through? >> congressman, i in fact didn't place orders although i worked with traders he would place orders, and i went through normal routines. and we have special compliance oversight of my activities. >> okay, that's helpful.

one of the other aspects of leading a broker-dealer in a cup the of a financial services business you're in is liquidity risk. you're not should telling us that you showed up in october. you also had some sense that the second quarter results were not going to be as favorable as you wanted them. >> we were very well aware that either at the end of that second quarter or third quarter, fiscal quarter, that the deferred tax asset was going to have to be at risk specs who you are aware of during july, august, september time frame you have $120 million just on the deferred tax asset. would have to worry about what that is. but the bankruptcy finds that it was really a contraction of the proprietary trading, help drive much of the loss in the second quarter. a given that she knew about the deferred tax -- i don't want to

get off on that rabbit trail -- you need liquidity risk, that mf global face and liquidity risk. risk. when did you begin to put in place the steps necessary to protect mf global from and liquidity risk? and then, in october when iraq started happening and if for start of line, margin cost started happening from your customers want their money back. your literature coming thank you these are what we got to do, did you ask them where do we get the money to meet those calls? in other words, we are short $1.2 billion. where were your lieutenants tell you here's how we solve the problem with respect to this liquidity? what were they telling you? where were you getting the money? >> we had done stress tests about securities we would be able to sell in the broker-dealer, for purposes of generating free of margin,

repurchase agreements that we would be able to close. that would accomplish that. but more than anything else we had done drawn credit lines that were held in reserve for crunch time. >> why didn't that system work? >> the real answer is i don't know all of the details of what -- i really don't, congressman. there are many things that were presumed to have been able to generate liquidity. for instance, did all the banks actually live up to their delivery of the cash that was supposed to be available by the line. >> let me finish off. back on the culture issue. when things got crazy on wednesday, thursday and friday, you have people in place who

knew the difference between segregated funds and proprietary funds. they knew i had time what was right and what was wrong, and characters tested. was there anything that you think you could have ever done that would've sent to them that that's okay, that in this circumstance, the disaster we are income it's going to be okay to bridge those things? the folks that actually do it, they can't behind -- they can't hide behind not knowing -- >> i don't think anyone would interpret anything, i don't think, you know, don't, not on the other side, but there was never any intent in either my language or actions -- >> i understand the reason we keep using the word intent. i'm not trying to pin you down. we are not the prosecutors. but the team failed.

we've had testament at lehman brothers had a catastrophic failure, and their fcm business move the next day without a penny. i've got to believe that the chaos surrounding the bankruptcy of lehman was not dissimilar to the one that happened at mf global. why was the team at mf global unable to do the right thing at the heat of the moment? >> the gentleman's time has expired. the witness may respond to the question. >> first of all there is a proportion of the difference. that fcm's significantly larger in proposal. our fcm was a much bigger part of our business than theirs. that doesn't answer your question, because i don't know the answer to that and i would be speculating if i did. >> the gentleman's time has expired. the chair now recognizes the gentleman from connecticut for five minutes. >> thank you, mr. chairman. mr. corzine, in your testimony you mentioned, and you mentioned earlier the phone conference with cftc regarding the 1.25

rule that dodd-frank rulemaking, and in your testimony said that the principal topic of discussion was whether 1.2 by should be changed to -- repurchase transaction with related brokers and dealers. earlier today we spent a lot of time with commissioner summers about the role that was adopted on monday regarding foreign sovereign debt, and she was repeatedly pointing out to us that that rule wouldn't have changed anything because it only applied to customer accounts, and the problem was more in the broker-dealer accounts based on what they knew at this point. so i guess then the question i would like to ask, and looking again at mf global's global to the commission regarding the rulemaking, you know, a comment that they submitted, was the rule that was adopted on monday regarding repurchase, and has

repurchase agreements, i mean, what impact could that have had in terms of the events you describe in your testimony regarding repurchase? >> first of all, the rule that was adopted on monday, and i'm not quite as well versed as they would be if i was still in the business, did not deal with foreign sovereigns other than they were precluded without application for exception. >> right. >> but they were never available for any purposes, as far as i know, as well as i can recollect the rules, except for deposits that were taken from customers in foreign currency, denominated deposits. and this was the issue in fact, not only mf global, but the fia,

cme, most of the fcm's, if not all that fcm's were petitioning because of the cost in inefficiency that would occur if those internal repos were not allowed to be able to take pla place. >> chairman gensler certainly it is, somebody thought they taken a great step forward to try to reduce the risk that's surrounding these repurchase agreements. i mean, are you just saying it's a relevant? is a dead letter? >> clearly the issues having an fcm and the broker-dealer in the same entity, serving in a time of stress as mf global was experiencing in the last days, i think does call, or raises the

issue that a think chairman gensler was trying to speak to. and ongoing operating basis, probably stand with the arguments i made, but at a time of stress his arguments may be much stronger. >> i'm glad to hear you say that because having been here in '08, you know, when the world was collapsing, and, frankly, the process of enacting dodd-frank was like crawling over broken glass in terms of getting with something so complex, but, frankly, i think it was our duty to try to address the fact that they were clearly systemic problems that expose the taxpayer and the middle class to the damage that could happen when these systems malfunctioned. and again, at the efforts by the

commission have just gotten trashed in this room, frankly, for the last year in terms of trying to implement dodd-frank. you know, i think it's just time for us to recognize that everybody can't have it, you know, the way they always wanted. that there has to be some rules in place to limit the high risk that again, exposes farmers and small businesses and people who are just trying to lead their lives and have some confidence in these markets. and you know, what happened in this incident, there's going to be lots of unsure investigations that will look at the bankruptcy court and maybe other authorities, but we are lawmakers. our job is to try to figure out the right way to balance rules that will prevent these things from returned again, and, frankly, i'm just, in retrospect i just was the commission of move faster in terms of implementing facial because i think would have created a structure which reduces risk which at the end of day is what we have to do if we're going to

any stability in this economy. i would yield back. >> the gentleman's time has expired. the chair now recognizes the gentleman from nebraska for five minutes. >> thank you, mr. chairman. thank you, governor, for your willingness to come today and answer questions. governor, i was recently at an eagle scout ceremony, and one of the young people there stood up, and he said this, he said america depends on the quality of her citizens. and i was struck with the beauty, the simplicity, the profundity of that statement your the problem here is we can't pass enough laws fast enough, creating a regulatory entities quick enough if there is a collapse of the types of values that lead to responsibility and commitment to the common good. we simply can't do it. it's incumbent upon us in government, business, media,

education, that other institutions that shape our culture and give us good order. fairness, justice. opportunity. it's incumbent upon all of us to act in the public's trust. and in this regard i'm going ask you a few questions. who owned mf global? i ask the question of the regular prior to this but they couldn't give me an inch. i do like to know. >> mf global is a public company. shareholders broadly held the stock. there was actually a report i can give you exactly who those people are, or institutions that were the owners. >> who are those institutions? >> there's a whole range of large institutions. >> but i'd like to understand the interconnection share of the financial and industrial compl

complex. >> fidelity mutual fund complex. there are a number of other institutional holders like that. there were hedge fund holders. there are individual holders. i am a holder. there were private equity holders, j.c. flowers, which i mentioned inside my remarks. >> who hired you? >> the board of mf global? >> who? >> the board of mf global is the hiring, responsible hiring authority. if you're asking who introduced me to speed it would be helpful to know the story. >> some of this is in the written statement, but i had as a private investor a holding in the private equity firm, j.c.

flowers. the ceo of mf global in march of 2010 abruptly resigned. they were about to instigate a search for a ceo at the board level, and i presume it was suggested from the board member, from j.c. flowers that sat on that board, that they ought to talk to me. >> we've talked a little bit about this in your testimony, but just basically describe your job. >> as ceo of mf global? first of all, set strategy, which i think i spoke to him, about my written testimony. that needed to be defined not just with myself but with our

board, needed to represent the firm externally, with clients, counterpart, regulators. and given the business strategy that we're about i need to make sure that we have personnel speak and in that regard, who did you hire? >> a whole host of folks. there was a significant change. >> name principles. >> we hired a new chief operating officer, new internal audit, new chief risk officer, new heads of europe, new head of asia, lots of changes. >> i'm sorry, my time is running a little short. you said it was not your intention to a mangled segregated funds. how could you have a scenario in which you could unintentionally do that? >> well, hey, that would be very speculative on my part.

someone could misinterpret, we've got to fix this, which i have said the evening of, of october 30, got to find the money. >> mr. chairman, my time -- >> would the gentleman yield for one question on his line? >> from the governor or from you? >> yield to me. spent if i could conclude -- >> mr. corzine, and then we will conclude with you, of course, the percentage of equity or ownership and mf global did you own? for curiosity sake. not a very large amount of which assume. >> no spent less than 10%, less than 5%, less than 1%? >> i think closer to the latter and any of the other numbers you mention it so a single digit or in that range somewhere. is that the typical nature for single manager of these terms,

very small equity stakeholders in the enterprise? >> not only the amount that i had bought, but it was also how my compensation was structured of which i also went through -- >> stock options. >> stock options. >> so typically in a company like this or when you'd be a part of, overtime your interest in the company would grow through the use of stock options, a report for good management? >> correct, chairman. >> so just from the perspective of asking questions about the nature of your business then, a person in a role like that in a company, just to the lehman's perspective, it would appear the more aggressive the enterprise, the better those kind of rewards would be, now certain was that investors are very sophisticated people, correct, they understand the nature of the kind of enterprise that you have been --

>> they are very sophisticated investors. >> in oklahoma we would call that a high fired a gun. i yield back to the gentleman. >> i think what we have here is another example, inordinate risk-taking, leveraging other people's money. we have the possibility of an improper call mingling of funds. that's the point is i think web another assault on the nation struts other financial institution. i will yield back. >> the gentleman yields back. the chair now recognizes the gentlelady from alabama for five minutes. >> into mr. guerre. i want to begin with a brief statement or a comment before i start my question. you know, this hearing is important today not only because we're trying to get to the bottom of how thousands of farmers and growers and producers are currently, have lost their capital and are struggled to figure how they're going to make ends meet. but we are also here because

this is vastly affected hundreds of americans have lost their jobs, directly and indirectly because of the loss. and in these trying and challenge economic times, there's even more important i believe that we who have the public trust really to become good stewards, or tried to be good stewards of the money and that trust. and so my hope today is that we not only get to the bottom of what happened to mf global, but how this of facts more broadly the financial industry generally, and in particular how it affects our farmers and growers. having said that, i spent my former professional or as a lawyer in new york city. and i can tell you that what differentiated me as a lawyer and investment bankers that represent is our appetite for

risk. and so i guess i ask you, senator corzine, as a ceo and chairman of mf global, what, at the direction and the appetite of risk that you, and stealing his company, could you speak a little bit about how mf global was position prior to you getting there, and what your hopes were when you assumed the responsibility as ceo and how you would rate the risk appetite of the company? and perhaps yourself. >> thank you, congressman, congresswoman. it primarily was a broker firm, commissions and earnings on the

balances as the basic source of revenue, although there will were some principal risk-taking. they had already begun to apply for that primary dealership, so they were taking broker-dealer risks in the government securities business. did the same in european sovereigns in our european operations before i came. and one of the commonly used metrics with respect to risk is what we call value at risk, and that was roughly 5 million before i came with an authorization or delegation of authority of 15 million, and we stayed pretty much at that level while i was at the firm. certainly there were periods when it was hard and there the

repaired windows lore, both reporting and internal basis. .. >> with corporates actually at larger amounts than what we were talking about with the euro sovereigns. >> but we also knew that the euro sovereigns were becoming quickly insolvent. i mean, the world events were surrounding a lot of the euro zone countries was, obviously, quite known to most of us.

very different -- >> there's clearly a difference, although they were still highly rated by agencies, and as i said in some of the earlier remarks, by other metrics that one would judge based on margins that were required by clearing organizations or individuals. it, um, it was our judgment that they were particularly the ones that we were involved in were less risky than would otherwise be the case. >> before -- my time is actually kind of running out and, really, my last question is what do you think would be a fair outcome given the state of affairs currently? if you could wave a magic wand and figure out how we solve this crisis we're currently facing with mf global, what do you think would be a fair -- >> congresswoman, i am absolutely hopeful that a full

understanding of what happened in those last few days will reveal the source of where these monies are. i continue to believe that, um, that those resources are in the hands of either counterparties, or there has been some mistaken forwarding of those to someplace unknown, that's what i tried to write in my remarks. >> well, you know, hope does spring eternal, and i yield back the rest of my time. >> gentlelady's time has expired. the chair will now recognize

mrs. schmidt for five minutes. >> thank you, mr. chairman. mr. corzine, i know you said you weren't quite sure when the money was wire transferred, but the year ending march 31, 2011, shows a net position in the default risk of 6.3 million, but bloomberg reported you pushed this debt to $11.a -- $11.5 billion. mf global would have had cash problems on several trading days throughout 2011. surely you were aware of the problem, so i ask you, were you, and about the chiropractor call. wire call. >> congresswoman, first of all, the 11.5 is a gross of both short and longs, reversed rtms to maturity as well as rtms to

maturity. and, therefore, if i am reading their reporting -- and i don't know where they got their facts -- but it is a combination of the longs and shorts. l -- and i don't, you know, i don't, um, think that, therefore, the conclusion is exactly how you would -- >> well, but at some point you had to know that there wasn't enough money. >> the only time that we could conclude there wasn't enough money was when the unreconciled accounts were notified. >> well, okay. were repo to maturity transactions used to hide or mask the risks with your

positions in europe sovereign debt? it has been reported that the use of these transactions increased over your time as ceo, so did you personally direct the firm to use these transactions as a means to hide the risks? >> congresswoman, the disclosure that you cited was in our reports to the public and our public disclosure documents along with, um, its implications for gains and losses. and those disclosure documents were reviewed by our outside auditors, they were reviewed by counsel, they were reviewed by our audit committee, um, and discussions of those elements were part of public discussions

with analysts and others. >> with well, it's been reported by "wall street journal" that despite warnings from board members and from your own employees, you pushed forward with highly leveraged positions on foreign debt, foreign sovereign debt. mr. corzine, we've all been watching the euro zone crisis unfold, and there have been significant uncertainty about its resolution, so why were you so confident about these bets, and to what degree were you willing to bet the very survival of the firm, it employees and most importantly, the shareholders? >> the investments that we had in the euro sovereigns were bought and financed to their maturity. and those positions were very difficult to be able to be unwound, and once they were in position, um, they had significantly less liquidity than a security, um, held that

was not financed to it maturity. on the other hand, significantly less risky because financing was in place. having financing in place diminished the overall risk of holding a particular security. >> well, you know, that all sounds good, but how did you take a company that was in existence for almost 230 years to bankruptcy within a year and a half of takeover? how do you explain to the customers, investors the reason for the collapse of mf global? your answer sounds so nice, but you risk invested people's money without their knowledge in a market that i wouldn't invest in. >> congresswoman, um, sitting here today, um, with, um, knowledge that the market has

drawn the conclusion that it's drawn and the facts are what they are, um, it would have been better to have taken different judgments at the time they were taken. but we and i did those things that we thought were in the best interests of shareholders and all of the stakeholders given the inability, um, of the old business plans that the firm was executing on to generate the kinds of revenues that would protect customers as well. >> gentlelady's time has expired. the chair now recognizes mr. scott for five minutes. >> thank you, mr. chairman. mr. corzine, i wasn't to thank you for coming before the committee. i don't think many people would have joined us for as long as you have and answered, and been

willing to answer the questions. thank you for being here. you've repeatedly said that client funds were not used to purchase foreign sovereigns. were those client funds ever pledged as collateral on the purchase of foreign sovereigns at mf global though? >> to my knowledge and, again, this is one of those things that you have to get into the records to be absolutely precise on, i'm not aware of that. >> okay. and it's, apparently, from all the reports that there was comingling of funds. just approximately when do you believe the comingling first occurred? >> given all of the transactions that were occurring in those closing days, congressman, i don't want to speculate. i just, i know that several of

senior management were informed at roughly the same time on sunday night of many hundreds of millions of dollars being unreconciled in the accounts. >> did, do you believe that that comingling started to occur in the last ten days before the bankruptcy? >> i'm under the impression and, again, i don't have records to -- >> yes, sir. >> -- confirm, and so farther than i should go, but i am -- we have to, mf global had to submit reports -- >> yes, sir. >> -- each day. and as i had suggested to one of the previous questioners, um, if we had been out of balance, it is my presumption that it would have been reported upward. >> yes, sir. but those reports, they are not audited by anybody as i

understand it. they're self-reported. >> they're self-reported. um, i think if i'm not mistaken a number of the regulators were on premise from the 26th on. that dun mean that they audit -- that doesn't mean that they audited all aspects, but were very close -- >> yes, sir. but at that stage that the regulators came in, it was pretty much too late at that stage, wasn't it? >> um, congressman, it certainly was not my operating premise that it was too late at those stages. we were generate liquidity. >> right. >> we were drawing ourly quid withty facilities -- our liquidity facilities and to the best of my recollection meeting our obligations. >> if i'm not mistaken, you were still rated as investment grade less than ten days prior to the,

to the filing by moody's and fitch both. i may not be correct about that. >> that's true, sir. >> sir? >> that's true. i think the first rating change occurred on monday, october 24th from moody's. >> yes, sir. and then they happened very fastly thereafter. >> another set of rating changes -- >> two days. >> -- thursday, if i'm not mistaken, the 7th. >> well, you have, you've been a governor, a senator, had a very successful, um, life, accomplished a lot of things. this is, i sense the pain and that you recognize this is one of the things that you'll be judged, that your life will be judged by. what, what can we do, what can we make good out of this? what can you tell us sitting where you are, what rules and regulations would you put in

place if you were sitting up here to prevent an mf global from ever happening again? >> congressman, i've given it some thought, not great thought. it is clear that in moments of stress organizations do not always operate in the same way that they would in a normal operating environment. and i certainly would look for triggers that, um, would enhance the oversight of organizations in those, in those conditions. >> thank you for joining us. mr. chairman, i yield back. >> gentleman yields back his time. the chair now recognizes the gentleman from colorado, mr. tipton, for five minutes. >> thank you, mr. chairman. thank you, mr. corzine, for

joining us. would like to follow up on a comment that congressman scott just made. ten days prior to the debacle, moody's and fitch had had mf global rated as investment grade. was that a good decision ten days prior? >> the rating agencies, um, from -- >> from your knowledge of the company, was that a good assessment by moody's and fitch that you were investment grade? >> um, certainly the facts after, after wards don't make that look effective as an assessment. but at the time that they had last reviewed and were intending to review around our quarterly

earnings announcement, at least several of them had put new assessment directions into the works. >> it was assessment, so it was probably a poor one. i wanted to follow up on a comment that you made earlier in questioning saying on october 30th, and it was in regards to the comingling of assets. you had thrown out the statement that we've got to find the money. was that your statement? was it the corporate mentality? >> it was all of you. >> it was all of you. >> everyone felt an obligation to get the books reconciled. >> wherever it was. i just want to get a sense, truly, of the corporate mentality. when you went on to head up global, did you read through the mission statement and believe in it? >> um -- >> i can give you a couple of quotes. you know, mf global's well capitalized, diversified

intermediary and a strong, conservative balance sheet. because of our financial strength and comprehensive risk management, clients can have confidence that they are trading with a strong counterparty. was that your sense? did you believe in that? >> i believed that those statements were right at the time and that, um, we needed to enhance it with a growth strategy that would provide for the success of the firm as opposed to what had been in recent years -- >> as a business guy, and i'm a small businessman, was a small businessman until i took this job, you had to look at it -- not trying to mix metaphors here -- you had to look at your business globally knowing that the impact of one section of the business could impact another section of the business as well. when you made that determination given the comments that we were just talking about in terms of the fitch, moody's rating of

global ten days prior as being investment grade, looking at the horizon into the euro zone for those investments, given the foreknowledge that in this country with $15 trillion in debt we had had our credit rating downgraded, did that tie back in to the corporate mantra and the beliefs that you were just saying was the original intent? or was it a risky investment that was going -- >> in the, as i've tried to say probably more articulately than i will do here that with the analysis and the, um, perspectives on how those particular sovereigns were looked at, we thought they were prudent investments. >> was that your personal investment? would you have been willing to

personally risk your funds? >> i absolutely was willing to invest and was investing in mf global up until august. >> and i'm not trying to put you on the spot, and i know this is going to be maybe a little offensive from the standpoint but where you were stock motivated, did that help drive some of that decision because based off the performance of the tock? stock? >> [inaudible] one element, but also protecting the value of the stock is another responsibility, and as a shareholder i would expect, um, decisions to reflect those concerns as well. not, it's not only performance. >> okay. and i certainly agree with congressman scott, i can sense from you some agony personally over this, but believe me, talking to many of our folks in

rural america 10, 20, clash 30,000 -- $30,000, that's not a nice evening out. that is all they have. and when we look at it globally, i think we all have to be very distressed in term t of some of that collateral damage, particularly now when we can't find $1.2 billion of struggling people's dollars to be able to meet their needs. so i'm out of time, mr. chairman. yield back. thank you, sir. >> thank you, mr. chairman. from corzine, are you licensed to trade securities? >> yes. >> what licenses do you hold? >> i would have to go back. i have all of the -- >> series iii, series vii, series vi? some others? i figured that was the case. do you trade on your own account? >> not regularly. >> have you ever traded on your

own account using customer funds? >> on my own account using customer funds? no. >> okay. >> to my knowledge, i haven't. i don't, i don't trade for my personal account. >> has any employee, to your knowledge, of mf global ever used client funds to trade on proprietary -- >> i'm going to repeat what i had said -- >> right, okay. got that. um, if you did have knowledge of an employee trading on customer account, what would the penalty be for that employee? >> i certainly as far as i could ever imagine, they'd probably be terminated. >> okay. have you ever dismissed an employee at mf global for any kind of malfeasance that would be of that nature? >> um, i think there is a fairly notorious trading situation that occurred in 2008 before i joined the firm, and there were other disciplinary actions that have

been taken through the years. >> but under your direction -- >> there's some, yes. >> okay. can you describe some of that malfeasance that required there to be disciplinary action or possibly termination? >> i really would like to have specifics about that so that i don't get into talking about an individual and i don't have my facts straight. >> okay, okay. i just read an article that reuters put out about a farmer who had $200,000 in an account in mf global, hasn't been returned to him yet. it's been almost a month since mf global, um, filed for bankruptcy. there's no telling when he'll get his money back. he's missed a deadline for buying his seeds, prepurchase discount for next spring's corn and soybean crops, financial future of his operation is certainly in peril. most of the farmers in my district, and i think this is true with farmers throughout the country, are really one crop failure away from bankruptcy.

the action that we've seen here with mf global puts them that much closer to bankruptcy themselves. um, as the former head of the now-bankrupt company that this man trusted, in fact, trusted to the degree that he'd rather have his money in one of those segregated accounts than he would in the bank, what would you say to that farmer who is now facing bankruptcy or to any farmer that may be in a similar situation? >> congressman, as i said multiple times, um, i think about this every day. um, i could not be more, um, regretful of the stress that we are bringing to people's lives, and i could not be more anxious to see a resolution of where those unreconciled accounts -- >> let me ask you this. you have an impressive

background with respect to financial services, banking industry and so on. and i am going to ask you to peck late -- speculate. i'm going to ask you to think what you would do in a situation. in all seriousness, i would like to know what we tell l farmers that are facing this. if you were in a situation where you had potentially 200,000 or more or, you know, as congressman tipton said, 20 or 30 or $40,000, what would you do if you were that farmer? because i understand that you, also, have a little history in farming. >> my father was one of those folks that went to the grain elevator and hedged out future crops. >> so, i mean, i'm really not trying to -- i know you've expressed remorse here, and i appreciate that, but what i'm in all seriousness trying to figure out, how do you advise these farmers who are in this situation? >> congressman, i'm not sure i

have specific advice. i only can say that this process of seeking to find these funds is one that absolutely needs every resource possible to make sure that it is accomplished. um, i think i have to leave it there. >> sure. last question. do you have a compliance officer at mf global? >> absolutely. >> sure. and at what point did he bring this to your attention? and how often did he review the activity? >> there, you know, there are a broad set of compliance issues and internal audits and, um, as i suggested, sarbanes-oxley

internal audits that confirm kinds of operations are operating the way they're supposed to. so those are ongoing daily. >> okay. thank you, sir, appreciate it. >> gentleman's time hases expired. chair now recognizes the gentleman from kansas for five minutes. >> thank you, mr. chairman. and, senator, a follow up on the question that the gentleman from arkansas made. you did mention your concern about that. if you were so concerned about making certain that your investors were whole, how come you quit four days after bankruptcy was declared? >> um, in a response to a board request, um, is why -- >> okay. during those four intervening days, what did you do to attempt to make investors whole? >> i resigned on november 3rd? that's correct. two days. and i spent tuesday in the early

morning hours trying to find out some of the same questions that people are asking here with no particular positive results on that. >> so nobody seemed to know where the funds were and no one would tell you? >> there were -- >> did you ask the question where those funds were, and what was the answer? >> people were still looking. lots of transactions were in train -- >> no, i'm short on time, and i appreciate it. i think it'll be the same answer as we've seen before. i want to establish a little bit of a timeline. i'm trying to understand, on the one year anniversary of dodd-frank, on july 20th you conducted a series of meeting with the cftc. >> i had two conference calls on those days. >> i have you down according to the records, you had a meeting

at 1 p.m. on the phone with mr. gensler, at 2:15 you had a meeting with ms. summers on the phone and at 3:30 the third with the commissioner, mr. childers. can you describe the toib -- topics of those calls? >> to my recollection, i was on the phone with chairman gensler at 1 and commissioner chilton at the time that you brought forward. and, again, as we have suggested in both written and in my response to questions, primary subject of that conversation were repos between the broker dealer and the scm. >> three separate meetings according to cftc with three separate commissioners that you participated in. did you have any separate calls or conversations with mr. gensler when you took the job at mf global to the present

time? other than what you've indicated? >> to the best of my recollection, you have my calls, my meetings. >> okay. >> outlined. >> you never once called their cell phone? >> no. >> okay. did you ever call another member of the administration during this time about any of these issues? >> i'm sorry, congressman, i couldn't hear you. >> did you ever call a member of the administration? i mean, you were very close to the current administration as a very generous campaign bundler. did you ever visit with anybody in the administration about the, about your business at mf global? >> um, to my knowledge, i have never spoken about the business at mf global to anyone in the administration. >> did you visit with anybody at the federal reserve? >> um, i visited with people at the federal reserve, um, as i reported, um, with respect to

the primary dealer as i testified to, a a primary dealer relationship always with staff and staff and never with either the president or chairman or any of the board of governors. >> on december 21st of last year, you had a meeting with cftc commissioner again about segregation and bankruptcy. do you recall a topic of those particular discussions which seem very appropriate given our conversation? >> commissioner summers spoke about that meeting this morning, and it had to do with, um, issues on the treatment of swaps consistent with how futures were traded. and how dodd-frank would deal with those issues in coming cftc

discussions. >> so -- >> frankly, i don't remember even the specifics. it was a relatively short meeting. >> well, we are lucky that at least the cftc had the record that there was a meeting. as we learned earlier, apparently, they don't keep notes. does your private secretary keep notes of these meetings that might be helpful to the understanding of our committee? >> to my knowledge, they did not. >> thank you, mr. chairman. and, senator, i appreciate your time and i appreciate the questions but, again, i'd like to ask the question directly myself, what do i tell my producers that -- should i suggest that you were contrite, you felt sorrow but you're not going to try to make them whole and that just good luck, we hope you find your $200,000? is that a pretty good summary? >> congressman, i hope you believe that i am as intent in answering answering the question of where this money is as anyone in the

room. >> gentleman's time has expired. >> thank you, mr. chairman. >> the chair now looks to the gentleman from wisconsin for five minutes. >> [inaudible] >> press your microphone. >> can you hear me now? >> i can hear you, but i don't think our colleagues can. >> i'll move over here. how many federal regulatory agencies have some type of oversight respondents for the type of -- responsibilities for the type of business you're in? >> i haven't counted them up, but it is multiple. cftc, sec, there are, um, all

kinds of agencies that deal with labor and other activities, the federal reserve has oversight, not regulatory responsibility as we have become a primary dealer the, um, there are more, and then there are a whole host of self-regulatory organizations, a number of which you will speak with in the next panel. >> how often did you have an opportunity to visit with the regulators? how often were they there? you were there about 18 months. was this a regular occurrence? did the federal government have a lot of responsibility in oversight? >> a number of them would visit the firm more broad ri than just with -- broadly than just with me. sometimes people more senior would come and visit in offices.

we've tried to outline some of those. um, there was one meeting which i cited where all of the regulators or at least most of the regulators in the u.s. visited us in june of 2010, um, where i addressed them for ten minutes, and the rest of my colleagues at least on the operations and control side and finance side spoke more lengthily. i would point out that these respect the only regulators -- these went the only regulators. then you have international regulators in multiple venues across the globe that also have responsibility and oversight ha participate. >> well then do you think adding more regulations and more regulators can -- let me change that. do you think we can regulate, can we regulate greed,

incompetence and fraud out of existence? >> could you repeat the question? >> can we regulate, can we regulate greed, incompetence and fraud out of existence? because at the end of the day, sir, we have to make a decision of how going forward we can help protect consumers and investors from having another mf global happen. and my fear is that we'll do what government always does, make up more rules and send more regulate ors and -- regulators, and a year from now we'll have another example. i'm wonder what the real solution is. i'm trying to figure out was there greed, incompetence and fraud at mf global that no matter what we do on this side of the dais, it still would happen? >> whether it is for those

reasons or poor judgment or bad judgment or, um, mistakes will continue to happen in the course of human events, and that is inevitable. as it relates to regulation, um, as one that historically has been more supportive rather than against there is an enormous need from my view and, um, probably doesn't amount for much at the moment, but from my view to have it consolidated so that it is more, um, it's less complex to manage. >> it is difficult to manage in a company your size. >> with the multiple regulators that exist, and then we live in a global world that increases the complexity. the segregation rules in london are different than the

segregation rules in u.s. futures markets. the futures markets are different than securities markets, and so the answer is, yes, a more integrated approach at least from one man's point of view would make this world easier. >> i'm trying to get aceps of what my takeaway needs to be. it's been a long afternoon, so i thank you for your time, and i yield back, mr. chairman. >> gentleman's time has expired. the chair now recognizes the gentle lady from north carolina for her five minutes. >> thank you, mr. chairman. governor corzine, i have a couple questions for you, um, for clarification. you had -- the question was posed to you, why did you resign on november 3rd, and you indicated that it was at the request of a board member, or was this -- >> the leading, the lead director. >> the lead director. and that person's name? >> ed goldberg. >> ed goldberg. thank you.

now, i know we've talked, um, about where we feel and where the responsibility lies, and you've identified that it could, you know, be procedural, you know, the money's gone. who do you hold responsible and accountable for this money being gone? >> as the ceo of an organization i hold the responsibility that the implementation of the policies, procedures and the people we had in place to execute on these issues, um, lies -- the buck stops here on that score. the details of how that gets executed are, um, an

organizational issue that's broad based. we had people certainly were prepared and were at least from all reports to me as best i can recollect, um, executing appropriately on those rules. again, at the chaotic final days and hours i think you have a different set of conditions in place. >> i'd like to go back, too, to the relationship that you have with chairman againsterer. i know -- gensler. i know that he apparently worked for you under, while you were at goldman sachs, and he also worked at goldman sachs, is that correct? >> that's correct. >> and i believe that means that there have been a couple of years that you've had a relationship, a couple of years of a relationship since that time. >> we had, chairman gensler and

i had other interactions. he was on senator sarbanes' staff when i was a senator. was aware of, um, and in contact with him on an occasional basis, um, but not on a frequent basis. in any stretch of the imagination. >> would you describe your relationship as friendly? would you pick up the phone and call him and just say, hey, how are you doing? >> um, we were not the kind of folks that were checking in and e-mailing each other. week to week, month to month, maybe not even year to year. i think one of the newspapers reported, um, neither attended my recent wedding or i attended a tragic loss in his family. >> thank you. and my last comment, i would like to associate myself with

one of the comments you made very recently when you said, um n be retrospect decisions that are made in crisis are usually not very good decisions, and that may have had a part in this. and i would just like to state that i do believe that as well, and that's one of the reasons that i believe dodd-frank is detrimental to the financial industry and this country. thank you very much, chairman. i yield back. >> gentlelady yields back her time. the chair now recognizes the last member for questions for five minutes, the gentleman from north carolina, mr. mcintyre. >> thank you, mr. chairman. and thank you for your patience today with the questions. according to your repo to maturity transactions were total return swaps which were off balance. mf global retained the price and default risk. the head of the sec is now probing the accounting treatment and the disclosure. the financial accounting standards board recently decided

that repo to maturity is the only type of transaction to get off-balance-sheet treatment, and janet top coley says this is a form over substance roost to dodge using the total return swap since these transactions are well known as a means of using leverage. would you say that her characterization is accurate and why or why not? >> congressman, there's a lot in that statement. >> with right. that's why i want to give you a chance to respond. >> my view is that a better analogy would be, um, matchbook transactions where repurchase agreements against reverse repurchase agreements were put on the books of a broker dealer or an institution as opposed to total return swap. you mentioned that you retain the price movement. you only retain the price

exposure to the extent that it implicates margin, variation margin in the exchange. the total return swap, and again, i'm -- don't want to be expert, and i'm certainly not expert with regard to the accounting issues on this -- would reflect the price appreciation or depreciation in these rtm positions, both the ones that were held with respect to government, u.s. government securities agencies and corporates or -- >> see the rest of this testimony in the c-span video library. go to c-span.org. we are going live now this morning to the council on foreign relations here in washington where remarks from homeland security secretary janet napolitano. she's just returned from a meeting of interior ministers in paris. her speech this morning is expected to focus on strengthening global travel and trade networks and securing

cyberspace. this is c-span2. >> via a password-protected teleconference. we'll see how well that password protection works. now, one thing, and this is an excellent reminder to me as well, we're going to turn these off altogether, not just on to vibrate, because the radio signal will interfere with the broadcast. so, please, turn off all cell phones. this meeting is on the record. that is a reminder to everyone. and before we begin, i just wanted to look ahead on the council's schedule. on december the 14th there's an upcoming meeting you may be interested in, the geopolitics of the arctic with scott borgson. if for more information on the upcoming events, look at the insert in the program today. and it is my pleasure and privilege to introduce our speaker today. it's a very good time the hear from janet napolitano because she's just returned to the united states. janet napolitano is the third

secretary of the department of homeland security. the. dr. phil, obviously, founded -- the department, obviously, founded after 9/11 tasked with keeping us all safe and secure. she's just returned from a whirlwind trip to paris where she was participate anything the g6 plus 1 interior ministers and security ministers meeting and then a trip to the gulf in doe what, dubai and ab -- abu dhabi, and she'd like to talk about the role of international partnerships in homeland security. janet napolitano. [applause] >> thank you. well, thank you very much. good morning to everybody. thanks, terry, ask thanks to the council on foreign relations for having this session here today. i'm excited to join you. i've just returned, as was said, from a very productive trip to europe and to the middle east

where we advanced a number of critical issues with our partners. um, and one of the questions i am frequently asked when people hear i have been overseas is what exactly does the homeland security department do abroad. and the answer is, quite frankly, a huge amount. because in today's world the nexus between homeland security and security abroad cannot be decoupled. we live in a globalized world. it is connected by complex finishes this which -- networks in which the movement of people and goods and ideas never stops. and threats to our domestic security both physical and economic do not recognize national boundaries. it's the interconnected nature of travel and trade and commerce that means a vulnerability or gap across the globe can impact security thousands of miles away. so whether it's a printer card

ridge from yemen -- cartridge from yemen, a traveler from nigeria, an unregistered boat coming from central america, the threats and the opportunities from all corners of the world are my daily work. our domestic security, thus, is inextricably linked to the rest of the world. it is a shared responsibility among governments, the private sector, individuals and communities. it is a global enterprise. and the challenges faced by the united states in this regard are not unique to us. interior ministers, home secretaries and other security officials around the world confront them. the shared challenges present a chance to build mutually-beneficial partnerships and to leverage resources to strengthen the safety and security of peoples around the world. this is particularly true where mutual economic opportunity can be enhanced by shared security

responsibility. let me put some granularity on this. let me give you some examples of multilateral initiatives we have undertaken over the past several years. one, we have been working closely with the international civil aviation organization on an initiative to strengthen the global aviation system against ever-evolving terrorist threats. this effort culminated last year with the adoption by 190 countries at the icao general assembly on a declaration of aviation security which, in effect, laid a new foundation for a global aviation security system. at the same time, for more than a year now the department of homeland security has been leading a global supply chain security initiative to protect the vast amounts of goods and commerce that traverse the globe

every day and that drive our global economy. we work closely with the world customs organization, the international maritime organization and icao. and what do these initiatives look like in practice? it mean that is the wco at the united states' urging has created something called program global shield that enables customs services around the world to alert each other to suspicious shipments of precursor chemicals used to make explosives. we've made dozens of seizures in this regard stopping just last year 33 metric tons. when it comes to securing the global supply chain, our work was already underway when we saw the attempted terrorist attacks on cargo operations out of yemen in october of 2010. following that incident, the director of the tsa, john pistole, and a team of inspectors immediately went to yemen to assess cargo security and to see how we could help

make it more secure. we have provided threats -- or training, excuse me, not only to yemen, but indeed, around the world to help secure the cargo network. along with -- those are just two examples, but along with these multilateral initiatives, we are worked on a bilateral basis with many countries around the world. and as was mentioned, the trip i just took provides an illustration of how these multilateral and bilateral relationships work. at the g6 plus 1 meeting which brings together dhs and our counterpart ministries from europe's top six countries, six largest countries, we made great progress on concludeing an agreement with the europeans on information sharing about passenger travel known colloquially as pnr, passenger name records. these are records that we use to analyze travelers boarding flights to the united states from abroad and to make sure

that passengers are not susceptible to doing harm to aviation or to the homeland. we also made on the same trip important progress on key bilateral agreements with countries in the middle middle east. in the qatar we signed an aviation agreement to strengthen our ability to come bass transnational crime and other threats while facilitating travel and international trade. we established common objectives on security and trade in two unique ways. first, we've agreed with qatar to have the department of homeland security, the united states, put customs and immigrations officers in the dubai airport or the doha airport to advise officials on the admissibility of passengers into the united states prior to boarding and traveling to our country. if a passenger is determined to be admissible, our agents will provide that information to the qatar officials, and they in

turn can prevent the passenger from traveling at all. we have similar agreements with nine other countries, but this is the first of two such agreements now in the middle east. second, we agreed to pilot the use of global entry which is cbp's trusted travelers program to expedite the industry into the united states for a limited number of vetted qatari citizens. again, there are similar arrangements with five other countries, notably canada and mexico, but this is the first such agreement in the middle east. with these two agreements, we will better secure our country and better facilitate lawful travel and trade with qatar. in the uae we met with the crown prince of abu dhabi. this was the third time i've been to abu dhabi, actually, as secretary. as in doha, we agreed to place our customs and immigration officers at abu dhabi airport to

advise officials about the admissibility of passengers. we also signed a letter of intent to commence the process of establishing preclearance in abu dhabi. preclearance allows passengers and their luggage heading to the united states to be fully screened by our customs and immigration officials before boarding the plane in their country of origin. allowing us effectively to push our borders outward while facilitating a more beneficial customer and traveler experience. now, the issues tackled in these sorts of meetings, obviously, represent only a fraction of the work we do overseas. i haven't talked about the work we're doing on cybersecurity, on human trafficking, on emergency response. our extensive collaboration with a number of countries from if mexico to india. but i think the important conclusion is that there is a

new paradigm in how our country engages with our foreign partners. an engagement driven by the mutual opportunity to enhance security and to promote economic benefits at the same time. every refinement on how we share information, every efficiency we gain in screening for high-risk travelers helps us get out of the way of legitimate travel and trade and facilitate the work that must go on around the world. because if perceived security hassles discourage people from coming to the united states to do business and to spend money, we lose out. and in today's world we simply cannot afford to do that. other opportunities for these types of mutually-beneficial engagement agreements exist across the homeland security enterprise. cybersecurity in particular continues to emerge as a shared

concern across nations while combating transnational crime, human trafficking and other law enforcement issues, obviously, requires international cooperations. we will continue to work across the globe, indeed, immediately upon my return i joined president obama and canadian prime minister harper to announce the beyond the borders action plan which dhs has had a key role in shaping and will have a primary role in implementing. canada is our largest trading partner, and this action plan will further strengthen coordination with the combination of security and the facilitation of trade and commerce across the border. so this new paradigm, the engagement at the interior/home secretary level, the merger of security interests with travel and trade and commercial interests becomes, i believe, the new future of homeland security. and in the end, i think it will

help make us even more secure. so i will stop talking there, terry, and let's have some conversation. thank you all very much. [applause] >> well, that gives us a lot to talk about. a new paradigm for engaging international partners on these issues, and i want to ask about that in kind of a general sense. some of the partnerships that you're developing are not with traditional, he is to haveically close allies. you're branching out, it sounds like. what are the benchmarks you look for in an international partnership that you know the governments are going to be able to do the job? let me put it colloquially, how do you know who you can trust? >> well, first of all, we work closely -- there's a lot of work that goes on before we enter into an agreement. there's, and that work ongoing develops that sense of trust. as i mentioned, this was my third time in abu dhabi.

it's the kind of relationship where you know each other by name, you call each other on the phone in between trips. when they're in washington, they visit and like weez, the reverse -- likewise, the reverse. so part of it is at the personal level, part of it, obviously, is at the diplomatic level. we work closely with the state department. and then we often, in these agreements, do a pilot first just to make sure that everybody has a common understanding, that we know what is expected of us, they know what is expected of them. and then we go into full implementation. so, for example, the new agreement with the uae we will begin first with putting immigration and customs officials in the airport at abu dhabi, and then we'll move into full preclearance. and preclearance, you know, this is, this is a big deal. we don't have preclearance in many places around the world.

to be able to take travelers and, in effect, enter them into the united states before they board a plane abroad is a huge step forward and really facilitating that international engagement. >> these issues can occasionally become political issues and even -- >> really? [laughter] >> -- get demagogued. let me ask that. you can imagine parts of our political spectrum who just don't like the sound of that, that we're going to preclear people out of parts of the world which we've seen as sources of violent extremism, international terrorism. how do you put those minds or those arguments to rest? >> well, first of all, the standards and requirements for preclearance are quite stiff. and it's not as if we are not physically there. we are physically there. it's our system that is being deployed. but it's being deployed earlier in the process. it's being deployed overseas.

we've had preclearance, we have it in some very unusual places in some respects. i think we have it in bermuda. we have it at shannon and dublin airports in ireland. but this was in terms of us looking across the globe and seeing where we really want to, um, not just facilitate travel, but know who's traveling, these countries in the gulf and in the middle east are key partners. and it's advantageous to them, it's advantageous to us. it allows us to find a smart middle ground or common ground, better said, where our interests coincide. and that in and of itself helps build a stronger strategic partnership. >> how you know it succeeds? >> um, well, we will, i think we'll see, um, travelers move to the precleared routes. i think that'll be the easiest way to see because they'll recognize that having precleared abroad so that when you get off

of that 13-hour flight and land at dulles or jfk you don't have to wait in lines, i think most travelers would view that as an advantage. so i think we'll measure it by how travel routes adjust. >> let me ask you a question that i know the secretary of the department of homeland security always gets, but we're sheer, so why -- we're here, so why not? what keeps you up at night as you look at the raft of endeavors and programs that you're undertaking to address threats and problems, what keeps you up at night? >> well, i think, you know, the things i know about don't keep me up because they're being handled. it's the things you don't know about that can imagine where you're trying to really think your way through and be proactive. that can engage you in some nighttime thinking. so the known/unknown as has been

said before is something i think anyone in a position like this one has to, has to be concerned with. >> privacy. >> uh-huh. >> which was a big issue in the agreement that you reached with the g6 plus 1. and more broadly than that for a lot of people in a lot of countries around the world, there's this sense of encroach ing eyes of government on us at every single stage. you get that all the time. so what do you say as you reach these agreements, push our borders and the united states way of doing things out into countries which have different traditions and values perhaps? is big sister watching? >> i think big sis is my moniker in the drudge report -- [laughter] so i knew i actually made it when i had my own name in the drudge report. yeah, that's a standard. [laughter] the pnr agreement is a good example of this. the pnr agreement, actually, will be with the e.u., which

means we've had to negotiate with the commission, we've now finished an agreement and initialed it. we anticipate it to be approved by the council next week on the 13th, and then we will have to go and have it ratified by the european parliament. we have been the lead negotiator for the u.s. on this agreement, and one of the key sticking points has been data privacy protection which is one of the fundamental rights in the charter of rights in the e.u.. you know, there, you know, one of the key things we've had to do is to educate our e.u. partners that the united states values privacy too, and we value our personal information. we just have different legal systems by which to address them. and in the new pnr agreement i think we've reached accommodation with the e.u. privacy interests consistent with the way the united states

handles privacy and data protection issues. at the same time, by being able to exchange pnr and have that agreement in place we will have one of the more effective and important tools available to us to know about the international travel of potential terrorists, transnational criminals and the like. i could mention new zealand si beautiful la sas si, david headley are just two of the individuals we have helped identify through the pnr data. >> for every one of those, the horror stories are out there that there's a david headley who's not the david headley you want. >> right. >> how long does his personal information, his data remain in databanks that he might rightly feel violate his privacy? >> under the new agreement, the travel information remains six

months, and then there's a tiered system by which it is anonymized but is available to be retrieved on an as-needed basis. so what we've done is kind of look at it from a what do you think from a law enforcement perspective, a security perspective and a privacy perspective. and the, um, e.u. negotiators felt that was a reasonable way to approach the problem. i think it's reasonable as well, obviously. >> and then that gets us to terrorism, violent extremism. the threat is of a different nature now. ten years ago, obviously, al-qaeda had a country to operate from. their capacities have been degraded, and you have almost a kind of spread of the threat down to individual lone wolfs as you said. how significant a threat is that, the individual traveler, the individual lone wolf terrorist? and what kind of systems can

defend against that? >> well, i think, you know, what we try to do is maximize the ability to protect global systems, to protect the global aviation system, the global maritime system, the cargo system. it's obviously something that one country cannot do by itself, that's why you have to have international engagement. you have to have standards. you have to do capacity build anything this regard. it's, obviously, something that will never be 100 percent guaranteed. but to the extent we can strengthen these international partnerships, really deal with the mutually-beneficial common ground, smart security, smart commercial progress, it heightens our ability to protect the global systems. you know, we all know that one plane going down would be a disaster in terms of loss of life and property, but it also would have a huge economic impact both direct and indirect. thus, you know, that's why you

can within nine months knit together 190 countries to come together and say these are the new standards that we are going to abide by and agree to an implementation plan and a set of criteria and capacity building initiatives that countries like the united states can help provide. >> so do you feel that the department of homeland security and the defenses that were established after 9/11 to respond to al-qaeda, a coherent, transnational terrorist organization, do they meet today's threats? >> yeah, because they've evolved. we have not been stagnant in the post-9/11 world. we've built on, the department built on the work of my two predecessors, built on our greater knowledge and maturity in the whole area of security. i'll give you an example. tsa which was, basically, stood up from nothing after 9/11 had the premise, you know, and had

to really that all travelers will be treated alike. and as we have grown and matured, as technology has gotten better we've been able to say, no, it's time to move to a more risk-based attempt. you have to do it slowly because of the nature of our adversary, but you can let kids keep their shoe on, you can start moving toward trusted traveler programs where people can go in different lines. i think we'll be looking at some other efforts to limit the amount of what's known in the trade as divestiture, things tough take off before -- you have to take off before you can clear the airport line. you will all appreciate this as you travel over the holidays. but you won't see that over this holiday, but you will begin to see pilots and things of that nature as we move forward, and that's a big philosophical change, right? the underpinning has changed. the risk-based approach as opposed to treat everyone alike

approach. as we mature, as we grow, we move in that direction. and our international partners do as well. >> well, there is a kind of cartoon version of tsa which you see out there, the don't touch my junk version of what americans have to go through. how big of a problem, how big of a hurdle is that when you're dealing with international partners that they see american air security as too intrusive, as that cartoon version? is that a problem? >> no, it really hasn't been. in fact, many european countries are installing and deploying the same kinds of security regimes we do. why? because they've been threatened. we do it because not only have we been attacked by air, but we continue to see threats threatst regard. there's nothing that happens in the air environment that's not responsive to a threat. what we're trying to do now is say, all right, we need to take care of security, but we also need to be able to move, you

know, 1.5, 2 million people a day through the nation's 400-plus airports. how do we do that most effectively? how do we fund research that will help us over the long haul, the long term speed up passenger travel? how do we make sure that the cargo that's going in that passenger hold is safe and secure? it's a combination of many hayiers. it's information -- layers. it's information gathering, it's analysis, it's intelligence sharing, it's different modes of looking at cargo and people as they even somewhere with the perimeter of an airport up to and including the last step, basically, being the actual gate. >> let's talk about cargo. for years it's been seen as a potential vulnerability, the sheer scale of cargo that goes around the world and the potential for attacks based in it. let me ask it this way, why haven't there been cargo-based

terrorist attacks given how little cargo is actually screened? >> well, there have been attempted. and, um, the next time you see a toner cartridge coming out of yemen, you might want to check twice. and, indeed, one of the risk factors we now look for is, is in the kind of cargo you would anticipate coming out of yemen? and i think there have been attempts. one of the things that we are working toward is literally just as in the passenger environment where we're going to move more toward risk based, cargo as well. emerging -- merging our prescreening program for cargo, a trusted shipper program as it were with european definitions of the same. you know, as cargo moves around the globe working with countries around the globe in the same tag tag -- fashion. so that when you see cargo

palettized from shippers that have been moving that kind of cargo for years, you know, you might put it over here always with a certain amount of random checking just to be sure and, you know, the single drop or the unusual piece of cargo from an unusual place, focusing your security resources there. all the while merging, finding that sweet spot between security and travel and commerce and, again, all countries of the world have an interest in that. so it gives the united states an opportunity to engage an entirely different level. >> and you mentioned the private sector. when your talking about securing the global supply chain, shippers, this has not historically been a concern of that industry. is that a problem at all, getting private corporations onboard to go through these procedures, to harden up their defenses? >> oh, they're, they're very supportive of this. why?

because as we do this, for example, as we work toward a truly global supply chain security system, we can harmonize things. we can reduce paperwork. we can reduce the amount of human intervention that has to occur as cargo moves from place of origin to ultimate place of intended delivery. um, so for them i think they see it as a way to reduce, ultimately, the travel costs, the transaction costs they incur moving, filling out the form in one country that asks for the same information but in a different way just a few yards away as they enter another country. so harmonizing those entry and exit procedures and information, requiring more information to be not only delivered electronically, but well in advance of when the cargo actually is moving so that you, um, don't wait until something shows up at a border in order to make sure that it clears the customs side and the security side. >> so you haven't seen a

resistance on the part of -- >> no. they want us to move faster. yeah. and i tell 'em, we're moving as fast as we can. this is not an easy task to take hundreds of nations all of whom have an interest and a sovereign interest in some of these issues and harmonize their requirements. >> a couple of the other issues that you raised, cybersecurity. this is, obviously, a huge issue for this country and others. how to the international -- how do the international partnerships work in an area where it is so hard, where there isn't national territory in cyberspace? >> you know, after the u.s./e.u. summit in lisbon in november of 2010 one of the deliverables out of that was a cyber working group and, indeed, there's been a lot of work done u.s./e.u. on cybersecurity since then including participation in some joint scenario tabletop-type

exercises involving cyber intrusions, disruptions, attacks. um, so there are some of those international engagements that have begun, but it would be premature for me to say they are where they need to be. we know this is an area of growing, you know, interference, attack. it's not just potential, um, potentially dangerous from a security standpoint, but from a commercial standpoint the effect of inte -- the theft of intellectual property that occurs online is a huge economic issue particularly for the united states where your economy is so based on innovation and creativity, being the first in the world the develop something new. and if that can just be stolen online, that's a deficit for us. so i think that as we move forward the whole cybersecurity realm will be such a key, key international issue even though we are homeland security.