make a final push towards a nuclear weapon. >> yes, just two quick points. one is i am agreeing with matt on both. one is i don't think the latent capability is a highly likely outcome. i think it's the overall ability and i think if we strike iran the most likely outcome of not striking is is iranian nuclearization. i just think we can contain that in the second is i think israel has not only cooperation all reasons to strike before the summer, is also politically a very interesting time for them to do so because there is one thing worse for israel than in a bomb administration, which is the second term obama administration. ..

>> the president is somewhat inhibited by taking a firm stand against israel. the money will flow. >> more questions. somewhere in the back. let's go to the far back corner over there. >> hi. joe storm, former cato intern

now working in finest. just a quick question for the interventionist. a quick question for the left side of the table, the interventionist. sorry, left, right. how can we be certain that we will not be dragged into another iraq, afghanistan like scenario after getting involved in iraq, after a strike? >> so that tell me how this ins question. >> i mean, i'm certainly only advocating basically a more extensive air campaign that i think the united states military would already plan. so yes, that could lead to regime collapsed, and it's probably why i am advocating it. so that could be chaos and a lot of uncertainty in the aftermath. now, that does not mean that the united states would be able to be completely hands-off, as we have in the case of libya, for

instance, and never putting boots on the ground or that there would be no international force to help ensure some sort of stability. but they don't think anyone, i haven't read any arguments of anyone advocating a ground invasion of iran. i don't know how we would get dragged into an iraq or afghanistan style operation, because you would consciously need to i think be advocating to be a large occupying force, which is certainly not what i'm advocating. >> i certainly understand the iraq analogies. there was a professor at oxford university who wrote a great book 15 years or so ago called analogies that were. and he said people often reason by analogy, foreign policy, what are the lessons of munich, what are the lessons of vietnam, what are the lessons of iraq, and he argued it was almost always a mistake to do so. they admit the underlying differences in cases that is

really important. many people use iraq and now she to understand iran. i think it's misleading to do so. i understand the superficial similarities but there are important differences. the first is i think one, iran is much closer to a nuclear weapon have been saddam hussein was in 2003. we know that because again international inspectors on the ground writing detailed reports every three months about what iran has. again, iran has come according to experts, according to david albright, respected nuclear export here in town, about four months from having enough material to make a bomb. so much closer than saddam hussein was. second, the operation were talking that is very different. this is what jamie got to be the reason iraq was so expensive and so costly, blood and treasure, with the 100,000 troops there and stayed for 10 years but no one is talking about that kind of operation in iran, the kind of operation i'm talking about is bombing a few key facilities and air defenses you need to get

to those facilities. so this is a limited strike that, depending on retaliation, could be over in days or weeks, not a decades long groundwork. >> a quick follow-up on what regime change would actually look like and what we do in the aftermath. i'm very dubious of regime change the last decade has caused me to be very dubious because you talk about undoing an existing political order. that no matter how odious it is, how rotten it is, it is in place come in charge. so in the event of regime change those procedures would be in doubt, right? in that case, it strikes me you can't just be happy with regime change because if they've done all thi this this and regiment p till now added that all of this nuclear work, that stuff is still going to be there in event of a regime change. would you be in favor of sending some force to say guard key sites?

what's the next step after the regime collapse? >> i would certainly think that the international atomic energy agency would need to be involved. they of all rehab so much active, at least to some elements of the program. i think when it comes to counter proliferation of this administration has taken some risks that i was certain i have advocated in the case of libya and we've seen the weapons proliferation, because of, turns out the remainder of the cw stockpile which they had lied about to the organization was not transferred anywhere that window a. i do think we will face a challenge in syria in the coming months, over the next year if there is assad regime collapse because serious wmd capability are much more extensive than libby. and did you think that if you're concerned about counter proliferation inducers to consider whether it's some sort of international force, whether it is u.s. and allied special forces. but i think it would probably need to be some effort to secure

sites. we can't have sites that are left open for terrorists to go in and get a variety of materials. in the case of syria, the administration has not seemed willing to really at least publicly talk about their options. there's been a press report or two about jordan providing troops. my guess though is the scale of the problem in iran, both with its nuclear sites and nuclear material and enriched uranium, as was chemical weapons arsenal, but also necessitate some international discussion but i don't think this would be the thing where the united states will be the only country concerned about what the aftermath at the regime change would look like. and this is the sort of prom will have to do with whether the regime change brought about because some sort of external reaction over from within. if we have political instability in iran, which is very likely in the coming years, and the regime falls and we don't know who's in control, we will have the same concerns and the u.s. and its

allies will be watching the suspect sites very closely, i'm sure a lease from a foreign monitoring what's going on and i'm sure there will be proposals about sending in teams even to secure them. this is not something that is directly i think related to external military action. >> just a quick comment. i think there's all sorts of reasons for wanting or wishing, hoping, praying for, advocating for regime change in a red, depends on how you like use your time. one of them, certainly not in the nuclear program. nuclear program started in 1976 with the shawl. the strongest ally in the region. >> let's take i think two more questions and then we'll clean the whole table and start with the gentlemen here and then we will go back in the back corner over there. >> i was born in tehran.

i represent global bridges for humanity. lowder? okay. i was here at the first panel and her the second panel. i have heard them more than once. the more i listen to our experts, it seems that united states is so impotent to not even do a little country with 75 million people, which we claim they don't know anything, they don't know how to do this, they don't know how to do that. and then the only option that you are promoting is to bomb them. so they are 75 million people, and you want to bomb all of them, part of them, selected group of them? and what kind of day would we have after those bombs have fallen on the people of iran, which is 75 million, okay?

>> thank you. let's take the other one in the backcourt and then we'll go all the way around, just do a wrapup. >> thank you so much. i'm from the cato institute and thank you very much for a fantastic discussion but is there anything to the allegations of iranian influence in latin america and homegrown sort of sleeper cells? we sort of heard this bandied about, i think it only with the national hysteria within the united states. is there anything to these allegations? >> all right. so i guess that would relate mostly to iran's ability to hit back, and then i think the first question was mostly about how to stop things the day after again, et cetera. should we start with nuno and sweep back down, how about that? >> on the question of whether the u.s. is powerless to do something, the work i'm doing, i'm writing a book on this.

the work we are doing, what it indicates is that there is a pattern of proliferation that states that the to acquire nuclear weapons, because they are already, they are already significantly powerful before they acquire the nuclear weapons which is the reason we don't strike them because with the soviet union, couldn't do it. considered the chinese, couldn't it. considerate with north korea, couldn't to the. before they fire a nuclear weapon. that is indeed the u.s. power is a great but it is limited because the costs of terminating the iranian program would be very high, which is also why i don't think the difference we would have as a result of uranium nuclear proliferation is great because they had to great extent to deter u.s. aggression. >> a couple of final thoughts. i was struck with your comment that that united states is impotent to do anything else except for bombing. i don't think that's true but i

don't think that united states is impotent at all. the long-standing u.s. policy objectives in the region have been stability and security in the middle east, and the free flow of oil to markets. we can do that. and have been doing for a long time. there's no reason why we can't continue to do that. iran so they doesn't have the wherewithal to close the strait. it can cause trouble but it cannot interrupt the flow of oil that would really affect international markets for the long-term. u.s. navy is very good at reopening the strait if it ever has to face that problem. we can do a lot of things. i think that the sort of implicit debate between that and jamie's interest about whether or not they should be a limited strike only against a nuclear program or if we should think about regime change more broadly. strangely i disagree with both. but any weird way. i don't think that there's any scenario in which iranian leaders would see a limited strike is anything more than a prelude to an unlimited strike. u.s. behavior over the last

decade has been about regime change. they have seen this. we did in iraq. we did in afghanistan. we helped do in libya, despite the fact we've made deals with coffee regarding his nuclear program. so i don't see any way of assuring them. but i think there is an argument for regime change, but if you're going to make that argument you have to think very seriously about the long-term consequenc consequences. and given that the whole argument is premised on the fact that iran has this large sprawling aggressive nuclear program, that would seem to be a call for a large substantial stayed occupation force. would have to be willing to pay that price and take that risk if we really wanted to get the regime change business again. one last comment. i do think that it's good that we're thinking long-term. most of the questions up to now have been these near-term operation question but it's worth thinking about what the long-term looks like.

suppose i'm wrong to suppose that we can pull off a limited strike against iran's nuclear program. i think that what we are left with in that case is an ugly in stable, unstable stalemate. and i think iran would work very hard to rebuild its facilities and would never have any reason to be deal with the united states or the west. we would also lose our international partners, who we e of the nature of the job compiling up to now. if we don't act and if israel doesn't outcome what does the future look like? i think looks like an unpleasant but livable stalemate we can afford. >> any closing thoughts? >> first i guess i would just disagree with josh's point that limited strike would necessarily be a prelude to regime change. put yourself in issues of the iran's supreme leader, your primary goal is to protect the regime and to make sure that the regime continues to exist. and you wake up one morning and your keynote their facilities are destroyed but the military isn't that.

your regime is intact. i don't think your instinct is to say well, go ahead and pick a fight with the united states and commit national suicide but i do think it's very likely that a limited strike would result in limited retaliation, that the united states could absorb and that would be much less dangerous than living with a nuclear-armed iran. on the question of iranian influence in latin america, iran has been trying to increase its influence in latin america but it's been developing relationship with hugo chavez in venezuela and also in bolivia. and iran is already signed nuclear cooperation agreement with both country. so i think this gets to the risk of technology transfer i talked about before. i think it's entirely conceivable that iran could say, then is whether is a country in good standing in the npt and has a right to peaceful technology, to help them with that we were transferred uranium enrichment technology so they can produce their own fuel for a nuclear program, and i think this would be a real problem for the united states and for u.s. nonproliferation policy, all the

issues we've been getting with iran for the past decade would be right in her own backyard in venezuela and we would be dealing with that. so i think that there is a real risk. my colleagues said we could deter iran from doing all these nasty things, including nuclear technology transfer, but i don't think that is what the case. what is -- are we really going to use military force to stop them from doing that? we have been unwilling to use military force after we found at the pakistan was transferred nuclear technology, and in the scenario iran has nuclear weapons that we are really going to fight a war against a nuclear arms did because it transferred nuclear technology. after we were unwilling to go to war with iran when it did have nuclear weapons but as i think that's one of the major problems with deterrence and containment option is would have no credibility if we're unwilling to go to work with a nonnuclear iran, nobody is going to believe us that we would be willing to use force against a

nuclear-armed iran to our allies would relentless and iran wouldn't believe us spent i just want to respond to the gentleman in the front's point about iranian people. i think it also relates to a point that nuno made about the aftermath of regime change. i'm not advocating, i don't think anyone up here is advocating bombing the a ring people out of existence. just as i do think you'd argue that the united states was bombing the libyan people are bombing the serbian people in the 1990s. iranian people do not support the current regime. my understanding the arian opposition, the dissident figures i've spoken to, there is not broad-based support for the current regime. the current regime will fall at some point, it's just a matter of when. and i do think it's a military strike, series of strikes was done so in a targeted manner, civilian casualties could be kept to a minimum. so there may be some initial kind of rally around the flag

notion inside of the country, but if it was made clear this is going after the regime, and alice of repression, the elements of repression, then i think it would be easier for the united states and its allies that were involved to make the case that this was in their long-term interest but in terms of what would resolve and what would emerge, certainly could have some sort of do. you have a shakeup where you got of the hardliners in power but i think it's hard to imagine a regime that would be much worse than the current one across the broad array of u.s. interest. and i think it's very difficult to argue that if you got to the point we have a democratically elected government that followed, that it would want to continue under this crippling yoke that is been placed on the country of sanctions. the first thing that they want to do is repair the economy and bring back i ran into the community of nations.

they would certainly want to negotiate in good faith, unlike this current regime, and so then you could have discussions about what exact nuclear capabilities they can be trusted to maintain, given their past programs. but i do to produce daily much easier for the united states and other countries to have those sorts of negotiation with a democratically elected government. >> with the debate now subtle, i'm not sure how, we would like to thank everyone for coming and encourage everyone to continue the discussion. i think upstairs over diet cokes and sandwiches. so thank you very much. [applause] [inaudible conversations]

>> [inaudible conversations]

>> follow c-span local content vehicles throughout the weekend as booktv and american history tv explore the history and literary culture of little rock, arkansas. saturday starting at noon eastern on book tv on c-span2, the little known riots and killings of at least 20 african-american sharecroppers. >> you had calls going all up and down the mississippi delta, and saying that blacks were now in revolt. and the next morning, between 601,000 men, white men, for into phillips county to begin

shooting down blacks. >> on american history tv on c-span3, sunday at 5 p.m. former student bruce lindsey on integration and north little rock high school. >> and they know what's going to happen but we don't know what's going to happen. we don't realize what's going to happen when we get up those steps. but they seem to, because the crowd is with us now. the momentum is behind us, and they are pushing us up the steps. >> these stories and others from c-span's local content vehicles in little rock this weekend on c-span2 and three. >> in march 1979, c-span began televising the u.s. house of representatives to households nationwide. and today, our content of politics and public affairs, nonfiction books and american history is available on tv, radio and online. >> on or about friday, november 21, i asked admiral

poindexter directly, does the president know? he told me he did not. and on november 25, a day i was reassigned back to the united states marine corps for service, the president of the united states called me. in the course of that call, the president said to me, words to the effect that, i just didn't know. those are the facts as i know them, and i was glad when you introduce this you said that you wanted to hear the truth. i came here to tell you the truth, the good, the bad and the ugly. i'm here to tell it all, pleasant and unpleasant. and i'm here to accept responsibility for that which i did. i will not accept responsibility for that which i did not do. >> c-span, created by america's cable companies as a public

service. >> on wednesday former mf global assistant treasurer edith o'brien exercised her fifth amendment right before house financial services oversight subcommittee looking into mf global's collapse last october. heher appearance comes as ratiol investors last week revealed that an e-mail she sent claimed former ceo jon corzine directed the transfer of customer funds just days before mf global filed for bankruptcy. this is just under three hours. >> the committee is called to order. this hearing will come to order. i would remind members that the opening statements be limited to 10 minutes on each side has previously agreed. there are members that are not necessarily may attend this hearing that are not a member of the oversight and investigation committee, and i ask unanimous consent that the spammers be allowed to participate in the hearing today as well. i'm going to go ahead then with my opening statement.

this is the third hearing that we have had on mf global. it's about one of the eighth largest bankruptcies in history of this country. but more importantly, it's about trying to ascertain what happened where farmers and ranchers and customers lost over a billion dollars worth of their money. i would remind folks that this is a hearing and not a trial, and at the bottom line at what we're trying to accomplish today is basically to do an autopsy on how a 228 year-old company came to its demise last year. it's important that we understand what was going on corporately, was going on from a regulatory standpoint and really what was going on within the systems that support this entity and these businesses. the reason that is important is that there was a breach and people lost their money. but more important is going to be important for us to make sure that whatever deficiencies that

happened, that corrective actions be taken so that customers and farmers and ranchers that use these kind of services in the futures have confidence in those markets. we have looked at basically a different aspects of this, of the last days and months of years of mf global, and today this hearing will be focus really on the last days of mf global, and ascertain how and when and why farmers and ranchers and customers came about to lose their money. and so i appreciate the witnesses for being here today. i appreciate my fellow committee members, and i hope that when we can complete this hearing today that we have a better understanding of what happened, and more importantly, how we can prevent these kinds of things from happening in the future. and so with that i yield to the ranging member, mr. capuano for

his remarks. >> thank you, mr. chairman and thank you for having this entry i want to associate myself with all the comments you just me. that's exactly what i'm doing the i am not looking for someone who stole money. if someone stole my, the justice department will find them, and that's there will. not our role as i see. i see our role as time to find what happened in order to make sure that it doesn't happen again, see if there are rules that need to be clear that, see if there are accounting principles, whatever it might be. if there is criminal wrongdoing, just to encourage the proper authorities to do their job, not mrs. joan as. i want to talk about some of the events that led up to today's hearing. i think it was pretty well known there was some news stories last week that were based on a member those leaked inappropriately. i've spoken to the chairman about it. we agreed that things happen unintentionally, so be it. it is done but i want to congratulate the chairman for the addendum to the memo to clarify that decision but i think that took a lot of good

wisdom and a lot of courage and a lot of foresight to do that and it was well-written and i think right to the point. i also want to make sure, the chairman and i talked and i think we both agree, i want to be clear i'm on the record to say up until now the subcommittee in my opinion has worked very well. i have a good relationship with the chairman. i don't national actually have different opinions on certain matters but not with this committee. we have a responsibility and we're doing it. but it has been done mostly in a bipartisan and cooperative manner. last week raises some issues with some of my members on my side, i think legitimate issues raised them with the chairman. i think their work out. i believe they are worked out but i want to be clear. as we go forward, make aerial of the committee belongs to the committee. it does not belong to a member. material of the committee is required by house rules 11, to be shared amongst all members equally. equally. it is not subject to the

termination of staff or any other member what to do with that material. and again i think the things this week were inadvertent and that's fine. things happen, you clear them. by want to be clear that going forward i expect that every person who works for our with this committee or members of service come in will try to work in a cooperative manner, knowing full well that there will come a time where differences of opinion and we will express that operably, viciously and precipitously at all the other ways that we do. but as far as information us first try to get to the bottom of this and other matters the oversight committees job is to protect the american people. we may have different views on have to do that but i don't think any of us disagreed on that responsibility with that, mr. chairman, i want to thank you for the conversations we've had to try to clarify some misunderstandings this week and i look forward to work with you in the future. >> and i want to say that i appreciate the ranking member and appreciate his cooperative spirit i think this committee has worked in a very bipartisan way because we work the american

taxpayers. they give us the responsibility to oversee markets and entities, and i know he takes this as seriously as i do, and so i thank him for his remarks. now i yield to the chairman of the full committee, mr. bachus, for two minutes. {>>} thank you, chairman neugebauer, for convening thi >> hearings to examine events in the tumultuous our lives of mf global. i commend you for the subcommittee's continued, careful and comprehensive review of the facts in this case. through two hearings, this being the third, dozens of interviews by staff and the review of thousands of pages of documents, and those documents as they came in, members were notified that they were here, but maybe we can improve that communication. but the oversight and investigations subcommittee and the full committee has sought to

find out what led to the loss of $1.6 billion in customer funds. we need to understand what happened at mf global both for the benefit of the ranchers and farmers who lost money as well as the american public which benefits from properly and effectively functioning commodities markets. what we have learned to date is that, notwithstanding the promise of dodd-frank that regulators would work together, there is very little evidence of regulatory coordination in the supervision of mf global. in fact, fender, some for five months before it was asking questions, but those questions, the sec and finra on one side and commodity future trading board on the other, we can find no communication where they were sharing those concerns with the other regulators.

better coordination i think could have and should have led to greater vigilance over the safekeeping of mf global's customer funds. we also have learned that internal controls do not work if they can be readily short-circuited by a company's ceo. and while not all of the facts are yet known about the role that mf global's ceo, jon corzine, and what they play in a spectacular collapse, the subcommittees investigation leaves little doubt that mf global was in many ways his corporate alter ego, and that ultimate responsibility for what happened in the firm's chaotic final days rests with him. today's hearing will examine whether customer funds were used to meet the firm's demand for cash in its fateful last week. according to a preliminary report filed by the bankruptcy trustee, margin calls were a major source of stress on the firm in its last week. we hope to learn from the witnesses today whether this

liquidity crunch at mf global led someone at the firm to improperly use customer funds to meet the firm's need for cash. in order to get to the bottom of what happened and who was involved, the subcommittee needed the cooperation of various banks that conducted business with mf global. a number of those banks were contacted about testifying today but only jpmorgan chase volunteered to appear before us. financial institutions may understandably be reluctant to testify on complex transactions because of the time and resources it takes to ensure the testimony is accurate and complete. jpmorgan chase's cooperation, therefore, is very much appreciated. mf global was the eighth largest bankruptcy in our nation's history, but that is not what makes its failure noteworthy. firms of all sizes fail every day, for every reward there is a corresponding risk, that is the free market.

however, a $1.6 billion loss in customer money is not a risk that should exist in an effectively regulated free market. i hope this hearing will bring us closer to understanding what went wrong and where that money is. thank you to our witnesses. and let me say this. our investigation, everyone testified on this panel has a good reputation. they have a good background. they are respected in the industry, and so, as i think has been said before, this is not, this hearing is to find out what happened. not to accuse any of you of any wrongdoing, because that hasn't been demonstrated. and so we appreciate your testimony. you are not on trial here. we are silly and a fact-finding

mode. and i have been struck by, i have looked at your resumes, your background, your very qualified and other very good reputation, all of you, so thank you. >> i think the chairman and now the gentleman, mr. lynch, is recognized for two minutes. >> thank you, mr. chairman. i would also like to thank the witnesses here today for helping this committee with its work. mr. chairman, i believe that in many ways you should be given credit for the attention you have given to the collapse of mf global. i think we can learn many lessons from the collapse of mf global about the accounting treatment of certain risky investments, about the ability of regulators to meaningfully oversee financial institutions, and about what we can do to make your regulars have the tools to prevent a situation like this from occurring in the future. we have explored these issues in some previous hearings and i hope we have an opportunity to revisit them today. however, i must raise an issue of process with you today that has been mentioned by my ranking

member, mr. capuano, i believe that your site, you and your staff have been unacceptably slow in sharing documents with our offices and other member's on this side of the disc. in fact, my office has not received a copy of mf global quote break the glass plan, something seemingly republican members apparently had a copy of at least as of last february's hearings. moreover, the ranking member was unaware until this sunday that you are in possession of about 100,000 pages of documents relating to the final days of mf global. house rules, as my colleague is indicated, state that each member shall have access to all committee hearings, records, data, charts and files. i have not had access to the extensive portfolio of documents that your staff has obtained from mf global in preparation for this thing. mr. chairman, i have no intention of going easy on mf global. we are of one mind here. i am incensed as you're at the breathtaking lack of care and

handling of customer funds. but i'm also disappointed as a member of this committee i have not received the full extent of information collected by your staff and circulated to republican members. just like your side we take our responsibility to prepare for these hearings very safely. we take our responsibility to the taxpayer very seriously. again, while i give you great credit for focusing on this issue, and you deserve that credit, i hope that this investigation will move forward in a bipartisan collaborative way, and that our office and the rest of the members on the side of the desk will be privy to all the information that you're often obtain and will again. mr. chairman, i think you for the time and i yield back. >> thank the gentleman for his remarks, and now i yield to the vice chairman of the oversight investigation committee, mr. fitzpatrick, for one minute. >> thank you, mr. chairman. here we are in hearing three of a series of hearings, investigating the facts around

the collapse of mf global. we no mf global suffered a severe lack of cash that led to the firm filing bankruptcy on october 31. and in those chaotic final days of the $1.6 billion in custer money went missing. at a time when americans already lack confidence to financial markets, mf global provides another devastating example of how multi-million dollars security fronts consider the impact middle-class americans. like many members of this committee i've had constituents effected by this event, and that is who i am here to speak for. we owe it to customers who lost money to discover exactly what happened at mf global. what these hearings are also designed to do is to provide insight into our financial markets and the regulatory regimes designed to protect them. the american people expect us to hold the wrongdoers accountable and to protect those who play by the rules. so here we are dumb as members of the house of representatives we're here to stand in place of millions americans would

represent. we are here to find answers for them. i commend the hundreds of hours that subcommittee staff has spent devoted to digging deep into this matter. i look forward to the test one of today's witnesses and answers that we hope you'll be able to provide. and two, chairman. >> i thank the gentleman. i ask unanimous consent that a letter from the commodity customers coalition, actually thinking the full committee for our work, mf global to a part of the record today. without objection, so ordered. >> now i would like to yield to the gentleman from texas, mr. canseco, for a minute and a half. >> thank you, mr. chairman. you know, back in the fall of 2008, the financial crisis was unfolding. then candidate obama stated in a debate the importance of quote holding ourselves accountable day in, day out, not just when there's a crisis for folks who have power and influence and can hire lobbyists, but for nurses,

the teacher, the police officer, who frankly at the end of each month, they've got a little financial crisis going, closed quote. well, there's a big financial crisis going on right now for farmers and ranchers across the country that can't access their portion of $1.6 billion that's gone missing at mf global. this past week we learned that ceo jon corzine likely wasn't the innocent bystander he claimed to be in front of this committee back in the summer. yet for all the rhetoric we hear from the obama administration about holding people accountable, this administration sure has a way of climbing up when the people in question is a former democrat senator and governor. i hate to sound like a cynical, sound cynical, but i can't help but think that the quote power and influence closed quote, as

president obama may call, that someone like jon corzine kerry, is exempt from a thorough investigation by the department of justice. the victims of mf global deserve their money back, but they also deserve to know what happened to it. this hearing and our continued investigation is of extreme importance, and i yield and i yield back the balance of my time. >> i thank the gentleman. now the gentleman from california, mr. royce, is recognized for a minute and a half. >> thank you, mr. chairman. the clear problem that arose here, the clear problem that made bankruptcy the only option for mf global was that no one could account for what happened to over a billion dollars in segregated funds. as we are going to learn today.

but more than leaving the various customers of mf global high and dry, what's happened is that those missing funds have rocked the foundation of the cftc's customer protection regime. rules governing segregated accounts, those rules have been around for 75 years. and they're not difficult to understand. purportedly they're not difficult to enforce, yet the cftc has failed in this most basic task. so we go to commissioner o'malley's observation at the cftc. he says that basically is arguing that since 2010, the cftc has been consumed with drafting new rules to regulate not just our derivatives market but the world's derivatives markets, with much of the manpower at that agency dedicated to enforcing dodd-frank. and according to mr. om malik, the cftc ms. cracks in the

system, it has cost over a billion here. in terms of the client. at least hundreds of millions. so i will end by quoting them. since the dodd-frank act became law, the commission has acted like a little child abandoning the old toy and swapping them out for the new. it has concentrated on swaps rule-making, while averting its gaze from the futures markets and their development. therein lies the concern. the broader question, has got to be educated regarding the ability and willingness of the cf pc to ensure customer funds are protected and i yield back, mr. chairman. >> i thank the gentleman and i yield to the ranking member, mr. capuano. >> mr. chairman, it's kind of interesting we sort up try to be bipartisan and now i just for the both president obama and the dodd-frank bill caused this problem i would like any member here who's has any information

whatsoever that the justice department, the sec, the cftc or any other appropriate agency has given mr. corzine or anyone else a pass on the investigation related to this matter. because if you do i would like to see it and it would be another matter we don't have. i would like to know if dodd-frank caused this problem, then what caused lehman brothers? what caused bernie madoff? i mean, i know we're all here to make a political point. i'm a politician, too. but let's stick to the matter at hand, what happened here. if you know, go to the justice department and tell them. if you want to make political points, there are microphones out in all. that's the appropriate -- >> will the gentleman yo? >> i sure do. >> i appreciate you yielding. the point that i'm making, i am according to commission at the cftc. it is his observation, it is his observation that since the dodd-frank act became law the commission has acted in this way. it is his observation that it

has concentrated on swaps rule-making while averting its gaze from the futures markets and -- >> i would be happy -- reclaiming my time. [talking over each other] >> i would be happy to join the gentleman to invite the gentleman back. if he did i was have to agree with you at and say good job. but if he doesn't, then i would expect you to do the same. spent i thank the gentleman. and now i'm going to recognize our first panel at this laurie ferber whose general counsel, mf global holdings limited. mr. henri steenkamp, chief financial officer mf global, and ms. christine zirinsky, chief financial officer of north america and ms. edith o'brien, assistant treasurer at mf global. i would ask to recognize each of you know for your opening statement and first of all, i

need you to please 10 and raise your right hand. -- please stand and raise your right hand. [witnesses were sworn in] thank you vicki may be seated. without objection your written statement will be made a part of the record, and at this time iowa recognize ms. farber for your opening statement. >> chairman rockefeller, ranking member cap want to come and distinguished members of the subcommittee, my name is -- i'm sorry to interrupt you but could you pull that closer to you and make sure that little light is on? there you go. thank you. >> my name is laurie ferber. since june 2009 i have served as the general counsel of mf global. since the bankruptcy fun of mf global holdings i have remained

with the company to assist the bankruptcy trustee and the bankruptcy professional in their efforts to maximize the value of the mf global a state. i hope that my testimony will assist the subcommittee and efforts to understand what happened at mf global during the firm's final days. i was born and raised in the bronx, new york. i received a bachelor's degree from the state university of new york at buffalo and graduate from new york university school of law. prior joining mf global i served as general counsel of the commodities and/or fixed income unit of to financial services firms. as general counsel of mf global, i supervise the legal and compliance functions. >> mr. chairman, could i get her to get the microphone closer? >> sorry. as general counsel at mf global, i supervise to legal and compliance functions. my responsibilities include managing the legal functions to support the firms evolving business, advising the board and

senior management and facilitating mf global's relationships with its regulars. mf global's legal department include a profit 712 of the profession at the firm's legal team was supported by several highly skilled outside law firms with expertise in various areas of law burden to mf global the operating businesses. the global have compliance which a substantial expense and compliance matters and matters a global department of over 80 people also reported directly to me. i report directly to the chief executive of mf global and and directed -- interact frequently the board of directors. my focus in the last week of mf global's operations was to make sure the legal and compliance departments at outside counsel were available and prepared to support the firm as it attempts to do with the rapidly unfolding events of mf global's last days. the firm's senior management and board of directors reacted to those events by initially

seeking to sell all or part of the firm answer to reducing its balance sheet, while also seeking to make sure the firm met all of its obligations. ultimately win the sale of the firm became impossible, mf global holdings had no viable options other than to file for bankruptcy protection. throughout mf global's final weekend, i person was in mf global's offices in new york for all but a very few hours as were many members of the senior management. the board of directors were also present, carefully monitoring events and receiving almost constant updates. my colleagues and i were in very frequent contact with many of mf global's regulators during this time. these include the sec, the cftc, cme, the cboe, then rep and a reserve bank of new york, as was the financial services authority, uk financial services regular. keeping the regulars informed was one of my top priorities.

that includes spending most of sunday evening, october 30, working with regulators to agree to terms on which the firm would be sold and to accounts transferred to revive it as best i recall, it was shortly after concluding that process and likely just before midnight october 30, that i learned that the firm was unable to reconcile its segregated funds accounted i was shocked, because i believe that the firm had in place the fully compliance system operated by highly qualified professionals for controlling and securing customer segregated fund. as a last effort senior people from potential buyer work with people from our finance and operations team to provide a fresh set of eyes to help identify the reconciliation errors. once the inability reconcile the accounts became clear, at approximately 2 a.m., we notified the regulators. later that morning, after several hours of discussion with the regulars, we made the bankruptcy filing.

since that filing i've been assisting in the complex efforts, global efforts to maximize the value of bankruptcy estate for all mf global stakeholders. i will try to answer any questions you have. >> and our next will be mr. steenkamp. [inaudible] spent i'm going to ask you to pull that closer to you and i'm going to ask where is in charge of sound in the building, see if we can turn these mike backs up a bit. i'm having a difficult time hearing, and i think so are the panel. >> chairman neugebauer, is the better? >> yes. >> thank you for the opportunity to make this brief statement. my name is henri steenkamp and then the chief financial officer of mf global holdings limited. a position i've held since april 2011. let me say at the outset that

i'm deeply saddened, upset, and frustrated that money belonged to mf global inc.'s customers has not been returned in full. i know, however, that my reactions cannot be compared to those people are suffering with this issue. along with certain other senior executives of mf global holdings limited i have remained at my post following the bankruptcy filing, and working diligently with the chapter 11 trustee to do what i can to maximize the value of the firm, for all interested parties. that said, because specific trustees rules and policies, im and force we not been able to participate in the current efforts to return customer funds. while in deeply distressed by the fact that customer monies have not yet been fully repaid, unfortunately have limited knowledge of the specific movement of funds at the u.s. broker-dealer subsidiary, mf global inc., during the last two

or three business days prior to the bankruptcy filing. this is in part because of my global role and in part because of during those days i was taken up with very serious matters. at the global cfo eyed many different functions, but principal among them was the effort to one, and sure that the holding company's consolidated financial accounts complied with the u.s. accounting and reporting requirements, and two, work closer with our investors and the rating agencies as its name suggest mf global holdings limited, my employer, is a global holding company with approximately 50 domestic and foreign subsidiaries. each of the regulated subsidiaries generally had its own or a regional chief executive officer, chief operating officer, chief financial officer, and others obligated to independently discharge the customary duties of those offices, according to its home jurisdictions, regulatory requirements. all of these positions were held by highly expressed professionals dealing directly

with local regulator. direct involvement was operational matters such as bank accounts, has never been part of my duties. it is of course important to understand the way in which segregation issues were handled at mf global inc. the subsidiary that acts as future commission merchant in the ordinary course of business. to avoid confusion and where necessary to specifically refer to mf global inc. i will call it an sgi. an sgi health all u.s. customer funds required by law to be segregated and all segregation calculations were performed by experience personnel in chicago overseen by mfgi financial professionals. to my understanding mfgi segregation of client funds had been reviewed repeatedly by the firm's outside auditors and regulators over a long period of time. as a general matter, i was not involved with the details of segregated funds in the course of my duties at global cfo, nor

were the calculations performed by mfgi in chicago and report to regulators on a databases. the week prior to the bankruptcy filing so among other things multiple rating agency downgrades in very quick succession, extraordinary liquidity stresses and efforts to sell all or a part of the firm. it was a time of constant pressure and little or no sleep with a significant number of critical issues to resolve. as a cfo of the holding company come my attention was appropriate focus on crisis management and strategic issues relating to the sale of the company. on monday october 24, 2011, moody's announced it was downgrading mf global's credit rating by one notch leaving the firm with the lowest possible investment grade rating. this was followed by further downgrades throughout the rest of the week, the speed and severity of which were unprecedented place extra day pressure on the firm's liquidity. as the situation deteriorated, the sale of the merchant

business and/or the entire firm was pursued. image when my dialogue with a rating agency, i dedicate my time to the daunting task of facilitating the due diligence necessary for an acquisition or sale, on the evening of october 27 and ending with a decision to file for bankruptcy on the morning of october 31. as i recall on sunday, october 3022 for the acquisition of all or part of the company appeared to be close at hand, i first learned of a serious issue with mfgi segregated fund calculations. unfortunately as the subcommittee is aware, the efforts to reconcile the segregation calculations were not successful and the deal fell through. i along with others from mf global probably notified our regulators about the segregation issues. i understand that the subcommittee, mfgi's customers, and the public have many unanswered questions about customer funds to i share many of these questions and i

personally extremely frustrated, and distressed that they remain outstanding and the client funds have not been repaid in full but i would be pleased to enter the subcommittee's questions. thank you. >> thank you. ms. serwinski, you're recognized for five minutes as well. >> chairman neugebauer, ranking member capuano -- >> i'm going to ask you to do the same thing, and may be tilted down just a little bit and about, there you go. tried to talk as loud as you can but i don't know what's going on here. >> thank you for the opportunity to testify today. my name is christine serwinski. at the time of the events in question, i was the chief financial officer of mf global inc. the first north american broker-dealer and future commission merchant. in my position as cfo, of mf global in, i was responsible for the accounting and regulatory accounting team. in light of the subcommittee's focus on the events of the week of october 24, it is important to note that the departments

responsible for the transfer of funds into and out of the company, treasure, treasury operations, and security operations, did not report to me. i am aware that the subcommittee is deepl particularly and arresd events of the week prior to the october 30 bankruptcy. i will do my best to provide whatever information i can, but i was a way for the majority of that week, and i apologize in advance if i'm unable to add a great deal of detail. on monday, october 24, moody's downgraded mf global's credit rating. on tuesday, there was an earnings call. on that same day, i left chicago for a previously planned vacation. i have every reason to believe that the firm was on solid ground prior to my departure. before leaving, i spoke to members of my staff and drafted e-mails to coworkers to ensure that all of the functions my office, of my office would be

covered. all of my colleagues and subordinates knew how to do and did reach me as necessary during my absence. i had access to e-mails via my blackberry during my week off, and i read e-mails when i could. i also spoke to people at mf global on the telephone from time to time throughout the week. all communications with mf global employees indicated that things were very busy, i was assured that everything was under control and that no time did anyone ever suggest that i should return to the office. nonetheless, late in the day on thursday i decided to come back to chicago a day early on sunday. i was not alarmed but i believe that it would be better to return early, given the level of a kb at the firm. ..

>> we informed a representative of the cme and my focus immediately shifted to identifying all firm funds within mf global. that might be transferred into the segregated and secured environment as quickly as possible.

we worked relentlessly throughout the early morning hours and indeed throughout most of the day on october 31st to try to bring the segregated unsecured accounts back to the appropriate levels. although some of the funds were transferred into the segregated and secured accounts a number of submitted wires were not executed by the banks and we were unable to move sufficient funds to make up for the shortfall. sometime on october 31st, i learned that mf global had filed for bankruptcy, that we were under specific protection and the firm could no longer engage in further financial transactions. shortly, thereafter, the terrific trustee asked me to stay around to unwind the business which i agreed to do. i look forward to addressing to the best of my knowledge and ability any questions that the subcommittee may have.

thank you. >> thank you. we have been instructed that ms. o'brien does not plan to give an opening statement at this time and we will, therefore, begin our questions at this time. ms. o'brien, on friday, october the 28th, 2011, mf global transferred $200 million from the suggest grated customer accounts to the house account and subsequently sent $175 million money from the house account to the mf global u.k. account for overdraft. as you are aware in december mr. corzine testified here that you assured him that those transfers complied with the cftc rules about customer segregation. reportedly, you dispute mr. corzine's testimony so let me ask you today, ms. o'brien,

did you give mr. corzine assurances that the farmers and ranches' money that was in mf global's account -- the segregated accounts -- did you give him assurances that that money was not that money -- [inaudible] >> i'm sorry. you're going to have to -- yeah. >> on the advice of counsel, i respectfully decline to answer based on my constitutional rights. >> i'm going to yield -- >> i understand and i respect the constitutional rights but there was an article in -- i think it was today's "wall street journal," i think it was today's, that stated that you are trying to negotiate an immunity with federal investigators and i'm just curious if that article was

accurate or inaccurate. i'm not asking if anything happened at mf global but is that news report an accurate report? >> on the advice of counsel, i respectfully decline to answer based on my constitutional rights. >> i yield back. >> ms. o'brien, the subcommittee asked you here today to testify so that you could help use your background and experience to solve a very serious matter to try to find out exactly, you know, what happened and how we can keep this from happening again. we're extremely disappointed that you've chosen to do that. i'll just ask you now do you intend to invoke your fifth amendment right as to any question that the subcommittee may ask you on these subjects today? >> i will. >> i'm disappointed because of your answer but i believe -- because i believe you have important knowledge and i'm hopeful at some point in time you'll reconsider and come back

and testify before this committee and -- but at this time with a unanimous consent i'm going to dismiss mrs. o'brien from the panel. ms. brian, you're dismissed. >> okay. >> i'm going to continue the question -- i think what we'll do at this particular point in time since mr. capuano used our time we will reset the question and answer time. on 10-28, mf global transferred $200 million from the segregated accounts and then subsequently transferred 175 million to the u.k. affiliate to cover an overdraft. in an interview that you had

with our committee, you stated that if you were working that day, it was very unlikely you would have approved $175 million transfer because it could have violated sec capital rules. can you explain that for me? >> the transaction of $175 million transactions as i understand it was an intercompany loan between mf global, inc., and its affiliate mf global u.k. unlimited. as i understand the $175 million was taken out of customers' segregation. there was two things i would have looked at with respect to this transfer. one, did the firms -- what was referred to and has been referred to has the firm invested in excess segregation and secured funds -- would that $175 million brought that level to a negative?

the firm could still be in regulatory compliance but it would have breached its own internal policy. the second consideration that would have had to be evaluated was its potential impact on the excess net capital of the firm. so if -- if that number without being adjusted would have brought, i believe, the firm to a potential under early warning situation which would not have been a rule violation but it would have required a reporting to the regulators. >> so i want to go back to my question, had you been there on that day, would you have approved that transfer? yes or no? >> i honestly don't know what all the circumstances were around that transaction, but it would be -- if the impact would have breached a regulatory rule, i don't believe i would have approved it. >> knowing what you know today, would you have approved that

transaction, yes or no? >> no. >> okay. thank you. >> you're aware of an email that edith o'brien described this $175 million transfer and the email states that per mr. corzine, jc i believe, is it normal course of business for the ceo to make instructions on wiring funds? i mean, did that happen on a regular basis on your watch? >> no. >> so this would have been -- out of the ordinary for mr. corzine to start calling people and instructing them to wire money? >> yes, i believe that would be an unusual event. >> i thank you for that. >> according to cme on the afternoon of thursday, october the 27th, a representative of cme group sent you a letter to you, ms. serwinski, and

mr. bohlin, i believe, and all of the mf global senior managers and it stated that effective immediately, any equity withdrawals from mf global, inc., must be approved in writing by cme's group audit department. basically, cme is telling mf global not to move its own capital out of mf global without cme's approval. who did you disseminate that information to when you received that letter? >> i really -- i don't recall at the time. it obviously went directly to our finance group and to myself and i cannot remember, you know, exactly what i had with it back on that thursday. >> ah -- >> i recall having conversations where people were aware, aware of the content. >> so did -- did y'all seek approval when you made the $175 million transfer to mf global u.k. before you moved that

money -- did you notify cme that you were making that transfer? >> i was not aware of that transfer before it was made. so i would not know that. so you don't know who you disseminated that information and so maybe not everybody got the memo, is that -- >> again, the memo went directly to the finance people and so -- and the key people operating the, you know, transfers and things were all in chicago. i assume it was shared there but i really don't recall. >> i was interested in your testimony that you said that you are the cfo for the global and you are addressing very important issues affecting the company as their cfo. is that your testimony? >> that's correct, sir. >> yeah, wouldn't you think the liquidity of a company would be one of the important aspects of the entity of the size of mf

global and based on its businesses, if they were having liquidity problems would that be something that the cfo should be involved in? >> sir, there were many things going on at that point in time. >> no, that wasn't the question. the question is, is liquidity of the corporation an important role of the cfo? >> this is a yes or no question. this is not rocket science here. is the liquidity of the corporation an important piece of the role of the chief financial officer of a company? yes or no, sir? >> the liquidity is critical on a consolidated basis, yes. >> so i'm surprised you have very little knowledge about the transfers and these were not small transfers of money, margin calls, people trying to liquidate positions to create liquidity and -- >> when it comes to the liquidity i was looking at liquidity on a consolidated

basis. that was a transfer within mf global, inc., that obviously was important but there were many liquidity events that were occurring across the firm not just in chicago but across the whole globe that we were dealing with. >> and how was that liquidity going? >> well, we slowly experienced throughout that week a drastic change in liquidity from especially the wednesday to the friday. and we experienced, you know -- in those last couple days significant liquidity -- i think one would recall as a run on the bank. >> i think my time is up. i now turn to the ranking member mr. capuano. >> thank you, mr. chairman. i actually don't have a clue what questions to ask any of you because i have general council of mf global saying i didn't know what was going on. i had nothing to do with this. i had the chief financial

officer of mf global holdings limited saying, not my job. i didn't do it. i have the chief financial officer -- and by the way, also said it's mf global, inc.'s issue, not mine. i don't have anything to do with it. though they report to me, i don't know anything. and i have the chief financial officer of north america, mf global, inc., saying i was on vacation. so how am i supposed to ask you questions if none of you apparently knew what was going on or claim to not know what was going on, have no information, whatsoever? how did this company run? did anybody in the company, anyone, have authority to transfer customers' funds? mr. steenkamp, did anybody have that authority? >> i know you said in your written statement you didn't but who did? >> well, sir, my responsibility was to oversee the global finance function. i was not responsible for -- >> i know what you weren't responsible for. i read your testimony.

but apparently you weren't responsible for anything. who was responsible for deciding to transfer customers' funds? who? if not you, fine, i read your testimony. who? >> the transfer of customers funds would be -- the authority would be resident in each of the local regulatory entities. so in chicago, those -- >> who would that be, a name? >> it would be -- it would be between the finance teams -- >> so -- so >> ms. o'brien's testimony. >> that's what i read in your testimony but i wanted to make sure i read it. ms. serwinski, mr. steenkamp thinks you have the authority. is that correct? did you have the authority to transfer a customer's funds? >> i did not have the authority to transfer customer funds as i mentioned in my opening statement, sir, the transfer of customer funds was managed by the treasury group, the treasury operations group and the securities operations group.

>> i thought you were the chief financial officer. the treasury group didn't report to you? >> no, they did not. >> who did they report to? >> they reported to the global treasurer. >> and who in the treasury group would be the main person responsible for making that decision? >> making the decision -- >> to transfer a customer's funds? >> it would be the assistant treasurer of the global treasurer. names? >> edith o'brien -- >> i have not seen a corporate organizational table for all of mf global. i understand there were over -- 50 or 80 different companies. so it's going to be fun to try to read it. all the people that are probably going to show up on the corporate on the corporate ladder, i believe, ms. o'brien's name will not show up and she, however, was the only person -- she was the top ranking person to say, let's take all the

customer funds and do whatever we feel like it. if that's the case i feel we have a little bit more of a problem here. and this hearing after reading the testimony and listening to you reminded me of a hearing on enron. we had mr. skillings, we had mr. delay, and we had mr. fastow here. here's what you should be concerned with, not us. we're not the appropriate investigative body to determine who had that responsibility. here's the concern, the people sitting next to you because somebody is going to say something to the appropriate investigators and say this is the person who had final responsibility. and when that happens, there's going to be problems for those

individuals. so i wish i could find some wonderful things -- i guess one other question, all of you are working for mf global before these problems arose, is that correct? did i read your testimony correctly? you were all working here before? and you're all still working there; is that correct? >> no. >> you're no longer there, ms. serwinski. >> i'm no longer there. >> there's been some reports that mf global is considering bonuses. are you in line for some of those bonuses? >> as far as i'm aware there's been no decision made on bonuses sir. >> i think the trustee emphasized that in his statement. >> so i have well paid employees of a major company that has misplaced or misappropriated a billion dollars of customer funds and yet you're asking the trustee and bankruptcy -- you may not you, but someone is asking the trustee in bankruptcy to give bonuses to the very people that may or may not have something to do with this? do you see that as a potential

little issue? mr. steenkamp, do you think that would be appropriate for the trustee in bankruptcy at this point before we know what happened to be giving out bonuses to people who are there that may have had something to do with a ratings problem? >> that's not a decision that lies in our hands. you know, we believe the trustee will make a decision -- >> do you think that's appropriate. you're the general counsel. would you advise your clients that's a good idea? >> i would totally director to the trustee. my focus is on helping the trustee. it's his responsibility to figure out how to manage the bank and retain employees and everything else. >> i fair enough i appreciate your consistency in having nothing to add to this discussion. and, again, as i said from the beginning i wasn't sure what questions i could ask to add any information and apparently i've now spent 6 minutes and done just that. thank you. >> i thank the gentleman and now the -- mr. fitzpatrick is recognized for five minutes. >> thank you, mr. chairman. mr. steenkamp, did you on

sunday, october 30th or any day for that matter -- did you instruct anybody at mf global to hold off on contacting the regulators about mf global's segregated deficiency? >> i have no memory of instructing anyone to hold off, sir. >> you have no memory of instructing anybody? >> no. >> ms. serwinski, you stated on page 3 of your testimony that on saturday, i was initially told that the segregation and security statement for friday showed the firm to be undersegregated. who told you that? >> someone on my staff, i believe. i don't recall who exactly the person was, but someone on my staff. >> i'm sorry. you need to pull the microphone closer. >> someone on my staff. >> someone on your staff? >> on the finance team, uh-huh. >> and who was that? >> i don't recall if it was the

regulatory capital controller or the controller. >> that would be a pretty significant piece of information you received on the day -- the day that you returned back from your vacation; correct? you don't remember who told you that you had a significant deficiency? >> originally when the calculation was done on saturday morning, it showed a deficiency. my department was assured by the treasury or treasury operations group that there was a reconciliation item or issue to be resolved. they were spending that saturday afternoon to do just that. on sunday morning, before i boarded a flight back to chicago, i was informed that, in fact, the firm might have been truly undersegregated at that time, as of the 28th. when i landed, and i received

information to say, no, we were not undersegregated, when i went to the office, i was told that, yes, in fact we were undersegregated and that's when the team started to look to see how that could possibly be the case. >> ms. serwinski, did you inform anyone else of that fact? >> once we determined that the funds had in fact not been an accounting error but an actual deficit, we contacted the cme who was on the premises and i believe contacting either my colleagues in new york at that point. >> and what day was that? was that saturday? >> no. that was probably very early in the hours of monday, october 31st or the very late sunday october 30th. >> so you would have waited approximately two days to let anybody at cme know about the

deficiency? >> i did not believe it was a deficiency at that point. and i believe as we mentioned it was inconceivable to me that the firm could be undersegregated by that substantial amount. >> but it was, in fact, deficient by that substantial amount; correct? >> it was brought to my attention later on in the very early hours of october 31st that, yes, in fact, it was in deficiency. >> undersegregation is a hugely violation. >> yes, it was. >> and you didn't inform management or any regulator of this significant fact? is that your testimony? >> i did after it was confirmed that it was an actual undersegregation situation. >> on friday, october 28th jpmorgan chase sent a letter asking mf global to verify in writing that it had the authority under cftc rules that

it had the authority to send $128 million to replenish that mf global u.k. had overdrawn. apparently jp morgan sent three drafts of that letter asking mf global to confirm that the transfers were proper; is that correct? >> yes, i believe so. >> at any time did anyone at mf global refuse to sign the letter? >> not in any discussions with me, no. >> were you told that anybody at mf global refused to sign the letter? >> no, i was not. >> so you have no information of anybody at mf global refusing to sign that letter; correct? >> you have to focus on which version of the letter -- >> any of the letters? >> well, the first letter asked -- you know, was asking one individual to ever confirm everything that was done in the history of those accounts and anything that would be done in the future with all compliance with all cftc rules. it was a very hectic time and no

one individual -- that it was not an area that was the supervisor addressed involved with that no one individual would make all those transfers. my understanding was that jp morgan confirmed they were interested in only two related transfers. that's what they were seeking assurances on and, you know, and they thought if the letter was able to make that and i understand the importance of getting something to them quickly, getting them comfortable and ask them to get -- limit the letter to what they needed and we would get it signed. >> did you tell the assistant treasurer about the letter being sent? >> i forwarded a copy of the letter to edith o'brien. >> did you tell her it needed to be signed? >> certainly that was the substance of the conversation. >> what was her response. >> at the point i discussed with her i arranged with jp morgan. i understood those two transactions and my clear understanding from speaking to

ms. o'brien that if they limited it to those two transactions, she would sign it. >> mr. lynch is recognized for five minutes. >> thank you, mr. chairman. ms. ferber, how important is it for your firm -- for mf global to protect client funds? how important is that? >> it's a critical obligation of any fcm. >> yeah. ms. serwinski, same question. how important is it that you protect client funds? is that a peripheral responsibility or -- >> no. >> how would you classify it? >> a very critical and important -- >> mr. steenkamp? >> that's a critical objective of the firm. >> right, so this is a central core responsibility. this isn't some esoteric rule this isn't some, you know, accounting error. this is central. i mean, this goes to the very

trust that your firm relies upon and that the whole market relies upon in order to function. and we had $1.6 billion of customer money take a walk and none of you know anything about it? none of you are aware of it. this is not a small amount of money. $1.6 billion in money that was entrusted to you and that the whole reason for a segregated account is to protect the clients' money. it's absolutely disgraceful -- it is utterly disgraceful what has happened here. and it's disgraceful that you sit there and you say, we knew nothing about it. i was on vacation. i was in chicago. it was in new york. i was doing the global thing. it's not believable, i got to tell you. it's not believable at all up here. it is utterly disgraceful. it's disgraceful not only for mf global but i think for anybody in your industry because it is

such a central principle in protecting clients and hard work and farm workers and grain operators, families that invested their savings, their hard earn -- you know, their life savings. and they trust you and this industry is supposed to protect their interests. and they were robbed. they were robbed. and nobody knew anything about it. $1.6 billion. let me ask you, under cftc rules 1.23, it permits a firm -- this is a problem and we got to look at the regulations at some point. it permits a firm to add its own funds to customers' segregated accounts. i understand the practice. how do you tag -- how do you tag your firm funds that you put in there and you commingle with so-called segregated funds which aren't segregated funds if you're adding firm funds to it

in my opinion but how -- ms. ferber, how do you tag those funds? >> i think that's an accounting question and i would really defer to my colleagues who have more knowledge on that. as you pointed out, it's fairly, you know, ingrained -- >> so you don't know -- as counsel of the central responsibility in protecting customer funds, you don't know? >> how funds are tagged in a bank account, no, i do not know. i know the customer funds need to be kept in a bank account that is denominated as customer segregated funds accounts. >> ms. serwinski, mr. steenkamp, got any idea on this? how are -- if rule 123, 1.23 allows the firm to commingle funds, put a buffer in there, on that account, along with customer funds that are segregated, so-called, how do you tag the firm's funds and distinguish them from

customer-segregated funds. >> if i may for a minute. >> you may. >> i want to take an opportunity to explain segregation and secured funds -- >> how about you just answer my question? judging on your other responses, since i sat down here some time ago, ms. o'brien's declaration of the fifth amendment was more helpful to this committee than any of your answers so i don't want you going off on any long explanation 'cause based on everything else that has come out of your mouths, all three of you, there's been nothing there that has owned up to the responsibility for any of the stuff that's gone on here. although you're all three in major positions of responsibility. so please ask -- answer the question that i asked. how do you tang the firm's funds and keep them in a separate

account. >> one firm cash and/or collateral is deposited into the segregated or secured environment. they become commingled with the customer secured and segregated funds. >> so it's indistinguishable? >> on a dollar -- >> so it's just a balance? it's just a balance. you know the balance of segregated funds and then you know what the margin is that you put on top of that, is that basically what you're telling me? >> yes. >> so there's no -- there's no ability once that fund's in there to distinguish any assets from another. we access the funds on a daily basis. >> but if you had to sell securities out of that fund, you can take either securities out of -- that were placed in there by customers or you could take securities out based on the

company's deposits in there? >> well -- >> i'm trying to prevent this from happening again. >> i understand, sir. >> and i think there's -- there's a loophole here that -- there should -- this is -- this is a situation where the regulation that's in place has not protected these people -- these grain operators and these farmers from having $1.6 billion stolen out of their account and i think -- i think somebody in your firm -- somebody out there in the industry should have recommended a better method of protecting them than that exists right now. i realize i'm over my time and i yield back. >> i thank the gentleman and now the gentleman from new mexico, mr. pierce is recognized. >> thank you, mr. chairman. ms. ferber, i heard mr. lynch

claim that clients were robbed. i can see he has a point there. do you think that's an appropriate term? >> ah, excuse me? >> yes or no. the money isn't there >> something terrible happened and i don't know how to describe it since -- >> i'll be the first to say the money is not there. they put the money there and it's not there and they can't get it back. >> does that fit the definition of stolen or robbed? >> ah -- >> this is magnificent. this is one of the highest lawyers in the damn country. bonnie and clyde, they were chumps. they drove around and you guys have people send electronically to you and nobody is responsible and you can't even declare that it was robbed or stolen from. what chumps those old-style bandits were.

ms. serwinski, now, you seemed alarmed when you came back to the office that these funds were tak taken. we'd gone through the 24 hours -- wednesday -- it didn't reconcile and you're a little bit alarmed, why were you alarmed? you were distressed -- >> i was alarmed -- >> yeah, push the mic -- >> sorry. i was not alarmed. >> whatever term you used you said you were distressed. you wouldn't have done it. why would you not have done that? why would you have not approved that? >> why would i not have approved it? one, based on the previous day's information i had -- >> is it right or is it wrong is what i'm getting at. is it right to take that money and not pay it back by the end of the day? is it illegal? >> if it was utilized in customer funds. >> is it illegal to hold it in

overnight or is it illegal to hold it for a year? is it illegal to take customer funds and shore up the sinking ship and use them for a year? >> i don't know what was done -- no, i didn't say -- i'm not excusing you of knowing what was done. you found -- you found it alarming or whatever word you used -- >> i believe i said if i was presented with the request to approve $175 million -- >> you missed the deadline to pay it back. that's your testimony. we missed the deadline. so what was the deadline. was it a legal deadline? what deadline -- >> oh. >> what does it matter, ms. ferber says she doesn't know if it's stealing or not. so what? >> chairman, i think i've -- i understand we were talking about two different items. my reference in the written

testimony with respect to the deadline being missed on the payment of intracompany, intradate loans is what i was concerned about thursday that was brought to my attention. those interday loans that were not paid back by the end of the day did not violate the -- we were still -- the firm was in regulatory compliance at the end of wednesday. what had been breached was an internal policy to ensure that the firm invested in excess segregation and secured funds. >> so it's an not -- there's no external prohibition against using segregated funds? >> excess segregated -- >> there's no external prohibition? >> not that i'm aware of. >> so he testified it's against the law so mr. roy's testimony is incorrect then? so you still have those funds basically. you've taken them and so what you're telling me that the 1.6

billion is still not against the law. that you did what was fair and square, is that right, mr. steenkamp. fair and square, i'm hearing the two witnesses saying it's fine, it's okay. is it okay? >> sir, it's not knowing what actually happened it's impossible to be able to -- >> you took the money and you're supposed to give it back, if they want it. if i put money in the bank and if i can't get my money back from the bank, then the bank has taken it from me. if i can't get my money back, then the bank has taken. they put their money with you, these hog farmers, put their money with you and they can't get it back. so is that right, right, morally right or morally wrong. it doesn't matter your legal counsel, obviously, she can't declare it to be against the law or anything like that. so tell me? >> sir, i think there's a lot of different concepts that are being combined at the moment i mean. >> i think i understand why mr. capuano and mr. lynch were a

little frustrated here. nobody had the authority to move it. it's not against the law. it's missing now. it probably will never get repaid and that's okay because we can't really declare it -- why it's okay. this is really reassuring to the mainstream who might want to know that the money they're putting in safekeeping of people like you all is not quite in safekeeping. it's interesting you can't find the legal or i legality in it. i think that's the message that's going out today. i think mr. capuano said it fine, shame on you, shame on you. thank you. i yield back. >> i thank the gentleman and now the gentlewoman from california ms. waters is recognized for five minutes. >> i thank you very much, mr. chairman. i was just talking with staff here about some of the accounts

that i've read in the newspaper where there has been some attempt to describe the customer accounts as opposed to other accounts and i suppose what i'm hearing is that company money was kept in the same account as client money. and, of course, one story said that the client money was taken out and put in another account and then the money was taken from that account to pay overdrafts. and when mr. corzine asked about where it came from one was able to say it came from an account, a client account. so let me ask mr. steenkamp, do you know anything about the -- another account where the money

was placed prior to the account from that account to help take care of the overdraft? >> ma'am, to the best of my knowledge i was not involved with any of those transfers so i had not known about the details of those movements. >> do you know about the details of what accounts are official accounts of the company? are they one, two, three, four, five, ten, fifteen? do you know that much? >> well, they were obviously accounts that were held in the finco, in the holding company. those accounts are very different than the separate accounts that are held in each of the regulated entities. in my role i was not involved in the detail of those accounts which were managed by the professionals we had in each of our regulated entities because each country is different so there's very specific rules that are applied to each country.

>> okay. as the cfo of mf global you signed sarbanes-oxley 302 and 906 certifications attesting to the internal controls of the global corporation every quarter and every year end. as a cfo you attest that your certifications are accurate, then you know that you're not -- and when you know they are not, you could face civil and criminal penalties so with that, my question is, were you confident that your internal controls were adequate at the time that you signed them at year end in each quarter period, quarter end? >> ma'am, i became the cfo in april 2011, so i signed two controls, the year end as you mentioned as well as the first quarter end thereafter. as part of signing those controls which are a snapshot at a point in time you go through a lot of review subcertifications, et cetera, over all of the controls across the world. nothing --

>> again, let me just ask, if as the cfo you attest that your certifications are accurate and you know that they're not, you could face civil and criminal penalties so with that my question is, were you confident that your internal controls were adequate at the time you signed them at year end and each quarter end? you felt good about your signature? >> my last signoff was in june and nothing came to my attention at that point in time that indicated, you know, that i shouldn't sign it. >> so what you're telling us is that you were not confident that there were internal controls that were adequate at the time that you signed them at year end and at each quarter end? >> no, ma'am, i said nothing came to my attention as of june

when i signed the certification that indicated there were any issues with internal controls? >> so you were confident? >> at the time of my signing, nothing came to my attention. >> a lot of attention has been paid to the question why mf global auditor pricewaterhousecoopers gave the company a clean report in may when their internal controls turned out to be compromised enough for them to lose 1.6 billion in customer funds to the best of your knowledge, did pwc raise concerns about mf global internal controls as they relate to the customer clients while you were employed at the firm? >> i mean, that's a very broad question and a very long period of time. you know, i would say that we worked closely with pwc and they performed their own independent assessment of the controls. it's the best of my memory, you know, nothing nothing came up during my time as cfo that indicated an issue with

segregation of client monies. so basically pricewaterhousecoopers gave the company a clean report in may when the internal controls turned out to be compromised enough to lose 1.6 billion, do you think that pricewaterhouse was incompetent in doing that that they should take some responsibility for that? ma'am i can't point on the independent review that pwc does as of may. they did not raise any concerns to the best of my memory. >> yeah, but do you not have to have confidence in the auditor? you have to feel that your auditor is competent and acting properly and that you have no

reason to question them? >> well, the auditors perform their own independent assessment of controls and reach their own independent conclusion. >> i thank the gentlewoman. and now mr. posy is recognized for five minutes. >> thank you, mr. chairman. these are going to be easy questions, really. when we had the opportunity to question mr. corzine, i was advised and shocked, quite frankly, that he had not yet apparently been interviewed by the department of justice or any other authorities and so i just wondered, mr. steenkamp, have you been interviewed by the fbi, department of justice or any other federal investigators? >> my lawyers have done a proffer with all the different, i guess, regulatory agencies and investigative officers. that's the status at the moment.

>> i don't know if you're mumbling or i'm not hearing good but is that a yes or no? >> through my lawyers it's a proffer, yes. >> you haven't face-to-face talked to any investigators yet? >> i have not, no. >> okay. ms. serwinski? >> yes, i have. >> you talked to them face-to-face? >> yes, i have. >> how long ago? >> i've spoken to them twice. >> okay. what do you think was the most compelling question or line of questions that they had? >> i don't recall -- there was a lot of questions and a lot of topics discussed. i can't think of one off the top of my head that was more compelling than another. >> okay. ms. ferber? >> i'm cooperating with the department of justice and am scheduled to meet with them on april 6th. >> okay. have any of you been offered any immunity? >> no.

>> let the record show you've all said no. you indicated that the investors shootings their money back. in one way or another you've intimated that. ms. ferber what do you think the odds are for the investors to get their money back? >> i really have no basis to answer that -- that's really up to the specific trustee. >> ms. serwinski? >> i don't know. it depends on whether or not the people -- >> mr. steenkamp? >> sir, it's still too early in the bankruptcy process but that's why we're there trying to work and maximize it. >> who do you think is most at fault for investors losing money from an account that was supposed to be segregated? mr. steenkamp? >> sir, because i don't know what actually happened, it's -- it's hard to answer that question. >> okay, ms. serwinski?

>> can you repeat the question, sir? >> ms. ferber? >> obviously, there was a terrible failure here of some kind but what it was, i don't know. since the trustee has controlled the investigation and all information since october 31. >> you know, a good analogy is gamblers out of a casino and if the casino doesn't provide more credit, once the gambler's chips are gone, he has to stop playing. he can't just reach over the table and take somebody else's chips. if he did, he'd be in handcuffs quicker than you could say segregated accounts. isn't that, however, in essence, what happened at mf global? >> i don't know what happened, sir. >> ms. serwinski? >> i don't know. >> ms. ferber? >> i don't know. >> to be the experts that accompanied the mf global, the scope of mf global, there's sure a hell of a lot you guys don't

know. [no audio] >> is there anything else that you might know, that you might want to share with us to give us a little bit more insight? >> i'm happy to answer any questions. it's extraordinarily broad. >> take a shot at it. >> i don't know where to start. we're talking about what happened over a very few days in an area that was handled by, you know -- by -- as far as i know serious professionals. well staffed, expert in customer segregation rules.

you know deeply within the finance and treasury and operations groups in chicago. i share your frustration in not knowing what happened but again we learned about this hours before the bankruptcy filing. so you may have more access to information than we do but i share that frustration and, you know, as i've done for my entire career, i would have, you know, wanted to dive in on the first motion of learning there was a problem and understand everything we could but we have been cut off from that information. >> were any of you contacted by the cftc in their investigation? >> the cftc was at the meetings that i attended with the department of justice. >> okay. >> outside of that, were you contacted by them? >> on occasion after october 31st i had -- there were representatives of the cftc in their offices. >> would you have any idea why

the cftc would have been asked to cease-and-desist their own investigation? >> i do not, sir. >> >> i'm not aware that they were. >> yeah, i do not know, sir. >> okay, thank you, mr. chairman. i yield back. >> i thank the gentleman. and now the gentlewoman from new york is recognized for five minutes. >> thank you, mr. chairman. >> here we have three intelligent and able people who were in positions of tremendous authority in a firm that was handling -- that should have been handling with all degree of integrity and trust the hard earned monies of farmers and ranchers and other clients who depend on you to do the right thing. and among you all, with no disrespect meant and

ms. o'brien, of course, who is conspicuous in her absence, it seems that there has been a great effort to maintain plausible deniability. that's certainly the impression that one is left with. ms. ferber, in your written statement you note that as of wednesday, october 26th, you received a call from a representative at the sec informed you that the ftc wanted to meet with liquidity and funding and the cftc would focus on segregated funds calculations. now, that presumably would have triggered a question -- again, you're a highly capable person. you're a very skilled attorney. you're in a respected position. did it trigger a question in your mind as to whether or not there was actually a problem

with the segregated funds? >> that would not trigger a question in my mind as a problem. i would make sure we had the right people there to discuss the status of the segregated funds and that's what we did in a detailed meeting with the cftc that day. >> but you didn't inform -- the firm didn't inform the regulators as far as i can tell of the deficiency, the shortages until early monday morning; correct, ms. serwinski, according to your testimony? >> there was no regulatory deficiency that i was aware of until that sunday evening. but it sounds as though there was an insufficient level of communication between ms. ferber and yours, ms. serwinski, is

that fair to say in the heat of everything that was going on? i would think that the top level at a firm like this, which is clearly -- you know, it's falling down around your ears, practically. you say -- your testimony, ms. ferber you were heavily involved in trying to sell mf global, would that not to an outside observer suggest that that you were endeavoring as vigorously as you could to make sure that the potential buyers at mf global were not alarmed by what would have been an overt violation of everything a firm like mf global should be doing on behalf of their customers? and indeed the law itself? >> let me be very clear i was never aware during the period you're describing or anytime up until very late sunday night or monday morning that there were any issues regarding our segregated funds. let me make it very clear i want

to make sure that we are frequently updating the regulators and that would be the treasury colleagues that were involved in those updates. as we all know the cme was in our offices doing the review on thursday and friday. the regulators were in our offices through the weekend. there was every effort, you know, at least in terms of myself in terms of everybody transparent with the regulators. ms. serwinski were you out of the united states when these things were occurring just out of curiosity? >> no i was in the united states. >> it certainly would seem to me -- again, if you were trying to stave off the inevitable if someone had to know, mr. corzine at the very least knew one assumes there was very, very bad news coming, wouldn't it be in the company's best interest in terms of trying to salvage itself in a sale that they keep as many of you siloed so to

speak. it sounds like there was a profound failure of communication within the company itself. that you guys don't know what happened and you're in this position now? should the american consumer, should the american investor should our farmers and ranchers be concerned that there's other firms like mf global that operate in this same way? does your experience with mf global lead you to express any concern in that regard? should we be worried, mr. steenkamp? >> well, ma'am, i think once we better know actually happened, what went wrong, then i think we'll be able to answer that question. >> mr. chairman, i yield back. >> i thank the gentlewoman and now mr. ranici is now recognized

for five minutes. >> thank you, mr. chairman. mr. steenkamp, i'm going to go back to internal controls because we might not know the specifics but would you agree -- you're a cpa. you work for pricewaterhouse, i'm a cpa and i understand the internal controls. you have to admit there was a breakdown in internal controls. you have to admit that, yes or no? pinpoint question, yes or no. in any time you have lots of money -- you have a situation like this there has to be a breakdown in internal controls; correct? >> i don't disagree that something obviously went wrong. >> and it would probably be internal controls because internal controls is how you stop this from occurring, wouldn't you agree? >> that could potentially what went wrong. >> i'm going to go back to a follow-up on some of the questions ms. waters asked but

pricewaterhouse identified the management override of internal controls as a risk to mf global in their audit work papers produced in 2011. are you aware of that? >> i can't specifically recall that. >> you're the cfo of the company -- and i actually have the work paper here that shows that they identified it. you're the cfo of the company and you were not aware that there was significant concern because of the override of internal controls that your auditors brought that to the attention of the company? >> sir, there are many discussions that are held on all the various controls. as you know, there are hundreds of controls that operate in the firm and so there are many -- >> this is a significant one, though. >> you know, sir, we asked for any documents to be provided ahead of time for us to have live look. unfortunately, we didn't get it.

>> your answers are going around in circles and i think that's the problems most of my colleagues are having. you know, mf global, jon corzine managed the european sovereign debt repurchased to maturity portfolio. with this hands-on action by the ceo be some type of -- wouldn't it be something that they were cautioning? wasn't this what they were talking about? >> well, sir, again, i'm not sure whether that was controls for mf global, inc. or any other entity or whether it was for the global that it was referring to. but, you know, just as a general point, i would say that the -- you know, anything that -- any actions of mr. corzine would still have to fall within the controlled framework that existed in the regulated entity. >> if the internal controls say he can do whatever he wants and you can't stop him and i don't think that's very good internal

control and i asked him and the only one that could stop him was the board. >> sir, i don't have

i've got tober 22nd eight and other credit rating agency. you stated mf global capital liquidity has never been stronger and mf global is in the strongest ever one week later. >> sir, that comment on the 24th. it reflect to the liquidity. >> pitcher the cfo of this company. it is really shocking. i mean, i've been a businessman

that whole life. i've never answered the questions the way you're answering. you are the cfo. were talking about liquidity, the strong corporate position that is stronger than ever files for bankruptcy one week later. >> sir, that comment was before any of the downgrades took place. it reflected a cash position on the capital races we had completed and not guess with cached on hand. >> this is october 22nd. again, it amazes me as a cfo of any company that i would not know that we are in trouble in that position your brand. i'm sorry but again, i'm a business guy. i'm a cpa. i spotted a major companies. i'm shocked that you sit here and say that you believe is in the strongest position it could be a week before a bankruptcy. >> that was prior to any downgrades. >> you should know prior to any

downgrades. i ran out of time. i yield back. >> i thank the gentleman. the gentleman from tech texas, mr. caseco. >> thank you, mr. speaker. let me back up a little bit and follow-up on some questions that mr. fitzpatrick asked you regarding the october 28 when jpmorgan requested of mf global to certify and confirmed the funds being sent from mf global to jpmorgan were not customer asset. now, how many iterations of these letters as you have? >> three. >> and why? >> when i was first asked to take a look at the certificate, was also asked to call jpmorgan, understand that they were

focused on and try to come if appropriate get them what they needed. in that first caught with jpmorgan, they indicated very specifically or to related transfers they were focused on and that is what they were seeking assurances on. as they try to explain before the certificate was extraordinarily broad and not something any one individual could quickly signed. they could if they have time to make inquiry and potentially. >> so does your legal opinion is too broad and could not be signed. to discuss if anybody else? >> it was too broad to quickly address at the needed and they were very clear what they needed was relating to transactions. >> okay. did you speak to anybody but those letters? >> i spoke to edith o'brien about -- actually about the transfers that jpmorgan is focused on. she provided me with copies of the transaction reports on those

two transfers. they matched what jpmorgan has described to me and again made very clear understanding was that if the compliance certificate was limited to those two transactions, she would be able to sign it. >> issue express to you any kind of concerns about whether she should sign it or not? >> not if it related to those two transfers. >> were there any other transfers she was concerned about? >> we did not discuss any others because the compliance certificate asked one individual who probably is involved in some transfers, not others to say everything that had ever been done on those counts from the beginning of time to anytime in the future was in compliance. again, the focus was jpmorgan, let's get them comfortable if they need provided it's appropriate. >> shows really assign any of those letters? >> i understand she did not. >> do you know why? >> no, i don't. >> did you ever talk to mr. corzine about the letters?

>> only when he asked me to take a look at it and he may have said is you call jpmorgan at? but that was my only conversation. >> now why would mf global not be able to certify as to ms. o'brien that the firm had not used on them and not use them in the future? >> first off the certification is a bit broad and every transfer with in compliance with basically all cftc rules. i thought would be able to make that with time. someone have to go back and make reasonable inquiry should be able to make that representation. no one individualists in there that day. >> are at me interrupting the these forms they've been out for jpmorgan or any other house articles normal forms? aren't the standard forms? >> i certainly never seen one before the.

it will make a representation for today and everything they make to the features in accordance with something important. to reasonably sure they might do some thing. >> will you not caring about there can. >> because a certain compliance procedures they had in place because of their own history or experience, that they were inquiring about those. first of all, ms. o'brien some attachment is respect for due to the industry. she is a person i would rely generally with her client to rule 125. >> don't run the clock on me. i have very little time here. >> on sunday at tober 30 if you are copied on an internal mf global e-mail at 4:27 p.m. in

which one employee asked another whether it was permissible to send a cftc a customer segregated fund statement that showed a $952 million deficiency why would mf global employees hesitate to share such vital information with the regulation -- with the regulator? >> i am not aware that they would be hesitant. in fact coming to see coming to cftc was in offices here in new york they are working with people in chicago. if you say this is the calculation in these complex times and i i should have fund and people know that. i believe people said yes, send the report. >> the venue instructing employees to release the information? >> if i recall correctly, and i did not have the review here, but i recall to e-mail you refer

to, someone else would be able to respond. yes, give it to them. >> before i run out of time, mr. chairman, if i may house dean cannon, on what date did there begin to be a shortfall on segregated funds at mf global? >> sayer, i have no memory that any shortfall prior to this sunday. this sunday we found out that there was a shortfall and originally we had heard that the shortfall was for the friday. but for thursday is slow that might be an accounting error. we found out he was just so unbelievable that there could be a shortfall that everyone is under the impression there was some account reconciliation was a work and that was causing it and that is why you've heard the

testimonies there's a big effort to work together to try and resolve. >> you are ultimately aware, especially with this at the tracy at the shortfall began on october 26. is that correct? >> well, i don't work for the trustee. >> you are aware it is the shortfall. >> i've been reading the papers. >> are you aware or are you not aware of it being the shortfall date? >> from whatever source? >> the shortfall began on october 26 when the bankruptcy on the tober 21st. is that correct? >> i don't have that knowledge server. >> my time is way over. i think the dominant. the gentleman from california, mr. royce are recognized for five minutes.

>> thank you, mr. chairman. ms. ferber coverage of the opportunity to speak to kerry give there prior to msg declaring bankruptcy? >> yes. >> in your opinion, where his priorities protect gain customer times or making sure the company was sold to interdealer brokers? >> my conversations with mr. gensler related to two topics. he was very focused on the customer funds and he along with his colleagues wanted in a rebound where we were in concluding sao. >> let me also ask you, to your knowledge, was mr. corzine in contact with mr. gensler prior

to msg declaring bankruptcy? >> i assume you're talking the last days? >> prior to bankruptcy. >> i am not aware of any discussions. >> so there wasn't any conversation mr. corzine had with you about his conversations with mr. gensler? >> that is correct to the best of my recollection. mr. gensler may or may not have been on a call with the large number of regulators and updated at 2:00 on saturday after dan and i do not know if mr. gensler was on the call. >> let me ask you another question. if we go back to june of 2011, finra was concerned about mf global is european exposure and

the finra direct at mf global to increase its capital earnings. did you agree with finra's directive on that score high >> asked at the time frames, my understanding, you know, i was not involved in the early conversations, but over a period of time probably starting in june or early july, finra had conversations with the firm about their view of the appropriate capital treatment for some of our positions. and those conversations ultimately led to their determination. i believe quite late in august of 2011 and a different g that was appropriate. >> the mummy ask you this. did general corzine agree with it at the time? he apparently didn't because he flew to d.c. to me with the sec

to set them to overrule finra, correct? >> first i should say that my accounting colleagues are outside counsel. price waterhouse coopers thought disagreed to my knowledge, on disagreed with finra's view of what the appropriate capital treatment was for these positions under the rules as they were written. and so yes, the firm did make a determination and to something said it was the topic discussed up outside counsel that there should be a meeting directly with the sec on something so important. >> okay, let me go to another question. ms. sieminski testified that she would not have approved the $173 million transfer on october

october 28 to cover a mf global. do you remember that? and do you find it interesting that mf global blew past the same capital requirements that jon corzine lobbied for? >> for his staff, as i recall, the testimony was i'm certain assume facts. if it violated certain proceed would not have been the transaction. so that is that part. i am not sure that it violated the same rules that mr. corzine lobbied against.

i need a little help understanding the question, mr. royce and apply to address it. >> well, my time is expired, but it went to thank you for your testimony here today. i appreciate it. >> i thank the gentleman would want to have a little bit of follow-up here, but would've wanted to do because they think we've danced around the around the issue a little bit. but this is a glass of water and i hope you can see the black line. can you'll see the black line their? said this is a segregated account. so the segregated account, all of the water below the line belongs to the customers in all of the water above the line is illegal for common castries to keep excess funds, is that correct? >> you sometimes have customer funds in the segregated account, right? >> yes. >> said this was the company's

account. into this black line here is what it would take to get the company back from being overdrawn. so the only way that customers lose money as when you order -- he takes some of the companies money out and as long as you are at the line, you're in lines, is that correct? >> yes. >> so when you do this though, arguing compliance? >> no. >> so the only way customers can lose money as when he take their money and put it in the companies money or somewhere else. is that right? and what you're supposed to do is if you take money out of byerly, you're supposed to securitize it. so theoretically if this is not the water in it, scott collateral in it. is that correct? sonata we've got that clear everybody understands money was

lost because money was taken out of the segregated amount of the line to, ranchers, does everybody agree with that? that's the only way you can do that. i mean, how lost us the money get out if you don't take it out? i mean, this is not rocket science, folks. mr. steenkamp comic can you show me another way customers would lose their money other than money being taken out? >> well, the only other way would be losing money on their trades. if they are making losses. >> at the customer's account would go down proportionately. >> absolutely. >> said mr. steenkamp, i went to go back to some team and i know we are all perplexed. he certainly was mr. grossman and mr. stockman? >> yes, they would achieve risk officers. >> view where they made recommendations that the repos

to maturities in the foreign sovereign debt for a potential risk the company? for you -- >> fair, i became cfo in april, so what i was aware but if there were numerous and many discussion between the board, mr. corzine and the chief risk officer in the word meeting and risk parameters. >> are you with a document called great the class put together by your firm? >> i am, sir. >> cooper pair that document? >> there was a working group put together. >> they were members of treasury, members of finance, members of risk, treasury operations because that was like a scenario, street scenario, so it requires the input. >> did you participate in that? >> i did, yes. >> when did you put the document

together? >> the original request for the document was made in august i believe that the board. >> and was completed when? >> it was presented to the board sometime around about the middle of october. >> is a kind of ironic you put together a break the glass scenario and you finish at 14 days before they declare bankruptcy? >> sir, it is very prudent and common to have a document like this. i think all firms do it and the initiation was many months prior. >> do you disagree with any analogy made here that deal with the customers would've lost money as people took money out of the account and then put it back? yes or no. >> except for the example -- >> this is a guesser now. nothing else i appeared to other customers lose money for summer positions, but if you net out their positions, the only way the customer lost over a billion

dollars if somebody took money out and they were supposed to? yes or no. >> that appears reasonable, fair. sir, i'm not an expert enough on that to be able to know whether it areas -- >> i'm not talking about that. i want some definitive answer under the way that the law operates, the only way someone could lose money is from a customer other than an opposition as money is taken out of an account that should have been taken out of. yes or no? >> sir, i don't have enough knowledge to answer that. >> i am appalled that she can answer a simple question like that. i think you're not being honest with this panel. do you agree with the analysis that the only way the net positions as money is if people take money out of the count and not put it that? >> there is a permissible security calculation.

>> that would be collateral and not. >> secured calculation rules allowed an permit if if a client gave the firm $100, under the secured roles, there is an alternative method available that does require -- can require less about $100 be required to be maintained in this secured environment. >> but i'm just talking about if this was the money that belonged to customers and you poured it all that is the way you lose money, right? >> yes, yes. >> thank you. the ferber. >> that's the way you lose money if you take money out there should be taken now. >> with the exception of what ms. serwinski described come you still have an obligation to

return customer funds. i would agree with you, yes. >> and so, what happened when they declared bankruptcy was nobody put money back. >> not to my knowledge. >> are there any other members that want to a follow-up of this panel? mr. pearce. >> i'm sorry i was looking through my papers and i don't find your resume. where did you get your education? >> i'm from south africa, so i did my -- i've graduate degree and postgraduate degree in accounting and -- >> what kind of grade point average? >> it's different percentages. my average is around 78%.

>> how many hours accounting does you have? >> i done off the top of my head. it's four years, trias graduated one-year postgraduate in your cpa equivalents. >> just trying to establish that she do remember things in the past but she don't render some real, real, real big significant things from less than six months ago. just try to bring that to the attention of the public watching today because they are wondering who is in charge of all these companies that appear. ms. serwinski, when we have an overreach, when we have -- when we dipped dipped into the segregated funds like the water report out of the class and this nonsecured -- was there a requirement to notify someone? >> yes. >> would have to be notified? >> the regulators have to be

notified. >> nobody inside the institution? >> they would be notified, but the requirement, the regulatory requirement -- >> you didn't have an internal process that would say, we just kind of mess to appear. let's see what we don't do it again and the treasurer or assisted treasurers who we ascertain could've made those calls. so you have a couple people and maybe they've authorized dipping into those funds out of that little paper -- plastic glass. and so who would they have to notify that they just pour the funds out here? >> they would have been a process whereby the situation would have been escalated at the very least our sox committees to rack tsai whatever a contributing areas that let two -- >> there was somebody to notify?

>> yes. the next leave a process. >> so, we dip into those funds and we are supposed to securitizing returned by the end of the day and balance all of the account is all that jazz and we didn't do that. and so, i went of old does it -- did you ever discussed above unless you go to mr. steenkamp? i mean, these guys are the umbrella. so with we are doing things that take people's money away from them without the senate, if you is that fair and square, that's fine. if the shepherd takes the will to sheep, so at what level should you have notified should it not view because you're out and understand an output level should mr. steenkamp have been notified or maybe ms. ferber because now we do with issues

that somebody's going to have to answer some questions. so certainly of all discuss that. is there a level? >> once the numbers were confirmed, i believe they were informed. once it was confirmed that the $900 million was -- >> 900 of the professional -- >> one dollar would have been -- >> so you can't hack on thursday and nobody had been notifying anybody? everybody just said okay. mr.'s steenkamp said i don't much care if they were doing. that surely there was some sequence that somebody was supposed to say the place is on fire. ms. ferber, you are saying that avarice to your attention now is not really your concern? at what point would you be concerned with missing customer

accounts? >> i would be concerned with any missing customer funds. >> she says that we have dipped in and maybe don't have collateralized on wednesday or thursday or wednesday or thursday really became evident. >> excuse me, sir. i don't believe i said that. the firm is an regulatory compliance to the best of my knowledge on wednesday. >> so you're saying we did on saturday night or tuesday and there is so built up time? >> what i'm sayingcome as there is firm is in regulatory compliance of the excess segregated in secured roles until i was aware on sunday night that we were not in compliance on friday, close of business friday. >> so you think the entire -- okay, thank you, mr. chairman. i yield back. >> this'll be the last one. >> thank you, mr. chairman. i appreciate you actually trying to help us unravel some of this.

you are the only one who has answered a question beyond the yes or no and we do appreciate that. he's done more than dodge questions. mr. steenkamp, is the correct pitcher work now makes assets available for trusty free? >> yeah, one of the top priorities -- >> okay, the answer is yes. are the assets for benefit of customers? >> sir, i'm not an expert in bankruptcy. >> or do they go to creditors at msg holdings? you don't know that either. >> so you don't if he pays that would reduce the potential pools of assets today that customers? >> sir, that is for the trustee. >> you have no idea? you absolutely have no idea under oath you have no idea what i'm talking about? >> sir, i believe the chapter 11

trustee is that the holding company so it works up to creditors, but i'm not sure how the process works are allocating assets amongst the firm. >> usually proposed a new and others, like mr. abelow substantial bonuses for recovering assets? then one discussion, but no bonuses had been proposed as of yet are finalized. >> you believe you deserve a bonus? >> sir, i believe for all the hard work we were doing, we were to be fairly compensated. we were not part of the discussion whether that includes bonuses or not. >> fairly compensated in the future, but not for the humongous bosses unitive band comparable in. we accept bonuses if the motions approved by the bankruptcy court? >> at the trustee determines it is fair and reasonable conversation. >> he told us how brokenhearted you are over the losses suffered

by investors. you think the will feel about using money potentially reimbursed them by the money song from segregated accounts under to pay for the bonus or make a feast of the people running a company that looted the accounts. >> i'm sure the customers want all their money returned. >> are you familiar with the willful blindness? it is a term used in individual seeks to avoid civil or criminal liability for wrongful acts by intentionally putting himself in a position where he claims to be unaware fax which would've entered him liable. >> i not specifically aware. >> to the new idea where this applies in your case or not. >> i would assume if one takes the fifth car for example that is sent to.

>> ms. ferber kim was involved in the decision to put mf global and the decision? as i understand it, we have bankruptcies. >> let me make it short. anyone from the cftc group representing creditors are counterparts? >> the fcc would have been involved. only one cannot fight themselves i deleted the sec that has to make the application to do that. obviously was a period of time with the regulators were deep in conversations over themselves. >> was mr. cook with the sec involved? >> is certainly one of the people who organize the conference call where we has to notify the regulators early in the morning on the 31st. >> who was involved in placing the holding company in chapter 11, chapter 11, and asked us to go to go to creditors and

>> the board may determination that the company would file for bankruptcy. >> okay, the board? >> direct heirs. >> okay. >> i yield that. >> i thank the gentleman on this panel and not this time, a juror dismissed a walkoff the second panel. thank you for coming. [inaudible conversations]

[inaudible conversations] i want to welcome the second panel. ms. diane genova and deputy general farm jpmorgan. ms. suzanne kaspar, chairman of immersion issues task force for the standard words. i once remind each of you that your riddance to them will they made a part of the record damascus arrestor testament five minutes. mr. novak underrecognized. >> thank you. chairman duca bauer, ranking member capuano, my name is diane genova and 90 deputy general counsel for the investment inc. of jpmorgan chase. as such i was one of the jpmorgan officials commit dealing with the mf global over the weekend before 54 bankruptcy on 2001.

i appreciate the opportunity to appear before the subcommittee to describe his events. and i'd also like to thank chairman baucus for doting jpmorgan's cooperation in. before this committee. as i will describe in more detail, jpmorgan professionals work through the week of october 24th to accomplish two main goals. first, to provide operational clearing and settlement support and services to mf global insight inc., to make sure we did not wind up in a position where we extended credit to mf global without proper collateral and security protections. to understand that we are trying to accomplish, let me describe briefly to banking services that jpmorgan along with other financial institutions provided to mf global. these are fairly standard services that clearing banks typically provide to support the day-to-day broker dealer in commissioner merchant operations of firms like mf global.

first, mf global maintained a large number of cash demand deposit accounts, much like a retail checking account at jpmorgan as well as other banks. back at, as global use jpmorgan as well as as well as bank of new york and other banks were clearing services. third, jpmorgan served as the administrative agent for two committed revolving credit facilities, one consisting of 22 and one of 10 banks that mf global had put in place. finally, mf global entered into security funding of repurchase agreements with jpmorgan. this arrangement service financing tool for mf global. as noted in my written statement, we worked hard to assist mf global, our client when it began experiencing problems. these outbursts which would in turn benefit mf global's customers several action.

we sent jpmorgan team to mf global's offices on friday, october 28 to assist mf global with its ongoing efforts to unbind security lending agreements. by doing so, mf global is able to regain access to securities that are posted as collateral and some of the securities to generate additional liquidity. jpmorgan also facilitated an auction a portfolio of 4.9 and securities held by mf global, involving multiple market participants. this is another way to assist mf global in its ability. we agree to read sandy liquidity for the action sales for jpmorgan was acting as agent for mf global with respect to securities, custody with jpmorgan. this measure provided mf global with the quiddity on the fastest possible base is far faster the typical one to two day business days for regular weight site on the research securities trades.

since the bankruptcy, jpmorgan has engaged with committee staff for its examination. among other items we assured her give on the events surrounding overdrafts at mf global had in accounts at jpmorgan london on the questions we asked mf global to make sure that customer segregated times were not used to satisfy the overdrafts. in my written submission, i explain the principal points of contact between mf global and jpmorgan. i also discuss the circumstances on friday the 28th that caused us to ask mf global to confirm in writing that they were in compliance with the customer segregation obligations. briefly, i took a lead in reaching out to lori ferber, ms globals general counsel and dennis kline does, good counsel

and received assurances from both of them that mf global understood the customer segregation rules and had complied with them. over the course of our conversations, we discuss the contents of a letter we had requested to confirm mf global compliance with customer segregation rules. as you heard ms. ferber testified earlier today, she and her deputy raised concerns about the scope of our proposed letter. we narrowed the latter as they requested en masse missed ferber also confirmed earlier, during this hearing, we were told the narrowed version of the letter would be signed. although the letter ultimately was not signed that we can be for mf global filed for bankruptcy, we believe we have been given clear and credible assurances that the transfers were lawful. i would like to thank the committee for the opportunities you share with you our perspective on this matter and

happy to have her any questions you may have. >> thank you. mr. rock coming to recognize. >> thank you, mr. chairman. and dan ross, president of the national futures association. for the longest time, decades and decades the futures industry had an impeccable reputation in a well-earned reputation for financial integrity. i say the offense ranked mf global have dealt a blow to that reputation may think all of us involved with the regulatory process need to be thinking about the types of regulatory changes we can make to try to prevent this thing -- kind of occurrence from happening again. at nsa would we consider the types of changes we might implement, they fell into three basic categories. there were certain changes, which we thought we could accomplish only in coordination with other self-regulatory organizations. other changes we thought we could implement your nsa rulemaking and a third category of changes we think would require either congressional or

cftc action. what i would like to do is just describe for you where we are in each of those three categories and what our national recommendations have been. with respect to the issues involving coordination with other self-regulatory bodies, as issues involved how we monitor firms for compliance with segregation requirements and coordination with the other as far as it's very critical here. all afghans are required to be members of nsa, but with a designated self-regulatory organization only for those axioms that are not members of the exchanges so it's very important for us to work with the exchanges to try and develop the changes. with that in in december december the chicago mercantile exchange and nsa announced the committee and other participants include the exchange numbers and the board of trade, intercontinental exchange in minneapolis grain exchange. eckert has been meeting for the last several months. we've taken a look at what we do

and how we do it and how we can do it better. we've developed some initial recommendations have reviewed those recommendations and other committees including members of the sem community and several weeks ago announced initial recommendations and these are just initial recommendations. but those were basically our number one to require all too submit daily reports of their designated self-regulatory organization. right now the obligation extends only to those that are members for which nsa is i want to extend that to all. and our experience that will be a very useful risk management tool because you can see matches for the firm is on a given day that you can spot trends and fluctuations in tanks that seem unusual and catch her attention and will prompt further action. the second change we recommend past due with what we call a segregation investment detailed report. currently we get these reports

on a month to base this for those which are the dsr outcome of these reports show how customer funds are being invested and where those investments are being held. we want to take a requirement and again extended to all afghans and that those reports ran monthly to diamond basis. the third day we want to do is perform her periodic spot checks for compliance. each is audited twice a year once by an outside accounting firm would want to supplement those examinations come was going to very detailed testing for segregation clients. we want to supplement those of periodic surprise visits to monitor compliance with various components of the segregation regime. the fourth rule we are proposing has to with accountability. we want to make sure that if a firm is drawn down its excess

segregated funds that if a firm is making in any given day draws down its excess by 25%, then two things have to happen. number one in principal firms such as the ceo or cfo has to sign off on those disbursements trying to segregated fund and never to, there has to be immediate notification to the regulators. that will not only improve accountability and also give regulators important notification about potential problems to which they can react. it will also capture intraday transactions. the daily segregation reports we get now just reflect a firm status as the close of the previous day. if the firmware to require funds that are segregation during the day and wire them back in by the end of the day, that will not be captured in the daily segregation reports. they would be captured under this rule. those are the four initial recommendations of the sro group. an initially the special

recommendation. one of those is fcm disclosures to make it easier for customers can especially small customers to do due diligence on the sem's or we try to identify that information, which is most meaningful to customers without overwhelming them. we won its information at the firm capital requirement and a segregation requirements and access to the amount of leverage that for employees, with the ball straight enough principle that is not patch training. we want to identify those pieces of information and then require fcm to disclose information to nsa so nsa will then put it on its website and make it available for customers to try to make it easier for them to do their due diligence. let me emphasize again these are initial recommendations, the special committee and the sro committee to work through their issues including changes to the bankruptcy code we look for circuit industry commission and

congress to try to develop the regulatory changes needed. thank you. >> thank you. ms. cosper, you recognize her five. >> chairman nicobar, ranking the copy on my name is susan casper and i'm on a fast speed. i oversee the staff work associated with the prize packs and board technical agenda another to thank you for this opportunity to participate in today's important hearing. i understand the subcommittee would like me to explain the current accounting and reporting standards related to repurchase agreements. i will do my best to do so but first i'd like to give you a brief overview of the fast be in accounting standards are developed. the fasb operates under the overstated the financial accounting foundation and the security exchange commission. since 1973 the train fasb establish accounting and reporting for public and private

entities and not-for-profit organizations. those standards are recognized as authoritative, generally accepted accounting principles by the sec for public companies and by the american institute of certified public accountants further nongovernmental entities. an independent standard since it relies on the collective judgment and input of all interested parties through an open deliberative process. do processes that are open for due process and allow for extensive input from all stakeholders. it is important to note also fasb said the county scanners are designed not enforce them. the sec has ultimate authority to analyze whether public companies have complied with the accounting standards. the pc iop ensures auditors of companies have performed audits in accordance with auditing standards. when they try now to explain how

we have become its work and how they are treated under accounting standards. in a typical repurchase agreement, a company also known as the transfer war transfer securities to a counterparty. the transfer in exchange for cash with the simultaneous agreement for the counterparty to return the same or equivalent securities for a fixed price at a future date. the price paid by the transfer includes an interest rate which is like a lending rate for secure firing. the motivation for entities to use repurchase agreements is generally finance related in the desire to buyer orland cash. current accounting guidance results in most repurchase agreements being accounted for a secured borrowings hear the accounting guidance is based on the concept of the transfer to maintain effective control of the security under most repurchase agreement since the transfer is temporary and because the transfer has to repurchase the asset before its maturity. another type of repurchase

agreement, he repurchase maturity is accounted for is for sale with a separate agreement to repurchase security. and this transactions the transfer never actually gets back to transfer security. because the repurchase date is famous securities maturity date the counterparty instead redeems the security and the transfer simply pays the transferee difference between the proceeds received by the transferee of redemption and agreed-upon repurchase price. the transfer doesn't have a set of control of the transfer security. i understand specific question is how a loss of value and the underlying security would be accounted for if the purchase agreement is considered a secured borrowing their sale. any transfers securities for secured borrowing, the transfer recognizes the cash as proceeds to the transaction with the reliability to return the cash of the transferee.

this curator means is an asset on the transfer balance sheet and declined oven overall net worth. this transactions is a trail of the securities, caches increased, securities and is in the purchase commitments, derivative is also iraqi s. and the financial statement and the transfer may retain the credit risk associated with the securities the transfer. any reduction in the value of the security after the inception of the agreement is accounted for as the liability was reduced at the company's overall net worth. finally, whether the transaction is a repo or repo to maturity, companies are required to make extensive disclosures of both quantitative and qualitative information about the transfers continue to fall that, the risk

that the transfer continues to be exposed to come including credit and liquidity risk. the amounts recognized and gains or losses on transferred assets. thank you again and i would be pleased to answer any questions about the standards. >> thank you very much. mr. capuano for five minutes. >> thank you, mr. chairman. i appreciate the opportunity. again, thank you all for coming. i actually find this panel were technical and more invite me. we'll find out. i guess i want to start out by making clear what i think our role is for the moment based on the hearings we have in the research done. if there is a criminal activity at mf global, i just don't think that if congress is wrote to investigate criminal activity. expose it but then the people who do a better job do it. if that is the case, so be it. at the moment i'm not sure anyone knows that or doesn't

know. but so far there's two issues this panel relates to both come in two issues to my attention that raise serious questions. the so-called accounts and some of the fasb rules and i want to distinguish the fasb rules from the ways they've been used in appropriate use of it, but the rules come even if applied properties to raise questions. and i guess i would like to stir the fasb will spirit to me it's mostly steam at 140, but there's other ways to refer a and whatever the number is. it's basically the rule that says a repo is the essay sale. whether it's appropriate or not. it essentially takes up above. it makes up a lake it is healthy then it really is. in any normal sense of the word because my definition even using

the fasb rules it is not a sale. i understand that is reasonable district opinion. i wanted to make sure -- not make sure. i want to ask, is fasb using the current standards, not necessarily as it relates to mf global. i understand that is not your function. but at least having not untrue knowing where we are today, knowing that this rule has had something to do with the concerns and knowing it is subject to debate as to how should be interpreted. i need to know whether this was an appropriate role moving forward to provide the true transparency and the consistent application of whatever will you come up with because thus far acting to road is applied inconsistently, not intentionally, but just because it's a difficult ruling thoughts of subsets. so i guess i want to hear to what the fasb is reviewing as

the rules you hear in a way which you may or may not do. i need to know whether you are reviewing with that thought of possibly addressing. >> thank you. fasb strives to continue to approve our accounting standards. once we became aware that there is concerns with respects to repo to maturity and agreements in china we undertook an effort to the outreach did not identify that their application issues associated with the rule of perhaps the diversity and pride is. however, users have advised us that they have concern because of the market practices that have changed since the rule was originally put into place. that was originally repo to maturities that were generally transferred for high-quality treasuries and it's come to our attention that companies are now using riskier securities.

so taking that information, we discussed that with the board. the board has added a project to its agenda to meet those rules and to understand what the various changes that needs to be made over it enhanced disclosures. >> in the normal events, i know it's not going process. that is what we do as well as accounting rules. in the normal course of events, what would you expect? just give me a ballpark of how long you might think it would take for fasb to conclude its review on whether to amend or not to amend it, how want to think that might take quite >> we expect to start discussing the changes we make next month and we expect to issue a standard by the end of the year. >> by the end of the year, okay, appreciate it. >> just out of curiosity, i have the money i was holding with you, would you a chairman newco

bower pick up the phone and say halo twos makes money for a day or two and i'll pay it back tomorrow. what you let them do that? i noticed tonight night, but would you let them do that? >> i'm not sure what the context is, that doesn't sound like i would. >> i'm not sure any financial institution in the world will that happen. the get with co-mingled funds. it's kind of funny. i actually think they should be in politics looking at this firm. did cominco funds cause segregated accounts. it's the opposite is co-mingled. and under that responsibility, from everything i read, how could you possibly know whose money is used in a cominco to count clicks >> the obligation to keep the minimum of client money in the account belongs to dfc on.

if espn has the obligation to figure out what money is fair and belongs to crimes. >> for clarity, the fcm would be quite >> mf global. >> there's no way you would know whether they had a hundred million or a billion how much his testimony at how much is not quite >> is correct. we do not have the information. >> so you have to trust. >> we know they have a legal obligation to put the roof in a regulated entities. >> okay. mr. ross, i read your statement. i actually like some of the things he proposed. i guess you are trying to address this very issue. i'm going to go little further in a minute. at least for my first question, or the other sros following your lead on this issue and maybe making proposed changes as to how this gets done?

>> for recommendations i outlanders supported ailed the sros or part of the committee as well as other exchanges we spoke to that were not on the committee as well as as well as our advisory committee we spoke to as well as their public directors on our board here they've all been supported of those for changes. can i go back to one thing. i don't mean to use up your time. >> you can try with the chairman's indulgence. >> excess segregated funds are very important thing for protection of customers. there are multiple customers with money in those accounts. if one customer encourages substantial trading losses, the excess segregated fund is a way of making good the customer shortfalls to protect all the other customers. >> i guess at some point someone will have to explain to me how using my money protects my money. today is not the day and i guess my last question. i am way over my time. but my last question and i think i know the answer. why don't you just say stop

co-mingling funds? if you want to invest -- if any of the companies want to invest, good luck. why do they need to use my money? >> the reason we allow fcm's to have their account is for precisely the reason i love to protect other customers in event of one customer occur in the financial trading loss and a shortfall in that account. >> how does it protect me if some other customer loses their money and it is unknown to me somebody else uses my money to cover their loss? it was in 19. it was my money. i didn't play that game the night are taking that money to protect some other customer who lost their money because they took a gamble. >> no, sir. can i try to explain it quite >> you can try. ..

accept, and by the way, is there anyplace else people can pick up the phone and use other money f. jpmorgan is this the only one or is there someplace else? >> i'm not aware of any other.

>> i'm way over. i'd like to. thank you him. >> i would just say one of the things as you know part of the goal of this committee is once we have completed our investigation and oversight, we are going to publish a report that will be proven by the committee, and one of the things we hope to accomplish is once we ascertain exactly where the pitfalls are, we want to work with everybody to come up with what are some reasonable solutions if there are some holes in the system we need to fill and obviously there are ways to do that whether one of the issues i think we have to make sure we address is if there's malfeasance if you could pass all the rules and the laws and that's not going to keep the malfeasance from happening, so we look forward to having the

discussion and a yield to mr. pierce. >> i haven't seen him gambling away his life savings so i appreciate mr. cibula's but i don't want to take the good name of the chairman. >> what mr. capuano is saying, shouldn't there be a statement that warns his money could be used by other people of tension that -- >> i think's >> that wasn't in your suggestion to the estimate this fellow customer loss talked about in the segregated fund regimen and the situation in which one customer encouraged a huge trading losses and the firm's capital is not sufficient to make the trading losses that

can result in a shortfall in which non-desalting customers suffered. it has nothing to do with mf global. there are disclosures about that, but i think it's certainly an issue we can look at to see if those disclosures could be sharpened and made more clear. >> they are something like the app disclosure to read to see i agree. >> i think that is an area that is right for study. cosper get off to be unblinking lights because there's people that lost 1.6 million. >> i'm sorry, that sort of fellow customer lost the i talked about as far as i know had nothing to do with mf global? demint i know there's a shortfall in customer funds and that shouldn't happen.

>> they shouldn't be able to take that. do you know of any other trading firms that are dipping into the accounts to make things whole? >> we monitor the firm's on a daily basis. we've done special visits to these for which back in december confirmed the balances. i'm not aware of any other firm. >> were you monitoring mf global? >> we were not the self-regulatory organization. >> are there other organizations you would not be monitoring? >> there is from 75 to 80 -- that's only customer funds to trade futures we are the designated a self-regulatory organization. the other ones for the multiplier are the dsro. >> ms. cosper, on the rules, now, so i've got the money.

i get mr. capuano's money on the buy list security that he's asked me. is that basically the initial transaction? >> trying to simplify some people at that can understand. islamic basically, congressman capuano would have the security say and we bought this for you for cash. >> at the same time he's entered into an agreement to repurchase. >> it takes the same security and sense of over here and borrows money back against it. and then we by another security for someone else or ourselves. >> you've done something with the money that you've got >> they would do something. at the same time, you enter into the poor purchase commitment.

>> there's all sorts of legalities of the bottom of the line. i take money that he gives me and i buy a security and trade that to someone else to get cash, right? and i still love control over it but i get cash, right? i bring the cash backend mnf global money in the bank they were not keeping it in jpmorgan, they were then doing something else. they were buying something else, right? >> i can't comment what they would have done with the cash. >> it's possible to buy something else, right? >> they can use the cash however they like. >> my question is there a limit? you said that's all kosher for the accounting standards, right? >> in the securities transaction. >> switch all kosher. is there a limit to the number of times we get this security and then traded over here and get money back and trade it so we can have 50 or 60 rpa. is there a limit where the

accounting board says that's pretty confusing maybe we of exposure here and it's all based on that one deal. is there a limit to the number? >> that's a regulatory matter, so we wouldn't be able to comment on if there was a limit. >> they don't think that investors would really have an opinion about -- >> however, the companies that initially transfer the securities is fully culpable for the credit risk associated with that securities at the value of the security decline they recognize the liability in the heads the network and reduces the net worth. >> going back to the number that can be stacked on the initial transaction, and i just think that investors from an accounting standpoint, and i don't know much about anything really, the group going up, but that's kind of -- it just seems devotee kind of a significant thing for investors to know the

money is back-and-forth in the house of cards stacked with not much underneath it. >> there's no doubt the gap requires the companies that transfer the securities continue to make disclosures about the involvement and the risks associated with that pace, we will be talking about these because most of the was $1.6 billion worth of money disappeared and a panel full of people none of them can remember anything and they don't know who did that transaction nobody had to tell anybody else anything and so we go back to the house and the sheriff's please mention that at some point you might want to consider the ethical legality questions. estimate your very tolerant. >> think the gentleman in mexico

and if he would like to know more on how you do that you can call mr. courts line and he can share some information on that. i would yield to my good friend from texas thrifts to mix before, mr. chairman. why did jpmorgan chase request assurances from mf global if the firm wasn't improperly moving money out of the customer accounts? >> as i previously mentioned, it is the obligation to know what funds in the account are their own and what are the customers' accounts therefore we wouldn't have the information to be able to tell. so, normally we don't ask questions for every transfer that would just be unattainable. in a banking relationship, but in this case, to the unusual

step of asking questions and the was for two reasons. first-come it's been my experience that when firms have had issues with clients, plant segregation rules, it is often due to the ennis and operational errors, and those operational errors tend to occur under the stress there's a lot of trading and things going on in the company, so given the situation i felt i was just something that gave me some pause. the funds are being to pay an overdraft and the account with jpmorgan if there was an error jpmorgan will be the one benefitting for that and we wouldn't have to benefit from an error, as we thought it was prudent to seek assurances. >> that's why the first letter was written so broadly.

>> it was put together let's get assurances and we haven't really thought it through as to what do we really need to respect and the subsequent letter satisfies their needs and desire, is that correct? >> that's true. we advise the letter to reflect what we really wanted to know. >> and they sent it to you? >> no, they didn't. i have conversations with ms. ferber and her deputy who gave me assurances that they knew the rules, they were in compliance with the rules and that when we finally realized the letter to only refer to the transfers i had concerns about the the letter would be signed. >> one more question to the october 29th, mr. corzine told

regulators he was one of the possible buyers on the amendment of mf global is that true? >> i know that there was some discussion with dan jpmorgan about evaluating the other pieces of the mf global business might be attractive to us, and after an evaluation we decided that it wasn't really a good business. >> thank you. mr. roth, congress passed the dodd-frank built using the logic that more rules and regulations are an adequate substitute for enforcing an existing law. right now the cftc is writing new rules at a furious pace but in the case of life might call mf global the forced to enforce the most basic rules of the commodities accounts. in your opinion, how do the new rules and regulations written by

the cftc benefit to producers in rural areas and in many cases that rely on small local banks for credit? >> i believe the expression is above my pay grade. >> can you answer it nonetheless? >> i can tell you that i've been in the regular reprocess for a long time, and i know that whenever bad things happen there's a tendency to write new rules and that's sometimes a very helpful. they are very helpful rules but ultimately it comes down to a matter of enforcement i don't care what set of rules you have ultimately at the end of the day it's about enforcement and that is true of the rules in the futures area and it could be true in the swap. as well. as the image of the cftc be focusing on writing new rules or do you feel the need to first do a better job of enforcing them

and i guess you're a answer is yes to this to the way the statute is said that is it is an oversight agency nfa but it's not an oversight agency for the cftc. >> thank you for your candor and i appreciate your answers. i hear yield back the balance of my time if there is any. >> i thank the gentleman and i just have a couple of questions. mr. genova, this to a good million, hundred 75 trillion section has a lot of scrutiny with mr. corzine. i think what gave it some of that scrutiny is what was precipitated by the fact and said you are overdrawn, you need to take care of that. would that be a normal call to call the ceo of the company and how would you call the treasurer

what was significant about him calling mr. corzine telling him he was overdrawn? >> i think in the context of the fact the company had been downgraded, the chief fiscal officer for the entire firm would have concerns and would be his normal practice if there were issues such as a large over group draft in an account and the most senior person in the company that he knew. so this would be something the would be actually and ordinary step for a company that was in some distress. >> was at this time you dispatched a team to over and have a presence -- let me refresh my memory. when did you dispatch your team to go over to global? >> we went to mf global on friday october 28.

and it was to help them see if we could do things for them to help raise liquidity >> loveless which day? >> friday october 28. >> is that the same day? >> it's the same data covered you overdraft, yes. >> one of the things you said was placed on the company said you were looking at deposits to make sure that everything is appropriate. someone was approaching those transfers and jpmorgan on the debit colored? >> i would like to clarify what that really means. so, it means that because of concerns about the company financial conditions, we will not transfer funds out of the account unless there are funds

in the account. in the normal course of business to facilitate client transactions, we would transfer funds out of the account that aren't really there and create an overdraft, so it basically means no overdraft but it does not mean that we approach each transaction and if there's money in the account and the client asks us to move the money we just executed instructions petraeus genex if you have to have the cash accounts. >> thank you. islamic used a little in our she and i don't know if you know or not about how the customer funds went missing. the ball always full and we poured it into that class, and that's the way the customer funds go missing in fact to keep off the point is that if

somebody, some of the people have made losses do you have any reason to believe there were significant customer losses that precipitated the fact that the farmers and ranchers modeled the same? >> my knowledge is based on what i read in the press and i don't have any reason to believe that issue is involved in this case. stomachs of the money went missing people took money out that shouldn't have been taken out? >> that's exactly right. >> i want to thank the panel and the previous panel and the members and ranking member. this is an important hearing and it's important not only to the people that lost money in mf global that the marketplace moving forward and mr. roth would probably agree we need to make sure people have the confidence of when they do

business with firms the only risk they're taking is their own and they are not taking the risk as well. i would close by saying that we will keep the record opened for additional days and some of my colleagues may have additional questions in the panel. your reply to that will then be made part of the permanent record, and with that, we are adjourned.

a panel of gas and oil analysts and government officials testified on capitol hill jester de on the causes behind rising oil prices. panelists including to the surprise lanning author daniel yergin agreed prices at the pump would be personal for the increase in efficiencies in oil production in the u.s.. but he told the committee that geopolitical problems and disruption in supply. >> thank you all for coming today. this is an oversight hearing of the energy and natural resources committee on the current and

near-term future price expectations and trends for gasoline at the pump. as we all know, americans are facing high prices when they go to fueled their cars and trucks at the pump. they are struggling with the impact of those prices, prices also a significant drag on the entire economy. as we work to increase job creation. we organized the hearing to know more about what is contributing to these higher prices and what we can expect in the coming months as we approach the summer driving season. i've said on several occasions in recent days i believe it's important to use accurate facts when we were on these important energy policy issues that a major reason why we passed the panel of experts to speak to us today to provide us with their

views on what the facts are cast. i think are beyond dispute, and if they are subject to dispute may be my witnesses can correct me on that but i think they are accurate. we know that the price of oil is sent on the world market and that changes in our own domestic oil production do not have a major impact on the price of oil market. we do not face cycles of high gasoline prices in the united states because of a lack of domestic production or to federal resources or because of environmental regulations getting in the way of obtaining cheap gasoline. we also know that there are many sectors that can impact the markets and we hope to hear more about those factors today from

all of our witnesses. we look forward to hearing from them about the dynamics of the factors and what we can expect in the coming months and also hope we can take what we've learned and use it to focus on policies that can actually lead to more stable gasoline prices over time. at the kennedy did good work on those issues in 2007 in developing the bipartisan energy bill we passed that year. that bill has delivered more fuel for transportation and more efficient vehicles on the road. it's already helped to significantly reduce dependence on foreign oil. we need to continue to find work to use less oil and be less dependent on the volatility, less vulnerable to the volatility of the world oil market. i hope today's discussion will give us useful information on

how we can do that. before we hear from our weaknesses before i introduce them let me turn to senator murkowski for any statements she wants to make. >> thank you, mr. sherman and welcome to the distinguished panel. we are all anxious to hear your comments this morning. i think we are all looking for the quick and easy answer but i think realistically we know that there are no quick and easy answers for the fact that we are seeing significantly higher prices at the pump. in this morning's "washington post," the headline is. gas prices topped $4 a gallon. i do a little independent survey of my communities back home, and do a week by week assessment here and let it is going for $5.75 a gallon. juneau, the state capital, is $4.15.

nomo is $5.98, and just above it is $7.37. so they are looking at what the national average is now and saying in the rearview mirror that looks pretty good because we are getting nailed with a high prices. they are looking for answers. so when there have been suggestions either in the political commentary or the news somehow or another this is a political opportunity i don't think most of us who are feeling the pain at the pump, feeling the pain in their wallets and their pocketbooks we don't view it as a political opportunity, we expect it to do something. we want to know what it is that can be done so the exchange this morning i think is important. we recognize there are a lot of different factors that are driving up the cost. some are clearly beyond the control of the president and clearly beyond the control of the congress and we recognize that but there are things we can influence. we've heard about how we of the

limited ability to control the instability in the middle east or the growing demand in china and other emerging countries and economies and of course our influence there is limited and that is contributing to the higher oil prices, we recognize that, but there's a number of areas the u.s. in particular hour own federal government can have an impact. we can influence pipeline capacity by encouraging them on a timely basis and we can influence whether refineries stay in business by virtue of the regulations we apply to them and we can influence the value of the dollar and tax rates on the production, delivery and use of fuel and i think very importantly the federal government controls access to millions of acres of federal land with oil potential and of all the factors i have listed i think access is the only area here where this committee has direct jurisdiction over our decisions to determine whether companies have access to the outer continental shelf to the mauney wilderness portion of

anwr and the rocky yelled and west so if i seem somewhat eager to focus on access to federal land and water it's because i think this is one of the areas on the significant area that we can have the direct authority and we do have the direct authority to have to rely believe quite strongly supply and demand absolutely matter. it's not just one or the other. we are the world's number three producer of oil and the world's number one consumer. our production is rising on private land. the question nobody seems to be asking though is what the price of oil would be if that weren't happening, if we were not seeing this increase the president keeps pointing to. in my mind there's no doubt it would be higher, the pain at the pump would be worse. i think most of us are using the

terminology around here that we should pursue in all of the above energy policy and i think if that means increased or higher efficiency standards for vehicles of all sizes it means investments in r&d for alternative and it certainly means a concerted effort to bring more of america's oil to market. with that, i'll look for which the testimony and the questions and answers from those of us here on the committee. thank you, mr. chairman. >> thank you very much. let me briefly introduce the witnesses. we very much appreciate them being here. dr. howard gruenspecht is deputy administrator with the energy information administration and department of energy to dr. daniel yergin is the chairman of on dhs cambridge energy research associates here in washington. mr. frank verrastro of national security programs for the center for strategic and international studies here in washington.

dr. paul horsnell is the managing director and head of commodities research with barclays capital in london. thank you very much for being here coming and if you could each take whatever time you think is necessary to make the points you think we need to understand, your full steegmans will be included in the record as if read. dr. gruenspecht? >> thank you mr. chairman, ranking member murkowski and members of the committee i appreciate the opportunity to appear before you, the energy administration is that statistical analytical agency within the part of energy because they do not promote or take positions on policy issues and has independence with respect to the information it provides to read it shouldn't be construed as representing those in the department or other federal agencies. prices for all petroleum products have risen in recent months but gasoline prices are of a particular concern to most

consumers. the national average price of regular gasoline averaged $3.58 per gallon and february, 2012, off 37 cents higher than february, 2011 and has certainly risen over the past month as well. the february price was at a historical high for february there is however significant regional variation in the prices as illustrated in figure one of my testimony. crude oil price increases i think have eclipsed. other drivers as shown in figure two and three of my testimony while both gasoline and diesel prices rose by 47 cents per gallon february 2011 to february 2012, the cost of crude oil to the refiners rose by about $20 per girl about 48 cents per gallon over the same

period to read the increase in the crude oil prices since the start of 2011 appeared to be related to the tightening supply-demand balance and concerns over geopolitical issues and have impacted or have the potential to impact supply growth from the middle east and north africa region that is critical to the global oil supply. demand growth in developing countries drove in 800,000-barrel per day rise in the world demand in 2011. mullen opec supply, mostly outside of the middle east has had recent setbacks as described in my testimony. in addition, both of the united states and the european union have acted to tighten sanctions against iran including measures with both immediate and future effective dates. current prices reflect expectations as well as today's conditions and many analysts see continuing demand growth of

possible tightening and supply over the coming months, and that is a combination that's affecting the market. e.r.a. data show that the united states became a net exporter of petroleum products that's not including crude oil, just the things that come out the other end of the refinery for the first time since 1949 and 2011. however, we don't think the higher gasoline prices are being caused by higher product exports. u.s. gasoline exports have grown mainly as a result of refiner's having excess capacity as u.s. consumption of petroleum based liquid fuel decline. between 2007 to 2011, u.s. consumption of liquid fuels fell by 1.85 million barrels per day over the same period domestic production of ethanol and by yo eisel which displaces petroleum in motor fuels increased buy

roughly half a million barrels per day. while the domestic demand for the petroleum fuel has declined, many u.s. refiners have a competitive advantage in markets in latin america and other regions that need gasoline imports to meet the growing demand. u.s. refiners are taking a vintage of the opportunities and accordingly reduce crude oil and puts into the refineries buy only a little more than 300,000 barrels per day between 2007 to 2011 despite the larger decrease in liquid fuel consumption in the united states and the increase of the non-petroleum liquid fuels to meet that consumption. without product exports to domestic refiners would have reduced by a much larger amount to read in the short term outlook to the cost to the refiners continues to be a major

factor affecting gasoline and diesel prices. the average refiners' acquisition cost of crude oil is forecast to increase from $102 a barrel in 2011 to almost $115 per barrel in 2012, but falls that in 2013. the e.r.a. a recognize is that significant uncertainties could push prices higher or lower than the forecast. based on options and futures prices for the five day period in the last friday market participants apparently believed there's a 14% chance that the june 2012, sorry, june 2012 wti future contract will expire above $120 per barrel, $14 higher than the wti stock price on march 23rd. it trades at a significant premium over wti and is

generally more representatives of the crude prices in today's market the probabilities of exceeding particular dollars thresholds are correspondingly higher. the eia march out look expect the average retail price of regular gasoline in the united states to average $3.79 per gallon in 2012 compared with $3.53 per gallon in 2011. more recent information points towards a somewhat higher gasoline price forecast in the next outlook. based on again options and futures prices over the five days ending march 23rd, the probability of the june 2012 contract for the formulated the blend stock expiring about $3.35 per gallon which would be comparable to a 4-dollar per gallon national average retail price for regular gasoline is

approximately 44%. e.r.a. a expect prices to average 36 cents per gallon of gasoline prices in 2012. the diesel prices are affected by world demand growth for diesel and other distillate fuels, particularly in the emerging economies and that growth has significantly outpaced the demand growth in recent years. in conclusion, while e.r.a. a doesn't take policy positions, it has often responded to requests from this committee and others for data and special analysis and launched to ensure you that we stand ready to respond to such requests over the coming weeks and months. german schakowsky and distinguished members i would be happy to answer any questions that you may have. >> thank you very much. dr. yergin, go right ahead. mr. chairman, ranking member

murkowski, members of the committee, it's an honor to be here. this is a very timely hearing and i am very pleased to be part of the distinguished panel and trying to sort out the questions of what's happening with gasoline prices. senator bingaman and senator murkowski has outlined the problem that is on the table to be addressed and transfer prices or now and the pain they're causing for motorists and consumers. it's also the larger question we're looking at an economic recovery. europe is in that situation what happens with prices will be very important. gasoline prices where they are now is where they were four years ago when this committee was concerned with what was happening. if we look at the prices coward give us the latest prices through february. if we look at the end of march march 2012 they are the same

place at the end of may of 2008. then the market was driven by what we might call the demand shot in the emerging market and a kind of aggregate to disruption of a lot of supply in different parts of the world to read some of the same factors are at work today. the emerging markets are the only source of growth and demand although not as strong as it was half a decade ago to read the number that used now is about 750,000 barrels a day are disrupted when you add up what's happening in different parts of the world. we also have a basically tight market in terms of supply, tighter than it was last year, capacity of we estimate 1.8 to 2.5 and it would create upward price pressure in any case. one is of grave concern and the other is of some reassurance

when is the geopolitics, geopolitics is that a strong factor of last time when we saw the prices that were seen today. it began with a libyan disruption, the arab spring but it's clearly focused on the nuclear program and the sense the clock is ticking between now and the end of june when the various sanction's going to place. i think that you could say the new phase not only on iran but the impact on the other oil market began at the end of november when the united nations came out with its report on the nuclear program was saying was putting together the capabilities for a nuclear device and then you look at the price in mid december the oil prices are about 20% cut in u.s. gasoline prices are about 20% and it is a unique situation because basically the europeans and united states focused on

curbing oil revenues to provide over 50% to the iranian government total operating revenues so between the embargo and u.s. sanctions we presume will be put in place so they start to play out in june, this is a whole new situation the actually seek to reduce the exports. iran has responded with threats of military exercise. the oil market has jumped when they threatened to close the strait of hormuz it's worth reflecting on because of all the oil exporters of the country that would be punished by that is iran which doesn't have the same financial wherewithal as the other exporters and the other thing about the threat that threatens the united states and western europe but they didn't look quite closely at their numbers because actually china depends more on the street from those over 2 million barrels a day than we

do, and was the chinese premier who reminded tehran to avoid what he called extreme action involving the street. so the question is how to move the market into balance as an effort to reduce a significant share of oil exports without driving up the price of oil. saudi arabia plays a key role. there's an article today by the minister i think it's in today's financial times. it is the the about how the inventory all around the world is full. the house to happen as the beryl with supplies and elsewhere or on the demand side. both are necessary. over the next few months we may see the demand having a bigger impact in balancing what might

be expected now and one thing we should keep our eye on is what happens with inventory. i said one thing is different than is a concern, the other thing that is different is dree positive news what's happening with u.s. energy production. four years ago when the prices were going up was a general mood of pessimism the u.s. was finished as a producer, we were on the road to being a major importer of natural gas and we would be spending upwards of $100 million a year to report natural gas. it's completely turned around now as we are in a position of abundant natural gas, and the other thing that has happened is what has happened to u.s. oil production. the u.s. oil production is up 20% since 2008. 1.8 billion a day and the point is you made, that has a big impact of the 1.1 million a day

wasn't there we would be looking at higher prices than we are looking at today. this year would be another 300,000 barrels a day. that's an important offset. the other also is what is happening with canadian oil sands, which have troubled some have actually tripled since 2000, and if you look at canadian oil sands currently it is greater than libya was producing before the civil war so it's a big number so those are a positive. so between what we might call peak demand in the united states the production increase, biofuels this has changed our position, our oil imports are declined from 60% in 2005 to the latest number i've seen in your numbers, 44%. what to do in the near term gave prices at the pump obviously there are no silver bullets or magic buttons to push. what's key is additional

supplies and inventories. the experience of the disruption during hurricane katrina and rita drive home the fact of the importance of flexibility in the movement of crude and products and the very important offset and that refers to the need we have for the pipelines in the country for logistics addressing the jones act, the devotee to misapplies. we need to build confidence about the supplies both north america and internationally. the united states might look in the concert. what kind of coordinated measures that individuals and companies can take that collectively add up to modulate demand because what will happen here is a will be very important in of course any relaxation or realism on the part of iran will be taken as welcome by the market so i think we should expect the kind of said is and flows and responding to what

happened. but the events remain on the course described above and by now and the end of june we should expect the prices will be a register of the tensions and what unfolds in the months ahead and certainly will be calibrated at the gasoline pump so there's the importance to focus on those forces of supply and demand to offset the risk that will be seen in the months ahead. >> mr. verrastro? >> senator murkowski, members of the committee, i think you for the opportunity to appear today. the rapid rise in gas prices has become a staple of the evening news as you are all too well aware. it's understandable painful for the american consumers and it's actually a threat to the economic recovery. so i commend the committee for holding this hearing at the time. given the expertise of the panel, i will repeat what dan and howard said because i agree

with forecast and what has actually occurred. i will highlight a few points and i actually brought some slides to my testimony if you refer to those especially the first three and the last one we can walk through these quickly. the first slide actually shows the prices and we did a register in terms of wti because it is no longer a world class marker. after last year arab spurring of the prices essentially settled into a narrow band for the first half of the year and you see that from july to december and this was largely as a consequence what we feel were counterbalancing signals of economic growth and the euro crisis and stress on the supply side on the other. at the beginning however january 1st of our client the prices rose by $20 a barrel the past two weeks they have been bouncing around in all the it hired the and industry close of about $124, the price this

morning at 8:00 was 12504. economic in the u.s. and elsewhere as well as the weather-related certainly contributes to this sentiment. the concern supply facilities were also readily apparent and the efforts to pose a history of hormuz and drove much of that increase. when you look at figure number to come and i know this has been an issue senator franken has looked at, given the upside potential commodity investments and we'll have increased and this isn't unlike what occurred in 2008 and 2007. the current psychology of the market is supportive of keeping prices at a higher level and i think the psychology is important because we look at prices below the fundamental used to be supply, demand in the inventory now we're looking at current prices whether the crude-oil and the idea of breaking market momentum is important when we see ups and downs in the market.

the potential for the destruction threats are an ongoing supply disruptions in south sudan, russia, canada, china, syria, the north sea and nigeria and potential locations as well in places like brazil and iraq. these will all continue to push upward pressure even as we see increases coming out of saudi arabia and the united states. in addition in the aftermath japan's inability to restart the nuclear reactors in 53 of the 54 reactors are currently shut down this has resulted in increased demand for oil as well as a when she. even without the close of the strait of hormuz, the projected removal of several hundred thousand barrels a day of production as a consequence of sanctions would put added stress on the market as we move further into the spring. in such a market even good news like saudi arabia offered last week to increase production has

been tempered by the notion that additional output would effectively deplete the world's available spare capacity because we are so close to that edge and that would leave prices in the near-term increases in libya and the use of strategic stocks as the only weapons available to dampen even on the tiberi basis further upward movement in the event of additional and an anticipated to disruption. this is not a comforting thought. there's been a lot of discussion about the closing of the refineries on the east coast of the united states and what contribution that has made. the trainer refinery, and maybe philadelphia. as raw material feedstock is the largest component of the prices, the increase in crude prices as dan and howard has said is necessarily reflected in the price we pay at the pump. with concerns about the deliverability given the closures on the east coast and elsewhere were also factors. given time i believe the product imports from europe, the middle east and asia are shipments from

the gulf coast will eventually close the gap. but prices, given the transportation costs are likely to be hired until we find lower-cost logistical alternatives and the actually become readily available. shipments from the gulf which is a three hour option but the deliverability will be influenced by the availability of the jones act festivals possibly waivers to the jones act. docking facilities and regional and local pipeline capacities. the good news, and this is figures rica ms. others and the massive global destruction are market tightening beyond what we see today if the history is a god it's easier to predict history in the future the u.s. gasoline prices generally decline or tend to decline after july. unfortunately for consumers and i think we are all in the same mind there's little that can be done in the near term and in the market system the price is always the final allocator of scarce resources. members of the committee have

offered a number of measures to help mitigate the impact and i am happy to discuss any and all of these. while i don't have time to elaborate on the price in the section of my testimony i hope you'll find these both informative and entertaining, and i welcome any questions or comments on those as we go forward. final point, the remainder of my chart really relates to the changing energy landscape which dan has artfully described and raises the question of whether and how we want to use the unconventional resources along with an array of new technologies, efficiency and renewables to build a new energy future. we've characterized this is a critical element and issue the committee will be dealing with in the next several months as well as the next several years. the last 40 years is predicated on the notions of growing demand and resource scarcity especially in relation to oil and natural gas.

we are now potentially looking at the demand reduction and resources abundance and the landscape is being transformed even as we sit here today. how your present technology of petitions of scale are driving and unconventional resource revolution and this phenomena. one in which the united states once again becomes a global leader in oil and gas production, culpable with efficiency as you mentioned senator murkowski, and provides an alternative, supplements, the revolution can substantially lessen the wheelan ports, achieving a significant reduction in the balanced payment and will also simultaneously create an engine for growth, platform for technology and innovation, new job creation, new tax and royalty revenues and the revitalization of the domestic industry's. the development must be managed responsibly in line with balancing our environmental economic and foreign policy goals and the policy modeled

which is on my last slide is what we would advance in terms of discussing and balancing the trade-offs. it's actually a policy will model we developed for the 2007 study and it basically says that efficiency is the sweet spot but any given point of time if you look at it as a dial, economic concerns or foreign policy concerns or environmental concerns can subordinate your energy policy, and the trick is to make sure that you balance all the way through. if we are able to do this, the successful development of the resources will give us breathing space to develop and dispatch the next generation of clean burning fuels that currently do not exist to scale. at the right senator bingaman said the production is at its highest level since 2003, natural gas has eclipsed the previous record set back in the 1970's. in parts comprised less than 45% of total consumption and refined

product exports are averaging almost 3 million barrels a day and this gives domestic refining and the enormous value add to read as development continues to scale from the issues will undoubtedly arise in putting the build out of new supporting infrastructure, the role of exports from the timing and sequencing of development initiatives including senator murkowski alaska with respect. the right mix of federal and state legislation, and this energy reality will require serious policy freezing when it comes to mapping out the decades coming. with the ability to access the resources, we may very well be on the verge of the new american energy renaissance. why all the indications are quite positive with respect to resource abundance, we are in the early stages of this. i would say chapter 1, page ten, and we will collectively on the industry and government need to make a right choices. operationally in terms of safer, smarter and clean as well as with respect to investments,

policy and regulations that will enable the potential to become reality. i appreciate the opportunity to elaborate on these issues and look forward to answering the question. thank you. >> thank you. dr. horsnell? >> thank you to read dr. bingaman, ranking member murkowski, members of the committee, i'm grateful for the opportunity to appear before you today. mauney written testimony details the salient points about the current gasoline and global crude-oil markets. and i would like to use my time today to just briefly raise all six of those. the first of the points concerns the specifics as the u.s. gasoline market and other panelists noted they've risen faster than other product prices and crude oil prices, and that does appear to be a fairly strong effect from the potential for the closures along the east

coast and the caribbean and other closures in europe. both concerns appear to be markets worried about the transition from the domestic supplies of gasoline in the northeast market. the point to make is there is no global deficit of gasoline, there's a lot of additional refining capacity that's coming on primarily in china and india and the global level even with a large amount, some 2 million barrels a day of the u.s. and european refining capacity to come off stream between last year and this year. there is no over shortage. the problems that are very much the deliverability issues, transitional issues and it's very much for the market is now, a rather delicate stage as the driving season starts to come forward. i will use a fair degree at the rises in the gasoline prices are down to some of the

deliverability concerns and colleagues at the eia operate very closely. turning more to the global crude-oil market, the point we might make is on the capacity, it is remarkably limited at the moment. we estimate around about 1.7 million there barrels a day of sustainable spare capacity. by that i mean capacity that can be bought on the market fairly timely within 30 days and can be kept on stream and if you allow more time than more capacity can come on on the strict definition it appears to be less than 2% of the market. more worryingly, with that level of spare the market does appear to be balanced. as mentioned in his op-ed in the financial times today, the market does appear to be balanced. why that is of concern as we are coming off the period of two years where the demand has run ahead of the supply, global

infantry, and plight infantry have fallen for eight straight quarters which is and presented. to get prices up to this level and have spare capacity delta of level and have a reasonably balanced market is a natural concern. i think our further concern is there comes a cusp where the market will start to worry more about the loss of the surface capacity than they will be relieved by seeing the extra supply. i think those are close to that point. the spirit capacity is the dominant point, because it is literally in all of the above item in that picks up all of the variations in the supply and demand, just to go through those, i think our third feature is a very strong change the previous panelists have referred to in the market of oil supply, the surge in production from north america, 550,000 additional north america as a whole last year and we expect another half a million from north america this year, which

80% will come from the u.s.. and again come to give it to cementer rakowski's point of what things would have been like without it, i think for the reflection of that is what is happening in the rest of the non-opec areas. the production outside of north america fell last year led by some 580,000 barrels a day. so perhaps surprisingly the non-opec production cells in 2011 because the dead weights are coming from the production particularly in the north sea but also other areas. ..

in total as of today it estimates just over 1 million barrels a day of opec production is out unexpectedly. that is more than expected. it's part of the reason why the market is still balanced, despite the very high rates of opec reduction that we are seeing at the moment. it's very hard to factor in the definition essex expected but there are significant feature markets. the fifth point, growth is

continuing. it's modest of the global level and very heavily concentrated. if you take brazil, india and china and saudi arabia those four countries alone just as they have for over the past five years, are concentrated on the next global demand outside those four, demand has been falling for a very longimpact of fukushn japanese demand. japanese demand will now be expected to be falling as it has done for a while but very strong japanese demand last year primarily for lng but also for oil and for this year we think some of that increase is the nuclear bans continue to stay s. the demand has not fallen quite as much as you the area called sunoco philadelphia. if that were to shut down, there might be some areas in the northeast that could potentially a subject to low supply. let me just leave it there because others may want to

speak. >> dr. yergin. >> i could add two points to that. one of the refinery companies has publicly said they are losing $1 million a day and you can't go on long loosing $1 million a day. i think we need to look at the context of overall energy demand. u.s. demand for oil is down 2 million barrels a day since 2007. that is a 10% drop and in fact our demand level now are back to what they were in 1997, so that is part of the context to which rebalancing that both howard and frank talked about that is occurring. >> go ahead. >> in a pass live the store director of refining policy at pascoe was at that time was the largest independent and the united states. i think howard and dan have summarized it absolutely correctly. the refining business has always

been difficult. we are in a situation now where we have declining product demand but if you are an east coast refinery and dependent on light sweet crude to make gasoline your acquisition costs are higher but you're pressured on the backend because there is a lot of competition. especially in the last two years. while a lot of east coast refineries were dependent on libyan crude when libya went down they were looking for substitutes in the crewed quality substitutes for them or algeria, nigeria and angola which is the same a lot of the europeans were using at the the times of the acquisition cost necessarily rose. that's absolutely right that they were losing a million dollars a day which is difficult to do. there is one offsetting factor in the case of sunoco and the intent to keep a terminal facility which means they intend to continue to supply customers so it won't be all of their customers i suspect. contract customers will probably continue to give products and they will work out arrangements for that. their spot customers however might be in a different situations and their logistics

is paul talked about the delivered the -- deliverability system is important. philadelphia has historically been a crude oil port but if the refineries are not there in order to bring a product you have a to to a change of the tanks and chains out the pipes at the pump in the storage facility to actually move product. new york is typically a refining center of a product import center but to get those supplies to the western pennsylvania and ohio probably in the near term means trucking. so this will all work out in time but it's just over the summer driving season that might be a little difficult. >> dr. horsnell did you have anymore to add on this? >> it's an issue with the refineries and those who are disadvantaged either by position or the nature of their inputs are the nature of their refinery equipment are all under pressure so it's not just an east coast specific vector. the potential problems they

share and i would again stress these are transitional dealing with moving on the domestic market for greater outlines and imports. >> senator murkowski. >> thank you mr. chair and gentlemen thank you for your testimony this morning. very important and very interesting. i want to explore a little bit more the issue of where we are with spare capacity. i think dr. horsnell you use the term remarkably limited when you talk about the global spare capacity and i think in previous statements you have used the terminology ridiculously offensive anyway you cut it, this is not enough that is out there and it seems to me that when we are talking about geopolitics, what is happening in iran and yemen, what we are seeing with the increased demand and developing countries, all of these things that we have no control over, this issue of spare capacity is really a key

when when we are talking about the impact on prices and the vulnerability that we have from an energy perspective and certainly from a security perspective. so, let me ask a question and it goes back to where i was going in my opening comments. we were talking about increased domestic production here. if we were to bring on 2.5 million barrels a day here, and opec then responded by holding back that same amount as the u.s. sources, on line, opec is going to hold that. would that not amount to greater spare capacity within the system and potentially a cheaper price of oil? and i throw that out to any of you. go ahead, mr. verrastro. >> all things being equal that would be correct but the demand side is also important so demand

also goes up and absorbs that extra production, you are right that if opec were to hold more spare capacity that is the cushion when the supply goes up that demand stops rising as a result of lower prices so it's not always the demand expansion that we are seeing. it's good to stay ahead so i would welcome any and all production. doesn't necessarily translate to the demand in oil price. >> here focus on spare capacity really goes to the heart of the matter before the quest the book. when i was writing it i spent a fair amount of time reading about senate hearings. >> sorry about that. >> they are extremely interesting and lively. very lightlylively, but spare capacity was the kind of thing that things came down to and when you look at when prices went up in the last decade you look back to 2005. it wasn't fair -- spare capacity issue.

when you adjusted to the fact that world demand is a lot higher it tells you the type of market and i noticed paul's number on spare capacity was even a little tighter than ours and you know it is worrying that it is a market without a lot of flexibility when you have that kind of very tight spare capacity so it is a lot of inventory, one of the real things that we need to focus on. >> let me ask an in another way than it perhaps dr. gruenspecht you can weigh in as well. the saudis were to do and and a five wood has been asked to put an additional 2.5 million barrels a day out on the market, doesn't that then remove some of the world's spare capacity and could that not act to create a higher risk premium and impact the price of oil, because you are now in a

position where you have done what we have asked and you are theoretically trying to help out here and by doing so you eliminate or certainly reduce that spare capacity that has been available, so you don't have that safety net if you will and could that not have an unintended consequence in terms of the crisis? mr. verrastro. >> that is a very good point. we are very close to that point with a calming effect of bringing on oil supply could very much be overwhelmed. is saudi arabia did increase dramatically from this point. there is more supply and that should be a depressing effect on prices but spare capacity is all global spare capacity. there would be nothing left at all and that would they are very much on those markets. we are very much on the cusp where further increases may not bring prices down too much for further. in how much its

untimely the 2.5 million in the recent statements would probably take 90 days. what could be brought on in those 30 days is probably 1.7 or 1.8 million barrels a day but bringing all of that on within leave the system with no spare capacity at all. >> my time has expired but i just want to make sure that i understand this. when we are talking about spare capacity it's not only what you have out there as reserve if you will or additional supply. it's your ability to bring it on within a timely manner. is there anyone other than the saudi's that have that ability to provide for a short capacity? >> essentially, no. just a little bit and a few other countries in the middle east. >> i think there is a little bit

in that saudi arabia would be the major builder of spare capacity. >> thank you gentleman. >> senator franken. >> thank you mr. chairman. gentlemen, thank you for your testimony. we are currently working to pass legislation to reduce tax loopholes and benefits by oil companies to the tune of $2 billion plus a year. this company has made $137 billion in profits last year. let me repeat that. in a time of budgetary constraints, american taxpayers are subsidizing companies that make $137 billion in profits in one year. and they made nearly a trillion dollars in profits over the last decade. we are looking to move again, $2 billion worth of these tax loopholes and you would think that these companies who have the privilege to drill on the

rich lands that belonged to the american people would acknowledge that it's a little absurd to get a tube billion dollar subsidy from american taxpayers when you are making billions in profits off of government lands. now there is some of this body claim that getting rid of these tax loopholes will cause gas prices to rise. they claim the oil companies will do less exploration as a result. but as it turns out last year, they put $38 billion off their profits to just repurchasing their own stock. while again, these are only $2 billion so, i will ask mr. verrastro, what do you think about the assertion that getting rid of $2 billion worth of subsidies will raise gas prices tax wouldn't it follow --

just what do you think about? with that raise prices? >> i have a couple of thoughts on that, senator. i think the subsidies, subsidies had been thrown around the senate and tax loopholes. their provisions in the tax code that were put there for a reason. i think you can argue that some of those are price sensitive. i think there are different baskets. the independent are a cash flow operations of taking away the expensing of geologic and geophysical costs wouldn't make a lot of sense because they need that money to drill their next well. the majors are in a different situation and my sense would be that the foreign tax credit for example would be the big one for them. there are a number of other things. no one likes to get tax would you make a fair point when you look at quarterly profits or annual profits. >> these are essentially loopholes, subsidies. wouldn't it follow that of cutting the subsidies would increase the price of oil, then

one way to bring gas prices down would be to increase subsidies? why don't we just do that? why are the taxpayers paying more? >> well know i think the expression introduction budgets now are allocated on a certain basis. i think one of the big problems is that the governments well and stakeholders are different from the private sector's role and stakeholders are you so you actually have a fiduciary obligation to get the best response for your shareholders. so some of that means reinvestment and some of that means repurchasing stock. some of that means putting money in research. i guess i would contest it on the grounds that -- >> all of you are saying that among the factors driving the price of gasoline in our demand in developing countries, non-opec supply-side tax and uncertainty vis-à-vis iran.

wouldn't losing the subsidies to the top five oil companies have an essentially miniscule or nonexistent effect on the price at the pump? >> senator if you put it that way, yes. >> okay. that is not what i've heard from my colleagues on the other side. >> i just think you have to put it into context. >> that context i put it in, you agree with me so there. >> $2 billion in the what it would mean to raising or lowering gasoline profits. >> okay, well let me ask you another question. i will read from a letter from, to the "minneapolis star tribune" from the commissioner of the u.s. commodities futures trading commission. he says, the march 24 story in the strip, lawmakers say excessive speculation dries up gas prices and seeks balance with regard to the impact of speculation in oil trading.

senators out franken and amy klobuchar of minnesota are right. however the speculation has caused unfair prices. even goldman sachs in a research report last year acknowledges the fact. also data generated by the st. louis federal reserve petroleum marketers association and others indicate that one of the major factors in the hide prices is oil speculation and that is why senators klobuchar and senators saunders and myself among others have introduced legislation to force the commodities future trading commission to place limits on speculators and children who is the commissioner has agreed. what do you think about it? can you tell me what has happened over the last decade with respect to the ratio of speculators and and users in the oil markets? >> i would suggest that he might be better situated to answer this. i think there has been a change but between commercial players and traders or money managers,

it used to be commercial traders did a lot more at the exchange because they actually use the oil. that has reversed itself over the last decade and clearly money managers play an increasing role. 2072 and 2008 we actually saw in terms of dollars a lot of money into the commodities weather was gold or silver or oil so it's treated as a global commodity. in terms of the impact of actual speculative activity whether it's before the facts driving prices up up or after-the-fact, supporting the price increases, cftc examinations and eia examinations probably have better data. >> i know my time is up so if you want to speak to that unless it comes up in someone else's question. >> senator barrasso. >> thank you mr. chairman. dr. yergin i'd like to ask about

the strategic petroleum reserve. is today the financial times reported the obama administration is proposing that the u.s. and japan and several european nations tap their strategic oil reserves to address gasoline prices. this would be the second time this administration has tapped the strategic reserve. the obama administration tapped it last june and to my knowledge has not yet filled the reserve back to capacity. i understand that the international energy agency has not supported the obama administration's recent proposal. the executive director of the eye dea has said no specific supply disruption is currently underway. germany has also resisted the proposal. germany's economy minister has insisted germany's preserves our general -- genuine physical shortage. in your op-ed you stated boat there should be some caution about using our strategic reserves before it is absolutely necessary, so do you think it is appropriate to tap the strategic petroleum reserve at this time?

>> i think ocean is still the word. the strategic petroleum reserve and the whole system of the international energy, the emergency sharing was set up to deal with disruptions and major threats and i think that we are heading, if you listen to these numbers that have been used here today about spare capacity and paul describes a high degree of geopolitics but it's not the geopolitics this time. part of it is actually aimed at reducing an important source of oil supply in the market, but that hasn't happened yet and that is not going to happen until june so i think that the spr is a very important asset along with this whole thing but it's really there to deal with the disruption. there are a lot of uncertainties ahead. >> thank you. i also want to talk about your interview you gave, because i read it from the u.s. chamber of commerce and he stated that the keystone pipeline is really a symbol for the oil sands in the

major argument against this has to do with carbon emissions. you also said that the numbers have been misconstrued. you explained a barrel of petroleum made from oil sands, in terms of the co2 and he went on to say that americans use other oils that also add about the same amount of extra co2 to the atmosphere. you said you hoped the president's decision will be raised -- reversed by the beginning of 2013. if not before them. would you please elaborate on how critical you think the canadian oil sands in the keystone xl pipeline are to america's energy security? >> i think what happened is the united states and canada became much more integrated in terms of energy. canada is by far larger source of imports and happens to be our neighbor in what is longest undefended border in the world. and the growth of the oil sands is really quite extraordinary going from being a fringe from being something significant.

and if you look on the well to wheel bases the carbon footprint is about five to 15% higher and there is a lot of work dean don to bring down that disparity. what strikes me about the keystone in the discussion is that there has been less discussion about the security aspects of that and that if you look at the throughput that was passed, the volumes that were passed through that pipeline is equivalent to one third of iran's total exports. that is a big number and that is a world-class number. that side of it i think has to be part of the equation and part of the discussion. >> i would also like to ask about the epa's pending tier 3 regulations from american refiners. they will require further reductions in sulfur content in gasoline. there have been some ideas of how much that would impact and apparently the cost of producing gasoline would be increased by six to 9 cents a gallon. do think it's appropriate to move forward with these

regulations? >> i haven't studied that so i can't answer that. >> let me ask you one other thing then. i'd like to ask about oil futures markets that has come up previously in the discussions. in january this committee held hearings on u.s. and global energy outlook at the time. ambassador richard jones the deputy executive director of international energy agency's testified with dr. gruenspecht and others. ambassador john said the invisible hand of market speculators is often referred to as having held oil prices artificially high and yet, detailed research he said has so far failed to identify a smoking gun in the commodities derivatives market. he went on to explain that there is no clear link to in futures market activity and oil price moves and quote evidence is slim surrounding so-called excessive speculation. do you think that these are fair statements by ambassador jones? >> i think from our

understanding, the oil has become, commodities have become an asset class and invested in that. the of course the word speculation, if you are an airline and you need to hedge your supply you need a speculator on the other side who is going to hedge it and so that is kind of how it actually works but you know that is one factor that is not the over plumbing factor. all you have to do today is look at the factors and going back to senator murkowski's question about the spare capacity supply and demand balance and that's the policy of the u.s. government to reduce the flow of iranian oil into the world market. that is what the reaction is and if you are an airline, you were going to hedge yourself against the uncertainties and i think i find that there is not a clear scenario about what happens because the sense of the great seriousness, somber seriousness about these issues that are on the table. >> thank you very much mr. chair. my time has expired. >> thank you.

senator manchin. >> thank you mr. chairman and thank you all for your service. the thing i was wondering though is we are talking about oil prices and gasoline prices and west virginia is right close to $4. we are probably one of the most rural states and affinity for jobs as opposed to any of the state. we are set to say you have to drive to survive in west virginia. you can imagine the hardship that is putting on people. with that being said i'm hearing so much from you at all as experts there is very little we can do any can imagine the frustration we go home and people say well, can't you help me? and we feel frustrated. we think we can help by alternative fuels, coal to liquid, natural gas, things of the sort. it's not traded away you are trading oil. we have more control of our own destiny when of the technology is there and even secretary chu has said coal to liquids with biomass really make sense.

it does not leave the carbon footprint and it basically can work and it has worked. the germans basically perfected it in 36. senator jennings randolph flew a plane in 1942 from west virginia to washington d.c. on a coal to liquid that the air force has tested. we couldn't even get a bill passed to use alternative fuels for our military which makes no sense at all. and yet we are held captive by a global market that we have no control over. do you all, doctor it might be hard for you but if i could hear from all of you. do you not believe that we should be changing and we could change the technologies they're and we could make a difference in the price of the pompano will just starting to write down the line. >> yeah and again i am not saying there is nothing you can do about it. what we are saying is the problem is not in all of the above problem. >> i want to know about coal to liquid and natural gas with

transportation. >> again that is the reason while oil prices are clearing at a higher level is to bring on new technologies, to create energy is. >> these are all technologies, 1936. >> they were old technologies but at $20 crude they were not economic. we are now to levels where if someone can get those technologies to work economically than clearly that is what the price signal is giving. so i don't think there is anything that precludes those technologies. >> do you think we should be developing those technologies and trying to move forward so we have more control of our destiny as far as prices at the pump? >> is part of the all of the above solution. >> do you agree that we are not doing it right, because of the epa and the infringements we have on government? >> i don't want to say precisely.

actually the global level progress in alternative fuels has been relatively slow. some of that has to do with economics and some of that -- but it does take quite a long time to bring these things then and again that his back on to the all of the above. >> mr. verrastro. >> thank you senator. i'm going to enter into some dangerous bob territory here and follow paul's comment that there are and if it's to be derived from higher oil prices in the first and foremost so that is a lot of these unconventional's would as would not have been developed. shale gas before the fact that we had private lands to access the huge technology and 12-dollar gas prices in 2007 and 2008. that is what spurred the development. ultra-deep water oil sands, the unconventional's, a lot of the production is higher cost production and one of the benefits of reaching a level not $125 but a higher level means you can bring on more production

and moderate future prices. i would agree with you on expanding the use of alternative fuels. i think the problem has paul said has been that gasoline actually does very well in terms of energy content and the ability, it's affordable, it's fungible and its storable. >> we are running out of time. coal to liquids. secretary chu said himself that using carbon capture and sequestration with biomass actually reduces the amount of carbon dioxide in the atmosphere. we know we can do it. we have the technology but this agency, epa and the administration will not help us move in that direction. >> i think part of the problem senator with all due respect to west virginia is that on the cold side the scale is an enormous one. i agree with everything the secretary said, with those conditions is absolutely right but if we do fuel efficiency at 60 miles a gallon it will be difficult for anything with it

hybrid engine. >> if i could divided into two i think what frank said coal to liquid technology is doable. the other side, natural gas, the difference from a year or two ago is the sense that natural gas will be part of the verse vic -- diversification of the transportation fleet in certain types of vehicle. the other thing is i do think that it's incredibly important what is happening on the demand side. to go from 30 miles a gallon to 54 miles per gallon, that is worth many oilfields to make that happen so i think efficiency is part of it. >> just to have control, having control of our own destiny. we have no control over global prices at all. >> i will be getting on the airplane with paul, but i guess light duty vehicles, natural gas, there was an effort to do that and it has been tried. it didn't succeed very well in the marketplace. i think there's a lot of interest in natural gas for

heavy-duty vehicles, four trucks, a lot of interest in liquefied natural gas as a fuel for trucks. we are going to include a sensitivity case in the upcoming annual energy outlook that addresses that. there's also a lot of potential for methanol from natural gas either as an additive to gasoline not so much in the united states but we are using ethanol as an additive to gasoline but throughout the world, the gasoline pool was used with methanol in the same way that we as ethanol and the united states. there's a lot of opportunity for displaced doyle. this is probably an opportunity for methanol fuel vehicles. i think i believe was -- agree with dr. yergin. i agree with dr. yergin, there are some challenges in the cost with some of the coal to liquid technology especially with carbon capture and sequestration. >> thank you. senator rich.

>> thank you mr. chairman. first of all, let me say thank you for your testimony. i think probably for people who are watching this, it's an eye-opener as far as how important the refining process is in all of this. i think americans have a tendency to think about this as the price of a barrel of oil and they ignore the different kinds of oil that is out there but more importantly, they ignore the fact that once a barrel of oil is produced, there is a complex process by which it is turned into something they can put in their automobile and actually use in transport to places where it can be used. your testimony in that regard is very welcome i think as far as helping clear up this picture. again though it underscores the fact that the law of supply and demand is indeed a law. here in this town, with the politicians, we find that a lot of people believe that the law

of supply and demand is merely a suggestion and unfortunately we have to overcome that from time to time. as you know we are debating a bill on the floor right now and i guess i come at it from a 180 from where senator franken comes about. he talks about these awful loopholes and subsidies. language is an amazing thing in this town. windows were put into place they were called incentives, in order to get the companies to produce more oil and gas so that we could have sort of the law of supply and demand would work in favor of the consumer. now they are labeled as loopholes and subsidies as opposed to incentives, so i appreciate, appreciate your helping to clear that up and i guess i come from us from that's from a relatively simple standpoint. i don't know how anyone who has even the slightest understanding of economics can believe that by increasing the cost, namely the

taxes, that you will somehow lower the price to the consumer. that absolutely boggles the mind. you can go into a long theoretical discussion about in the long run it will bring an alternative fuels etc. etc., but my constituents are looking for a price reduction today and you can't reduce the price by increasing the cost. finally, let me say one thing. again, unique market makers. i think everyone would agree that you need market makers. and my am i right or am i wrong on that? if you are just going to buy from the producer, there is always room for manipulation in that regard but if you have market makers, you get a free market that is very very difficult to eliminate. the problem i have with what senator franken talks about and that is limiting the speculators. how in the world and maybe you guys can answer this, but how in

the world if we actually prohibit speculation in america, put a 25 year sentence, mandatory, on anybody who engages in speculation of the price, how would you stop that from happening in another country? after all we have 30 million people and it seems to me they would open up tomorrow in london or in singapore or somewhere else to do the exact same thing that they are doing here. am i right or am i wrong on that? dr. yergin? >> well i think paul should answer some of that but i think definitely you know, we are part of a world oil market. we are not the world oil market. we are the u.s. oil market in a few relook at these annual reports of southwest airlines, it's clear that without the ability for them to hedge their price risk, they would not have been able to stay in business, but their message is to hedge you need somebody on the other side of that.

so if we didn't have these kinds of markets in a situation we would be looking at today, airlines would be taking airplanes out of the skies and putting them in parking them in the desert and not able to hedge their financial risk. obviously the markets have to be regulated and they have to be understood very closely, but when you have a big traded commodity, people need to manage their risks in order to stay in business. >> thank you dr. yergin. dr. horsnell you seem to be modestly familiar with great britain. could we pass a law in washington d.c. that would regulate the speculators? >> i see guy bring you one further with regards to switzerland. the trend we notice particularly over the last couple of years has been a very large movement of oil trading out of london and into switzerland. some of the most important

traders now are not banks but swiss traders and that may be part of the process you are talking about. it's much harder to get full visibility on an oil market for where the balance has shifted away from more regulated and into other areas. part of it is from banks to traders from new york and london into switzerland and that might be an interesting development as the years go by. >> my time is up. senator, can i add just 1.? you talk about the tax incentive and i think that is absolutely right. i think time changes and i actually think it would be markedly different if there was discussion of corporate tax rates overall, that we wouldn't be in the position of subsidies and tax incentives. we have a balancing, here they

will call anything that has to do with the corporation a corporation a loophole or a subsidy. i would like to share your optimism but i don't. thank you. >> senator cantwell. >> thank you mr. chairman. to all of you gentlemen here, thank you. i've enjoyed this discussion and i certainly believe in market fundamentals myself and certainly believe in making sure that market fundamentals are policed. but i can remember a time on this committee that we talked and talked and talked and talked about what was wrong with electricity when enron was meditating the market and there were a lot of people thought it was 3000 things other than manipulation until we proved it was manipulation and then everybody was like oh, it's manipulation. i think the point here is what is the functionality of the market that we really want to see and i was looking at your testimony mr. -- dr. yergin about the financialization of oil in the commodities market. i was curious as to your

thoughts you know, on this. at what point does it really become a problem because it's quite clear that commodities exchange act made it very clear that the commodities future market was created for two basic purposes. one to provide a revenue for producers and consumers of commodities to hedge their risk and two to establish a fair price on supply and demand fundamentals. so we had mr. tillerson come before the finance committee a year ago now and that was when oil was at $98 a barrel and i asked him, what should that price be? he volunteered and if you are basing it on the next production price for a barrel of oil it should be between 60 and $70. so it's clear that obviously, and we know that this was a process in the cost of having both legitimate hedgers and speculators in the market, but

there is obviously the fear factor that is driving it up. there are financial risk, so my question is really about these institutional investors that make the commodities treated almost like an asset class like securities. and so these are people who are not in the market for any other reason than to make a profit. they are not hedging for legitimate groups as a price discovery. they are there because it's a great financial play and i'm curious, at what point, at what price point or at what percentage point do you think that becomes a problem? i don't mean the price of oil but, if mr. tillerson is right in here is what he says the production cost isn't a lot of people think 15 to 20% of that is on the fear factor and obviously all the things that can happen on any given day. but what price do you think this asset class treatment of

financialization really becomes a problem? >> i think that the financialization certainly has to do with what you are talking about, institutional investors are hedge funds who are in there regarding this asset class. i think it's a little bit, when i use the term financialization i meant something broader because you see the largest pension fund and the united states with regards to commodities and asset class and the way you invest in commodities is the way for economic growth in china and so forth. you know it's not easy to say, separated from the segment and understand that is the question you're asking. >> i'm not even asking that. at what point, if i said okay they are affecting the price by 50% or they are affecting the price by 30%. 30% or above 60 to $70 which mr. tillerson says is the marginal cost for producing another barrel of oil, and so if

that is what it is, and we know there is also other factors, but at what point do you think the asset class investment changes the commodities market and becomes a problem? is it affecting 30% of the price? is it affecting 40% of the price? is that affecting 50%? >> i don't know. and i would say by the way the cost of developing the marginal barrel has gone up somewhat so that number would be raised somewhat. but i think you know, i guess you are asking not in terms of circumstances but at what point. i don't have an answer for that right now. i am looking rather the market in saying based upon the fundamentals, what is there and is there a premium factor? i don't know if you have a number in mind. >> well, i definitely believe that we should get these asset

classes investors out of these markets. that is my personal opinion. when i look at mr. verrastro's chard and the level of volatility and the level of growth, i started asking myself, is it worth $50 a week or more to a washington consumer driving to allow a bunch of hedge fund investors to drive up this price when it hurts the u.s. economy? i think the answer is no because commodities markets are about price and supply and price and supply discovery, so they are, that marketplace for legitimate hedgers so saying we are going to allow a bunch of investors to treat the commodities market like they want to treat the rest of wall street from a securities and investment perspective i think is the wrong idea for commodities. something particularly as vital as that. >> one thing that i would kind of addis i think the point about if those markets were to leave

the united states and not the -- i would rather see these markets in the united states regulated with this kind of scrutiny they have been occurring somewhere else where they are not under scrutiny so part of the issue is it is a global marketplace. >> i would add to that because i'll bet you could get the europeans and the chinese and everybody else to add in. i've heard from many of those people. they have come to my office and i think it's amazing they come to my office, people from japan saying what can you do to get these investors out of the commodities market because they are feeling the pinch around the globe. thank you mr. chairman. >> thank you. senator portman. >> i had to run to another three hearings at the same time. one thing that i think struck me about your earlier testimony is the fact that as hard as congress tries we cannot report -- repeal one log and is working right now and working to the detriment of folks at the

level at the gas pump. it is pain at the pump because we have a disconnect right now. we have an increase in demand and we have supply constrictions. looking at your testimony mr. gruenspecht about crisis being based on global supply concerns and mr. yergin you talked about in your op-ed recently i saw but also today the geopolitics sanctions on iran, you talk about the straits of hormuz exacerbated by the fact that we don't have the production we should have in tight markets. libby a and the geopolitics certainly began to focus on iran right now. the oil market is reading the front page of the paper i think is what it said and i guess my question is, given that is the situation, if we were to increase production in this country, all things being equal, don't you believe that would have an effect on price?

>> yeah. >> and a very simple answer, yes and i think the increase that we have had in the last four years has actually been very beneficial because we would be looking at much higher prices and a much tighter market without it, so what is happening in the united states both on the demand side but on the supply-side has a big influence on the global market. >> so the statement that someone made which is surprising to me but even in the last few weeks we talked about this on the floor and so on which is u.s. domestic production does affect the price of gasoline. i don't see how that can be true if in fact there is the supply and demand reality out there. second is, as you all talked about today, it matters as to where we are getting our source so it's not just supply and demand. it is where the supply comes from an increasingly dangerous parts of the world are not a good place to rely on as we saw

last year with libya so i just think it's not only supply and demand but tell me is that also the fact that we have more domestic production and i would say even production from countries where there is a more replayable source like canada, but that would have a positive impact on price. does anybody disagree with that? >> there is an issue as to the quality? >> i don't think that we are going to have a separate price from the rest of the world. >> that is not what i'm saying. globally but in terms of the u.s. price where we are getting are supplied, does that matter? >> i think where we are getting our supply may matter but matter less for the price than for other aspects, security aspects. also production is important part of the u.s. economy, where there are jobs and economic activity. it's not just all a matter of prices. i think both supply and demand in the united states are part of the global picture.

policies imposing u.s. supply and demand. world markets directly and indirectly so indirect effects can arise for example but allergies we use to raise fuel economy and the united states go to the rest of the world and it could lead to a lower demand globally. that has a big effect. the same as to run the supply-side. supply technologies are applied elsewhere so again this is mostly about oil but you have something like shale gas, which obviously had a very big check to the united states and titan oil. the extent that those technologies are applied to the rest of the world to a significant direct effect and the same applies to our deep water technologies. >> and fracking and horizontal drilling, it's not natural gas and tight oil. in my state of ohio, right now we have wet gas and dry gas and oil. >> and the utica shale.

>> it's about a futures market too, isn't it? it's about future technology and that might have an affect. >> let me ask one more question and feel free to jump in here. i have only a few seconds left but in terms of this issue of affecting the price of gas at the pump on taxes, and look at what happened with the property tax and what happened in the u.k. and their experience but let me hear from may be a counterpoint if you if you disagree with me but what you think the effect would be on the price of gas if taxes were raised on oil companies by let's say $25 billion over the next 10 years? would have a positive or negative effect or no effect? >> to the extent you are paying more in taxes and less investment and activity you are reducing supply. >> that is pretty clear. >> in terms of the direct --

i'm sorry? >> so what does that mean? >> so when you get to the point that it increased production is a good thing, i think your assumption that production, all of the things being equal, lowers price. more production, lower price good for the world but there's a demand side as well. i don't know if there is a definite need to increase production by prices but prices don't necessarily go down because we are 18 million barrels a day, give or take demand in a 90 billion-barrel a day world. reproduced 7 million barrels a day in liquid so you increase that by foreigner thousand barrels a day, that is a great thing more than iraq is increasing. doesn't mean that the fundamental change -- fundamentals change all that much so i think we just have to be careful. >> all else though how it would be equal if you didn't have that additional supply? >> i absolutely agree with that. the additional supply is terrific and very helpful. i think the concern is that this is a dynamic arcade and there is

leads and likes and investment needs to be made but to make the assertion that more or less production unless its scale, two or 3 million barrels is a good -- big deal. significant, big contributor and great for the united states. it doesn't affect materially market rises. >> thank you very much mr. chairman. >> senator coons. >> thank you. thank you mr. chairman and thank you for the opportunity to be a part of this hearing today. in delaware, where i'm from, we have had some real success in reopening the delaware city refinery which was idle that there've been some difficult announcements in the past year by sunoco and conocophillips that they are either idling or closing three major refineries on the delaware river in pennsylvania and in combination represent half of the refining capacities. chairman bingaman and senator risch previously asked questions about refining capacity which is -- and how that contributes

to price. i am concerned about trying to make clear whether or not federal government regulatory actions that contributes to these decisions to idle or close refineries and a very negative impact that could have unemployment and possibly gasoline prices. whether these are really the result of market decisions and private dismisses, do you have anything on that? >> thank you senator. to quit points. i think we are due for a rationalization of domestic refining capacity in this country and point in fact, if these refineries are operating at 70% utilization and close down it would be better economically. i think we are going to actually be going through a bigger rationalization in the future for some of the reasons that they senators are raised about domestic reduction increasing. this is lighter sweeter oil and our gulf coast refineries run

heavy sour oil and make a lot of nice products as a result of that but this is a big l. that is coming. in terms of refinery economics, if you look at the total cost in the total value of the product i would argue that refineries have been under siege with higher price with unsophisticated refineries because crude oil prices that you need and senator you talked about crude oil, light sweet, heavy sour, not necessarily good or bad, when you are buying specifically a type of crude oil you need that to produce the products that your customers demand. so if product prices are competitive at the back and in your crude oil cost goes up, that is the big driver so clearly epa regulations have had an impact on prices. in terms of maybe cents per gallon, that is true. there is a cap ex-in an op ex. i don't think that was positive in the closure of those

refiners. >> there was a study recently released by investors that looks at the historical role of the federal subsidies in shaping the energy market and they concluded that 94.6% of all federal subsidies over the last century have gone to oil, gas and nuclear and roughly 5%, less than 5% on butte biofuels in renewables. does that's disaster just anything about what our path forward out to be if we are going to pursuing all of the above energy strategy and try over the long run to work her way out of facing higher gasoline prices? >> who did that steady? >> dpl investor's. >> i think he ias done a different, very different one. >> thanks dan. [laughter] >> why don't you cancel. >> it's hard to put these things together. there are lots of different ways

to slice and dice it. we tried to do it from, and i'm not accusing anyone of doing something else but we tried to do it from a pretty neutral perspective. i mean, one can, i am not sure what you include, what period of time you