>> i'm sure some of your very familiar with this, and some of you are little bit familiar with it. so mike calhoun, can you share with us kind of three or four most critical elements of the ag settlement and what it means to you? >> sure. the ag settlement as most of you know i rose out of claims, documentation that there was

robo-signing in the foreclosure process, and rather than carefully investigating each circumstance, a lot of the foreclosures were happening with sort of rubberstamps, paper. so after that broke that the to the impetus for this. but more broadly, the mortgage servicing has been in area that was, sort of fell between the cracks of having standards and oversight. as you know, it does not take and cannot choose generally do their servicer is. many of you probably have experience of getting a home loan and then not long after getting a notice saying, send your papers to xyz company. that is our right the mortgage lenders have, and is recognized the and in addition, the largest mortgage fortune -- services are

generally connected to national banks. and on our structure the states are very limited in what they can do to regulate the activities of national banks. some exception. so servicing is a situation where there weren't a lot of legal standards in place. there's some protections but coverage is a small part of it. so the ag settlement went beyond just addressing the robo-signing. one of the key parts described here was set out, basic rules of the road for servicers. not all the servicers but all the large servicers are participants and signed on to the settlement. real quickly, the big things they did were, they reformed servicing requirements set out in detail. pages and pages, which i know a lot of y'all haven't had time -- but implementing. and they said that standard rules like all these major

servicers which will provide more certainty and more consumer protection to one of the biggest things is for the first time services are required to attempt to modify a loan before they go to foreclosure. many servicers were doing this, even to the h.a.m.p. program or the proprietor programs. but now it's a legal requirement as part of this legally binding settlement. the second thing that servicing, that the settlement did, is it will engage in the largest initiation yet of principal reduction. we've heard a lot about this, the overhang of people who were underwater, how do you address that? by helping those borrowers without sending other borrowers to go go into default. we will have the first large scale test of that as part of the servicing settlement.

and we will talk about this later, some borrowers get the option to participate in various principal reduction. and then finally, as many of you may know, there are still ongoing investigations that were left for future resolution as part of the servicing agreement. and particularly those involved claims that the loans, when they were securitized, that process did not comply with the legal requirements, in both homeowners and investors may be entitled to further relief as part of that. so that investigation is still ongoing, led by the department of justice and the attorney general from new york. and so, there will probably be, everyone's relief, we will see what varying components around

to servicing settlement. >> so kind of follow-up i'll i would just follow up with joe. what are two or three misperceptions that the ag settlement can achieve? >> our experience, to probably biggest misconceptions, or the ag settlement is, one assumes round confusion around the consumer release portion of the settlement. that is, the loan modification as well as the refinance. and the other one stems from the cash payment to consumers. i'll talk about what beaches, but around the consumer release portion, the modification program was designed to help create affordability by utilizing principal reduction in a more aggressive fashion. but it's done through a loan modification, and the existing

mortgage. it's still done in conjunction with ray term a judgment, but prince were reductions at the top of the waterfall. we have been utilizing principal reduction at wells for some time. affordability on own asses. it's just a more aggressive form. on the refinance side, it's a true refinance. there may be some ray term relief, as there is in traditional refinance. but if the pet of the existing mortgage and do money is put out, there's no principal reduction associated with the refinance component of the ag settlement. it's really designed for consumers who have little to no equity in their home, be able to take advantage of a historic low interest rates. so some of the confusion that we get from consumers is, they may be turned, no hardship, they are looking for a modification with principal reduction, where a

requirement is a hardship. the second piece is, we quickly get calls from customers looking for our wondered how they can get money associated with the recent settlement. so they hear about money that may be available if they were foreclosed over a certain point in time, but the reality is, funds were allocated, $5 billion to cash where some of that money will be utilized to set up a fund where consumers would be paid out money if they were foreclosed. but all that is handled directly by the state agencies. not the banks. so again, some confusion around that component as well. >> and mike? >> yes. first of all it's incredibly

complex, and it's not that you just need diagram. you need kaleidoscope's. so first of all, i think that's the first thing you need to know. this is going to be very, very confusing for homeowners, because it is complex and confusing. so let's just start out with the basics. the rules apply differently, depending upon who originated your loan. and whether it is kept in portfolio or they sold it, referred to as investor owned means useful belong to someone else. and the rules are different depend on whether you sold it to one of the government entities, fannie or freddie, versus whether he sold it to a private entity, so-called vester private-label securities. advantage depends on what upon what the rules are that that private label security has, they

get to decide the rules on how their mortgages serviced. and so you just need to first of all prepare people for complexity and you have to work through all that. to other ones just real quickly. many of you heard of a dual-track working with customers facing foreclosure, at the same time their plan for modification. they are getting notices that their house is proceeding foreclosure, and foreclosure they will get off in a notice of sale, your house is going to be sold next week. and that obviously is very confusing and distressing for consumers. that issue was addressed in the settlement. the dual-track was not eliminated. it was reduced some. and so there will still be a good number of homeowners facing that, getting letter, saying we are processing your

modification, at the same time they're getting lead singer we are selling your house next week. so lots of people get a panic call. the third is that people think this is going to stop the foreclosure. and, in fact, it probably is going to have a short run th opposite effect. we've already seen some of that, is that it's been sort of a backup pipeline of foreclus, people who are far behind, tha have been held up while this slow down while the settlement was being negotiated. and now that this is employees, there will be a large number of borrowers who are in situations where they are not going to be able to stay in the home. and those are being processed. and in the short run we're seeing an uptick of that. one of the things that we may swing back around, we want to hear your comments about the money, people also are confused because they have been getting separate letters from servicers

under so-called independent foreclosure review, which is a separate process, whereby the federal banking regulators, the occ, fdic, federal reserve, are engaged in a separate process of reviewing loans and taking consumer complaints to see if people were wrongfully for close, wrongfully denied modifications. if boris can get relief through that, often much more substantial levels of cash, and can be even over $100,000 to people who lost their homes. and for a bar work, this all just too much incoming confusion. and they will need a lot of help working through. thank you. i just went at that point. appreciate that. you know, that level of confusion, and honestly can be challenging. we are trying to make sure the

housing counselors have as much up-to-date information, especially after where there's just a lot of different moving parts. but that demonstrated foreclosure intervention counseling benefits homeowners. they took a group of folks who are similar situated in the liquid to a foreclosure had not talked to foreclosure counselor. and then compared their results to those who had. and those who had come had a much less likelihood of going into forclosure, had a lower rate have been rescinded as in, become a delinquent again. and saved more than, about more than $2000 a year in their loan modification. because we know that counselors really work to make sure that there's a sustainable solution, not just to kind of follow, you

know, what is the basic rule that applies. so i think the other thing, we just keep highlighting come is when the ifr, independent foreclosure review came out, i think within four hours treasury's website had been jammed. somebody goes and puts it up. and treasury wasn't even a party to this particular settlement. it is endless. now i'm going to turn it over to paul come and just ask him come as someone who is not a signatory to the ag settlement, how does this impact ocwen? >> quickly, i know we are reaching the end of the time. to point. first, we are taking the position that the servicing standards set forth in the ag settlement as was in the federal bank regulators settlement orders, albeit somewhat microscopic, as you describe it,

will become de facto industry practices. and under our servicing contracts we have a contractual obligation to service loans consistent with best industry practices. so we are, even though we are not signatories to the settlement, we are gearing up to comply going for. the second point i would say is, as chief counsel for my servicing company, having rendered the legal opinion some years ago that it was consistent with our servicing contract but not required to engage in low modifications, a year and a half beforehand and before the settlements, i am reading a little bit -- breathing a little easy, sleeping better at night knowing that our approach has been validated, particularly with respect to the principal reduction. >> so, chris, i want to return more specifically to our topic this morning, active duty military. i know habitat has had some --

what are some of the particular challenges facing active duty military veterans, for home preservation but also homeownership opportunities going forward, and what are some creative solutions you guys are bringing to the table? >> sure. we have a couple of kind of nonfinancial approaches that we're implementing toward better homeownership preservation. one of the strategies is embodied in a habitat for humanity program which is very generously sponsored by the home depot foundation. that is addressing both physical and affordability challenges for veterans. we've seen a lot of demand and i know we've heard from several people today who pointed out the demand for repairs. some of that is all modifications due to an injury that may been sustained. sometimes it's just a service member who has been on multiple deployment in the house has fallen out of repair. so we are providing critical home repairs to veterans and modifications to veterans to keep them in their homes. we're also providing weatherization services to

prepare and have lower energy costs were veteran homeowners. we know that energy costs and transportation drive housing costs in very significant ways. so by addressing the energy cost issue we think we're enabling some veterans to stay in homes they might not otherwise be able to do. one thing that we've learned over the last year and that is implementing our national veteran issue, a major way that we can help veterans stay in homes is by providing volunteer opportunities. this was a surprise to us. we were told by the dod and the armed services and the va that that transition back into civilian life, that if there are ways to ease that transition, that might be the best education that we can provide, allowing people to connect with those communities that they are returning to, to volunteer alongside other folks, to get woven back into the mesh of that community, helps veterans and prevents them from losing their homes over time. a final challenge i'll point you

that our nation we discovered which they are seeking to engage veterans as homeowners, particularly with the lower enlisted ranks who are transitioning out is that they really are in need of some serious financial literacy in homeownership training. we require all of our habitat partner fails to do this, and as part of our success. we have a lot of veterans or aren't able to get into how that party should because even if they have a good amount of hazard duty pay when they're leaving the service, although bit of a nest egg, that is put into the down payment on cars and boats and trucks and ultimately that veteran has put himself in a situation where debt-to-income ratio is such that not even habitat is able to serve them. so i think it's his way to get the servicemembers as their transitioning out, maybe through a transition assistance program, that would be a great way to enable them to sustain homeownership when they are out of service. >> by last question for the panel, and then will open up for

questions, again moving forward and helping the housing market recover was opportunity for that, you know, to create new homeowners, right? we keep hearing that there is a lot of challenges with credit and housing market, especially for first-time homebuyers. can you, mike and joe and chris, super briefly touch on what you're seeing in the housing credit? >> again from a veteran perspective overseeing veterans coming out, particularly the younger veterans who may be went into the service right out of high school, not coming out of service prepared to participate in homeownership and not having a credit score, even when credit becomes available that would enable them to take out loans. >> the same opportunity and challenge is the opportunity, house affordability is back at record levels, combined with a reduction in house prices make it more affordable for those buying.

and then the record low interest rates are truly remarkable. the challenge then is getting people qualify for credit because higher credit standards and higher down payment requirements. and i think helping people walk through that process and making them realize they are going to face a tough qualifying standard. and then the other bright part of that low interest rate is the ability to refinance, for existing homeowners they can often reduce their payment by 25% or more, or conversely they can go to a quicker payoff that helps get out from under water. that program has had recent improvements, and they are also legislative proposals which are checked more than doubled over 10 million people the number of families who take advantage of refinancing to these really record level rates. don't have a huge impact on the housing market, as well as help millions of families.

>> joe, any? >> interest rates have come down. to historic lows, as you know. values of homes have as well. we see the stabilization of the markets, yet many homeowners or prospective buyers are still on the fence around should i jump in. can i qualify for a mortgage? those are questions that are being asked. and ones that are difficult. we're not sure we have the magic bullet for responses for the. i think our focus has really been trying to get prospective buyers prepared for purchase. we always focus on a few areas. one is in credit, we establish a credit establishment, making sure they understand what credit is. and prepare for a purchase down the road. the second is a down payment. saving for a down payment. in a tighter credit market. decreasing debt, that's a big

thing that lenders are going to look at in the origination comes up. so being in a good position to do that. understand what incomes should be shown when applying for a mortgage, and then the last is have someone in the bank beyond the down payment. reserves are going to be something that's going to be a big focus of the underwriting from a bank. so those are the areas we are really putting a lot of focus preparing prospective buyers. but the big challenge still remaining this is a great kind of attachment we're seen lot of people jumping in but some are still on the sidelines. >> so, we would love to have some questions from the audience on anything related to homeownership, foreclosure, and those issues related to active duty military and veterans. >> good morning. has there been additional

significant discussion about the programs, obviously there's a commencement foreclosures in the pipeline and they're still more to come. we have been engaged with several other banks who are taking a look at the cost to care for closure. and, obviously, getting some of this inventory into the hands of private capital back and then the reductions on the principle to keep people in their homes. is this part of a tool bag discussion? >> just for those who don't do this everyday, think about, you are two alternatives with a homeowner who was in trouble. one is they go, three, they go through a short and we talked about, right? challenges around that but the others the foreclosure is complete and you're left with a property called an reo. real estate owned, owned by whoever the investor is. and that is in inventory. and the third alternative has

become more interesting and folks are trying to export is, instead of getting get you in reo which cost $35,000 or so to go to the foreclosure process, it's not an investor come in, by that no, keep a homeowner in place potentially, and substantially reduce buying the note added to skeptics of the sobriety outlet. if you want to touch on what's going on. [inaudible] some of the hardest hit programs out there, states are pursuing it as an alternative. like us it was the biggest challenge so far has been kind of what i started with. the investor pull the majority of loans are run by investors. we haven't seen a strong interest in investors on purchase been in a new purchase programs. to add the national service are, puts it in a difficult position.

see if it makes sense for us to participate. and most important was is trying to find a solution for the customer to try to keep them in their home. and that's what the folks has been versus distressed assets to a third party. but i think concept is getting a lot of momentum, but i think the work beyond it would be messy. >> the only thing i would add is from the perspective of the service or, private-label securities, mike could the distinction of market and agency paper. u..

and in chicago they've been working on this. it's been a little challenging i think for them to get cramped up. they are funds by the treasury to, i don't know, probably 18 states. they also slowed some things done because of the degree that there was property portfolios that now have to get principal reduced the dismay be preferable for the lenders, servicers

investors to do under the settlement. but they are moving forward and learning something and there's a couple of their states' talking with them about using their hardest hit funds as a capital for that. so i know they will be tracking that but i don't think that we are seeing a huge -- i'm not sure that we will see it as a major solution. are there other questions or comments or suggestions? i'm going to ask the panel if they have any final thoughts. one thing from the prior panel was how we communicate and i know this is something they think a lot about as folks change and the demographics the age and everything else about the homeowners with potential homeowners are in for in dealing with the foreclosure change how

do we reach out, and the conversation about veterans going through facebook and other kinds of on-line forums versus the old bfw. i think we really face this issue here in making sure that we are making information available, building trust in ways. a good friend of mine works at the doe with military families, and one thing that he shared is that for those that are in a traditional relationship, they find that actually figuring out how to communicate well with their partner's spouse who is here in the states versus the one who is deployed is actually a way to get a lot more success because a person is deployed is in such stress and so much else going on so they've been trying to think about how do they do

that better and get a lot more input. i'm not sure, you know, how much of that happens on the servicing side. >> make a great point. we find when we look at serious intellectual wones when we are able to contact our customer we do that 80%. [inaudible] theater 20% drops so this significantly reduced. looking at ways to perform outreach in different unique creative ways emphasizing some attention to face-to-face engagement through outreach. it can be leveraging in partnership and non-profit housing, grass-roots outrage, virtual campaigns, where a customer can actually work.

to try to create as many opportunities to make that connection point, because when we do, success rates go up. >> i will go round the panel. any last thoughts about how particularly for, you know, active duty for veterans on the home ownership side preservation can have new opportunities? >> i think i will just touch on the outreach planned quickly which we found there has been a challenge not just in the means of a challenge getting to the veterans but communicating with them in the right fashion coming and even when an investor is in need of housing solution or a modification, they often don't see themselves and certainly are not walking around with a big sign that says look at me, i am in need. what we found is that our engagements are much more successful when we take an asset based approach when we see what's possible and how we go along with that.

and when we ask the veterans for the contribution of their leadership to the neighborhoods they are living in where they're volunteering and employing. but making the asset rhetoric and the needs based approach has been a major step forward for having had some engagement. >> we are on the brink here of market getting better. but the key is we are on the brink and the threat to it is that a flood of additional foreclosures would have the effect that it has for driving down the house prices, which pushes even more people wonder water, creates even further foreclosures, and also prevents the recovery of the housing market. so, i think we should be saying if we put it on cruise control from here that things will likely work out fine. it's pretty clear that more efforts are needed to prevent

avoidable for closure. even with our best efforts there will be lots of them that there is more that we can do, for example the refinance improvements that i talked about, and then at the same time, credit availability is still overly constrained now coming and there will be a number of policy decisions that will face various branches of government so we will have a major impact not just on the short run availability of credit, but the long term. they have to revamp as many of you know, the whole federal involvement, the whole mortgage finance system. how that is done will have a profound effect, particularly on the service members many of whom are in the early stage of relatively new homeowners trying to enter into homeownership. >> i will share with you a perspective again the world is servicing that underscores the need for veterans communication. we are very pleased with the

success of our principal reduction program. we are writing them principles 95% of gp coming and we are forgiving be written down portion and one third increments over three years so long as the state is current, building against the default and the result is fantastic. the rate now three years into it is less than 10%. i think it's the only cure for the problem and it is consistent with our obligations to provide the solutions to our investors. citizen win win clearly. we offer that program to the underwater mortgage owners, and the acceptance rate is at an all-time high for our experience, however it is still less than half percent. its 80%, which again is higher than most programs but we step

back from that and say who in their right mind is not going to take that offer? yet we have 20% to or not, for whatever reason, not responding. and so, one of the takeaways i've had specifically for the veterans portion of that remaining 20% of we want to cash here is to devise a more targeted outreach program, and i we have the formation of a consortium between the question on the panel one of the speakers and others nonprofit so forth and we are going to step up smartly with that >> i'm not sure that i have too much more to add to the conversation. i would say the partnership trying to create opportunities for the service members and others who were facing mortgage challenges. as i mentioned earlier i think

the industry has been a tremendous job with the opportunities that are all there and the landscape that changed significantly but continuous improvement is needed. i think that cooperation and partnership on the count reached awareness and there are options out there if needed. >> one of my takeaways from the other panel as well is for the folks we see that go through counseling for foreclosure now foreclosure was substantial the delinquency is loss of income or unemployment and it's probably close to 60% now as opposed to a few years ago when it was also due to the type of mortgage. so, i think that as we think particularly about folks coming home or active duty military and

again the partners and spouses here and if the income is there it helps salt whether it is rental housing or how do you deal with a delinquency so as always the housing is all a part of the solution and we all have to think about how do we help people get jobs so that we are not trying to address the housing jobs. i feel we turn it back to ethan. [applause] >> thank you to the whole panel for yet another interesting discussion and i know i stand between you and the door and probably we have layers of concrete between us and outside. i want to take just a couple minutes first to take all of our speakers this panel in the previous ones are individual speakers but i also want to thank the staff of nhc and the center for bringing this

together to be particularly but not exclusively the surface. [applause] if i have one thing to draw out of today's discussions would be the commonality of interest. we've heard throughout today and those of you that were with us last night, today there are thousands upon thousands of service members returning home, and that presents a particular housing challenge. it's geographically concentrated, concentrated in time, in particular categories of need, but those housing challenges have much more in common with the broad housing challenges in america than they do difference with those hills and challenges. it's about the need for affordable rental housing in areas where there are a lot of jobs and people particularly want to live around transit around centers of employment and economic activity.

it's around the need to have housing counseling and foreclosure prevention assistance and homeownership preservation assistance for those who need it, and those needs should be an opportunity for the housing community and the veterans affairs community to come together to try to address those needs because as you have seen all of the nhc material, we are stronger to ever come and it's not just a fun tagline. it is, but it's also that in order to make the policy changes that need to happen, we've heard discussions of the previous panel and this panel about all sorts of large and small changes that can be made we need to raise our voice together to do that and the more we can come together the more effective we will be and that is why nhc and the center going forward are looking for new ways to unite those communities through convening for publications through discussions like this to try to find ways we can cooperate to tackle these housing challenges. so come on that i want to thank

all of you for sticking through a very long but very interesting morning now into the afternoon and hope to see you again at future events. thank you very much. [applause] [inaudible conversations] [inaudible conversations]

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this was something that was swept under the rug and kept from not only the american people with the mexican people as well. there are hundreds of innocent mexican citizens who have been murdered as a result of this, but the only thing that we knew from the government program was that guns from american gun dealers were going into mexico and causing all these problems with the cartel, when really, the government was sanctioning these bills and sending them into mexico.

it's one of the fascinating aspects of abolitionism or the abolitionists. when lincoln gives his inaugural, the self-described ebullitions are still a minority, kind of minority. what transforms abolitionists into respected pressure and critics is fort sumter. take back the american dream conference took place here in

washington. during the panel discussions, illinois congresswoman jam schakowsky stressed there would be major consequences if progressives do not show up at the polls in november. the rebuild the dream campaign and silver's with the afl-cio also spoke. this is an hour. >> please welcome the campaign for america's future roger triet [applause] >> i would like to bring out the panel at this plenary. jan schakowsky. [applause] moly from rebuild a dream come and damon silers from the afl-cio. we are still filling the room. so we will take a moment to do a shout out to the generational

alliance and all of the young activists that they have brought here to this conference. the campaign the have enlivened the conference and brought down the average age of the conference and brought us close to the reality underground. we have made a commitment to bring those people here but we haven't quite paid for it. so i want to make a pledge for you to text and use the information on your tables, text 14114. and in the message say future, just future or future $30. we won't take money from the card until you confirm what you like to give us. but this would really, really help to pay for the young people who are here this conference. let's hear it for the generational alliance and all those groups that they represent [applause]

okay. you text 41444 and put future. it's right there on everybody's table. so, brothers and sisters, i am a little like reverend joel ossian. you seen him on tv. i like to start with something funny. have you heard mitt romney is running for president on a plan to create jobs? the man from dean capital? let me get something very clear with 12.5 million americans still held of work and the middle class shrinking, the economic policy of conservatives of the tea party, the chamber of commerce, the republican party, and mitt romney is a new wave of painful and destructive economic austerity. they want to do to america but angela merkel and david cameron are doing to europe. they want to slash public

investment in everything from teachers and costs to medicare to roads and bridges. they are imposing austerity right now on the u.s. by demanding spending cuts and opposing every single plan to create jobs. and after the election as we have heard this morning, whether they win or lose, the right wing are setting up yet another blackmail situation by which they will threaten to close the u.s. economy of the fiscal cliff unless they do what they want with it there on the extension of the bush tax cuts for the wealthy, they want deep cuts in public spending and putting medicare, medicaid, social security, education. but not for the military contractors. and on top of all of this, they want more tax cuts for the top 1% and for the corporations. now, as we've heard this morning, the conservative train wreck in december avoiding that conservative train wreck

requires that we work to win a progressive majority in the congress this fall. the first speaker in the plenary knows how to win. before she won the state in the illinois assembly and then in the u.s. congress, jan schakowsky was one of us. she is an active just winning victories then and now for consumers and seniors and women and she kept on being an activist in congress. as a member of the some symbols commission, she wrote a progressive alternative to that on popular deficit plan and she had danced a clear plan for funding public needs through economic growth on austerity and through progressive taxation. and working with all of us, she put forward real solutions. jane schakowsky knows how to

talk with americans of the economic devastation the conservative policies are imposing on working families. we asked her here today to talk about how we can take a common sense program to protect social security and medicare and create an economic future for young people and how we can win a new congressional majority that will prevent the conservatives from having the power to throw our country over the cliff in december. so please, give a big, big welcome to our progress a champion, jan schakowsky. [applause] >> thank you. thanks so much, roger and you for organizing this fabulous event. i think that i have been to every one of the conferences, the take back america

conferences. yesterday my son showed me -- i hadn't seen john stewart did he did about jamie dimond. if you haven't seen it coming space to google it. it is just priceless. but one of the things that he shows is jim demint talking to jaime dimond who is saying i really can't chastise you for using $2 billion because here in washington we lose twice that much every single day. so then it comes back to john stewart and he says doesn't senator demint really think that spending money is just the same as losing money? and then he walks him and says

yesterday i had $4 million, and now all i see is the freaking highway. where's my money? where's my money? that i think so clearly describes what first of all the sense that somehow it is in the people's money, whatsoever, and this idea that spending money is really a way of losing money in this country. to visions and to have this. that is what the president is talking about, and i want to tell you i am proud once again to be the co-chair of the president's reelection campaign - own barack obama the last 17 years coming and he's talking about investment in education and energy and innovation and infrastructure and doing fair tax reform. this as the republican plan for job creation. more tax cuts for the rich, more

deregulation of everything, particularly like the environmental protection agency, retial and obamacare. i say that. i think we should all embrace the term obamacare. it's great. we loved obamacare, and read dillinger dodd-frank. the republicans now have gone from just rooting against the economy to outright sabotage of the economy. if the transportation bill, which has always been a bipartisan bill, is not passed, far from creating jobs, this could cost 1.9 million construction jobs. we are already well into the construction season. they will not pass the bill. john boehner threatened once again a debt ceiling fight not to raise the debt ceiling which the last time helped pull at our economy even further and put our

credit rating diminished. so they are doing the strict sabotage efforts much less not passing the american jobs act or a piece of legislation that i know would create 2 million jobs because we would just hire people to do the jobs the we need to do in our country. so, here's the truth. during the obama administration, 4.3 million jobs have been created. we know we had a bad week when they were talking about the only 69,000 jobs were created. i just want to point out that 69,000 jobs is still 69,000 more jobs that were created than during eight years of the bush at ministration. [applause] and 27 straight months of jobs. here's the solution that the republicans offer. austerity. we know how well that worked.

roger pointed out how well that worked in europe. and there is increasing now talk not just among republicans that the democrats as well about the bowles-simpson plan or as i like to call it, the b.s. plan. and roger is right, i offered my own alternative because i just want to make sure that everyone is clear about what bowles-simpson really did. because i do not think that people really understand what is in it. among other of things. bowles-simpson raised the retirement age for social security from 67 to 69. it cuts benefits from current social security retirees because it changes the way the cost of living adjustment is calculated. it increases the cost of

medicare, increases cost sharing, shift about 110 billion in costs to seniors and persons with disabilities. it would undermine employers sponsored health insurance as it cuts the tax expenditures, the tax breaks. one of the things that would do would be to take a close look at how we can take this tax deduction for employer provided health care and diminished that. it is two-thirds spending cuts and only one-third increase in revenue. many of those increase in a bad way for middle class people and poor people and so in many ways if people really look at bowles-simpson this is more of the same come and attack on middle-income people and those that aspire to it. what are good solutions?

let me give an example of how we win and not just elections but how we win on our issues. last week the president announced that those dream kids, the dreamers would no longer be under the threat of deportation, and they could get work permits. [applause] i believe the president always thought -- and i know the president always thought that the dream act was a good idea and changing our immigration law was a good idea. certainly did that, but it certainly helped that day after day the dreamers were out there organizing and pushing and putting on a tremendous message and mobilizing around this issue mobilizing works. we've seen the result. so the progressives cannot be reluctant. we have to lead the way. women.

is there any reason why any woman with any sense would vote for a republican? but we need to get the word out. [applause] and it's not just this tremendous assault on our health care and on our body. but every single republican voted against the paycheck fairness act in the senate. so our economic security is that risk and that includes social security and medicare. so organizations like the national committee to protect social security and medicare. the alliance for retired americans, social security, the older women's act. we have everything in this room to make sure that women and a planned parenthood and all those groups that work on our reproductive rights are out there mobilizing with their help we can make sure that the women's vote and the gap, the

gender gap grows even more and more. so there's a war on seniors and poor people and on unions. there is a war on our environment that we need to mobilize to protect. so, we need to organize just relentlessly we need to organize for november 6th, then we need to be ready for november 7th. and if anybody is under the illusion that if we do not organized for november 6th that we are going to be able to make any progress afterwards if we lose these elections for the house, for the senate or the president gets over it. because we will be once again in a total defensive crouch for the next many years and it could be generations because remember the supreme court and of those appointments. think of 2010. one half of 18 to 24-year-olds

didn't bode and 2010. one half of eligible hispanics did not vote in 2010. single women who tend to vote democratic didn't come out to vote in 2010, and seniors we lost by 21 points. eight points in 2008, 21 points in 2010. we cannot win buddy election without older voters. we didn't so much to lose in 2010 to the tea party they didn't so much and when azzaoui lost -- pass we've lost and they didn't come out to vote. our progressive vision cannot come out and vote and the republican economic soil. it can only happen if we are smart enough and willingly enough to make sure that every

single day we focus like a laser beam on november 6th between now and then the republicans are going to do everything they can in congress to make sure we can't pass to read anything that is going to help the economy it's all about winning on november 6th. the house we only need 25 seats. with 25 seats we can do this. that we keep the senate. and then by the way on the first day of the senate, we have to push to change the rules to get rid of that destructive filibuster rule. [applause] and harry reid has now said that he is for that and if we have any illusions that the republicans would maintain that, they would do it if they had the chance that we have now. we need to do it. and so we can win my friends. all of the elements for victory, all of the organizations and the leadership that it takes is in

this room right now. so we have a lot of work to do and we can be victorious. thank you. [applause] >> now our next speaker is moly katchpole from rebuild the dream. [applause] young people are really feeling the brunt of our economic austerity policies. nobody has felt it worse than the young people coming out of high school and college is right now. youth unemployment is over 16%, which means even those kids lucky enough to have a job earn low wages, they have few prospects for promotion, and most stagger, i don't have to tell you this, most stagger

under the weight of massive debt which make it close to impossible to buy a house or start a family or move this economy. young people in the occupied brigade and barricades know the priorities of wall street have ripped off their generation big time, and they are discovering that conservative austerity is a dagger aimed at their futures, including their social security, their medicare, their health care as they get older. so, now we are going to hear from small the katchpole. a 23-year-old activist from rhode island who last year took on bank of america's 5-dollar amount debit card fee using an on-line petition and she won. and only five weeks, she won. [applause] you probably remember time magazine's 2011% of the year cover story. it was called the protester.

well, that was us, and molly was profiled in that issue. mali is now on the campaign >> rebuild the train where she primarily focuses on student loan debt. please give a big welcome to moly katchpole. [applause] >> so i'm very solidly shaped and grounded by the experiences of my family. my dad would wake up at 4:00 in the morning and meet his 45 minute drive to the plant he worked out in massachusetts. he is a machinist. his work in his planned for 30 years and he doesn't love it, but it's his job. and that's what matters to him. he has a job and she's secure. i remember him coming home in the afternoon with his calloused hands streaked with greece. he wore a fit carhart overall

with a blue collar shirt with his name sewn in, jim. he would stay at home and take care of me in the afternoon while my mother attended night classes to get her associate's degree. later she would get her massage therapy certification and instill in me a deep sea of predisposition to view the world through the feminist lens. my sister, ten years older than me, wore plaid skirts and combat boots. her friends had pink mohawks. i loved her and i wanted to be just like her. when i was very young, i knew she was gay and i loved her so that i loved all the people. why shouldn't i? i experienced shared values and love, interconnectedness, respect, empathy, values of human dignity, and this has shaped me and this has shaped my work and i approach my work with this understanding. and this is the power of the

left that we need to reclaim and continue to strive for. a love and caring respect for everyone. [applause] now, we all come from different places and have different stories, but i believe that there are overarching shared experiences within my generation, and there is one certainty. we are undergoing a major cultural shift in our generation, my generation is fundamentally different than the generations before us. we will be one-third of the electorate in 2016, 80 million strong. and this is the reality that we live. we are graduating college massively in debt. we hit $1 trillion this year. why is this? tuition fees have doubled, the median incomes have risen only 2.1 per cent over that same time

span. the debt has tripled in ten years, and the recent graduates, ages 21 through 24, almost 10% are unemployed and almost 20% are underemployed. these numbers also in no way reflect the racial disparities that exist and continue to perpetuate. we have little hope for secure retirement and the future of our planet is at risk. so i'm going to did discuss a couple points and how they relate to the budget battle and austerity. to the budget battle debate that we are having or rubber how our movement is having it, completely under represent or excludes young people of every race, socioeconomic status, religion, education level and sexual orientation. and we need to completely readjust the way that we talk about and engage with politics by identifying, correcting and catching up in the cultural

shift and the experience of young people. like i said, the debate as we are having it excludes and under represents young people, and as i said, this is a giant mistake because we will make up one-third of the electorate and we are disengaged and disconnected because politicians do not accurately represent that. and when the leaders talk about what really matters they aren't really think about how young people are thinking about and experiencing what really matters. leaders are thinking and talking about the economy and not talking to those groups. to my visionary changing generations, period. and how can you in the age of a senator is 62 and representative is 55. the average is ten years and for a representative, it is 11. in the current congress, only 8% are african-american, 6% are latino, 3% of asian or native hawaiian or other pacific island

ancestry, and there is one native american member of congress. when i was looking at the statistics i also looked at the list of occupations held by the people in congress and i was wondering where the green collar workers, where are the electricians from the software developers, the non-grant, the police officers, environmental scientists, artists, organic farmers computer technicians, nurses, where is america? [applause] so, at its core, what is the budget battle debate? what is austerity? where do we fit? because let's be real. people like my parents, physical therapist assistant and a machinist don't use that phrase. i don't use that phrase. we don't use it because that's not actually what we are talking about, is it? rather than getting bogged down by terminology that as it turns

out people are not actually using, let's refrain it and we'll let down to what it actually is. it is the fundamental belief system. it's the believe that when we spend irresponsible and shortsighted and then it is the belief that the government has an important role to play by investing in people who in turn allow us to innovate and grow. and to instill that even further it's what my parents taught me. its value, its individualism, pull yourself up by your bootstrap mentality, versus what's good for my neighbor is good for me. so it's a set of values. it's how we think and informs the decisions that we make and how we live our lives and where we live. we are going to lose that if we continue playing on the right field buy only playing defensively rather than going on the offensive. we must the out a vision of the future and proved why it's important to spend and

innovation and what we are going to get out of it. we need to continue to allow ourselves to engage in framing rather than engaging in policy debates. we need to complete the command the way that we see the world and how we can truly succeed one-third of the electorate. so this cultural shift that i mentioned, what is it and how does it relate to this retraining? i'm not going to say anything ground breaking your budget is so seldom maimed and acknowledged when talking about politics. this is the world as it is and this is how we are. young people are infinitely more protected than previous generations. we communicate better than older people do. the internet users that are on tour, 28% are black and 26% are between ages 18 to 29. politicians we grew up in shows like south parks and the some sense, the colbert report, the daily show, and you can't solve

that stuff. it's a br come i ron it come at last he paced, funny and a very, very authentic. more importantly, we understand the role but corporations play in politics, and it isn't fooling us. that's like open secrets dhaka.org allows us to see exactly who donates to which politicians, and we are not happy about it. my generation is completely different how we build power and interact. we use things like to envision a new economy on sharing and pooling resources. we view things as less permanent. we are not afraid of change. indeed, we welcome that. we think about the future. we think about what makes us happy. we do not want are jobs to define our lives like my dad's did. we want our lives to define

their jobs. an example of this, and i realize that is not every young person will have this privilege, but my sister and her partner decided to leave their job a couple years ago to travel for three months in southeast asia for the experience, and my dad, remember he was at the same plant for 40 years. he couldn't believe it. he didn't understand, he didn't see the value. why leave your job in this economy come he questioned, when it is so secure. as i said i realized not every young person has the privilege to do this, but we want to live in a world where everyone can. [applause] so, who is succeeding? my generation like this we're skeptical politicians, so what are we doing? we are making change from the outside. so occupy wall street and groups like occupy our homes who aren't waiting for the government to pass bills on foreclosure, and they sure as hell aren't reading for eric snyderman to save the

day there's the treen defenders, the civil rights to the floor of inspired by trayvon martin who marched 40 miles to occupies the police in civil disobedience. there's the dreamers and immigrants that are not waiting for the president to make the statements but the hundreds of thousands of miles hung out in his office and made people listen. there's a student association organizes on the outside and on the inside and they engage in policy, which is amazing. there is the leader of younger voters and the young in vincible such a tour around the country and sat down and talk with those people. there's the green jobs movement. we are doing all of this and it's incredible. despite our skepticism and disillusionment. so, solutions. another world as possible. we are envisioning another america. one that actually actively represents this make out faugh

we need to elect young people to office. our system isn't broken we just aren't using it correctly. [applause] we need to elective people's office that don't have advanced degrees and community college students and elementary school teachers come elect the machinists like my dad, he liked people to office that are not in bed with the banks because they will tell you something we're taking a backseat to bankers to get money out of politics. [applause] i think one thing that is the most important year for my generation is that we need to completely overhaul the way we send our students to college. this is part of the shift. education is a right, not a privilege. >> more and more we are ushered along the path to college and the path to debt. we cannot keep going down that

path and that is our battle. so in that we need to work rder to pass the symbol legislation like not allowing the interest rate to double on the subsidized stafford loans in july. [applause] if policy like this can't be passed, what messages that sending to my generation? that you can't take it seriously enough, and it's perfectly acceptable to let it slip volume of linker until the hour before july 1st when the rates will automatically double, that you're comfortable with singlehandedly leaving millions of dollars over the heads of american students because you can't come up with a pay for? why aren't we serving ourselves behind this, why aren't we yelling and tearing our hair out that congress can't just get this done. let's get it done together. let's look at this interest rate fight as setting the stage for the future. it is in the end all the all.

it isn't perfect. but if we can't pull together and put this first, how am i supposed to trust you? if we can't pull this together, how will we ever win in december? and if you won't stand with me, how can i stand with you? so tomorrow is the national day of the student loan don't double campaign, we are pushing the congress to vote at the end of the week. will you commit to making this phone call tomorrow? [applause] so, i can't hear you. will you commit? [applause] i want everyone to stand up, and i want everyone to turn to the person next to them and say i commit to stand with you. i come at. that is how we win.

thank you. [applause] >> thank you moly. [applause] all right. mali for president. our next speaker brings the skills of the board room to the fight for working families. damon silvers is director of policy and special counsel to rich trumka and the afl-cio. [applause] she was named by congressional democrats to the panel that oversaw bailout and from that perspective, he saw a close call hour too big to fail financial system be regulated by the politicians who live in the pockets of the bankers gamble

with our money, brought down our economy and then demanded that the bail them out to prevent another great depression. damon has been sounding the alarm recently about the prospect of another round of austerity imposed by crazy conservatives, willing and able to crash the world economy if they don't get their way. so to share those warnings to tell us what they can do, please welcome the afl-cio damon silvers. [applause] >> good afternoon, everybody. first, i have to really -- i don't know what roger is going to do to pay me back for having said that as the person to follow moly. particularly in my age this is a dangerous kind of place to be.

but i'm really heartened and taking nothing away from jim schakowsky who is just one of their great progressive leaders of the country at this time. i have to say i just feel so much better about our country having just listened to moly. [applause] rogers i worked for rich trumka at the afl-cio. he said the g20 meeting in los close in mexico trying to put across some of the points that this panel is trying to put across to you to the heads of state of the g20 and he sends his deep regrets he couldn't be with you. the afl-cio president trumka and the leadership of the movement we are all in the death debt for the campaign of america's future rebuild the dream for the vision you put out and which wanted me

to make sure i said that to all of you here that he was so sorry he couldn't be with you today. now, let me talk about the past for a moment. you know, back before "time" magazine profiled molly david another issue a little while ago, 60 years ago about the american century, and in that issue, "time" magazine proclaimed that the 20th century was going to be or was the american century, and why was that? it turned out to kind of be true. the united states did prospered greatly during the 20th century. why was that true? you could say it's true because of our vast natural resources and it's true because the genius and energy and dynamism of our population. but i want to suggest to you

something that is incredibly relevant to unfold in the next six months to read by that, i mean that he election and the clash over fiscal policy that's going to follow it. what i'm going to suggest to you is this, 70 years ago, when the world faced a similar economic crisis so fundamentally by inequality if by financial instability when the problem faced the entire world caught the united states was the only couple of any significance that everest that crisis had by adopting economic policies that did the two things that had to be done triet the first was to restructure the debt of our family. and to say that the banks didn't like that, tough on you. the second thing the united states did 70 years ago was to

say the most important thing that we need to do right now is to get people back to work, reinvesting in our country and modernizing our country. we did those two things and we did them democratically and i don't mean the democratic party did them it's true they did. i mean that we did them through space process these. no one else in the world did this happen. the of the sort of space countries pursued economic orthodoxy all the way to economic social and political willing. two other country moved decisively to do those things to invest for people to work with the did so to portable dictatorships. we did it in a sustainable space way and now we face the same challenge again. that is why we are here today to lay off the challenges about.

now where is the slide? one is supposed to appear. is it over there? there we go. excellent. so here is where we are. i am one of these people who hasn't quite assimilated technology as my prior speaker has. here's where we are today. and this is critical to understand the the data about austerity. you can call it whatever you want. paul krugman says we're in a depression. i'm nervous about characterization but call it whatever you want the crisis continues. europe has been durbin into a technical recession by austerity policies. economic growth in this country remains weak from month to month it is unclear how weak it is but it's a week and we are vulnerable to what this could happen outside of the united

states. economic growth in asia is slowing. asia is supposed to be the great engine of the 21st century. if asian growth is slowing, we ought to be concerned to it finally, despite what many of us have been promised, the global financial system remains very fragile. this was the contribution i think of one of the contributions of our oversight panel over target just to be clear in case all of your getting out your lives, we didn't control t.a.r.p.. elizabeth warren and my colleagues on the panel, leo kind, we had the power of the pen but we didn't control what happened. that was other people. but it was very clear to us that what went on with t.a.r.p. didn't repair the fundamental systematic problems with our financial system coming and we have seen last fall the global financial system under both pressure from europe and from the housing markets in the

united states move towards systemic crisis again and there is i'm afraid the very real possibility of systemic crisis in the second half of this year as bad policies races in europe as other issues in the united states combined with the slowing growth in asia pressure that financial system again. now, as in the 1930's, we're living through an economic crisis created, prolong by that policy choices made in the interest of the 1% or perhaps the one-tenth of 1% or one one-hundredth of 1%. now you probably know all about the first generation of policy choices. the first generation brought us to the crisis of 2008. financial and labor market deregulation, trade policies and global financial policies that encourage the deep and balances between different parts of the world in the way they treated

with each other. wage suppression which is government policy is designed to keep the workers' wages down. now we're in the second generation of that policy choices. austerity, thinking that the way to deal with economic and thinking that the way to deal with the stagnant economy is to force them to shrink, thinking the way to deal with unemployment is to fire more people. austerity. by the way come austerity is exactly what happened in europe that discredited in the 1930's that discredited the government and brought us communism and fascism. second, to address what is going on in our banking system and the way that it's tied to housing and student debt. third, failing to understand both in the united states and europe that we live in the

government systems that are bound together, different nations in europe, different states and cities in the united states that we need to look after each other. that if i am sitting fat and happy in someplace like paula guelzo -- well, not so fat and happy to define in silicon valley someplace with plenty of tax revenue and down on the street in east palo alto they are laying off teachers come i might owe some responsibility for that. my favorite quote that illustrates what has gone wrong in policy making in this world is from a month ago at the oecd devotee organization for economic cooperation and development, an organization set up of the developed countries to try to have some kind of -- it originally was about to ensure that the stupidity of austerity in the great depression wasn't repeated again. but in the 1980's, this organization as captured a deal logically by ronald reagan and thatcher and now it is unclear

where it stands a month ago the chief economist of the oecd made a presentation on the state of the world and said countries are doing everything right. now understand this guy is on ideas of right or orthodox economics. countries are doing everything right and still going off the cliff. now, one of the reasons i like working for rich trumka is he was on the panel to that and he said to them if you are doing everything right and you're still going off the cliff, maybe you are not doing everything right. that policy choices over a generation to produce this truly bizarre outcome which is at the heart of everything that's gone wrong, the blue line on this chart is personal consumption as a percentage of our economy in

the united states and you can see them from 1990 at the 20 tenet keeps going up and up and up. because a full 10% of gdp which was a gargantuan number. now you would think that personal consumption was rising as a percentage of gdp that would mean the people were better off. but actually is not true. the red line you see going down is the national income that goes to wages. we tried for two decades and actually for three decades connect 1980 we tried to have a low wage hike consumption economy and is simply can't be done, and that can't be done part is what we are living through now. now the result is this vicious cycle. the vicious cycle is what austerity policies in the face of a prolonged recession

produces. you start off with massive unemployment, falling real wages and falling housing prices. that's kind of where we came in in 2008 and 2009. that is the situation president obama feast on the day that he was inaugurated. ..

government austerity policies, meaning cuts in public spending, cut back on public investment. they laughed public workers, teachers, firefighters, park rangers and reduced incomes at the adnan played the poor. that is how you implement austerity, by doing those things. amanita does things, unemployment prices, consumer spending falls. people default on student loans and back you go to top of the slide. this is what we've been doing for the last couple years. this is -- this is bad policy partech salons and again comes to look at the great depression in the 1930s and how we staff at the great depression and most of the world through the 1930s outside of the united states. and just in case you didn't think that mass unemployment was serious enough as a problem, then we suggest to you a few other problems that are coming.

we see in europe, but we don't see it in europe only. i suggest we see in europe the rest of the politics of hate against the back drop and look at some political science terms, political fragmentation, delegitimization, which means people don't believe in government anymore and paralysis. we were talking about paralysis and molly was talking. a great quote from william butler case of a different timer oxidizing spat the worst are filled with passionate intensity. that's why you feel better about listening to molly because we have some conviction among the best. now, the rise to politics and he dashed by the way, mentioned in arizona was unfair, not to mention alabama, too. emerging markets lack of emerging markets, china, india in particular.

facing this economic crisis, black political institution to economic hardship. it's not where his social stability in china. social stability in china is a very serious pain. it's not clear the world economy could take the consequences of social instability in a major way. finally and most importantly we've created a political and economic climate where we cannot address climate change. we cannot afford not to address climate change. [applause] now, i don't know if you need this font, but we need a virtuous cycle. that is a vicious cycle, we need infinite positive direction. we've got to start by putting people back to work. how do we put people back to

work with no business versus confident they'll buy their products and services? that's the reality of what the problem is here. we put people back to work as a public investment. that is how we solve the court and not. public investment means universities. indian schools, preschool education. it means infrastructure of all kinds. it means the public. it means our collective wealth. investing in public estimate, dealing with their $2.2 trillion sold -- and infrastructure deficit and our need to invest an equivalent amount, another $2 trillion to build the infrastructure of molly's generation. if we do this, this demand for goods and services, and makes us competitive and we better do it because their international editors are doing the same right now and needs god a big head start on us.

public investment creates jobs. secondly, fix the house in madison student on nice. i confess that i love the student loan mess out on the slide, which is what ali was talking about earlier. fix the housing mess as did my master write-downs. this will actually to stronger banks, and healthier housing fancies. those things, when they go back to work, dealing with the financial mass, principal write-downs to restructuring student loans will lead to rising consumer spending. people of money and confidence in banks that lend to actual businesses, which is a great change from the surprising positive change to get banks to lend to businesses. if those things happen, more investment means to investment activity. now it's working bargaining power. if we have the bargaining power,

private dvd makes the rich richer. we tried that in the last 30 years. if we can distribute it to the people created a little bit, then we have to get stronger demand. people can pay taxes, tax receipts go out. expenditures to keep people: an unemployed go down and the result is a healthier, more balanced budget and the kind of thing republicans want. and a growing economy that can support further, private and public investment, which creates more jobs and further increases productivity and then you go back to the back of the site again. this time you're happier going back than he did on the vicious cycle slide. now, that is their choice. this is a virtuous cycle. and now, i'll comes to the fiscal trap. fiscal trap is what we face this fall. the worst possible thing you

could do in this situation, where we are under testing and public assets, said that we're endangering our country's competitiveness and we have an economy with mass long-term unemployment, the worst possible thing we could do would be to impose posterity in the short run and cut taxes on the rich in the long run. that is a recipe for immediate economic pain, political instability and national decline. and surprise, surprise, that's the republican agenda. their agenda is to use the threat of something called the sequestered. the sequestered as an automatic act that's going to fall and cut $1.2 trillion out of the federal budget. end of the year. unless something comes along to change it. half of the money comes out of domestic discretionary spending. have consented the defense budget.

republicans don't come along and say we can't have that happen. can't have that happen. on top of that by the way the payroll tax cut president obama passed past kept our economy life expired, too. republicans say we can have these things happen that we don't want to raise taxes on anybody to make of the 1.2 trillion. and so, they are going to say we won't make anything. we'll just see jam everything unless the president agrees to a long-term extension of bush tax cuts for the wealthy. and, deeper cuts in domestic spending. domestic spending is education and parks, you know, good things in life. unless, the president agrees to the extension of the bush tax cuts. but they will pile on more and more domestic cat. now, they face, as i said, not just cool because it is. it is going to be cool if this happens. and unfair. it's not just going to find the

pockets of the wealthiest among us who don't need the money, but a recipe for national decline. it is a recipe for ensuring we don't educate our children, that we don't enter the new age of energy technology, but we don't fix the roads and potholes outside the store, that we don't do anything that in any american energy takes two or three times long been the rest of the world. those things matter we won't do anything about this agenda goes through. but this is not the only threat. we also -- it is not just that you have this hard right, you know, reactionary distribution area coming from the republican area. it's that we have inside the beltway agenda. rs congresswoman schakowsky discussed the same thing but less obviously appears in symbols agenda afoot at the bush

tax cuts. cut social security and medicare. remember when i said a vicious cycle involves things like cutting the incomes of poor people in a recession. can social security and medicare is what it's about. in my mind, the worst thing about some symbols is that it gets our corporate tax system. a sneaky little sick call territoriality, where we don't tax offshore process. you know what happens when you don't tax offshore profits which you do tax process? everybody goes not sure where they don't have to be taxed. somebody in the simpson/bowles commission thought there would be a good way to address a revenue problem. now, that is what we have to worry about and now the question is, will democrats -- we know what republicans will do. the question is will democrats start making unilateral

concessions? we've done a lot of things about the democrat party come up with this weakness can this tendency to make unilateral concessions. just give things away and hope people will know us better. we now know where that ends. did that work out so well last summer? now, never let it be said that people cannot learn. so today as we stand here, president obama is not making unilateral concessions. you're sending the right message. this message has been a loud and clear, pretty tough. it is no more extensions of the bush tax cuts from family making over $250,000 a year. the top 2%. none. [applause] and by the way, as far as i'm,

most of mike over $250,000 a year are millionaires. a millionaire somebody with her than a million dollars in assets. that is what a millionaire is. a millionaire is not somebody makes a million dollars the year. some of us a million dollars. people make $250,000 are typically have a million dollars. it's a wonder of the wonderful things about making five times as much as the median family. she won $50,000 figure is five times as much as a typical american family makes. and the other thing president obama said the seven this is critical because otherwise you're just a game. president obama said if republicans want to go over a fiscal close, meaning to trigger the sequestered, if they want to go with the fiscal cliff for a few days and see how it feels, in order to protect tax cuts, the wealthiest americans, president obama said he's perfectly happy to negotiate the next step. after the public can see clearly, with the congressional

republicans are jeopardizing an order to keep the wealthiest even more wealth the. now, we have an agenda. there is an agenda and the public supports it that will do what our country needs. and by the public supporting that, i mean the afl-cio has history of pulling database. the polling on these issues is generally over 70% positive. some cases over 80. the public supports massive investment in infrastructure, rebuilding manufacturing and rethinking our trade novels so we can be competitive in the new globalized economy. the public supports a tax system where the wealthy pay their fair share of the public supports the notion that that higher taxes for millionaires. the public supports accountability for the banks that broke our economy and the public supports, although you never know if you lived here in

washington, the public supports protect teen unexpanded social security and medicare. by the way, [applause] the american labor movement thanksgiving the pension system has been destroyed and taken from us in iraq for a month and has been replaced by a savings accounts that have no money and none, that what might be in our nation's interest is not to dismantle social security, which is actually close to 90% funded and is the healthiest part of our retirement system. dismantling is not what we need to do as a country. we need to admit. [applause] and medicare is not the problem. medicare is the solution. [applause] now, just illustrated in the shortsightedness and self-centeredness of the aged.

the other thought that belongs here is the education in particular higher education is a right. [applause] now, i will conclude by saying this. this is in substantial part and directional, the agenda that president obama stands for. this is substantially in directionally at the agenda of social democrats. but what it needs to be is an agenda that our political leaders pursue that scale. from attack about infrastructure, we need to talk about trillions, not billions. what we talk about a tax system where the wealthy pay their fair share, repealing the bush tax cuts is not enough. it doesn't even begin to be enough. they're waving a sign of me, but

i can begin to talk about what accountability before the banks means. the problem -- why is it that this agenda, which is 70%, 80% public support, why is it that this agenda is like nowhere to be seen in washington can? i mean, not nowhere to be seen. obviously on this panel and your campaign for america's future of the next couple days, but why is it we're not reading editorials in the "washington post" calling for this agenda? why are we having to have even a discussion about scale? what has gone wrong? the fundamental challenge that we face as a nation after our collective bad debt and finance over the last 15 or 20 years is how do we overturn the political power of the winners in the losing game. you can call this by kuwait and that romney problem or you could call it the genie diamond

problem. but his genie diamond: that the senator and presidential cufflinks? that's an agenda. that's the agenda for the faces us. the public -- the public knows where to go here. the public knows how to make sure we prosper in this century. we've got an obstacle odyssey entrenched power of money and politics in this tension is the obstacle aside. [applause] thank you. [applause] >> thank you, daemon. it is important to remember coming sights on powerful as his analysis phase, he is also speaking for a very important political movement in the united states, the american labor movement. our allies -- [cheers and applause] and it is good that we came to

this tutorial about the economy from the point of view of elected officials who will be running for office and taking this battle to the political system in the fall. thank you, jan schakowsky. [applause] and it is crucially important that people like molly katchpole translate this into the real flesh and blood, for the message and real-life experience of average people, whether they are gone are old whether working at that hurries are working on a service that are, we have to build a movement that makes this economic program not only obvious in washington can, but makes it inevitable in our political system. for thank you all. let's all get out there and work and must go onto the next that a breakout strategy section. thanks to all of our speakers.

[applause] b. is not [inaudible conversations] [inaudible conversations]

>> this was sent and i was swept under the rug and capture not only the american people, that the new mexican people as well. they're a hundred of faceless mexican citizens who had been murdered as a result of this, but the only thing we knew

outside of the government program is that guns from american gun dealers are going into mexico and causing all these problems that the cartel, when really the government was sanctioning the salesman than a minute to mexico. >> if all of us decide to take the time to tighten our belt and spend less, guess what? we outlined a poor because all of our spending at the same time. this is an all stuff we are supposed to do. this is some thing we've known since the 1930s. everyone will slash spending at the same time because they think they've got too much debt is self-defeating. >> who is going to tell them the truth? we have to tell them the truth. if we don't tell them the truth,

then our country fails. we must succeed ms and we will succeed in s.b. we will reach them or the media and their politics into pop culture. pop culture. we shouldn't be afraid to get up there and preach to the choir and the influencers. right? in pop culture. >> today, the national housing conference hosted a series of panel discussion on bettering health issues. pelican senator johnny isakson spoke to the audience about his plan for replacing fannie mae and freddie mac. his remarks are 10 minutes. [applause]

>> well, thank you very much. it is not to be here today and i want to pay tribute to national housing council for their focus on an issue dear to my heart. as in the real estate business for 33 years selling residential houses for rent in residential houses and killed in residential houses in working with veterans because they started by dr. david air force base and making va loans in 1968. so it means an awful lot to me. i also want to pay tribute to the home depot foundation in the home depot company. their commitment to our veterans and their commitment to housing are unparalleled in the united states. and the first lady is here today, live split coup who i understand was honored last night. she's the first lady of home depot, but also the first lady of habitat for humanity and many other organizations to provide affordable faith housing. but home depot is a come to me that is a shiny example is many

of the responsibility all of us have to our veterans are doing everything they can to make an investment in our veterans and protect the families and their employees called up and activated to go serve overseas. to help take care of the family and when the lady comes back from service, the job is. the answer accommodation in place, i knew deserved the award in recognition you got last night. [inaudible] >> kelley is easy on the ice, too. i met her earlier. she's very pretty. good to see you, kelley. [applause] the secretary said two things that i want to say at the beginning and i want to close with because there are two words that he mentioned in his speech that really are the key to solving the housing problems we face in america, not just for veterans, before the american people. one of them is jobs. jobs solve a lot of problems

because the jobs come in common with income comes the ability to pay your monthly payment and pay your monthly payment is the chance to advertise to and pay equity. number one, jobs than it's important to focus on that. member to come he mentioned the word partnership. i can't think of a better word to describe what we need to turn around the housing market in the united states of america. matches for veterans, but all americans. think about partnerships and working together. the va has done a remarkable job in my judgment in the last six years i've been on the veterans committee, really reach out to veterans and helping them make the transition of active-duty service to veteran status. quite frankly, veterans out with the youth of the mortgages intervention about have an investment. i know for being the business that the lender really wants to foreclose on anybody's house. the worst homeowners in the world are vendors who foreclose. the houses deteriorate.

they don't have to manage. they write them in the books are no forget about them, don't take about that is so they want people to stay in houses. a lot of americans are free to go because i didn't say i have a problem, is there somewhere we can work this out? the va of veterans services to a phenomenal job of reaching out to veterans when they get in trouble, bring them into work with them in their lender at the va is a guarantee to work out the loves of the veteran status in the house. the foreclosure rate is lower than any foreclosure rates of any other types of loans in the country in the turnarounds are greater in their default rate is within our chance pretty much except to pull because the va is working to keep the veteran in the home and work with the lender that has loaned the va scared t. you see two of the veteran could services. we at the same type of relationship between every lender and every territory that we had it d.a. and the lenders to make the va loans, we would have a lot less problems in the united states of america today.

partnership is the key in reaching out. jobs are key in getting the housing market back as one week and and a plaintiff from 8% to 6%. don't fool yourself for a minute. one of the reasons for the great increase in the sustained unemployment rate in america is a lack of housing construction, residential development. add to that end, i try to put my money where my mouth is and propose a solution for the problem with liquidity in the mortgage market in the united states of america. the site from fha in va, the source of america was freddie mac and fannie mae. they are guaranteed securitize loans, residential mortgage. when they came under tremendous pressure, and i need tremendous pressure in the subprime crisis, freddie and fannie plan under a lot of duress. they became a wounded brand. they now are under a conservatorship. dimarco is doing a great job,

but quite frankly they aren't the agency they really need to be because of politics. there has got to be something to replace freddie and fannie. everyone says get rid of them. you don't have anything to back them out. people forget when the depression hit things got out of the business of making loans. we pass laws to encourage loans and gave them a preference again thinks an interest they pay to accumulate capital to make loans. after the 1986 tax act, the savings of loans went under. we have the rtc. they went down in western place that like >> and freddie mae. if freddie mac and fannie mae leave, there sat the left. quickly and succinctly tell you my recommendation because it brings liquidity that will bring about jobs, improve home sales, help access and affordability notches to veterans, but all americans. yes, freddie and fannie securitize the guaranteed subprime loans, but basso is a mistake for us by congress.

congress told them to own up to 13% of paper and affordable housing, which the markets and wall street determined to be subprime loan borrowers. soupy comics c&d started getting lost and started assaulting when the economy went down and they guarantee scott called against freddie and fannie and freddie and fannie lost 171 alien dollars. that is a problem will never correct and resurrect, but he probably will solve up a new propose, the mortgage finance agency, whose goal is to guarantee comes securitize residential mortgages, the phase themselves out over a ten-year period of time. if we put freddie and fannie from conservatorship to receivership with a structured bankruptcy and wind down, open the mortgage finance agency which were making varity in securitize qualified residential mortgages. those recession that began in 2006 and is still going on today was not a recession of overland

data. it is under underwriting. we made bad loans to bad writers. people who are not prepared to be homeowners. we had a crescendo of difficulty in the housing market. what is a qualified residential mortgage? .. wrapping loves that aren't going to get for closer, that will be

repaid. one of the requirements of the mortgage finance agency will did have a 10 year plan to privatize. that i believe is possible in the same way was done in catastrophic insurance in great britain where you take begin tvs that are collected at the close, you put those guaranteed fees into a catastrophic sinking fund and becomes the first backstop to protect american taxpayers from having to pay the guarantee of alone. that is a brief description of away to take us somewhere we are now, which is a lack of liquidity in the mortgage market, to where we need to become and that's a privatize energy agency that works but it will have to be a transitional bridge. i'm going to do everything i can to be a partner with other members of the senate and the house to create an agency that can bring us more liquidity to residential lending in america. you've been very gracious to have me today. the folks down you are telling in my time is a. michael essa's art on, i think that's what this is. i'm not sure. he wanted to take a question, i will. if you want me to sit down and

shut up i will. does anyone have a question? yes, sir. >> senator, your proposal, 5%, we are having a discussion today, definition from a regulatory standpoint, how is that going? i know you've been very engaged and get the administration to define it as a -- 20%? >> i appreciate all your commitment to the mortgage industry in america. government is doing right now in housing what government always done when it has a problem over here, the pendulum goes way over here. the fdic and the comptroller of the currency and the federal reserve participants in the quality residential mortgage committee came up last and circulate a robo-setting qualified residential mortgage means you have to put down 20%. if you put down less than 20% the lender has to retain 5% risk

retention into the loan is paid off. you talk about not having any mortgage money. you would have any mortgage my in america from mainstream america with that type of requirement which is brought about by creation of the second way to go about doing the business. my proposal is like having 50% down because they cared towards protected to 50% of the value of the property. fortunately, they pulled the rollback and extended the comment period and when it ended, they pulled back into don't have a comment buried anymore but it is sitting out there in limbo. every time i come up and have somebody that is thoughtful enough to ask that question, i to all of you to run into the fdic, if you're in we talk about 20% minimum down, utah -- you are talking to somebody who's talk about having a compounding effect on our recession for years to come. i appreciate the question, and i think quality means underrunning. doesn't necessarily mean down payment. one more question. if anybody has one. >> if not i want to thank you

for having me, and current regulations -- congratulations on a great conference. [applause] >> we had planned to bring you live coverage of the conference of women conservative leaders, talking about how women are portrayed in the media and perceived in business but as it turns out we won't bring it to lie but we will out for you later on our c-span schedules. so stay tuned for that. >> this weekend on afterwards, fast and furious. speak this was something that was swept under the rug. to our hundreds of faceless, innocent mexican citizens have been murdered as a result of this by the only thing that we knew outside of the government program was that guns from america and end user going into mexico and causing all these problems with the car to win

really the government was sanctioning the sales and sending them into mexico's. she's interviewed by "national journal" white house correspondent major garrett sunday night at nine, part of booktv this weekend on c-span c-span2. >> how do you approach book interviews differently than news reporting in a few? >> i think of the book interviews as gathering history. i think of anything when i'm working for the new side as gathering contemporary information. >> how difficult is it coming impartial in your reporting and not get caught up in the campaign speak with him going to try as best as i can give people as full an understanding of what is happening in this campaign. it's not that difficult to put your biases to the side. speak how a social media change your line of work in terms of reporting and getting your news information? >> twitter in particular is now

a primary news source for anybody who covers politics, and anybody who pays attention to politics to twitter didn't exist four years ago for all practical purposes. >> stunned a night, purdue university students interview dan balz on the newspaper business coming presidential elections, what is newsworthy and the rise of social media. sunday at 8 p.m. on c-span. >> to social security trustees yesterday said congress needs to pass legislation shoring up the program's finances sometime in the next five years. the latest social security trustees report says current revenues are enough to fully fund the program through 2033, with 25% cut in benefits after that if revenues are not increased. under current conditions the disability of its portion of social security would start running a deficit in 2016. the trustees testified before the house ways and means subcommittee on social security. >> thank you for being here.

according to this year's report on social security board of trustees, social security will be unable to keep its promises to the hard-working americans who pay into the system. we will hear today that not only is social security financing looking worse, but it will also be increasing we difficult to protect benefits for those who rely on them the most if we delay action much longer. as commissioner said this year's trustee report contains troubling but not unexpected projections about social security's finances. once again emphasizes that congress needs to act to ensure long-term solvency to this important program. according to the trustee, the old survivor program will be unable to pay full benefits beginning in 2035. three years earlier than projected in last year's report. that means workers who are 44 years old today will reach their full retirement age in 2035, at

which point everyone else will face benefit cuts of 25% and less congress acts. and in less than four years social security disability insurance program will be unable to pay full benefits. the average monthly benefit for disabled worker today is only 1000 -- $1100 but in 2016, revenues will cover 79% of benefits. so that's a potential cut of about $233. that's real money for those who are getting by on fixed income. salsa securities last major reform was in 1983. in their 82 annual report, the social security trustee said without corrective legislation, the very near future, the old age and survivors insurance trust fund will be unable to make benefit payments on time

beginning no later than july 83. members of congress and the president were able to develop and ultimately pass on a bipartisan basis the social security amendments of 1983. come on in, we just started. despite the near failure of the greenspan commission and despite the opposition of senior advocacy groups, including aarp, as this year's report makes clear, social security is in trouble. just as in 1983, i believe our nation has the will to again save social security. we should not follow the path europe has taken by waiting for a financial disaster to force changes that ultimately could end up hurting the most avoidable. today we'll hear from social security's public trustees, but we and congress are trustees, too. and the public knows the longer we wait the more difficult the

choice is. will become, and the less time americans will have to prepare. with all of the financial anxiety that americans face. we should not increase the burden on them by failing to fulfill our duty and protecting our nation's most important safety net program. we need to act now a four it's too late. i will now -- do you have an opening statement? well, you do. you arrived. what did they say? okay, thank you again for listening, and i had a statement here. i understand you are on your way. but i will recognize mr. becerra now for any opening statement that you have. >> thank you, mr. chairman. and also want to thank mr. stark for being here picketing outside able to make it.

but i got my daughter to program on time. able to begin, thank you for much for being here to the two gentlemen, are trustees who are here. i just feel like what i've been saying for quite some time. social security, even through the worst recession since the great depression is a program that people have grown to rely upon and can trust. between 2007 and 2010, a typical middle-class family law somewhere between 26-$87,000 in their net worth. that's about four out of every $10 of their assets in savings. between 2007-2010, social security added $439 billion to its trust fund surplus. while paying americans to earn benefits on time and info. so here we saw americans with their private savings and retirement pension watching it go down. at the same time during this great recession, we saw social

security continue to increase the money it had to pay out benefits to its recipients. over 77 years now, through 13 recessions, social security had added not 1 penny to our deficit or to our debt. in 2011, social security provided benefits to more than 55 million seniors, widows, disabled workers and children. while saving all the reserves in its trust fund to make future benefits. six out of 10 seniors who get social security rely on social security for a majority of their income. there are 1,300,000 children who are lifted out of poverty because to receive social security. in the long-term, social security faces a manageable challenge. it is not now and never will be broke. this april, social security stressed that without action social security will be insolvent by 2030. let's be clear on what that means.

in 2030, worker contributions are projected to cover about 76% of social security's costs. the remaining thousandths osha's resources on will be another 5% of costs. the shortfall is stable. after 2033, social security's income will be enough to be about three-fourths of earn benefits until at least 2087, and likely longer after that. osha secures long-term shortfall is a problem, when we need to address. but even when the reserves we are building up now right now, social security will not be out of money. it will have a shortfall of about .9% of gdp, just let me more than the cost of extending the bush tax cuts for people who earn more than a quart of a million dollars a year. social security does face a crisis in the short term, one manufactured by series of budget cuts forced by house republicans. if they continue, the cuts could delay benefits and damage cells is decreased well-earned public

image. in 2011 the republican-led for your content resolution cut the social security administration's budget by $600 million, despite rising numbers of americans applying for social security but in 2012, ssa's budget was frozen below the 2010 level. i strongly oppose these budget cuts, which are kind of like the cable company starting to bill you for service while to at home waiting for them to show up and connected. social security's trust fund -- sorry, social security's trust funds the entire cost of paying social security benefits. in 2011, workers contribute over $600 billion to social security's trust fund. because of social security's budget cuts, in 2011, all social security field offices start closing half an hour early each day. social security permanently closed over 300 context haitians and small field offices, and waiting times for initial decision throws and are likely

to see over 103 days by the end of 2012. now ssa faces an even bigger cut through the sequestration process. these odd emetic cuts scheduled by the budget control act. although social security benefits are protected, if congress doesn't act soon come on january 2, social security operating budget will become by over a billion dollars. a billion dollars in cuts translates to 40 days which social security is shut down. offices are closed and locked, no one answers the phone, no one is processing, and no one make sure benefit checks are sent to the right place. mr. chairman, social security has been there for americans for 77 years. i hope we continue work to make a strong for another 77 years. we can start by addressing the preventable crisis of shortsighted budget cuts. and with that i yield back the balance of my time. >> thank you. we have one witness panel today.

seed at the table are two public trustees. charles playhouse -- charles blahous ph.d and robert reischauer, ph.d. robert reischauer i think, i'd like to congratulate you on your award last night at the national academy of social insurance. we're lucky to have someone with your breadth of experience. working as a public trustee. thank you, and congratulations. >> dr. blahous, you are recognized. >> thank you, mr. chairman, mr. ricci member, all the members of the subcommittee. it's a great honor to appear before you today to discuss the fight of the latest trustees report. in view of the time constraints we are all under what i'd like to do, gloss over most of the background information in my written works and just the sikhism primary points about social security financing. the first simple point is that social security costs are rising. most of that cost increases

going to play out for a period of 2008 through 2035. and the primary driver of those cost increases is demographic. if you think about social security cause, there are two main pieces of them. one is of growth in the per capita benefit level and that is driven by foreigners along with also the number of beneficiari beneficiaries. on the revenue side primary driver is growth in the number of workers, and the wages are subject to tax. so that ratio of workers and beneficiaries is very important for social security financing. that ratio is in the process of dropping to we had 3.3 workers to support each beneficiary in 2007. now we're down to 2.8, and under current projections will be down to 2.0 by 2035. part of that is longevity increases, but the bigger and more immediate fact is fertility patterns to quit big baby boom consideration going on prior to 2035. under our current projections of

combined social security trust fund scheme is being depleted and 2033, that's three years earlier we projected in lasher's report. and each year, to estimate the program's actuarial deficit. usually expressed as a percentage of the tax base program, and this year our projection is to .67% of worker wages over the next 75 years. that sounds arcane but basically what that means is that you a 12.4% payroll tax rate now. if you immediately added to .67 points to that you would have a program of balance for 75 years, or if you immediately have an equal subtraction and benefit obligations. that's an average figure. the shortfalls are small in the near term, bigger in the long term. it's also a substantial increase from last year's projection. last year we were out to .22% at msn like a big difference but by social security norms is pretty substantial deterioration but we've only had one other report over the previous 30 years that

showed as much deterioration as this year's report does. and my colleague, dr. reischauer, will review some of the reasons why the alloc is worse. also important the figures i decided to retain to the combined trust funds from social serious two trust funds and under law that each have to be solvent to maintain a benefit payment. the social security trust fund is in the more severe condition of the keep it is projected to be depleted in 2016. now, what's happening over time is that the program is going to post under current law a greater financial strain on the larger budget. some of the strain, however, is result of discretion a policy choice, choices that are made along the way. one of them, for example, this year the payroll tax rates have been cut from 12-point for the 10-point for. social security has been held harmless for that change. is a provision of the law which transfers general revenues over to social security so it's built to -- basically what's happening

is that, that part of financing responsibility have been moved from social security's payroll tax to the general side of the ledge. final point, there are significant costs to delay in addressing financing shortfalls. it's often cited in 2033 will have only enough funds to pay 75% of scheduled benefits. it's important to bear in mind that doesn't 75% of scheduled benefits for those retiring in 23 q. did that includes everybody. includes people already on the rolls in 2033, including many people who were drawing benefits today. if you were to say well, we don't want to cut benefits for people already on the roles in 2033, what is the benefit reductions were confined to new claimants? we wouldn't have to balance the system in that you without a substantial unprecedentedly large tax increase even if we cut off the entirety of benefits to new claimants. i 2033, it's really, really too late, far too late to protect previous beneficiaries from

substantial dislocations the soyuz are working to the problem backwards and you say, house and we have to act if we want to be fit for reductions repeal in retirement, near retirement, low income beneficiaries and prevent a tax increase. would have to do that pretty soon. finally, in closing, mr. chairman, i would just say that the legislative achievement and reading the social security program remains historically remarkable want to its provider critical social insurance protections for hundreds of millions of americans. it's done this at exceptionally low administrative costs. it's done with financing methods not without their critics, but nevertheless generally accepted by most american public as relatively equitable. that's a hard thing to do in legislation. and with responsible bipartisan action, social security continue to fulfill this vital role but such action must be prompt and decisive if the program is going to serve future generations as well. thank you. >> thank you. you said pretty soon.

what do you mean quick do you have a definitive date? >> well, you'll get different answers if you ask different experts. my own view is that the window of opportunity is closing relatively rapidly. we've already face a shortfall that a significantly larger than the one that was repaired in 1983. which was probably the high water mark politically of what can be accomplished in terms of short-term resolution. so each year we wait the problem grows larger and more difficult. >> i understand it. when are we going to fall off the cliff? dr. reischauer going to recognize. >> thank you, chairman johnson, ranking member becerra, members of the committee. i appreciate the opportunity to appear before you to discuss how the social security programs financial outlook has changed since the last trustees report. to judge whether the financial health of social security is improving or deteriorating, he and the public tend to focus on

whether the years in which the two trust funds that are projected to be exhausted as we've seen have advanced it by this measure is been significant deterioration in the financial health of social security program since the 2011 reported the exhaustion date as the chairman has mentioned for the oesi program is now projected to be 2035, three years sooner than was projected last year. and di trust fund exhaustion date has advanced two years from 2018 to 2016, and the exhaustion date for the two trust funds combined has now been moved to 2033, three years sooner than was projected last year. but more competence of measure of the trust funds financial condition is the actually balance over 75 years evaluation period.

the measure is essentially a difference between the annual income and cost of the program sunrise over the 75 year period, and expressed as a percentage of taxable payroll over that period. a negative actuarial balance in an actual real deficit can be interpreted as the percentage points that would have to be either added to the current law income rate, or subtracted from the cost rate in each of the next 75 years to bring the fund and actuarial balance. the actuarial deficits of both social security trust funds had deteriorated since last year's report. they di trust funds actuarial deficit has worsened by seven when hundreds of a percent of taxable payroll. the oasi fun deteriorated by 2038, or 38 when hundreds of a percent. combined trust funds have weekend by 441 hundredths of a percentage point. this deterioration and the

combined trust fund is the largest decline since the measure was first calculated in 1982, save for the changes that occurred in 1994. there are lots of reasons why the actuarial balance can go up or down from one year to the next. one of them of course is that the valuation period changes. we had 2086 to the valuation period and subtract 2011, and that accounts for about 9% of the deterioration in the actuarial balance. clearly there was no legislation that affected this in a significantly over the past year, so that's not a factor. demographic assumptions in the issues report are identical to those that were missing in previous report, but with updated starting values and the transition from those starting values to the ultimate bounty is to affect the actuarial balance.

specifically, more recent data has shown that birth rates for 2009 and 2010 were lower than was assumed in the last report. immigration in 2010 was a bit lower than was assumed in the previous report. and was a slightly smaller initial population than we assumed before. about half, unless than half of the increase in actual real deficit between 2011-2012 is accounted for by changed economic assumptions, and more recent information about the economy's performance. two-thirds of this is related to updated starting values and less optimistic assumptions about near-term growth of the economy. price inflation as you all know was higher than was anticipated between third quarters of 2010 and 2011. and rather than a seven-tenths

of a percentage point, colin, and december 2011, social security gave out 3.6 percentage point cola. so that makes a huge difference as you can imagine. real interest rates in 2011 and those projected in 2012 report are lower than was assumed for. and so the new investments that the trust funds make get less interest earnings than we thought we would get when 2011 reform was put together. together, these economic factors make the gap between non-interest income and cost over the next few years significantly larger than was projected in last year's report. but when the economy has recovered, about the end of this decade, 2020 or so, the gap

between what was expected last year and what was expected this year will be close to disappearing. however, it's important to recognize that we made a new assumption in the 2012 report that causes the gap between income and costs to grow over the long run. and this had to do with what we expect the changes in the average number of hours worked per week to do. and last year's report said it's not going to change any future. in this year's record we assumed that it would decline at 51 hundredths of a percentage point a year. we did this to reflect the aging of the workforce and the belief that, as productivity goes up, incomes go up, people will want to take more leisure. that will translate into working few less hours, as it has in the past. and this assumption ask to

reduce payroll tax revenues from what was assumed in 2011. we also made a change in our assumptions about the incidence of disability, and compared to last year's report the ultimate age adjusted his ability incidents were adjusted by 2% for males and 5% for women. these are more consistent with what the historical values and trends have been over the last decade. the deterioration that i just summer is here today underscore the need for legislative action to put social security on a more sustainable path. the sooner we address this challenge, as chuck has said, the less disruptive the changes will be. if the reforms are adopted soon, those most adversely affected can be given time to prepare, the burden can be spread more

equally across different generations, and the political animosity and public anxiety associated with these unavoidable changes can be moderated. the changes in the trust funds financial well being that i discussed also call attention to the importance of maintaining a strong economy and vibrant long-term growth. let me conclude with a comment about the staffs of the social security administration, and the departments of treasury, hhs and labor, with whom we work to produce trustees reports to the are an incredibly hard-working talented group of analysts who are dedicated to providing public and the congress with as object to the and sophisticated group of estimates as is possible. and i think we are all in their debt for the service that they provide to us. thank you. >> thank you. you went three minutes over.

[laughter] spent that's a better performance than last year. >> i want to be graded on a curve. >> thank you. you know, i'm going, as customary, each round of questions i will limit my time to five minutes, and my colleagues to do the same. so, social security was to sign so that workers pay into the system and earn their benefits. and franklin roosevelt understood the importance of making social security different from a welfare program. he once said quote, we put those payroll contributions they are so as to give the contributors a legal moral and political -- right to collect their benefits. with those taxes and are no damn politician can ever scrap the program. dr. blahous and dr. reischauer, in your messages from this years annual report, you point out payroll taxes represent only 70%

of the total social security income in 2011 due to in large part the general revenue transfers replacing lost income from payroll tax holiday. if we continue to replace payroll tax revenue with income tax revenues, how long before social security is no longer perceived as an earned benefit? what's that going to do for public support? >> i would say my answer to the second part of your question is no one can know when that point might be reached, obviously. but that statement is in the report obviously because we want to call lawmakers attention to the fact that social security historic would have had a certain rational for financing, and and as you pointed out, does go back to franklin roosevelt to go back and reduce early statements. he plays a very high level of importance on the notion of earned benefit. he didn't want it to be merged into the general budget. that's why we have a separate

trust fund. that's what it separate payroll tax. that's what we have trustees. he was very concerned in multiple statements he said this, that if you want to the universal participation program that costs a lot of money to do that, and so if you have as part of the general budget it will be competing for funding with other programs, and it would be subject to great political risks, that the benefits of this program can be cut back. so he was very attentive to the idea of how do you structure this program so that has enduring political support. and not only fdr, but subsequent social security advisory councils over the years have repeatedly said that one of the bases of the programs enduring political support is the idea that workers have earned these benefits and they came out against all these advisories councils came out against funding the program for the general fund. just be king for myself as a trustee, i think one of things we want to do is draw lawmakers

attention to the fact that if the program does continue to get transfers from the general fund, it does potentially create a situation where we have a departure from fdr's intentions on that point. >> it's not your personal money anymore. about 45 cents out of every dollar of public debt is held by foreign governments, mostly china. dr. blahous, if we continue the payroll tax holiday and the general revenue transfers to replace lost payroll tax revenue, do we risk turning social security from a program paid by the americans to one dependent on foreigners who invest in our bond? >> well, i think it is shortly the case that the general revenues that were transferred to social security, along with payroll tax cut, were financed with debt, finance for increasing the deficit. we cut payroll taxes and added that amount to the deficit.

certainly, while there's an ongoing argument over who really financed the retention of bonds held in the trust fund, clearly in this instance this would be a case of the financing for social security been provided by the people who invest in u.s. treasury bonds. >> can you tell me why you think tax increases are no answer for fixing social security? because it seems to me to fix social security for good we need to make sure our efforts are aligned tax revenues with benefit allies on a bases. that didn't happen during the last major reform. then 75 year solvency was achieved by building annual surpluses in the near term followed by growing annual deficits in the long term, even though that wasn't intended. at the time. is that correct a? >> that is correct, though i have to say that if he were to

bring in experts other you have a few that would disagree with me on the point. but if you go back and study the 1983 reforms, one of the things that is striking about them is that they did not measure financial success the way that we do it now. when they analyze social security's future balance, they didn't count the carryover balance in the trust fund. they didn't have earned interest earnings of the trust fund. basically presumed that all benefits in the future would be paid by taxing the wages of future earnings. if you read the comments of people who develop these reforms, whether jake pickle or senator pat moynihan or robert myers was executive director of the commission, they said in multiple places that it was their intention to keep the program finance on a pay-as-you-go basis. the fact that they bound up with a solution that have big surpluses some years, and big deficits in other years, wasn't as intentional as many people

now believe. what they were trying to deal with short-term emergency, trying to make sure the benefit check stopped in 1983 and are trying to arrive at an average of actual vows over long-term. as you point out, that resulted in an unsustainable solution because as time went on the surplus years faded into the past and more deficit years appeared on the horizon. again, they were trying to do a lot of things under emergency conditions in 1983. so intention is not to critique what they did but simply to point out that as they define the long-term balance they didn't get the same level of attention to what was happening on an annual basis, that we do in the trustees report now. >> i presume you agree? >> out you up on would disagree with all three of the answers that chuck gave. [laughter] >> come on back. >> that's why you have to trustees. >> you want me to disagree or shall i keep my lips sealed?

>> i will let -- >> asks the same questions. >> thank you. >> we'll just leave it at the fact that there is disagreement there on that. let me ask the to do, by the way, thank you for your testimony and the work that you do as trustees. we appreciate that. both of you mentioned, part of your testimony, the deterioration is the outlook for the program, which is why i think all of us should be trying, as i think dr. blahous said, dealing with this sooner than later. and i think your pie charts in your testimonies, the information you provided us shows a great portion of the deterioration occurred as a result of the recession. hit pretty hard. and it's become pretty clear that you lose jobs in america, users workers who are paying their fica contributions, their

social security contributions. fewer workers contribute social security, less money going into the pocket to pay out benefits. so job one for congress should be creating jobs, helping the private sector create those jobs. get more folks to work. it doesn't just help them, and their families, it helps social security because there's more money going into the system, the social security system and the trust fund. dr. reischauer, you mentioned immigration. does the fact that we've had unlike other countries a consistent flow of immigrants over the last several decades, helped social security system and its trust fund when it comes to being able to pay out benefits? >> that's a very complicated question. in fact, certainly the influx of immigrants has increased the labor force, has increased the number of individuals paying payroll taxes, which over the short run helps the ability of

program to be benefits, four retired and disabled benefits and survivors spent i think the other part of that but you don't mention them in the long run if they become recipients of social security benefits, and they will draw as well but it's one of those things where it's not just an automatic plus. they at some point will qualify to receive those benefits as well. >> yeah, but it's very complicated. it will depend on whether earning patterns our overtime. different groups of immigrants have different pluses and minuses, in sort of a narrow fiscal sense. >> some of these will move back spent many will leave and don't end up collecting. >> right. i have some numbers here to show between 2007, when the recession was starting, and he got really did come through 2010, nearly 6000 companies in this country terminated their pension plans. in 2009 alone, those terminated

pension plans were short $9 billion from within your to pay out benefits to the workers who had those pensions under those companies. during that time, 2007-2010, social security didn't lose any money, did it? [inaudible] >> dr. blahous, i'm sorry, go ahead. >> social security continue to make payments in full. >> i mean, we'll know the examples of circuit city that went bankrupt. we remember enron when it went bankrupt, and how those companies left their employees and their pensions. and a virtue i think of social security, the reason why it's so important, you mentioned how we should act now to try to resolve any longer-term issues for social security is that we don't want to get to the point where you can their social security to

enron or to circuit city. and fortunately we still have some funds that keep us, even if congress can't get its act together, gives the social security going smoothly for the next 20 some odd years, and even after that it would be paying out 75, 76% of benefits. i don't think anyone today is paying into social security to get 75% of what today's beneficiaries are getting. i hope what you all continue to do is give us the recommendations that you feel help us move towards something sooner than later but i think most people are getting to the point of agreement, it is pretty simple math as dr. blahous, you mentioned. you can go to the benefits i. you can go to the revenue side. you can figure out a way to get yourself to the actual or vows to the next 75 years. so hopefully what we'll do is sit down at some point in congress and try to come up with that tough political response to

appreciate your testimony here today. thank you for your service on, with the trustees, and i hope you'll continue to come before this committee. thank you. yield back. >> thank you. mr. brady is recognized. >> thank you. thank you, mr. chairman. we hear these days that everything is doing fine in social security on capitol hill. don't need to act. but things are not fine with social security. as chairman johnson pointed out, last year america borrowed roughly $140 billion, much of it from china and other foreign investors, just to pay our social security benefits. this year we will borrow $150 billion, roughly, from china and other foreign investors just they are benefits to seniors. that's not fine. if you don't like that, get used to it because your report said we face permanent deficits forever. in social security program. we are told maybe this is due to

the recession, but the truth is we're told the economy is doing better. this has the largest single deterioration since 1994. social security. so it is getting worse, not better. and so my question -- i have three questions to you all and i would hope we could have a no spin zone here, and just ask trustee, those responsible for the financial stability social security, just to give us your best advice, to congress and to the white house. one, should congress and the white house continue to delay reforms on this important program? or should we act now? dr. blahous? >> i'm an advocate to act as soon as possible. >> dr. reischauer? >> i think speedy action is called for. >> how much time do you speak whether the actual changes in policy you make need to be

sorted implemented next year is a totally separate issue. this is an area where we phase policy in over longtime to get people speed you both made a point if we don't act soon we will be -- so again, your advice to us. what is the timetable? how soon do we need to act? this year, next year? i mean, your advice to us. >> you know, i think you should act when the climate is right. when changes are being made, i me, is his speed is not from a political standpoint. i'm asking you as a trustee looking at the numbers, how much time would you say we have to act, in your beliefs be? i would hope that you would act within the next five years. >> dr. blahous? >> yes. with a disclaimer, i'm probably

on the -- i'm probably on the pessimistic end of the skin with respect to how bad is going to be for the future the program if we delay too long, but i agree definitely within five years. i would hope to do even faster. >> the payroll tax holiday was important to many families, but it did blow a hole in social security's revenue stream. goes back to by general revenue but we know that can't continue again. again, no politics in this. your advice as trustees, should we continue the payroll tax holiday, or should we restore the full stream of revenue to social security? dr. blahous? >> speaking very much for myself, but i would urge that social security go back to its 12.4% rate. >> we have to do with how we do that, but your advice would be restore the full amount of money? >> that's a personal view.

not board of trustees. >> dr. reischauer? >> mine is always a personal view, too, but i would phase it out with all deliberate speed, yes or. >> great. thank you, mr. chairman. >> thank you. mr. shah, you're recognized. >> thank you, mr. chairman. well, it doesn't seem like the news is getting much better. i want to get a little pro-coup here. user we need to act soon. i'm just curious, what the younger generation of americans have in store for themselves if we don't act soon? >> i would say a two-part answer. the mathematical part of the answer is a net income loss. there's a table in the trustees report that says that if you choose held all current, current

tax formulas, then people come into the system would lose a net of about 4% of the taxable wage income to social security. that is a nitpick that is after they receive all benefits. those income losses would be higher, but it also be present on the lower income such a cute have whole generations losing money net to the program. that's a mathematical answer. getting back to the questions that were asked earlier, i think it would also face a risk that my noggin to generate the political will to keep the program operates on a self-financing basis. and then if we could keep the program going on a self-financing basis and had to merge into the general fund or subsidized to the the general fund, i think they would lose something else, which is the legacy of social security as a separate, stand-alone, self-financing system that a certain degree of political protections that other are programs don't have. >> dr. reischauer?

>> you asked what would young generations, what should they expect. and the answer is, less income into retirement years. future generations will run more risk with respect to disability as well, the payments they would get in disability and in survivors. they need to divert more of their income into private pension plans, which are 401(k)s or other retirement vehicles. >> and you are saying they would need to do that. why? >> if you want to maintain adequate incomes in retirement. >> because social security -- >> social security's payments would be less for them. >> how much less? >> well, as chuck explained, and the chairman and others have

mentioned, social security would be able to pay about three quarters of benefits now promised. >> and is that based on what age category? >> well i mean, this would be an across the board for all existing beneficiaries and future beneficiaries, starting after 2033. >> for the next 100 years of? >> well, if we don't go out that for, we go out through 2086, and it stays roughly in that area. >> assumed the same number of people live the same numbers years and have the same number of children? >> well, no. we do very this overtime. in our projections according to the best information we have available. >> so what happens to people that aren't agenda, perhaps they are 50, and their 15 the ways -- 15 years away from retirement. what happens to their social security if we don't do anything? >> well, i mean, a little action

scenario is that literal no legislative action would be a 25% reduction in 2033. and so, those people presumably would collect full benefits for some years come and experience a sudden benefit reduction in 2033. obviously, it's unlikely that that's the way it would play out in practice, congress would probably not permit that reduction to there will probably be some alternative mix of pain allocated between beneficiaries and taxpayers, but a literal no action scenario is that 25% benefit reduction. >> you are semiweekly be responsible? -- you are assuming we would be responsible. >> let's just say there's no historical precedent for congress allowing a sudden benefit cut of that magnitude. >> is there historical precedents for congress allowing social security to become this broke? >> no.

that's actually very, very important question because -- >> it's never been this broke? >> we have never had a natural disaster large as it is now. in 83 we're two months away from not being able to send away the benefit checks. but the size now is larger than it is ever been. at least since the 83 reforms to after, there was an indexing mistake made in the 1970s and it was temporarily a huge long-term deficit that was created by the indexing mistake of six in the 77th amendment. but since that direction, this is large deficit we've seen since prior to the 83 reforms. >> dr. reischauer? you agree? >> yes think so either republican and a democrat to a great. >> maybe we should leave capitol hill now. [laughter] >> thank you, mr. chairman. >> and we do. you are recognized.

>> thank you, mr. chairman. thank you for calling this hearing, and thank our witnesses for their service. i have to mention, dr. blahous, before you choose to criticize my testimony, we both have the same background to i noticed you have a doctorate in physical chemistry. i also have a great deal of experience in physical chemistry. i think i took 10 semesters of it at mit. however, it was all second semester chemistry that i had to repeat over and over again before i could pass it. but it's a great background. the republicans want to kill social security. i think that's quite obvious. turn into a voucher plan -- >> mr. chairman? >> and -- >> if the gentleman would yield

on that. >> be happy to. >> mr. starr, as you know, republicans are very strongly supportive of social security. our moms and our dads, our grandparents -- >> but the poor people are paying for it. i don't buy the. the republicans -- [talking over each other] and turn them into vouchers. now, dr. reischauer, actually you were one of, they are stealing your thunder. they are one of the original founders. your thunder of course is to have medicare, to have premium support. now fortunately you also gave an umbrella for the thunderstorm, which was at&t benefit. but would you support the idea of premium support without a guaranteed benefit?

>> as you know, mr. stark, the term premium support came out of an article that henry aaron and i wrote in 1995, suggesting that there be a private or nonprofit auctions for medicare beneficiaries, along with fee-for-service that the benefit be a defined guaranteed benefit, and that the payment the one that was indexed to the growth of health care costs over time it and our belief was that this might generate more efficient delivery systems and better care for america's seniors, along with some cost savings. but the emphasis was on quality

of care and offering diverse set of delivery systems. >> thank you. the affordable care act, which the republicans would like to defeat, according to actuaries, it would shorten, it would extend solvency eight years longer than if the republicans had their plan to kill the reform. would you suggest that is correct? >> there is a projection that age i cost would be reduced and the trust fund would -- >> i ask unanimous consent the record the press release with the trustees report, which states without affordable care

act, the health insurance trust fund would expire eight years earlier and 2016. dr. reischauer, can you put a dollar number, i mean, i keep hearing that social security is going to go broke in, i don't know, 20 years, something like that, what will the total negative amount be, how many billions would you guess if you can project that, short over the total period of? >> over the next 75 years? >> isn't going to take 75 years to go broke? >> no. it will -- >> talking about -- [talking over each other] >> i don't have a number at the tip of my -- >> you have an idea speak with basically the projections have a trust fund solvency 2033, and so the shortfall would be in 2033 through the year into the 75

year pay. where they present i am about 8.6 trillion. >> 8.6 trillion, okay. and do you have any ideas the two wars we're fighting and not paying for cost over that same page? >> i do not spent would you be surprised to know it would probably cost a lot more than that? i'm not doing anybody on the other side ask that we pay taxes, particularly for those of us who may have high income like members of congress. we are not being asked to contribute anything to pay for that were. thank you, mr. chairman. >> thank you. and without objection the statement, the memo you refer to will be made a part of the record. mr. martin, you're recognized for five minutes. >> thank you, mr. chairman. my question is about the actual mechanics of how, when you approach, let's say 2016, and

the disability shortfall begins to appear in the disability program. what's the number that congress would need to appropriate out of general funds, and those threshold years, just to maintain, to maintain the benefit? >> just a very crude estimate, it's about $30 billion a year, the shortfall that appear for 2016 through the rest of the decade. >> so about $300 million over -- >> we look at things over 10 years usually. >> it would start in 2016 so about $30 billion a year i guess over the last what, six years of that evaluation period. >> and is there already, is there a trick or put into the law where the congress immediately is confronted with having to make that legislative decision?

.. you would have to find other revenues and put them in the trust funds to allow full scheduled benefits to be paid. >> you basically have an appropriation be made into the trust fund and the trust i would basically then make its payments

adequately. >> based on the current. >> and if we reach the threshold in the main social security trust fund and the amount of money -- what would be the amount of money needed that congress would have to appropriate in that year the first year, based on projections you're making now to keep the benefit at 100% when we reach the 75% threshold, then all of the diskette that warming when we open our yearly event and look at it quiets >> array. i don't have the precise dollar figure, but just to put it in today's terms, it's about 25% of scheduled benefits. today the cost of paying benefits as a little bit shy of $800 billion. $790 billion per year.

you want to think in today's terms. the amounts by which you would be sure it would e. today's equivalent, little shy of $200 billion a year. >> said that would be the choice congress would have at that point. two key benefits basically at the level that the trust fund, the projected level of congress would have a decision that just simply appropriating the money to go on. >> yes, now this cuts to a point i've made earlier about the difficulty of the choice of congress to keep, obviously the path of least resistance at that point his teacher and the general fund say here's another 200 much higher nominalterms, but the equivalent of 230 billion obviously would end the principal social security's financing itself. either have to raise payroll taxes or cut opposite pavements

by nifty fill in the gap. >> i do not come to you at completely the philosophy of the self pain system and he would transfer, like many of the states they've gone and enrich their pension plans to raid the pension obligations and many of the state now have just occurred an appropriation. they depleted the trust fund, barred against them are cached and then to the edge of it being a payment out of the trust fund, based on earnings, they just simply have a fixed liability to that. >> that's right. >> that would be calm -- but that was just become law by the fact that we have not fixed but for some? >> you would have to take an affirmative legislative action

to support the problem with general revenues. under current law no provision for doing that. they can't par for the general fund are received that additional legislation receive an appropriation from the general fund. so you have to change the law in order to have the result. >> so i think it's reasonable to expect most of us will still be here in 2016. i certainly hope to be. and so, that threshold that you're talking about in the main social security fund were approaching that the social security fund. so whether we are acting are not acting, were making conscious decisions on how were going to handle this disability trust fund. and i suspect the mentality of the congress at this point was just appropriate the money so that no one loses their benefit. but when you make a conscious decision and you're making --

are you making a much bigger decision not to appoint? >> in the past, when faced with the same challenge, the congress has to reallocated tax from the oas i system, the old-age survivor system to the disability system. and tweaked the division of the total payroll tax between two trust funds and thereby avoid it making difficult decision. >> thank you. mr. chairman. >> gentleman's time has expired. mr. smith coming to recognize. >> thank you, mr. chairman. dr. blahous, we frequently hear that the social security as a separate account and is not contributing to the deficit. my colleague, mr. marchant was touching on some of this. but in her testimony, you indicate the social security

operations are currently adding to the unified federal deficit will add substantially more in the years to come. can you expand on that? >> perhaps the best way to answer is for me to say the parts of my answer that all analysts would agree with and then i get into the part that there's disagreement among analysts. i think all accounts agree to the extent that social security supported by some peril tax revenue or profit taxation of benefits to that extent is not adding to the federal budget deficit. most analysts would also agree that to the extent that social security is receiving subsidy from the general fund, like the transfers that the payroll tax cut, that portion that is sent to deficit. we get into the murky word analyst area has to do with the interest payments that are made to the social security trust fund. right now to a very large extent from now a new 2033 and certainly into the 2020, social security will access to large

extent the general fund. if you has to give an analyst analyst to interpret what goes on there communigate two different answers. from a mechanical standpoint, the payments of interest go from the general fund to social security. so you could say from a mechanical budget standpoint that this interest payments to represent money coming into the u.s. treasury and therefore represent money going to social security without reducing the unified budget deficit and then represent an extent to which social security as to the overall deficit. you'll also have a school attack, but also a school of thought says the interest payments represent the extent to which social security has reduced the bar and that the federal government has had to do and therefore represents a reduction in unified budget and interest payments and therefore to the extent social security receives interest payments is not adding to the unified budget

deficits. you will have competing views on that. i'm on one side other people on the other. with respect to other parts, but is less ambiguity. to be extent the program is receiving transfers of general mechanisms clearly adding to the deficit to the extent to provide some peril tax income is clearly not. >> thank you and i will yield back. >> thank you. mr. burr, you recognize. >> thank you, mr. chairman. dr. reischauer, i appreciate your article and 95 about premium support and what i would go. my question is what happens when at the time people call that vouchers and peoples that that's going to make medicare. what was your response that are classics >> our response was that changes are unavoidable, that this is a

promising approach to words providing beneficiaries would your choice -- more choice, possibly a reduction in government spending from competition among plans. >> thank you. jumping back here i kind of wanted to follow-up on the question of representative merchant had on the disability insurance trust fund. you know, without one to five years to make decisions and i'm sitting here looking at 2016 and say that's not five years. that's four years. and if you do-not-call up the cliff, you're probably talking to one to three years to do some thing. as you explain the reality of how things may happen and where money would come out of the other fund and subsidize this

time, if you pull those two funds, have you looked at what the year that were not going to cover the benefits? write that one is 2033. this one is 2016. the old-age started subsidizing the other one, at one point will it bring down? >> guest: >> right now the old-age survivors find is scheduled for depletion and 2035. disability 2016. if you put them together the funds will be 2033. >> 2033 is at stake here we often tour round and the vernacular refers to social security as a whole. that is the feature you hear the most. one is 2035, the other is 2016. >> the 2013, 33 assumes that she rejiggered deallocation a payroll tax between the two trust funds. maximize the length could >> the old-age survivors today when this report is still 2035.

>> that one is 2035. >> u.s. 2030th last year. >> it's come down from 2038 to 2035. >> just to be clear, the unfunded liability we talk about it .6 trillion, which is over two years of all federal spending. but that includes the 2.7. using that money in the trust fund. >> you're right. that is basically the deficit on top of redeeming the trust fund and redeeming the trust fund basically redeeming the trust fund as a nice site and on the shortfall from 2033 to the end of the valuation. as with any .6 train comes from. >> if he didn't die at the trust on an outcome you europe tend to 11 trillion the unfunded liability tunica saw that. >> there's a lot of terms used and sometimes makes it confusing, but a cash flows for a while, but it's not solvent.

relief from my tears, i just really think we have to look at these facts of the facts are the facts and it's not solve the long-term and quite frankly if we care about social security we need to do some things to ensure that it is all that. and so i'm obviously personally very open to any ideas from anywhere and i think the solution needs to be bipartisan. i feel that way you can present it to the american people. i am hopeful we will get bipartisan solutions coming forward. thank you mr. chairman i yield back. >> i'm going to ask what my question. dr. blahous, and we need to make sure our reform efforts ultimately online tax revenues with an about-face on a 15 basis and not didn't have to enter in the last major reform and 83.

10 and 75 year solvency was achieved by building annual surpluses in the near term followed by growing annual deficits in the long-term, even though that wasn't intended or reformers at that time. is that correct? and could you talk about that? >> again, my colleague may want to leap in a disagree, but my read of the amendment is that they intended to do if they actually did were somewhat different. i think they aimed at avoiding an immediate solvency problem. the benefit checks are not going to go out in a few months and they wanted to prevent that from happening. they also and had a long term actuarial balance. if you go back and read the documents of the deliberations and members of the greenspan commission exchanged and how they measured fiscal success, it is very clear they didn't look at it really do it now.

when we make a measure of the condition of trust funds, we care what the carryover balance of the trust fund, interest payments of the trust fund. we basically treat the trust fund as an asset in social security and therefore within the mindset you could sort might do something ago that the trust fund and gaza town every period of time. that is not actually how they went about it. they use a different method for calculating program's financial condition, called the average cost method basically and it assumed in any given year you would fund the program by incoming wages for workers. they didn't have the carryover balance. even count interest payments of the trust fund. if you read the commentary of the greenspan commission, they say it is content to keep the program going on a pay-as-you-go basis, not to have balances from one year to the next. jay pickel wrote a letter, and the memory slipping, either "new

york times" or "the wall street journal" saying the public would never stand for the trust fund bill that because they wouldn't trust the government to control trillions of dollars of investments and save the money. so we want to keep the program on a pay-as-you-go basis. what happened is that epic surplus and senders in deficits and other years, but the result was a fully apparent until so late in the legislative process they couldn't go back and revisit it cannot be said what they were doing what is a big emergency and they didn't want to disturb the political deal that up and worse if they got a result with the programs actuary balance on paper with the more apparent than real push is why it is slipped since then. >> we get a solution this time will be political consequences as well. do you care to comment? >> yes, i do care to comment here and there a real dilemma here. if you operate a program like this on a strictly pay-as-you-go basis, then you are saying as

demography changes and changes may be in unexpected ways or trend economic growth changes, you are going to have to raise taxes or lower taxes or raise benefits or lower benefits. and for a program designed to provide the american population was some kind of assurance that it's going to be able to plan its retirement or how much insurance it means for its potential, that's not a really satisfactory way to go. the other option is you can build up reserves and deplete reserves over time. and i agree with dr. blahous that the intent was not to build at the stake reserves. the future course of demography was not fully appreciated by

those responsible for anybody at that time. and now, was it a permanent phenomenon? and outcome we have huge social changes that have gone on in the last 30, 40 years. small family size, more immigration, more women in the workforce, et cetera, et cetera then make these things very hard to put in place and then stick with your decision for the next 75 years. so i don't think there's a right answer to this question. >> thank you, sir. mr. bush era come to your plumber question. >> yes, to feed off this question, with conversation because we are accustomed to having this conversation. i think we don't explain in terms of most americans look at it from. so essentially what we say is

back in 1983, social security was nearing the point where wouldn't pay all benefits, congress working with -- working with president reagan worked to do with that in the result was a system where americans paid a little bit morecomatose got less in benefits and the result was this reserve being told that because americans have since 1982 contributed more than assistant needed to pay recipients beneficiaries. now, most americans say thank you the heart, whether you are a bank or any other place where i can store my money any time you'll pay me in interest on that cash, but you expect at some point to collect on that cash come essentially by law that is what we did. we told americans when we deposited their contributions, social security contributions from a paycheck for social security but what was not used -- actually all of it when

comes than goes into treasury bonds. then from there, the social security system uses what it needs from treasury bonds to pay for benefits to cash in treasury bonds because it hasn't been -- hasn't needed to cash in all of those treasury bonds to pay for current retirees it's been building up the surplus in the surplus has been earning interest. small because treasury bonds earn less interest and somewhat risky investment on wall street. it's been earning interest and that's the 1.6 trillion interests of the spinner. dr. blahous come you say some people question whether that's real money because it centrists must essentially a transaction between one arm of the government, social security to the other arm of government, the general operating budget of the federal government. but those treasury bonds are real as the chairman pointed out earlier, 45% of our public debt is owned by foreigners.

they have owned baghdad and they get to collect on them because they own treasury bonds. so there are those who say it's not real money for social security holes. guess what, were in good shape because 45% of our debt is a real money either. if you don't own the social security americans who paid into it, we don't know the foreigners either. that's why don't understand the logic of those who don't say it's real money because americans paid the money into the system. it was secured by the most secure form of currency pairs, which is a treasury bond. and you say it's not real money sent to because it was done by law, social security given the money to the government and getting a treasury bond to hold onto the money i think is a real, either mistake to say where he will injustice american people hooch continue to pay into the system today and a factor reserve will continue to grow for several more years before we have to start use it

to pay for benefits. so i think the public will want to understand. i did the quick math on this. and the 77 your social security has been around, uni and everybody who works in hustler has contributed $14 trillion into social security with their paychecks, our fica contributions. in 77 years the calculation was we've used it $13 trillion in paying out benefits. hard cash left over come the simple math, for tonight is $13 trillion contributed of cold hard cash to social security has never been used. for decades by reserve has been gaining interest because it's held in treasury bonds has added another 1.6 trillion. most americans would tell you if you want to give back 1,000,000,000,001.6 billion interests, we would have a big round that ranked in the

remapping down. and so, i think we want to be careful when we talk about funny money for social security because then either retells china and the rest of the world fanout point i want to make is that colleague and friend, mr. brady mentioned social security faces a permit deficit forever. i want to make it clear and i think dr. blahous and dr. reischauer concur with me that social security cannot run deficits. is that correct? >> that's correct. what we do face then i think dr. blahous, use the right word. an actuarial deficit because the actually reveals see the deficit above the current mlb have to pay out and that's what we have to tackle sooner than later. but can a social security system ever run deficits by law?

they can never run deficits. the cold hard fact is as dr. blahous said we have to tell americans in 2033, guess what? opposite her benefit went for 100% of which even getting to 75%, which is cruel and that's why we have to do with this. never has social security wanted deficit and never can it until we in congress change the law. with that i would yield that. >> do much make a final comment on that? >> i certainly don't want to be construed as a testimony makes clear the bonds are backed by the full fate of u.s. government the trust fund whether they're real assets, but they usually have to do with analysts who seen for the trust fund bonds. for example the interest

payment, you know, we did 200 plus billion in revenue trust funds this year. to social security from the revenue fund without collecting any taxes. began a political question is who's really paying for the interests, the taxpayer finances the general fund for the person investing in treasury bonds is obviously the interest payment. it's not necessary the case they were paid for by workers on social security and the fierce analytical argument as to whether that portion of social security comes from contributions made by workers or some other source and i don't want to be construed as saying they're not the money for social security. >> this is what i love about hearings is that we have this kind of a discussion because this is what the public would love to hear it's rather than just doing our five minute of

asking questions and you only getting a master responder give your testimony, disconnecting chairman camp has done a great job on taxes or he has allowed us to have these informal off the record conversations with experts on tax reform and we could do more of those even a social security, for example dr. blahous, when they try to help working families of this regular session we told them he have to contribute lesser fica taxes to social security. congress intentionally said we will not damage social security. we will take money from the general fund and replace the money that otherwise would've gone in. i would respond to your point, which is a valid point that the real money strip are interested in treasury bonds really came from the general fund. i would say absolutely should earn interest because we consciously said we don't want to undermine social security. we want to give working families who pay fica taxes a bit of a

break, but we don't want to do that at the expense of social security of social security when these folks retire. the decision was consciously made that we needed that money would be used to buy treasury bonds that would then earn interest and therefore we knew that would become money that the federal operating budget would go to social security when the time came to collect him a treasury bonds. your point is well taken and that's the kind of person we have to discuss because otherwise everyone gets confused if it's real money, so i appreciate the point you made. >> i want to thank both of you for being here today and i think we've had a positive discussion. we do need to fix social security and we intend to do it. period thanks for showing up. but that, meaning stands

adjourned. from mark [inaudible conversations] >> and is one of the fascinating aspects of abolitionism are the abolitionists who said when one can size the abolition stars go minority and they are still despise. but transforms abolitionists and to respect good chris dix as fort sumner.

>> how do you approach book and are book and are viewed differently than news reporting interview? >> i think of both interviews as gathering history. i think of interfering when i'm working for the news side as gathering contemporary and information. >> how difficult it is to remain impartial and not get caught up in the hype of one campaign or another? >> i will try as best they can to get people as: understanding as what is happening in this campaign. it is not that difficult to put your biases to the side. >> how has social media changed your news information? >> twitter in particular is a primary news source for anybody

who covers politics and pays attention to politics. twitter didn't exist four years ago for all practical purposes. >> a key financial regulator told congress that jpmorgan chase has serious risk management issues that go beyond the over $2 billion trading loss the company experience. the comptroller of the currency

was joined by the sec chair and other regulators at a hearing held by the house financial services committee. in the afternoon the committee hot spring jpmorgan chase ceos jamie diamond who apologize for that loss that no taxpayer money was part of it. this is for hours. >> today the committee needs to examine bank supervision and risk management in light of the recent trading loss at jpmorgan chase when america's largest bank reveals that i suffered an unexpected loss of more than $2 billion, and understandably generates concern and raises questions not only about the risk management controls and corporate governance, but also the action or inaction as the case may be other regulators. while the size of the reported buses a small fraction, just 11,000th at jpmorgan's total

assets, this episode serves as reminder that no institution, no matter how well-managed is immune from mistakes that are to use mr. diamond's words,, sloppy and the result of bad judgment. but even more importantly, this should remind all of us about the importance of making sure it is the bank and at shareholders, not the taxpayers who pay for such mistakes. fortunately, these losses are not being borne by the taxpayers are customers or clients of the banker jpmorgan and the shareholders. since the losses were disclosed, the company has lost $23 billion in market capitalization and sasser reputational harm in the marketplace and employees involved in the problematic traits have lost their jobs. at least some of them. this is how the system is supposed to work.

those who take the risk are the ones who suffered the loss to realize the. it stands in sharp contrast to the regime of taxpayer-funded bailouts would privatize profits and socialize losses. we've experienced in the case is that aig, g on, fannie mae, freddie mac and cylinder. could we have order among some of the staff in the audience? thank you. this is how the system is supposed to work. those who take the risk are the ones who suffer the last he realized again. if ants in sharp contrast to the regime of taxpayer-funded bailouts with privatize profits and socialize losses. with experience in the cases of aig, gm, fannie mae, freddie mac and cylinder. because the bank has more than

sufficient capital, taxpayers are protected from a bill in the overall financial system is protected from being write-down by the mistakes of an institution deemed too big to fail. that is where the most important lesson to be learned from this and gents have nothing to do with any of the 400 plus rules found in the 2300 page.frank act. the most important lesson is how sentra capital is to the safety and soundness of individual banks in our overall financial system. and there is no capital or liquidity problem that jpmorgan and i think that is a primary concern the regulators here to be complemented by using sure that their visit asian capital at that institution. a bank with sufficient capital is able to absorb losses, whether losses are caused by external factors beyond the institution to control our internal problems caused by poor risk management.

a bank with sufficient capital is not a threat to the financial system even if regulators failed to do their job and a bank with sufficient capital can take risk without putting taxpayers in jeopardy. just as jpmorgan should be and is being held accountable for risk management failures, accountability must also be demanded as a federal regulator who oversee the bank's activities. unfortunately because dodd-frank failed to consolidate and streamline the current convoluted and regulatory structure as house house republicans approach achieving regulatory accountability is every bit as important now as during the height of the financial crisis. how inefficient and fragmented as the current regulatory framework? well, sitting before us today or five different regulators, all of whom have signed supervisory responsibility over the streets

and sidewalks whom have examiners embedded in jpmorgan. but none of whom apparently received are aware of the banks hedging strategy or raise concern. perhaps the complexity of the trades of the regulatory structure undergoes itself makes that impossible for an individual regulatory to adequately do their job. after all, the poker rule proposed by cells staggeringly and its length and complexity in more than a month after the loss was disclosed the regulators cannot say whether the poker rule would've prevented jpmorgan for making the trades contrast with the simplicity of capital. capital is their greatest protection against systemic risk posed by institutions that are too big to fail. and please let the opportunity to discuss this issue today with their witnesses and i think each of them for being here. before closing once again i want to emphasize the point that jpmorgan and its shareholders,

not the bank's client, not the taxpayers, not the depositors and more importantly, not the taxpayers are the ones paying for the bank's mistake. this is how the system is supposed to work and it has. i now recognize the ranking member for his opening statement. >> well, i will begin by confessing that my memory fails me with regard to the proposals to my republican colleagues, supervisory consolidation. i do know that the structure we inherited we took over in 2007 was a lot more complex than the current one. we did in our legislation abolished the ots merger with the sec. i do not remember during the 12 years any proposal and i apologize for the lapse of memory. i'm sure laura my neophyte existed. nor do i remember a proposal to consolidate during the consideration of the bill. iconology major problem here. the biggest is a separate sec

see sharing jurisdiction of derivatives. i would like to have been able to give it about. during the difference easterner country during the subjects. they are an example of the larger issue which is the effort by our colleagues with hope for some of the industry to reregulate derivatives that has been a drive they have made. now, they haven't done it had on because i believe there's some popularity in the country for the notion they should be regulation we should undo the area of 2000. when senator graham that the charge for a total of deregulation. here is that we are today. as we sit here now shortly, the appropriations committee will be voting for the commodities future commission which is

incredibly reduce this year. and criticism for not doing was quickly enough at mf global and not washing the windows of peoples cars and all other things. this republican majority is prepared to reduce their fund aimed. they will be given by the republicans $180 million. i stress million because the regard to derivatives in million and not alien. the senate forshaw has acted to the full funding and that is one of the issues. this can idea for my objection and many of us voted to the derivatives transactions goodbye the foreign subsidiary american institution. i.e. jpmorgan chase on an operation. aig and others. so their other bills that they have been put forward. it takes my pieces to make some

sense. some option that could be better and more flexibly and administratively. jpmorgan chase shows this very jpmorgan chase is considered to be a very well-run bank. it's been a very well-run bank you can cook this last for several billion dollars, dreamtime were told in a short period of time is an indication that jpmorgan chase as a fortress balance sheet, but not every institution has a fortress balance sheet. some institutions may have a picket fence balance sheet or he chain-link balance sheet. and yes we would like all of them to get out there, but were not all their data. so the notion that we should underfund the derivatives that should invents for americans and institutions to move overseas, these are very grave areas. the very tight jpmorgan chase

are very well-regarded chief executives is taken by the control. i believe if you look at the very science of business that jpmorgan chase and other banks, you find would be unlikely this could happen in any of the mind business. derivatives are a particularly complex, highly with outraged and until our legislation is fully implemented at the cftc was given financially to do that the skier and that's the point. this is an example. were not micromanaging jpmorgan chase. the fact that mr. -- didn't fully understand what they were doing. and then made the choice when they were confronted with a problem not to try to find the position down so that good derivatives come to the aid of bad derivatives, multiply in the

area. these are arguments for the kind of regulation we need. it did not cause a systemic of them here. but waiting until it happens would be a very grave error. so i intend to focus on this and i believe many on our side well. the question is, does this not argue against the proposal to deregulate derivatives and what we see on the part of our republican colleagues is a systematic piece by piece, byte by byte effort to render us unable to play derivatives go right back to where we were before the terrible crisis of 2008. >> i think the ranking member. the chairman of the subcommittee on financial institutions. ms. capito is recognized for one minute. >> thank you, mr. chairman. were here to find about risk management lapses that led to a $2 billion in losses. from the losses could not be

something that would come before congressional hearings. however we know that doc frank failed to add too big to fail and in fact caught codifying into law in there for like jpmorgan are still viewed i purchased existing systemically important they may be bailed out by taxpayers in times of extreme distress. although the taxpayers dollars for risk in this case is on us too big to fail exists in our market committee should be vigilant and oversight to ensure regulators and private firms are employing physician risk management models. another $2 billion did not pose a threat as a firm, but says march 31, 2012, they hold $128 billion at tier one capital. questions i have. alas well-capitalized firm, could they survive the last? is their transparency in the system? these five regulators here to talk about this, to why this is

not seen by all five? why was it not shared that was seen quiet idea that. >> thank you gave ms. waters, the ranking member -- >> thank you, mr. chairman. i thank you for this hearing and i think that mr. frank has set the tone and direction for this hearing and i would like to continue in that vein. before you get into the specifics of the circumstances surrounding jpmorgan chase trading loss, it's important to remember the context underline this hearing through approaching that the to get financial crisis since the great depression. millions of american families have lost their homes to foreclosure, many of which were pleaded with otherwise fraudulent paperwork. for those that remain in their homes, individuals have lost trillions of dollars in housing wealth as well as losses to their retirement and college funds.

so it is within this context that we hold this hearing today. but make no mistake. this is not just about a two or $3 billion trading loss that jpmorgan chase. it is about the 10 billion or the 15 billion or the 50 billion months that could come next, either at jpmorgan or any other bank that's backed by the u.s. taxpayer if we don't stand up for financial reform. we passed dodd-frank, but admittedly nearly two years since the passage of the act we wait for many revisions to be finalized good industry complains about all the lingering uncertainty over dodd-frank, but the truth is that the industry is lobbying its essential reason for these delays. as i said before, there is a thousand cuts to undermining financial reform, which includes pushing bills to undermine dodd-frank right here in

congress, lobbying agencies to weaken the rules and suing our regulators and they put forward. many of my republican colleagues in the house are complicit in this erred by failing to get the regulators are finding they need to do their job. so i want to employ the regulators here today to resist the pressure they face to weaken the rules and finished their rulemaking. otherwise, we may secure a year from now wishing they would have acted a bit faster to prevent the next financial blowout. i.e. a the balance of my time. >> next, the chairman of the subcommittee on capital markets, mr. guerra for one minute. >> i think the chair. you know, the reason for treating jpmorgan is obviously regrettable in the banking supervisor in charge should be examine themselves and asked what exactly happened.

but i'm a little surprised to that there have been an high in her by colleagues on the other side of the aisle but a private business loses money when the institution wherein my tier is losing billions of dollars literally every day. in other words, no shortage of vibration expands on the other side of the aisle to the private sector loses money. makes you wonder, where is the outrage from bear stearns has built up billions of dollars in republicans asked for committee original discussion to look into it such as the former chairman of the never had the hearing. where is the outrage in any pretty lasted billion dollars every quarter now when there's still no average? service the outrage when over half a billion dollars last use the green energy tax policy of excel and grow? buries the outrage dollar losses and if you can put in a capitalist society that sometimes happen. unfortunately politics on the other side continued to demonize

loss in the private sector who fail to look inwardly on the taxpayers every day here in congress. i don't that. >> thank you. mr. fine for 30 seconds. >> yes, interesting or the previous speaker talked about the indian freddie started to say, i like to listen to this day. he didn't -- the sentence. no further than we were before. the taliban as the chairman of the subcommittee over fannie mae and freddie mac has been eschewed the last year and nothing has come to full committee to change that. john then laments the problems at fannie mae and freddie mac continuing company is contesting his inability to do anything about it. when we were in power, we did exceed to the wishes of the bush administration to put cnn friday under conservatorship years since january of last year, nothing has happened. i yield back. >> mr. neugebauer for one minute. >> i thank the chairman. the point has been made to what

taxpayers didn't lose any money. shareholders lost $23 billion in market value. the college of new jersey pointed out that today the taxpayers will rebuild $6 billion in the hole. the two items i want to focus on during this hearing by the regulatory issue where we had added regulators in these entities and they didn't seem to catch this issue and disappointed than trying to make on a number of hearings we've had in my committee is when we have regulatory failure brings to question a lot of people call from articulations of regulators the question is, don't we need the regulators to do their job. the other shoe is concerning his disclosure and transparency of some of the trade and that members of the management of these companies are saying we had just a few days before this problem became the real issue. the ceo says it's like a tempest

in a teapot. we also have the ceo of mf global city in a few days before the company went bankrupt that there's never been a better shave. i think these issues are important issues we need to discuss today. >> i think that what -- i'm sorry -- mr. maloney for one minute. >> thank you and welcome to the regulators. since the financial crisis we have work to improve regulation of the financial industry. the basic questions today are, are we on the right track to prevent another 2008 from happening? to regulators now have the tools to present another crisis and our ceos from the lessons they learn from 2008. why the losses incurred in london unit? could they have been incurred as

easily? by every indication, jpmorgan chase is a well-managed firm. so if this loss could have been there, it could happen at another another large financial institution. mr. diamond testified last week that there were parts of dodd-frank he supported and parts that needed to be clarified, not overturned. ii think the industry, regulatos and policymakers can agree that the vocal role, including the market-making position needs to be as clear and straightforward as possible and they believe it should be put in place as soon as possible. thank you. >> thank you good mr. had thrilling, vice-chairman of the committee for two minutes. >> thank you, mr. chairman. tina are holding an important hearing. i like to associate first icon is with that of the gentlemen of the jersey. i do find it somewhat interesting in an institution

that unfortunately no witnesses serial trillion dollars annual deficits as an order of magnitude to billion dollars, although certainly a significant sum seems to pale in comparison, so i am somewhat curious about certain members levels of outrage. but the news broke about the $2 billion trade in martha jpmorgan and they said i told you so, we needed the full court will. some of us also may reflect and say i told you so comment me but we don't need institutions in america that are too big to fail. unfortunately, mr. chairman, dodd-frank has codified too big to fail with the ability to designate systemically important financial institutions we codified too big to fail into federal law. empowering the fdic to wind down these institutions and allowing

them to a bar of the fdic on the institution from taxpayers an amount that could be outstanding in the trillions of dollars we have codified too big to fail. mr. chairman, before we get too far down the dodd-frank wrote, it is time for the nation to re-examine this. i think we should be very careful about outlining risk. without this we do not have a rate of return. we do not have investment. we do not have jobs in an economy that three and and a half years after the president has taken still suffers and constituents are still in jobs. i thank you recalling the hearing them at first hearing testimony of the witnesses. >> , shined with remaining?

>> i had a wonderful opening statement. if you keep saying the same thing over and over regardless of whether it's true or not, apparently will become fact. i want the red sox to win. the red sox to win. there still must place. you can sit all day long, but dodd-frank did not codified too big to fail. just the opposite. it's preventing it from happening in the future. where was the outrage? he made me a movie star, mr. kerry. it made me a movie star on an inside job expressing the average of the american people when they are not my side of the aisle and the majority passed in the most important bill in a lifetime in the dodd-frank bill to express outrage that we've either supposed to do legislation. the legislation you and your friends have decided to do it again, to kill at every opportunity, to underfund and make sure the regulators cannot do their job and you would even give them the tentative regulations in place to see if

they have been. the truth is i am not outraged by this particular loss. the numbers are relatively small and comparison to other things. however, i think it's important to us thoughtful, insightful questions about what -- why they happen and how we can avoid them from happening in the future. that's the outrage. >> thank you. i see our first half-year, you can see they're not quite ready to break into a coma by our moment. last night welcomed onto serenity of the financial services committee. this concludes our opening statements and without objections, all members written statements will be made a part of the record. the chair wishes to remind our gas at the manifestation of approval or does approval, including the use of signs and placards as a violation of the

rules which governs the committee in the chair wishes to thank our tests in advance for their cooperation in maintaining order and the koran. let me say that there is agreement, i mean, among all the panels feature agencies are all functioning under an increased workload, and greatly increased workload and that you are facing many challenges with not only the economy, but with adopting new rules and increased supervision in europe optioning under a budgetary restraint. particularly the sec in the cftc, your work has greatly increased in your budget doesn't reflect. >> the chairman parliamentary inquiry, will we hear the opening statements? >> right now would be great.

>> no, not at all. >> i want to show his purposes. >> is the prerogative of the chair. >> shares under the same time as any other member. >> if you introduce the panel, do you wish to protest? all right. we will go and remind the witness says that without objection or red stain that will be made part of the record annually >> asked for five and a summary their testimony. our first panel this is thomas curry, comptroller of the currency and this is your first appearance before a committee since he is sworn in as comptroller in april and we look forward to a productive working

relationship with you as we did at the fdic and welcome your attendance. >> thank you, chairman bachus. ranking member frank and committee members, i appreciate this opportunity to discuss the occ's perspectives on jpmorgan chase losses. >> can you pull to my closer? >> my written testimony also includes background on our approach to supervising large banks and our efforts to raise supervisory expert patient. this material provides context for understanding how we earn reisinger awareness of various in the banking system, ensuring these risk are understood and well managed and expectations for governance nd oversight, capital, preserves and liquidity. it will take some time to achieve the subject is that we

must be vigilant in changing our course. of course these two are strong at active supervision and tories improve soundness of their banking system so that it can fairly and affect to believe served communities. the occ is the primary regulator of gpm c. worth of transactions leading to his losses occurred and we are responsible for the provincial supervision of the bank. in early april, information became available indicating this insert cavities conducted within its chief investment is. in response, occ examiners met with ink management to discuss the bank transactions in the current state of the position. occ examiners directed the bank to provide additional details regarding the transaction, their scope and risk. our examiners were in the

process of evaluating the position and strategy or risk reduction when at the end of april and during the first is the name, the value of the position deteriorated rapidly. as the positions deteriorated, discussions turn to corrective actions and steps necessary to mitigate and reduce the bank's position. in response to these events, we've undertaken a two-pronged review of our supervisory or entities. the first component focuses on evaluating the adequacy of current risk controls at the bank and heard their application to the issue. we are actively assessing the quality of management and risk management for oversight, the types and reasonableness of his management metrics mms, the model government review process and the quality of work by the independent risk management team and internal auditors.

.. we are using these events to broadly evaluate the effect is that the banks risk management within its cio function and to identify ways to improve our supervision. if corrective action is warranted, we will pursue appropriate informal or formal remedial action. while the losses raise serious questions that may affect the

bank's earnings, d.c. not present a solvency issue. j. p&c national bank has approximately $1.8 trillion in assets and $101 billion in tier 1 common capital. it has improved its capital capl reserves and the crudities in the financial crisis and those levels are sufficient to absorb this loss. it is also worth noting that this loss is not threatened the broader financial system. there has been much discussion about whether these activities would he permissible under the proposed volcker rule. while it is premature to reach any conclusion before our review is complete, this episode will certainly help focus our thinking on these issues and will help regulators ask fresh questions. before closing i want to stress my commitment to strong supervision and to taking every opportunity to improve how we accomplish our mission. this commitment will be a theme

throughout my tenure as comptroller of the currency and i look forward to answering your questions. thank you. >> thank you comptroller for an excellent statement. chairman schapiro, the fcc chairman, happy birthday, and you are recognized for your five-minute statement. >> thank you. >> mr. chairman i ask unanimous consent that we silently insert happy birthday into the record. [laughter] >> you that's fine. >> thank you very much bachus ranking member frank and members of the committee appreciate i appreciate the opportunity to testify to the house and the securities exchange commission regarding significant trading losses by jpmorgan chase. on may 10, 2012 jpmorgan chase a bank holding company with $2.3 trillion in consolidated assets announced it had incurred a 2 billion-dollar loss from trades executed by its chief investment office. the company also stated that it

sustained additional losses. the losses reported by jpmorgan occurred over the banks london branch but not in the broker-dealer supervised by the fcc. the publicly held company jpmorgan is subject to ncc reporting requirements and lost closer to market risk in its annual and quarterly reports. this report includes line item requirements or disclosure of specific information about risk as well as principled disclosure about the risks and uncertainties the company faced. although the commission discussed -- does not discuss it publicly i can sing cases of this nature the primary authority relates to the appropriateness and completeness of the entities financial reporting and other public disclosures and its financial accounting and internal controls over financial reporting. under an fcc rule that requires

quantitative risk disclosure companies are permitted to use one of three alternatives to disclose the source. one of those options is value of risk come disclosure that expresses the potential loss of future earnings, fair values or cash flows of market sensitive instruments over selected periods of time and the likelihood of losses involving changes in market factors. market risks must be disclosed annually as at the end of the company's fiscal year. in addition a quarterly basis the company is required to provide discussion and analysis of the sources and events of any material changes in the market risk reported at the close of the previous year. if a company chooses to use bar to comply with this market risk disclosure requirement, it must also disclose any changes to key model characteristics and the assumptions and parameters used as well as the reasons for the change. changes to the scope of the instruments included within the model as a reason for those changes must be disclosed as

well. the company also must provide qualitative disclosure of primary market risks exposures and how it manages such risk. like the quantitative disclosure, qualitative disclosure is required annually with material changes reported quarterly. generally accepted accounting principles also necessitate detailed information about derivative instruments in the financial statement. the mandated disclosures include information regarding volume fair value and maturity risk. qualitative information about the objective and holding the instrument and a discussion of risk management. if there are compensation policies and practices that create risk and are reasonably likely to have a material adverse effect on the company, the fcc's rules also call for disclosure of a policy or practices as they relate to risk management and and and risk-taking incentives in the company's annual process. our rules also require that the

policy contains specific disclosure of the boards rule of risk oversight. in addition certain principles-based rules require disclosure of a broad range of risks including a discussion of trend, advanced demands commitments and uncertainties that are reasonably likely to have a material effect on financial conditions or operating performance. this provision would mandate disclosure for example if a companies experiencing trading losses that are different from past experience in his result the current year results are likely to be materially different from the past. similarly sec rule -- sec rules require how particular risks affect a company. all disclosures must be complete and not misleading. in conclusion although the trading losses of jpmorgan did not appear to have occurred in an entity directly supervised by the sec, the examination and review of the causes and implications of the trading losses are ongoing.

once we have a fuller understanding of his issues will be in a better position to determine whether additional predatory legislative action is appropriate and i am pleased to answer your questions. >> thank you chairman schapiro for that thoughtful opening statement and at this time cftc chairman gary gensler who is -- has been before our committee many many times we welcome me back. >> i see get is my age and this job. thank you chairman bachus. >> police pulled him i closer. >> ranking member frank and members of the committee, when i hand one of my three daughters the car keys i sleep better knowing that there are commonsense rules to the road. there are stop signs, traffic lights and speed limits. there are prohibitions against drunk driving and there are cops on the streets to enforce all these rules to keep my daughters they. similarly when my mom and dad worked in finance or even completed college invested their

savings our family benefited from the securities market commonsense rules of the road. it was during the great depression that president roosevelt asked congress to put in place rules bringing transparency to the securities market as well as the futures market to protect investors against fraud, manipulation of their pieces. i believe these critical reforms of the 1930s are at the foundation of our strong capital markets and many decades of economic growth. swaps emerged in the 1980s and they provided producers and merchants to lock in a price of the commodity and interest-rate or currency rate and our economy benefited from a well-functioning swap market as it's essential that companies have the ability to manage their risks. the swaps marketplace however lacks necessary streetlamps to bring it out of the shadows or traffic signals to protect the public from my financial crash. 2008 swabs any particular credit default swap concentrated risk

in the financial institutions and contribute to the financial crisis and the worst economic crisis americans have experienced in -- since the great depression. congress responded with a dot frank at bringing commonsense rules of the road to the swaps marketplace. with regard to the quite at -- credit default swap traded by jpmorgan chase the cftc is currently midstream and standing up reforms that promote transparency and lower risk in this marketplace. the cftc has made significant progress implementing the losses of historic reforms completing 33 key roles but four years after the bonanza crisis and yet two years since they passing of dodd-frank i think it's time we finish the job and complete the nearly 20 remaining rules. we must not forget the lessons of 2000 crisis. swaps executed offshore by u.s. financial institutions can send risk straight back to our shores. it was true with the london and cayman island affiliates of aig, the lehman brothers of citigroup

and bear stearns, yes they all were in london in the cayman islands and yes a decade earlier long-term capital management with his committee had hearings and looking its $1.2 trillion derivatives where -- the cayman islands offshore. the recent offensive jpmorgan chase executing swaps as london rants are a stark reminder of this reality of modern finance. for the public to be protected swaps market reform should cover transaction for the overseas branches overseas affiliates in the u.s. or something called a conduit affiliate. i think failing to do so would be an american job and market would likely move offshore. they would go where there is lower-cost, lower regulation. particularly in the crisis where the risk come right back to our shores, right back to the american taxpayers. dodd-frank was successful in closing one london's loophole. why would we leave another loophole or the dealers behind?

some of the financial community of suggestively retreat. summoned congress have suggested cutting the funding of market oversight. the ever-growing financial storm clouds hanging over europe and lessons from the crisis should guide us and now is the time to bring commonsense rules of the road to the swap market. 8 million americans lost their jobs and millions of families lost their houses and small businesses across the country folded when financial institutions were permitted to drive on it dimly lit swaps road which had no rules, no cops. i think we would all be better for complex roads of the swaps market where while that and transparent. have rules to lower risks to buy standards of the american public and that the agency passed -- cast with overseeing them had enough funding to police in. otherwise, i would say hold on to your car keys. >> thank you chairman and at this time, chairman marty

gruenberg the most of us know who did an excellent job as the chief counsel for senators sarbanes and exxon work on sarbanes-oxley, and i think you have been with the fdic for about seven years and chairman since last year. we welcome you back before the committee. we always welcome your testimony. >> thank you very much mr. chairman. chairman bachus ranking member frank and members of the committee, thank you for the opportunity to testify this morning on behalf of the federal deposit insurance corporation. >> mr. chairman can you have them pull them i closer? >> bank supervision and risk management as a concerns -- state poll it real close to you. don't lean over. pullet so close that you don't have to lean over. >> as a concerns in recent

trading losses of jpmorgan chase. jpmorgan chase revealed certain risks with large complex financial institutions. they also highlighted the significance of effective risk controls and governance at these institutions. before fdic insured subsidiaries in the jpmorgan chase firm that $2 trillion in assets and $842 billion in domestic deposits. as the deposit insurer and backup supervisor of jpmorgan chase, the fdic staff works through the primary federal regulators, the control of the currency and the federal reserve system to obtain information necessary to monitor the risk within the institution. the fdic maintains an outside presence at the firm which currently consists of a permanent staff of four professionals. the fdic staff engages in risk monitoring of the firm, the cooperation with the primary

federal regulators. following disclosure of jpmorgan's -- jpmorgan chase's losses the fdic has added temporary staff to assist in our current review. the team is working with the institution's primary federal regulators to investigate both the circumstances that have led to the losses and the institution's ongoing efforts to manage the risks of the firm. the agencies are conducting an in-depth review of oath or risk measurement tools used by the firm and the governance and limit structures in place within the chief investment officer unit where the losses occurred. following this review, we will work with the primary regulators to address any inadequate risk management practices that are identified. following the announcement of these losses in may, the fdic joined the occ and the new york federal reserve bank in daily meetings with the firm. initially these meetings focused

on gaining an understanding of the events leading up to the escalating losses in the cio synthetic credit portfolio. the fdic has continued to participate in these daily meetings between the firm in its primary regulators. we are looking at the strength of the cio's risk management, governance and control frameworks, including the monitoring of risk limits. the fdic is also reaping the quality of the cio verse reporting that is historically been made available to firm management and the regulators. our discussions have also focused on the quality and consistency of the models used in the cio as well as the approval and validation process surrounding them. although the focus of this review is on the circumstances that led to the losses, the fdic is also working with jpmorgan chase's primary federal regulators to assess any other potential gaps within the firm's overall risk management

practices. as a general manner and apart from the physics of this situation, evaluating the quality of financial institutions risk management practices internal controls and governance, important soundness examinations conducted by the federal banking agency, on-site examinations provide an opportunity for supervisors to evaluate the quality of the loan securities portfolios, underwriting track kisses, credit review and administration, establish adherence to risk limits and other matters were meant to the risk profile of an institution. one important element of risk management is the senior management and the board receives accurate and timely information about the risk to which a firm is exposed. timely risk related information is needed by institution management to support decision-making and to satisfy disclosure requirements and it's an important element for the

supervisory review. without speaking to the specifics of the case for which the review is currently underway, the recent losses and the speed to which risks can materialize in a large complex derivatives portfolio. the recent loss is also highlighted its import for financial regulatory agencies to have access to timely risk related information about derivatives and other markets and set of exposures and analyze the data effectively and to regularly share observations. thank you and i would be pleased to respond. >> thank you chairman gruenberg enzi said these are ongoing examinations and investigations and there is some restraint on their part, giving conclusions. our next witness is general counsel alvarez. before you begin mr. alvarez i want to thank you for being with us today. as many of the panels -- our

members know the federal open market committee is meeting this morning. normally they do not testify while the fomc is meeting to discuss monetary policy and we very much appreciate the fed's willingness to accommodate the committee by making its general counsel available to testify this morning. the chair reminds members and mr. alvarez is here to testify about the fed supervision of jpmorgan chase, and he will not entertain questions on the monetary policy issues on which the fomc is meeting today. members will have a chance for the next few weeks to question chairman bernanke about monetary policy. during our semiannual caucus hearing. >> mr. chairman, thank you for making a statement and to reinforce and ask all the members to please respect that. >> thank you. i thank the ranking member and

council alvarez you are recognized. >> chairman baccas, ranking member frank, members of the committee thank you for the opportunity to testify this morning. last month jpmorgan chase announced significant trading -- trading losses on credit positions in its chief investment office. these losses arose out of a complex synthetic credit portfolio that was primarily composed of long and short credit default swap positions on a number of different credit access indices. jp mc has dated a combination of risk management failures and execution errors in the complexity and illiquidity of the position led to the losses. in response to the significant trading losses the federal reserve has been assisting the occ and the oversight of jpmc's efforts to manage and derisked the cio portfolio. we are also working closely with the occ and the fdic to help ensure that any risk management

failures, governance weaknesses or other potential problems that may have given rise to the cio losses are promptly and appropriately address. in addition the federal reserve continues to evaluate whether any weaknesses exposed by this incident may be present in other parts of the term engaged in similar activity. wildly have to date found no evidence that they are this work is not yet complete. this incident is a strong reminder of the fundamental importance of capital requirements, especially for the largest banking firms. the purpose of capital is to absorb unanticipated as well as anticipated losses. with strong capital, business losses are borne by the firm shareholders and not by depositors, customers or taxpayers. and the large in absolute dollar terms need not read and the safety and soundness of the firm. for precisely this reason, for the past several weeks, the federal reserve comptroller the

currency and fdic have jointly finalized reforms that will material's strength in the market risk capital requirements applicable to the largest most complicated banking firms. we have also proposed changes to implement the basel iii capital reform and the new capital requirements in the dodd-frank acts. importantly many of these reforms specifically address and strengthen the capital requirements applicable to trading activities and physicians including complex derivatives. the stress test are supervised complements to these improvements to the regulatory capital framework. the most recent stress test conducted by the federal reserve demonstrated that 15 of the 19 largest banking firms in the united states would maintain capital up of prescribed standards, even in a very stressed economic scenario. the one common ratio for these firms which compares high-quality capital to risk-weighted assets has doubled during the past three years to a

weighted average of 10.9% at the end of the first quarter of 2012, from 5.4% at the end of the first quarter of 2009. the trading losses announced by jpmc have also focused attention on the volcker rule position of the dodd-frank acts which contains an exemption from the ban on proprietary trading to allow risk mitigating hedging activities. the agencies have jointly proposed rules that would incorporate the terms of the statutory exemption. import moleh, the agencies have also proposed to add requirements designed to enhance the risk management of hedging activities. among these added restrictions are a requirement for formal policies and procedures governing hedging activities, hedging instruments and hedging strategies, a form of governance process, documentation requirements, internal audits and requirements that incentive compensation paid to trade --

traders engaged in hedging not reward proprietary trading. the federal reserve has received many comments on this proposal including comments informed by the trading losses occurring within jpmc's cio. we will consider all of these comments carefully as we work with the other agencies to finalize the regulations implementing the volcker rule. thank you very much and i would be pleased to answer your questions. >> thank you, counsel. before i begin my five minutes, all members if you have not gotten your questions completed before the five minutes is over, you will be stopped right there. only if you have your question out and the witness is responding. comptroller curry you testified before the senate banking

committee two weeks ago about the risk management deficiencies of jpmorgan chase and their agencies supervision institution. as you your review of this matter has continued, have you learned anything new over the last two weeks about what led to these losses and your view or the appropriate risk controls in place of the chief investment officer at the -- where the relevant trades took place quick. >> thank you is your chairman. we are continuing our review of the facts surrounding the trading losses to jpmc however we do believe it's a preliminary matter that their apparent serious risk management weaknesses are failures at the banks. we are attempting as i mentioned to continue to examine the root causes for those failures and to determine whether or not there

are other weaknesses elsewhere in the banks besides the chief investment office. ultimately we are looking to insure that we also learned how to improve our supervisory processes and examination practices to make sure that we have a better handle on similar risks in the institutions that we supervise particularly our large banks, our area supervision. >> thank you. during the april 13, 2012 analysts call and which in which jpmorgan chase officials initially dismissed the significance of the london oil trade, the firm's chief financial officer douglas weinstein stated and i quote, we are very comfortable with their position and i would add that all of those positions are fully transparent to the regulators. the they review them, have access to them at any point in

time and get the information on those decisions on a regular and recurring basis as part of our normalized reporting. is mr. weinstein's description of the regulators access to information about the positions being taken by the firm at any given time accurate? >> generally we have wide access to the management reports that the bank itself has given a variety including the activities of the cio office. what we are looking at presently is whether or not that reporting was sufficiently granular or not to disclose both to us the size of the bank and the complexity and the potential risk of the positions they took with their synthetic credit book. cbocs he failed to identify the risk until after-the-fact

although you did have access? because they were not -- the descriptions were not -- transparent. >> in hindsight if the reporting were more robust or granular we believe we may have had an inkling of the size of the potential complexity and risk of the position. what we are looking at on a prospective basis as to ensure that there is a robustness to the reporting of the risk management reporting within the cio offices throughout the bank. that is one of the lessons learned here. >> thank you and i guess this is proprietary information to make sure there is no disclosure? >> absolutely. >> counsel alvarez, one of the things about the jpmorgan chase lost that i'm having difficulty with is which

regulators are responsible for what. i know the occ regulates the national bank where the chief investment officer is -- but the federal reserve regulates the whole company. what specifically does the federal reserve do in supervising and particular what response does the new york fed had for supervising jpmorgan? >> mr. chairman it is true that they set up for regulation of these institutions is divided among different institutions and the federal reserve is the holding company supervisor, but i don't think that it was the result of the difference in point of views or the division of responsibility played a role in this particular case. we have been working very closely with the other regulators to understand the

risks here. i think what has happened here is actually more a breakdown in the risk management of the organization itself that the firm has acknowledge that. we are working with the firm and the other regulators to make sure they repair those risk management problems. as i mentioned before one of the things the federal reserve -- is making sure institutions have adequate capital. that is the best backstop pair to any supervisory or banishment failure for that matter, and there is adequate -- to absorb the losses and make sure the shareholders and not the taxpayers absorb those losses. >> thank you and mr. frank for five minutes. >> i want to stress again despite the opening statement coming from my colleague the chairman. i'm aware of no proposal that camerom either side of the consolidation. we did put the occ and the ots together, but to go further

would require taking holding company supervision with the federal reserve or put the federal reserve in charge of what the occ now does. i don't remember anyone proposing that. one thing the spill into members we have a more complex structure in the banking area in the dual banking system and we had state-chartered banks rigged by the regulator of the federal banks. as to the ftc and the cftc i agree. if the kos thinks they can put something over on the midwest, that is why we need to each seasons that of one. [inaudible] on the question, and you have been able to work together. when the data for mr. alvarez when he talks in page six about what they are doing in the volcker rule, in addition, one of the things that seems to be useful are the rules you're proposing for hedging. one of the debates here as i read some of what mr. diamond says, he can be interpreted as

saying if the bank is afraid of losing money from a certain set of events in the world, anything they do to make money somewhere else counts as a hedge because it would be an offset against that loss. you talk in your testimony about requiring more specific hedging that to the days that meet a more traditional -- of a hedge. let me go to mr. gensler. did the legislation that passes committee on territoriality were to become law, one is in the agriculture committee and they pulled the addendum at that have become law, what would be effective in on the transactions of jpmorgan chase? >> i think it would be a major retreat from reform and as i understand the trades were executed in london in the branson they would not be covered. >> if i were to become law those traits in london would be totally outside the supervision and so insofar as her of it is

than they would be subject to bank supervision but they would not be subject to anything about derivatives. >> i believe so. depends on how one provision in that statute is interpreted by guess i believe so. >> and if the provisions of the reform act were fully implemented and they been held up because you had that 3-2 situation and you have comments from -- a couple of time. if you don't edit them carefully and don't get them to enough people to read them so it's hard for me to be upset at you but -- >> thank you. >> it the provisions of the bill had been fully implemented, what would the impact of that have been? the volcker rule is only part of this. if all we did was enforce the volcker rule and drove driven us out of the bank that would make anybody any better off either so take that non-poker rules turbid provision of the bill. if they have been fully implemented, would that have had

an impact? >> i think it would still be risk but there would be more transparency to their managers. the trades themselves because they were largely in credit default swaps would be in central clearing out only for the bank but for the hedge funds that were on the other side and they would have transparent pricing out to the public. so risk tends to be better managed when you have public market transparency. i think chairman nuegebauer said that earlier. >> i'm glad you mentioned that because much of what we try to do in that derivative fields outside of the volcker rule was to bring more market activity. i must say some of my friends in the financial trinity regard competition and openness as a spectator sport. they like to see a other it other people engage in so it's often too delicate and too obscure to survive it but it does seem to me mr. dimon and

his people might have learned about some of this earlier. is that possible? >> i think that's right, even because of a risk management rule we passed earlier this year. get asked about the chain and manage these but i think transparency would have lowered the risk and central clearing for the hedge funds as well as the bank. >> i know is still being considered, one of the things i think mr. dimon acknowledges, when it turned out that some of the transactions and the heads were going bad, rather than try to withdraw from them and diminish them and cut the losses, they extended them and got themselves any more difficulty. to the extent the volcker rule defines hedges more narrowly and more specific he and it doesn't become a license to do all kinds of things to make money to offset losses, i think it will be much better off. by -- my time has expired. >> i would like to ask unanimous

consent to correct the record by introducing h.r. 3311, which house republicans on the financial service are sponsoring, introduced consolidating the bank supervisory responsibility of ots office of comptroller federal deposit insurance corp., the federal reserve and to a new agency. and also a new office of consumer protection within that agency. >> when was that introduced? >> march of 2009. >> the federal anne craig -- did we have a hearing on that clicks are? are we moving on that? >> now you are the chairman. are we taking any action on that bill? have you reintroduced at? >> no. we are having trouble. >> but that deals with it.

>> mr. hensarling for five minutes. >> thank you is your chairman and i appreciate your comments on dodd-frank. during its passage the members were told it would and the specter of too big to fail that many of us thought frankly the big would get bigger in the small would get fewer and the taxpayer of would give poorer. chairman gruenberg i have worked at the fdic's q1 banking profile and not that i expect you to memorize this but if i have rig, table 3a says that the cost of funding earning assets for utioinstit greater than $10 million is 22 basis points last bin institutions with between 1,000,000,010,000,000,000 in

assets. are you familiar with this data? does this sound about right to you? >> yes, sir. at if i recall from memory and i don't have the data at my fingertips, fannie and freddie, given their imprisoned -- and place of government guaranteed enjoyed roughly a similar advantage. maybe it was 30 basis points, so we hear -- you read our two years after the passage of dodd-frank and yet we see these larger banks still enjoying a funding differential advantage over their smaller competitors. if the legislation had ended the specter of too big to fail, wouldn't we have expected this funding differential? >> i think that is clearly an objective congressman and we are seeing among some of the rating

agencies downgrades of some of the large institutions because of their reduced expectation of public support in the event of a failure and actually we view that as a positive development. and a core objective of the legislation. >> well, is the true since the passage of dodd-frank that the five largest banks have grown larger and in fact mr. out for us i'm not sure you are familiar with the report. the dow has said in its recent annual reports that for all its luster dodd-frank leaves too big to fail entrenched and i believe this is federal reserve data and i will quote from a bloomberg report, quoting the data. quote two years after president barack obama vowed to eliminate the danger of financial institutions that are too big to fail, the nation's largest banks are bigger than they were before

the financial meltdown and goes on to list jpmorgan, bank of america and says quote, they held more than a .5 trillion assets at the end of 2011, equaling 56% of the u.s. economy according to the federal reserve. mr. alvarez does that sound accurate to you? >> recall congressmen that during the finance of crisis, there were some marchers of trouble institutions so jpmorgan -- c. let's start with the basic question. is the data accurate or is it not accurate? >> i don't know the data. the general idea sounds right, but i'm pointing out the reason i think it sounds right is because there were some acquisitions of troubled firms, jpmorgan and bear stearns, jp organ bought more a move. bankamerica bought merrill lynch. there were various mergers during the crisis to shore up a couple of firms.

>> my fear of potentially the tax for his -- taxpayers -- the congressional budget office has estimated the ordering liquidation authority contained within dodd-frank could weigh in at roughly $22 billion of taxpayer money that they have escorted. have you read cbo's report in this regard? do you have a comment? >> i'm aware of the congressman. i guess the point i would make is that the assumption behind that report is that there would be large upfront borrowing in the event of the failure of a systemic institution borrowing from the treasury. i guess two points to make. one, the dodd-frank act as you know prohibits the use of any taxpayer money in the event of a failure of a systemic

institution. any use of treasury funds would have to be paid for out of the assets of the failed company. >> i see i'm out of town but i believe by definition treasury funds are taxpayer funds and if you don't have a bailout -- you need to taxpayer funds. steam ms. waters for five minutes. >> thank you are very much. continuing with questions about the foreign branches and the affiliates of u.s. banks, and this attempts to basically exclude them from dodd-frank, when risk is taken at a london branch of the bank does that risk stay in london? >> nono, generally a dozen. a canon calm waters but in crisis aig has citigroup set up

their special purpose vehicles in london. so often it comes back here crashing to our shore and vice chairman hensarling if the american taxpayer bails out jpmorgan they would be bailing out that london entity as well. we would hope it doesn't happen but it would be london as well. >> this race that was taken by the well in london, a 100 billion-dollar trades could effectively have the same kind of impact in the u.s.? >> if her were so large to break down that institution yes. in a crisis generally there is a run of the whole institution and its almost impossible to sever off a limb if i could use that expression even if it's overseas. >> chairman schapiro we have heard chairman gensler outlined his approach to extra porat a.. what can we expect that the sec

on this issue? do you basically agree with him and when can we expect that? >> congresswoman i do agree with respect -- >> could you speak into the microphone? >> i do with agree with the rules of the london branch in this instance on the u.s. bank. i think is right about that. with respect to the extraterritoriality more broadly the sec has been working very closely with the cftc staff and we are, and are commission is not yet approved anything so i cannot. >> definitively about what we look to butter plan is to issue a release that holistic lee looks at the extraterritorial application of each and every dodd-frank rule and allows the opportunity to give us their views on the entire approach when all the rules have been proposed for comment so we hope sometime later this summer. >> additionally, how did -- how

is jpmorgan chase is structure figured in? dodd-frank empowers regulators to review compensation structures that encourage inappropriate risk-taking at financial institution. this rule is currently a year overdue. when can we expect the sec and other regulators to act on that? being that is a joint rule among seven different agencies and you are right, it has to general prohibitions one on compensation and the others against compensation arrangements for employees to take risks that present material financial loss to the company and of the company is over $50 billion, total consolidated assets there is a proposed requirement for a deferral for three years at 50% of the executive officers compensation and the boards direct engagement in approving the compensation policies and

plans with respect to risk-takers within the firm. we are working very closely together to try to finalize the rules by the 70 and we have received a lot of comment letters. i don't have a specific date when it will be but i will also say the sec has put into place a set of rules that requires disclosure about compensation plans that can expose the company to bacterial adverse financial consequences by employees who take outside risk and that disclosure is already happening. >> so i guess i need to ask everyone, how long do we have to wait for the rule on this? >> i would hope from the occ's perspective that we could accomplish a final rule as quickly as possible congresswoman. >> congresswoman we strongly agree this rule should have a high priority and we should try to move on it as quickly as we

can. >> we too are working to the federal reserve also put in place guidance i was very much along the line of this rule before the dodd-frank act was passed and so we are working hard with the other agencies to turn it into a rule for all. >> thank you very much mr. chairman. >> mr. royce for five minutes. >> thank you mr. curry. as you know, my view in terms of the meltdown was a big part of it was caused by the over leverage. the overleveraged of the gses, fannie mae and freddie mac that was 100:1 when the housing market turned and that destroyed the gses investment banks being allowed to leverage at 30:1. they were doomed once the market turned. aig was 170:1. i think that's this incident of the j.p. jpmorgan chase trading losses braley brings front and center this issue

again that capital is king, capital is the ultimate buffer to protect against us and for seen losses and it protects against the flawed risk models that the bank i'd have ended also pertains against the mystics the regulatory committee might make and it protects against the asset bubbles that might've been caused by the regulatory community, the fed setting the interest rate too low for too long in helping cause the bubble but the bottom line is, that if you have the ratios right, you can survive the storm. and, now in a few of a of economists that it institutionalizes too big to fail problem with dodd-frank, the reality is that the only thing standing between the taxpayer and failure of these institutions and the massive

amounts of additional capital that would be required is the enforcement on these capital ratios and that is what i wanted to go to, because investors are losing confidence in major banks, risk-weighted asset models. if we believe the financial press on this. there's a recent study of 130 institutional investors that found that 63% have less faith in banking models than they did one year ago. 83% want to get rid of what they called model discretion. that is what i want to go to hear because as we move forward, the basel committee, prior to basel iii, made this observation that capital levels in american banks employing their own internal approach would experience the capital reduction of 7:27% while those adhering to the standardized approach would

experience a 2% increase in capital demands. so my question to you is what is the benefit of continuing to rely on internal ratings approach on this internal approach as opposed to the standardized approach? speak to answer your question commerce and i agree with you wholeheartedly that the importance of capital is the cushion that protects against errors and of risk management which is the primary bulwark against the loss, or risk up to solvency with an institution. in terms of issues with respect to the risk-weighting of assets and also the use of models in setting capital levels, the issue of models and their use in capital is a key component of the capital regulation and it's also a focus of the occ in terms

of its review of approval of hank's internal models for capital purposes. we have guidance, formal guidance that we issued a year ago emphasizing the importance of making sure the models are appropriately designed, monitored and updated, and that is essential if we will continue to rely on models as a key component of the capital ratio. >> here would be my point, if the institutional -- especially when you consider the banks are likely to use this less standardized model, compounding their advantage in the marketplace, seems to me that during the crisis of these internal risks, during the crisis that we have seen where these models have failed, it seems to me it's pretty clear going forward that you have the

discretion now to solve that problem and while we are talking about the benefits of capital, the conversation shouldn't end there. i would hope that this incident at jpmorgan reinforces the notion that internal risk models often fail, and that when it comes to mandating capital levels we would be well served to focus our efforts on a simpler metric like minimum leverage ratios. incorporated about that going forward if you would, leverage ratios is the answer to this problem. >> ms. maloni. >> thank you very much mr. chairman. financial institutions have told me that they have terminated their proprietary trading. i would like to ask mr. curry, to what extent have financial institutions already begun to spin off their proprietary

trading in advance of the volcker rule becoming effective? how many have taken those steps and terminated it and can you list those financial institutions? >> thank you congresswoman. i believe that is the practice among many banks, but the actual activities, engaging in the riveted proprietary trading and private equity investments and hedge funds are also done at the holding company that we don't supervise at the occ. so i believe that is the trend within the industry to move away in advance of the affected date of the volcker rule. >> is there added benefit to doing this, because they are legally required to? what role is the occ playing in this process? >> we are not directing

institutions to take specific actions with respect to those activities. the federal reserve i believe has issued some guidance that we signed on to in terms of the conformance period in which they should take appropriate steps to conform with the volcker rule. >> can you list those financial institutions that have terminated their activity? >> i would have to get back to to you congresswoman. >> okay, thank you. i would like to ask the regulators about a disturbing pattern in the last few years of london literally becoming a center of financial trading disasters. a aig was bailed out in their financial products to the tune of $184 billion, trade losses at lehman are historical and the losses in ubs trading. it seems to me that every big

trading disaster happens in london and i would like to know why. why is it happening in london and not the united states? mr. gansler and then mr. curry and mr. alvarez, if you could give us some insight. it is a pattern that is happening. >> i think that with all respect because i worked in new york and your great city we do have timezone advantages between the asia and the west that we cannot for foresee on the globe but i also think that the large financial institutions, and i used to do a little of this and as a business matter, set up legal entities wherever they can. they set up hundreds if not thousands of legal entities to bind the lower regulatory regimes or tax regimes to set up

and it is a disturbing pattern but it is a very real pattern. >> so was there a lower regulatory regime? is there a lower tax structure? i have asked others and they said it must and so i'd like to know is there lower standard for non-u.s. trading activity? >> while a say in terms of the derivatives regime that europe has done an excellent job and just passed legislation similar to dodd-frank but it is not up and running yet and it does not yet have the transparency, the public market transparency that this congress adopted. so there is still quite a debate and i think if we were to leave the london branches to the u.s. banks or even the guaranteed affiliates out, it would be so to speak another loophole and a retreat from reform, where risk would come crashing back to our taxpayers and our federal reserve. this was a bank that had that are reserved discount window access and the fdic insured its

deposits. why wouldn't we leave the branches out? i don't understand why we do that. see mr. your comments, h will dodd-frank allocated examiner resources? i read or heard in the last term of the senate there were only five examiners from the sec in london but hundreds of jpmorgan and other facilities and basically how -- will this impact what happens and what is happening with other challenges? will this impact how you allocate your examiner resources and your comments on why glendon? >> in terms of our london presence, of the occ, we will use our experience here and our review of jpmorgan chase to reevaluate the numbers and strength of the personnel and our london office. our focus is really the london

offices branch of the banks and that is our jurisdictional book for the activity over there. we do have 65 individuals at the headquarters of jpmorgan chase to supervise that entity. we also bring to bear in our targeted examinations and overall supervision of the bank the entire strength of the occ in terms of expertise and numbers of examiners which are close to 2500 individuals, so those are broad and as needed into any particular area, so the number of five is misleading our ability to leverage activities. we would also look to coordinate with the market regulators in terms of ending issues that would affect both the branch and their jurisdiction. >> thank you comptroller.

>> thank you mr. chairman. i'd like to talk a little bit about the issue of transparency. you know we just heard comptroller curry say that there are five federal examiners at jpmorgan. the federal reserve has examiners and mr. gruenberg has folks there as well. with all the people there i'm wondering, in the april 13, 2012 analysts call, the chief financial officer at jpmorgan said quote we are very comfortable with their position. i would add all these positions are fully transparent to the regulators. they review them and have access at any point in time to get information on a regular and occurring basements. vases. is that a true statement? >> where in the process of reviewing what exactly happened. that is one of the prongs of our review and how that is issued within the chief development office and whether there were

appropriate controls in place or not. our understanding is that neither the management of the bank was fully aware of the scope of that assessment and that we were initially relying upon the information that was available to the bank's. >> right, you are all relying on the information available to the bank. >> which is a critical component of risk management in the supervision of these institutions. there needs to be a strong architecture that has controls in place, and vigorous and granular reporting and that is an area we are looking into, whether they're reporting structure is present in the cio office met the standards that we expect and the jpmorgan would have and other aspects are areas of this business. >> we would know and the cios fi