and on. but the reality of the world is that you can write and write and pass law but at the end of the day there are two things very difficult to protect yourself from. number one, stupidity and we see plenty of fat in the financial crisis among the very powerful people. ..

as we write these new rules, implementing dodd-frank, we need to keep the goals of that legislation in mind and keep sure that it works for market participants. >> thank you very much. senator baucus. >> thank you, madam chairman. i have two questions basically for the cftc. first, chairman favoretta and mr. sommers, are you familiar with the private room called applebee's? >> now, i don't believe so. >> well, at least radians put together information, fnc's

subsequent to the mf global collapse. they seek the information that others acquire a and they put together composite score of various mcms. and this is a copy of it here. and they go through, my gosh, the top score is 83 daneyko also lay down through the others. and they rate according to all kinds of data. transparency, that clearing, net capital ratios, tread, market valuations. they concluded that may of the

theater that is third or fourth from the bottom. well, it is fourth from the bottom when you counted all the way up. and my question is in all this data to reach a conclusion in a rural, red state here, why can't your agency know if that company is doing the rating is probably last based upon the data at least of one company. i don't know what other system or information with respect to

the financial status, but there's one aspect. it's on the bottom and no agency knew anything about it. >> there may be others at the agency, but i think we usually benefit from the public input. whether its analysts as does his research at know who the other three or four at bottom bar. >> here they are right now. outside you who they are. the very thought of this pioneer futures. second from the bottom is present all college group. dirt from the bottom as parkland forest is. a. and there's a button shared. >> i think that we need to move

the self-regulatory organizations of the cftc at the bar to risk based approach and not just the auditors might call taking and flicking, just checking the boxes off the page, whether it is the risk of getting a fact on a friday different from monday, or the risk that this alice could be mentioned hazlet data. i think it is part of why congress ultimately put a whistleblower peace into our statute finale of the whistleblowers can come forward and yet if there has been penalties paid, they get a part of that. we are helped out by that because we are ultimately the minds of the public to self-regulatory organizations and the like as well as our own work. >> will anyway, i asked the manager that is the included in the record. that's information that needs to

be public. the regulator to do much about it. and it's wrong. second, this question that i think has been touched on, basically i went to commissioner summers announced three sets again to the mf global collapse, you follow up and looking out of their and make sure we don't have another hamas global and they say you were doing that, we are doing that, but it seems to me that the commission's information is just based upon this. are you doing? were doing fine. without an audit taking and behind that veil. what exactly is some of this? i'm just a concern here asking

and of course that's information. you've got to get in deeper to find out whether that's true. it just seems to me a follow-up subsequent subsequent to my request, verbal or written as professional, very direct. not deep. my impression is you just don't take deep enough. because you're allowing yourself . >> the follow-up, senator that i believe you're referring to are the added factor and not global. and you are correct that those were not full, complete audit of the fcm. those were done by not only the cftc for the top 10 or 12 firms, but they were also dead by this cme for the clearing firms for the remainder of the mcms and

the searchers bought. >> well, my time is that. you're the responsible agency. you've got to find a solution. you're the cop on the beat. if you got to do your job. thank you. >> thank you very much. mr. grassley. senator grassley. >> mr. gensler, it's been reported that the cft conducted examinations in 2006 and seven. to the cftc conducts these examinations? and if so, why didn't they find out their bank statements were matching up with what was exactly in the bank account? and if? and could be independently account balances with peregrine's bank?

>> senator, we have looked at. we have done a number of views, some in the late 90s and the two you have mentioned in the past decade as well. these are not obvious. we rely on the front-line regulators, the nsa and also the a cpa. so it is correct that we could not verify bank statements. sometimes we look at anti-money laundering things like in 2010 was another review. sometimes we end up with an enforcement action, like in 2000 we ended up with an enforcement action against peregrine that was settled back then 12 years ago. looking back on it workpapers i wonder if after that flags of what as better caught in 1999 and 2000 so forth. so at the same question you have a better roadwork and are looking to see how they can do better as well. >> okay, in other question for you. the national features organization is safe is

organization has been reported in "the wall street journal" that the ceo of an assay express his opinion at a congressional staff briefing that auditors are looking for fraud, end of quote when conducting regular audit confirms. would you agree with mr. ross that are auditors who are auditing these brokerage for are looking for signs of fraud or not? >> no, i am not myself an auditor. i've heard there's a distinction between fraud audit and a financial audit and it may be that mr. roth was referring to. they don't do full scale fraud artists. having said that, the records are supposed to be confirmed. but the banks into studios and mr. wasendorf admitted in a

statement when he was taking his eyes. these are auditors including the nsa. >> i don't know whether a statement that senator klobuchar made about a phone call that was made with that would fall in the whistleblowers category to see them interest checking whistleblowers. i had this question for you, chairman gensler. since the collapse of mf global hysteria fingering question on a lot of people's minds come to something like this. are there any of their friends out there that are going to go bust? .think -- dodd-frank regulation required a whistleblower access and this is officially put in place last year nearly. so my question since the opening of the whistleblowers office at cftc, have complaints been made

about inappropriate activities are going on at any future firms? if so, how many active cases does the whistleblower office that are looking into claims of impropriety? do you think that the cuts are not mapped to raise awareness in the futures industry that the whistleblower office exists and what the function in the office is supposed to be to encourage people to come forth? >> i thank you for your support because it's an import in office. it has been set at. there's a fund set aside with money. with this settlement and libel are case with barclays, the fund will be up to the full maximum congress made of $100 million. i think we could do more to educate the public. we have it to my office now set up, but i think it's just two people. we are a small agency, and yes we have had whistleblowers come

forward. if you want a fuller report on how to work to get you choose the details. i can't remember the untrue claims, but there are a number of whistleblower have come forward in general matters. i don't know if they've been about customer funds so. >> and 11 seconds i have laughed because i have to go, not chairman, i want to raise an issue that is going to raise with mr. ross and will take her to seconds to read this and that he can answer for the record. it is similar to what senator harkin asked of mr. gansler. one thing that continues to trouble me reports of the red flags raised about financial when those red flags for joy. for since it's reported that in march 2011 a confirmation or was faxed directly from your thing to national features this is the nation, showing it was less $7 million in the bank account is at needed for segregated

customer money and shortly thereafter come either that they are the following business day after fighting a u.s. bank had sent the confirmation, mr. wasendorf senior sent another confirmation showing there was approximately $220 million in the account for customers. question, is this factual account accurate? and u.s. banks and a confirmation only seven and dollars of customer money? and why did ms say to and following up on the contrasting confirmation report quirks did anyone have an assay call u.s. bank to verify how much was in the account? and if not, why not? >> senator grassley, that is for the record i understand? >> yes. >> thank you very much. senator hoban.

>> thank you, madam chairman. chairman gensler, if you explain to me, how do you ensure funds are customer segregated account are not used by commodity firms? just lay it out given what has happened, after a mass global, how do you protect customers? >> i think we will never protect it won't be somebody trying to steal or lie or cheat asked my grandfather sort of laid out. what i do think that getting rules in place at the regulators can directly, on a daily basis see the account balance now with type ologies help is a big plus. i think also filling the hole that trustees giddens and these foreign accounts was a gap in our regulations that just

listening to the numbers is nearly a billion dollars or maybe i misunderstood the numbers he said from the public record. so i think there are always going to be folks are of most people are good people, but some people will be bad and we have to close out the avenues for they can defraud the public. the favorite 100 forced inaction to your and unfortunately there are going to be some folks that are trying to defraud the public. >> so you feel you have better track of the segregated accounts. do you agree with trustee giddens that there should be some insurance fund like fdi in insurance for depositors and banks for smaller customers? if so, at what threshold and how should it be funded? >> i am certainly open to it, but it's an issue of cost and benefit then i think that certainly i stand ready at a

commission to hear more from the public, from farmers and ranchers and others to use these products on how to move forward on not insert a would-be congress congress to take a. we have to focus on everything within the laws and rules that we have now to ensure the best protect the public and not necessarily provide another swear that their import policy debate. >> commissioner sommers, your response to the same two questions. >> protecting segregated accounts and should there be some type of fund to protect small customers? >> senator, i believe there've been a number of enhancements identified, not only by the nsa, but by industry, the cftc staff, trustees and we are moving forward to implement all of those enhanced men's. with regard to the insurance fund, i think the issue as we

always say, the devil is in the details. who is paying premiums? is the sem, farmers and ranchers? i've had a number of conversations with producers with regard to whether they would be willing to pay additional cost for premiums if they knew their accounts were protect to. some are and some are skeptical. it is something we need to continue to review and study to understand that there is some in the industry would want. >> trusty giddens, customers are concerned about how much they're going to get paid back a segregated funds come in their and when. also i senator johanns said, the senior executives who did wrong are held to account. gives me her time i. so customers, how much would they get back in what time frame, simple terms and why have the church has been fully

brought in a most global given occurred hungry go to their good case. >> to take second question first, the timing on when any criminal or worse than actions will come is really up to the u.s. attorney into the cftc enforcement. actions we have hesitated already convinced i'm working with plaintiffs counsel, some of whom i believe are in a subsequent panel to bring litigation action against senior management of mf global in order to collect additional funds for customers that were successful negation of who we are moving ahead on that. the second question is we are and i am determined to return to customers quickly as i can. i cannot now return money until

dispute over a large claims the result by the bankruptcy court. we are moving quickly to dissolve those to speak to students as disputes are resolved, that frees up additional money for distributions. how long a process may take, and may take three months, six months or longer depending on complexities of the claims. the holding company itself has filed claims against us as $2.2 billion of which has served securities claims. some of them have served commodities claims. those kind of issues have to be resolved and i have to keep reserved so i don't discriminate if it turns out those claims are that come away sufficient money do that. so that is the biggest problem at present. as we collect additional fun,

segregated funds or whatever, would move as quickly as we can with the court. we will distribute additional funds they collect it from the cme and will make distributions as quickly as we can. so i see this is going on a sort of a serial process. the litigation with the u.k. administrators over 700 million come in that case is being published before the courts. they're put in their initial position on not. the u.k. administrators position is that these funds are not segregated under u.k. law and they are unsecure general assets for his restoration. these are 30.7 funds that the firm on the u.k. part of the firm agreed and so should be segregated. our position -- are responding position on that case will be filed in september. there will be discovery

depositions in the case should go to trial early in 2013, but that's an issue involving $701, which literally i can't control the time table. the u.k. courts do. again, i'll i'm trying to point out is to do everything we can as quickly as possible to get unstuck to customers. >> thank you very much. thank you. senator thin. >> thank you, madam chair appeared to try to personalize this to the people i represent, the biggest question were faced with this one needs to be done to ensure farmers, ranchers, investors and others utilize commodities and futures can be protected from losing money through misuse of customer funds as has occurred with of global and i would care financial group, even though laws and regulations is in place to prevent these losses from

occurring. i think anytime we talk about making changes to any regulatory structure, that we as lawmakers need to ensure reemerge from these bankruptcies with what we've learned and able to provide adequate, legislative and regulatory modifications to make sure this don't occur again. we also need to make certain that what we do doesn't create overly cumbersome compliance requirements and overtake normal oversight operations. so that said, the potential for bankruptcy and the misuse of customer funds that occurred there, given the fact ms global occurred nine months earlier as shuttling. the cftc has made some changes since that time, including implementing some reforms, 125, which is known as the ms global rules, but it's not clear these rules have enabled the cftc to more effectively oversee the futures industry.

that point aside an rss question to chairman gensler commissioner sommers, would you agree the structure along with proposed reforms would regulate you the modern futures industry? >> i think this system can work. a destiny of enhancements and i think even that were also going to ask the nsa to register swap dealers. reaction at our first register with them last friday. but as they take on this examination functions, they'll have to step up their resources, which they plan to do, they will be challenged and firms will fail in the future. firm should be allowed to fail in our system, i believe a lot in our system, but when they fail, the customer money has to be fully protected and that is

what we see say, lessons are. the system. but it can work with enhancements. >> senator, i agree. the self regulatory system has worked for the history of the futures and street and with the enhancements that have been identified, unfortunately paracrine happened before we were able as a commission to implement any further enhancements to our own rules. but we plan to do that i'm hopeful we'll get to that as soon as we can. >> when he asked, since the passage of dodd-frank, do you think the cftc is implementing new rules and regulations that hasn't had time to adequately enforce existing ones like segregation of customer accounts? >> i think we are stretched, but very much focused on the futures market to be very structured a group that oversees intermediaries.

refold 21.350 before summer full text schools and even palaver kay's is an example that i'm so proud of the division of enforcement to bring this case they've started working on april april 2008 is something that 70% of the futures industry is related. we are very much focused on the futures market in farmers and ranchers, but we are stretched thin and now we have these new obligations in the swaps market as well. >> what do you think? spending too much time i'm dodd-frank to keep up with what should you do already? >> i believe we've identified enhancements we could've made to the futures industry six months ago. so the changes before us now are changes we could've implemented months months ago. >> thank you. let me ask trustee kids.

you provided recommendations for regulatory and other reforms that night over the future. what would you say is the single most important legislative change that should take place based upon your experience with ms global? >> i think the one that had the most material effect would have been consideration of the creation of a modest investor protection fund. something that they come at the number questions rediscovered, unlike securities customers, average account here was less than $100,000, so it's a modest amount of money, up to $100 would have been the shortfalls would've been $20,000 per account would have permitted saturday seamless restitution to these customers early on. whether the cost of that or so

on, but i think that recommendation are some family that would be the most important. >> thank you. my time has expired, madam chair. tanks. >> thank you very much. excuse me. >> chairman gensler coming to mention saying that your grandfather used -- and i'm reminded of another russian saying by president reagan. trust but verify. how often are filings by scs received but not verified? >> want fact, they make a failing every month under the new rules will make violence every day, but the verification to outside third parties have historically been done by paper and only done annually by the outside auditors for the under 3915 and.

we want to change rules to say daily that you can see those account balance is directly from the bank. and if you see it electronically that is a form of verification that will significantly enhance this audit function. >> thank you. we've heard from many of in device i'd like to see the option of being able to fully segregate their assets for both futures and swaps. would you wear the commission support customers having the option of complete segregation? what are the costs and benefits to that approach in your name? >> we adopted earlier this role this year for swaps, some day and i walked in that direction come is something called legal segregation, but operation cominco. some pension funds have asked maybe step further. please roundtables on it. i think there is something very interesting to pursue, but as i understand it, it might be changes to the bankruptcy law as

well to fully facilitate them what we would like to do. we encourage the dialog because it's very hopeful dialogue. >> speaking the bankruptcy code, bodenstein, they have different views on priority, which you agree that customers should have a special status in these preceding a hundred general creditors? idea my >> if you might speak more than night. >> i believe under the special provisions under the quotations in the bankruptcy code, there is a separate customer property that would have priority under the following general creditors. >> would you support making it clear that customers go ahead of

general creditors? >> excuse me? >> writenow bankruptcy law conflicts with other laws as to who comes first. >> i'm sorry. my understanding of the bankruptcy code and we'll see how the special provisions for commodity broker litigations play out liquidations play out in this case. my understanding at present is in fact they do have a priority over the claims that the general creditors. >> that's correct. there's other laws like the bankruptcy provisions in the commodity exchange act that have a different view. sabato said guess what i was acting. do you support having the status in proceedings of general creditors? we will do that at that. >> i guess the answer is -- i am not an advocate for any one particular group as a trustee,

but i will study the different privations and ensure that i apply them with the consent of the court on all the actions as appropriately as possible. >> sure. let me ask you, will when customers start to get their money back? you estimated timeline? the mac i don't have an estimate at this point in time. we are working diligently right now to verify customer balances on customers segregated funds about that sort of calculation in determination can be made in the near future. >> along outlines, how many ms global accounts were transferred to peregrine financial? >> approximately 590 accounts in something like 197 million

unassociated cash collateral was transferred. not transferred directly, but it was transferred to cme and other exchanges. >> i have a slightly different take on not. >> i believe that approximately 627 accounts were transferred an approximate 197 million. but of that amount, only 3.7 million stayed at peregrine financial and the account value then now, those account for slightly in excess of the 3.7 million. so by and large, within days or months after the accounts were transferred, those customers were removed to their account

out of peregrine. >> just to be clear, could you get the number of accounts that she believed the 600? >> based on deployment or information i requested from the employees at ms global and peregrine, 627 accounts are transferred to >> is getting different numbers here. >> the number we have from our records is not significantly different. we said 590 accounts. i don't know what the accounts did when they were transferred, but i'm pleased to hear that a large number of them transferred to another firm. but we agree on the figure that i have 590 and approximately 197 billion of assets that were transferred nsa say, i think were glad to hear a significant number of those moved on nsa

understand, only claims in excess of 3 million remain. >> okay, thank you very much. >> madam chairman, i don't want to beat up on a horse that 30 out of the barn and in another pasture. but there's a lot of angst, frustration and farm country about this. and when i asked mr. giddens this question, did someone, somewhere within ms global know exactly what they were doing and if so, will they move out of the segregated accounts, the answer was yes. they later questioned by one of the other senators that this was also obviously involved. senator johanns indicated that he is guilty of that movement of

the money. i understand that, but certainly it seems to me he was at least complicit and culpable. i know that you can't answer the question that farmers and ranchers are asked and probably asking you as well. my question to you, is the department of justice working with you on this investigation to your satisfaction to bring forward criminal charges to those who should be held accountable. >> senator, we've been working with other authority since the beginning. just to point out again that a willful violation of the commodity exchange act is a federal crime. so if there is evidence to indicate that, that would be some pain the u.s. attorney would be able to pursue.

from our side of this investigation, i think we would never want to risk a successful outcome until we are able to review all of the facts and circumstances of this case should be able to bring a possible case against an entity or a person who may have violated the commodity exchange. >> and are you satisfied with the justice? >> yes, sir. >> well, there is one instance. >> mr. bodenstein, can you extend the difference between ms global and chapter seven bankruptcy? >> senator, i am not an expert. i would certainly defer to mr. mr. giddens with respect to that. with respect to the bankruptcy code as it expands, my duty as i

forth in section 704 of the general trustee and now we have this overlay of the commodity broker beginning in 761 through 767 and i have not had previous experience working with those particular provisions in very few people have had that honor for daunting task of deciphering the meaning of those provisions of the bankruptcy code, but i look forward to that challenge and i will faithfully -- i expect to learn quite a bit and form opinions about how those provisions were in tandem with the other provisions of the bankruptcy code and book recommendations i might have is to go through this liquidation of peregrine on how those can be improved in future days. i'm sure i'll be happy to share my thoughts on that with you.

>> what you think of cme's new proposal and where should be held will start with the chairman. >> we have had a very fruitful discussion with the cme come with terry tessier think on your next panel. i do think that, as i understand that, might raise some issues back to the bankruptcy code again at the funds are specifically the future commission, just how it goes into these various provisions that the trustee bodenstein referred to. >> this sommers. >> senator, i would applaud all the efforts to the last nine months and the different actions on the table and when he taken any to review all of these because i think they could offer some good alternatives to what we currently have. >> i think it is a promising

proposal. >> thank you for your brevity. >> i'm not familiar with that proposal, seminary. >> well, get familiar. i appreciate that very much. my time is that. >> thank you very much. let me just say as we dismiss you that there really are three goals we have a safe bet in the beginning, making sure people get their money back in the unfortunate 500 or 600 accounts which have been hit twice, certainly i don't blame them for being very angry and very concerned about the system as well as everybody else. we also want to make sure people are held accountable for wrongdoing and we want to make sure that the system improves the ties for first time i heard it was an outlier and then it happened again and i can assure you.

people will be extremely upset if we are not able to make changes and they certainly support you doing now. do you represent all three of those goalsetting before s. we want to be able to answer the question yes and someone assess whether they can trust the futures markets and participate and not put their money under the mattress. we look forward to working with you. [inaudible conversations]

[inaudible conversations] >> well, good morning and we welcome you to a very, very important second panel. we appreciate your participation and input today. then introduce each of our witnesses. as you are aware, we ask for five minutes of opening comments and anything further for the record we certainly welcome. please introduce waltz luke said they come the futures industry

association. mr. lukken, formerly served as acting chairman of the cftc, the more night, mr. lukken of alumnus. so discount fell under then chairman richard lugar. we welcome you back to the committee. our next panelist is terry daffy, no stranger to the committee. mr. daffy as executive chairman and president of cme group. prior to work with cme group, mr. daffy was president at tmb trading. president bush confirmed by the u.s. senate in two or a member of federal retirement thrift investment board. welcome back. dan ross is the president and ceo of the national futures association. good to see you. since joining an essay in 1983, mr. ross has served that organization is cheap operating officer and executive vice president and assistant general

counsel. welcome. our next panelist is diane klemme. do i have that right. ms. klemme is here on behalf of the national grain and feed association, vice president of the cream provision services corporation. ms. klemme develop merchandising and risk management programs and is a well-known author of articles on agricultural risk management. we look forward to hearing your perspective this morning. our final panelist is john roe, commodity customer coalition served as vice president. also president of roe capital management. in addition to these roles, principal and co-venture of bp peer training group and prior to that ran the division of ms global, which they left in june june 2010. and we welcome you this morning. so, let us start first with

mr. lukken. >> good morning chairwoman stabenow, ranking member robert. while we are not a regulatory authority like the nsa or the cftc, sia is wrenched mission since its inception has been to protect the public interest. here in to high standards of professional conduct and financial integrity. with that money back to address the recent failures of ms global in paragraph mutual group. three weeks can we learn that more than 200 million customer funds is missing from peregrine on the fraud is back 20 years. this is appalling and absolutely devastating news, especially for our customers come in many of them farmers and ranchers. members of the futures industry remain outraged we strongly encourage that psg trustee as well as the mass global quickly returned as much money as

possible to customers. the futures industry took several tries i come into the financial crisis with relatively few problems. tragically we can no longer make that claim. these events are a stark reminder that we must never lose sight of the most fundamental and basic purpose of a regulatory system, protecting customer funds. sia is pleased they have implemented many global recommendations, post-mf global formed a special expert committee to evaluate necessary changes to the customer protection remark. in february released her initial initial report which called to ensure that industry standards for protect in customer funds. we have recommended they report daily segregated balances and customer funds invested under permitted rules. annually certified there no material week this is in their controls and policies.

they maintain an appropriate separation among individuals responsible for customer fun protections and four we developed a certified training program for chief financial officers and other public employees. in addition to support to the changes to improve customer protection, the fia generally supports the mf global trustees recommendations,, which are consistent with many industry proposals and include studying the feasibility of a targeted insurance fund. even with all that's done, more is needed and fia is working on such improvements. first, fia strongly supports a neatly out the recent regulators with ability to review and confirm customer segregated balances electronically across every scm at any time. they support an automated confirmation system for customer segregated funds. they provide regulators with timely regulation that funds are

secured. fia participated in the cftc advisory committee meetings to discuss such technology solutions under several viable type ologies systems worthy of near-term can the duration. third, fia supports creation of an information portal double essentially affirm specific initial information regarding fcm to customers to more readily access material information in evaluating mcms. and forth, the publicly certified as soon as practical that they are in compliance with fia's initial recommendations in these controls are independently reviewed and audited. i was also encouraged by chairman dems are his remarks at the commission adopting sensible recommendations i've discussed today. the basic blocking and tackling of regulation depends on ensuring that firms have proper risk controls and systems in place with independent auditing

of verification by regulators at a time of great regulatory change we can't lose sight of these oversight fundamentals. in conclusion embezzlement at peregrine dismissed by a generation of regulators at the federal regulatory levels. this along with mf global is unacceptable by any measure. there is the easy solution, no magic what that will bring back the lost trust for these incidents and instead will take time and hard work across the industry to implement these improvements to earn back public stress. customers deserve better and fia is wholly committed to ensure the highest degrees of protections going toward. thank you command chairman. >> thank you very much. mr. david. >> the stabenow, ranking member duffy, we are appalled by the segregated funds. this fraud amendment has shaken the very core of our industry i'm in a breach of trust related

to customer funds is absolutely unacceptable weather at psg, msg or any other firm. the failure of mf global, cme and others have committed to strengthen protections piccard customer property. the industry has recently understated measures, which was the new electronic confirm tool that undercover mr. wasendorf's forgery at outcome of the more needs to be done. the national association has adopted measures to deter, detect and prevent misuse of customer funds. three of the been implemented and the fourth will be connected next month. we've been conducting reviews of the account since last december. we've implemented segregation statements by all and now we require bimonthly reporting to ensure segregated funds are properly invested and held at the approved depositories. also mid-july, cme began using

confirmation.com and electronic method of statements directly from third-party depositories to verify investment reports. we began using confirmation.com is a tool and regulatory added simply to require banks to confirm segregated funds using this tool. in direct response to mf global disaster, we'll implement the coursing rule on september 1st the role requires the scm ceo or cfo signoff at any withdraw of customer segregated funds that exceeds 25% of the excess segregated funds. they must also inform the cme at the same time. as i said more can be done at the same time, cme police regulators and industry must be careful weighing of costs and benefits of all proposals to enhance protection of the clients. the program covering fraud and failure losses. possibly supplemented.

such a fund would lose confidence in these to be balanced against no negatives. the negatives are the obvious they been cost prohibitive and ineffective due to the amount of help in the segregation of the $150 billion. we need to develop rules, procedures and systems that give direct real-time access to segregated account balances and we work with regulators to do so. in the meantime while conducting audits. we have the ability to call on and access online account balances for on-site review. and while it will be controversial and perhaps have destructors plant species nonetheless be hauled by clearing houses or other custodians and limit the ability of fcm's transfer such property except to the recipients.

congress amend the bankruptcy code to permit clearinghouse is for sufficient collateral to support customer positions of a feel clearing the retransfer in those positions in those positions of all not defaulting customers to another stable clearing member. while we expect that the misconduct of mf global mpg eliminate the role of clearinghouse is a members, we do not believe a legitimate case be made to transfer responsibilities to a government agency. the cme is committed to working with congress and the cftc, nia and market participants are prevailing rate and find solutions to further protect customer funds at the fm level. we are committed to restoring confidence in the market for so many rely up for risk management needs. i thank you for the opportunity to testify and look forward to any questions you may have. >> thank you very much. >> thank you, not in chair.

as you noted in your opening comments, this is the second time in just eight months that we are here discussing a misuse of customer funds, this time involving train nine of approximately $200 million. this fraud is perpetrated through a sea of forged bank documents. peregrine was required to report on a daily basis in a customer funds hold a number of those funds were being held. those reports were false. and they were supported by forged daily bank activity statements, fortunate restatements, porch confirmation levels, disposed checks and big confirmation notice. we began our most recent exam in mid-june. as part of that process, we early on in the examination of

one's affirm that we were switching our big confirmation process that is past we had used a traditional big confirmation process in which peregrine would sign a document, authorizing the banks to release certain information to nsa. we would then take documents coming up into the bank. the banquet meal responds mail response directly to nsa and we would care what the bank was telling us what the firm is telling us. we told peregrine were switching to the confirmation process we began using a january. it is a web based confirmation process. we told the firm to firm would have to authorize this participation in the east confirmation process. mr. wasendorf senior executed that authorization on sunday, july 8 in the following day he attend and suicide. leaving a note describing the bank fortress. as soon as we were notified of that event, where there was an immediate phone call, conference

between cftc, nsa and peregrine personnel. as of friday, peregrine was holding customer funds with over half of that, but 200 million he held at u.s. bank, the office in cedar falls. during a teleconference on that monday morning, we immediately instructed the personnel to go and get the bank manager in the phone and when they had them on the phone, he told us the actual balance in the account as of the previous friday was approximately $5 million. we then told him we'd written confirmation from the bank from the two previous audit somebody please confirm balances from those from the two previous years, 2011 and 2010. for each of those two dates he again told us that the confirmation we had were false and they had been similarly inflated. popery trough from all of this

are the same painful lessons that we learned in mf global. the facts undeniable our customers have to note that their funds are safe. number two, it's up to the regulators at the governmental level and self-regulatory level to provide the highest assurance we can. number three, we followed standard audit procedures that are examinations of peregrine including the big confirmation process in the standard audit procedures just work out. he beat us. he fooled us. he pulled us for too long. we have to do better. we have to find a better way of monitoring moderate members with all the requirements that especially segregated funds. we began the process immediately after mf global point of the special committee of public directors at nsa any committee of self-regulatory organizations with the cme. he began developing sets of rules mr. duffy describes sun,

mr. gansler describes some of the dordrecht yours, but also began working on rules to make better use of technology to monitor that compliance. our august board reading, our board will consider whether berger required the regulation to direct view only a online access to a customer's bank account so we can go on a check or balance at the bank anytime we want for any bank would want for any fcm without contacting either the firm or the bank. beyond that, we hope to hold the system and build a system that takes the confirmation process and essentially turned it into a daily event. we need to get reports on a daily basis from all the segregated funds. tanks, mcms, money market funds, wherever permissible investments are, wherever depositories are committed to filter reports with

regulators in which regulators can then on an automated basis compared with reporters to receive from firms to generate alerts regarding any suspicious discrepancies. we look forward to working with congress, commission, industry and all stakeholders to ensure that we type systems. we know we can't eliminate fraud, but will continue to strive to do that. and senator if i could ask your indulgence for one second. on the first panel, senator grassley raised a question about a comment, he quotes come the story in "the wall street journal" that said -- that i have said that it was not nsa's role to detect fraud. senator, i've been at nsa for 20 years and i guarantee you a battle they never said that, i'd never thought that. detection of fraud, combating fraud in the futures industry of the central for the last 30 years and it remains so today. secondly, with respect to the red flag senator harkin and others have said it would be

helpful, i could samiti britain statement outlining a response to each of the instances noted in the press were here today. >> that would be helpful. we would appreciate that. ..

and taken into bankruptcy. the unprecedented loss of customer funds and the mf global debacle has led obviously to the loss of come customer confidence in the futures market in the system itself. i hear this all the time from our own customers. and so to consider what changes might be workable in the aftermath of mf global we ask whether the failures justify systemic chains and with the discovery long-term fraud and misappropriation in the psg debacle, it does write hunkering not just for regulatory change that rapid change to fully protect customer funds. in the meantime the customers are still waiting. to such failures in nine months especially the failure of psg when regulators presumably run heightened alert is just incomprehensible and unconscionable to customers. i get these questions all the time. let me illustrate why by taking one customer from my own client base.

this is a typical grain elevator and i won't even tell you the stacum doesn't matter. they provide a vital service to agriculture. they buy when farmers want to sell and they subgrain to end-users end-users when the buyer gets a commodity. elevators provide the service of buying from commerce you may want to sell future crops which then gives the farmer confidence to go out and buy land or by input. but this elevator then has to hold and maintain short future hedges for a year or more and the financially able to meet any margin calls that might occur in with a drought this year what -- we know that is involved. this one particular customer that i am speaking of was holding 4.2 million bushels worth of short futures of corn, beans and wheat on july 20. the combined margin requirements for those positions on that day were $9.4 million which is a fairly small business.

they have met every margin call immediately which is a huge act of faith given they just went through mf global and they are still waiting for 20% of their funds. and importantly all hedging, my customers know they rely on vendors to provide much of the financing for these margins of this is not just about farmers, ranchers, elevators etc.. it's about the added vendors that are the backbone of this. this is just one example. it's not even a large company. just a typical elevator. multiplied by their excise of u.s. agriculture and you can envision the scope of the financial demands in exposure these businesses are participating in right now they find on faith. the cftc traders report from last friday shows the hedger producer merchant category is holding a combined long and short futures and just corn, beans and wheat of 9.7 billion bushels which is having to be margined every day

with lenders providing these funds. the hedger has to know these funds are safe. the lenders have to know these funds are safe in brokers want to know those funds are safe. you might ask why vendors are continuing to fund the system. partly because we have all assured customers and gfa members and lenders that after mf global, changes coming. i have been assuring people at that. they keep asking when. finally it's not the answer. it's not enough. audits are an important part of the process. it's going to take real change with protection of funds and one way or another and much like safety deposit content and get this done after regulatory banks. we have to get it done quickly especially in the face of the markets we face right now. our recommendations are outlined

in my written testimony which include the pilot program to assess the full segregation system with held separately and includes a number that changes to the way bankruptcy laws and bankruptcy code handles failure. we recognize the segregation structure would include additional cost and may not be workable or preferable for all customers but neither is losing their money. for that reason and gfa recommends insurance protection for customers. such a fund is not be large enough certainly at the beginning to fund the entire futures industry. we have bigger issues to worry about but we might need and certainly would need something that is large enough to protect customers caught in the occasional failure while perhaps longer-term systems are being evaluated and implemented. thank you for the opportunity to share their views and the association. >> thank you very much.

mr. roe. >> good morning chairman seven i, ranking member roberts thank you for the invitation to appear before you today to discuss the commodity customer coalition's recommendations for the poly-response to the mf global and tfg insolvencies. seems to have become a very risky proposition to tender your property to a commodity broker. an industry which just year ago prided itself with that no customer had lost a penny as a result of clearing member default now hopes to broker insolvencies will be limited to the hundreds of millions of dollars instead of the billions of dollars. a system of commodity regulation is clearly broken. in fact heart of that system is so broken that the regulator in charge of auditing pfg best financial could not tell they levied against pfg or were being paid to them with money that belonged to customers. $700,000 this year alone. before this committee, chairman gensler testified that it's unreasonable to expect the least to stop all bank robbers.

you and customers don't live in fear that their deposits will be robbed by the bank. moreover in the event that a bank that is so large that it causes the bank to become insolvent whose customers have insurance to cover those deposits. is chairman gensler and roberts were to rob a securities are they too have customer account insurance. commodity customers really protected by their regulators. there is no mechanism in place outside of the bankruptcy process to deal with shortfalls to customer founding. once customer accounts are attached to bankruptcy the losses to customers have only just begun. in addition to whatever assets with which the broker has subscribed the customers face losses stemming from their inability to manage frozen trading ability and customers and/or an arduous process far in excess of their comparable services. these bankruptcies will drag on for years and the administrative fees which may be paid from customer property will run into the hundreds of millions of

dollars. participants in american financial markets deserve better. the strongest most official legal protections available that has a safety net when regulators fail. it to stop expecting regulators to do this job and start offering customers protections when they do not. wrister gensler's robbers cannot be stopped -- if they cannot be stopped at a minimum they must be insured. month of policy recommendations we tended to this committee the most important is an account insurance mechanism. we propose congress authorized liquidity facility which focuses on providing liquidity to plug shortfalls in customer property and ensure customer accounts are quickly transferred to new brokers within their position. this fund would step into the shoes of customers who would have prevented bankruptcy and reserve property against claims made against customer property. is liquidity facility would not seek government funded or manage, and access could be raised transashley's will is

through member firm assessment. there's a working model of this type of fund known as the canadian investor protection fund and can that. mf global conceived canadian subsidiary some 700 counts were transferred with 100% of their property to a new broker within two weeks. and i feel recent to two weeks is accidentally the stressed the move canadian properties which belong to canadian customers and berkeley burgling had to be moved that to be transferred. they rebel to make customers hold with the facilitation of guarantee from the protection fund covering the 20% shortfall in excess. as a result, canada's customers can now say as we used to, that no customer has ever lost a penny as a result of a default. like all types of insurance any such insurance would have to have coverage limits but if the fdic can in insure $4.3 trillion in bank deposits, surely we can insure $190 million in customer segregation cost. congress must also consider

enacting new criminal -- why the pfg investigation will result in criminal conviction of probability for a criminal conviction in mf global case is less certain. the lesson of mf global should not be that there are no criminal consequences for swiping customer funds. commerce must consider measures to counteract the risks to customers resulting from the combination of broker-dealer in a single corporate entity perp or great percent of customer segregated property in the annie resides in 10 of these firms. broker-dealers and sickle entities have exposed over $35 billion in commodity cluster property involved in the financial crisis perkovich hungers commerce to consider forcing broker-dealers to split their operation to separate legal entities. at a minimum the unencumbered collateral should have specific insurance coverage. lastly congress must make more reforms of bankruptcy code in and of that is outside the purview of this committee but an

important part of an appropriate and complete policy response. a complete over your bar recommendations for reform can be found in the recommendations we tendered with the committee. some of the industry will argue substantive changes of art in may 2 commodity regulations. they will argue these changes are sufficient to diminish the likelihood of future shortfall and they will say we need to enforce what is on the books. however this logic assumes that thieves lack ingenuity and assumes the same technological advances adopted by the regulators will also help the thieves themselves. regulators are the last to adopt new technologies. no more poignant evidence of this than in 2012 regulators were still relying on paper statements requested from a p.o. box in cedar rapids iowa. tepler to protect herself from chairman gensler's thieves we will have to do better than that. cleared congress to act to protect commodity customers when and where the industry does not. >> thank you ray. mr. lukken thank you -- first of

all we have heard from peregrine customers and i heard from one person who is basing the possibility of losing his life savings and said he would rather put his money under a pillow that invest in the futures market and i'm sure that is shared by many people. should features commission merchants be allowed to hold customer money or do we need to seriously look at an alternative custodial arrangement and would you support the call for funds to be held outside of firms but to have any interest earned returns to the firm? >> we are certainly we are certainly looking at all ideas to help restore customer confidence in this area. as you know, the futures model as customers get money to their brokerage, but along with that, there is also a guaranteed. the fc of this guaranteeing those customers so they sems get in the game as well to make sure that the customer sponsor

properly invested and there is due diligence there as well. if we think the fcm is moving customer money to the clearinghouse and don't allow the fc have to do there on risk management because of this guarantee they simply become insurance companies passing that money through. i think if you look at the totality of the system where we are siphoning the internal controls that we have recommended, the things that have been recommended and implemented at the cftc, the nsa and the cma, those are all strengthening things that are going to help the system. i do think we have to look at more things. we have to look at the idf targeted insurance funds. >> can you talk more about that because mr. roe talked about having an insurance type mechanism and how do you feel about that? >> this is something we are actively considering and as mr. giddens in his report said 78% of his customers,

100,000-dollar insurance funds may have covered that so that is something i think we have to look at but as has been noted there are serious costs in the programs that we have to consider. coverage, actuarial soundness and also potentially a lot of these insurance programs for the government guarantee behind them so at a time when people are nervous about too big to fail, putting government guarantees and something we have been seriously considered so certainly will be looking at the insurance options. we think there may be something we can look up that we have will come back to this committee with our findings. >> thank you very much, and mr. duffy on the same note, in december you testified the cost of insurance fund would be cost prohibitive but you had fact have put in place something on a limited basis for farmers, ranchers and co-ops so do you believe this kind of fund is feasible on a larger scale? wouldn't this expand -- this

expanded fund -- >> as i said madam chairwoman when i testified before your committee if our family farmer rancher fund was not placed during mf global all of the people who put food on the table for the people in america would have been made whole. the 100 million-dollar fund would have paid $33 million after those farmers in pure bona fide hedgers. not speculators not people -- the people processing the. as far as an insurance fund goes it's important to note in order to get the $2 billion of insurance they charge 5 cents aside to trade for three years to get to $1 billion. we are charging clients seven to 10 cents to trade day so now we are going to double their cost to add to this fun. when you look at something like the securities and everybody wants to refer to civic and how is it great bailout. asked the folks who were invested with mr. madoff when he put $15 million in civic gave

them $5.2 million in return. also in sipc, the clients do not pay for that insurance. the dealers pay for that insurance. why? because it's it payment for overflow in the securities world a completely different structural model. we did not have a payment for the model in the futures industry. we have an open transparent book for all of them and it's a huge difference when you talk about who is going to fund these types of insurance programs. i'm not opposed to insurance. i am all for if people want to pay for it they should have the ability to do it and we will be happy to facilitate some form for them to do so but they need to understand their huge differences when people are trying to draw the line between sipc and what happens in our industry today, completely different models, who pays for it and why they pay pay for it. >> thank you very much it i think i'm going to take an extra question and let you do the

same. mr. roth i want to ask you with mf global and peregrine, there have been, there were certainly red flags. and with peregrine there was a long history of violations and enforced reactions. they were receiving additional scrutiny compared to other firms because of the violations? >> senator, the peregrine customer base was overwhelmingly retail speculator type customers and they did receive a good deal of regulatory scrutiny and there were a number of enforcement actions but frankly firms that do retail speculator type business tend to encounter more regulatory problems particularly in the area of sales practices, promotional material, the way they trade customer accounts in some cases. peregrine was subject to cftc and fma and repeated enforcement actions. none of those examinations and

none of those enforcement reacts -- actions involve allegations of fraud regarding customer segregated funds. there was not an indication of that. >> he was the sole person in the company receiving tank statements and a chief compliance officer took his word for the fact that the documents were real, at least according to a report. so when we look at this, with this consolidation of functions have violated any standard of internal controls that would have been identified in audits or other reviews or should they have? >> our examination certainly would have covered internal controls as with the examinations by the outside cpa. we tried to make sure there was segregation of duty with the people comparing the computations on a daily basis have the expertise to do that function. so obviously there was a failure

and i'm not suggesting otherwise, and i think we do need to develop more stringent standards for internal controls but there was during our examination, we look to make sure that the people preparing the segregation computations that were reported to us have the ability to do so. >> you talked about the confirmation process that you are now using. do you think that's enough? what are the concerns -- one of the concerns is on the one hand you can never totally stop. if someone wants to have an elaborate scheme and that is not confidence for people who want to use the futures markets. so going forward, again the trust but verify position in terms of from a customer standpoint, what is the verification? what is the independent verification beyond having confirmation?

>> and clearly the economic confirmation process was help full in this process but it was equally clearly not enough and that is why we are taking the two-step process of our august 4 meeting will require fcm's to give their segregated bank account so we can -- regulators can check the balance in town we want and any day we want for any anything they want without the involvement of the firmer the bank. even that isn't enough. as i mentioned in my testimony, we need to develop, we need to change the information process and make it a daily event so we get daily reports from all depositories and segregated funds, not just banks but fcm's in money market funds wherever those funds are invested. we need to get daily reports from all of those depositories and compare this daily reports on an automated basis with the reports we are saving from the firm so we want to take the econ process and make it a daily

event. >> thank you. senator roberts. >> thank you madam chair. this has been an excellent panel and i wish other members had stayed. mr. roth it looks like standard audit processes need to be updated in order to catch somebody like mr. watson dorf at fairland and you indicate that you have -- coming down with the talbott of recommendations that you will give the committee for philip are you sharing those with the rest of the panel here? >> well actually at this point we shared with the other panel and i hope so and i can certainly provide it. the recommendation we are talking about were developed in large part through an sro committee which is an active participant and we have conferred closely with fia. >> i'm just asking a stovepiped

question with the exception of mr. roe who is a the sheriff of a new posse and drove the point pretty hard but at any rate, don't ever get together and talk this over because it seems to me you all have good suggestions, either with some kind of insurance, electronic transparency etc. etc.. maybe that is the wrong question to ask you but at any rate, mr. lukken once your recommendations are any recommendations or place -- making place could and mf global or peregrine situations -- >> anyone who is bent on fraud or misappropriation of funds can try to con found the most sophisticated compliance system. however i think what we have recommended is going to make it significantly more difficult

after the mf global situation including separation of duties as i mentioned. this idea of going to risk-based audits is an important one. this modernizing of how we audit away from a check the box system to morph an automated daily confirmation directly from the banks independently verified, those are really important steps and the good news is it that will free up auditors to ask more difficult questions and to see the red flags and go forward with their audits on a more risk-based -- and then the checkbox. these are important proven to and i will mention you talk about discussion between the groups, we independently huddled with their experts and we all came to roughly the same improvements including the idea of studying the insurance fund with some of the panels so even though we we have independently studied this there is a significant alignment of recommendations that we have put forward. >> that is good news. does the fia support bankruptcy reform?

>> certainly we are supportive of some of recommendations. obviously is complex. i think this idea making bankruptcy code easier for people to thwart away positions to the customers during positions to other fcm's i think that is important concept giving customers more of a voice through the tc ftc or the committees on their own and important con -- and also i think we talk about their broker-dealer fcm going down like mf global. there are differences between the ftc and the cbc rules in this area that for years have been addressed and it's important for those organizations to sit down and make sure there their certaintyf rules make sure when this happens people know what's going to happen. >> that is the big issue that the committee has really interested in, both the chairman and myself. this question i asked chairman gensler on this first panel. went to have access will you be able to monitor and fcm for

unusual daily activity? >> is speediest that form a? >> anybody on the panel. >> you have already gone into the insurance question, which i truly appreciate, but i guess that would be for anybody who wants talk about it. mr. rossi want to take that one? >> i believe that direct on-line access could be helpful under those types of circumstances and when a firm was under financial duress, i think we would be making much greater use of actual -- tool checking several times during the day to make sure that the deposits are as reported by the firm and if there were fluctuations in those balances intraday, it could raise a red flag and create suspicion. with the funds are going down and miraculously at the end of the day they pop back up i think that would be something that would draw the tension of the regulator.

>> ms. subfor you are certainly a feisty advocate on behalf of the organization. i am fully appointed with a nick thank you for your interest and your leadership. you cannot do a rain dance can you? >> i wish i could. [laughter] >> what the end insurance would you like to see developed? >> every form of assurance -- insurance has costs and drawbacks. to my own point of point of vien behalf of ngsa the first thing is urgency so we might start with something that is not a long-run solution but the first step. perhaps itself funding such as chairman duffy said. even if it's not a billion dollars for 20% of that, one sent, my customers would pay for it right now. maybe that is not the long-term solution. we want to look at those possibilities including something that might be sipc,

could be industry funded, could be totally optional for each individual customer perhaps their nfa, creating the aggregate pool of coverage that customers can take or not take. >> your lenders would support that? i know you are quoting your lenders alike. your lenders have told you something like that? >> they are concerned about the safety of their money. there is a small cost to it. i think we would find a lot of lenders would step up to that. >> senator can i make just one point? with respect to a feed generated to nfa to cover the cost of the insurance i would point out it's a technical matter that would require an amendment to the statute because under the existing law there are very strict limits on what we can use fees and assessments for. so they can only be used to defray reasonable administrative

administrative -- that would require a change to the statute. >> thank you for that verification. mr. subfive you are fewer the co-founder of this group. the commodity customer coalition mf global situation, do you think the self-regulatory model are still viable given these recent events? >> i think so in the sense that i don't like it matters whether, whether the regulator is paid privately are paid by the government. i think that what both of these failures show is that there will be future failures. the system is human and therefore it's going to be reached by other humans, so to our minds it's not to look for ways to make it more difficult in a sense the sense of finding new technologies to stop fraud, but it's really the backstop of insurance. the only thing that really effectively addresses what market participants are seeing which is regardless of who is in charge, they can't be assured

that their funds are going to be there when the music stops. >> would you be in favor of a proposal by ms. klemme, we will call it the sub or plan. [laughter] >> i see happen to know a little bit more about it. >> it's called step-by-step. dotted a full gallop. >> on the surface absolutely and i think the mr. duffy is right that we can try to raise a billion dollars in three years. but the nfa just doubled its. >> this year and the world did not stop turning so i think we can raise $30 million per send that we assess and look at maybe getting assessments for member firms. based on the cash flow to fund you can actually ensure quite a bit more and if the funds then goes into the bankruptcy and pursues recovery can get all its money back like the canadian protection are funded. >> i appreciate your answer and i'm way over time. i am four minutes overtime which

is not a record for me by any means. but i just want to make a point that an chairwoman. i think with all of the questions that were asked here, by members which have been good questions, and the previous panel has been a good panel, but these folks here i think are the ones that are going to actually come up with the suggestions that turn into policy changes that would make a difference and from that standpoint i thank all of you and then i urge you to, don't stovepiped this. let's work together. been nice mr. subfive. you're going to be fine. >> thank you senator roberts and i am in complete agreement. i appreciate the recommendations you have already received certainly after mf global. we appreciate that. clearly there's there is more to do. we can't afford number three. customers cannot afford number

three, and so i think it is important. this has been very substantive and i appreciate all of few and as the ranking member this -- indicated this is very important and perspectives that are very important for us. as we move forward both with the regulators, both from the voluntary and the government regulators as well as the customers who were the most important in this whole process, we look forward to working with you and having integrity and a system that needs to work for people in order for them to do business. so thanks very much for your time. [inaudible conversations]

>> we have to be really clear about the very many ways that we own ourselves and that we own our history and that we make decisions that our history is phenomenal, vital and special. >> the former president of bennett college julianne malveaux right in comments on politics education african-american economic history and the sunday or questions, calls e-mails and tweets for the author of surviving and thriving, three and 65 facts of black economic

history. julianne malveaux in depth, live at noon eastern on c-span2's booktv. >> wednesday arizona senator john mccain criticized the obama administration and senate democrats for being against the appointment of the special counsel to investigate national security leaks. majority whip senator dick durbin of illinois and other senators challenged the assertions by senator mccain. this is 50 minutes. thout objection. mr. mccain: madam president, before i go to the issue that we wanted to discuss, i just want to point out that in this debate that has become so impassioned and the issue obviously is one of cybersecurity is one of transcendent importance, and i want to again reiterate my respect, appreciation and affection for both senator lieberman and senator collins, but i also point out to my

colleagues that the people who are directly affected by this, and that's the business community of the united states of america, is unalterably opposed to the legislation in its present form. they are the ones who will be affected most dramatically by cybersecurity legislation. the united states chamber of commerce has a strong letter, a strong letter, the united states chamber of commerce which represents three million businesses and organizations of every size, sector and region, supports the legislation that we have proposed. now, i would final just like to say that i have had hours and hours and hours of meetings with my colleagues on both sides of the aisle trying to work this out. i believe that we can work this out. we understand that cybersecurity is importantance of transcendent importance, but to somehow allege that the business community, the three million businesses in america should be left out of this discussion, of

course, is not appropriate nor do i believe will result in effective cybersecurity legislation. but i really came to the floor today to talk about, again, the issue of the leaks, the leaks which have jeopardized directly american national security. at the asman security firm just in the past couple of days, the head of securities command, admiral mcraven, have observed that the national security risks have put lives at risk and may ultimately cost americans their lives unless there is an effective crackdown. i quote from admiral mccraven, the head of our special operations command, who says we need to do the best we can to clamp down because sooner or later, it's going to cost people their lives or it's going to cost us our national security. this is another national security issue, my friends, and the fact is that i appreciate very much the fact that governor

romney rightly referred to these leaks as contemptible and a betrayal of our national interest. and i would like to point out to my colleagues that, yes, there are supposedly investigations going on and acorresponding to media -- and according to media, that hundreds of people are being -- are being interviewed. well, why don't -- i'm no -- i'm no lawyer, i'm no prosecutor. senator graham may have some experience in that. but what about the 2009 g-20 economic summit, when according to the "new york times" journalist david sanger -- quote -- "a senior official in the national security council tapped him on the shoulder and brought him to the presidential suite in the pittsburgh hotel where president obama was staying and where 'most of the rest of the national security staff was present.' there the journalist was allowed to review satellite images and

other evidence that confirmed the existence of a secret nuclear site in iran." i wonder, i wonder how many people have the key to the presidential suite in pittsburgh, pennsylvania, hotel? you might want to start there. instead, we have two prosecutors, one of whom was a strong and great supporter of the president of the united states. and the same people -- i'm talking about the vice president of the united states and other others -- that strongly supported a special counsel in the case of valerie plame and, of course, the abramoff case. we need a special counsel to find out who was responsible for these leaks. and i'd ask my colleague, senator graham, if he has additional comments on this issue. and it's -- it's receded somewhat in the media but the

damage that has been done to our national security is significant. it has put lives at risk, and it has betrayed our allies. this is an issue that we cannot let go away until those who were responsible are made responsible for these actions. mr. graham: thank you. my comment, in response to your question, senator mccain, is that what we do today becomes precedent for tomorrow. so are we going to sit on the sidelines here and allow the attorney general, who is under siege by our colleagues in the house about the way he's handled fast and furious and other matters, to appoint two u.s. attorneys that have to answer to him to investigate allegations against the very white house that appointed him? the reason that so many democrats wrote to president bush and said, you cannot possibly investigate the scooter

libby-valerie blame leak because it -- val i will plame leak because it involves people very close to you. let's just read the letter. "we're at risk of seeing this investigation so compromised that those responsible for this national security breach will never be identified and prosecuted. public confidence in the integrity of this investigation will be substantially bolstered by the appointment of a special counsel." senator biden, "i think they should appoint a specialty prosecutor but if they're not going to do that, which i suspect they're not, is get the information out as quick as they possibly can. this is not a minor thing. there's been a federal crime committed. the question is, who did it. and the president should do everything in thinks power to demonstrate that there's an urgency to find that out." then he goes on later and says, "there's been a federal crime committed. you can't possibly investigate it yourself because people close to you are involved."

the abramoff scandal, which involved jack abramoff, a person very close to house leadership and some people in the bush administration, our democratic colleagues, 34 of them, asked -- said the following, "f.b.i. officials said that the abramoff investigation involves systematic corruption within the highest levels of government. such an assertion indicates extraordinary circumstances and it is in the public interest that you act under your existing statutory authority to appoint a special counsel." so our democratic colleagues back during the bush administration said, we don't trust you enough to investigate compromising national security by having a agent outed allegedly by members of your administration. we don't trust the republican part apparatus enough to investigate jack abramoff because you're so close to him and that you should have special counsels appointed. well, guess what?

they did. here's what i'm saying. i don't trust this white house to investigate themselves. i think this wreaks of a cover coverup. i think that the highest levels of the -- this government surrounding the president intentionally over a 45-day period leaked various stories regarding our national security programs to make the administration look strong on national security. i don't think it's an accident that you're reading in the paper about efforts by the administration and our allies to use cyber attacks against the iranian nuclear program as a way to try to head israel off from using military force. i don't know if it happened or not but the details surrounding the cooperation between us and israel and how we engaged in cyber attacks against the iranian nuclear program are chilling and something you should not read about in the paper. the second thing that you read about in the paper was how we

disrupted an underwear bomber plot where there was a double agent who had infiltrated an al qaeda cell -- i believe it was in yemen -- and how we were able to break that up and the man was given a suicide vest that was new technology and couldn't be detected by the current screening devices at airports, and how we were able to basically infiltrate that cell. and god knows the damage done to our allies in that operation in the -- mr. mccain: could i ask my friend, isn't it all true that this individual had some 23 family members whose lives were also placed in danger because of the revelation of his identity? mr. graham: that's what we've been told in the paper. and you've also got a story about the kill list, a blow-by-blow description of how president obama personally oversees who gets killed by drones in pakistan. and at the end of the day, i'm not so sure that's something we should all be reading about. but if that's not enough, what

about releasing the pakistani doctor, the person who allegedly helped us find bin laden? his role in this effort to find bin laden is also in the paper and now he's in jail in pakist pakistan. now, the sum total is that the leaks have been devastating, they have put people's lives at risk, they have compromised our national security unlike anything i've seen. and you expect us to sit on the sidelines and let the white house investigate itself? no way. those who wrote letters in the past suggesting that bush could not impartially investigate himself, where are you today? is this the rule, you can't trust republicans but you can trust democratic administrations to get to the bottom of things that they're involved in up to their eyebrows? do you think it's an accident that all of these books quote senior white house officials?

there's a review of one of the books you just mentioned, senator mccain, that talked about the unprecedented access to the national security advisor. there's a vignette in one of the books where the secretary of defense goes up to the national security advisor and suggests a new communication strategy when it comes to the programs we're talking about. "should the eff up." well, that makes great reading, but at the end of the day, should we be reading about all this? people's lives are at stake, programs have been compromised, our allies are very reluctant now to do business with us. and this was, in my view, an intentional effort by people at the highest level in the white house to leak these stories for political purposes and to accept that eric holder is going to appoint two people within his sphere of influence and call it a day is acceptable is not going to happen.

we're going to do everything we can to right this ship. and we're asking no more of you than you ask oed of the bush administration. so to our democratic colleagues, how do you justify this? how do you justify that you couldn't investigate abramoff without a special counsel, you couldn't investigate what scooty libby may or may not have -- scooter libby may or may not have done without a special counsel, but it's okay not to have one here? how do you do senate? mr. durbin: will the senator yield for a question? mr. graham: absolutely. mr. durbin: the senator asks whether this side would like to explain the position. i'd be happy to do it at this point but i could wait until you've completed your colloquy so it's your choice. mr. graham: whatever you'd like to do, i'm dying to hear how you think it's good government not to have a special independent counsel investigate the most damaging national security leaks in decades. i'm dying to hear your explanation. mr. durbin: you don't have to die. i hope you'll continue to live a good life because you're such a great senator, but i'm asking

you do you want notice join in this dialogue or would you rather make your presentation? mr. graham: why don't we let my colleague speak and then you'll have all the time you need. senator chambliss, what do you think? mr. chambliss: well, i'm dying to hear his explanation, too. let me just say that. well, first of all, let me say that i join in with everything my two colleagues have said with respect to the -- number one, the volume of the leaks that have come out in recent weeks. we all know that this town has a tendency to leak information from time to time but never in the volume and never with the sensitivity that the leaks that we've read about on the front page of newspapers around the country as we have seen in the last few weeks. and, you know, irrespective of where they came from, to have folks who may be implicated in the white house and the white house appointing the two

individuals who have been charged with the duty of prosecuting this investigation wreaks of ethical issues. now, i don't know these two u.s. attorneys but everything i know about them is they're dad-gum good prosecutors and they're good lawyers. but why would you even put them in the position of having to investigate, in effect, the individual that appointed them to the position that they're in? that's why we're arguing that a special counsel may be -- is without question the best way to go. and i'm interested to hear my friend from illinois' response to that issue. let me talk about something else for just a minnesota knit and that is the impact -- for just a minute and that is the impact that these leaks have had on the intelligence community. the number-one thing that individuals who go on the intelligence committees in both the house and the senate are told -- and i know because i've served on both of them, continue to serve on the senate intel committee -- is that, be careful

what you say, be careful and make sure that you don't inadvertently and obviously advertently reveal classified information. be sure that in your comments, you never reveal sources and methods. well, guess what? the individuals that were involved in these leaks were very overt in the release of sources and methods with respect to the issues that senator graham referred to as having been leaked. not only that, but lives were put in danger, particularly the life of the individual who was an asset that worked very closely with respect to the underwear bomber issue. we know that to be a fact. but there's also a secondary issue and that's this -- we have partners around the world that we deal with in the

intelligence community every single day and we depend on those partners and they depend on us to provide them with information that we have and likewise that they give to us. and a classic example was detailed in one of these particular leaks on the front page of the "new york times." today, why in the world would any of our partners in the intelligence community around the world, those partners who have men and women on the frontlines who are putting their life in harm's way and in danger every single day to gather intelligence information and share that information with us, why would they continue to do that if they are now concerned about that information being written about on the front page of newspapers inside the united states and blasted all over television or wherever it may be? the answer is pretty simple. and very honestly, there are some strong considerations being

given by some of our partners as to how much information they should share with us, and that't creates a very negative atmosphere within the intelligence world. lastly, let me just say that we dealt in the intelligence committee with our authorization bill recently in which we have tried to address this issue from a punishment standpoint. there are certain things that individuals are required to do when they leave the intelligence community and go write a book. one of those things is that they have to present their book to an independent panel of intelligence experts and that panel is to review the information and then decide whether or not any of it's classified, should not be released. in in the instance, one of the instances that we have here, one of those individuals never

submitted his book to that panel, and in another instance, an individual submitted his book to the panel and the panel said you need to be careful in these areas, and the advice from that panel was pretty well disregarded. one of the provisions in our bill says that if you do that, if you fail to submit your book to that panel, or if you disregard what that panel tells you to do, then you're going to be subject to penalties. part of those penalties include the possible removal of your right to a pension from the federal government, of the portion that the government is obligated to pay you, not what they have contributed. we are now being criticized in the intelligence community -- or our intelligence bill is being criticized by some individuals out there and guess who it is. it's the media. and it's the white house. what does that tell you about

their fear and their participation in the release of classified information? so this -- this issue is of critical importance, and it simply has to stop for any number of national security reasons. but the ones that have been addressed by my colleagues obviously are to be highlighted and i look forward to whatever comments the senator from illinois may have with respect to justifying -- i know he's not going to justify the leaks because i know him too well. but whatever his justification is for proceeding in a prosecution manner the way the department of justice is going versus what the bush administration did and appoint a special counsel in a case that, by the way, pales in comparison to the leaks that took place in this particular instance. mr. mccain: mr. president, before we turn to my friend from

illinois for his i'm sure convincing explanation as to why these -- a special counsel is not required, even though it was in the opinion of his side in previous situations, i want to just again, and the senator from georgia and the senator from south carolina will also corroborate the fact that we have been working and working, meeting after meeting after meeting on the issue of cybersecurity. we believe that we have narrowed it down to three or four differences that could be worked out over time. among them are liability, another one is information sharing. but i think it's also important for us to recognize in this debate the people who are most directly affected in many respects is the business community. and it's important that we have the input and the -- satisfy at least to a significant degree, those concerns. there are those who allege that

a piece of legislation is better than no legislation. i've been around this town for a long time. i've seen bad legislation which is far worse than no legislation. so we understand, certainly i and members of the armed services committee and others, understand the importance of this issue. we also understand that those who are directly affected by it, those concerns need to be satisfied as well, and i commit to my colleagues to continue nonstop rounds of meetings and discussions to try to get this issue resolved. to this moment, there is still significant differences, and i say to my friend from illinois, i look forward to hearing his convincing discussion. thank you. i yield. go ahead. mr. president, i ask unanimous consent the senator from illinois be involved in the colloquy. the presiding officer: without objection.

mr. durbin: i didn't know if you wanted to make the consent request you came to the floor to payingic make. you're not going to make it? mr. mccain: you will object. mr. durbin: yes, i will. i want to thank my colleague from arizona. occasionally, historically on the floor of the senate there's a debate, and this may be one of those moments. i hope it is because it is a worthy topic. let's get down to the bottom line here. i've served on the intelligence committee as some of my colleagues have. we know the important work done by the intelligence community to keep america safe. they literally risk their lives every day for us, and they're largely invisible. we don't see them at the military parades and other places where we acknowledge those warriors who risk their lives. but these men and women do it in so many different ways, and when i spent four years on the senate intelligence committee as my colleagues, i'm sure, people the same, i went out of my way to make sure that i was

careful with classified information. so as to continue to protect this country and never endanger those who were helping us keep it safe all around the world. so the obvious question raised by the republican side of the aisle is whether this president, president barack obama, thinks differently, whether obama believes we should cut corners and not be so careful when it comes to the leaking of classified information. and my answer to that is looking at the record. look at the record and ask this basic question: when it comes to prosecuting those believed to have been guilty of leaks of classified information, which president of the united states has prosecuted more suspected individuals than any other president, democrat or republican? barack obama. on six different occasions, five in the department of justice, one in the department of defense, they pursued the active prosecution of those they felt were guilty of leaking

classified information that might endanger the united states. let me add another personal observation. it was last year when my friend, bill daily, then chief of staff to president obama, came to chicago for a luncheon. it was a nice day. we had a nice luncheon. it was very successful. he said he had to get back to washington, he was in a big hurry, never said why. he told me later, after, he told me much later, after this occurred. i had to get back because we had a classified meeting about hunting down obviously. we -- osama bin laden. we were sworn to secrecy at every level of government so we never disclosed information that we were even thinking about that possibility. bill daly took it seriously, the president takes it seriously, anyone in those positions of power will take it seriously. to suggest otherwise on the floor of the senate is just

plain wrong and it raises a question about this president's commitment to the nation which i think is improper and cannot be backed up with the evidence. now, let's look at the evidence. when it comes to the appointment of a special prosecutor, let me take you back to those moments when a special prosecutor named patrick fitzgerald from the northern district of illinois was chosen to investigate the leak of classified information. let me put it in historical context. we had invaded iraq. we did it based on assertions by the bush-cheney administrations about the danger to the united states. one of those assertions dealt with africa, and certain yellow cake chemicals that might be used for nuclear weapons and whether they were going to fall into the hands of the iraqi leadership. it was one of the arguments -- there were many, weapons of mass destruction and so forth -- that turned out to be totally paul: , leading us into -- false, leading us into

a war, which 'cause cost us dearly in terms of human lives and our own treasure. so one person spoke out. former ambassador joe wilson who identified himself as a republican said i don't believe there is any evidence. he was punished. remember how he was punished? when someone decided to out his wife, valerie plame. valerie plame had served as an intelligence agent for the united states to protect our nation, and someone decided that in order to get even with joe wilson, they would disclose the fact that his wife worked in the intelligence agencies. and then what happened? if you'll remember, when that story broke broke, the intelligence community of the united states of america said we have been betrayed. if one of our own can be outed in a political debate in washington, are any of us safe?

so -- it's a legitimate question. so there was an obvious need to find out who did it. who disclosed her identity. endangering her life, the life of every person who had worked with her and so many other intelligence agents. mr. president, do you ferl what happened? i do. the attorney general of the united states, john ashcroft, recused himself from this investigation. it was the right thing for him to do because the questions about this disclosure of her identity went to the top of the administration. he recused himself and appointed patrick fitzgerald. the u.s. attorney for the northern district of illinois, a professional -- a professional prosecutor with the u.s. department of justice. well, the investigation went on for a long tim .. law. that came out and eventually we

learned the identity of who actually disclosed the name of valerie plame. it was a serious issue, one that called for a special counsel, and if i remember correctly, there were even republicans at that point joining democrats saying let's get to the bottom of this. if this goes all the way to the top, let's find out who's responsible for it. it was the appropriate thing to do. now look at this situation. this president, who has activated the prosecution of six individuals suspected of leaking classified information, takes very seriously the information that was disclosed related to the al qaeda techniques and all the things that they they were g to threaten the united states. and what has he done as a result of snippet let's be specific because i really have to call in question some of the statements made on the floor here. to say that the administration is covering this up as to this leak is just plain wrong.

at this point, the department of justice has appointed two highly respected around experienced prosecutors with proven records of independence in the exercise of their duties. u.s. attorney manchinen has -- matschen has overseen a number of prosecutions in the district of columbia. u.s. attorney rosensteinstein has overseen a number of national security investigations including one of the five leak investigations that have been prosecuted under this president. the justice department has complete confidence in their abilities to conduct thorough and independent investigations into these matters in close collaboration with career prosecution -- prosecution and agents. this is not being swept under the rug, ignored. this is being taken seriously by this administration as every leak of classified information will be taken seriously. i know it's an election year. we're fewer than 100 days away from the election and i know the

floor of the senate is used by both parties this close to the election but i want make it clear this president has a record of commitment to protecting the men and women who gather intelligence for america. he has a record of prosecuting more suspects for leaks of this information than any other president in history. he has, through his attorney general, appointed two career criminal prosecutors to look into this case and said they will have the resources and authority they need to get to the bottom of it. s that that is the way to do. will the day come when a special counsel is needed? up won't rule that out. but it is wrong to come to the floor and question this president's commitment to the intelligence community, it is wrong to question the credentials of these two men who have performed so well in service of the department of justice in years gone by. i thought senator mccain was going to make a unanimous

consent request and if he wishes to, let me yield at this point. mr. mccain: i'd be glad to respond to my friend. obviously he's in disagreement with the chairperson of the intelligence committee because she said that these leaks were the worst in 11 years that she has been a member of the senate intelligence committee. so obviously the abramoff and the other valerie plame investigations aren't nearly as serious. and they certainly weren't when you look at the -- at the incredible damage, according to admiral mcgraifn -- mccraven, of the incredible damage that these leaks have caused. again, the chairperson of the intelligence committee said it's the worst that she's ever seen. admiral mccraven, says it put lives at risk and may ultimately cost americans their lives. i wonder if my colleague from

illinois is concerned when according to his book mr. sanger said -- quote -- "a senior official in the national security council tapped him on the shoulder and brought him to the presidential suite in the pittsburgh hotel where president obama was staying" -- i'm quoting from mr. sanger's book -- "most of the national security staff was present. where the journalist was apparently allowed to review satellite images and other evidence that confirmed the existence of a secret nuclear site in iran." when leaks take place around this town, the first question you have to ask, who benefits? who benefits from them? obviously someone who wants to take a journalist up to the presidential suite would make it pretty easy for us who we should interview first.

who had the key to the presidential suite? who uses the presidential suite in a hotel in pittsburgh? these leaks are the most damaging that have taken place in my time in the united states senate and before that in the united states military. yes, six people have been prosecuted. do you know at what level? a private. the lowest level people have been prosecuted by this administration, and this administration says that they have to interview hundreds of people in the bottom-up process. and i can guarantee you one thing, i'll tell the senator from illinois now, there will not be any definitive conclusion , this investigation before the election in november. mr. durbin: will the senator yield for a question? mr. mccain: that doesn't mean to me that they are doing their job. although it is clear that one of these prosecutors was active in the obama campaign, was a contributor to the obama

campaign. i'm not saying that individual isn't of the highest caliber. i am saying that that would lead people to ask a reasonable question, and that is whether that individual is entirely objective. americans need an objective investigation by someone that they can trust just as senator -- then-senator biden and then-senator obama asked for in these previous incidents which, in my view, were far less serious and in the view of the chairperson of the intelligence committee far more severe than those that were previously investigated. i would be glad to have my colleague respond to that. mr. durbin: i would like to respond. first, let me tell you, whatever the rank of the individual, private, specialist, chief petty officer, if they're responsible for leaking classified information, they need to be investigated and prosecuted if guilty, if we assume that

they're guilty. so the fact that a private is being investigated shouldn't get them off the hook. i would just say -- mr. mccain: i don't think it gets them off the hook. i do think it has some significance that as compared to this kind of -- of egregious breach of security that's taking place at the highest level. we know that. mr. durbin: i would say to my friend from arizona, if i am not mistaken, it was a noncommissioned officer at best and maybe not an officer in the army who is being prosecuted for the wikileaks, so let's not say that the rank of anyone being prosecuted in any way makes them guilty or innocent. we need to go to the source of the leak. mr. mccain: but my friend would obviously acknowledge if it's a private or a corporal or something, it has not nearly the gravity that it does when a person of -- with whom the nation has played the much higher responsibilities commits this kind of breach. mr. durbin: of course, it should be taken to where it leads, period. but let me also ask, i don't

know if quoting from a book on the floor if what was written in that book is necessarily true. perhaps the senator has his own independent information on that. mr. mccain: no one has challenged mr. sanger's depiction. no one in the government -- in the administration has challenged his assertion that he was taken by a -- quote -- "high-ranking senior official in the national security council to the presidential suite. no one challenged that. mr. durbin: i would say to the senator i don't know if that has to do with the information that was ultimately leaked about al qaeda. it seems like it is a separate matter, but it should be taken seriously, period. what more does this president need to do to convince you other than to have more prosecutions than any president in history of those who have been believed to have leaked classified information? if you will come to the floor, as you said earlier, and i quote -- the investigation is -- quote -- supposedly going on, close quote. i trust the administration that the investigation is going on.

what evidence do you have that it's not going on? mr. mccain: i say to my friend, it's not a matter of trust. it's a matter of credibility, because if an administration has the same argument that then-senator biden used and senator obama used in opposition to the administration investigating the abramoff case and the valerie plame case, they argued that it's not a matter of trust, it's a matter of credibility with the american people whether an administration can actually investigate itself or should this be a credible outside counsel who would conduct this investigation which would then have the necessary credibility, i think, with the american people, and i think that's -- there is a certain logic to that. i hope my colleague would admit. mr. durbin: let me say to the senator here that in that case, the attorney general of the united states, john ashcroft, recused himself, recused himself. he said there was such an

appearance of a conflict if not a conflict, he was stepping aside. it's very clear under those circumstances that special counsel is needed. in this case, there is no suggestion the president, the vice president, the attorney general were complicit in any leak, so to suggest otherwise, i have to say to senator mccain show me what you're bringing as proof. mr. mccain: i am bringing you proof that this attorney general has a significant credibility problem, and that problem is bred by a program called fast and furious where weapons -- where under a program sponsored by the justice department used -- let me just finish what i'm saying, then i will be glad to respond. let me just finish my comment. and a young american, border patrol agent, was murdered with weapons that were -- that were part of the fast and furious investigation. what has the attorney general of the united states done? he has said he will not come forward with any information

that is requested by my colleagues in the house, so i would have to tell you, at least in the house of representatives and with many americans and certainly the family of brian terry who was murdered, there is a credibility problem with this attorney general of the united states. mr. durbin: i say to my colleague and friend, senator mccain, i deeply regret the loss of any american life, particularly those in service of our country, and i feel exactly -- mr. mccain: i am convinced of that. mr. durbin: exactly about this individual and the loss to his family, but let's make sure the record is complete. the fast and furious program was not initiated by president obama. it was started by president george w. bush. mr. mccain: which in my view does not impact the need for a full and complete investigation. mr. durbin: secondly, this attorney general, mr. holder, has been brought before a congressional committee time after time. i have been in the senate judiciary committee when he has been questioned at length about fast and furious, and i'm sure he has been called even more

frequently before the house committees. third, he's produced over 9,000 pages of documents and chairman issa has said not enough, we need more. well, at some point it becomes clear he will never produce enough documents. and the house decided to find him in contempt for that. that's their decision. i don't think that was necessarily proper. but having said that, does that mean that every decision from the department of justice from this point forward cannot be trusted? mr. mccain: no, but what i am saying is that there is a significant credibility problem that the attorney general of the united states has at least with the majority of the house of representatives. mr. durbin: the republican majority. mr. mccain: on this issue, which then lends, i think, more weight to the argument that as there was in the case of valerie plame and jack abramoff for the need for a special counsel. mr. durbin: i don't see the connection. if the attorney general and the president said we're not going to investigate this matter, senator mccain, i would be

standing right next to you on the floor calling for a special counsel, but they have said just the opposite. they have initiated the investigation and brought in two career criminal prosecutors whom we have trusted to take public corruption cases in the district of columbia and leaks of classified information in other cases, and he said now you have the authority, conduct the investigation. they're not ignoring this. mr. mccain: those two counsels report to who? the attorney general of the united states. mr. durbin: ultimately report to the people. mr. mccain: i would think just for purposes of credibility and with the american people, that a special counsel would be called for by almost everyone. look, i -- i understand the senator from illinois' position. we have our colleagues waiting. i appreciate the fact that he is willing to discuss this issue. i think we pretty well exhausted it, but -- mr. durbin: may i touch on one other issue you raised if you have a moment? mr. mccain: sure. mr. durbin: the pending bill, cybersecurity.

this is a bill which i hope we both agree addresses an issue of great serious and gravity in terms of measure's defense. i know the senator from arizona and some of his colleagues have produced an alternative. i support the bipartisan bills that senators lieberman and collins have brought to the floor. the major group that opposes the passage of the cybersecurity bill is the u.s. chamber of commerce, an organization which represents the largest businesses in america, and what i have heard the senator from arizona say over and over again is that they have got to be an important part of this conversation and the discussion. i think senator lieberman and senator collins would say we've engaged them, we have listened to them, we have made changes consistent with what they were looking for, but clearly they have not reached the point where they are satisfied. i learned yesterday when senator whitehouse of rhode island came to the floor that in fact the u.s. chamber of commerce really turns out to be pretty expert on this issue of cybersecurity, and i call the attention of the senator from arizona, if he's not aware of it, to a "wall

street journal" article of december 21, 2011. this "wall street journal" article is entitled china hackers hit u.s. chamber, and it starts by saying a group of hackers in china breached the computer defenses of america's top business lobbying group, gaining access to everything stored on its system, including information about its 3 million members, according to people familiar. the complex operation involved at least 300 internet addresses, four chamber employees who worked on asian policy had six weeks of their email stolen. the article goes on to say that the chamber of commerce didn't notice this breach that went on for six months. the federal bureau of investigation brought it to their attention, and then they learned that the chinese had not only hacked into the computer main frame, they had somehow hacked into the computer-driven thermostats in their office and at times in the office of the u.s. chamber of commerce, their

copy machines and fax machines were spitting out pages with chinese characters on them. they were completely compromised by this cyber attack. now they come to us as experts on how to avoid a cyber attack. mr. mccain: first of all, let me say to my friend, that's just unfair. they are not claiming to be experts on cyber attacks. they are claiming that there are issues of liability, issues of information sharing and other issues that they believe will inhibit their ability to engage in business practices and grow and prosper. so to say that somehow they claim they are experts on cybersecurity, they are not, but they are experts on how their businesses can best cooperate, share information, resist these attacks and come together with other people and other interests to bring about some legislation we can all agree on, and there

are three million businesses and organizations that are represented here, i'd say to my colleague, so it seems to me that we should continue this conversation with them, particularly on issues of information and liability, but to somehow say well, we talked to them but we didn't agree with anything they wanted to do is not fair to those three million businesses. we are making some progress, but please don't say that they portray themselves as experts. by the way, they hacked into my presidential campaign, which shows they really were pretty bored and didn't have a hell of a lot to do. but anyway, please go ahead, please go ahead. mr. durbin: i'm sure that wasn't the case. i'm sure it was a fascinating treasure-trove of great insights and information. but let me just say to my friend from arizona, i'm asking only for a little humility on both sides, both in the public sector and the private sector, by first acknowledging as our security

advisors tell us this is one of the most serious threats to our country and its future, and we should be joining with some humility, particularly if you have been victimized, whether in your campaign or in their offices, to understand how far this has gone. the f.b.i. -- this is according to senator whitehouse, came to the floor, found 50 different american businesses that have been compromised and hacked into by the same type of operation, 48 were totally unaware of it. they didn't even know it occurred. what we're trying to do is to get these businesses to cooperate with us so that we share information and keep one another safe. intend of the day, it's not just about the safety of the business, and i think it's important they be safe, but the safety of the american people. this is really a serious issue. mr. mccain: well, could i say to my colleague, first of all, to somehow infer that businesses in america are less interested in national security than they are in their own businesses is not, i think, a fair inference,

but let me also say that what they want to do is be more efficient in the way they can do business. for example, information sharing. as you know, there is a serious problem with liability if they are not given some kind of protections in the information sharing they would do with each other and with the federal government, so we want to make sure that they have that security so that they will more cooperatively engage in the kind of information we need. that's a vital issue. that is still something we have a disagreement on. i have no doubt that the senator from illinois' comments about how important this issue is is true, but we have got to -- no one argues with that, but we have got to get it right rather than get it wrong. the senator from illinois and i have been around here a long, long time and sometimes we have found out that we have passed legislation that has had adverse

consequences rather than the consequences we con female plated. by the way, i would throw dodd-frank in there, no company is too big to fail now. i would throw in some of the other legislation we have passed recent which have not achieved the goals we sought. that is why we need in my view more compromise and more agreement, and i believe that we can reach it. and i give great credit to both of our cosponsors of the bill. but please don't allege that this is -- quote -- "bipartisan in any significant way. most of the republican senators oppose the legislation in its present form. most republican senators, all republican senators, understand the gravity of this situation and the necessity of acting. please. mr. durbin: i'd say to my friend from arizona i hope we get get this done this week. i know it's a big lift and a lot to do but i believe that the threat is imminent.

and i believe it's continuous. and if we don't find a way through our political differences to make this country safer, shame on us. i do believe senator collins is from your side of the aisle and is proud of that fact so it is a bipartisan effort. and she has worked with senator lieberman on so many issues. mr. mccain: i accept your definition of bipartisan. mr. durbin: to raise the question of dodd-frank and appropriate government oversight and regulation, i suggest you reflect on three things -- libor, peregrine investments and the chase loss of $6 billion to say that we shouldn't have government oversight of our financial institutions that dragged us into this recession we're still trying to recover from, i would say it differently. we vote differently when it comes to that. but i think there is a continuing need for government oversight of these institutions.

mr. mccain: these institutions are not averse to government oversight. they are averse to legislation which harms their ability to share that information because if they face the threat of being taken into court for that, then obviously that -- there is some reluctance. they also know how much has been lost because of the lack of cybersecurity to china and other countries. they're the ones the most directly affected. so they are intelligent people. they are smart people, and they want this legislation to pass in a way that is the most effective way to enact legislation on this very serious issue. i look forward to continuing the conversation with my friend from illinois and i think that both of us learn a bit from our conversations, and i thank him for his continued willingness to discuss the issues. mr. durbin: i thank my friend,

the senator from illinois, and i hope other colleagues will e* engage in this kind of this exchange. i don't know if we convinced one another but i hope those who another but i hope those who

>> wednesday, president obama cited a year for a dead

presidential candidate mitt romney's economic plan raises taxes on middle-class. he made remarks at a campaign rally in mansfield, ohio. part of a tour of battleground states. this event is 20 minutes. ♪ [cheers and applause] >> hello, ohio! well, it is good to be in mansfield. i hope everyone's having a great summer. [cheers and applause] a couple people i want to acknowledge. first of all, please give a huge round of applause to brenda for a great introduction. [cheers and applause] and don't try some of her pizza

if you have not tried it. you've got a testimony right here. it's a ambient. i want to thank her so much for doing this. a couple other people. are outstanding for a governor, ted strickland is here. give him a big round of applause. [applause] and although he could be here because he's got to go, i just want to tell you that you could not have a stronger advocate than your hometown boy, the united states senator from ohio, sharad round -- sherrod brown. [cheers and applause] have you back. i like to thank all the neighborhood team leaders are working so hard on this campaign.

finally, i think it makes sense for us to give it up for all of our outstanding american athletes who are competing in london right now. [cheers and applause] i want to congratulate michael phelps. most medals ever seen. i had a chance on the way over to call a women's gymnastic team [applause] i have to tell you, when i'm watching, you know, when people run track, i understand -- i know how to run, that is much faster. and i know how to swim, they just went much better than i do. these gymnastic folks, i don't understand how they do what they do. so i told these young ladies as i was congratulating them, how do you not bust your head every

time you are a net balance beam. i couldn't walk across the balance beam. so anyway, we could not be prouder of them. there are a whole bunch of ohio ends up representing our country in the olympics and paralympics. abby johnson upper arlington already won a silver medal in diving. we will be working for army specialist, justice lepper firm appling. he'll be wrestling for next week. [cheers and applause] so the wonderful thing about the olympics is that reminds us that for all of our different days, when it comes down to our country, you know, we are americans first and we could not be prouder of them and everything they are doing on our behalf. now, unless you've been hiding from their television, you may be aware there is a pretty intense campaign going on right

now. and the reason that this is an intense campaign is the choice we face in november could not be better. i mean, this is a stark choice. a choice not just between two candidates are two parties, but more than any election in recent memory, between two fundamentally different divisions for america, two different paths that we could be going against. i appreciate that. now that's the direction that we choose. the direction you choose when you walk into this voting this november is going to have a direct impact on your life, but also in your children's lives and your grandchildren's lives. in four years ago, we came

together as democrats, but also independent and republican to restore the basic ardennes prebuilt the greatest middle class in the most prosperous country the world has ever known. [cheers and applause] and it's a bargain that i've lived in my life in so many of you have experienced. it's the basic idea that here in this country if you work hard, and that word be rewarded. if you act responsibly, you should be able to get ahead. if the deal has said we put in enough effort, we should be allowed to find a job to pay the bills. we should be able to build on shannon build a home to colorado. we could have health coverage if we get sick. we should be able to retire with dignity and respect. and most of all, we should be

able to give our children the kind of education that allows them to dream even bigger and do even better than we ever imagined. that's what we believe. [cheers and applause] is a simple american promise. it's the core of the american dream. we knew that restoring it would be easy. it would take more than one term or one president. and i was before the middle-class was hammered by the worst economic crisis of our lifetimes come a crisis that route too many of our friends at our neighbors that their homes, jobs, saving and push the american dream even further out of reach for too many people. but you know what? there's one thing that crisis did not change. it did not change who we are. it did not change the american

character. it did not change what made us great. it hasn't changed when we came together to do what we did in 2008. it has just made our mission more urgent. [cheers and applause] now our first businesses to recover is to recover all the jobs lost in the crisis. we've made strides these last three and half years to get these done. but beyond that, we're here to reclaim the financial security has been slipping away for more than a decade through the decades before i came in office, your income to wages generally were going up. jobs are moving overseas. auto industry has been getting hammered. so our job is not just to put people back to work. it's also to build an economy where over the long haul that

were too soft so no matter who you were or where to look like or where you come from, here in america as you can it if you tried. [applause] us with this campaign is about, ohio. and that's what i'm running for a second term as president of the united states. [cheers and applause] >> four more years a mac for more years! four more years! four more years a mac >> now, mansfield, there are no quick fixes or easy solutions to the challenges with days, but there is no doubt in my mind we've got the capacity to meet them. think about everything that we have going for us here in america. we've got the best workers. we've got the best entrepreneurs

we've got the best scientists, the best researchers. but that the best colleges, best universities. we've got a buckeye guy right here. we are a young nation with great diversity of talent and ingenuity. people come here, want to come here from every corner of the globe. so no matter what the naysayers halas, no matter how dark together a site tries to make things look, there is not another country under that wouldn't gladly trade places with the united states of america. [cheers and applause] so what is standing in our way is not what we don't have the ingredients to make the 21st century the american just like the 20th. the problem we have right now is her politics. the sort of uncompromising view,

the notion that we should be going back to what we were doing that got us into this mess in the first place instead of going forward to achieve a greater american future. it's that old top-down economics that we've been hearing about for years, the old discredited idea that if we somehow get rid of or more regulations on big corporations to get more tax breaks to the wealthiest americans, but somehow the lead to more jobs and prosperity for everybody. ohio, you know better. i know better. we know this country wasn't built for the top down. it was built in the middle-class. it was built by farmers in fact drew workers in startups and small businesses and companies that send american products

overseas, not sending american jobs overseas. that's what built ohio and that's what built america. [cheers and applause] and that is what we are fighting for. that is what we are fighting for right now. that's the economy we need to build together. and i promise you, we will not get their if we adopt these ideas that somehow spending more money in tax cuts for millionaires and billionaires who don't need them and aren't even asking for them is actually going to improve the economy. we tried that. it does not work. now despite the evidence, the entire centerpiece of my opponent's economic plan is a new $5 trillion tax cut on top of the bush tax guys.

now, the bulk of this tax cut will go to the very top. a lot of it goes to the wealthiest 1% of all households, folks making more than $3 million a year, the top one 10th of 1% would get a tax cut worth almost a quarter of a million dollars. now think about that. folks making $3 million a year or more would get a quarter of a million dollars tax cut. the listing. it gets worse. under my opponent's plan, who do you think gets the bill for these 250,000-dollar tax cut? you do. and you do not have to take my word for it. just today, an independent

nonpartisan organization ran all the numbers on governor romney's plan. this wasn't my staff. this wasn't something we did. an independent group ran the numbers. they found that if governor romney was to keep his word and pay for this plan, then he'd have to cut tax breaks, to middle-class families depend on to pay for your home, the home mortgage deduction, to pay for your health care, health care deduction to send your kids to college. that means the average middle-class family with children, according to this study, would be hit with a tax increase of more than $2000. and here's the thing. he's not asking you do increase

more to pay down the deficit. he's not asking to pay more to invest in our children's education or we build our roads or put more folks back to work. he's asking you to pay more so that people like him can get a big tax cut. in order to afford just $1,250,000 tax cut for somebody like mr. romney, 125 families like yours would have to pay another $2000 in taxes each and every gear. does that sound like a good plan for economic growth? does that sound like a plan you can afford quite >> no. >> , and if you want to pay another $2000 to give mr. romney appointing another tax rate? >> ohio, we do not need more tax cuts for folks who are already doing really well.

we need tax cuts for working americans. we need tax cuts for families trying to raise their children and keep them healthy and send them to college in put a roof over their head. [applause] we don't need more tax cuts for companies shipping jobs overseas. we need tax cuts for companies that has jobs right here in the united states of america. [cheers and applause] that's a choice in this election. busway running for a second term as president of the united states. [cheers and applause] mansfield, i've got a different plan for america that mr. romney is. four years ago i promise to cut middle-class taxes and that's exactly what i've done, by a total of about $3600 for the typical family.

[applause] now, i want to keep income taxes exactly where they are on the first $250,000 of everybody's income. so if your family to make makes under $250,000 a year, which is 98% of american families, he will see your income taxes increased by a single time next year. [cheers and applause] now, if you're fortunate enough to be in the other 2% of americans, all we are asking you to do is contribute a little bit more. this includes me, by the way, so they can pay down our deficit and invest in things like education that are going to help us grow over the long term. and in terms of cutting our dataset, i'll make sure government does inspire.

we are going to cut away spending that we don't need. we've already got a trillion dollars. we can do more. but i'm not going to pay for massive new tax cuts for millionaires and billionaires by cutting the investments that i've always kept the middle-class job. [applause] all we're asking people like me and mr. romney to do is go back to the race may play under bill clinton. [cheers and applause] and i don't know if you remember, that's on our economy created nearly 23 million new jobs, the biggest budget surplus in history. and here's the kicker. it actually created a lot of millionaires because when the middle-class is doing well, that our businesses do well. when folks have money to spend, and they buy new cars or car

companies do well and they hire more workers. when you've got extra money in your pocket, didn't you go get some peace for brenda. and then she decides she can afford to hire another worker. that is how we grow our economy. for investing in roads and bridges, put some hard hats back to work. get our steel workers back to work. [applause] they've got more money to spend. maybe they'll buy that new computer. maybe they decided to take little vacation. all that money circulates in the economy and makes us all grow. so, here's the bottom line, ohio. if you believe that their plan, mr. romney's plan, his congressional allies, if you genuinely believe that that plan will make you better off, if you believe it's okay to set our

sights lower or settle for some b, then by all means, send these folks back to washington. for the next two years. but -- but would she be better off, wouldn't we all be better off if we kept fighting for the things that's always made a strong, free fat to make higher education more affordable so more young people can go to college? wouldn't we be better off if we invested to develop new sources of american energy? wouldn't we be better off if we kept investing in manufacturing so that we can sell goods around the world, stamped with the words, made in mansfield, ohio, made in the united states of america. [cheers and applause] in five years or 10 years or 20

years, bold we be better off through for that working our way back. that is what i believe. that is why i am running for president. you know, my hair may be prayer that it was four years ago, but my determination to do right by you is stronger than ever. [cheers and applause] my faith in you is stronger than ever. and if you still believe in me like i believe in you, i hope you will stand with me in november. i'm asking you to stand with me in november. i'm asking you to join this cause. let's finish what we started in 2008. [cheers and applause] let's put the middle-class back in the forefront. let's remind the world just why

it is that the united states of america is the greatest country on earth. [cheers and applause] god bless you. god bless the united states of america. [cheers and applause] >> thursday the president will campaign in the battleground states of florida and virginia. ♪

>> the house transportation and infrastructure committee had a hearing on overspending at the general services administration. they focus on the 2010 awards banquet, which cost close to $270,000. members looked into reports of $44 million in bonuses and executive comp and patient being awarded to gsa employees. this year and comes three months after officials testified about excessive spending at a las vegas conference. ssive this hearing as an hour and 15 minutes. >> the house transportation and infrastructure committee to order. this morning's hearing hearing going to address the general services administration and is a review of agency mismanagement,

wasteful spending titled part two. please to have members join us and apologize for slight delay on the start. someone should do something about traffic in washington. we are pleased to have you here today. also to be holding this important oversight hearing and investigating hearing regarding the latest spending abuses which has seriously called into question gsa's ability to save taxpayer's money. i'll start with my opening statements and we'll get to our panel of two witnesses.

we will proceed with questions after we hear from those witnesses. we're focusing on some of the problems we had and waste and abuse of taxpayer funds and the general services administration is particularly alarming because the general services administration is the chief procurement agency for the federal government. also responsible for maintaining many public assets, trustees of public assets. when you have abuses in an agency with that mission you have some serious problems. we'll address them today. first of all, i think everyone was appalled and we appreciate the work of the inspector general who is with us today, but they were appalled when we

saw $800 million las vegas conference that unfortunately featured clowns and mind readers and the infamous image that all of us recall of one of the administrators in a hot tub thumbing his nose at both congress and the american taxpayer. we're hopeful this is a limited occurrence and that was not indicative of the behavior, the actions or the management of the agency. from the very beginning i asked mr. denim, the chair of the economic development public buildings and emergency management subcommittee that oversees gsa. from our very first hearings we requested information on soaring

administrative costs that balloon some 300%. we knew something was wrong and i think mr. denim and i had almost every hearing and in communications with the agency have tried to ascertain why these expenses were so high and what was going on. our focus also from there committee isn't just related to what we found with these conferences. one of our intents in the minority when we published a report entitled the federal government must stop sitting on its assets, and that was in october of 2010, the same month that this first conference that was so abusive was held. that highlighted the multibillion dollar loss of

taxpayer revenue and potential utilization of assets. we found that gsa and the federal government have 14,000 properties or buildings that cross the nation that are either vacant or under utilized. i went down and other members at the old post office in the annex. the annex had been vacant for 15 years and it's two blocks from the white house. i just came from the white house a few minutes ago and just within steps of the white house is this property costing taxpayers a loss of $8 million a year. it was 32 degrees outside and we held a hearing in the annex that had been vacant. it was 38 degrees inside. most of the people who testified before us or worked with us then, gsa administrators were

also involved in some of the abuses and almost all of them have been removed or replaced or resigned. meantime with ms. norton's help we've turned that first property from a money losing asset to where a thousand people will be employed and potential significant revenue for the taxpayers. that took us over a year. since that we've done two subsequent hearings in vacant buildings in our nation's capitol. one in the annex, cotton annex. a huge rock of land. that building was vacant for five years and several weeks ago we conducted another hearing in an empty power facility behind the ritz carlton georgetown on 2.08 acres, vacant for 11 years.

just examples of some of the huge waste of these conferences that are significant abuses and waste but they're even more dramatic problems with gsa. next we'll be doing a hearing in miami and there's a federal course that's been vacant there for a number of years and we'll continue during august recess. i think we'll be in los angeles with mr. denim to look at the situation there with under utilized or excess property sitting idle. that sort of sets the stage for today's hearing. we have been working with inspector general. we have a limited investigative

staff on the committee. unfortunate unfortunately, i've told some folks we now received information that there may be as many as 77 conferences and award ceremonies that are now under review by the inspector general on the investigative committee of our staff. that's quite disturbing. we were told in addition to the october conference which was $800,000 now there's in excess of a quarter of a million dollar virginia conference and people have seen the video of the $20,000 worth of drumsticks that were purchased. $35,000 in picture frames and $104,000 for consulting on a one day conference that was paid. all of that is disturbing. now we're finding there may be

as many as 77. i think i'll address one particular that he with heard of in the last, actually, this continues in the last 24 hours. i must report we're now examining the cost for attending and some of that is over the top and it does raise new concerns. it's going to take a while to sort through the good, band the ug ugly. not a pretty picture for taxpayers. i have to raise next before the committee question of the bonuses. we were informed by gsa about bonuses, the administration and president asked not to issue bonuses or they be limited and we were, in our questioning we

discovered about $10 million of what was reported from gsa in bonuses. now it appears that, i have to thank that media and fox news and i guess cbs and others who have also pursued this matter for some time. when you do an inquiry and ask an agency a question and get back an answer and they give us back a $10 million answer to these bonuses, the media discovers $34 million on top. we have $44 million in bonuses. absolutely stunning amount.

to put this in context and again i thank the media for also working this. i see also the washington times had a request. all of these combined we've now uncovered about $44 million in bonuses. do we have a spreadsheet on that? this is absolutely incredible amount of money. now, gsa has 1% of the employees of the federal government.