timeframe that we are looking at over six months for potential restructuring. and also point to some of the long-term trends. so this is still accurate because their criteria doesn't change. you can see within the triple they criteria we have different traditions with a plus or a minus, or without either. and so the triple c+ which we had come although it was on credit watch negative and to yesterday, basically reflects that we don't have a clear path identified for a debt default for restructuring. a ccc, on the other hand, indicates that we feel that it's essentially going to happen within the next six months. for triple c+ we are looking

forward 12 months or longer for potential restructuring, maybe not a specific path. the ccc and we see a likely default within 12 months to six months, particularly with some of the governor's comments in puerto rico yesterday. we believe that there will be some sort of restructuring within the next six months that's nearly inevitable. so i guess i can slip pretty quickly through the slide or the ccc+ and instead i will read a little bit come a couple of the bullet points from our release that actually came out this morning. so basically we feel that the default, redemption of the commonwealth of that is inevitable in the next six months absent something anticipated. we believe that the report that came out yesterday or was

released yesterday, was commissioned by puerto rico, people refer to it as "the cook report," but it packs a does -- kruger report. but it does have a formal title. the embrace of that by the devastation in puerto rico indicates in our view that they will pursue some sort of debt restructuring. the governor said something to that effect last night in his address to the commonwealth on television. and so we do it is our understanding that puerto rico has adequate money to pay its debt today. and on july 1 and that it intends to do so and that we are not aware of a particular default that's been planned. however, we do believe that they will pursue a restructuring of some sort shortly.

in fact under current projections we believe that they will have to. typically, porter because need to sell about 1.2 billion of external cash flow notes within the fiscal year which ends june 30. they typically get most of their revenue towards the end of the year, particularly when income tax comes in and they need cash flow financing in the fall. so while they might pursue various measures to boost liquidity in the short run and bills have been introduced to tap retirement funds or the state insurance funds before liquidity purposes, they might sell trends for example, to the gdp for liquidity. we believe that even those with a relatively temporary and in our opinion come this fall or perhaps earlier they will have a very severe liquidity problem.

which is within our six month timeframe. so that's puerto rico. this slide which i updated yesterday is still accurate, and it's got some purdy small pipe but basically we feel greece is going to come for political reasons prioritize payments other than to debt holders and that is relatively inevitable that there will be a restructuring in the short run. at one point greece was rated lower than puerto rico, but we feel with a six month timeframe encompasses both ratings at this point. so let me talk a little bit about puerto rico's pressure point. so first liquidity. they really need the market access as i just talked about

particularly in the fall to carry them through the fiscal year. without doubt they will have some severe issues on liquidity. and then there's some longer run issues. in the background, i like it to the economy but both greece and puerto rico share a declining economic trend which brings these issues to the floor, but we should all bear in mind that the short-term issues on the result of a long-term trend, which is underpinned primarily by economic weakness. in particular, the pension system for puerto rico are at risk. they have been underfunding and four years. they cannot afford to fully fund the on actually a basis. i've seen some commentators point out the fact essentially an actual basis they have assets and their main employees retirement fund and expect payments to boost. that's not quite true because

they sold some pension bonds a few years ago and they can use the cash for that. so they can actually pay on a cash flow basis engineers with negative assets which is what we would expect in the short run. but that can only last so long. we do expect that when that's exhausted to go to a pay-as-you-go system and to have to substantially boost their payments into the retirement system if they are to fully pay promised benefits to pensioners. the health care system has very large projected deficits in the next few years and that's driving actually some of the biggest part of the out year gaps that were projected in a report that came out monday but we event aware of that for some time. some of that is that they are frontloading some of the payments they got from the federal government under the aca, and they will exhaust those

in the short run when the story feed into fiscal 2018, algiers we see very large gaps start to approach the size of the revenues they are projecting. so that would appear unsustainable. the debt service does increase perhaps not as rapidly as these other rapidly as these other things on 22 in the out years. there's increased in general fund debt service, and before they get to the general fund a lot of the report i say don't take into account with a look at the increase in general fund behind that there's of ina a sales tax financing operation which takes money off the top before it gets to the general fund. at a lot of debt. back us up about three, 4% a year -- cofina. and then all their lowered operating deficits is to have an ongoing operating deficits. they are projecting this year in the last disclosure statement about 191 million of operating deficits for fiscal year 2015, even though the 2015 budget was

balanced on paper. we feel the operating implementation risks. even if it 2016 balanced budget is enacted on paper, we feel there's still implementation risks. i can go into some the details of that when the panel discussion gets into it but there's a number of reasons and certain things they did in fiscal year 2015 that made it a little bit worse. as i alluded to before, underlying all this is the economic performance. it's been stagnant. basically last couple of years there hasn't been really much decline but there has been much growth. it's been a small decline under real gdp basis. before that there was a bigger decline after some federal tax breaks fully phased out in 2006. but operating deficits and the budget started around 2000 this predates some of that and that's partly because some of

the federal tax breaks started to phase out before 2006. and maybe i should just clarify the federal tax breaks and where federal tax breaks are manufactured from the mainland are located on puerto rico those primarily pharmaceutical manufacturers are very high value wage industries. so to the extent that those decline, even though they are a small amount of employment, has a big impact on the gross domestic product. so here's some quick points in comparison with greece. first of all puerto rico is a territory within the u.s. government. they have a nonvoting representative in the u.s. house of representatives, but they can't even vote in the u.s. congress. greece is a full member of the euro area. puerto ricans have labor mobility within the u.s. there's been an exodus to

actually they call it a brain drain, out of puerto rico to come to america for employment. there is labor mobility for greece within the eu. in terms of currency, puerto rico doesn't have control of its own currency. they use the u.s. dollar. whether greece has control or not at least they have some representation at the bank but we feel that the greek economy isn't very well synchronized with the europe as a whole. fiscal transfers eight big point a difference. about 24 25% of personal income in puerto rico comes from fiscal transfers from the u.s. government. the biggest fiscal transfer to social security but there's also medicaid, medicare, food stamps, veterans benefits many things in the. so that provide some support.

and furthermore if you think about it, within the u.s. federal system, u.s. citizens don't really care if new jersey pays more than alabama into the federal government. there's not a huge groundswell of opposition necessary for making payments, these transfer payments into puerto rico. greece, on the other hand gets very limited fiscal transfers, custom transfers from europe. okay, in terms of economic growth or decline, puerto rico has had some periods of decline but they are not nearly as much. greece from 2010-14 probably had double the decline of puerto rico. in terms of debt it's really hard to look at we look at debt ratios generally we will look at the states that including underling municipalities,

electric systems, enterprise systems, endless they have been supported by the state general fund. and so some the numbers we saw in that earlier slide i might take issue with actually. so you can look at it different ways to make it comparable to greece. it would be a little tough. if you look at overall and and metric system, everything in it it's about 69% of gdp. if you look at it similar to what look at in state in our view it would be closer to about 40%, but for greece this is just the end of 14. i have net debt about 172% over 180% now. incomes in puerto rico a lot higher than in greece but still low iq of standards. and then lastly what look at the impact of a default. why there might be more debt increase, you could say that its government held and maybe there's less impact on the debt markets as a whole, whereas puerto rico to is privately

held. now hedge funds on a major share may be less willing to give per se, in the negotiations with puerto rico. they're going to have to negotiate if there is a restructuring and so perhaps it could be a great impact on the u.s. market. and so i think my time just ran out, and i will pass the baton. >> thank you very much. john. >> thank you alex. my role at cumberland in terms of managing bond portfolios is really driven by two things. returns on investments of course, and preservation of capital.

so when i view things in puerto rico and tangentially i guess greece since it has impacts across all want interest rates as we saw yesterday, i'm doing it from the perspective of risk-reward, capital preservation. and if you go back basically a year and three quarters to go to the end of august 2013, this cover really started the run on puerto rico debt and the uplift of you as we have seen since. it isn't that the problems were not known before that. they were. most of the bond market knew that. what you had was and dave mentioned it at the end of his piece there, was that you had in the tax exempt bond market in the u.s. broad participation by retail investors in puerto rico debt. because of the double exemption

from it. free from not only federal taxes and state taxes in all 50 states. so not only did jetdirect regional ownership, you had large regional ownership across the many number of invisible bond funds that own puerto rico debt. when the parent article hit immediately -- veterans -- you saw selloffs in the puerto rican bond market and a lasted right through the following january and march and january, february and it is kept going since. so you started to see celtic of bond funds in markets the lost liquidity. we will see some of the bond yields and the second. this was the match that with the fire. looking at cofina a sales tax debt, and you can see, it's jumped up even higher in this yield no. we will see some charged or i to

come one of the great things as alex mentioned, coming on bo when both puerto rico increased hit the fan over the weekend you take a deck of of of cards and all the presentations have thrown up in the air and see what you've got left. cofina get traded at very low levels for many years, even after the first barons pc. the reason for that was that a cofina get wesley seen as -- >> is that the green line? that's the yield, the greenland? >> right. and you can see for timelines on it. as you go into january of last year it jumped and then of course, this may and june it's jumped. if this were updated you would see it even higher up in the 14% level. that there is is that come and

we quite think this if i could happen to is that puerto rico is going to try to essentially grab a sales tax revenue and claw it back to the commonwealth. where's bondholders have always expected that they get first claim on the sales tax. we will see whether this happens, but there's certainly the fear factor now that protection that you've had as a bond holder with a lean on the sales tax is going to be a tax. here's the g.o. debt. it's important to look at the comparison. in our view where we have exposure to puerto rico is only in ensured puerto rico debt. and that is by two of the insurers, assured guaranty and mbia. that's all we don't have it on it specifically their and started doing it for some

selected clients in march of 2014. so this was after yields had risen. the interesting part is that as the news got worse in puerto rico through the fall you can see that all three, both insured as well as the uninsured debt rose. someoneso one is the actual line for aaa securities. that's the gray line. the blue light is the ensured puerto rican bond and the green line is the uninsured. so for the first four months everything up in a vacuum. then you see the market start to discern the difference between an insured about an uninsured bond. and there they they diverge. sega cd and should yield which we started getting involved in fact that 6.5-7% level have worked their way all the way down to about five. and they jump a little bit

yesterday to greece a few pieces yield around six but there were not enough trades to really hang your hat on. but it's interesting of the market start to dissect things. by the way not that it is anything to do with today's discussion, if you look at a pattern of chicago's g.o. debt insured versus uninsured, the exhibits at the same pattern that you see in the middle of this graph and they're all going up in an upward yield draft right now and we fully expect that to be sorted out. one of the things that we look at with the insurers and the reason we are involved there is that we believe the insurers have plenty of capacity to pay any puerto rico claims. and remember, the bond insurers obligation is to pay in civil and interest when do. so the fact is demanded bond in 2035 where there is possibility of default or nonpayment.

as we saw in detroit, the bond insurers originally were being offered 15 or 20 cents on the dollar. they ended up settling for a distance on the dollar. they have lots of clout in terms of trying to get restructurings done, ever believe this is going to be ongoing in puerto rico also. sales tax, this is just too sure senior versus subordinate. the subordinate debt really got clobbered yesterday because obviously if they they would be clawbacks that would be the first to get hurt. the electric authority dave mentioned possibilities of restructuring. again, insured versus uninsured. the cap is usually why. this is prepa. we fully expect to see some restructuring into electric authority, and the highway authority. the markets estimation is that 70 cents on the dollar will be

the new trend 11. to my knowledge that july 1st 10 kind of thinking can be made so tomorrow everybody should be getting paid -- venue par. the governor goes on tv and says we cannot pay our debts. there's a big difference between saying we cannot pay our debts or we don't want to pay our debts. because one of the real issues there and this is going be the crux of not only the insurers, but also some of the hedge funds that got involved, and you saw hedge fund involvement, round last spring. most of the hedge funds have signed an nondisclosure agreement with puerto rico so that they can get access to data and basically a bargaining chip in return for loaning them more money. that nondisclosure agreement means that they more or less have information that we don't have and it means they cannot trade with anybody else other than themselves. i'm not sure that's helping them right now.

they wanted to go to puerto rico and say we will lend you more money. if you do a dnc. puerto rico was not that and that includes reducing payroll cutting benefits et cetera -- a dnc. remember, puerto rico doesn't have access to chapter nine bankruptcy. they would like to fast-track this in congress to allow the. either directly granted access to chapter nine or fast-track interstate and then they would be eligible in chapter nine and that's not happening. but the interesting part of it is that even if they had chapter nine they would be required to show that they're taking steps and all the steps necessary to try to pay their debt and it wouldn't even be close. it still has a long way to play out. a little bit here on the crisis. government debt equals more than 93% of gross product. liquidity, economic weakness

shrinking manufacturing, david touched on these, large unfunded pension liabilities relative to revenues. so the story is not good. here is the reason why would like they puerto rico insured that. and for which it is the comparable law which has a higher underlying rating in puerto rico, but not much -- compare guam or we have puerto rico insured. they are trading on this graph 200 basis points apart that would be probably if you saw some injured trade probably closer to 250 today after yesterday. when you look at the insurance agreement in both the bonds, it reads exactly the same. so why is one trading 2% cheaper than the other? the answer is simple. its headline risk. the market discounts headline risk by giving you higher yields. this is true in this case and what we think is that eventually

things come together. most of this is because you don't have the retail participation. right now using any of the major brokerage firms, investors could go in and buy incher paper is as everything hit after the parent article, not to be more months, most of the major brokerage firms suddenly then threw down the barn door and said we were not let our clients but anymore puerto rico paper. this, of course, after yields have risen 300 to 400 basis point more. after the horse left the barn and they said you can't buy anymore. we actually think puerto rico is very close to getting this petroleum tax deal done. and it had gotten that done you would've seen the insurers probably take a piece of that because of the way the tax would be dedicated it to brokerage firms like the morgan stanley's and the merrill lynch of the world have gotten involved in the deal it would be hard to

tell the client they came by the insured puerto rico deal when they are underwriting it. our thought is when retail is allowed by the insured puerto rico you'll see them come back and these yields will decline. right here kind of gives you an idea. puerto rico g.o. debt versus its population. you could look at this and put detroit up there last year and went in a very similar looking graph, and clearly one of the things they need to do is have cut back on the budget level. we haven't seen that yet. this is the puerto rico bellwether bond and issued these a year ago march. they came at a discount at 93 cents on the dollar to yield 8.7 fight. you can see the price of the bond has declined in the has declined in the last few days -- 8.7 defied. were as it'd been trading at 76 cents on the dollar as of a week

ago. it is now down to about 64 cents on the dollar, 65 cents on the dollar and is yielding well over 12%. w. question now is we know the electric and hybrid authority will most likely have to restructure. the question is is the commonwealth going to have to restructure? want the keys when they brought this to together, $3.5 billion in march of 2014 all you heard from the government was the g.o. pledge of puerto rico is sacrosanct and we are going to continue to make good on payment and we will keep you updated on progress, on reforms. you haven't seen any of that and the problem with that, of course is the fact the lack of communications is reflected in the dollar price of this bond. personally and i'm not speaking for the firm, i find it hard to imagine that united states

leading a u.s. territory go under. when you think about come it's not like detroit where it reports to the to the michigan. here you have puerto rico report into the trinity if i am a hold of euros of debt, china and i am billions and billions of dollars of treasuries, agencies, federal mortgages, i want to wonder if you're letting a u.s. territory go under what's next? is expanding, for do not? is the federal farm credit bureau? sallie mae? i think the united states needs to get involved a little more. quickly run through this. some of the of the yields on debt. you can see have skyrocketed. this will sort itself out over the next few days but it is clearly gotten a very wide credit ratings -- thanks alex -- credit ratings. dave touched on this, have been clobbered.

with because yesterday the next up will be a default. and i just thought i would bring this up to take a quick, since were talking about greece as well. you can see this that now greece and puerto rico basically trading at multi-digit yields. the interesting part of the yield curves themselves. here you have a very flat yield curve but it's actually negative which tells you in the beginning years, people are accepting or wanting to give you many want out in in the four years which tells you that the markets, even though it's a huge discount are expecting a solution of the standard as opposed to a default which never stops because when you restructure eventually you start paying your lungs again. this is puerto rico spring of last year versus now. you can see the huge uptick in yields. greece now versus fall of 2014. again, just a few months ago

greek paper was trading at 6% and in a heartbeat it was back at 11. so markets adjust quickly of up and down. i'll stop there. >> thank you john. desmond? >> thank you very much alex for arranging this. and what i want to do is i want to talk a little bit about the similarities and differences between the greek and the portuguese -- the puerto rican situation. and i thought that i might start just with a quote from that great russian economist leo tolstoy who said all happy families are alike but each

unhappy family is unhappy in its own way. and i think you what we've got is we've got to unhappy dysfunctional economies that are unhappy in their own way. so to sum up the similarities, both i think you look at the debt numbers, and a gdp outlooks, you've got to come to the conclusion that both have unsustainable debt levels. and they both in a currency union, but they might have got there in a different way and i would get into that in a moment. ..

>> a situation of a cyclical move. if you do that what tends to happen is the economy collapses. of course, neither of the two economies have bankruptcy provisions. i think it will be more serious in the case of puerto rico considering the difference in the structure of the debt. and then, of course the systemic fallout. in the case of greece systemic fallout will be more serious because what the greek event could do in time is spread contagion to other troubled countries in the european periphery like portugal, spain, italy most notably italy and then we

would have a systemic problem. i i don't think that is the case in puerto rico. it will upset the mutual bond market but not much further. it looks like where we are headed is a greek event and the puerto rican event in close proximity. it might it might not be easy to sort the to out. let me talk now about briefly the unsustainable debt position that if we just look at the numbers you know it is quite alarming that the greek debt to gdp ratio has jumped. and i remind people that is also a massive lie down and

privately owned debt because it was 75 percent net present value hundred billion dollars of greek debt in 2012. the debt to gdp level that high. puerto rico debt gnp which is the better metric for that as mentioned before has gone up close to 100 percent and what strikes me is how this progressively goes up at this rate is suggested of something that is not sustainable. the government deficit. it has to come to an end. now there are underlying forces but of course the

differences grease is the case of profligacy that was made possible by low interest rates. when they join the euro interest rate merged in banks fell over themselves to lend while there was no buttressed buttress deficit which ran about 15 percent of gdp around 2010 which comes to a crashing end. puerto rico, the situation is a little different. what has facilitated this is the fact that you have tax-free status on bonds which makes it attractive and attractive, and the market and their wisdom will go up to a financially unsustainable position. what is really impacting both debt levels is the fact that the economies are

declining in a big-time a big-time way. the pace of greece is impressive. if you take a look at this chart, what it is doing is comparing the trajectory of greece's gdp since the crisis began around 2009 to what happened in the united states during the great depression. you can see that this time we were in an upturn upturn, significant upturn. greece, down to where we were at the low.in the great depression. given the events that are going on in greece right now, i don't think you have to be a phd economist to know that the economy is taking another body blow and the decline will go forward

which makes it difficult to get the dead dynamic stable. if we look now i think i think that this chart is rather enlightening comparing puerto rico to greece. looking at it from roundabout 2005. that is where they start. greece is the blue line. puerto rico is down over ten years. we are talking about like the 15 percent contraction in gdp that does not make good for the way in which you are able to repay your debt. obviously they have to push their gdp on quite a different trajectory. what is is occurring in puerto rico which has to be disconcerting in terms of whether or not puerto rico will turn around provided

if they get out of the euro they have more policies and can pump it up to some degree, well, they are having a problem. everyone is leaving. i understand there are more in the united states than the island and they keep leaving at the rate of 48,000 a year. the elderly people, not that i have anything against all people the young people need to support the old people. from people. from a demographic.of view it looks somewhat of a disaster which might be of concern to the united states. let me talk about the challenges. that is important.

both are stuck in the currency union. this means is we learned in if you try to do budget adjustment a lot of belt-tightening whatever way you do it what that tends to do is produces aggregate demand and can't offset it. greece tried to do massive budget adjustment. the reason not too optimistic on puerto rico and the reason why i share the view that this country has a real debt sustainability problem is that if they try to raise taxes and cut spending to quickly and raise electricity prices what they will do is tend to be economy further and get people to emigrate to mainland to have that that.

if i could just talk briefly on the debt structure which has relevance in terms of how this will get resolved if you look at the greek debt structure some 350 billion euros now one euro equals a dollar. an amount of debt that is basically all officially owned. to the imf. the debt restriction depends on what the official creditors are going to do the creditors, what they're doing is pushing out charities, reducing interest rates, low.

that way because if you put out 50 100 years and charge no interest it is equivalent to writing the debt off which is the way it will go. puerto rico is a different kettle of fish. very different pieces and you have different claims there and a whole lot of different interest. i wish the governor good good luck in trying to restructure the the question, you don't don't have the bankruptcy court. can't look at these as individual pieces. it will do something on the electricity prices. that might have an impact on the other. that might make the holders

of the electricity bond holders happy. the way in which the economy works. last.is just what i mentioned before. the fallout default, the greek case long-term effects relatively optimistic short-term and that this time around as opposed to 2012 europe is in a better position in support of the other countries in the periphery. a periphery. a european stability mechanism with $500 billion. using the printing press buying euro bonds every month. if there is a contagion of any serious means they will

come up with another whatever it takes statement and you will hear back with action to stabilize it. long-term different story on long-term fall we have changed the picture of the way in which your works works, the belief of the was irrevocable, no longer in pain. someone italy comes under attack, the attack debt to gdp of 130 percent. italy we will come under attack. that will that will be more difficult but is down the road. as i have said i don't want to minimize the fact that it has $73 billion in debt. put that into perspective

ten times the size. bondholders and high-yield market. there are risks. when the fed starts raising interest rates things might not look so pretty. clicks thank you very much. >> alex, thank you very much. i'm glad to be here with you today. my slide a big question is puerto rico america's greece to which i would say both yes and no and i'll talk about it more as i proceed. first of all, it's important to begin dozens of talked about to differentiate their political status.

there's the possibility that greece could exit the european union likely to happen. there's close ties a the continued situation in the eu. so looking at puerto rico we have a very limbo like situation here where puerto rico has some brought and hard to break ties with the us. first of all puerto rico residents are us citizens. puerto citizens. puerto rico has a dollar and, of course enjoys substantial subsidies. in terms of cash flowing to puerto rico from the federal government but the tax exemptions has been talked

about. puerto rico citizens don't make generally speaking us income tax. the options are stated, full independence and there has been debate about what their long-term status should be. be. all that of course, is unresolved at this time. i i think again back to the issue raised earlier the situations are different because of the current political status. puerto rico's difficulties are problems in a way that greases are not an eu problem because greece could lead the eu. perjury go it's hard to imagine. it's kind of with us. in terms of the similarities and differences, first differences, first of all neither one has a competitive economy in a global sense and in both

cases because there we will operate with an overvalued economy. sluggish economy, high unemployment. burdensome regulation. puerto rico has been losing population but i don't know what the population situation is increased. hard to imagine it is attracting many folks get his problems and both are heavily subsidized in different ways but what i will call their parents and very high debt to gdp levels. we see debt to gdp rising up close to percent declining gdp it is interesting to note the european union

establish an upper limit 60 percent that is on it often. still a limit that was established some time ago. three times that level. that gives you a sense a sense of how far out of sync their next gdp ratio is relative. using this chart already. we have to attribute this to the financial times that posted about a month ago. it does not show the interconnections, but one of the things it is interesting, for interesting, for relatively small economy it has an incredibly complicated convoluted that structure which greatly magnifies its problems. in terms of differences greece is receiving lots of subsidies many of which are ad hoc in nature and politically contemptuous.

the subsidies are hardwired in three statute. as someone said as someone said earlier it is not seem to be much controversy. arguably the very favorable tax break that puerto rico gets in terms of being by federal statute the recipients of interest from federal, state and local income taxes across the country. this was seen as a benefit for puerto rico but arguably is working -- has worked against puerto rico because it made it cheap to finance debt. it is now a burden. asked me to talk a little bit. one of the the things

it is important to keep in mind consistency and what kind of shape the banks. reflects what is going on. and the greek banks they buy large cap the flow in recent months through which no one has acquitted authority which is lent a lot of money to fund the huge deposit offloads. both the deposit outflows i would argue have longer-term negative effects on the greek banks and therefore on the greek economy as it tries to recover. here are recover. here are some numbers on the banks headquartered in greece all of these banks

are for the banking group which includes their external operations. one of the things that i could.out we see this 207 million euros, at the end of last year. the funds supplied under the emergency liquidity authority have essentially founded funded an outflow of about 45 percent to 50 percent of those deposits, about 93 billion euros which gives you an idea of the magnitude in which confidence in greece and the greek banks has been lost. they report positive capitol positions at the end of 2014 as a practical matter all of these banks are insolvent which will be a longer-term challenge for greece going forward. now, what is interesting

about the puerto rican banks, they are part of the fdic insured by the fdic in the same way that mainland banks -- of course, the fdic is funded by deposit insurance premiums. we look year at the banking system. it breaks into two pieces. for banks pieces. for banks listed command then we have numbers on non- puerto rican banks operating with citibank's being a major participant participant in the scotia bank which is a canadian parent. you will notice the footnote missing. these are numbers as of june 30 last year. in fact, fact, puerto rico has had substantial number

of failures, for over the last four years. 6 billion is the amount of estimated loss that the fdic has taken those failures, a subsidy essentially from us banks paying deposit insurance premiums to protect depositors, a not insignificant amount of money. now in terms of looking at the puerto rican banks in addition to have the fdic deposit insurance protection, puerto rican banks can borrow from the bank of new york. consequently the economy will not be held back by the weak banking system as is the case in greece. now, in my opinion muddling

through is not an option. the debt burdens have just become intolerable and are getting worse. it it can only go so high before something has to happen. creditors will take care cuts. the question is when, how much, and the mechanism. the mechanism. they will bear some loss as well. i wonder if -- that europe -- the realistic options, abandon the euro. but if it keeps the euro it has to dramatically reform its economy. there is just no option other than doing that. let me just touch a bit on who wins and who loses. first of all their

will all, there will be huge balance sheet gains or losses. anyone not anyone not been sucking out every possible euro they could was rather foolish economically. greece goes off the euro and switches back to the drachma, those people will enjoy a substantial gain. now that the banks are close it is too late for that option which is like the politburo is looking if and when greece attended the euro. greek euro. greek debtors will gain debt denominated in euros greece attended the euro. greek debtors will gain debt denominated in euros -- the gold standard in 1933. and they might learn some lessons from that. so big question is which euro denominated debt will the greek court in force but not in there is a greg's it

which is an issue that i have not heard any discussion about but would come controversial if greece does drop the euro and go back to the drop. the big losers will be not greek creditors and of course will include taxpayers. puerto rico, different situation. sever ties to the us and abandon the us dollar. the question is what are the options since devaluation by abandoning the dollar is not an option. basically, it's going to have to make itself much more attractive economically. there economically. there has to be a substantial waiver privatization. puerto rico is a socialist a socialist economy compared to mainland us. a key candidate is the electric utility which is

efficiently operated classic situation where privatization is a chord with appropriate debt adjustments and make sense. puerto rico is stuck with us minimum-wage. that is a very major negative impact of dependability, the competitiveness of puerto rican labor which is an action that congress would have to take. just as an aside, for those of us not fans of minimum-wage the puerto rican situation provides an excellent illustration of why high minimum-wage is negative for an economy particularly on the least employable folks. i think puerto rican debt is unavoidable. the big question is what will be the mechanism which

is where chapter nine bankruptcy debate comes into play. there is advocacy us municipalities chapter nine of the bankruptcy code unique aspects of the issue which raise big questions about whether or not puerto rico should be allowed to adjust its debt under chapter nine of the bankruptcy code. code. my gut sense is it is not going to happen and they will have to find other ways in which to go through debt adjustment. and with that i thank you and look forward to our discussion. >> thank you very much. as. is a pleasure to be here to talk about this comparison between greece and puerto rico. i think we have heard by now pretty well with the nature

of the problem is. in each case we have a large better in a currency union without economic growth and with a noncompetitive economy and lots of structural impediments and that economy growth, large fiscal deficits and many structural issues. basically in a currency union as i once heard explained, fiscal policy limited by monetary policy done in frankfurt and the only adjustment was unemployment and that is politically unacceptable. you have situations you have situations where economies confront an internal valuation which means unemployment, wage depression and so forth.

they have to confront this situation. mention has been made by adjustment by immigration which seems to be happening in most cases. i think that the previous speakers have talked about the dimensions of the problem so i won't tear either. you you know the debt to gdp ratio cap to the size that it is something is not right. mention has been made of the question of the composition of the debt which a lot has been indicated on and is a key question going forward. why is that the case? we see here a situation where we do not have a classic sort of central government debt and then one or two publicly owned agencies. we have a very complicated system of theoretical

seniority created by pledges of various revenue streams and i think that the legal question which we may end up getting an answer to is going to be the modern version of the question that was asked allen dulles when he testified in the house of representatives being examined in the 1930s about the bolivian tobacco revenue laws issued in the 1920s. asked about the enforceability of the company pledging the tobacco revenues and there is

perhaps a potential difference which is what we will see. the see. the case of the bolivian tobacco revenues together collect those tax revenues 30 or 40 years before that it was still considered good form to send the gunboats down and put your main the customs and he collects duties. after the eight convention of 1907 that option disappeared. here puerto rico we are within the legal system and there is a judge and it is going to be interesting to see whether these different pledges, discrete revenue streams really honored.

whether it will be just a general equitable question which will all be thrown together and sorted out that way. that is one big distinction that i see with the greek situation. it is not at all clear what happens with the composition of the greek debt at the moment which as was pointed out is largely public sector again, it is no longer good form to send the military to collect the debt but if we are talking about ecb, esf bilateral eib debt who really has seniority? what about the imf? there was one very interesting statement that

was made the mistake to create these mechanisms in europe. well, the imf's senior and we are next. again as the sheriff who says this dog is first and then a dollar goes to someone else. i know that when the private sector restructuring was done increase there were many private bondholders wring their hands saying, well, what was the special deal that the ecb got? have you looked at the way

they have their own special process. they took no special haircut. the logic and always understandable. if you haircut that make defensiveness to banking system we you have another hold the film and on it goes. this is one thing given the debt structure and puerto rico which is important to play out. it would be useful to look in a comparative basis of the policy tools available to cases. and greece we have esm resources made running out because the conditionality is not being made. that is one of the

interesting things. what is the conditionality policy adjustment enforcement mechanism in europe and what will it be important rico. up the moment, for puerto, for puerto rico there is none. there is no bankruptcy system but one could imagine a dc control board. i mean,, that was a real policy adjustment enforcement. and puerto rico is also an article one territory governed by the congress at the end of the day under our constitutional scheme and there will be some back-and-forth about the terms and conditions of the compact between puerto rico and the united states. one could imagine this type

of solution. heaven knows, there is a big movement in the district of columbia. in the dc control board was put in even jesse jackson said well this won't be so bad. it might further the cause of statehood. that might be a possibility. in europe on the other hand it's the classic notetaking no laundry. and thus the impasse we are now which we will see playing out. the liquidity just discussed. in puerto rico, the fdic. there are some different mechanisms there. theoretically we have srm in europe now single

resolution mechanism accept that and greece in greece invariably it is not put into domestic law yet so we don't know how it will play out. at at the moment it does not look positive. how can each country restructure if it has to restructure? in the case of puerto rico there is no chapter 9. even if nine. even if we had a chapter nine, it may take care of the number a number of bubbles on this famous journey you have seen but is not clear that chapter nine takes care of the debt. it may it may take care of the electric company and the like but not the geo debt which might lead you to think that maybe something like the control board may be more in line and then a framework for private sector negotiations. negotiations. how will you get consent

from the holders? puerto rico is exempt from the custom denture act so act, so you do not have to get a 100 percent felt unanimity as a matter of statute, but by contract you may well need 100 percent in most cases. increase for private debts we have collective action clauses which retroactively retrofitted the domestic debt to include an aggregation feature, but we don't have that in puerto rico. that will be an interesting issue. we have the different constitutional frameworks. in puerto rico the question of sanctity of contract is there. it is in it is in the u.s. constitution and puerto rican constitution. but that is a provision that says no state shall pass a law impairing contract.

it it is a bankruptcy power in the u.s. constitution and that is what is being invoked when people ask for an extension of chapter 9. nine. it does not have to end there. i am not necessarily advocating but that is a possibility. and the other thing is the debt service apparently comes before salaries and pensions. this is an interesting problem. if you think about the greek situation at one time there were people who say well, the bondholders get a haircut and we will we will have a claim on the european rights convention. for two years. you present your treaty claim, but it is a claim of

public international law not domestic law. there's a doctrine called the doctrine of necessity. when it comes down to who decides whether money is allocated for teachers and doctors for debt service. how that what is one is going to come back. it does not work very well. this this puerto rican constitutional provision may bring interesting questions. and then i think that we have a question has anyone looked at the amendment provision? at the end i think as i think, as i said, the basic distinction will come down to the fact that increase they do have their own legal

system. so bonds which are covered by foreign law obligations governed by foreign law may end up with one treatment and obligations which are governed by local law may end up with another treatment. does not sound terribly fair but comes down to the sheriff problem. and in puerto rico, as i said all within the us legal system. we we do not know with certainty how will work, but there is a higher probability that some of the debit -- dedicated revenue streams might actually be honored as such. if there is an overriding bankruptcy solution coming from the u.s. congress, that maybe by the wayside and into the usual domestic bankruptcy negotiation type

situations. i think i will stop there. we we could talk about how debt-to-equity conversions might work and legal structures for that but but i think that is still down the road. thanks clicks thank you to all the members of the panel were an excellent and well-informed presentation. all panelists i would like to give a chance to comment on what someone else has said or expand on something you would like to do. one to two minutes max and will just go down the road here and see what you might want to add. >> one thing that struck me is everyone had certainly different that to economy figures. we would use gross domestic product which is larger than gross national product for puerto rico.

puerto rico taxes offshore manufacturers. in fact, they prefer to tax offshore manufacturers to residents and have increased the tax. i am not sure if you have heard the definition of the perfect tax, but it is attacks on foreigners living abroad. so we would use the gross domestic product and also i think, not necessarily use a new line municipalities in comparison with greece using federal debt. we would not we would not put federal debt inside the puerto rico calculation. there are a lot of differences. the other topic that i i would like to raise is just

on debt structure. i think it is unclear. i agree with what will happen. the fact that the puerto rican courts invalidated the restructuring act law which was their version of chapter nine indicates that they will not pushovers necessarily for police and fire versus debt. i think the expectation is that debtholders when it comes to essential services probably come below clicks thanks. >> thanks, alex. i would agree. that is how you get haircuts i think in both cases one of the things that is always hard and as hard as an investor to put yourself in

the place of the people that are in these crises day-to-day. i got i got a note who is leaving for greece friday and does not want to give up the tickets and is scared. the mother-in-law can't the mother-in-law can't get money out of the bank. you are seeing crises buildup, but the buildup but the average greek person, according to my friend ed what they look at it as an attack on their culture, not their finances. it is an attack on what they have had. for example, if you are a teacher in greece you get depending on how long he had you have been there, 12th two months maternity leave. what happens is people have lots of kids. basically you

can go five years six years, only six months ended pay the whole time. that is an extreme example. if you have this a long time it's what you used to. in puerto rico when you look at the great issue made about the differences in wages we have the minimum wage in the us a burden to private industry in puerto rico given what they can pay. however, if you look at the vast amount of people employed by government they are paid substantially higher than minimum wage. it is almost a two-tier system. no one is willing to shrink , and they have not been willing to the whole way through. when they needed when they needed to start was absolutely in 2,006 when they started in the

corporate subsidies. as of the kind of changes clicks thank you. >> i'm sorry. [laughter] >> i just want to talk about one of the points that was raised, labor mobility comparisons between puerto rico and greece. theoretically greeks can move freely in the european union. labor mobility is not so great in europe. i therefore qualifications or housing reasons and you don't have that kind of movement you get of the way we do for puerto rico to the united states. and i think that really changes one aspect of the

puerto rican situation and that i don't think this is just an issue between the puerto rican government and creditors. i creditors. i think that the united states is also going to play as to whether or not we're wanting to have more people coming to mainland, whether we want more welfare payments we've got to make to puerto rico. >> albert. >> thank you. when i take a i take a look at this and listening to the remarks of others, i am encouraged that we have to fundamental problems. one is the debt restructuring that must be done in both economies. economies. the other almost tougher job is the economic restructuring of economies going forward. if i could put this in a somewhat religious moralistic sense debt that must be restructured effectively reflects the cost of the sins of the past by the

public policy. the economic restructuring that is needed is to prevent sins in the future. the question is, is the moral framework there to not only deal realistic with the cost of the sins of the past but also to in many ways did a much tougher job of trying to prevent future sending in terms of unproductive economic policies. clicks it may be that the tools that might make a contribution a contribution in both areas in the adjustment area and also helping to solve the financial problem which might be a possibility of using the debt-to-equity conversions.

we can think of this as a company that is to be restructured. a very high cost structure. if you take the current cost of electricity at $.20 $0.20 a kilowatt hour and bring it down to the average $0.10 that will be a nice boost the economy. >> the upcoming budget for puerto rico and implemented a significant increase in the sales tax which i believe would have an effect on the economy.

the kind of flatlining. the one year since 2006 an increase in the economy falling from tax cuts but also led to huge physical deficits. it can have the feedback on the economy. clicks three comments myself forget to questions and answers. a lot of that we have talked about makes me think of the saying of john maynard was a great with as well as thicker an absolute limit

to the extent to which any society sacrifice itself for the bond holder which is true and gets to the points that john was making and others how much sacrifice for the bondholders. of course, if you build a whole system which for its very functioning depends on ever-increasing borrowing from the bondholders you run out a lot of money and desktops. who was the sheriff. of of course in good times you don't worry about the sheriff. only when push comes to shove. it's really a huge issue. clicks going to let you talk in a minute. in historic american financial crises: the banks would stop payment as they

call that in those days which meant that you could go to the bank but could not draw out your gold something interesting happened. now we have the greek banks of the government orders that have stopped payment. what could we expect? and historical cases people invented money to keep functioning. local merchants would issue notes predictable redeemable and goods or groups of merchants with a local establishment would get together to issue their local currency which people could use. it will be interesting to see if things like this don't start happening today. increase to replace the statement money which has been withdrawn. one comment and then questions clicks an important.as to the extent people sacrifice for the bondholders. there is another important aspect to what extent will

people today make sacrifices for the future which is highly problematical clicks thank you. you. we will come to your questions. let me remind you how questions work. please wait for the microphone so that you will be recorded for the posterity tell us your name and affiliation and then ask your question. because we have a lot of questions i know many of you will wish to make statements, but there will be a strict a strict limit of one minute to get your question out. i will i will start here and we will work around. >> bill settles, tudor investment corporation. one observation the inflection.was 1933 when the

us left the gold standard. if greece wants to grow again there's a there's a simple answer, leave the euro. assuming that happens for my question to the panel and specifically to whitney for but desmond and others may want to win the snp may want to weigh in as well. in the official sector, debt restructuring how do you see the imf credit playing out specifically all the rest of the non-european imf board directors go and say you have to make us whole. you tricked us into this. we committed way over our heads and this is your dad. clicks thank you. this someone someone want to take that? quakes yes. as they.out with the

question of seniority, there is noit is defective. the only way you protect that is by not over lending command one could argue that the first package for greece a parts europe but then when it moved into the second phase, dsk phase, dsk change that to one part imf for two parts europe. i think the current md thinks that was excessive. in the third package it was back down around the 10 percent level. the question is whether it was too much and whether they will suffer as a consequence. i am assuming that even if greece exits coffee establishes its own currency that it may still want to remain as a member

of the imf and that certainly there will be ways that this will get worked out and the true seniority of the imf will hold. but i think your question, the possible need for others to make a contribution to make sure that that happens. >> if i could just add to that this may be a situation where the imf whether deliberately or just the way things played out has overcommitted itself and may have done some serious long-term damage to its autonomy that those who ultimately funded by going to put tighter reigns on it in the future to the kind of commitment that you can make. clicks we will go on to the next over here. clicks thank you very much. wayne abernathy. i have a bank in question.

one of the cornerstones of the basel capitol liquidity regime is sovereign instruments are better than gold. i think they have taken care of greek exception in the put that to the side. unless we assume that greece and puerto rico are anomalies should we be concerned about the regime that will increase the exposure of the global banking system to sovereign instruments in the capitol and liquidity? >> i have never i have never been a fan of the basel treatment for government debt. i think that basically reflected the conflict of interest that existed because it essentially consists of representatives of the national government. hopefully with enough of these catastrophes there

will be some serious rethinking of the extent to which government debt, particularly national government that is given a free ride so to speak which may be the situation that leads to that fundamental rethinking clicks this was supposed to be a problem a problem that would be dealt with roundabout 2012 but that certainly has not been the case. you have seen countries in the european periphery getting their banks to buy sovereign bonds. we have a massive problem of the interlinked between the sovereign in the banking system. surprised that the ecb has been extending quite as much money as they have to the greek banks, the amount outstanding is 110 billion. ..

my belief is that greece will have to exit the euro. i just don't see how they can stay with it. given all the structural problems in the economy. and then if they do they may take greece out. that may be the tougher issue to

address. with regards to puerto rico its stock for better or worse the structure in the united states. so there will be a significant debt restructuring in the great financial times chart. then they have to go through the cooperation of the united states congress to make the significant reforms and i think one of the key problems is the minimum wage >> from the legal point of view it was taking a look at the treaty that the country can't get kicked out of the euro. now on that point about 80% of

the greek population wants to hold it right now. they are going vertically which seemed to be limited. what would occur is what is referred to the greek government will soon be running out of money so that they will be doing is paying people with ious where they have two currencies effectively circulating in greece. there would be a transition way down the road to the exiting. >> they've already been doing that the past few years and it

used to be that you could go to the bank and get a discount and get paid. as someone who buys and manages bonds and manages you say are you getting paid for the risk. they are getting paid for it -- after 6% tax-free yield which is a taxable equivalent where even though you have the resource to be paid back the answer is yes. you made the point that the

capital markets are your friend and you can't disregard them to the point where you don't have future access to capital down the road. we have 1700 municipal entities go bankrupt. and the state of arkansas which a self made payments to its localities and towns so they wouldn't go bankrupt. and also in oklahoma literally blew away. they ended up repaying the debt in full down the road.

it doesn't mean that in the long run you're not paid back. >> thank you. we will come right here. the gentlemen here. thank you. they would have 240% debt to gdp ratio and nobody asked the question why is japan would go into default. 80% is less than 240%. it's something that does keep me up at night. it doesn't make much sense.

there was the aging of populations in japan used to have very high savings rates domestically. they've already got something like 10% of the bonds that are owned by foreigners. going forward the concern is that the population ages they will be drawing down on the savings and will become more dependent on foreigners and this is a party that really can't go on indefinitely. >> go ahead.

>> short of the japanese government for ten-year bond of 2% is incredibly at the level and the hedge funds are all in the field. i think that tells you all you need to know about the demographics. >> we still have a question of here. >> i agree it is as a high probability that the fault. i think we have a dramatic shift from the willingness from the ability to patent focus into the willingness in puerto rico.

the debt to gdp ratio in 40% of an average maturity of 25 years of a current consolidated fiscal deficit below 1.5%, below 1% is projected for this year. they are willing to $3 billion in in the bridge financing. now we also observed the countries which just to market access. >> i'm going to take that question on does anybody have comments on willingness to pay. that one is for you.

i may be one of the few people in the room the outright declared it an six weeks and six weeks later they thought better of it. i think that's the question that the question of the adjustment in these dichotomies is paramount and that has to do with the ability to pay. there were cultural limits and things like that. in some societies they passed the hat and put in the personal old.

in that dimension one of the reasons to supplement my earlier response in its seniority is in part the useful enforcer so it would have a utility along with its enforcer role there was a debt financing will so people will find a way to do that. it helps the borrowers see how they can make a way forward. we talked about script when i was in government california came to the treasury, knocked on the door and asked for help and they are told to think about it some more and they were asked to adjust and it did raise taxes. i know that while as a partner in the law firm with operations.

california had a basic underlining economy with a lot of power and potential. the potential for these economies is that they are economically so efficient. how can we help them make that adjustment. >> the key thing about puerto rico is they have a lot of different bond structures and entities. some of them are revenue bonds. we take a look at the electric utility specifically. it is independently financed. it has very serious financial problems and that is a prime candidate for restructuring. i can't imagine that it's going to get bailed out by the government. >> there could be the ability to

pay. what we learn from greece is requiring a fiscal adjustment in the general isn't a good idea because it will take the economy further. with the chart i put our faith by structural problems already been declined and all that you're going to do is just accelerate the downward spiral. >> it looks at both the willingness but in terms of ability in the short run they are in a crisis right now so that's your answer. but that's partly brought upon by the willingness to make adjustments to bring in the external investors. so there's a limit of both. >> i saw a hand way in the back. >> greece is a sovereign

country. puerto rico is a territory of the united states. how much culpability does the white house and congress in the puerto rican situation and get there has been no response at all for the administration and congress. >> how is the government from puerto rico problems click >> i would think very guilty in terms of the nonaction over the last five or six years when it's become pretty clear that they needed help and there is this there is no bailout mentality.

that doesn't necessarily bailout, that's getting involved in a territory that reports to you. it's high time that they got involved. >> the crisis was emerging through the 80s and it wasn't until they had a change in the administration in 1989 and the industry is backwards to the full much more than puerto rico. we shouldn't expect congress to act in a timely manner. >> they do not have any federal

support nor do we anticipate. >> we have time for one more question. i haven't had one from this site. okay. last question. spin it was the difference between puerto rico and hawaii lacks. >> the culture between the two entities you have to keep in mind that number one hawaii has been able to maintain strong support for the u.s. military. porter rico the military presence was cut back and of course hawaii is a state. >> we will expect more, ladies and gentlemen and with let's

show some appreciation for the panel. [applause] >> earlier today president obama announced the united states has

agreed to be established diplomatic relations with cuba and to reopen the embassies in the countries. he urged congress to lift the embargo that prevents americans from traveling or doing business in cuba. here's a look. americans are ready to move forward and it's time for congress to do the same. i've called on congress to lift the embargo that prevents americans from traveling or doing business in cuba. we've already seen members from both parties begin that work. after all why should washington stand in the way of our own people. there are those that want to turn back the clock and doubled on the policy of isolation and it's past time to realize this approach doesn't work. i would ask congress to listen to cuban people but to the american people.

the policy of the past says. there were hours in the hot sun and they feel that this approach is helpful to them. nobody expects cuba to be transformed overnight. but the american engagement in the embassy and businesses and most of all to the people are the best way to advance the interest and support for democracy and human rights.

five congressmen were had then george h. of maryland at albert of michigan who was seriously injured. the gun wielders and there accomplishes go to the distinction of having perpetrated a criminal outrage almost unique in america's history. >> there were debates right after that. we couldn't let this happen

again. there's a visitor's gallery in the bulletproof class so that this could ever happen again. the more that members talked about that and thought about it they said no that's a bad idea this is the people's house and the people's house and the people can't be walled off of the floor of what's going out there. it was a symbol and that makes it a target. there was a bombing in world war i by a professor with the american support for allies. the shooting in 1954. what happened in 1971 was a bomb set off by the underground post of the vietnam war. 1983 there was another bombing in the senate side by a group opposed to president reagan's policy. in 1998 there were two capital policeman shot and killed.

they had a remarkably over the building. they discuss the ongoing efforts and challenges of combating isis. we heard from the former cia deputy director and "washington post" columnist david ignatius. this is an hour and a half. for those of you that haven't haven't made your first visit to the building we offer you a special welcome. before we get started i want to

point out the emergency exits. there is an exit there as well. there's the transnational threats product happy to welcome you here. there's a background conducting two studies that are ongoing. the foreign fighters to be looking at turkey and tunisia and several other in the phenomena of the foreign fighters in the foreign fighter issue and values and i think maybe we will get to that today. also looking across the africa program run by jennifer cook won't make a couple of field visits bareknuckle. before it gets started i want to recognize the folks that joined us. the former cia and the transnational project committee

of the senior advisor to the program and john nelson. thank you for joining us. and i would also like to welcome one of our advisors sitting in the back. let me first start off with a brief biography on the guests today. very happy to have such luminaries here to discuss what we are covering with isis and defeat of the exercise we are going to be. david to my right, editor and columnist for the "washington post" with an incredible career in journalism including in 2003. and national affairs and the rector of the international editor of the tribune no nasty "new york times" was the editor of the post from 1990 and 92 to the journal served as a reporter

and correspondent and chief diplomatic correspondent. he published frequently in "the new york times" and magazine. he's also the author of nine authors including body of lies including leonardo dicaprio and the director is about hacking and espionage. there is a lecturer at the harvard kennedy school. to my left is a partner and chief operating officer in washington d.c.. the deputy director after 30 years of service from 2006 to 2010, he was directly involved in the leadership and management of all elements of the agency under the directors and the presidential administrations. he served as the director of operations for the cia the most position in the clandestine services. during the period they daylight

personality and directed the agency's global espionage. in washington and libya the operation that contributed to the government and the enunciation of the weapons of mass distraction program. steve has an experience in the field including service as an operations officer into the deputy chief of an overseas operational element focused on the run but the chief stationed in the country during the 1991 persian gulf war and bus station and a large central eurasian country. steve studied and used russian languages in the course of the assignment and the national security metal. there was a service medal the cia distinguished career intelligence medal, two distinguished .-full-stop three directors medals in the donovan award for the operational

excellence. suffice it to say we have here today to have the most distinguished national security and intelligence experts you could possibly want to weigh in on the subject at hand. that subject of course is the state of iraq. nearly one year ago they brought together david, steve and the ambassadors to discuss the issues are rounding isis after the world and surprising those that were not watching the year-long evolution of the former iraqi affiliate of al qaeda and the subsequent transition to the independent entity. in the short span of one year it's one of the most critical threats and challenges facing iraq or the middle east and dozens of countries beyond including the united states. isis has struck at least 22,000 fighters for more than 100 countries. so half the world presented in iraq as urea. this represents a tremendous

blowback potential against the members of the coalition and other countries as well. young men with battlefield experience confidence, networks and tremendous litigation could return home and initiate attacks. for certain the battlefield transmitted in great detail by some of the 90,000 messages radicalized and inspired citizens in several countries to attack the independence of crisis and to promote the group's agenda. we've seen is in this in australia, the united states coming egypt canada, france, belgium libya, kuwait yemen saudi arabia and others. before we look at the challenges posed by isis in the conditions that brought us where we are today it's important to look at the major events that have transpired since we met and since those will fill june 102014. some of those are notable but

two and 29 2014 isis declared the new islamic caliphate and declared himself. they invited muslims around the world to journey to this new islamic state. the declaration and called to service has been a magnet for tens of thousands of people. this prompted president obama to launch limited airstrikes against isis by also dropping supplies. they increased in the days and weeks as they proceeded. august 19 and again september 2 they executed the hostages, jim foley and stephen. british and japanese hostages would subsequently be murdered by isis. the pastor was replaced.

president obama announced to combat isis and on september 24, 2014, president obama speaking spoke out against isis. the supporters began appearing around the region at this time with groups in egypt and declaring via the legions were acting on behalf of isis. in february, 2015, isis released a video showing the jordanian shot down during the operation over serious. they also executed christians and destroyed the ancient city secured the pledge of allegiance from boca high and a massive suicide bombing in yemen. many of this year we sold the delta force operators penetrate syria during a firefight. the next day may 17, they took

iraq and they took the ancient city and ruins. .. with that let me begin by asking both of you since we last met in july of 2014 what has surprised