uncertainty in our industrial base would affect our suppliers and then if it were to occur, would greatly affect our industrial base sustainment over the long term. >> admiral, if we lose some of those small employers, isn't the risk that they don't come back? >> that risk certainly exists in many of our more complex procurement programs. we're down to single vendors or single suppliers that we're their predominant customer. so it would be very difficult for some to recover. >> senator, i would like to start this by going back to your opening comments and when you quoted president reagan. we have a tendency to view sequestration as a budget issue but it is really not a budget issue. it's a reordering of our national priorities. it's what we won't be able to do. certainly at the strategic level i think what the secretary has said is we won't be able to implement the strategy as currently written if sequestration goes into effect. i can tell from you a marine corps perspective, we're at

182,000 right now. we're at the margin of being able to meet the strategy, in other words, we balance the risk. i've talked to you in private that we believe that 182,000 marines with that number we can meet the strategy that secretary panetta articulated and just like what general austin mentioned, there's an automatic 10% personnel cut unless personnel is exempted. there's an automatic 10% cut on the marine corps which is another 18,000 right away if we were to reduce. if we were to be cut another 18,000 we would not have adequate capabilities and capacities to meet a single major contingency operation, so that's fairly significant. i think the other point that you raise that is absolutely true is we would absolutely not be able to keep faith with our people. the sequestration would go into effect. not only would we have to cut that additional 18,000 people if a flat 10% was executed. we right now are only budgeted in fy '13 for 182 thousand

marines. we're relying on overseas contingency funds to have a ramp to take from us the 200, 2,000 marines we're authorized in '12 down to the marines we'll be at in '16. if sequestration went into effect that would be an immediate reduction from 202,000 to something on the order of 168,000 and at that number there is absolutely no way we would keep faith with people and we would be breaking contracts and sending people on their way who believe they had a commitment from us to keep on active duty. these are the very people we talked about earlier who are in afghanistan today. forward deployed and forward engaged in harms way and the reward will be to dismiss them and shake their hand and i think that would be a mistake. >> thank you, general. >> senator, just to reiterate a couple of things. my compatriots said, we think we would definitely not be able to execute the existing strategy if we have to go through sequestration. we echo your remark it would be devastating.

we simply can't afford this one. as we talked about several times, the air force is the oldest it has ever been in terms of its iron. we desperately need to recapitalize our flying fleet. if we see sequestration, we will not be able to maintain capacity and do recapitalization of those fleets, so we'll have to take very tough decisions to either come way down in the number of units or to give up the modernization of those units, and i want to echo something also said. on the industrial base there is some very key capabilities out there that are already very much at risk and in the aviation business the number of houses that can do stealth have reduced and another cut to the capability and the effort that we're putting into those stealth capabilities could cause a severe problems in those -- in that industrial base. >> i thank all of you. i know my time is up.

can you just give me a quick yes or no? yes, is there an urgency that we do this before december? general? >> yes. >> admiral? >> i affirm, yes. >> general? >> absolutely. >> general? >> thank you. senator begich. >> madam chair, thank you very much. i am -- i hold my other questions but first i am sorry that senator inhofe isn't here. we do a lot of stuff together especially around general aviation but as he called it the green test tube, let me ask a couple questions. i was in afghanistan. i was visiting a forward operating base where i saw marines utilizing new technology around solar energy so they tonight have to bring in a lot of equipment that they don't like to do and have a certain type of equipment that actually saves their lives. and what i saw there is incredible technology development from these huge trucks of energy that they would have to bring in, maybe fuel and otherwise, and now down to small

compacted packets. isn't that a value to the marines to have that new technology when they're out in forward operating bases such as afghanistan and they don't have to have all the fuel being brought in and can spend three days in the field? is that a good thing? >> the focus of our energy initiatives are exactly along the lines of what you talked about. designed to make us more operationally effective and have it reduce the load on the individual marines. we field to all of our battalions solar panels that you saw that replaces hundreds of pounds of batteries that marines would otherwise have to carry and we have conducted seven-day paroles without the extra weight of batteries because we've had the solar panels and all of our interaction is designed -- we're spending money in places where we can have an immediate impact. i was just down at camp lejeune, north carolina, last week. we had what we called an experimental forward operating base. it's an annual event. we bring in partners from industry and articulate what we need and this year we happened to focus on things like potable water and how can we create potable water without the big reverse osmosis purification

units that are typically associated with our units that weigh a great deal? that's absolutely the focus of our energy efforts is enhancing our operational effectiveness and increasing our ability to operate in expeditionary and austere environments. >> and you move quicker with less of those, for example. i was amazed with old battery -- >> we fielded that equipment to the first battalion. all the other marines saw it and there was a demand signal immediately raised and the other units wanted the equipment as well. the only critical piece is making sure we get it to our marines early enough in the pre-deployment cycle where they're proficient at using it before they deploy. the thing we sometimes relearned a lesson is when you field equipment when marines are deployed it is not going to be very effective. we've really worked very hard to make sure we get that equipment to our marines before they deploy. when we do, they've found that to be extraordinarily useful and

it goes beyond the batteries and to energy and tent liners and those kinds of things and things you have seen. >> from the air force and the alternative fuel development. all your technologies now making sure you're not just on certain aviation fuel, but new technologies so you can become self-sufficient and less dependent from a national perspective on foreign oil from countries that hate us. is that a fair statement? >> sir, our focus there, as you know, as you've alluded to, to make sure out fleet is ready to accept those fuels such that when they become -- >> economical. >> -- economically viable, then our fleet will be ready to go and we're proceeding with that. >> also from the navy perspective, if i remember reading a report, one of your big concerns, that's why you have climate changes is if you have a change in water levels, sea levels, it has a direct impact on all of your ports. >> certainly true. >> am i mistaken there? >> certainly true. >> we've invested billions in these ports around the country and around the world and it's in our interest to make sure if

there is -- we can argue over the science and all that, no disrespect to folks that do the weather on the tv. but i prefer to put all of that aside. the fact is we're having changes and you from that administration are looking at those as infrastructure cost potentially. is that a fair statement? >> i think that's fair that some are looking at that and we're also looking in relation to the arctic about what are the future challenges up there as that opens up? as we focused, similar to the air force, you know, we're operating and certifying alternative fuels for our ships and aircraft in order when they do become economically viable we're certified and ready to use them and again the focus on efficiency and ops tempo, fuel bills alone are consuming the readiness account so we need to look at alternatives. >> from the army one of the highest incidence of fatalities and injuries is protecting those fuel sources coming into afghanistan, for example.

so the more efficient they become, the less of that fuel you'll have to haul or make sure is happening and getting to those fields. you probably will save lives. am i wrong about that? >> clearly, senator, this is becoming more efficient is all about saving lives from the army's perspective. three tours in iraq, one in afghanistan, and i can tell you that every time that i can do something to not put a soldier on the road, you know, whatever it is, i want to do it because it saves lives. it is also about as dunford mentioned earlier, about maintaining our soldiers and soldier load and decreasing the burden on them and increasing their endurance if they can go out with longer batteries with longer life and if it's easier to recharge them and if they can harvest energy that's left over in batteries and put that energy

in other places, i think that's all good. that all contributes to saving lives and becoming more effective on the battlefield. >> the last comment and i will do one more last thing on a separate issue. and that is, the energy costs, because of our dependency on diesel and other types of fuels, are draining your accounts and overexpending because the cost of fuel has gone up. you make choices because you have to have the fuel and those choices are not necessarily fun choices to make. the less we spend in that area, the less stress you will have in other budget elements within your own division. is that a fair statement? >> yes. >> let me end on this and i appreciate the senator ayotte's comments in her questioning to you, but i want to for the record, you know, automatic cuts, if i was sitting in front of another group here, maybe my veterans committee, the va would say some similar things. if i was sitting in front of the

infrastructure groups, road, water, sewer guys would say everyone is having a pinch here. the thing that congress is missing -- to the larger audience, you don't have to respond to this -- we always talk about in order to replace these cuts we have to have more cuts. the reality is you cannot cut your way out of this problem. there's no possible way. after two decades of poor management aren't this place, republican and democrat, presidents there and past, we have a deficit and a debt that is staggering. everyone's to blame. the question is, are we going to do the right thing here? when i was mayor and we had the same problem, a three-prong attack. you're going to cut budgets, deal with revenues and you're going to invest in the right infrastructure. whatever that might be. in my case i think it is education. i think it is energy. i think it is basic core infrastructure. we have to invest in and we have to deal with revenues and no one wants to talk about it. the fact is the only way and i am happy to say the city that i was mayor of survived this

economic crash without a hiccup. as a matter of fact, we had up prices in our housing and a strong economy. it is moving and actually was rated by "business week" as one of the economies that would move and recover quickly in this economy, this bad recession. because we did a three-prong attack on this issue. revenues, expenses, and investment. what this place has a habit of doing is because it makes good political sound bites is always about we have to cut or do revenue or we got to do infrastructure. never the three. all three are going to make this problem get resolved and until this congress gets real about it, it is not going to have -- no disrespect to senator ayotte. you cannot cut more to then save the cuts that are over here. it's going to be a combination of things. if you think we can cut our way out of this budget, you are dreaming. there is no way to do that. we will have significant cuts. we will have to do that. we will do things we have to get rid of that we can no longer do. that is clear. but the gap is so large because

of two decades of poor management around this place. and go lucky days. all those days are over. we have to be honest with the public. it is a three-prong attack. that's how we'll solve this. we should be realistic about it. i appreciate the -- what's going to happen so you know, the politics will be i hear it already, no disrespect, senator ayotte. we have to do it now to save the military. that's what's going to happen. we're going to be in this political battle on the senate floor yelling at each other and who's going to be more pro-defense? who's not? well hell, i love the military. i'm going to tell you that. based on everything we did when i was mayor and what my wife does every day to support the military, there is none of us are going to see the military degrade its capacity, but we are going to protect this country economically and do it the right way so all of us are successful in the long term. there is my rant. i get frustrated when i hear this. it is a three-prong attack. we have to be serious about this and honest with the public. >> okay.

we'll end with a rant. i want you to know i would have a strong rebuttal, and i would say this, what i'm really worried about is our defense industrial base, too, because they have to make decisions up front, so we can wait until december but those decisions are being made as we speak here. >> i agree. we should have made this decision last year and honestly talked about all three pieces, but we don't. you know that. because it's politics as usual around this place. >> first of all, i think that -- let me step in here and say that maybe now is the time i should do my rebuttal of senator inhofe. i think this would be a perfect time for that. i think it is a perfect time to thank you all for your service to your countries and to all the people in the room. i'm going to resist the temptation to ask why there is so many of you in the room, but because it's one of -- as some

of you have been to these hearings before, you know it's one of my pet peeves that we have to be careful about how many people we have tasked to how many tasks and whether we need as many people sometimes in attendance at these hearings since they are televised. but i know everybody in the room cares very deeply about their country and is committed and i appreciate that. we are struggling with trying to correct mistakes made over the last 20 years as to the way we fund what we must fund as a federal government. there is no disagreement between democrats and republicans that the most important priority of the federal government is our national defense. there is absolutely no disagreement regardless of democrat or republican that we have the best military in the world and that we must keep the best military in the world. how we get there, we're going to need help from you and input but we're also going to have to realize that we can't give you

everything you ask for in the future because we've tried that, and taken oco out. the base budget, the pentagon, taking out health care so you can't even use the health care increase has gone from $270 billion to north of $600 billion in 10 years. we have doubled the amount of money going to the pentagon in ten years. that's not counting oco. you add oco on top of that, and that is a huge piece. so can we keep the best military and do it smarter with a little less money? i'm confident we can. i'm especially confident we can because of the leadership we have in the military which is represented here today very, very well. thank you very much. there will be obviously more questions for the record that some of us didn't get to and we look forward to a continuing dialogue as we keep our military as ready as we possibly can and

also figure out a way that we don't drown in debt about 15 or 20 years from now. thank you all very much. we have a real demand, but we would be foolish if all we did, rely on things like incentive auctions and auctions on spectrum. >> i think it's important to have a technological neutrality wr with respect to the commission's rules. >> learn more about the two newest fcc commissioners with the "washington post" technology policy reporter cecilia cong and amy schatz, technology reporter for "the wall street journal" tonight on "the communicators" at 8:00 p.m. eastern on c-span2. over the past year c-span's local content vehicle cities

tour has taken book tv and american history tv on the road from tampa to sir vavannah, charleston to knoxville. crews have visited the places that tdefined the city's heritae and literary life. watch for our special programming from wichita, kansas, on book tv and american history tv on c-span2 and 3. a senate's banking committee held a hearing last week on state of the financial industry. thomas hoenig, board member and randall, former federal reserve board member were invited to testify about the safety and sounde soundness of the banking industry. this is about 35 minutes. >> perhaps no stronger advocate for security banks than thomas hoenig. for two decades he served as president and chief officer of federal reserve bank of kansas city, 18 years as bank

supervisor at the kansas city fed. randall is professor of economics at the school of business at the university of chicago. dr. crozner served as governor of the federal reserve system from 2006 to early 2009. during his time as a member of the federal reserve board chaired a committee on supervision and regulation of banking institutions and the committee on consumer and community affairs. dr. hoenig, you first. >> thank you. chairman brown, ranking member corker. thank you for the opportunity to testify on issues relating to improving the safety and sou soundness of the nation's banking system. having joined the ford board of fdic a month ago, it's a pleasure to serve. we can draw from collective experiences and diverse backgrounds that will inform our discussions and decisions going

forward. this subcommittee asked me to discuss a paper title restructuring the banking system to improve safety and soundness. i prepared with my colleague, chuck morris, in may of2011 whe was prosecute president of the federal reserve bank of kansas city. i welcome this opportunity to explain the recommendations in that paper. one note while i am a board member, on this, i speak for myself today. first, banking organizations should be allowed to conduct the following activities. commercial banking, underwritering securities services, and asset and wealth management services. they are similar to the services that have been part of banking itself. but in contrast, dealing and mrkt making and trading extend the safety nets coverage and yet do not have much in common with

core banking services. they are difficult for managements for markets to assess, monitor and to control. thus under the proposal, banking organizations would not be allowed to do trading either proprietary or for customers or make markets which requires the ability to do trading. allowing customer trading makes it easy to game the system, concealing trading as part of the customer trading. also prime brokerage services require the ability to trade and essentially au lo companies to finance activities with highly unstable deposits. this combination of factors as we have recently witnessed these to unstable markets and government bailouts. further more, these migrate to

the banks without that sector also being reformed. we need to change the incentives within the shadow banking system through reforms of money market funds and the repore market. the first change addresses potential disruptions coming from money market funding of shadow banks that fund long-term ass assets. money market mutual funds and other investments that are allowed to fix the value of a dollar should be required to have a floating net asset value. shadow banks' reliance on this funding would be greatly reduced by requiring share values to float with their market values. the second recommendation is to change the bankruptcy law to eliminate the automatic stay exemption for repurchase agreement as collateral. this exemption allowed all of the complicated and risky mortgages to be used as repo

collateral. one of the sources of instability during the crisis was repo runs, particularly on borrows using sub prime mortgage-related assets as class rat. these funded long-term assets of low quality with short-term liabilities. the proposal would not eliminate risk in the financial system. it would shift it away from the incentives of the safety net. this plan would return u.s. banks to a position of financial clarity and strength from which the country enjoyed decades of its greatest advantage. it would improve the financial system by clarifying where risk e reside improving the risk and enhancing the allocation of resources within our economic system. it would promote a more competitive system as it levels the playing field for all

financial institutions of the united states. finally it will raise the accountability for actions taken, and to an important degree, to place the firms into bankruptcy or fdic receivership, thus reducing the likelihood of future bailouts. i'm pleased to provide you these comments and i'm happy to take your questions. thank you. >> thank you, dr. hoenig. dr. krauzer in, thank you for joining us. >> thank you very much. to try to clearly state objectives of what regulatory reform are about and try to weigh the constant benefits of alternatives in order to decide which reforms are most effective

in trying to address those objectives. my priorities and objectives i think are very much shared by the committee in the discussion we heard earlier. enhance the system in its resilience to shocks. they are going to be inevitable. in other words, we can talk about it as trying to make the markets more are busts to the shocks and in the contribution to the book that i have with bob shiler and the former u.s. markets on reforming on trying to make markets more robust. we have to mitigate taxpayer exposure and incentives as was discussed in the previous panel. i share the objectives of the reforms, but i perhaps want to raise some questions about whether some of the proposed means are the best possible to achieve those ends. would they be the ones with the highest in a cost-benefit test. i think it's extremely important to address those directly as

possible rather than rely on one instrument or regulatory intervention, because i think that opens up the greatest possibilities for unintended ko consequences. i think some of the greatest fa jillties in the system are leverage, liquidity, and interconnectedness. our focus today seems to be on interconnectedness issues too fail. it also characterized things that way. so what we need to do is think about exactly where are those in the markets and address them directly. one of those, which dodd-frank takes steps towards is try iingo clarify contracts and contract enforcement. that's very important in thinking about resolution of the large complex financial institutions. new authority is given to the treasury and the fdic, but the authority has not been clarified by the regulators. i think that's the utmost

importance. one of the challenges we saw during the crisis is the uncertainty about contract enforcement about what's mine and what is thine in customers' accounts. second as has already been discussed, try to provide more market participants and more information to supervisors and incentives to avoid risk concentrations. third, an interestingly chairman volcker says his first principle is firms must be by reducing their size or limiting their activities. so it's interesting that he sees those as alternatives. that's the appropriate way to think about it. what's the best way to try to limit those kinds of risks.

i'm not 100% convinced that trying to draw the lines on what is and isn't different types of trading activities will be the most effective way of getting there. as was discussed in earlier questioning, there's a lot of uncertainty about where the line should be drawn and the greater clarity, the better. i was heartened that former chairman volcker said he did not want to exclude market making. it's very important not to exclude that important function that provides liquidity to the markets. we wouldn't want to have the unintended consequence of producing rules that make markets less robust rather than more robust. of pushing activities off balance sheet or into the shadows and so i think it's incumbent upon the supervisors

and regulators to have greater clarity when it comes to those issues. also something that has been mentioned is the culture of institutions and the culture of risk taking if the activities are there. it's important to remember that there were many institutions that were much more narrowly focused on mortgage lending institutions like washington mutual, country wide, that were not engaged in proprietary trading and not engaged in the activities that may involve risks. we were reminded even their core activity was extremely risky and brought these institutions down. it's not clear to me that simply removing these activities will be things to change the culture or make institutions more stable. we have seen focused institutions quite unstable. thank you very much. >> thank you, dr. krouzer in. dr.