destroyed. superior's change their testimony. no one is being confronted with their conduct. the issue of importance is the integrity of the military, this is from pat tillman father. from the lieutenant colonel on the ground, all the way up past general jones. the inspector general acted on this. in their review, they said corporal to omens chain of command made mistakes in a signing investigative jurisdiction in the days following his death and bears ultimate responsibilities. army officials failed to properly update family members when an investigation was initiative -- initiated into his death.

. . finding saying that "the deceptions surrounding this case was an insult to the family but more importantly its primary purpose was to deceive a nation. we say these things with disappointment and sadness. we have been used as props in a public relations exercise." secretary garron apologized. secretary garron apologized. he said, "we as an army failed lman family and all families of our fallen soldiers." you have not to my knowledge been on record in terms of how you personally feel about this ibs dent and i would like to give the opportunity for you to do that. >> thanks, senator, and i do appreciate that. i would say that i agree with secretary garron, we failed the family. i apologize for that. and i would say that there is

nothing we can do to automatically restore the trust which was the second casualty of 22nd of april. the first was a loss of a great american and the second was the loss of the trust of an american family. it was not intentional with the people that i saw. i didn't see any activities by anyone to deceive. that said i do believe that the confluence of mistakes, either because they didn't know the policy or people just didn't line things up. my own mistakes in not reviewing the silver star citation well enough and making sure i compared it to the message that i sent were mistakes. they were well-intentioned, but they created, they added to the doubt and sense of mistrust. and we didn't get it right. now, we have -- to provide context, as you remember,

senator, we were still in combat when we were doing all of that. so we were in combat in the days after his death. as we did this we were in the first battle in fallujah in iraq at the same time. so we were making mistakes, but i would say the people that made them also were i a situation where you sometimes do make mistakes. so that's not an excuse, but i would say we've learned from it. i've learned from it. >> well, i would say to you, first of all, i was at the army infantry school giving a talk on lessons learned from vietnam the evening that we found out that corporal tillman had lost his life. i don't need to say to you the impact that had on army leadership. but no matter what else is going on, with the enormity of that incident in terms of national perceptions and the attention that it got nationally and the fact that you were sending a private

message, a p-4 message up your chain of command warning about the potential impact of a friendly fire incident, i regretfully say i think the army really failed the tillman family. i appreciate your speaking about this today. thank you, mr. chairman. >> thank you, senator webb. senator nelson. >> thank you, mr. chairman. general fraser, you have some experience in china. what do you think is the growing influence of china in south america? >> sir, from my study there, what i see is that they have commercial interests, they have interests to gain access to natural resources. i see them working the same purposes in other parts of the

world also, not just influenced on and focused on latin america. i do not see from my study that there is it a military threat from that influence. so all of it right now is focused commercially. i also see an interest on the part of latin american caribbean nations to gain access to markets in china as well. >> as we discussed when you kindly came by to visit that the southern command is a great command that headed by a four star who is not only a warrior but is also a diplomat. and, ifs admiral stra rid is. and it's been -- stravridis.

what kind of twist do you see as you apply diplomacy with being a commander? just give me some of your ideas as you take over command. >> from my standpoint it's really about partnership building throughout. that's partnership internationally. that's partnership from an inner agency, from a specific southern command standpoint, responsibility is for the military portion of that but it is working with the state department, with usaid, with other federal agencies involved there and also with armed forces to build the compass its, building the capabilities that are there. if confirmed i really look forward to engaging in all those regions very robustly. >> i think we're going to have to perfect this role wherever

we are projecting the united states force. general mcchrystal, you and i talked about it. even in a war zone like afghanistan, same thing. it's now it's not just the united states military. the military can take the lead but it's all the other agencies of government to work in projecting our power in order to secure the interests of the united states. now, one area in your future command that is just still a basket case, i thought i'd ask admiral stavridis on this is haiti. and then let's pick up the conversation, general fraser. >> well, senator, of course, you and i have spent some time on the road together, including haiti, and it is indeed a nation in extreme distress.

it's the poorest nation in the americas. it's one of the poorest four or five countries in the world. it was devastated last summer by three separate major storms, two of them high-level hirks. it has a big problem with soil erosion. i could go on and on. what am i encouraged by there? i'm encouraged by the nation' peacekeeping force which has done a superb job with very little u.s. military engagement. i'm very encouraged with what our ambassador has done down there. and also former president bill clinton. so the situation is desperate but not hopeless is how i would categoryize it at the moment, sir. >> i personally think that president preval is really trying. what faces him is what faces sufficiently motivated elected

leaders elsewhere in the world is underneath him is so much corruption. what do you think -- what should we -- what do you want to do, general fraser, with regard to -- since haiti will be in your area of responsibility? >> senator, i think it's very much along the line that i talked about earlier, and that is a lot of the capacity building within haiti i think really still evolves with an interagency approach so there's a lot of usid. there's the state department role. from my role if confirmed for southern command it is really going in assisting those agencies in their compass its as well as working with -- capacities as well as working with the armed forces in haiti however they're still small. it's an overall ability to go at the poverty, to work on t distressed incomes. just the overall capacity of

the nation. and so it will be an international and an interagency approach, and i'm also, as admiral stavridis said, very encouraged by the approach of the united nations' mission there. >> admiral stavridis, the chairman and i and senator collins went to russia and then poland and then the czech republic and we came away convinced that for the future threat of an iranian missile with a nuclear warhead against europe that in the foreseeable future our standard missile three and on ships placed in the mediterranean, the aegis

system and then upgraded over time could take care of that particular threat. in the meantime we want to make sure that our commanders in the field have the standard missile three and the thaad system. do you want to give us some of your ideas of this? >> i, of course, talked to the chairman about this as well, sir, as well as in your office earlier. i'm very intrigued about the findings of the three of you, and i look forward, if confirmed, immediately probing this both from an iranian threat perspective and from the perspective of our military, interlockutores in these countries. and if it makes sense, pushing it forward to secretary gates who will take it to the

interagency at the end of the day. this is a political diplomatic decision that the administration has to take. it's very intriguing. i look forward, if confirmed, doing the military piece of that along the lines you described, sir. >> thank you, mr. chairman. >> thank you. and when you're referring to the possibility of the option as outlined you're talking about the responsibility of pursuing missile defense cooperation with russia? >> i am. i think that's a very intriguing idea, sir. >> thank you. there will be questions for the record. i know that i'll have some additional questions for you, general, particularly relative to the chronolgy of the detainee treatment in iraq and afghanistan which we talked about briefly. but there will be other questions from other senators as well. senator nelson, are you all set? we will stand adjourned with thanks to you you and your families that provide the great support that makes it possible

for you and so many others like you to serve this country. stand adjourned. [captions copyright national cable satellite corp. 2009] [captioning performed by national captioning institute] >> this past week, supreme court nominee judge sotomayor was on capitol herhill. >> i think it is a good process. >> she is a very good person of right legal mind and i think that is the right person to be on the supreme court. >> watch on "america and the courts," at 7:00 p.m. eastern. >> first lady michelle obama, nancy pelosi, and first lady

nancy reagan were on hand at the capitol for ceremonies to unveil a new statue of ronald reagan. we will show you that ceremony tonight at 8:00 eastern on c- span. >> how was c-span funded? >> private donations? >> taxpayers? >> i don't know. >> public television? >> donations. am i don't know. >> contributions from donors. >> how was c-span funded? 30 years ago, america's cable companies created c-span as a public service, a private business initiative. no government mandate, no government monday. >> now senate hearing on the budgets for government agencies in charge of regulating the financial markets. we would hear from mary shapiro of the sec. this is about 40 minutes.

>> good morning. we're considering the fiscal 2010 hearings with agencies within the jurisdiction of this appropriation subcommittee in financial services and general government. the securities and exchange commission and commodity futures trading commission. i also want to welcome my friend and distinguished colleague susan collins. we have worked together in many venues and i'm glad we will share the responsibilities of this subcommittee. joining us today to present testimony on the budgetary proposals are the hon. mary shapiro, chairman of the sec, and the hon. gary gensler, chairman of the commodity futures trading commission. both of these agencies have unique history, specialized purposes. yet the sec and cftc both

sustained -- sustain growth. we're slowly emerging from one of the greatest economic crises in decades. after years of struggle, countless families have lost their hard-earned savings, seen their dreams denied. some may view the subject matter of this hearing as dry as dust. how much money to give to two federal agencies. but if you step back, translate their work and the real world, you realize their oversight and regulation literally protect the savings and features of american families and insurers that economies and countries around the world will view our economy and the way we run it with respect as to whether or not the rule will fall will be followed. r or not the rule of law is going to be followed.

the unprecedented price volatility of our markets for fiscal commodities such as energy and grains has hurt our economy. in addition to the previous mention i made of some of the problems that we've had with savings and the like, now perhaps more than ever, we need our markets to function transparently and be insulated from manipulation, unfetterred, excessive speculation. much remains to be done to stabilize and sustain our financial system. chairman shapiro, chairman gensler each bring vast experience to their new leadership posts in this administration and have identified in their brief tenure ways to improve the way we approach regulating securities and futures markets. as the subcommittee prepares to make difficult funding decisions, i look forward theo g hearing about the challenges their agencies will face. in the interest of time, i will ask that the remainder of my statement be made a part of the record so that we will have opportunity for testimony and for questions. i now turn it over to my ranking republican member, senator collins.

>> thank you, mr. chairman. let me begin by saluting you for your leadership on this committee. i am just delighted to be your new ranking member. about two decades ago, i spent five years in maine state government as a financial regulator overseeing the bureau of banking, insurance, securities administration and i have a great personal interest in this area because i know that the decisions made by the sec and the cftc do, as you have pointed out, have such an impact not only on our economy but on the daily lives of most american families. so it's a great honor to serve with you as your ranking member and i very much look forward to working cooperatively with you

throughout this congress. as we begin to consider the fiscal year 2010 budget request for the sec and the cftc, let me also salute the chairman for his leadership in securing significant increases for both of these agencies. thanks to the work of this subcommittee and the chairman's leadership, the budget for the sec is now nearly 9% above the fiscal year '07 funding level and the budget for the cftc is 49% above that year. these increases are extremely important given that both of these agencies were woefully underfunded for years. i personally believe that they are still underfunded and that more work needs to be done. i want to congratulate the two chairmen for appearing before our committee today with aggressive agendas f change and reform.

i look forward to hearing the details about the budget requests. as the chairman has indicated, the current economic crisis has left our markets in turmoil and the loss of trillions of dollars of value in these markets has completed family savings, shuttered small businesses and damaged retirement and pension funds. i am convinced that we not only need to make sure these two agencies have the resources necessary, but that we need to proceed with regulatory reform as well in order to restore confidence in our markets and to prevent the root causes of the current financial crisis from springing up once again. mr. chairman, i am going to follow your lead and submit the remainder of my statement as well. but i am delighted to be joining you to work on these critical issues. thank you.

>> thanks a lot, senator collins. senator tester, would you like to make an opening statement? >> just thank you, mr. chairman. just to welcome mary and gary to the committee today. i appreciate the work that you have done. i appreciate the work you're about to do. i think it's critically important that we have good solid, reasonable enforcement and i think both of you are up to that challenge. so with that, we'll move on. thank you, mr. chairman. >> chairman shapiro, the floor is yours. >> chairman durbin, ranking member collins and senator tester, thank you very much for the opportunity to testify today. in the short time that i have been at the sec, we have taken on an active agenda. all with the goal of protecting investors, vee vitalizing the agency and restoring confidence in the markets. we are making great strides yet recognize we have quite a distance to go. in the area of enforcement, we have changed our policies so that our investigators do not have to jump over unnecessary hurdles before seeking penalties or launching investigations.

we have hired a former federal prosecutor to lead the enforcement division. someone who is focused on bringing significant cases with a meaningful impact as quickly as possible, and ensuring that the division is appropriately organized to do just that. we have begun to update our management systems to update our risk assessment capabilities so that we can better detect fraud. and we have expanded and improved upon our training so that our staff will be able to keep pace with the new financial products and strategies created on wall street. already, we are seeing results. since the end of january, as compared with the same period last year, we have filed nearly three times as many temporary restraining order cases, issued more than twice as many formal orders and opened over 20% more investigations into fraud. although enforcement is central, it is still just one part of our agency. as you know, we are tasked with overseeing broker dealers, investment advisors and mutual

funds, and we are taking steps to improve our ability to do just that. for instance, we are working on a risk-based initiative to improve our oversight methods so that we can better identify and focus resources on riskier institutions. we also are recruiting senior professionals with new skill sets such as trading, risk assessment and financial analysis. and we have created an industry and risk management fellows program to bring top talent into the agency. in addition to internal management directives, we also have engaged in an active rule making agenda. last month the sec proposed significant changes to the rules governing investment advisors who maintain custody of their clients' assets. should the proposal be adopted, advisors with custody will have to undergo a surprise exam by an independent public accountant once a year to verify client assets. any custodian affiliated with an advisor would also be subject to

custody controls reviews by an independent accountant. the goal is to expose ponzi schemes and other frauds earlier. in the area of short selling, the commission unanimously voted to propose two distinct approaches to limit short selling. one would impose a permanent market-wide short sale price test. the other approach would impose temporary short selling restrictions upon individual securities during periods of severe price declines. later this month, the sec will consider proposals to strengthen the money market fund regulatory regime. we will focus on tightening credit quality, maturity and liquidity standards for money market funds. we are also exploring whether more fundamental changes are necessary such as converting money market funds to a floating rate net asset value to better prevent abuses and avoid runs on the funds. additionally, i have asked the staff to undertake a comprehensive review of rule 12b1 which allows mutual funds to use fund assets to compensate

broker dealers and other intermediaries for distribution and services expenses. in the area of proxy access, the commission already has proposed rules that would enhance the ability of shareholders to nominate company directors and next month, we will take up a broad package of corporate disclosure improvements around compensation policies, the use of compensation consultants and the interplay between risk taking and incentive arrangements. but there is still more to do in the regulatory arena. we have been working closely with other federal agencies to bring the unregulated world of credit default swaps into the sunlight. operating under the limitations of the current legislative structure, we recently issued temporary orders to facilitate the establishment of central counterparties for clearing credit default swaps. in the coming months, we will also tackle issues related to municipal market reform, stock lending, trading in nontransparent markets or dark pools, and hedge fund oversight.

i look forward to working with congress on these issues. the financial crisis has reminded us all just how large, complex and critical to our economy the securities markets have become. at the sec, our 3700 person staff now oversees more than 35,000 registrants, including about 12,000 public companies, 8,000 mutual funds, 11,000 advisors, and 5,000 broker dealers. and it is a number that is growing rapidly. nonetheless, during the same period, the sec's resources have fallen. between 2005 and 2007, the agency saw three years of flat or declining budgets and lost 10% of its employees. this has an impact. with support from this subcommittee during the last two fiscal years, the sec has been able to lift its hiring freeze and begin rebuilding its work force and i am very grateful for that support. but even with these important steps, the number of staff remains below the levels of only a few years ago.

i believe additional resources are essential to restoring the sec as a vigorous and effective regulator. the president has requested a total of just over $1 billion to the agency in fiscal year 2010, a 7% increase over this year's level. this budget request would permit us to fully fund an additional 50 staff positions over 2008 levels. these positions would help the sec's enforcement program enhance its pursuit of tips and complaints and fully fund our new fellows program that brings in seasoned industry professionals. in addition to expanding our work force, the president's request also would enable us to invest more in new technology. a budget item that has dropped by more than half in the last four years. mr. chairman, i came to the sec to shape public policy in the interest of investors and to strengthen our enforcement program. the measures i have described today are important to those efforts. but what i have also discovered is that we cannot neglect the

internal operations of the agency, the processes that guide our work and the agency's infrastructure. i am committed to a complete review of internal operations to assure that we meet the highest standards and that we are fully supporting the important work of our employees. to ensure that we do it right, i intend to bring in a chief operating officer to manage that process. i want to thank you for your continued strong support of the sec and its critical mission. i believe that by strengthening our enforcement program, enhancing risk-based oversight and leveraging technology, we can restore investors' confidence in both the sec and in our nation's securities markets. i look forward to answering your questions. thank you. >> thanks, chairman shapiro. we'll have five minute rounds here and i'm sure we will have several questions. it seems to me that there are two things we're dealing with here, just on the surface. first, the number of people working in your agency. it appears that over the years, as senator collins noted, we

have allowed the number of professionals working there to decline in real terms and certainly decline precipitously in relation to the volume of trade that you have to keep an eye on. between 2005 and 2007, the sec lost 10% of its employees, if you can imagine at that moment in time, undermining the agency's ability to oversee the markets. between that -- in that same period of time, the market ballooned in size and complexity, registered investment advisors grew 32%, assets jumped by over 70%, and so we are seeing the caseload or at least the area that needs to be regulated is growing and the number of people to keep an eye on it is diminishing. so there is on the first instance, which you addressed in your testimony, the question of the right number of people working at the agency. and the second issue goes to i don't know how to characterize it, i guess the internal culture of the agency. characterize it, i guess the internal culture of the