tomorrow, a group of apollo astronauts gather about that day and the future of space travel. among the astronauts, buzz aldrin, a member of the first lunar landing mission and the second man to walk on the moon. that is live tomorrow at 12:30 p.m. on c-span3. tomorrow, on "washington journal," a representative from the center for american progress, judy feder. and we will talk with governor jack martel of delaware, governor mike grounds, and the governor from vermont. -- jack markell. that is live on c-span. the nation's governors met as a

continuation of their meeting as the address issues impacting their state. janet napolitano was there. . preparedness. >> we made presentations to a number of distinguished public servants and private sector individuals around country were nominated by their governors for

distinguished service awards. there are four who are not with us today but i would like to mention briefly. i would like to thank the governor's for their recommendations. the secretary from the state of connecticut has worked through a budget deficits and worked on crafting a budget that streamlines the state government and eliminate redundancy and increases accountability while making bold investments in areas that need it most. the former chief justice of the minnesota supreme court was the first woman to lead the state's highest court in 1998. she is a former legislator and victims' rights advocate who spearheaded the children's justice initiative which helps get abused kids out of foster care faster and improve public trust and confidence and access to justice and technology. in the private sector category, john walsh of florida, he has worked tirelessly for more than a quarter-century to educate the public in the fight to locate

missing and abducted children. he is the host of the television series, " the america's most wanted" which provides an avenue for americans to participate in the abduction -- in the recovery of missing persons. will allen of wisconsin -- the founder of growing power, an organization that promotes the existence of food systems tree is a former basketball player and former. he is an activist dedicated to supporting low-income and small family farmers and bringing healthy, affordable food to urban areas. on behalf of nga, we congratulate these four americans for their service to their state and country. this afternoon, we focus on emergency preparedness. the location of this meeting on the necessary -- on the mississippi gulf coast after it was devastated by hurricane katrina and read the serves as a reminder that we must always be

prepared for disasters. while not all areas of the country face the threat of hurricanes, we need to be ready to face other disasters or terrorism. we saw this past spring that we need to be prepared for emergencies are rising from public health threats like the swine flu virus. today, we have with us are for more -- our former colleague in the current: security secretary, janet napolitano, who will lead a discussion on, and security. she understands the challenges facing state and local officials preparing for the unexpected. her commitment to working with state and local officials and ensuring our concerns are heard and address will help prevent come out and help us prepare for all types of emergencies. in addition, we have several distinguished guests to talk about specific aspects of emergency preparedness. we will turn to our panel of

speakers after that. let me invite my colleague, gov. o'malley of maryland to introduce the keynote speaker. [applause] >> thank you very much. it is my humble honor to be able to introduce a woman who many of us know as a friend, who all the snow as our colleague, and we're very fortunate as governors to have one of our own at the department of home and security. if someone who has served as a governor and had to stand up in emergencies and answer the question of what do you know, what are you doing about it, and what should my family be doing? secretary napolitano comes todhs after serving as governor for six years where she implemented one of the first, security strategies in the country, opened the first state counter- terrorism center and spearheaded efforts to transform immigration enforcement. madam secretary, you will be

hard to know that in conversations yesterday, governor for talking about the importance of our taking advantage of this moment in history and your understanding of how states work and their importance to him and security by creating our own special committee on home and security. silicon better interact with your department on issues, with hurricanes, counter-terrorism, fusion centers, or the like. already, secretary napolitano has coordinated federal, state, and local, and security efforts and has presided over a large scale disaster relief efforts and readiness exercises. she has helped to launch a comprehensive strategy on cyber security, something that is very important to all governors. without any further delay, let me introduce our friend, our colleague, our partner and a person we are proud to have a secretary of common security, janet napolitano. [applause]

>> thank you, the gabelli and governor douglas. it is good to be back with the nga and good to be back in mississippi. the last time i was here was with gov. barbara. we were doing reviews of what had happened after hurricane katrina, talking about emergency response and resiliency. let me, i've might, let me speak briefly in a couple of areas. then i will open up for questions. i rely on governor douglas to be the. suffice it to say this is a unique time. this is a unique opportunity as far as states and the federal government. i'm not the only governor in the cabinet. i have three colleagues who have also served as governor. when i think you'll see later

today, secretary sibelius' at home when -- at health and human services. the secretary of agriculture is governor vilsack. and the secretary of commerce is former gov. locke. we understand as the former governor's the importance of the state in how services actually get delivered on the ground and improve the quality of life's of people we all represent. i am grateful to governors perdu and o'malley who serve on the homeland's security advisory committee. i am grateful to the governor rounds and warner for serving on a task force i created that i announced last week to review the color codes. you all know that at home and security, we have these color codes that have been around for a while. they have been around long enough to ascertain whether that's the best way to keep

people informed as to whether that's -- as to what's happening or whether there are other ways. maybe we keep it for certain segments of the economy and maybe we change it. the task force has a broad ambition was no pre decisions. but it is time to review the color code situation. i anticipate the report back to me with recommendations within 60 days. i am also grateful for the work many of you have done with me on particular state situations and emergencies. whether it is just a phone call or whether we have had to do site visits or the like, i view this as a partnership where we are supportive of you in the efforts you are making. i think you will hear more about that from craig fugate when the panel occurs.

thank you. i also think that the nga establishing a permanent committee makes perfect sense. there are so many around -- silly issues around require linkage between the federal and state government and to institutionalize a way that can occur as communications can occur makes all the sense in the world. i encourage you in your efforts there. i want to talk about three issues today. i want to talk about path id. i want to talk about information intelligence sharing at the law enforcement level. and i want to. h1n1. -- i want to talk about h1n1.

we were all sitting around r around real id one year ago. everybody said this bill does not work for us. the benchmarks are expensive. it is not flexible. we want to be secure, we are all security governorsall butreal id was drafted without input from governors that have to implement that. it has flaws and it needs a fix. one of the things i did when i became secretary was engaged with the nga. what is the fix? how do we fix real id silly me the security principles underlying it because we need a more standard form of identification that is more law enforcement secure. that was one of the 9/11 commission recommendations. we need to do it in a way for states to not only comply but accomplish it. wait to see if we could do it in a more cost-effective matter. hance was born path id.

it has been introduced as a bipartisan group of senators and at its first committee hearing last week. governor douglas and i were on one of the panels. i thought we were reading. and dramatic. but there was another hearing going on and got all the press. in terms of impact on people, moving this bill forward this year, this fall is very, very important. the real id deadline is december 31, 2009. my view is we need to keep the deadline as a hard deadline and have a real sense of urgency about getting this fixed in place prior to the dublin. what i am asking governors to do is not just write a letter or do a sign on with nga. that's a start. what i need governors to do is make the time to personally

visit with your senators and congress people about this bill. the number is that 1261. it is co-sponsored by many others and we anticipate marked up in the senate by the end of the month. that means it will be moving. nga and, and security have taken the time to do a real fix, which is what path id, it is a real security bill that will actually be implemented and we need to take the time now to get the fix passed this fall. i share that with you and ask for your direct, immediate, personal help on the bill. second, information and intelligence sharing. i believe this is one of the areas where the department of common security can provide real value added.

here is what i have learned in my six months in washington dc -- there is a lot of intelligence and intelligence analysis about those who would seek to harm us, particularly in our homeland. that circulates around in washington dc. it circulates pretty well. i get a morning briefing every morning and get all the information. but what we need to approve -- we need to improve upon is how information its share to the states so that states not only to get intelligence but also are improving their own analytical capability and capacity. not just intelligence sharing, but analytical capacity week to work on. i spoke a few months ago at the national conference on fusion centers. centers. the method i am going to use his the fusion center concept where you have locals and coal

local school located. sharing information on a real- time basis was all the m. many thousands of departments around the country logistical do not make a lot of sense. having acted fusion center's second of their own independent judgments about what needs to happen at the state and local level, that as a better way for us to go. i will be looking forward to working with you on how we strengthen the fusion centers and that we already have. we look to every state having at least one fusion center. in addition to the amount of intelligence analysis that a shared, that we also are on the receiving side and increase the number of people that have the appropriate level of security clearances to review some of this information. nformation so that everything does not have to be scrubbed down to a non- secret level.

it is improving the capacity at the state level and also at the federal level. this is a long-term initiative and will not happen overnight. a lot of it has been started that we need to mature and create a web, a security web for the country of information sharing and analytic capacity. that is something i will be looking forward to working with the states on in the right way. i want to be conscious of constitutional and privacy protections. there are lots of issues we need to be conscious of as we do this. but all our efforts will be better if we are working more seamlessly in the information sharing environment. the third thing i would like to speak about is h1n1. i take my cues from the scientists and history.

scientists and history tell us that when you have a new flu like h1n1, and it goes away, it will come back. we can anticipate and we should be planning as if it will come back early this fall from the southern hemisphere in some form, somewhat different than the form we saw this spring. the form we don't quite yet know and cannot say with certainty exactly what form it will be. this is something i think we all need to be leaning forward on. as we saw this spring, where h1n1 really hit was school-age children. when you have to start thinking about schools and what you're doing with schools and whether some schools may need to shut down and of those children need to stay at home because the whole point of this is too slow or retard the spread of the disease, then you have issues about parents who need to stay

home with their children. also do some homeschooling. the depament of education is very serious about education should not stop if there is guidance at the school or the school needs to be closed. that means thinking about how you continue operations, how you continue doing things. we need to be leaning forward on that now. why? the school year starts in a few weeks in many states. we have already seen some summer camps closed because of school. this thing transmits very quickly and we need to be leaning forward in a very aggressive posture. doing that, the meeting with the private industry sector and education leaders and making sure they have really thought through what they're going to do and how they're going to do it, that will not be wasted effort.

even if h1n1 dozen, or comes back in a mild form that is negligible, these efforts are good preparation for other sorts of hazards that may appear from time to time. it is not wasted effort, but the urgency is now and the timing is now. if i can summarize my remarks, we need path id before december 31. i need you to engage in the bill we have worked on jointly between governors and the department, and security. we need to be working together on the fusion centers and how we share and improve information sharing in the kind of environment in which we live. we need to all be leaning forward on h1n1 and preparing for its reemergence in the united states. that is timed with the beginning of the school year, which is also for some of you the same

time as hurricane season. you need to be thinking through how you do emergency operations, response, and the like. if you are doing it in the midst of an h1n1 outbreak. those cheerful words, i will close with one thing -- i believe security efforts in this country have never been stronger. one of the things i know the governors in every city is struggling with our budgets. security and public safety comes first. we want to continue moving forward with the efforts we have started, so i am looking for ways at our department at our level where we can provide more flexibility so security effort to keep moving forward even in the midst of the economic downturn. i think the governors of this country need to be congratulated for all the work that has already happened, post 9/11.

it's a different country now that was then, but the threat is different now than it was then. the governors played a big role in making sure we are more prepared and because we're more prepared we do not have to live in a constant state of fear. thank you very much. [applause] . . in this role of home and security is going to help us fulfill those. the secretary will take some questions, the governors. >> governor lynch? >> >> is see but

governor who knows our issues. my question has to do with the guidelines and whether there will be an initiative to reapply at the fema -- to reapply at my initiatives. and will there be a redistribution of the way aid is distributed to the states >> the answer is, yes, we are looking at all the policies and guidelines and regulations issuing from that. the met is based on the standard act. -- the met is based on the standard act. we will see it that as a policy that could be changed administratively. we're not close to being done with that review. it is moving forward with some

speed but there is a lot of stuff there. some of the rules and practices, to the extent that we can be flexible, we will be flexible. craig, the head of fema, knows what it is like to distribute funds in that type of environment. there is an ongoing thorough review of all the policy, regs, and so forth and at an appropriate time we will be engaging the national governors association. this is another reason to have a standing committee on some of these issues. particularly rulemaking or legislative changes. >> out with a thank-you for the first to have dawned on pass id -- i want to thank you for the work you have done on pass id.

real id had a lot of uncertainties in the cost and affected a lot of us. what bipartisan days can we do as governor in to get this passed by the end of the year? >> as i mentioned in my remarks, meeting personally with your congressional delegation and telling them about the urgency of this. what are the consequences if we don't demand real -- amend real id? and be willing to explain to people pass id is not a retreat at all from security. we are not lessening the security of the people of the united states. we are moving at all or.

-- we are moving it forward. the states have agreed to let and it will move forward more quickly. that deadline is 2016. real id was 2017, so it is quite a bit quicker. the governors have the bully pulpit. this is a bill that will move us forward, and if not, that is why -- a bipartisan group of governors would not be supporting it. engage them and use that bully pulpit. and in the other thing is, be available to the nga lege team. they need some of you to make particular calls to particular people at particular times.

those of the things i would suggest. -- those are the things i would suggest. >> madam secretary, thank you for joining us today. if i turn to h1n1 for a moment. we talked earlier and i would like to thank you again and reinforce the conference call that we had with you and secretary sibelius where we were all given the opportunity to disseminate similar information to the public at large. as a result of the round of h1n1, i assume that you have done some debriefing inside the federal family. could you share with us lessons learned and most particularly anything that we could do better in responding, should we have another round of h1n1? >> first of all, on lessons learned, bohol issues of schools and school closure, guidance, and how that is to be handled,

we started seeing schools close -- people did not fully appreciate what that means and how much centers around schools being opened. that is why i urge us as we head into the fall school year, when the age 1 in one is likely coming back, to go back to last spring and think about what happened -- when the h1n1 is likely coming back, to go back to last friend and think about what happened. everyone understands that school closure is not the ideal model. the best model is keeping schools open as much as possible and have students at home who are sick. depth and that is a lesson learned at the cdc level. -- and that is a lesson learned at the cdc level. as we all know, getting that kind of information out and

talking to your state superintendents commager county superintendents, the school board association, what that they have focused and thought through -- whether they have lacked a common curriculum that they are ready to employ eight -- what that they have a region weh -- whether they have a take-home curriculum that they are ready to employed. that was a lesson learned. if secondly, and we will build on this, as we communicated about communications, we had conference calls, not just for openers, but also with the private sector -- not just for

openers, but also with the private sector. it communicated the same information so that everyone knew what we knew and what we did not know because it is a changing environment that you were dealing with, a pandemics situation. those of a kind of things that we will build on in the fall -- those are the kind of things that we will build on in the fall. all of these things have uses of the band 8 for a pandemic -- other than eight fa flu pandemi. >> let me join in thanking you to it continuing great relationship that you have provided. 2 things, first of all, all of us know that it is the

substantive response from and from the federal government that means so much, whether it is individual systems for public assistance and it is the substantive response of federal government that we all rely on. having said that, in a disaster, as you know, from your days as governor, it is those first critical hours that calmed people's fears and restores their faith and lets them understand that somebody does care. i just want to tell you that my experience with you, personally, it is a governor's job to put up new power lines. they would not want me to. i cannot rebuild a bridge or do in any of those fines that repair damage or restore lives from a tornado. ado. but what i can do and what is expected is to be there.

but none note that the power of the state -- let them know that the power of the state is there and there is hope for a better day. you provide that on the federal level. you have provided in the first six months extraordinarily well. you do not realize the response in my state when the press was standing around. i know how you got myself on number. -- i do not know how you got my cell phone number. >> there are lots of ways. [laughter] i've got your number. >> it help people who were scared are frightened. you can get jaded or overwhelmed and so backed up and so busy with all the responsibilities. sometimes it's easy to forget little things. but let me compliment you on what you have done so far in that regard by being there for

us, telephonically or any other way, so that we can start to rebuild the hope the people immediately after a disaster. let me encourage you not to quit doing that. not to let that parts light. the second point. >> i would encourage you not to change your cellphone number. [laughter] >> of the second point about a fusion center, where i enders and you are heading on that, better communications between various agencies, it is almost going to require 8 two tier level at least on the state level, those that need to be there for carrying out their duties, and then a smaller groups that just happens to be

housed there, because that would be apparently the best way to communicate, which would have hired security clearances that under certain circumstances we get more sensitive information that should not be available to the broader population in the fusion center. do you have plans in place and how quickly can you share what you would like to see the states do in response to that? there can be even higher security clearances that take a long time if you do not already have them. there is a timeliness factor to this issue. do you have any thoughts or your people have any thoughts about how to get this out quickly and have the governor's identify people that could be on the upper level of information sharing so that if something happened free months from now or six months are now, we would not be constrained in receiving the

information? >> a couple of things. the fusion center, if you have to concepts -- to institutions that to exist. that is in center is an all risk, all hazards way of sharing the information. and you never joint terrorism task force. your jttf is an fbi driven on the federal level institution. you're already should have state representation there. they already shed have a certain -- they already should have a secret clearance or above. there is additional or other hazards that also require some clearance. the fusion center in a way -- jttf as one function, actual in

tel of possible terrorism or terrorist activity that needs to be shared at the upper level, and information that needs to come back. go back and read the 9/11 commission report about how much was seen at the state and local level and there was no way to collect that are put it together and say, wait a minute, why are all these guys taking flying lessons -- for example. jttf continues and we were very closely with them. all hazards includes the fusion centers. i am envisioning some people there at that fusion center that will also have clarence so that we can increase over call intelligence in an analytic capacity. i have already moved intelligence analysts into the country. i think we will see more of

that. the deputy undersecretary for deputy intelligence analysis comes out of the state of new york. he has set up their counter- terrorism fusion center. he knows very well how bad does. why don't i recommend bart convene a meeting with governors or their representatives sometime in the near future to talk about where they are with their fusion center and where we would need to go and what would be required? i will ask him to take the lead and communicate through the nga and homeland security committee and yourself on. -- and yourself on. -- your cellphone. >> let me thank you for particularly the conference calls. i want to change the subject for just a minute. as a governor, you were very

instrumental -- one of the voices on behalf of all of us for strong borders and about the need to protect those borders. as governors, we have the opportunity to say, federal government, you need to do something about it. it is your responsibility on the borders. why aren't you doing something? now you get to where the other hat as the security director. >> what would you like? >> there you bet. if you could just share with us briefly what is your finding or frustrations that you have found in terms of trying to address the issues surrounding border security in a new job versu what many of us have expressed in terms for additional border security and when you were governor? >> a couple of things. one frustration is ironic. a lack of appreciation and washington, d.c. with what has occurred with regard to border security, particularly the

southwest border. that is a different order operationally and otherwise than it was eight years ago. i can see it. when i was governor, that border was out of control. i was always back in washington saying, where are the border patrol agents? where are the stations and staffing and technology that you promise? the traffic ... arizona. infrastructure has gone into place as time has gone on. it is a very different border. is it sealed so that there is never any illegal immigration? no. can you ever guaranteed -- note. -- no.

when the bids on the ground coupled with technology and and there is a lack of appreciation in washington for what has already occurred. we are not only sustaining but we are growing and growing in the right way. secondly, and thus ensure part of the country a little more, i have been -- we are working now on the canadian border. that has different issues. it is a different geography, among other things. and i don't equate the two necessarily operationally, but the law is equivalent on both. you have to have security on book borders. the main issue this spring is the western hemisphere travel initiative implementation, where people need the right documents to go back and forth.

that implementation has gone very smoothly. we have a lot of preparation for it, a lot of advertising about it, and the wait times at the ports between canada and the u.s. are actually less this year than they were for the same year -- same date last year. i get daily chart that compares those sorts of things. the need to make sure that we do not get the northern border because of what is happening on the southern border, that has taken some time. maybe a lack of appreciation there about what needs to occur and will continue to need to occur. i always know -- whenever i talk about security and borders, i will bet you dollars that someone will talk about the need for trade to go back and forth. i get that and i understand that. you can have your port inspection station and your

technology. i understand. but supporters are part of our security system and i start from that standpoint. caught the scent of the trade issues that need to be confronted, being smart about it which i think we can and are, but we need both borders operating as real borders, not just a southern but also the no.. >> we're going have to move on to our panel. we're delighted to have you back get nga. before we let you go, you will recall from your service here that at our annual meetings replay tribute to colleagues to leave office -- he paid tribute to colleagues as to leave office. some anticipation that you may have gone to a federal role but we did not. i won at 91 behalf of nga not

only as your service as governor of arizona but as our chair two years ago. janet was the first woman to chair nga, and she pointed out that it was a milestone of 98 years to achieve. we're delighted that she had that responsibility. you may recall that her initiative as chair was innovate america, supporting science technology, mathematics, and state initiatives to support economic development. before she got into office, she had a distinguished career in the legal field, working as a judge, and serving as a partner in the phoenix law on free president clinton appointed her united states attorney for arizona. then they elected her as the attorney general, the first woman to hold that position.

in 2002 she was elected governor, the 21st governor of the state. i am the 82nd governor of vermont, to put that in perspective. [laughter] >> we have the grand canyon, though. >> well, all right. [laughter] recent noted -- we should not have voted to admit all of those new states. the first woman to succeed of woman as governor in america. it is happening again with gov. corporate thank you for your service and on behalf of the nga, like to make his presentation to you. thank you and wish you all the best. congratulations again. [applause]

>> thank you all very much. let me call upon our gracious host to introduce our panelists. >> thank you, governor douglas. when gov. lendl talked about this conference being here, he said it would be appropriate, considering what we went through in 2005 and since then. this would be a session on emergency preparedness and management. one of the things he asked me to do was tell us some of the things you learned that you might not have been expecting. i've got three people here who are going to share with you some perspective on three of the things we have learned. before i introduce them, we are also happy to have credit g

he is a huge help to us. we mississippi ans appreciate you and we appreciate you wearing a lapel pin. he ran emergency management and florida through many hurricanes including 2004 where they have for big hurricanes in florida in one year. he brings great talent to this job and you will be the first to spree -- to speak. i will introduce you to them in order that you will need them if you have a mega disaster. greg brown is the president -- co-chief executive of motorola. motorola. he has been at this business for more than a century.

let me tell you why you will need him. if you have a gigantic disaster with the other obliteration we had, you have totally failed communications. all of your communication systems are gone. as i said, we might as well have been civil war generals for the -- for about fiber six days. people had to come see you to tell you what happened. we had more helicopters around and they had then. but have survivable, reliable, interoperable communications is the first thing you need. several testified before the senate and house about that. craig, we have not been able to get fema to allow grant money to be used for that. but there is nothing to protect property and lives as important

as what motorola is doing for us here now. jady fishman is the ceo of the travelers company. he became the 2004 ceo of a the company. the travelers institute is that public policy dialogue that they have. one of the public policies that they had been very good in trying to help us address is the issue of property and casualty insurance in the hurricane zone. after the storm we had many people who live outside the federal aid designated flood zones who did not have flood insurance because they were told by the federal government that they did not need it. they were not in a flood zone. tens of thousands of homes were

destroyed by the flood surge of katrina. they did not have any insurance. some of them thought that they had $500,000, $1 million on their house, and they did but it did not cover storm surges. we have been trying to figure out housing insurance -- how the insurance company can help us deal with that fact and also the reality of southern businesses to not like building close to the coast. we had a private insurance commission here in this southeastern a lot of those people to talk about a planned that travelers has put together as a suggestion, and it is a work in progress, i think, but if you are a coastal state, even if mainer new hampshire, there is some risk you will have a hurricane with a storm surge

and that houses flooded by the storm surge are not covered by regular insurance. last, bryan mcdonald. he is with the horne cpa firm that at one time iran might agency. he is an accountant and we have been cited by oig and hug, we immediately put out and contract hire a conning -- put out a contract hire an accounting firm to help the smaller towns and counties. when you're courthouse blow away and all your records below way, these people really needed help. we're very pleased.

our air raids are incredibly low for disaster assistance -- our error rates are incredibly low for disaster assistance. we thought this was one of the smart thing that as far as i know no state had ever done before. i wish had been my idea. it really help the state government and local governments. i'm going to start with craig. >> thank you, governor barbara. barb-- barbour. we want to be the premium agency to solve problems, walk on water, stuff like that. how do we plan to do that, i asked. you're doing all the work? state and local. maybe our mission statement

ought to reflect that. let's take a step back and talk about the preeminent emergency management agency and talk about our mission as working together as a team and a nation. this is to prepare for, protect against, response and mitigating install hazards. let's make sure everyone here understands that we are part of 18. that team is made up of local and governors. our job is to support you. we do it for a variety of ways, building capabilities, administering programs, and then when disaster strikes, which supporters response. in many disasters it is strictly going to be a financial grants program to backstop the money that you have spent that in at that your state responded and we're helping you to build. but there are disasters that get

bigger than that. hurricanes are not the only threat that we face. not every disaster gives us a threat or warning. we have a tendency to plan for the last one, and our mission is to build a team and be part of that team. that team has to be greater than just government because you have represented a from the private sector. without them we cannot provide for 4 feet are populations on a daily basis. that is what the private sector did. we have volunteers and fate based organizations that step up to disasters. -- faith based organizations this step up disasters. there is a tendency for far too many to retreat government as taking care of people in the disaster. i am looking at national hazards and technological and man-made advance.

we have got to stop writing the public out of our plan. we need to look at the best untapped resources when we get into these large scale events. if they are not ready to take care of each other, if neighbors are not helping neighbors, no one is going to get there fast enough. we need to change the dialogue and make sure that the public understands that they are part of that team. then we can focus on our services. the other thing to get across to fema is to stop putting people into a box. we do it for children. we often time planned for the people that should be taken care of themselves and forget that our children of the most vulnerable population. we have more regulatory requirements for many other

subjects than our kids. we've also got to put a moral responsibility back on the people. i've got a real simple message that you can help me carry. it -- we need to tell people to get a plan, it trained in cpr, and when disaster strikes, check and your neighbors. we will save more people doing that than any program we can get off the grand. -- off the ground. the last two things, and you got into -- we had a lot of rules and regulations. it turns out somebody did something that probably was not the right thing so we roeder regulations of it would not do it again instead of looking at it as a training issue. and then we had a measure everyone of these -- it doesn't

make much sense to me. what we have to measure a stump went the coastline was just moved up the hill. we're trying to resolve disasters by trying to take all of these pieces and making sure that we can use the tools that we have. we can break this and that three big chance. what a lot says, we have to go back to congress. what the policy and guidance as, we will fix that in house. we will go back and work with those issues, tried to make sure that they're doing what they're supposed to do and not precluding what congress intended to do for the stafford act. and the last thing that people are going to talk about is we have to look at the disasters not always been signed -- resolved by the stafford act. one of the issues are going to be the fema programs reimbursing

you and helping you with things that are not insured. that generally gets things done but then you get the bigger disasters where there's tremendous loss of housing, community businesses, and fema does not do housing. we do shelters. it may be a temporary structure in europe driveway for a few years but that is essentially shelter. how do we define long-term recovery and make sure that all of the federal communities are working together. i am a creature of government. i like to explain this with the tax base. we have to reestablish tax bases within a community or we run the risk of getting us fire stations rebuilt but there may not be that businesses and the tax base to support people working there. the stafford act is not the only solution when you are looking at large-scale disasters. we have to look at all of our

federal programs and think about what we want to do and what we want to achieve and to find that so that we don't limit ourselves to what the stafford act does and recognize all whole host of federal programs that support your communities getting back to a sustainable tax base. is the standpoint of process and how come to focus and who are we working for in a disaster. ladies and gentlemen, that is you, the governors. the lo>> thank you for keeping s on this. i like to particularly thank governor barbour to make sure that this would be on the meeting agenda today. america's infrastructure is the backbone of our society. as the report states, our country's infrastructure has not kept pace with our country's growth and shifting demands.

the nation's governors have been presented a unique opportunity for the american recovery in reinvestment act to address instructor challenges not only in terms of modernization and repair, but also in the areas of emergency preparedness. let me give you some concrete examples. congress gave governors at their urging the discretion to it please use a portion of the state fiscal stabilization fund for public safety or other government services. this amounts to $8.8 billion nationwide. some are planning to use a portion of their funds and allocations for public safety technology. i would urge you to balance your short-term needs related to budget gaps with using at least a portion of this onetime funding for long-term investment and measurable progress toward obtaining your state's inability process.

$700 billion has been made available for underserved areas. congress has specifically included public safety access to broadband as one of its problems. i think there is an opportunity there. $2 billion was a made availab to the assistant grants program. this is the high water mark for this program which can be used for a broad range of law enforcement purposes, including technologies. the states have discretion over how 60% of this funding is used. fourth, another $300 million available through the mud for trade security which helps to protect critical infrastructure. in a similar

in a similar vein, it protects infrastructure and enhances safety. highway money can be used for transportation and solutions that enhance safety and facilitate preparedness, education money can be used for campus security and health money could make hospitals better prepared to handle emergencies. with the recovery act, you have a unique leverage to handle these funds needed for emergency preparedness. that said, it does not change the fact that you have the mandate for annual balanced budgets and the heavy lifting and the funding for state infrastructure modernization. . . in terms of emergency preparedness, it covers disaster response, planning, securing our nation's borders and supports, and even emerging threats such

as cyber security which is for less. borderless. it is like oxygen. without it, nothing happens. as the ceo of a ceo, i relate to the enormous challenges you face as ceos of your particular states. it helps you balance your numerous pierides been in the area of emergency preparedness and keeping your state safe for the public. technology is the mechanism to deliver the various mechanisms of government that you manage in your state, including both the prevention and response side of emergency preparedness. i believe the states can balance their priorities and a just and merges to prepare and is in a cost-effective manner by taking an enterprise-wide approach to your technology infrastructure.

as we have seen the last several years, more and more states -- 34 states have taken the state water bridge for the efficiencies and effectiveness, state, local, county, etc. for the inner awp ability and survivability of communications. the allies to take a holistic view of your technology needs across the regions in both public safety and public service sectors and to assess your requirements to meet the notes of prevention and response. with any enterprise, you need to invest in multiple types of technology in order to satisfy the needs of your users. your users have three key requirements. they are the same across all of your agencies. one is seamless connectivity. one is seamless connectivity. it entire enterprise requires broadband communications

networks, both wireless and wired in, both public and private. voice communications is critical both for the prevention and to ensure the safety of your stes. broadband communication networks should be considered part of our nation's core infrastructure, just as roads, transit systems, education systems, and hospitals are. we are in support of the administration's call for a national broadband strategy. second, real time information -- secretary napolitano talked about information and intelligence sharing and her movement toward fusion centers. your public safety personnel need information real time to assess mn gypsies. it not only require seamless connectivity but level applications, wireless video, and command centers to make possible. as an example, the los angeles police department sought a 40% reduction in crime when they

began using mobile video surveillance over a wireless broadband networks in jordan downs, one of the city's most dangerous areas. third requirement -- enhance of users. in addition to getting them real-time information to assess the situation, it has to get into the right hands. getting that information into hands of users is possible with two-way radios, computers, and local computers. the type of device should be tailored by a type of user. as with any enterprise, ensuring your technology investments that are interoperable with other agencies using different technologies and are compatible with existing systems should note -- should be both a budgeting and planning priority. interoperable at across networks in cuba -- insurers real-time information gets into the hands of your users when they need them.

it minimizes risk to prior and future investments and in addition, better spectrum utilization, data sharing, an integrated communications improved the effectiveness of the state's work force. our own experience, as was reference with public safety, we have known that mission critical technology is vital to the emergency preparedness. we have seen this in real time. katrina was clearly our largest single disaster recovery response, as i'm sure it was for all the other companies affected. although we provided personnel and equipment and more to gov. barbour, it was like overnight going from and interconnected communicating infrastructure to overnight waking up what felt like a third world country -- overnight.

it is a different thought. it is a different mentality. i remember asking questions about what was deployed and where it was deployed, the money that was invested, and were their redundant systems, and what about battery backup. but it battery pack up has been deployed a mile away in a basement that is flooded, the investment is useless. there are a lot of lessons about best practices that are available to grow going for it. we saw in practice the benefits of true inner agency commissions -- communication. when several police agencies were able to use the state of louisiana police network, it allowed a better response. the minnesota bridge collapse -- we sought the single radio

system used by first responders during the bridge collapse in 74 different agencies provided seem less and interoperable communications for first responders for several jurisdictions throughout the area. in the california wildfires, thinker their radios and batteries and other communications supply, but a host of well offer process season that allowed efficient and strong response to those hazards. in terms of lessons learned, the most obvious -- given the immense amount of emergency types, is important to taken all hazards approach to an emergency preparedness, that is exactly what the man has done. -- what i phenfema has done. it is to be actively reviewed and we know that is being done.

if the potentially have hazard mitigation funds available, and i could go a long way. second, there is a direct correlation between restoration and prepared this. exercises, drills, scenario planning, keeping contact information updated, knowing what you can count on before and after an advanced greatly facilitates the recovery process. inspect what you expect. there is no shortcut around training. third, very important have network monitoring. mission critical systems and applications which can provide early diagnosis opossum -- problems, off track storms and outages, and provide assessments. this reduced costs, it enables processes to be corrected and mobley -- remotely. it makes field personnel more efficient by providing backup

support that they need. fourth, existing assets should be hardened. plan for the worst. for example, prior to hurricane katrina, towers, shelters were built to a category three specification. post katrina, we built to a category five specification. fit, primary network should be augmented with alternative technologies such as national networking and/or satellite and cellular. alternate energy should be available. and most importantly, a subject i have already touched on, true interoperable it. that is not negotiable. it provides the means of effectively managing situations in crisis mode, response mode, and also the prevention mode. p-25 standard was jointly

developed, and it includes participation for multiple equipment manufacturers. it is an open industry standard. it does not represent a specific technology but it does represent a unique requirements for reliable voice, data, and video communicatns. technology can serve -- saw the problems of iraq ability. but in many cases, they can be an impediment to funding. states should get the maximum flexibility to use their money for the communications centers. as governors i urge you to make the case to the federal government for support and upgrading our infrastructure,

just as they are doing for roads, schools, and hospitals. i think someone at that interoperable it has been stalled since 9/11. but there remains much to be done. there is one of emergency situation where the use of p25 devices was extremely beneficial. earlier, i gave the example of michigan state troopers bringing their devices into louisiana and being able to communicate with other public safety agencies. at time when communications was barely possible, this was a huge benefit to all. a parallel example of that is e- mail. once the standards allow proprietary e-mail systems to be interoperable, they can be an

indispensable tool. i urge you to continue to make the case to the federal government for funding and flexibility in using disaster mitigation dollars for technology both for prevention and response. in terms of cyber security, we have to do to a more in terms of the public and private partnerships. i have the privilege of being one up 30 ceos to serve on the president's administration against that but i will tell you that cyber security -- obama highlighted this in a press conference four weeks ago -- this is a national issue. it is a state and local coordinated effort as well. i think that with some of the national associations that you have in place, some good

coordinating work will be done on that. lastly, i will leave you with one final thought. people ask me about different budget situations. there is pretty much a ubiquitous shortage of funds. i think that the number one requirement is you. when a governor takes a leadership role and he or she makes it a priority, and then determines and declares that as a top priority to your respective administration and constituents, things happen significantly. putting the state on a path to it in a crash -- enterprise-wide approach, bringing different stakeholders' together -- i was thrilled to see the nga proposal on public safety communications

and the explicit recognition and the need for public and private sector coordination. i really appreciate you hiding this on the agenda and your continued courage and leadership in making this a priority. thank you. >> thank you, governor barbour. how poignant is to be here on the coast of mississippi, coming in from the airport years after katrina, and see the level of building that still needs to be done. speak about a work in progress, and makes the point very eloquently. and governor, a tip of the hat to you. there's no one who has been more constructive and add more to the dialogue about private casualty insurance they knew. you remind me that you're coast is predominantly a working coast. there's a tendency to think about it being high-rise condominiums looking over the

water. here it is about jobs and energy and commerce and shipping. these all things@@@@@@@@@ @ @ @g @ @ @ @ @ @ @ @ @ @ @ @ h $3 million and generated a return on equity in excess of 1% in 2008. we cannot requested nor have we taken financial assistance from anyone. we trade on the new york stock

exchange and a few weeks ago we were added to that -- we were added to the dow jones 30 industrial index. we're here not because traveler sees any structural relief related to this exposure, but we have managed our when exposure prudently and were well it -- and are well protected. we have an obligation to participate in finding a solution to the difficult problem of availability and affordability of insurance in coastal areas. this issue, which we think can be traced back to hurricane andrew in 1992, came particularly problematic after the 2004 and 2005 seasons. hurricane and wilma and 2005 particularly. when scientists indicated that they believed we had entered into a period of more -- a stronger hurricanes, and 2006

were nine from the u.s. expected -- perspective, both years were active and there were serious category four and five storms. 2008 was again serious west creek hurricane making landfall and making landfall in texas particularly. we have spent time and effort engaged in the debate, in part because we have been disappointed that our industry has not been able to find consensus. no pun intended, there seems to be a notion that you did a whole, \ -- dig hole, insert head. the awful people -- fall people have gotten involved. it was indicated in an editorial.

when a insurance decides how much insurance he can write, it has to look at capital and make -- and be able to pay all of its claims. the company has to evaluate whether it can make a reasonable and fair return on net business over time. both of these issues are seriously impacted by the regulatory environment in which the business operates. the less predictable the regulation, the more difficult it is for a company to commit capital to the long term. we have attempted to identify the real issues that are at work here and to propose solutions that will help deal with these challenges. we know that there are any number of potential solutions to this crisis, in large measure depended on an individual's view on whether the government should be government-based or private- based.

while we tilt strongly to a private solution, we believe that there are other ideas and thoughts that have been presented. we're open to input from anyone. we do not pretend to have been a monopoly -- to have and not -- to have a monopoly in good thinking. and then whether mother nature will determine whether it will provide relief. with that, let me turn to the proposal specifics. the travelers proposal has five specific actions that confront coastal communities. as you all know, insurance has been a state by state regulated industry for many years. wind does not recognize state borders, it just blows. the insurance community can be

most effective when it is able to spread risk across customers and consumers would like this with like risk. we have suggested the creation of four wind zones, where mechanisms could be used to spread across each of the consumers in that state. the statistical likelihood of an event occurring in texas is virtually identical to that happening in louisiana, which is identical to it occurring in mississippi or alabama. what the industry is facing right now was a situation where individual and insurance commissioners represent their constituents as they should, but it makes the possibility of spreading the insurance risk quite limited. it makes it a meaningful vehicle to spreading ensure as much more effectively and predictably.

secondly, we seek regulatory stability. that is not to say that we seek last regulation. quite the contrary. make the regulation as onerous as you think, make it as pro- consumer as you think this is important, make it as difficult as you like, but make it. allow us to understand the rules and regulations that will permit us to commit and then stick to it. a less predictable the requirement, the less willing insurance companies are to commit capital to the future. .

>> there will be an increased commitment of capital will go along with it. our suggestion is towards concessions that will work just fine. the third element is waiting transparency. there is a conception among months of the public that the insurance industry winds and the public loses. when wind blows, rich: and when they do not blow, rates go up. -- when winds blow, rates go

up, and when they do not blow, rates go up. this could be subject to appropriate public inspection and most importantly, to the extent that the science turns out to be wrong or we continue to just get lucky, there should be a mechanism by which premiums are adjusted downward to reflect the fact that experience was not as we expected. the entire industry uses when it based models -- wind based models. it allows insurance companies to take on more risk than they did previously but it is nonetheless a prediction. i quote yogi berra when we say you're talking about the future. the insurance industry has an obligation to have a fair

transaction and a fair deal with the public. the fourth element is a series of issues that takes place in 2004 and 2005 when agencies went up these. i am speaking of the context of hurricane katrina. i am not speaking about the normal when the season that we're capable of handling. the insurance companies responded because it was necessary and the industry raised that capital. that capital is not ours. it is our shareholders. in return has to be earned on it. a meaningful part of that mechanism is to reflect the cost of these very costly events. we believe that one way to deal with that is to have the federal government provide insurance for

those extreme events at cost. not to -- not through subsidy but to every state that is impacted. that eliminates the return on capital. the insurance industry would be obligated to pass those on to the consumer. it can be adjusted for the individual. it is a great deal different from what is required in the northeast and it wouldn't have a meaningful impact. many public policy folks ask me how we keep this from coming out of a flawed program. the insurance will be made available to the insurance industry, not to the consumers. there are too many public policy makers of that will give a break to the insurance companies. the flood program is bill to the

consumers themselves and is a subject of much political debate. lastly, to do with the issue of mother nature, many of you have not addressed this aggressively. we're speaking about much stronger building codes and enforcement of those building codes. and finding ways in which our industry is investing in stronger homes that are better able to withstand those storms. we all know the stories of the land that silts outside of new orleans that caused so much damage in new orleans and mitigation will pay a role -- will play a role in that whether it is a fire issue or a hurricane issue or a flood issue. that is our program. we are interested in being a participant in the debate.

i feel a genuine responsibility as an industry leader to be as thoughtful as we can and we recognize that the absence of the industry is important. >> the key, but gov. barbara. thank you for allowing me to be part of this panel. i greatly appreciated. let me give you my word that i will do my best to say that i will not be a long winded cpa. the teamwork that she mentioned, one team, one fight, we saw it right here. as a point of reference, this building is the joint field office for the state response to katrina. for years ago today, you would

have found me in this room sitting about where you are, but facing in that direction. i was with 1000-1500 others. we were working around the clock, seven days a week and bringing hurricane assistance to this devastated area. i can promise you that our efforts would be celebrated as a best practice. even more so, i had no idea that this room would be hosting governors from around the country. it is a real powerful moment. in the wake of katrina, we had a focused governor who said to get the money, get the money out, and do not have to give the money back. we were very clear on that.

our efforts were greatly benefited by this work environment. it was a very intense work schedules. a little bit about the environment, this room looks quite a bit different than it did four years ago. as a matter of fact, the floor was concrete. we were in the process of scraping up the child that had buckled as a result of the water and the panel's one of the panels that she see now. but the panels at the time, you could see the water mark. i doubt any of you would have seen this, but you would have seen a car floating in the coliseum next door. one of their cameras stayed on it for a while before the power went out. in our case, the disaster response and recovery help illustrate the will brilliance

of our founders and their confidence in the federal system. ours is a recovery that was defined by cooperation. our local governments have been on the front lines to ensure that post disaster activities represent the actual circumstances on the ground. i mentioned that agency's work seven days a week, 12-16 hours a day in this very building to overcome those recovered barriers. it as a matter of fact, my bossr there was a true spirit of teamwork fed led to that.

i had to smile when we walked in to get it back as she walked out into the concourse area, you'll notice to palms. one of those is on very fertile ground because that was where the conference table sat which was 6 of your tables pull together and some $2 billion in public assistance was obligated as a result of those meetings. it was a very powerful time and it was very to more oriented. we also realize that the area was not designed with a regional disaster in mind. in our moment of crisis, we had a leader that took the long view. the governor realized that the natural disaster could only be compounded by a second disaster caused by the deactivation of hundreds of millions of dollars of federal aid. that event in wickum just as

local jurisdictions were working to rebuild and the realized the impact on record-keeping that was caused by the size and nature of the disaster. let me make it clear. fema did not want to see a disaster either. i am not here to suggest that first responders should be armed with flashlights and water and medical supplies and a calculator, that is not what we were about. but we did recognize the gravity of the situation and the need to provide on the ground resources. that, coupled with a web based technology that was owned by the state. that provided the financial structure specifically designed to meet the guidelines that were required to insure an honest government. working with officials, we established the first state based audit system for public assistance. along the way, the government

accountability office there special recognition and then again in december of 2008. in fact, it was reported that finan and the state reduced the burden on applicants for meeting public assistance requirements and gain immediate access to key documents that helped officials make project approvals. you all understand that when a local official said that i need to do it and i need to do it now, what can i not do it? the mill was not saying no because they were mean-spirited, they said they needed more reformation to make a decision to ensure that you are in compliance with the regution. we helped straddle that hurdle. my cpa firm values our role in mississippi's recovery, specifically our role, but it was not a contractor driven

solution. we were back of house to a state and federal government debt rose to the occasion. -- government that rose to the occasion. in many ways, i am the forest gump of cpas. i was simply here when they took the picture. i was blessed to lead a team of very powerful people. 2.8 million images later, with over $3 billion in public assistance obligated wit over 11,000 grants, with less than 1% be obligated, i am -- [unintelligible] they've found the common sense to be the right fit in speeding relief while minimizing waste. the system, as best i can tell

is just one of some five ingredients that i see in the governor's successful leadership forum. your time is viable and i do not want to take any more of it. we share a common belief to take that intended for bad and use it for good. i think that is what we attempted to do in katrina. i will say to you that each of the states in this room contributed to our recovery and if there is any lesson learned, that good may come of this. i believe that the end of transparent -- the era of transparency is here to stay whether it is disaster assistance or recovery assistance, we must provide smart solutions to see that the taxpayers' money is used for its intended purpose and to demonstrate an honest government. let me close by thanking you and offering all of those that work in this building and by writing a final chapter in the gump

story. >> some very important perspectives on a topic is critical for each of the governors as we respond to national disasters or those that are not natural in our state. we do appreciate your being with us today. we thank you for facilitating this important conversation. let's think our panelists for being here today. [applause] >> i would pass the governors to move as quickly as we can to our next meeting.

[captions copyright national cable satellite corp. 2009] [captioning performed by the national captioning institute] >> we have a program going on now where our risk-assessment offices are reviewing and doing services that can run tests of performance for hedge funds and others to understand if we have a pattern of improbably consistent and good results coming out of a good investment vehicle.

it will be very important for us to enhance our technological capables. i will tell you, i was a commissioner 20 years ago the the f.c.c. i haven't seen a dramatic improvement from when i arrived. given sufficient budget resources, we really need to devote time and attention to building technology that will allow us to keep up with the most tech logically enabled financial institutions in the world. >> thank you. chris cox last year banned short selling of stocks in nearly 1,000 financial firms. later i believe he stated he regretted imposing the ban and that the costs appeared to exceed the benefits. given these rules were made in the beginning of our current

financial crisis, why does the s.e.c. now seem to think it is a good idea to restrict the short selling? >> i think what chris cox is referring to are outright bans on short sellings as well as other requirements that were put in place. the analysis put in at that timed -- time resulted in lower liquidity. we are looking in a very deliberate and thoughtful way whether the uptick rule ought to be reconsidered, which does not stop short selling but only permits short selling when the last prior transaction was done at a higher price. so we're looking at reason statement -- reinstatement of that rule, so that if a circuit

block declined, short selling might be prohibited for a period of time thereafter in that stock. we put our proposals out for comment. we had a 60-day comment. we had 4,000 comment letters we're now working our way through to determine what our next steps might be. the comment period ended june 19. it is not an emergency action. it is not being done in haste. it is being done in a thoughtful way. we had a roundtable publicly held and talked about this issue, and we are trying to take it in a full and deliberate way. >> do you have a date? >> i'm hoping by the end of summer we will be able to come back to the commission with a proposal. i don't know where the full commission stands on the multiple discussions we published for comment. >> thank you very much for being here.

>> thank you, ms. biggert. we will now hear from the gentlelady from california -- california. >> i was astonished to read the new g.a.o. report that says that within the last six years s.e.c. has reduced the number of disgorgements and the number of enforcement actions by 60%. we can't have that happen again, and i want your advice on what we should do to make sure that your agency becomes the toughest, most scrupulous cop in the nation. and if it takes more staff, i'm going to give you more staff. i'm concerned by this chart here, which i presume has been given to us by you that shows that the growth and the

enforcement staff is something like 23%, but the growth in tips and complaints have gone up 146%. the growth in s.e.c. staff is up 50%, but the growth in trading volume is up 242%. if we've learned nothing else in the last two months it is that there wasn't the individual lens at the s.e.c. and so many people on main street are hurting today because the s.e.c. wasn't doing its job. >> i will say on the budget that the s.e.c. had a long period, between 2005 and 2007, of flat and declining budgets. in 2010 we will have 4% staff than we had in 2005. in the last two years congress has been very good and supportive of a growing s.e.c. budget, but the fact is, we are, as i said before, a pretty small agency.

we have 35,000 regulated agencies. we have 3,600 employees. that's not a great ratio by any standard. if you think about the 11,000 investment advisers and 8,000 mutual funds where so many americans trust their money. >> we need to give you more staff. that's my point. next question. i'm concerned about what i perceive to be a potential revolving door problem at the s.e.c. whether he was involved or not in decision making, the attorney that was overseeing the madoff case ends up marrying the niece of mr. madoff who was also employed at the business. another firm was being scrutinized. the particular lawyer, i believe, at the s.e.c. then leaves the s.e.c. and goes to work at that particular company.

i don't believe that any s.e.c. employee who has had a responsibility over an enforcement action should be allowed to go and work for that company in the next two years. what is your opinion of that? >> it is a very fair question, and the revolving door problem for many agencies is a problem for the s.e.c., certainly. we are looking at a couple of different models. the bank agencies have some influence on your ability to leave the banking agencies and go into a regulated institution for some period of time, and so we're looking at those. here's my dilemma. i need to get the best and the brightest to come to the s.e.c. to come and do what we do. i fear if i put too many limitations on their exit down the road, they might not be willing to come in the first instance. i'm acutely aware of the revolving door problem, and i'd

like to find a solution to it, and i haven't figured out the correct balance yet, but i'm committed to working on that. >> rating agencies. i was astonished to find out that when they testified before the committee that they took the information that the issuer provides to them and do not do due diligence to determine if that is accurate or not. should there be a higher responsibility there. should there be some kind of liability that the rating agencies incur when they rate anarch i.g. as a triple a and then lehman as an a minus and two days later both those institutions are defunk? -- defunct? >> i will say, the s.e.c. is reviewing what they do due diligence on. so hopefully that disclosure will be helpful. i think, with respect to

liability, speakingor -- speaking for myself and not the s.e.c., i think private liability could have a very important effect on the quality of the efforts that rating agencies are making. >> my time has expired. thank you. >> the gentleman from delaware. >> thank you. i have an op-ed that appeared in "the financial times." i ask it be entered into the record. >> without objection, so ordered. >> it is entitled "protecting industry from predatory speculators. that is what i want to ask you about, and i want to cite from that article. he stated, "in the first place, shareholders are hardly an oppressed class. the beneficiaries will be the pension funds and mutual funds

who whole hold billions of dollars of stock. true they hold it on behalf of ordinary americans, but the managers often have their own interests that conflict with their beneficiaries. they thrive by increasing their beneficiaries portfolios. for years fund managers have increased their pay to increase short-term stock prices at the expense of long-term business help. that puts business at risk now and in the future. he goes on and says, managers responded to the pressure by using retained earnings by engaging in stock buybacks. they used more money to buy back stock. with retained earning gone, all that was left was debt. when the credit market collapsed, they could not borrow and thus could not produce. are boards and managers to blame? sure. but so are the big shareholders who have been pushing this for

years. they are more of the problem than the solution, and hedging their voting rights will only make things worse." i'd be interested in your comments concerning that portion of his statement. >> it's a great question. my view on this is at the end of the day, the shareholders are the owners of the question and ought to have the ability to influence the election of directors in a meaningful way. you and i have had some limited discussion about the proposal, but that's what our goal mass been as we proposed ideas about which i expect we will get thousands and thousands of comment letters. but it is a view that the shareholders of the corporation are entitled toll vote for. directors who are overseeing management, and that we need to make that as meaningful an

opportunity as possible. that said, there is clearly a lot of short-termism in the perspective of managers, boards, and shareholders which has not been completely healthy for the u.s. economy. one area we have seen has been with compensation plans that reward short-term risk taking or short-term results to the detriment of longer term planning and investment and r & d. through our new compensation disclosure proposals we are hoping to get at those issues in a direct way that will allow shareholders to see the benefits of compensation plans that promote a longer term perspectives on apairs of the corporation and less short-term focus. >> i agree with your answer. i am concerned that in the name of small shareholders we're encouraging a lot of shareholder

in proxy involvement when it may not be beneficial even to the small shareholders. even a lot of the bigger shareholders are trying to drive this, and i would hope that we keep that balance in mind. i'm aware that, you know, the stock holders are ultimately the owners and should have some proxy right and control. on the other hand, we don't want decisions being made by corporations that could end up being counterproductive. i appreciate your answer. i hope we will keep an eye on this as time goes by. if i could just ask quickly, some would suggest that if the s.e.c. reinstated the uptick rule the capital markets would return to normal. is this an oversimplification of a complex issue? >> yes, i think it is. the uptick rule we are exploring

carefully. when the s.e.c. took the uptick rule off several years ago, it was one of the most thoughtful, careful rule makings that had ever been done. there was a pilot period, there were economic studies, there were multiple roundtables held, comment periods and so forth. nonetheless, the narcotics have changed rather dramatically during that period of time, and investor confidence is something we have to be very concerned about. that's why we're doing this careful reexamination of the uptick rule. and i'm not clear at all where we will land with that. on the accounting issues, the s.e.c. did a study at the end of last year, before my time, on fair value accounting. and one of the things, the take-aways from it, while there were things to be tinkered with around the edges, while investors, who we very much need in our marketplace, value, fair value accounting. it is important to them in making investment decisions.

and the idea that we could eliminate fair value accounting and solve or problem, i think we would create many, many more problems down the road. so i think the approach that has been taken with respect to fair value to provide interpretative guidance and other assistance, i think, has helped alleviate some of the pressure on that issue. >> thank you. i yield back, mr. chairman. >> thank you, mr. chairman. madame chairwoman, for a number of years predating your time at the s. he can c., there has been some sense that the commission was good at nit-picking and not so good at catching some of the bigger things. i don't want to refer to the madoff situation, because i think before that there was a sense that personnel at the commission were good at finding little detailed mistakes and

doing it -- finding detailed mistakes, but not so good at finding bigger problems. do you think this is a problem? if it is a problem, how do you think you can combat that? >> i don't think it is an entirely fair criticism. i think the agency over the past few years has brought some very important cases with respect to auction act, insider trading, and so forth. i think they have done a great job in many areas. that said, we are making it very clear now that our goal is to refer to state regulators and to others, self-regulatory organizations cases that are not going to have a major investor protection impact so that we can really focus our attention on high-impact cases done in a much more timely way because that's

how we protect investors, we shut down ponzi schemes faster, we stop insider trading rings paster. we're trying to shift the focus to be larger cases brought more quickly. but i don't think it is entirely fair to suggest that only small matters were brought before. >> thank you. i here you say it is not entirely unfair in your answer either. you had a discussion with the gentle woman from california regarding the revolving door. i wonder if you are seeing an upturn in the quality of resumes to look at some of those bigger issues that you are describing the commission doing a good job pursuing. >> we have. we posted several positions, i think four for risk assessment experts to come and join us, and we got over 500 resumes. some of which had just amazing

experience on wall street. so we are fully taking advantage of wall street's pain. >> it's good from a commission point of view. >> i heard another discussion you had with the gentle woman from california. i think i agree with you, and i want to have you articulate it for a second time. would you agree with the commission that imposing liability upon rating agencies would be a helpful check in the process of their rating various equities? >> i think it could certainly make a big difference. we obviously want to be careful until crafting it. we want rating agencies to work. we want them to work effectively, and we want them to align their interests with those of investors. they are paid by issuers, but their audience is the investing public, and that's what we need -- we need to work on incentive that is will encourage that

alignment more effectively. >> i think you would agree with me that the three rating agencies didn't work so effectively in the last year and a half on some of the big failures where the market didn't have the information the rating agencies could have perhaps shared more accurately. >> i would agree they didn't work perfectly. >> are there other measures that you would recommend congress consider separate from the liability discussion you had with the gentle woman and with me, that might perfect markets right now that are clearly not perfect? >> i would be glad to provide additional information on that. as i said, we're looking at the rating shopping issues from two different perspectives, because we are very concerned with that. we would like to move forward with more complete disclosure with how track ratings have performed over time so investors can see the quality of ratings and whether they measured up

over a period of time and whether they would downgrade and how those were achieve -- achieved. >> i believe the subcommittee would welcome welcome additional information and guidance from you on that. if i could just go back to your question on the enforcement, because i think it is important to say, the enforcement division at the s.e.c. is full of people with tremendous energy and desire to bring cases. that's what they are there to do. to the extent the commission made that difficult for them, they may have folkoused on some of the less significant cases. but what i have found in my five months is just taking a few of the handcuffs off that they have stepped up to the plate and done a tremendous job. i don't want to suggest that these aren't public servants that haven't been knocking themselves out to try to do the

best they can for american investors. >> thank you very much. now we'll here from the gentleman from texas. >> thank you, mr. chair, madame chairman. >> i believe you indicated a concern that the proposal to create a cfta could eventually erode the consumer investor protection mission of the s.e.c.. -- s.e.c. >> what i sway said was the transfer -- what i said was this would erode the s.e.c.'s overall ability to protect investors and to keep our rule-making and policy making connected to the enforcement arm of the agency. >> what would be the consequences of that,

ultimately, for the investing public, if congress were to enact legislation that ultimately had that result? >> this took the s.e.c.'s enforcement away? >> yes. >> well, i think you would find over time that the rule-making function, which is informed by enforcement cases, would be damaged. so, for example, when we bring in enforcement cases, the result of that enforcement directly inform the policymakers about whether a new rule is necessary in a particular area, and it works going back the other way. i think of investor protection as off -- as all of a piece. it is examination, it is rule making, it is the accounting standards and the disclosure requirements. those are all part of investor protection. >> i believe you also said, or acknowledged, that there would be some areas of overlap with a potential cfpa.

what do you believe those areas of overlap may prove to be and what are your concerns in that regard 1234 -- regard? >> as the legislation is currently drafted, there are issues that create concern. >> there are several different pieces of the legislation floating around. >> the last one i saw talked about the cfpa will not regulate entities registered with the s.e.c. but have virtually everything else. the concern of that is public companies issue stock. that is very much an s.e.c. centered function that we bring enforcement actions for. we would not want to see this legislation preclude that, and i don't believe that is what was intended. the areas where we have potential are hybrid products. hybrid products are intended to be part. cfpa. there is a possibility for hybrids to be created.

undoubtedly a rocket scientist somewhere is devising a product that will fall within an unusual place within the regulatory regime. so it will require a lot of coordination, i think, to make sure that doesn't happen. >> with respect to a hybrid product, some type of investment product, isn't it true that an investment product may actually lower risk for one investor yet the same investment product could increase the risk depending on what investment portfolio the investor has with his goals? >> sure. that's why the s.e.c.'s rule and customer protection rules are built on the concept of suitability. that a broker recommending a product must decide if that product is suitable for that investor. >> one product may be helpful to one investor and harmful to another. that's why we have concern that with all the pieces of the

legislation that we have a body that ultimately examine proscribe and simply outlaw certain consumer credit products. so again, i just make the point that a consumer credit product may be right for one consumer and wrong for another consumer. let's move on in the very brief time i have to the subject of executive compensation. i believe i heard you say in your testimony that it is an area certainly the s.e.c. is moving. i know there are at least two broad proposals that are out there. i think we're in the comment period, i believe, on those. my question is this -- has the s.e.c. undertaken a study to look at the compensation proposals of, say, jpmorgan, b of a, citi, and is there data that indicates that the

compensation structures for those that were hardest hit by the credit crisis were somehow different than the compensation structures than those that navigated the crisis more successfully? and with the limited time i have, also, with respect to the firms that have returned their c.p.p. money, were they judged to have superior compensation structures than those that didn't return their c.p.t. money as of yet? >> i'm not aware of any study undertaken by the s.e.c.? i don't believe that compensation practices can contribute very significantly to risk taking within a company. our rules have been designed to get at the maximum clarity and disclosure to how that happened. we have already had for years under my predecessors very complete compensation discussion, and a discussion with the committee about how they arrive at compensation programs within the company.

what we are proposing to do now is expand that disclosure, to ask for a discussion by the comp committee about the linkage between compensation programs and risk taking and also to disclose conflict of interest in compensation to the board. >> i am out of time. >> thank you. now to the gentleman from connecticut. >> thank you. i'd like to submit for the record. thank you. i'd like to add my voice in praise of the efforts you have taken to date. two maybe paradox cal -- paradoxical questions. you will hear me say how important it is that we get the regulatory apparatus correct. but i get concerned as we talk about the regulatory apparatus that we may lose the critical

respect that investors have for understanding the risk of the instruments they employ. we talk about money market funds with or alternative investments like the bernie madoff deal, i think it is critical in the system, and people will not understand that unless their investment says guaranteed by the federal government, it is not, and they can lose it. this is a thought and a concern of the s.e.c. as well. >> it very much is. sths a personal view. as a nation we do a very good job, starting with our young people about investment and why it is important, what the risks are and what the individuals responsibility really is. it is something, i hope, that this congress or another congress will take up in a serious way. >> thank you. i have very limited time. i am actually more concerned about question number two. which is, it staggers me, frankly, that the conclusions

drawn by this debacle, often on the other side of the room are that because of the regulatory apparatus failed, we should throw the enterprise over the edge. it is dangerous and as ahistorical. the history in the last 20 years in this country has been the gradual development of a regulatory apparatus that pro secretaries americans. 120 years ago americans ate rotten fruit, they burned to death in factories that were not safe, they bought snake oil. in 120 years we have dramatically increased the safety of the american citizenry. the conclusion therefore that because we did it wrong -- and boy did we do it wrong in the last four or five years -- that we should just throw the enterprise away is dangerous and ahistorical. we have talked a lot about the rules and the changes that have been proposed, but we haven't

talked enough about the topic i would love to devote the rest of my time hearing you talk about, which is the culture of your agency. we can get the rules right and everything else absolutely right, but unless you have -- unless the s.e.c. has an trep -- entrepreneurial culture where people can take risks, where they can raise their hand in they think something is wrong, where they can do their job well, we're going to fail. i'd like to hear your views on the cule tour and the suspension of the people of the s.e.c. because i think it is critical. >> it absolutely is. i agree with you that writing rules is great and bringing enforcement cases is great and necessary and getting the structure right is necessary, but we have to be able to tap into a deep well of energy and

enthusiasm on the part of our people in order to make any of that happen. i have to say in my five months i've been stunned by the willingness of people by a pretty long period of not raising their hands and not raising f -- and not taking risks. the cases i mentioned in my opening statement are cutting-edge cases for the s.e.c. willingness for people to approach new problems like madoff and gives us a list of actions so we can respond. it didn't prevent madoff, but hopefully going forward, it helps us to prevent the next one. those things are so important. my experience has been, having been in and out of the government my entire career, that if you entrust people to do what they came to government to do, the results will be pretty good. i will tell you, in my five months, that's exactly what i've seen at the s.e.c.

>> i yield tal of -- the balance of my time. >> which member has called for the entire scrapping? i i'd be curious. 4 -- i would be curious. i've heard people saying we're trying to get the right regulation, but if he has heard that people want to scrap the entire system and go back to no regular lace, i'd appreciate hearing from him. i have never heard that. >> thank you. mr. chairman, i yield back the balance of my time.

>> i don't think i was next in line. i think the gentleman from california beat me here. >> i'll withdraw your recognition and recognize the gentleman from california. >> thank you very much. welcome. it was probably last year i introduced an eament -- eament to an amendment to one of the housing bills and it required modifying it in some fashion. a lot of people when you talked to them back then they looked like a deer in the headlights. i think it took me three more times putting it in bills, and every time we put it in the bills, the senate would pull it out of a bill and not recognize the situations the banks are

going through today. the feds hold asset and collateral in a nonmarket-to-market account. is that correct? >> i'm sorry. i don't know the answer to that. >> have you been very involved in the market-to-market issue? >> yes, from the perspective of the s.e.c.'s oversight of fazbi. it is the price you would get in an orderly market as opposed to having to go with a fire-sale price. >> under the considerations of the taft program is aze taft

loans will be -- >> i assume so. i just don't know. >> having been involved in the real estate industry for well over 35 years, you could see the problems that lenders were facing with the market-to-market concept, especially in a declining market, especially when you could not go out and determine the value of the asset because there was no value for the asset. lenders not only made the loans, they were setting up many investors for huge losses. creating a situation where the market basically became liquid. it is an interesting marketplace we're facing today with banks. it seems like the feds are putting a lot of money in banks informed, and the feds are sitting on money, but the anomaly is for the average citizen, banks don't want the money. so we've created a -- an unusual

situation that i think is having dramatic immact on the marketplace. if you look at how the market-to-market has had a negative impact on the banks today as it applies to residential loans, i think you see the same problem coming in the near future on commercial industrial loans. are you current on the situation that the market is facing with those two areas? >> very generally. >> we have experienced a huge decline in the residential marketplace in the last two years. probably by the fourth quarter of this year. i've been seeing it for six months now. are you going to see a huge foreclosure hit on the commercial investor sector. the problem with that is the pom of that trough is probably not going to hit for three years. so you have a situation where banks are not lending, because they have so many funds from the federal government they are holding, and they are going to be taking huge hits on the commercial industrial sector. how are revisions in the

market-to-market going to affect them in the future? >> there are two issues. one is the clear value issue by fazbi that makes it clear they can use prices that would be received in on orderly market. the second is with respect to temporarily impair, which would recognize fair market value decline that would result from volatility, interest rates, liquidity, to include those in other comprehensive income and not have to include them in earnings. >> how do the regulators apply this to the holdings of the banks at that time? >> i don't know how they would apply the accounting rules or use them with respect to their capital requirements. >> but don't you think that's jermaine to what we're trying to deal with here? or it is going to be significant. if you have two agencies looking at it from different

perspectives, you trying to resolve the market-to-market issue in some regulated fashion and the regulators looking at it in a different fashion, don't you need to do something to get those two together? >> we do talk to bank regulators on this issue, and fazbi has an open-door policy on this. so there is quite close chune indication. >> the banks are in a difficult position. they are being forced to set aside nonperforming assets. and basically what the bill

does, it says that a lender can have up to five years that they can put the unit on the market as a rental, thereby get getting it off the declining asset and getting it into a performing asset, which would change the market-to-market. in california, like san bernardino county, 78% of the homes on the market are disdistressed sales. even orange county is about 43%. and dealing with the same situation of trying to give them some relief because the regulators are forcing the banks to put these out there instead of holding them, because banks are not in the real estate market by law, but this gives them a five-year window to deal with it. i guess the question i have is that the regulators and you might not be on the same page with this. >> i can tell you, i have regular communication with the bank regulators with respect to accounting issues, and they have, obviously, great

flexibility in the observation of their capital requirements for banks, greater flexibility -- >> how can they have greater flexibility in working through these difficult times? >> i'm sorry? >> i hope they demonstrate their flexibility in working through these difficult times. >> now we'll hear from the gentleman from michigan, mr. peters. >> thank you, mr. chairman. thank you, chairman schapiro for your testimony here today, and i'd like to join others in applauding your efforts. i appreciated several of your comments. one of your comments i found particularly welcome is that everything at the s.e.c. now is related to investor protection, and i appreciate that statement, and i believe it also been consistent with your record, particularly as head of finra. i've had an opportunity to be an arbitrator for a number of years at finra, and i know that for years that organization continued to thrive under your

watch, and i had a opportunity to be part of an investor seminar at finra to make sure investors understood the risks with investment, and i know that occurred under your tenure. so i appreciate your efforts. i also appreciated your comments to a question that at the end of the day, it is the shareholders that pr the owners of these companies. in a cap thriftic system it is fundamental to capitalism that the owners have the ability to exercise the authority that they have because of their ownership interest of those organizations. so my question is related to a speech that was given before the society of corporate secretaries and governance position by commissioner walter. she discussed the s.e.c.'s efforts to enact new investor -- empower new investors in that

speech. she discussed rules to give owners access to proxy materials in respect to elections, unrestricted broker voting, and exclude disclosure of corporate governans. in that speech she stated that "legislation that reaffirms our authority would remove the distraction of challenges to authority that congress had previously granted to the s.e.c." do you believe it would be helpful for congress to provide stratchtri -- statutory approval to the s.e.c.? >> i think it would be helpful. the agency has gone down this path before and frequently been challenged in court over these issues. we may well be challenged this time around, particular with respect to proxy access. so what we've gone ahead and

done, proposed rules that we believe would make sense. it would rn be harmful in anyway to have backstop statutory authority. >> in follow-up, are there other reform measures with respect to corment government that you feel may be important but would also be -- would also require statutory authority? maybe you you could answer broadly where congress could be helpful to you in those efforts. >> i think we are focused right now on the issues we have outstanding. access to the proxy, the additional proxy disclosure requirements that we have gone forward with. we will be looking later this year at disclosures related to environmental issues as those become very, very prominent. topics of public policy and p.m. enormous costs for public policies as they seek to meet

different standards under environmental legislation. we'll be looking at those issues. again, those are disclosure-related, so i don't think they will require legislation. i know congress has talked from time to time about whether there ought to be say-on-pay legislation. the s.e.c. has gone forward with rules required under the economic stabilization act to require say-on-pay legislation in issues of t.a.r.p. funding, and there would be issues whether this should be extended more broadly to other public companies, although many of those advisory votes aring done now pursuant to shareholder proposals. >> thank you. i yield back. >> thank you. now we'll hear from the gentleman from florida. >> thank you, mr. chairman. i want to thank the chairlady.

i want to talk about short sales. your predecessor suspended them. he lated stated that he regretted having done so, and that the costs jouth outweighed the benefit. what is your take on that? >> yes, chairman cox did make the statement that it was one of the worst that he felt they had made. i will say what the agency did last fall was done in a series of -- was very quickly implemented emergency measures of different sorts -- bang short selling along with a number of other things. as we re-examined short selling we determined not to do it quickly but in a thoughtful delibtive approach -- we would

bring back a market-wide uptick rule which would require that you could only short sell when the last prior transaction was implemented on an uptick or upbid. the other was a focused rule that would apply to individual stocks but not across the whole market where if a stock declined by 10% in a day there might be a short selling restriction for some period of time thereafter. the comment period on those proposals closed on june 19. we have close to 4,000 comment letters that we're working our way through. we also held a roundtable where we brought lots of experts, investors, financial services firms, exchanges and others in to talk about the impact on the markets of short-selling rules and the impact on investor confidence. we're factoring all that into our process and our thinking, and we've come to no conclusions yet about whether or not to go forward.

>> let me jump ahead to money markets. one of the most telling signs that we were in a noncyclical economic crisis last fall was when money market -- a money market broke the buck and another closed just before breaking the buck. your new rules -- first of all, the additional government protection that has been placed in the money market funds world, will that, in your view, cause greater risk taking among the money markets? >> that guarantee program, i believe, expires in a couple months. so what we have actually seen, though, is given the events of the reserve fund breaking the buck, money market fund actually tightened up on their quality, liquidity, and maturity standard.

so they went to higher quality despite the presence of the guarantee fund, and i don't know that in the treasury has come to any conclusion yet on whether or not to extend that. our proposed rules are geared toward bolstering going forward. they are higher quality standards. we also propose money market fund boards of directors be able to suspend redemptions when a fund breaks the buck, as the reserve fund did, so all shareholders will get equal treatment in the distribution of assets rather than those that are quick to the draw getting in first when the fund has broken a buck and getting a higher payout. and we have asked for comments on whether money market funds should move away from the $1 stable net asset value to a floating net asset value that might cut down on the chances for a run on money market funds. >> and finally, the regular ti

reform bill package that is being discussed, it's my understanding, does not include g.s.e. reform. >> no, i believe it was the determination of the administration to engage in further studies and come back to that issue later this year. >> is it your view that these entities which hold up to 50% of the mortgages in the country would need to be part of the regulatory overhaul? >> i think at some point we as a government are going to need to address the future of the g.s.e.'s, yes. >> thanks, chairman. >> thank you very much. now we have had a request for a second round. we recognize the ranking member of the committee, mr. bachus, for five minutes. >> thank you, mr. chairman. recently fazbi anoupsed some

changes in the securitization accounting rules. the federal reserve and other bank regulators have cautioned that the rule changes threaten the viability of the federal government's economic recovery plan because that plan is partially dependent on restarting the stabilization markets. there has been some comment and concern that the accounting changes would actually throw into question the securitization model that we've been using in the past. are you concerned about the timing and the scope of their accounting rule changes, particularly given the emphasis that the government, i think, private economists have been restarting the securitization

markets? >> i should say as a prelude to that, the s.e.c. is interested in doing what we can to help assure a vibrant asset market. we have made a number of proposals that would require legislation that would allow for more continuous disclosure, so farther, for asset-backed securities. i think with that being done with respect to off-balance sheets has been important. there has been a conclusion or at least a view wide lie expressed, frankly by governments around the world, that off balance sheet accounting is a contribute tore to the financial sector. so accounting sectors have worked hard to eliminate the exception that allows a company to remove financial assets from their balance sheet when they transfer them to a special purpose entity even though they retained an interest in the loans -- in the cash flow from

the loans. and i think it was a very important gap for them to close. i recognize, and maybe there is never a good time for new accounting standards to be put in place from the perspective particularly of regulated entities, but i think it was a very important gap that needed to be closed. it goes in effect at the end of the year, and obviously we'll watch it very closely. >> now, you are aware that the bank regulators and the federal reserve has expressed some real concerns about it? >> well, i hadn't heard that they had recently expressed real concerns about it. although it doesn't completely surprise me. we will have conversations with tchem about it. >> when you do, if you could maybe respond in writing as to whether you think if they still have those concerns if there is merit? >> i would be happy to. >> ok. thank you. you know, for the first time in the s.e.c.'s history, your

budget is likely to cross the $1 billion mark. with all the current responsibilities that you have and the likelihood that you will have a greatly increased number of entities subject to your commission oversight that's not surprising. do you think that the commission can leverage the expertise of existing and potentially new self-regulatory organizations to supplement its work? how do you perceive this? >> my bias is i come from a self-regulatory organization where i spent 13 years. so i think self-regulatory organizations with closeover sight from the federal government, from the s.e.c., or the new york stock exchange, or the nasdaq stock market, with close oversight can bring

tremendous value to the case of investors and market integrity. so it is an area we're willing to explore. because even though our budget is growing, we're likely to never have the assurances we need to do what we need to do. to the extent we can leverage s.r.o.'s accounting firms, other whistle blowers, i am game to do that. because i think it will allow us to do a better job. >> and to focus on the bernie madoffs of the world, do you have any specific ideas on where you may go with that? >> well, we've engaged in quite a lot of work to try to be very responsive to the madoff tragedy . >> no, i didn't mean the private, i mean the self-regulator. >> i think the key to the success of self-regulation is

individual lent oversight by the s.e.c. i -- it is something we don't have. we have not opined as to whether that would be an appropriate thing for us to do. given our resources, we would have to consider every opportunity to leverage third parties. >> could i have one more question, mr. chairman? >> you know, for almost 30 years we've had a financial products regulatory structure which is divided into two catagories, securities and futures, where you had two different regulators. and i know there has been a lot of different discussion about where to go. i'm not going to ask you about whether we ought to merge the cftc and the s.e.c. i don't think you probably want

to volunteer your opinion on that. i know we're the only nation that still has separate regulators. but given that there is a unique situation that does present some regulatory challenges, and you're supposed to prepare, you and the cftc, are supposed to prepare a report to harmonize the offering rules, the regulations, and the regulatory approaches on securities and futures, what are some of the challenges facing you with this september 30 date come -- coming up? do you think you will be able to do it by the 30th? do you think there will be one regulator? >> i have said i believe there is a logic and efficiency in merging the two agencies. we have overlapping authorities.

we have some arbitrary lines that have been drawn between the agencies over many years, and i understand the origins of all of that. there would be a logic and efficiency, but if we're not going to do that, it does bee -- behove the two agencies to work together. we are both committed to working together on that. we have created a report on harmonization initiatives by september. we are working toward trying to identify those areas where the agencies have different rules and requirements. it is challenging in part because we all have different approaches to regulations, and we grew up under different circumstances. cftc regulates an institutional market with a virtually integrated exchange in clearing structure. we regulate clearing markets with multiple exchanges and

clearing houses that are not vertically related, and just those two perspectives alone make this working together a challenge, but we're working together in good faith to identify the areas of difference and make this work. >> if you can't make that deadline, do you anticipate putting out some agreement and then working toward other areas of hamonization? >> we haven't really talked about what will happen if we don't make it with the thought we have to keep the pressure on the staff to make sure we do make it, but my guess is we would put out some kind of interim statement at least for our progress. >> thank you very much. >> thank you very much, mr. baucus. the chair notes some members may have additional comments they may submit in writing. without objection the hearing record will remain open for 30 days for members to present written questions for those to place their responses in the

record. just take a moment. we normally dismiss the panel, but thank you very much chairman schapiro for coming and being -- coming forth to the committee and working with us over the last 5 1/2 months in a positive way. >> thank you. >> we look forward to continuation of that progress. i look forward -- we thought we would have you out by noon, but it's pretty close, and for government time, that's pretty good. >> thank you, sir. >> the panel is dismissed, and this hearing is adjourned.