2011 funding permits. in 2010, we plan to ask -- add staff. during fiscal year 2009, the investigative activities in afghanistan includes six open investigations, four preliminary inquiries covering a number of alleged criminal violations. .

but this could touch on a number of state programs that we oversee and share with oig. this will have an affect on cultural affairs and democracy and human rights and labor. thank you for the opportunity to present this information to you today. i would be happy to answer any questions. >> thank you, ambassador. ms. bridges? correct thank you, for inviting me to testify in this oversight committee. alongside my colleagues and the accountability community, since 2003, gao has issued more than 30 reports and testimony is on u.s. efforts to disrupt, defeat, and destroy terrorism in afghanistan and pakistan. artwork has identified the need for greater attention on issues -- our work has identified the need for greater attention on

issues, such as a contingency plan for afghanistan, building the afghan security forces, building and accountability of u.s. assistance over afghanistan and pakistan, contract management oversight of contractors and u.s. counter narcotics efforts. jabo's password has recommended specific improvements needed -- gao's pabst work has recommended is of improvement is needed. gao found that several existing conditions, such as worsening security, poor infrastructure, and delimiting institutional capacity of the afghan government continue -- and the limiting institutional capacity of the afghan during continue to prevent challenges to combating terrorism in and buy it -- in afghanistan and pakistan. the gao has recommended that state, dod, and oig improve their planning, and hence their agency coordination, increased

police mentors for training the amp. as you noted in your opening statement, mr. tierney, we have also increased the oversight of weapons provided and the coalition support funds provided to pakistan we also reported on the need of the improvement for contract management and the number of oversight personnel with experience and contingency operations. recently, the administration announced a newç integrated silicon military campaign plan for afghanistan and we understand that the plan for pakistan is being completed. state and dod have coordinated their plans for afghan national security force capacity building. in addition, dod has taken steps to improve accountability for weapons provided to afghanistan and coalition support funds provided to pakistan gao has several ongoing reviews addressing a wide range of issues, such as deteriorating

condition in afghanistan, building the afghan army, u.s. contract in, and creating sustainable development programs in both countries. like our colleagues in the accountability community, gao works to improve accountability of performance in the government. their authority, of course, extends beyond civil departments or agencies, in order to provide assistance and support to the congress to make informed policy and funding decisions across government. the gao's policy and agency protocols require us to coordinate our oversight with members of the in -- of the accountability community and we enjoy a good working relationship with them. for example, as a member of the subgroup of southwest asia, a joint planning group, gao meet quarterly with the ongoing work with the publication in respect of documents. in addition, we regularly communicate with colleagues and various officers to ensure that

our work is coordinated and overlapping work is minimized. inevitably, however, in developing our audit plans, we often find that our work is quite similar in scope. given the statutory mandates of our respective organizations to conduct audits and evaluate programs and activities that involve multiple agencies, the overlap in our planning is not surprising. however, we find that through the coordination groups that we have enjoyed in the fluid -- and the flow of communication that occurs across our offices, we have been able to avoid potential overlap. we have enjoyed particularly a very strong working relationship with sudeigar over the past yea, which is not surprising since many of their employees are also employees of gao in particular.

the u.s. personnel face enormous personal challenges working afghanistan -- iand pakistan. the personnel -- the limitation on civilian and military personnel has trained efforts. we work to minimize the burden of our over such places on program management staff. however, with additional u.s. resources and attention focused by this congress and this administration on afghanistan and pakistan, there should be additional oversight to ensure accountability of u.s. efforts. gao relies on testimonial evidence. documentation as well as on site verification to conduct our work. jabo has visited afghanistan and pakistan 10 times in the past

two years. to ensure the integrity of our own work. we take steps to limit -- to mitigate these limitations by taking invented of opportunities with key officials in more secure locations and individuals traveling to washington. we also whenever possible to give an edge of technology, such as video conferencing. to enhance our ability to conduct our work, the gao has established a steady presence in iraq. we have been there since january 2008. we have three staff that are stationed there on a six month rotational basis. this has proved invaluable to our ability to conduct oversight in iraq. but with the challenges confronting the u.s. government for a successful drawdown in iraq and a significant increase in troop presence and resources planned to execute our new

strategy and afghanistan and pakistan, gao was initially -- has initiated an assessment of our resources on the whole. in closing,ç we recognize that carrying out oversight responsible these in in secure areas will never be easy without risks. as importantly, we recognize that the men and women, both civilian and military, serving our country there and work hard chips in order to perform the work critical to the achievement of our national-security and foreign-policy goals. my colleagues at this table and i know that we must you -- we must be judicious in our presence and mindful of many unintended additional burden on our diplomats and service personnel. gao stands ready to assist the contras in its oversight efforts and will work -- to assist the congress in its oversight efforts and will work with our

colleagues. >> i appreciate your comments, stricken by the people watching this are thinking we are all accounted. we're all officers. we sound like it sometimes. it is unmistakable that we have to do this to cover the ground. you described very well the organizational structures that you have and the cooperative efforts that you are making. but i have not heard a lot about investigative strategy. i would like you all to comment on that a little bit. i'm thinking it goes beyond the five years that the president identified. you have all said he would take a look at those. but what is the strategy there? what types of investigations are your our priority? are you worried about implementation? are you worried about results? what about sustainability? what is the priority on that? was the strategy going on that basis? -- what is the strategy going on that basis? i noticed there was a comment about training and reconstruction, obviously, but

what takes priority? how you establish or a set where you go for the fraud, waste and abuse? >> from an audit standpoint -- >> you probably have to push that button again. >> am i on? ok, thank you. you mentioned investigations, are you referring to audit and investigation? >> yes. but basically, the overall plan. in simplest terms, we follow the money. where are large programs are, we hear our audit to those areas. >> if there is a lot of money going in one area, that is the principal consideration? nothing else, not the impact of the program on security or the impact on the program development? just basically, where the money is? >> it is a combination, really, but we only have so many people to do it. we try to focus on the largest

impact both from a financial support standpoint and what is important to the government. >> i will give back to you on that in terms of personnel. ambassador? >> well, we have -- i think we all have a common situation that we are both planning and reacting. if you are talking about investigations, criminal investigations, most of the time we are reacting. to information that we have obtained. you have seen some of it. >> i understand and i do not mean to cut you short, but let's talk about those things that you take the initiative, those things that tellis or your strategies are and what your priorities are -- that tell us what your strategies are and what your priorities are. >> some of it is where the money is, but a lot of it is looking for where the most impact is. where we see great risk to the united states. and that is not always where the

most money is. >> exactly. >> we also do one other area, which is very important, and that is, inspections. the good thing about inspections is that we can be much more open. if we can take a much broader point of view. most of the work is actually publicized. and in both afghanistan last month and in pop -- and in pakistan early next year -- in both afghanistan next month and in pakistan early next year, will be using large teams of inspectors to develop leads, if you will, lead on the ground to work with embassy management and other embassy staff to figure out where we are going. they are the our patraeuobviouss that we are going, drugs and thugs, if you like your a lot of it is going to be looking for ourselves and then seeing if this is where we want to go. -- if you like. a lot of it is going to be

looking for ourselves and in seeing if this is where we want to go. >> thedepartment of defense is planning major role in southwest asia. in fact, i would go so far as to say it is a leadership role and is about impact. the days of statistical results do not make a lot of different anymore. it is about impact. -- a lot of difference anymore. it is about impact. for example, high impact work today is not done by one criminal investigative induce -- agency. it is done by task forces. we are involved in national procurement fraud task force and a correction taskforce internationally. these are taskforce is -- these are taskforces that look at major fraud and corruption, but mostly agencies like the are

called tobacco and firearms and so on. our focus is to prevent as much as it is to prosecute. for instance, we are very involved in education in southwest asia, teaching those pure kermit and contract officials what to be looking for -- procurement and contractor officials what to be looking for. for instance, we are working in a -- we're looking at a special project up in a row, new york, the dodgers related to army purchases. it is -- vouchers related to army purchases. it is not very exciting or glamorous, but out of that will come some very important investigative work and will lead to criminal prosecutions in southwest asia. what kind of work are we doing? the defense criminal investigative service, we have focused on technology. >> my time has expired. i get that your focus mostly on criminal investigations more reactive, as the ambassador was saying, to lead?

but we are not just reactive. we are very proactive, i would say. i would go so far as to say that the investigative service is probably one of the most foremost investigative agencies in the government. -- one of the foremost investigative agencies in the government. >> thank you, my time has expired. >> ambassador geisel, in your comments and your testimony, he referred several times to pak- af. we are used to hearing af-pak. are you suggesting a shift in testimony here? >> i hope not, sir. i just like the alliteration better. i think they both work. >> is that just to you? or have others been instructed to do that? >> i better check that i did not

even mess up my testimony. it might have said af-pak. >> know, you return to pak-af. >> i do not know if my folks are pulling a fast one or not. >> the security guards at the embassy russ as a country and to our image in the region untold grief, it's just like of a great. -- just like abu ghraib. who bears responsibility? it seems unlikely that knowledge of this was with the aid that have brought it to a so far. it seems lighter -- wider than that. can you tell us what is going on? >> i can tell you partially. it would be surprising.

i will not confirm that we have a criminal investigation underway, but i do not think he would be too surprised. there are two deaths -- two aspects that we are looking at and the first would be criminal misconduct. but we also, when the inspectors come in, they will be looking at just what you asked about, and that is, the oversight over this contract. and identifying just who failed on the job and who has to be held accountable. and that will be quite public. >> just looking at that probably, for a committee like this if cuba -- gives us a little pause if we are unable to police the security guards at thehembassy, and how good a job we can do with oversight on broader issues. >> it gives me pause, too, sir. and i would say of our security program, there are two major

efforts. there were two programs mention in the newspaper. this static guards. there is another area that is equally if not more important, and that is, what we call the world wide protective service. that is actually protecting our people. -- protecting our people when they move. in that case, we have already done a very significant audit all around the world and the audits came out well. but you can count on the fact that there will be audits and inspections because i was, frankly, just like the secretary, absolutely appalled by this information. >> general field, what progress has the afghanistan office -- high office of oversight made so far? and how are we working with them?

>> thank you, sir. the high office of oversight, as a subcommittee may know, was born at president karzai's attempt to deal with corruption. i have personally met with the minister who heads the organization. my principal deputy, who is located permanently at the embassy in kabul, works in support of the embassy's dialogue with that organization. i am pleased that it is up and running. there are some issues. it does not have very much capacity in that is an organization of only about slightly over one year-old and it really needs the support. >> do you have much confidence in that organization or body? >> sir, i am pleased that the initiative has been taken to address corruption, and to put in place this particular kind of

device to help deal with it. which in large measure is not really unlike work that many of us at this table conduct. at the same time, again, it need support. it need capacity and i feel that we, the united states, can help in that regard. >> thank you. my time is up. >> general, i have met the same individual that you are talking about and into their office -- their offices. i do not have a great deal of confidence. i am shocked that you do not come to the same conclusion. it is one thing to have an individual sitting in a chair. it is one thing to talk about this whole ordeal, but i think there is will. i did not get a great deal of satisfaction in that they're worth -- that there was will from president karzai and his staff. are there on a mission, they have failed to staff it up. -- by their own admission, they have failed to staff it up. is that fair to say? >> that is fair.

>> mr. chairman, following up on what you just said, this is a very distinguished panel, but i think it would take an equally distinguished panel to think of a worse environment to try to gauge corruption and to root it out. the line that came to me when the chairman was just speaking with the line from casablanca where the gentleman says, "gambon @ orix. i am shocked." -- gambling at rick's, and i am shocked." the leadership can best be described as weak. he just got reelected on an extraordinarily corrupt election. and so now, without -- we are not only putting billions of dollars at risk, but i also think given the lack of accountability and transparency and knowing where things are, i think we are putting our young people's lives at risk.

the best and brightest of all -- of us all and you of, and almost unlimited resources. i do not have confidence that we can do this, that we can do the afghanization effectively without widespread corruption just because it is embedded in the culture. i want your reaction. what gives you some hope that in that land with limited access, extraordinary dangers, and a culture ofç corruption we shoud have any faith at all that the spice york -- despite your best efforts, we are putting our folks at risk and wasting billions of dollars? anyone? >> i think that -- i certainly think you have every reason to make that statement. and there's a tremendous amount

on the line here. a tremendous amount of america's wealth is in southwest asia. i think that people here at this table and other members of the inspector general and oversight committee who are in departments, who oversee programs and operations and budgets that are related to southwest asia, and particularly now, afghanistan and pakistan, are concerned. but i would also say that we have come a long way as an oversight committee since 2003. i think we have learned a lot. i think the department of defense has learned a lot. there have been some great lessons to be learned. we have taken issues that were identified in iraq and we have transferred -- identified the solutions and transferred those to the operations in afghanistan. and i can give you examples of that. i think there is reason for optimism. the second thing, in 2007, the

oversight committee established by the leadership pretty much here at this table as debose the southwest asia joint planning group. it is chaired by the inspector general department of defense. over 25 members of the oversight community, a tremendous example of now working together. identifying problems, joint problems, reducing redundancy, identifying the gaps, areas that ought to be looked at that are not being looked at, identifying new issues. we have got people every day in southwest asia -- southwest asia on the ground, auditors and investigators and meeting regularly with the commanders. now commander does not have to wait for 36 -- three months or six months or even a year to get a report. he or she finds out right away what is happening and they can make corrective action almost immediately. we are very proactive. we have made some significant steps forward in the last

several years. the department of defense oig, for instance, we have doubled our auditing at investigating staff over the past 12 months. the numbers are not great. we have gone from six to 14, but that is significant. we have almost doubled our entire southwest asia audit and investigative work force. and the next 12 months we will do more. we are born to increase that significantly more. -- going to increase that significantly more. the point is that we are trying to get ahead of the curve. if you look at it from 2003, we have come a long way. but what we did yesterday is not come -- good enough for today and what we are going to do tomorrow is going to have to be a heckuva lot better than what we have done. >> i recognize your best faith effort. all i am suggesting is because it affects the decisions we are going to have to make, and the

president's recommendations, that it sounds like what you are telling us today is that you are making improvements on what you are doing. and i think the response -- and i do not see an answer that tells me otherwise -- as long as you are going through afghanistan's government, there is no reason that anyone should have faith that money will not be wasted and lives will not be put at risk. >> i would like to take a shot at it, if i might in a way, we are luckier than you are because we do not do policy. that means, as far as i'm concerned, we have to continue to inspect and audit what are very important programs without saying whether it is a good idea -- the policy is a good idea or not. we leave that to the president and congress. there are very important programs that we want to give our best to. for instance, the rule of law.

and and anti-corruption efforts, which i think are arguably the most important efforts we at state oig are looking at. now regardless of whether these programs are going to succeed or not, we are going to give it our best efforts as long as you tell çus to be in afghanistan. >> mr. chairman, i would also like to respond to mr. quigley's question and comments. a couple of things, one, i think that we here at -- we, the u.s. accountability community, cannot do it alone. there is a global accountability community with whom we must also engaged. the gao does this really by having consultations and working groups with other national audit office is preparing gage new capacity building exercise with the iraqis -- offices. we are engaged in the capacity

building exercise with the iraqis. we are creating portions with other accountability officers. afghanistan's office is in stages, but we have seen significant growth in other national audit offices as well. >> i think the frustration is, let me say, a day late and a dollar short. this thing has been going on since 2002, 2001. now we are finally to what we're going to do. i think that is indicative to some of the frustration here, on that basis. mr. duncan? >> thank you, mr. chairman. i appreciate the fact that you and ranking member flake are trying to oversee all of the really unbelievable spending that is going on in this part of the world. because we so flippantly talk about trillions now where rework -- we were talking about

billions, i think we lose sight and cannot comprehend the astounding amount of spending that is going on in this area. in fact, general fields mentioned that we will be up to $50 billion in rebuilding afghanistan by the end of 2010. and yesterday's "washington post" says that the pending 2010 budget has $129 billion bubudged for the afghanistan, pakistan and iraq. and for the first time we will be spending over half of that or more in the afghanistan- pakistan region, $68 billion as opposed to $61 billion. no one can even human the comprehend how much even $1 billion is. these are amazing amounts of money that we are talking about. i certainly have no criticism of any of the witnesses here because if we are going to be spending that kind of money, we

need to have people like this making sure is being spent in an honest and not wasteful way. but the point i would like to make is that we should not be spending all this money in the first place. we are spending money that we do not have. our national debt is reaching $12 trillion, and nobody can comprehend that figure. but now they are going to have to come to the congress once again to raise the debt limit once again. it is just unbelievable what we are doing. i am saddened that it seems that the criticism of these efforts has been limited primarily to liberals until a few days ago. george will finally started to question this because i have said many times, and i still

believe that fiscal conservatives should be the people most upset, most concerned about all of this amazing spending. it is just mind-boggling. general patraeus said a couple of months ago that we need to remember afghanistan has been known through the centuries as the graveyard of empires. i am sure being the good bureaucrats that he is, though, i do not suppose there has ever been any real spending by the department of defense that he has ever really opposed. and that is one thing that i think fiscal conservatives are going to have to realize at some point. the defense department is first and foremost a gigantic bureaucracy, and like any gigantic bureaucracy, it always

wants to expand its mission and always wants to get increased funding. çi have the greatest respect fr those in the military, and i believe that national defense is probably the most important, most legitimate function of a national government. but i also do not think that it means that we automatically should approve every huge increase and every military venture that the defense department' or your department request spirit are about to what i said a few minutes ago, we are spending money -- or your department request. i will go back to what i said a few minutes ago, we are spending money that we do not have. we are putting our children and grandchildren in jeopardy. i believe it is going to be 10 or 15 years before we are not able to pay our social security and veterans' pensions and all the other things that we promised our people. i wish all of these witnesses

well, and i commend you, mr. chairman, for holding this hearing, but i think we need to realize that we cannot afford to keep doing what we are doing in afghanistan and pakistan and keep expanding our mission and increasing our spending over there. we're going to increase our troops by the end of the year to 68,000. and it all of these areas, we're having as many more civilian contractors as we are military troops. at some point, we have got to come to our senses and realize that we cannot simply afford this. >> thank you, mr. duncan. i think the concern is that we are all looking at another strategy -- at yet another shot at c4 afghanistan. this is obviously -- there -- yet another strategy for afghanistan. there is a military component to it, but there is an investment

peace through the rule of law, training of police and other security forces. but i want to take a statement from general fields' written testimony. "the current situation is neither conducive to building or repairing the afghan capacity to hold elections, provide justice, or meet the basic needs of the afghan people. the efforts have not been effective and they are replete with accountability problems." i think that is what we are all here, because we all of knowledge that airey statement. this has been a mess. -- that we all acknowledge that a statement. this has been a mess. to have a practice of corruption and corruption being imbedded -- we have a practice of corruption and corruption being imbedded in the representatives that we have put in the government in afghanistan. we have other situations in pakistan. how are we going to proceed?

what are the resources we will apply to that? and i would suspect we will do something about trying to put in place standards and processes before we start spending the money, hopefully. particularly in areas like fatemi, the northwest frontier province -- fatah, the northwest frontier province and other areas. if there are those kinds of considerations, would you tell us what they are and how we are expected to implement them? i would suspect that for mr. caddell, a lot of this is education -- mr. heddell, a lot of this information is education. here is where you can do to avoid a bad audit and in that investigation and here is what we will look to to have in place systems and processes.

and hopefully, we will not start spreading of the money until we are satisfied that all of those things are in place. would somebody like to respond to that? mr. haddell, would you like to start? >> i think he might have to move it a little closer. >> ok, the oversight committee is not the one spending the money, we are trying to identify where it is going and whether it is going properly. >> we are not blaming you. >> in 2008, we issued what we call a summary report that included 300 to reports in testimonies -- and testimonies of not only inspector general, çbut the military audit servics and the leaders of the navy and army, the inspector general of iraq and diego.

-- end of the gao. we issued over 970 recommendations. we are following up on every one of those. >> i was just going to ask you that. that is a lot of recommendations that do not do any good unless someone is making sure they are happening. >> yes, sir, i apologize for interrupting you. i can tell you right now that we are tracking this. 7% to 80% of those 900 plus recommendations -- 70% to 80 percent of those nine and a plus recommendations are being addressed and many of them have been resolved. -- 70% to 80% of those 900 plus recommendations are being addressed and many of them have been resolved. but most of us have read it, but we are happy to have it again if you like. but we are happy to follow up on recommendations made and i think that is essential, but i'm also talking about some preventive action, you know, trying to get people to know what the right course before you get down the

path on that. >> i will offer you another one, preventive. we learned in iraq and electrical systems -- this may sound fundamental, but electrical systems are deficient. americans died needlessly. those lessons are learned and being transferred to afghanistan. >> i understand. that is great in those cases by cases. but i'm talking about a broader strategic path. we will be developing remote areas of afghanistan. the first problem is, do they have in place processes or standards that they know they have to meet? and the second thing is, if we cannot physically get their ourselves, where do we have a place to do that? >> i will let my colleague from usa do most of the talking -- from u.s. aid do most of the talking. but first, my staff has been kind enough to explain to me how

a af-pak became pak-af, and the answer was that it was ambassador holbrooke and started using pak-af. getting ahead of the curve is exactly what this committee is trying to do in pakistan. and for that matter, why we are holding this hearing, if i may be sold. >> that as a large part of it. >> and we are working with the embassy. our inspectors will work with them and our auditors will work with them raising these various issues. as you mentioned and as we all know too well, it is going to be very difficult to work in the fatah, and the tribal areas. it is really dangerous. we are working together with the agency -- the embassy in what i think are some imaginative

ways to consider how we're going to perform oversight in what is a very challenging area. and at least we have the sad experiences in iraq and afghanistan to guide us. >> we are talking about $1.5 billion over five years. it is a serious amount of money. i think this committee should what some comfort that before that money is disbursed that these things are in place. i ask again, is there some mechanism, whether a trust account for some where that money is going to reside and we are sure it will not be destroyed it until we have reasonable comfort that it is not going to be -- that is going to be spent wisely? >> if my colleague will answer, since he has most of the money. >> i will get back to you on that. he has most of the money, but not enough staff. we will get back to that, too. >> earlier, i mentioned that

basically in the audit world we filed the money pit -- we follow the money. and although most of our investigations are primarily reactive, we do a lot of fraud training around the world. we do hundreds of these training programs where we provide training not only to u.s. personnel, but representatives of contractors, subcontractors and grantees. we get them out there and show them what to look for in fraud. in that pro-active way we do some of what you are looking for. >> but then we are left withç e problem of overseeing the contractors and subcontractors because we have lost so much of our in-house capacity. we sometimes do not have enough left over to oversee those contracts. >> historically, and many of our audits have shown that many of the problems that we face is a lack of staff, lack of training

staff and lack of people -- people willing to go to those places to work. the agency is in the process of building their staff. hopefully that will help. but certainly, in the past, they have had a problem in that area. >> thank you, mr. chairman. there are a couple of things that i believe can be done in a preventive mode to ensure that our money is well spent. in large part, it requires the help of the congress. there was mention early on of investor eikenberry's discussions of looking at alternatives to the budget. i have not seen his letter, but afford to reading it. what we have learned in the past is that while these type of effort from a direct cash transfers or direct budgetary support, our good intentions and often result in very good

outcomes because presumably they are consistent, they allow their to be some consistency in anticipation of the planning needs for the country that we are looking to serve. often times in the past, we have found that the moneys that we have spent have not been consistent with the national need or priorities and therefore, there has been a lost opportunity to make big gains. any direct budgetary support must come with the ability of the accountability community to access the records and the back of documentation that is kept there to that we can exercise some control and oversight as well as the host country government could have some accountable system, some data that they could rely upon to ensure that the moneys are accounted for and well spent. we have learned well in the past and in our other investment in other countries where there is no access and we have no ability to track and account for our investment made there.

second, i would also ask the congress for assistance and support in ensuring that when the agencies respond to our recommendations, gao's recommendations in particular, there is a requirement that they respond within 60 days to the congress informing them of how they intend to react upon the recommendations. as is often the case in transition and government, the agencies are not aware of this requirement. recently, in dealing with some of the agencies that we are dealing with at this table, we have found that the letters are just piling up in someone's room. and not knowing where they should go, or they have not been prepared at all we would be glad to work with the congress to try to reinforce some of these mechanisms to not only insurer responsiveness to the mechanisms that would prevent fraud in the

future, but also to ensure accountability for any new direction that may be pursued. >> i will give mr. flake and opportunity. >> to follow-up, obviously, the government what budgetary support. all governments do. and you have said that he would make the recommendations and that -- and without that, we cannot access records that we cannot access now? is that your contention, that we would not be able to have access to the money -- how the money is being spent? we pretty much know that is not a direction that, certainly, i want to go here. >> we have not made a recommendation because i have not yet seen this proposal and i do not know what stage this proposal is in. but given our past experience with direct budgetary support

provisions. >> right, thank you. >> you testified that he made 84 recommendations for operational improvements to usaid programs. how many of these have been implemented? but i do not have the exact number, but generally, we get management decision on the majority of them. and i would have to get back to you on the exact number. i do not have it here. >> but you said, generally you get? >> generally, we get management concurrence on the recommendations that we make. they do not object. i am not aware of any of these that we have had an objection. i do not know whether they have actually gone through and completed the recommendation. i do not have that right here. >> when were the recommendations made? how long ago? >> the information i was getting over a four or five-year time frame, so it is over that span.

>> ok, over that span. your anticipation is that most of them have been implemented. >> i would hope they have been, but i can check and get back to you. >> would you get back to us? and typically, if they do not follow through and make recommendations, what happens? could you then go to -- who do you then go to and say, you are not to make any improvement, not following recommendations, and at what point is congress informed? is it true this regular process? or is there a trigger that forces you to come back to us and say, hey, these programs ought to be shelved because they are not following are recommendations? >> there is, in fact, a process within the inspector general's act that requires us to notify congress if recommendations are not acted upon within a six month time frame. >> when was the last time you notify congress? >> we have never had to. in my tenure, we have never had

to. >> the seco for everyone here? for the other agencies? -- does that go for everyone here, for the other agencies? ambassador geisel, have you had the experience riyadh had to come to congress? -- where you have had to come to congress? >> i am informed that we have had to report two instances of noncompliance to the congress. >> with regard to afghanistan? >> no, sir. >> what we are hearing so far, every recommendation made twith regard to afghanistan has been implemented? does that go for you as well? >> i have been at the department of defense for about 14 months now, and during my time i do not know of any instance where we have exercised that requirement. however, we do issue semiannual reports to the congress ended

its reports are a list of -- and in these reports are a list of recommendations in a broad sense. we do keep the congress fully apprised of what we have found, what we are doing, and what we are monitoring. >> general field, did you have a comment there? >> thank you, sir. i wish to comment on a follow-up to recommendations. our first report in my capacity, given that we are inuredization, it was issued several months ago and was a report on $404 million of afghanistan security forces funds administered by mr. steger. we discover that there was sufficient -- insufficient oversight of the particular arrangement, the funding execution of it. but principally, the contract oversight person was located in maryland rather than afghanistan where the money was being executed we are pleased to report that as soon as we made

this observation sticker and to u.s. forces in afghanistan, they began to address it. that included follow-up work by the secretary of defense and other oversight entities. from that standpoint, speaking exclusively for segar, there has been a response to these that report. there are other reports that have been issued, but too early for immediate response to be reported to the subcommittee today. >> thank you. if i could follow up with one question. ms. williams, you mentioned -- and all of you have mentioned -- the security situation makes it difficult for you to carry your work in afghanistan. at what point for a committee like ours, where do we draw the line and say, the security situation is such so we cannot carry out our oversight functions, or security situation is so bad that perhaps we should not be spending this money

because it cannot account for all of it? where do we draw that line? i know it is a difficult situation. all of us have trouble to afghanistan andç we recognize that you can only have field offices or personnel in certain areas. is a real endeavor to go out, particularly in some of the areas that we have been talking about. how are we to navigate that line, i guess, between a security situation that is so difficult that we cannot provide oversight -- perhaps, is it so bad that we should not be spending money is in these areas because we cannot account for them? >> a good question. i do not believe we have reached that point yet, where the security situation is so bad that we cannot provide congress with meaningful information to help you conduct oversight over our engagement in country. and we would inform you if we

believe that were a limitation to our ability to answer the mail, if you will. i think that we have to take mitigating strategies. we have to mitigate against the limitations that may be imposed on our ability to actually make field visit. for example, when i was in pakistan a couple of months ago, we wanted to go to the fatah, to the projects that the restaurant had funded. we were not able to. however -- that the u.s. government had funded. we were not able to. however, we were able to serve -- extract sufficient information from the agencies to be able to conduct our work and analyze it and make reasonable judgments as to whether or not there was good record keeping, whether or not we were on track with plans that we made in country. but there were a couple of lessons learned and actually they were the basis for military counterinsurgency doctrine. first, a twist of a security. first and foremost, establish

security -- first, to establish security. first and foremost, establish security. we are very hard lessons from iraq of investments -- we learned very hard lessons from iraq of investments that were destroyed, infrastructure was destroyed because there was such an unstable security situation. second was to create an economic foundation in the country that they can sustain the investment we have made in country. this goes back to what kinds of strategies we need to think about going forward as we look to increase our investment there. third is to extract the political commitment from the country, that they are going to carry out those priorities that they have established, priorities that we join in with the country and create the basis for our own strategic goal s in that country. i think we need to continue to think of that for any future investment. these are things that we need to continue to monitor in our own oversight strategy to ensure that investment is well-made and protected.

>> thank you. the trick here is not to put the cart in front of the horse. which i think billions of dollars in has been been done. most notably, the coalition support funds in pakistan. when we were there and investigating or whatever, we found the $6.7 billion spent in large part that was not accounted for as all -- at all. the money was basically paid to pakistan, went into the general treasury and we are at the mercy of the bleeding or not believing what was going on, but i do know that we looked at about 35 helicopters, money was paid to supposedly have them repaired and they were all sitting there on the ramp, but unable to move. that is the kind of thing that we're talking about. we need to get out in front of the situation. as the inspector general said, the current situation in afghanistan is not conducive to building or repairing, nor is it reducing -- conducive to developing afghanistan's

capacity for elections or to meet the basic needs of the afghan people. are going to through development money at that without resolving those issues first? it is hard to do that. in pakistan in particular. we have been out there in the fatah and the northwest province area. i would like to know how it is that you have so much faith that we are able to do it. i know that foreign assistance in fatah is expected to be accomplished with non-u.s. and planters. we're basically contract in about two locals. when we were there, we could not get much further out of the shower. people told us that the -- the non-governmental agencies told us, our own consulate told us, they could not get anywhere near the project that were happening whether it was a well, a school. they reduce overhead flights,

word of mouth from other people that had been out there -- they were trying to use flights, overhead flights, word of mouth from other people that had been out there. how reliable is that? >> we met the same thing when we went out there. with the local agency officials, we met with the fatah. we are in the course of evaluating our development assistance efforts in the fatah. we have not reached conclusions yet. but we were able to get data that we believe we can rely on from the agencies to be able to conduct our analysis. we have not yet reached our conclusions. >> having done all that you have done, i would -- i am more skeptical than you. i would like to see the foundation that you reach and your conclusion. there is $1.5 billion heading in that direction. we want to make sure it is not going in the wrong direction on that. >> agreed. >> the combined security commission in afghanistan, that is a serious matter. we obviously have those weapons that were potentially

unaccounted for. is there a follow-up going on for that? >> yes, mr. chairman. in fact, we have done several reviews. -- reduce relative to weapons and explosives accountability -- refused relative to weapons and explosives accountability in iraq and afghanistan. we did find concerns. we have also found that there have been corrections made with respect to those in iraq. >> i am zeroing in on just afghanistan. >> well, we are focused -- we went to afghanistan last fall and took a look at what and accountability as well as training and equipment sustainment. >> that is where we went out there and visited as well and we were not satisfied that enough was being done. are you answering me now that you are looking at to follow up on that? >> we have followed up and have planned several things that will be in motion between now and next spring, yes, sir.

>> thank you. special inspector, have a special -- a question for you. obviously, salaries are going to employees in security divisions of beck afghanistan. i think you are following up on that. but we also have a report in your written remarks about some private firms that are spending international money, or whatever, hiring a security people that may be connected to the taliban. michael -- my question is, which flavor of taliban are the hiring on that basis? who are they, that particular taliban? is that a dangerous thing? is something been done about it if it is? >> our work in this particular area is not complete at this time. but this is a serious matter, at least, to look at in terms of determining if there is

wrongdoing. and if, in fact, the allegations that we have seen, especially over the last few days, our, in fact, valid. but i am not prepared at this time to report any of the results. i wish to inform, though, that these are matters that we are looking into. >> when will you think you have some results on that particular inquiry? but sir, i would suggest perhaps within the -- >> serdar i would suggest perhaps within the next month. >> i think the sooner the better. it is a rather alarming concept that could be looking at -- that we could be looking out there. it is the taliban that is going to turn around and focus on our troops, then there could be a problem. if they are a different breed, then we need to know about that as well. i urge you to move on that as quickly as you can. " thank you, mr. chairman. -- >> thank you, mr. chairman.

>> i am particularly concerned about the police training, and the army as well, but even more so about the police training. i would hope that somebody in this group is going to look in debt. here we are at 2009, nearing the end. the police training, there is corruption rampant on there. i know there seems to be a great plan that the department of state has about training people and switching them out. if we go on that basis, by the -- by the year 2013 we ought to cover the country and be ready to start again. cover the country and be readyo- to start again. who is covering this? . .

we have seen that it is critical that that be done. the local population does not have any confidence, we are in a terrible state of affairs. other than government can really of -- government, billy office, -- >> we know too well above that of the $30 billion that the united states has invested into the reconstruction of afghanistan, about half of that money, $18 billion, has gone towards the afghanistan national security forces. a large body of our work will be

going to address the significance of the elements of funding for the reconstruction. >> there is a large amount of money going towards that. at the portion that was designated for security may not be an investment grade it may have been wasted. when you look at the state of the affairs of the police in afghanistan, it is hard pressed to call that an investment. the idea would be to get a report as to how that could render positive results. all of the people that work for you, working in development, there are serious risks on that. i would appreciate it if you could do that. >> mr. chairman, state oig and did -- and dod are undertaking a joint study of police training right now. the report should be ready, i

believe, in december. >> ok. well, thank you for that. should the role be extended to cover pakistan as well or how are we going to address the oversight issues in pakistan? >> we have looked at this question well before this testimony. we have had a dialogue with holbrooke on this during his testimony in june. from the cigar standpoint, we want to extend our mandate to assist in pakistan. for one reason, the inextricable linkage between afghanistan and pakistan and the fact that if the extension of our mandate is

similar to that, we think it is a considerable benefit. in spite of our meager numbers right now, we can almost immediately commence some degree of oversight spending in afghanistan and this could lead to an increased number of auditors and investigators which would build a more substantial effort to address this matter. which underscored the significance of oversight which indicates in afghanistan may have started before sigar and not that the climate which we began to help. would like to not see this happen in pakistan as well. >> not to be a wise guy, but you are aware of criticism from

afghanistan. >> yes, sir. >> address that for me, if you will. they were comparing it to a number of reports that came out of iraq in a copper bowl. . you have five reports over the course of the first year and i guess there were many, many more. if you would address that and if there were be enough personnel and capacity for the special up inspectors in afghanistan to go into pakistan and might not be better off trying to focus on other agencies or another special inspector. >> yes, sir. first, let me address the criticism aspect of this office. the criticism, frankly mr. chairman, is not unexpected. we were late in getting funding to support our efforts, but

congress has not provided the funding as a part of the $7.2 million which complemented the $16 million we were previously given. we informed the congress last year about this time that we wanted to get our work done. we are hiring the right people to do the job. we're not suggesting that we have excess capacity, levy our suggestion -- but we are suggesting that it would be advantageous to the oversight committee if we were to link the oversight of pakistan with that of afghanistan. given a full year of the funded oversight work, we shield that that perspective is a valid one. -- we feel that perspective is a valid one. >> the government accountability office is getting people around

very well. but the most distressing is the usaid. you have 210 foreign service officers and employees. what is the breakdown of that? how many are civil service and how many are foreign? >> 125 bar foreign service. >> the cover 100 countries and billions of dollars. -- they cover 100 countries. >> i do not know personally. we are in the process of staffing out. our budget has been increased. we're in the process of trying to hire another 20 more auditors. those will mainly be foreign service officers. >> are you having difficulty finding qualified people? >> not really.

we have hired probably 20 in the last six months. many of them are highly qualified. >> are you having trouble finding people willing to go over there? >> that is the issue. whether or not they're willing to serve in those countries is the issue. >> of those 20, what percentage of those people are willing to go over there? >> they have to be. if they are foreign service officers, they have to be cleared medically, for example, to go anywhere we have offices or where we work request of a workshop for the fact they were inviting them to go to afghanistan, how many of those lots which you have a filled? >> i do not think it would be much different. i think we're doing quite well, but we certainly need to certainlyup. i did mention -- we certainly need to staff up it is. that is proposed for afghanistan is appropriated, we will be asking to put an office there

with a significant number of employees. >> right now you are replying -- relying on accounting firms treat your training their people. how confident are you that those people not only have the requisite skills that have been treating them with but the will to do the job? >> when we are dealing with private accounting firms, it is difficult to tell grade we provide the training and contract with them to go places to find out where we cannot go. those are for financial audits and we are asking them to go and look at programs from a performance standpoint to see if a building is built 3 >> because we're not doing it in house, we do not have people to go out and watch their work. if we do, we are certainly we

doing the wheel. >> that is true. as we have all discussed -- i am sorry go ahead. >> it sounds like a tough state of affairs. >> of the situation is such that if we cannot get out of all, this is better than doing nothing. at least it is an effort in trying to get some ice on the programs. >> our troops out there indicated that those people were not having an easier time getting down there as well. is that not true? >> i do not know. we're just beginning this program. >> the indications are that there are people living there and people who do not. it is -- is that the same with the provinces? >> when we were there in june, the embassy retracted their offices there because of the situation. >> we're going to have a

difficult time no matter what. >> the first question i asked, afpac versus pacf. that comes from holbrooke. if that is the source, it is a shift in focus. according to them, pakistan as a country that matters, as he put it. we're seeing a shift, as pakistan goes so goes afghanistan. that is where the taliban actually is. we're going to be expending resources there. my concern, and it might be shared by the chairman and others, the chairman mentioned that we seem to be behind the curve all the time. we are eight years into this and we seem to always have the recommendations that are now born to be implemented eight years a letter -- eight years

later. we need to the these in place before a round of the flow of resources to these places. -- before we ramp up the flow. if our resources are flowing for pakistan, we're going to be in a situation a couple of years from now we're really put your resources in place where the money has gone before. we are just chasing our tail all the time and we never seem to be putting structures in place to make sure that these resources are expended properly after they are already in place. you mentioned that you would let us know if the security situation was such that we could not conduct appropriate oversight, but if the focus is ack-afg, there are certain areas where we're not getting certain

information. some of us are skeptical that that will be the case. we will be informed here where we need to make oversight decisions and funding decisions that the situation is such where we simply can account rather than hearing a few years later that we are now catching up or trying to catch up to the free market in place where we can expand. can anyone give me any confidence that if the shift now is pak-af, are we going to put the right framework in place in the places that are concerning to us before we expend the money and not after? >> i do not know if i am ready to assure you that everything is going to be fine. in fact, i know that i am not. what i can tell you is at the request of ambassador ann

patterson who was one of my successors the first time i was acting ig, she follow jackie. our regional office is going to conduct a review this fall of the current management control environment at the embassy in islamabad for significant increases in funding during the next five years. as i told you, we have moved up a full inspection of the embassy in pakistan just for that reason. we want to try to get ahead of the curve. >> we're still talking about a middle east office when we are talking about central asia. it is a little concerning trade >> it is going to be the same office, albeit changed.

not would have one more bureaucracy and, so you can count on it being the same office just more people doing it. >> you said in your written report that effective controls are needing -- needed. you did that on the head. so, are we going to need legislation? i will ask this as a rhetorical question, are we going to need a mandate here that money is not being distributed and disbursed until we are satisfied that effective management controls are in place for this assistance. every something we would want to look at with the reports of all of you. they're doing a good job with a difficult situation, but she is not going to evaluate whether

the pakistan agencies have the capabilities to ensure proper management controls are in place and funds are used as intended. i wish your predecessors had done this starting in the beginning of the decade and then we would not be in the situation. it seems that that is the key. we need reliability in a trust in them during the right thing. i am reluctant. i think we should appropriate the money and put it somewhere before we know things are in place. this might be another factor in that. i think have given us great food for thought on a number of different areas here today. that is in the case being done. >> mr. chairman? may i interrupt? sensing that lie -- something

that might address his question is an assessment of the department of defense issued in may of this year. it is classified but it was an assessment review of all of the d.o.d. managed funds and programs that exist in pakistan. it is very revealing, i think. we would be more than happy to greet you in a closed session. it gets to what you were asking about three >> we would be pleased to said that up. -- what your asking about. >> we would be pleased to set that up. this is someone investigating whether or not there are sufficient standards for the equipment or whether or not our troops are getting equipment in a timely fashion? >> you are asking whether or not? >> i am asking if we have

someone looking into whether or not they are getting their equipment in a timely fashion. >> we have done a fermenta of work in that area going back to 2006, mr. chairman. -- we have done a fair amount of work. we have done the some work in iraq. we found concerns in iraq. we believe those have been addressed by the department rate we found issues -- department. we found issues with armored vehicles, armored, and we're continuing to address those issues. at the same time, we are monitoring the department that is continuing to address those issues and we are hopeful that the lessons we learned in iraq are being carried forward into afghanistan. but these are complex issues. for instance, armored vehicles. what man has been effective in

iraq, may require very different resources. it is a concern of ours and we can report in the future on what we have found great >> i appreciate that. >> mr. chairman? >> yes, ma'am. >> gao is also looking at funding for u.s. forces and what challenges are presented. we are also looking at the army and marine corps training and what lessons can be learned as they look to migrate from iraq to afghanistan. we will be reporting on both of those issues in the near future. >> it does that hold true on medical attention to troops in the field? is someone looking at the capacity we have had to prove that situation as well? >> yes, sir. >> let me wrap up a couple questions here. we have a concern about the hairline's of contractors in different fields.

the wartime contracts commission is also looking into that. do all of you feel confident with your relationship and they have been included in your deliberations? you are all nodding yes. no one sees a conflict or an impediment anywhere there? let me ask this of you. i see g.a.o. has a different organization that i see the inspector general. you are known as congress's investigatory arm. i think it is great you're working on them with a lot of projects. are you maintaining enough independence to be able to stand aside and report something when someone else may have remain not have gotten to it yet or with the depth you think it should have done because they have capacity or training issues? >> yes, i believe yes to all of your questions. you will notice in the quarterly reports ofsigar reportsg.a.o.

has identified work. we have informal discussions with our colleagues in the office, oliver work is undertaken under cga authority. we do so because we are addressing the interests and needs of the myriad of committees surrounding u.s. engagements in these countries. we respond not only to your interests with the congressional mandates as well as areas in need of follow-up raid we maintain flexibility in planning our work to be most responsive and a timely in responding to your needs. we assure our independence in that way from the others to have a similar missions but other clients. >> i am not asking you to answer the subject matter but to give

you -- but to give your opinion. will you and your office be able to give an opinion as to the best way for us to have oversight over afghanistan and pakistan or rather some other approach may be advisable? >> we can provide you some insight based on congressional history and enacting legislation. i think we may ask you do that -- >> i think we may ask you to do that. ambassador holbrooke, his comments that he made here, and general fields' comments as well. >> we welcome that. >> mr. murphy still fully came into the room. -- stealthily came into the room. is there anything anyone wants

to comment on the e think we have been left unsaid? i will start on my left. >> thank you for allowing that opportunity, mr. chairman. i wish to go back maybe about an hour to that which addressed the white paper produced by one ambassador that addresses how he would wish to approach reconstruction efforts. i want to point out to the subcommittee that during the course of the past year, making my first trip to afghanistan in this capacity of last september, i have now visited 13 provinces and about as many prt's. i have met with as many governors of provinces or the deputy governors. i have met with practically all of the senior ministers of the government of afghanistan to

include three visits with president karzai cells. each time we visit, i or my staff visit, we get -- we received this issue of afghanistan wanting to be more involved in the reconstruction of their country. so, i say this because i applaud, really, what the ambassador has put forth as to what he would like to see as the way ahead in being more inclusive of the people of afghanistan. this matter is a resident in novellus than -- in no less than two documents, the afghanistan compact and the national development strategy. this is a bold move. yes, oversight will be even more important. one thing we are doing as a part of sigar is to determine the extent to which of those controls are in place, this

management systems necessary to ensure the american taxpayer that his or her money will be spent wisely and for the purposes made available by this very congress. we are on top of that, sir, and we will provide a feedback accordingly progress we are going to need it. she pointed out very clearly that if you want to pass your money to the government to enhance its legitimacy, then we darn well better be sure that we have some safeguards in place pretty given the current state of mr. karzai's government and the reputation for corruption, we should be more than a little bit wary about forking money over and hoping for the best. we're going to need the advice and counsel of all of you to give is a very firm commitment on that that if we're going to try, we know who we are dealing with, we have safeguards, and we have a strict monitoring day-by-

day so we can pull the plug on any time we need to or else we are all going to be the fool for a previous that money that this money needs -- we're going to be the fool for it. that is right up there with some of the priorities. if the ambassadors there is going to be borne out, that raises the ante on all of this. the funds that we have on that, the commanders emergency response fund and those programs. that is about $1.6 billion since 2004. are we monitoring that, updating, are monitoring how that is being spent and what results we're getting from? previous reports have not really seen a real -- not see really tight counting on that.

>> let me go ahead and say since the green light is on for me. we have just completed an audit cerp. we have found strengths and a certain weaknesses in the oversight of the spending. we will report on this by the close of business today or within the next 24 hours. there are some issues to which we are advising the u.s. forces in afghanistan to turn their attention to and we're confident that they will, sir. >> we appreciate -- we would appreciate that report as soon as is done. >> absolutely, sir. it should be posted on our web site within the next 24 hours. is that correct, monica? >> i request that the committee

remain open. >> we have also repeated its report on cerp we found a need for additional oversight and personnel. the intended effects of the parisian funding for a certain project was very good -- the intended effects of provision funding to make sure that is well spent. >> who do you recommend? >> determine the defense specifically. -- the department of defense specifically. >> we did do work and we have more work planned. our most recent report was back in 2007. we found administrative weaknesses. we had concerns. 15 of 16 pay agents did not have adequate storage for cash and other assets.

two pay agents made inappropriate payments. we have found some serious concerns with that and we're continuing to watch it. the department knows we are very on top of that. we will have additional work to be done in the future. >> we're going to take you look at the government accountability is report in your more recent report if there are more up-to-date to determine whether or not we think there is a need for another hearing. i do agree with you that this is very, very important. you have anything you want to say? -- do you have anything you want to say? you have the capacity to do it. do you have the willingness to do it? >> yes, of course. i would like to comment on the question you posed a general fields. certainly, this is not a reflection of my opinion.

i think in a general sense that the and statutory ig that do work in pakistan have the ability and expertise to provide oversight is given the resources and the funding to do so. whether the congress wants to establish another inspector general, a special inspector general, in that area in a political decision can be made. i, for one, think that we as a group can actually provide the oversight necessary. >> i want to thank all of you for your testimony here today and your expertise. it is a tremendous help as we trajan do our job which is a complex universe. you have our appreciation great we will continue to work with you and we look forward to did that. wish you all a good degree >> thank you. we did wish you all a good day.

>> thinking. -- thank you. >> the house is not in session today. next week, democratic leaders say they will consider a new energy department program for research. also, legislation changing our private lenders participate in the student loan program. live coverage continues when the house gathers monday at 12:30 p.m.. what is that it will work starts at 2:00 p.m. we will show you the tribute to walter cronkite.

president obama spoke at the new york city ceremony along with andy rooney and others. you can watch that marmite at 8:35 p.m. eastern. -- you can watch that tomorrow night. is there more than one definition of conservative? "york times" book editor on the debt of conservatism. look for the completebookt schedulev online. -- look for the complete booktv said joe online. half of the new immigrants each year are followers of islam. from the senior editor christopher cladwell. >> moments of silence across the country marked the eighth anniversary today of the september 11th terrorist attacks in new york city, pa., and at the pentagon. president and mrs. obama celebrate -- remember the moment

when the first plane hit in new york. [silence] [bell tolls] [silence] [silence] [silence]

[taps] ♪ ♪ ♪ [silence]

[silence] >> wednesday at the u.s. capital, members of the house and senate held an anniversary for the anniversary of 9/11. from the capitol hill, this runs over 20 minutes. >> think you all for coming

today to remember the heroes. let us all join together for the singing of the national anthem. o, say can you see? by the dawn's early light what so proudly we hailed at the twilight's last gleaming who's broad stripes and bright stars through the perilous flight o're the ramparts we watched were so gallantly streaming and the rockrtets red glare the bombs bursting in air gave proof through the night that our flag was still there

o, say does that star spangled banner yet wave? o're the land of the free and the home of the brave ♪ >> ladies and gentlemen. >> let us pray. lord god almighty in the drama of every human life as well as the life of a nation, there are certain days that will never be forgotten. it made remembered as of

september 11th, to sound -- 2001, always awake and in the heart of this nation a prayer of praise and petition and lead everyone to creative service of self giving and community building. it seems, lord, that when we are most vulnerable you touch human hearts with the blessing of your spirit that leads us with a light from above. at certain moments grass bus personally and hold list together -- a certain moment to grasp us personally and changes for ever. the immediate effect of heroic deeds or children's tears as well as a whole nation in mourning has a way of melting down at the human heart to a new depth of self perception. your love will not ever leave

the vulnerable alone. you use the powerful moments to move a person from pride and a mission to find a level of understanding and compassion for one's neighbors with all of their troubling imperfections. with your gift of newfound freedom is revealed with the mass within us, become instruments to serve others and builds the glory of a nation reflecting your own goodness and justice for another generation and for years to come. amen. >> the republican leader of the united states house of representatives. >> to the victims, to their

families, and it to the first responders who were there that day we will never forget. to those who perpetrated this heinous act, we will never forget. >> today we mark the instance travel between fear and memory. eight years ago, we saw fear come out of a clear blue sky. we saw monuments of our power and our pride turned to dust in an instant. we felt in one day fanaticism's rouble cruelty and the beauty of selfless sacrifice. now, the wounds of grief and

shock are scarred over. now we can say grief and shock as if they were on leave words, perhaps, but on that day they were more real than words can now express. in eight years, we have that bold perhaps our grief -- we have dulled grief. deliberately call it back today. pain fades, but today we feel it again. to stay with us for this hour and a much longer. we remember in the face of such an human evil, our memory keeps us human. we hear the voices of those we loved and lost. we feel their presence of. we come here again to say these words, not because fear or pain

compel us, but because we choose to. we imagine our dome destroyed but for the men and women who gave their lives to save us. we send our thoughts to the dead in new york, arlington, and in pennsylvania, and to those who lost their lives under our flag across the world in each year since. and to those who love them and love them still. this is an hour for reopening wounds and however much it stings, we will do so again and again as long as memory lasts. the american writer once reflected on soldiers in his words hold true for us as well. and i quote, "that they cannot forget, that they do not

forget, that they never allow themselves to heal completely is their way of expressing their love for friends who have perished and they will not change because they have become what they have become to keep the fallen alive." as the minority leader said, we will never forget. >> of the republican leader of the united states senate, mitch mcconnell. >> it is an honor to be here today with the family members of the great heroes of a flight 93 whose important place in history will now be forevermore -- memorialized here in the capital. we will never forget their sacrifice or the sacrifices of so many others on that sad day. in the life of a nation, some

moments are worth remembering. others are impossible to forget. september 11th, 2001, is both. with each passing year, the day becomes more distant, but the memories do not. some remember a warm smile, and last goodbye, a waiver from the departure gates, the color of a dress or a tie, others remember hearing about a friend, or the friend of a friend, and contemplate the horrible details. all of us remember where we were the moment we realized what had happened. for many of us here, we did the same thing we're doing now, we

came together here at the capitol and to show our solidarity with one another, with the victims, and with the rest of the nation stunned but not silenced by the face of evil. our hearts were broken but our spirits were not. resolve to confront those who had done these things even as we covered the families of those to whom they were done. eight years later, that confrontation continues in far off places, brave americans are still inspired by the sacrifice of the victims of 9/11. today, we also honor them. we will never forget those who died on september 11th, 2001, those whose lives ended in a flash or give their lives so

that others might live. all these people hold a permanent place in our hearts and in the story of our nation. that story is still unfolding, but we know the theme. it is the same today as it always was. ordinary men and women pursuing their dreams. coming together in moments of crisis with the kind of heroism and sacrifice that people will speak of a for centuries. today, we remember the men and women of 9/11 knowing that they will never be forgotten. >> the majority leader for the united states senate, harry reid.

>> the anniversary remember this because no parallel in our lifetime. we lost more loved ones on that one morning than the number of warnings that have gone since. we still mourn, we still hurts, and we still hurt. we still stand tall. we still marvel at the incomparable heroism that we witnessed on that day. ours is a nation started and settled by heroes. when tested as a nation, defended by heroes. those who answered the call of duty and those who are called without notice. some way up every morning and know they may have to run into a burning building while everyone else runs out of the burning building. some of wake up every morning and know they may have to sacrifice some filler -- so if fellow soldier can wake up in and of the same. and some, like those on flight 93, wake up as passengers,

travelers, sons, daughters, and choose to become heroes only in their last moments. the we grieve we are also grateful for them. though they leave us to soon, they leave us with a legacy of bravery we cannot fully fathom. we remember them so that others may learn from their courage. we revere those who died said that many others may live. we stand in a building that might not be here but for those heroes and we know what it means to be thankful. >> the speaker of the united states house of representatives, the hon. nancy pelosi. >> in just a few minutes ago, we unveiled a plaque in the heart of the u.s. capital to commemorate some of the heroes of 9/11, the men and women of a flight 93. their families are standing by

our side today and i ask all of my colleagues to take a moment to recognize these mothers, fathers, sons, daughters, brothers, sisters for keeping the memory of those heroes a life. [applause] [applause] [applause] >> it is indeed a humbling experience, as it always is, when we tread on the sacred ground of 9/11. for those of us who were engaged in a profession that is based on words and speaking, we find our inadequacies because words are

inadequate to express the gratitude, the respect, the debt that we have to all of these families. now we gather to honor all of the heroes of that fateful day eight years ago. the firefighters and first responders, rescue workers, and all who perished trying to save others. we remember those who refused to leave their co-workers behind, whose lives were cut short during the unforgettable horror of that clear morning. we recall the men and women in uniform, abroad, fighting for our values, protecting our nation, making enormous sacrifices they and their families so that our children can no safety and security. of course, we honor those who lost their lives on 9/11. it is in their names that we mark this day. it is in their memory that we pledged to never forget this unspeakable tragedy in.

it is in their silence voices that guide us, that inspire us, that echo in our hearts each time we stand on the steps of the capital and sing the words of, "god belss america," weather permitting a. americans forget about our differences in the race are shared heritage. in the tragedy we found unity. in the ashes, we rallied around a common cause. in the fall and towers, we located the strength to carry on trade in the darkness of that day, we saw the light of a brighter future. we express our deepest sympathy to the family of the victims who remain the conscience of our efforts to keep the members of the fallen of life. so today we do this gathered inside with the threat of rain, but as we did many years ago in

september of 2001, we will close by singing, "god bless america," because he treated with the allies and the courage of the heroes of 9/11. we recommit ourselves to help our courageous first responders treat health needs that leaguer to this day and provide them with the resources they need to respond to future emergencies. may god bless the memories of all the heroes of 9/11. may god continue to bless the united states of america. now, let us have a moment of silence in memory of all who were lost on 9/11. [silence]

>> ladies and gentlemen the reverend will now deliver the benediction. >> let us pray. lord god almighty, creator and sustainer of the universe, as we again approached another anniversary of a tragedy that united this nation except our thanksgiving for your sustaining providence. may our gratitude motivate us to strive for unity and to develop a greater awareness of the fragile nature of our lives. lord, continue to comfort those

for home at the date, 9/11, rekindles a sense of sadness and loss. console those whose lives are imprinted with the shocking images of that season of distress. lord, inspire our citizens to inclined their hearts to you in preparing that you're continuing mercy may always sustain us. may we recommit ourselves to the noble principles upon which our nation was founded. in the days to come, do for us and at this land we love exceedingly, abundantly, above

all that we can ask for imagine. according to your power working in and threw us, we pray in your sovereign name. amen. >> and now, please join the united states marine band in the singing of, "god bless america." ♪

♪ been becalmed ♪ ♪ [applause] >> ladies and gentlemen this concludes our ceremony. it thank you for joining us today. ♪

>> the house next week considers legislation for energy department is to research on gas efficient turbines and hybrid vehicles. also, removing private lenders from making federalese subsidized student loans. lenders would continue but the money would be loaned directly by the federal government. the house starts monday at top 30 p.m. eastern with legislative work starting at 2:00 p.m. eastern. next week, the senate continues work on federal spending for transportation and housing programs. the senate has passed four of the 12 bills to set federal spending with a new budget year starting october 1st grade at the return to work monday at 2:00 p.m. eastern. tomorrow, we will show you the tribute to walter cronkite. president obama spoke at the ceremony along with andy rooney and others. you can watch that ceremony tomorrow night at 8:30 p.m.

eastern. this week during a special session, they hurled -- they heard an oral argument. it was the first session for sotomayor. >> wouldn't we be doing more harm than good by a broad ruling in a case that does not involve business corporations and actually does not even involve traditional non-profit corporations? >> you can hear the argument in in its entirety 7:00 p.m. eastern on saturday. starting october 4th, an extensive look at the roles, traditions, and history of the court permits justices during supreme court week. >> this weekend, the role of conspiracy theories in american history and politics with the author upper, "real enemies," on "afterwords."

>> the treasury secretary testifies about the troubled asset relief program otherwise known as tarp up to help the financial industry. he speaks to members of the congressional oversight panel which was created to oversee the spending of tarp funds authorized by congress. this is one hour and 45 minutes. >> this hearing is called to order. thank you for being here today, mr. secretary. aware to start with that. we will commit. i also want to welcome paul atkins, newest member of the congressional oversight panel. we are glad to have you with us here today. thank you. i also want to say as we get started here, the panel has agreed to keep their opening statements very short period we want to focus on the questions

and we appreciate that you have agreed to do the same. mr. secretary, thank you for being here. this offers an important opportunity to hear directly from you about the $700 billion investment that taxpayers have made in the financial system. almost exactly one year ago, secretary paulson told congress that the country was in a dire state. americans were warned. they quickly passed the laws to create tarp. . . public fear has turned into anger. savings have evaporated, jobs have disappeared, and mortgage foreclosures are measured in the billions of dollars. taxpayers question what tarp accomplished when it on an individual level their circumstances seemed more precarious than ever. they feel like they got stuck they feel like they got stuck with s bailout but they did not get the benefits.

but they did not get the congress expected an equal measure of accountability. taxpayers have a right to understand what treasury is doing and why it is doing it. each month the oversight panel issued a detailed report. in june, we evaluated the stress test. in july, we examined the repayment of tarp funds. after we reported the first 11 banks purchased at 66% of their estimated value, at the next round repurchased at prices closer to our estimated value. in august, they examine the impact to leave troubled assets on the books of the bank's. yesterday the panel released a report examining the use of tarp funds in the auto industry and

recommended that tax payers who own substantial amounts of gm and chrysler might be better protected if treasury would put its shares into trust so someone not in government could manage a -- could manage them. tax payers are now stakeholders in hundreds of financial institutions as well. they still want to know how their money is being used and what difference their investment has made. have these companies been cleansed of toxic assets, the reason tarp was passed? are they better run today than they were one year ago? do they treat consumers better than they did last year? the fear that no one wants to think about, what are the chances these institutions will stumble again? to put it more directly, are we going to change the rules that got us into this mess before it happens again? thank you for coming, mr. secretary.

we look forward to hearing from you. >> banking madame chair. -- thank you madame chair. i suspect we will disagree in the future but i want to thank you for your public service at a time of great challenge our nation's history. i would note that this is your second appearance before the congressional oversight panel. since the president was sworn in in january, it is now september and that believe you have to agree to appear before this panel at least on a quarterly basis. i would ask you once again to consider appearing on a monthly basis given that president has made the commitment that his administration would be the most transparent and accountable administration ever. i think it would comport with that goal a little better we are clearly coming up on the one- year anniversary of the

legislation. tarp has never really been as advertised as we know it. toxic asset removal program became a capital infusion program. i am not here to continue the debate on whether or not it was wise legislation at the time. i think there are smart people on both sides of that debate. i must admit that almost one year later, i continue to be concerned and am curious as to what tarp has evolved into as of today. i think many americans share the fear that i have, that an emergency piece of legislation that was meant for economic stability has now morphed into a $700 billion revolving bailout fund for the administration. i am concerned that the previous administration crossed a line in investing in gm and chrysler, something that this

administration continued to do. i fear this penetration crossed another statutory line favoring members of the uaw in those organizations of similar situated creditors. i feel like the administration crossed another statutory line in giving fiat up to 35% of chrysler. they will receive this if they produce a car capable of making 40 miles a gallon. i am having trouble somehow rectifying this with the charge of taxpayer protection and of financial stability. i continue to be concerned about the issue of taxpayer protection. although certainly not all loved it, i need not tell you that we have the first trillion dollars deficit in our nation's history. i don't have to tell you that recently oab missed their figure

by about one-third. now they are looking at $9 trillion of debt. part of this is tarp. the cbo expects $40 million worth of loss in the although program so there continues to be a concern. i look forward to hearing from you, mr. secretary, particularly after the president announced last night that your administration has saved us from the brink of economic ruin. i paraphrase. if that is true, why do we continue to need this tarp statued that many of us believe it is no longer about financial stability? i look forward to your testimony and i yield back. >> thank you, congressman. mr. silvers? >> thank you. good afternoon, mr. secretary.

i very much appreciate your presence here today. this is the second time you have appeared in we are grateful. i appreciate the support that you have given to the office of financial stability. i believe congress and the american people should ask three basic questions about the program. first, is tarp and the associated programs of the fed and the fdic preventing and or, in the acute crisis in our financial markets? secondly, is tarp playing it the proper role as a provider of capital to the real economy? finally, is the public providing funds receiving fair terms? when you last appeared before us, i focused on the question of whether the public was being treated fairly.

i remain deeply concerned about whether inappropriate subsidies are being extended. credit enhancements and the repurchases of warrants from banks that have repeled -- that have repaid investments i believe you have made progress in these areas around the issue of fairness. today, i hope to discuss with you the question of whether tarp's strategies with particular reference to the continued weakness of three of our four largest banks, is subject addressed in the august report. this question is tied to the important question of what the fed and the fdic's strategy is to withdraw public support for the financial system. you address these matters today in your written testimony. looming over this situation is

japan's lost decade which you are quite expert. despite optimistic statements of the kind that we saw from the regional fed banks yesterday, the numbers that we see tell a tale of rising unemployment, rising foreclosures, a growing crisis in commercial real estate, which has been addressed in this panel, rising small bank failures and failing bank business lending. the danger of a vicious circle could overwhelm the strategy of helping the banks earned themselves back to health. i believe the treasury, the federal reserve, and the fdic can take credit for calming the crisis of last fall, another matter that you addressed in your written remarks. i believe the decision to infuse capital rather than to buy troubled assets that secretary paulson made and that you have largely carried ford was the correct decision and has borne

substantial food for our country and in the world. i think the stimulus package is also an important part of this plan and is intertwined in these matters. are we addressing the fundamental weakness in our banking system or are we hoping that if we close our eyes it will go away? i look forward to your thoughts. >> good afternoon and i join my colleagues on the panel in welcoming secretary geithner. thank you very much for appearing today. it is a privilege for me to be here today to serve the american taxpayers on this panel with our oversight role on the troubled asset relief program. tarp size of $700 billion seems almost quaint. since we are in the building

named after him, i am reminded about the senator's line about federal spending habits. a billion here, a billion there, pretty soon you are talking about real money. congress has set out this robust oversight framework with a special inspector general, a special audit, government accounting rules, and this panel. i take this accountability and transparency mandate from congress very seriously. press reports indicate that you have resolved in the ambiguities of the report in relationship to the treasury in favor of independence. i think that is an import result of the unusual nature of the program. the information sharing relationship between treasury and this panel has been problematic in the past and perhaps can be improved. there is a special liaison in treasury assigned to work with this panel so i look forward to

working with you all and experiencing this state of interaction. we are approaching the one-year anniversary of the passage of the legislation that set up tarp. treasury has created an alphabet soup of programs under tarp and that does not include the other programs of the other banking agencies. how effective have each of these programs ben? has some been more effective than others? has tarp achieve its original purpose and mission? what other costs such as moral hazard? the authority expires on the 31st of this year. the treasury secretary in the past has the authority to extend tarp until october 2010. will tarp be extended?

what are the conditions under which you might make that decision? the statute only provides the vague guidelines. that cost cannot be quantified without a rigorous economic analysis including direct and indirect costs. with that, i will yield my time and i look forward to the testimonies. >> thank you, commissioner at kent. superintendent for banking in new york. >> mr. secretary, thank you for being here today and there will keep my comments brief. first, i want to acknowledge treasury's responsiveness to the panel's inquiries on behalf of taxpayers. when we first met with you, you pledge to you and your staff would be available to us and provide open lines of communication.

to the many meetings we have had with other members of your staff, i think you for your level of cooperation and for supporting our work. you also responded to nearly 30 questions that i put to you directly from members of the public, some of which were very tough and candid. these questions and responses are now posted on the internet to serve as a resource for concerned americans. although financial stability has not yet been we are by no means out of the crisis but there are positive signs such as decreasing credit spreads nevertheless, our gains and financial stability remained fragile. addressing the millions of homeowners facing foreclosure to it -- is key to breaking the downward cycle and key to achieving sustainable results. the home affordable modernization program is

integral, but results have been mixed. i intend to explore several of these issues, including issues around delays and servicer performance, eligibility standards and access to account information and the need to complement a program with additional initiatives to address foreclosures stemming from job loss and recession. finally come up with congress returning this week, -- finally, it is expected these proposals will experience significant debate. i will be asking about your vision for developing infrastructure that supports consumer protection and stability. i look forward to your testimony. >> thank you commissioner. >> [inaudible] >> let's go forward. mr. secretary, we've received remarks this morning. thank you. they will be part of the record

so that we will have more time to be able to question you and hear your answers. i will ask that you keep your remarks to five minutes. anything else you wish will be entered into the record terry. >> it is a pleasure to be here. this is my 60 it time testifying before the oversight panel this year. -- it is my 60th time testifying. this is an important part of the process. the executive branch was not given -- it provided oversight with the establishment of the tarp and giving hte gao its usual mandate for oversight. we take the process seriously. we have examined everything you have written, adopted many of the recommendations of the oversight panels, and that think they have made our programs more effective than it would have

been. the complement your thoughtfulness and the seriousness of your approach. i also want to thank you what you said about herb allison. i have the opportunity to work with very dedicated and talented people in the treasury. you want to have people with the greatest sophistication about financial markets so they can drive a hard bargain in the interest of the taxpayer. i think that team is doing a good job of that. last september, of course, we face the risk of catastrophic financial failure and the risk of the great depression. because of a comprehensive policy actions put in place since then, we are back from the edge of the abyss. the consensus is that the u.s. economy is now growing again. the financial system is showing

very important signs of repair. cost of credit has fallen dramatically, not just for homeowners for households but for businesses as well. because of the signs of early progress, we are in a position to adjust our strategy, moving from a crisis response to recovery, from rescuing the economy to repairing and rebuilding the financial system, to repairing and rebuilding the foundation for future growth. we have to begin winding down programs that are no longer necessary and that by design are not as important. let me highlight a few things that _ this transition we put a reserve fund in the budget that recognize the possibility that we would need an additional $700 billion of authority to fix this problem. we believe that money is unlikely to be necessary and

have removed it from projections. we are borrowing less already them what we expected to resolve this crisis. the money market guarantee fund will be allowed to expire, earning more than a billion dollars in income, no cost to the taxpayer. the fdic program to guarantee senior debt has generated more than $9 billion and has seen very dramatic declines in usage. the facilities that the federal reserve put in place to provide liquidity and broad support to credit markets have seen dramatic reduction in usage. we are now at the point where lines of these facilities is down 80% to 90% from its peak. the commercial paper market, etc., the details are in my testimony. when i took this job, the government made outstanding commitments in the range of $240

billion. today, we have $180 billion outstanding. that is a dramatic reduction in the scale of our direct exposure in terms of capital to the financial system. in large part because of the successful efforts of making it more possible for private capital to come in and recapitalized this system. the dividends paid on those investments and the warrants we received a total $12 billion. for the 23 banks, treasury has earned a return of roughly 17%. all of these steps underscroe our commitment to unwind these programs as soon as conditions permit. at the same time, though, we have to continue to reinforce this process of repair and recovery until it is truly self sustaining led by private demand.

the problems of government acting too late and putting on the brake too early -- we are not going to repeat those mistakes. it would increase the cost of this crisis in terms of the damage it causes to the fabric of the american economy. millions of americans are still suffering deeply from this crisis, still facing the most challenging financial market we have seen in generations. unemployment is still high. the mortgage market outside what supported directly by fannie mae and freddie mac, fha, is still significantly paried. small businesses and part because they are more dependent on banks have less options to access credit in this difficult environment. >> you are at 5 minutes. >> i am winding it up. foreclosures are rising significantly because the high rate of unemployment we are seeing as a country. because of those challenges, we need to make it clear that we

are going to keep those programs that are necessary for a recovery in place as long as the conditions required. there is a lot of concern that as conditions improve, we are going to let the market to go back to the conditions that were enjoyed before the crisis. we are not going to let that happen. if you look at the list of the top 20 firms in the country two years ago, a substantial fraction of those firms no longer exist today as independent entities. the contras system is going to be smaller but it is going to be stronger. for that to happen, economists have to come join with us to pass comprehensive financial reform so we have much stronger rules of the road and constraints in place from preventing this happening again. i look forward to your questions. >> thank you. >> that was only about 6 minutes. >> and 19 seconds. a year ago, secretary paulson

told us that we were in its financial crisis because of toxic assets on the bank's books. he explained, is needed to give $700 billion to the treasury department's to deploy in order to remove this toxic assets. we have had one year to get rid of them. does treasury know how many toxic assets remain on the books of the banks? do you have a dollar figure? >> we put the u.s. banking system to stress tests so you now have an unprecedented disclosure of exactly what loans and securities they hold with a pretty careful estimate of the potential losses on those exposures that you would face in the worst economic environment. the critical thing to recognize is, and the reason we care about these toxic assets and the losses, is because they require capital. we came into this crisis with

the banking system that did not have enough capital to cover losses in a deep recession and that is what helped produce the worst and into crisis in generations. because we put the system to this incredibly exacting set of stress tests, with much more exposure, the banking system has much more capital in it and that makes it much less likely that the financial system is going to be a source of headwinds. if they had not been able to raise private capital, if they were still left with too little capital against losses, we would be facing a much greater challenge. the problems posed by this assets are addressed by the dramatic improvement. >> let me see if i can pin this down. for the 20 largest banks for which we have the stress tests, you believe we have a sense of how much is left in the wake of toxic assets? >> absolutely.

>> do you have a dollar figure? >> i would be happy to have the fed decal that for you. >> for all the banks for which a stress test was not run, but we know how many toxic assets? >> we are a country of 9000 banks, not just 20. >> although fewer every day. >> fewer every day but that is a necessary process of repair and reconstruction. many of this bank's came into this crisis with more capital but many also had more exposure to real estate. we chose not to put the rest of the u.s. banking system through the kind of existing stress we applied to the biggest institutions. a lot of complicated judgments went into that. you are right to point out today that we have less disclosure.

the supervisors of the country are spending a lot of care and attention looking at those risks in those institutions, helping them move through that. it is important to recognize that those banks together, those remaining 9000 banks together account for between a quarter and a third of the u.s. banking system. we are probably unlikely, as a country, to be able to manage through and withstand those remaining pressures. we can do with more confidence because of the actions we talk. >> when the washington post summarized yesterday's report, they summarized it by saying the banking sector remains a mess. would you take issue with that characterization? >> i would say it this way. i think the u.s. financial system today is in substantially stronger shape than it was

months ago. there is a greater recognition of losses and we are in a better position remember, this is just the first quarter. we are just getting to see signs of growth. it is very early and we did a lot of damage to the financial system of this country. it is going to take longer to do it because we are going to do it right. i would not want anyone to be left with the impression that we are not still facing really substantial and enormous challenges in the financial system. where there has been improvement, it has been dramatic. but a lot of that has come to the direct effects of policy, policy that put capital in banks, policy to provide support to the markets that were the most damaged. we have a lot of challenges ahead. >> thank you, mr. secretary.

>> mr. secretary, under the statute, how do you define financial institution? >> i was looking forward to this discussion and i think i understand where you are going. the statute was written, as you apply it -- as you implied in your opening statement, quite broadly. my predecessor, the previous administration made a judgment, not just in the economic interest of the country to provide support for the auto industry, but it was legal and appropriate to do so using this legislation. >> you concurred in that opinion? >> we would not have spent a penny using that authority if we did not incur in both of those judgments -- >> if you concur, you believe chrysler and gm are financial institutions. is at&t a financial institution? >> again, i understand why it

would appear -- if you look at the plain facts of what i inherited, why in my heart to explain why an automobile industry is a financial institution. that was a judgment made by my predecessor. >> you voluntarily chose to continue the practice but i am still trying to figure out your legal interpretation of the statute. so you believe chrysler and gm meet the definition of a financial institution. >> as the law was written. >> is at&t a financial institution? is american airlines? >> no and no. >> no and no. >> it is important to recognize

two important things. one is that the statute -- i did not design the statute. but it did what was necessary for the country, which was to give the executive branch broad authority to fix this. the fact that we waited so long to make that authority available made this crisis more damaging. another important fact, in a crisis of this severity, a recession this deep, we have to do things we would never want to do. >> as you know, the house had legislation that dealt specifically with the automotive industry's. there were some members of the house who did not believe that chrysler and gm came within that definition. what i hear is that chrysler and gm are institutions. at&t, american airlines are not,

so is there any additional clarity? i believe one of the things the market demands is clarity of public policy. who will you bail out and who will you not bail out? i asked you for some clarity on what is a financial institution. congressmen, i don't think we are going to be able to take this further. i do not believe you can read this statute today. things might be different in the future. i don't think you can read the statute today to justify action beyond the scope of the actions we have taken in this context. >> i am personally hoping that the legal interpretation of a statute does not change in the passing of a handful of months. >> we have to pass two tests to

use this authority. does the law gives us the authority to act proved the other is, are those actions necessary and prudent in the interest of fixing this mass, restored to financial stability? it is not the simple test -- >> forgive me because our time is constrained. leaving the question of the definition of a financial institution, there are roughly six or eight major programs under tarp. i am curious for having been serving on this panel for a year, i am having trouble discovering where treasury has identified only particular metrics of success beyond financial stability. >> i would be happy to help you. >> the capital purchase program

is to stabilize and prevent the destruction of the automobile industry. >> i am going to have to stop you there. >> can i -- >> i will give you 20 seconds. >> you can look at each of these programs, and this is the great virtue of the markets that we live in today. you concede evidence of whether it is having an effect on lowering borrowing costs, improving confidence in the system. one of the great things you can see today, you can look at the cost of borrowing for businesses and families, the costs of mortgages, confidence in financial institutions -- those are good indications of how our programs are having an effect. >> thank you, mr. secretary. we all have to be quiet here or

else we will have to clear the room. mr. silvers? >> i went to pick up on the threads of your testimony -- i want to pick up on the threads of your testimony. a couple of weeks ago, it in it two parallel stories in the washington post, the following statement was made. "the wounded u.s. economy has shown signs of improvement in recent weeks but many economists are is enjoying the negative, bracing for headwinds that could cause the economy -- the recovery to be weak. huge swaths of the financial system have been damaged which could lock consumers and businesses out of loans for years to come." there was another story about asia. you probably read the same paper as i do. that story said the asian

recovery has been far more robust than ours and a key factor in that has been the relative strength of asian banks. do you agree with this characterization? >> in the best of times, we grow roughly at an average of 2.5% a year. for an emerging market economy -- >> japan was the comparative. >> i doubt you are going to seek a more robust recovery there. he need to think about that relative comparison. -- you need to think about the relative comparison. i think we are in a position that it is much more less likely today that weakness in the financial system proves to be a substantial constraint on the pace of recovery. the dominant pace of recovery is

the basic reality that as a country, we borrowed too much, saved too little, lived within our means, and the process of correcting that pattern of behavior is going to necessarily produce a slow recovery for the united states. >> why is it that the weakness of the banking system -- in light of your comments that the mortgage market is a creature right now of your efforts. secondly, as you noted in your written testimony, business lending by banks is going in the wrong direction quite seriously. why is that not a problem? >> i think it is a problem. we are in a much position today than we have been or we could give expected to be. it is less likely today that it would be a constraint.

bank lending is declining but it is declining much less than it has in past recessions. in part because we have been relatively affective in restoring confidence and stability. the decline has been more than offset by the increase in borrowing in the securities markets. overall, in a situation now where mostly we are seeing a reduction in demand for credit, as people improve their balance sheets, spend more, save less, but it is still early largely because of the forceful actions we took and the support we will continue to provide. it would not be prudent for us to infer from that sign of progress that we art at the point where we could wind this stuff back completely. >> one sentence i found very interesting.

is it really a good thing that essentially credit provision has moved away from the banking system to the extent that it is going on? most creators of jobs can't access the bond market. >> it is an interesting question. remember, our banking system took on too much leverage. >> unquestionably. >> inevitably, the banking system's leverage had to come down. it is the strength of our system that there are alternatives to banks and the capital markets that actually work. if there is a weakness in banks, there is an offset. part of the process that we are committed to is that the securities markets and others

have a stronger, more robust from work because that will make our system more stable in the future. >> my time has expired. >> i wanted to start out by looking ahead. as i said before, the authority under the statute expires at the end of the year and you have the authority to certify that it can be extended. no one would be happier than i to see if it meet its end. according to the statue, your certification should include justification of why the extension is necessary to assist families, stabilize markets, as well as the expected cost to the taxpayers. my first question is, have you made a decision yet? >> i have not yet. >> that is what i wanted to explore.

no offense to their congressmen, but this is very squishy and it is really questionable to me. to stabilize financial markets, he said it has been relatively effective in restoring stability. are you comparing it to a year ago, in which case they are much more stable? three years ago? what kind of market would you look at? the u.s. stock market? commodities? the dollar? i think all of these things need to be carefully looked at but i am not sure if you started this process. >> you want to look at, again, what is the capacity of the financial system to live on the town without these exceptional supports? how likely is it that you are going to see enough repair and strength in the securities markets for us to withdraw that support? some of these programs,

realistically, are going to take a longer time. the expected path of foreclosures in the u.s. is going to last for a long time so it is very unlikely we will be at the point in the next humans to say that the housing market is at a point where we can be confident that we can withdraw these exceptional actions. there are parts of the credit markets with there has been substantial improvements but a lot of it has come on the strength of the basic backstop we have provided. we want to look at a broad set of measures and make sure that people are confident that we are going to get this thing on a strong foundation. the classic mistake that people make is, they declare victory too soon and withdraw these things. the system has to go back and build more insurance and that could intensify the recession. >> you could also make the mistake of leaving the crutch on too long.

we are talking about moral hazard. i hope you have to take that into account because i think that is a huge, usually undermining factor, of our financial system. >> let me point out one thing that is helpful on that front. largely, these programs are designed so that they will be expensive when things normalize. that is why you have seen the use of these programs dramatically decline as these conditions improve, helping to mitigate the risk that people depend on them too much. >> i think you could argue that -- for example, the warrants. i am sure the taxpayer is making profit. is that we could end commensurate with the risk that

was taken? >> when you look at two types of things of measuring the effectiveness of the programs, what was the directly measured benefit to the taxpayer in terms of the return that we talk? but that is not sufficient. the best way to measure the program is to take a broader view of what did you do to help get this economy out of the crisis and into recovery. that is a harder thing to measure. if you look at any measure of cost of credit, confidence in the financial system, credit availability, concerned about risk, all of those measures are dramatically lower. that is the fair way to capture the return on these investments, not just the 18% return we got on our investment. >> [unintelligible] >> i don't think it does. there is no science and it.

the part in this is that if you commit to do enough, you make that credible to people. u.n. not going to be always chasing the crisis so you will more likely solve it at a lower cost. if you prematurely pull it back, it is going to be more expensive in the future. that is the basic essential design for an effective strategy in financial crises. >> thank you. >> thank you. mr. secretary, the news service report on mortgage modification represents an important step in data access and accountability. it also confirms in the report just issued this week that there just issued this week that there are wide disparities among the they have not started any trial modifications, while many more firms have started in the low single digits. you held an important meeting on july 28 to discuss these

issues. i was encouraged yesterday to hear the secretaries house testimony with respect to new commitments made in areas like the speed of implementation and data collection. the report shows that there are trial modification started in the number of around 360,000. these would indicate only about 12% of eligible borrowers. the secretary indicated servicers will increase that by november 1. based on your benchmark of reaching 4 million homeowners at risk, are you satisfied we are on that track? have we set realistic expectations? more importantly, is the risk and challenge in converting those to permanent sustainable limitations? >> you describe this correctly. it is not enough to send out

$1.8 million of solicitations, which are the numbers we have approached now. it is not enough that you have something like in the close to half a million offer is extended, it is not enough you have more than 350 households benefiting from reductions in i. from substantial reductions in interest rates. we are very focused on making sure this program reaches as many eligible homeowners as possible. two important things to point out. it is very helpful to do what we just did it, to put in the public domain of every month that allows the american people to see how many banks it is reaching. i am quite confident that can produce much faster modifications much more quickly because institutions do not want to live with the consequences of being so far behind the curve of

what is possible in helping families get through this exceptional set of problems. we are making sure that we are going in after the fact and looking at whether people are denying eligible homeowners access to modifications. there is a second look program, which is a program of auditing to make sure they are not the ninth eligible homeowners the chance to participate. i think this is going to reach a substantial share of people who are eligible, but it is important to recognize that this was just one part of a set of actions that we took to bring down mortgage interest rates. this actions looked in total has helped bring mortgage rates to low levels and have helped bring a measure of stability to housing prices, housing activity faster than many

economists had forecast it. fundamentally, it is that broader measure which should be the ultimate test of this program. >> i would be interested in your comments about the obstacles of increasing the effectiveness of participation. what we are hearing and talking with servicers, there is still concern about our reach, getting documentation back from them. some creative approaches is that people are not responding to going out physically and visiting. i would like to thoughts on other creative approaches. i have suggested possibly letters from yourself or the president of the united states to make sure people are opening their mail and realizing this is not just another creditor notification, but a real response from the government. >> we are very pragmatic and won this to work. we will act on any reasonable

suggestion. for this to work, people need to take some initiative. they need to find out how to make sure to get help. 350,000 families today have seen a dramatic reduction in the cost of carrying their mortgage in ways that puts more money in their hands. the pace of that curve is very rapid. >> i have 10 seconds left. we will be holding a hearing on september 24 in philadelphia on this very issue and we look for support from your office to ensure we have representatives from the treasury, fannie mae, and freddie mac to go over those programs that you referenced. >> a good use of your extra 20 seconds. >> thank you. >> thank you. i would like to return to a point you raised.

the stress tests are affectively the tool by which we have measured the strength of the 20 largest financial institutions. that is what gives you confidence, both that we understand the risk of exposure on toxic assets and the overall projections on how stable these institutions are. the worst-case scenario under the stress tests for 2009 projected average unemployment for the year at 8.9%. as you know, the current unemployment rate is 9.7%, and the average of the year has reached 8.9%. so, the panel has recommended that under those circumstances, the stress tests be repeated for these financial institutions. does treasury plan to do that? >> i think there is an important thing to start with.

the most important thing to look at was the loss rates that were assumed for the worst-case scenario. if you look carefully, as you have done, at the design, the rates that were assumed in the stress scenario or worse than peak losses experienced by this country during the great depression. they assumed roughly loss rates rise as much as 9%. we are now more in the 2% or 3% range. losses are running well below that level. earnings are running substantially above the assumptions. >> let me stop there. you are the one who put out what the appropriate details were in

the stress tests. >> the fed designed it as you expect. >> but you with the one who advanced it. one of the featured album it was unemployment and we all know that unemployment relate very closely to the level of foreclosures which relates it very closely to the value of the toxic assets. >> the framing constrained in the stress tests was the loss estimates that were applied -- those did not relate to the unemployment forecast. >> is not what you advertised matter? >> our assessment was, we put it in the public demand for everyone to see and assess themselves what the loss rates were. >> that raises the question. we would like to be able to rerun the stress tests.

i have understood that we would have enough information about how the stress tests are composed, that reasonable people could sit down, build assumptions, and see how the stress tests would come up with these major banks. in fact, we don't have the data inputs. >> i would be happy to remedy that. >> i will take yes as an answer. >> these were an important improvement in the market's capacity to assess risks in these institutions. you have seen a substantial amount of private capital come into the financial system. we never said it was sufficient. things could change going forward. i think we have a basis for people to be able to independently assess whether these assumptions were rigorous enough. >> we also ask the question

about expanding the stress tests to midsize banks and perhaps even smaller banks in a somewhat modified form. is treasury willing to do it? >> we have said publicly we are not going to conduct a similar exercise bank by bank. >> how about the next 100? >> let me explain what the supervisors have done. what they have done is to apply pretty careful and exacting from work through the supervisory process to the rest of those institutions so that we can have a better sense of making judgments. it is not realistic or feasible for us to conduct, for the fed, to conduct the level of detailed assessment for this to be credible for a banking system that has 9000 additional banks. >> thank you, mr. secretary. . .

>> i certainly think it is reasonable for anyone to conclude there is a fair amount of subjective power that is assumed by treasury in deciding who will receive economic recovery funds. i do want to start going over ground in my earlier line of questioning because i am concerned the american people need to know what are we getting for our $700 billion today? i started reading from treasury's web site on the purpose of these programs. with the exception of the foreclosure mitigation program where you offer the goal of assisting 9 million homeowners. today we stand at 350,000. i can find no metric of success

by the administration, so can you enlighten me? >> i would be happy to walk you through again like i did in the substantial reports. i would be happy to do it but i don't think what you are saying is fair. the virtue of this program is you can see directly but what is actually happening to borrowing conditions. one of the most important things we did with the fed was this program called the turner asset backed lending facility designed -- called the asset backed lending facility. you can see in detailed evidence how much issuance has come with this program, what has coppens -- what has happened to the cost of it.

>> what you are asking us to do is draw the cause and affect. i am happy to look at the statistics, but coming from an oversight panel it is hard not to conclude you have the power to invest $700 billion on any institution you deem as a financial institution. and that any program will be judged as a success if you deem it a success after the fact. >> i would never claim that. i would remind you of two things. that congress designed the authority treasury was provided. >> you have the ability under the programs you designed to say here are the metrics. >> you can see not just the return we are getting when people repay, but you can see directly what is happening to

credit conditions and that is the ultimate test. >> if what is happening in the credit markets is the ultimate test, clearly libor spreads were incredible back in the crisis in september 2008. by the time your administration took office they went down from 300 basis points to 20 basis points. since you're a administration came into power there down to 10 basis points, but it sounds like a lot of this happened on the previous watch. i don't know what the cause and effect relationship is. >> it is difficult, but it is much more clear in these programs than most other things were we try to measure the effects of economic policy. you are right to point out the actions taken by my predecessor

did have an important effect in breaking the panic in the fall of 2009, but is also true that almost any measure of financial health in january of this year was still in signs of emergency. >> the question is, what is the text. getting for their money? >> i will tell you what the taxpayer is getting. -- what is the tax payer getting for their money? >> credit is more available. the taxpayer can see in the investments we made in the banking system returns in terms of actual billions of dollars. there is no better measure of the return of these programs. i would be happy -- >> how about an additional 2 million jobs lost, the highest unemployment rate in 25 years, foreclosures up? it is a mixed report card at

best. >> i was very clear in my statement. it is only now we are seeing positive growth. unemployment is still very high and could stay high for some time. we are not close to being through this. . . direct measures of the program we were tasked with executing, we have made more progress than people reasonably expected. not enough yet, and we will keep at it. >> thank you. >> mr. silver? >> i want to take this from a different angle. i think one of your achievements, clearly yours, was to put an end to the fiction that all banks were equally healthy. i understand why that fiction was originally involved. i do not think it was done out of bad faith, but it was

important to put an end to it. i think many of the i think many of the characterization's of that you indulged in with my colleagues are due to unwind and funds from strong banks. they pay them back a profit, and that was never worth the risk was imbedded, anyway. there was always some risk, but it was not there creeks or want to talk about some banks, and i hope he will indulge me. can you explain to meet what a zombie bank is and why it is dangerous? >> i do not use that term myself, because it does not mean anything. the risk is if you have a banking system without enough capital, they will have to reduce, if they delay a college

education for their children, they hope think that is why it matters and it is a good use of policy and financial resources . >> an institution that is not insolvent, but too weak to land. is that accurate? >> i think you have the right concept. where are you going with this? >> where i am going with this is whether or not you like graphic terms, they sometimes have the ability to clarify things otherwise seem very mysterious. whether in your view, is city

groups such an institution? >> no. >> why? >> this will not satisfy you, but i am not -- i cannot talk in this context and i will never talk about the detailed outputs for negligent institutions in our country, wherever they are. i want to return war i began, which is that the best test of whether these things are working is whether you are seeing private capital, private investors in this country willing to come in and provide capital to institutions, provide funding for them. and one of the great virtues of the stress test was it gave them a chance to make that choice and they basically have since voted with -- >> how can you be sure? i recognize that the cause and effect issues are real. but how can you be certain that

what you did not to and the trust -- stress test was a signal that you will not be able to handle these banks, and there is no implicit guarantee, even though they remain at their court -- not really functioning institutions, were to use the graphic terms, zombies. >> again, you are right to point out that we did a range of other things besides just making it possible for private capital to come into these banks. instead of guarantee liquidity, they were important things, helpful for restoring confidence. but again, i think by any measure, you have a system that we have today that is in a smaller but stronger capacity, and that is the ultimate test of what we're trying to do. >> mr. secretary? >> i was going to ask you about

wells. i will not spend time doing that, and you will not answer, and i understand what you think it would be inappropriate to be specific with respect to certain institutions. those three institutions are macroeconomic problems going directly to jobs. as this panel has gone to the country talking to people trying to create jobs, we hear over and over again that the various ways, depending on what it is, agriculture, real estate, large firms, small firms, we hear over and over again that the system is weak and the large institutions are not stepping up. >> i want to go back to the statute a little bit, because one of the provisions is an audit, and i think significantly it is not government accounting

rules, but under gatt and gas, which will be interesting. they will have to get to some of these issues. it will have to do a balance sheet and that sort of thing, and it will have to look at costs. so my question is, first of all, has this been scoped out yet as far as the audit goes? where does that stand? >> i cannot do justice today, but i will get back to you in writing. i know we have something coming up which will include estimates of those measures, but in terms of the gao process, i did not know the details. i would be happy to have them get back to you or do it ourselves directly. >> ok. another issue that you brought up in your opening statement is regulatory change, that you all have proposed to congress. i guess coming from an independent agency, you know, i

value that sort of tradition of independence from the administration, and earlier this year, there were reports of the press about what i would term as excessive pressure from the administration, especially your colleagues on the business working group and elsewhere. i wonder where that stands as far as you're concerned, as far as dealing with others as independent agencies. now part of the administration, of course. and how you view your interaction. >> actually believe there's a lot of agreement on the things we try to achieve. and in broad structure, with the framework of derivatives we put out, you can see it in terms of

core provisions of capital. you heard us a couple of weeks ago. there is a broader criminal crossed those agencies on reforms -- a broad agreement across those agencies on reforms. there are areas where they prefer we leave existing authority. if you have heard from them in public, the focus of some concerns has been where we propose to take authority from them and put it in a different place. most conspicuously in the area of consumer credit protection, where by any measure, to put in a stronger system you have to put a single entity in, with both the authority to write rules and enforce them. i think that is the best example of where there is still disagreement, and you would expect it. nothing surprising about that. >> i guess we can have another chance to talk about these

particular is later on. with respect to the programs under tarp, do you have any expectation of expanding list to have now? >> we tried to provide targeted support for credit markets the search for recovery -- necessary for recovery, and a broad framework in those areas. that was our best judgment at the time about what it would take. we wanted to have some capacity to modify and adapt those overtime to make sure they were doing what they needed to do. at this stage, we do not have any specific plans to substantially expand the scope, and areas we would target, but it is possible that, looking at the damage in the system remaining, we might make that judgment. but we would want to set a high

are doing so because we would want to demonstrate to you that that is an appropriate use of taxpayer money in terms of the returns that we are going to get. >> another issue is whether tarp is a revolving arrangement, with the money available for the future. do you have a legal analysis of this? >> we provided extensive responses with how we interpret the authority, and i think there is broad acceptance, "the view" in the congress by the architects of that legislation that the way it works is this. if it comes back, if the dollar comes back and substantial billions come back from the financial system, that goes directly to the general fund to reduce debt outstanding. but all was still the best authority to use that if we think we need to do it to help protect the system.

>> i would like to see some analysis. >> happy to do that. >> thank you. >> your proposal includes merger of the occ and 02 yes, and i support that change. some, including the largest banks, proposed going further, creating a single monolithic regulator raising serious concerns. creating single regulators as a means of improving financial regulation relies, in my opinion, on the faulty assumption that consolidation leads to a stronger and safer banking system itself. in my opinion, the opposite is true. such a proposal would increase the fragility of the system by increasing industry consolidation, eliminating needed checks and balances, and subordinating the interest of consumers to the business goals of a handful of banks.

my experience, multiple regulators yield better results for consumers and financial stability, much like multiple judges are used in the olympics to arrive at the right score. what are your concerns about the proposals created for a single monolithic regulator, and how important was it for you drafting your proposal that the fdic and federal reserve retain authority to better inform their respective missions of composite insurance and lender of last resort? >> that frame the choices roughly. one thing we had to do was to eliminate the opportunity for people to take advantage of weaker supervision and flip their risk. one of the principal examples, unfortunately, was in the difference between thrifts and banks. we thought that was an

absolutely essential condition to reform, eliminating that. if you look ahead, there is less evidence that having the system we have, with two entities responsible for different types of chartered banks alongside a single federal supervisor would create really meaningful risk arbitrage and future critical look at the standard by bank supervisors in general or even applied or more effectively enforced, we do not think it was necessary or desirable to try and force all of that into one new entity, probably because of the concerns about concentrated power and having congress do a lot in the short time, and the guiding principle affecting our choice was to sit and we wanted to focus on things that were essential, and not those that were desirable but would not offer a benefit proportionate to the political difficulty or

practical difficulty of doing it. and further consolidation of supervisors, we did not think met that test. we're open to suggestions, and if there is will in the congress, then it we would be happy to be supported -- supportive of that. >> and you would share my concerns over the role of checks and balances? i use as an example the role of the independent fdic and raising issues to the importance of the leverage issue in the regulatory scheme? >> there is virtue in that multiple pairs of eyes looking multiple pairs of eyes looking at this, but of course, we would be open to suggestions for it. >> aig has received about $70

billion in turkmenia and $100 billion in loans. do you know where the money went? >> absolutely. the money in that context went to help default -- to help prevent the fall and stabilize the very damaged institutions that would have posed, we think, very substantial risk of systemic failure. >> let me ask it with more specificity of. was treasury aware of who the counterparties were that would receive payment in full on the credit default swaps when $170 billion went to aig? >> they have hundreds of thousands of counterparties. i am sure that the people at the

fed and the people at the front line of the stuff would have access to that information. >> so was led to get the money, the counterparties? >> they would have known. >> -- many of the counterparties are institutions that are supervised all the time. >> but they were holding pieces of paper from an entity that is clearly insolvent, and the question of the government infusion of dollars there would make the difference between whether they got paid off in full or ended up with nothing. >> right. but let me finish. what would you like to know? >> i just want to know, did treasury have conversations with the parties who ultimately profited? >> i do not know.

i was at the new york fed and central to the basic judgment we reached together to prevent g e, and your right to point out that that action did help make the station more stable, including the direct penalties. but one more thing, to the premise of your question, the reason why aig posed systemic risk was not because of the direct exposure of those institutions, those counter parties. the biggest risk of failure to the system is in the damage it would have done to both retail people who bought insurance protections from aig, as well as the type of risky saw lehman present. is a more complicated picture. >> we just finished our report,

chrysler and gm insolvent, aig insolvent. they have secured creditors and employees and all took big hair cuts. aig had people hold their credit defaults swaps. we took no hair cut at all. they give us money from the federal government, 100 cents on the dollar, and i have to understand what they are different from one another. >> that is the tragic failure, because we did not have the legal capacity to manage the orderly unwinding of a large, complex financial institution. we do have a capacity for small banks and thrifts, but not aig, said that forces us to do things that we would not normally do. we would have done in a second if he could have done that, but in deciding that, we would have

presented the risk of further systemic damage to a fragile system. by preventing default, we help them meet the immediate obligations, not just for insurance protection, but for broad counterparties. that is the consequence of that. and if you think through what happens when you let the default happen, you can look at the wake of the trauma caused by lehman's to fall to get a sense of the damage second cost, and that is why -- you can look at their default to see the damage that cost. and that is why we're working at better tools for the future. >> a year ago, we were worried about banks being too big to fail. but they have gotten bigger in

the last year, and some experts estimate that a thousand banks could disappear before this crisis is over. are we more at risk than a year ago? >> i do not think so, but it depends largely on what congress ultimately decides to do it termed the financial reform. -- in terms of financial reform. the only way to deal with the problem is to make sure there are a set of reforms in place that make us better able to withstand the failure of large institutions so we do not have to intervene to protect her money at risk to prevent them from more orderly resolution, and that requires more authority, stronger capital, a whole set of cushions and safeguards that limit the risk of contagion is spreading, and that is what reform is so important, and that is the only way to make a system safer for future failure.

>> thank you, madam chair. mr. secretary, i continue to be concerned with the chrysler and general motors intervention, and you are well acquainted with the facts and reorganizations. gm and other bondholders were asked to swap 27 billion in debt for 10% common equity. the uaw agreed to swap 20 billion for 70.5% of common equity, 9 billion in pervert -- preferred stock, ending up with 55% of chrysler, 17.5% of gm. when you talk about the success of your administration in stabilizing the financial markets, i'm very concerned about how with senior secured

bondholders go, we see the uaw receive preferential treatment. warren buffett said if priorities do not mean anything, that will disrupt lending practices. that would have consequences. the wall street journal, some would say the investor journal, wrote an op-ed-in may, saying that by stepping over the arbitrary behavior of men, president obama may have created 1000 new failing businesses that could have received financing before but now will not, since lenders pace -- faced potential confiscation. this undermines the reason for buying a bond at all, except a

lower return to exchange for legal guarantees that will in turn reduce the willingness to buy bonds. that seems anecdotal. when i speak to investors, i believe there are hundreds of billions of dollars sitting on the sidelines, not knowing what the policy is, concerned about the potential to confiscate their investments. i have small businesses throughout the fifth district that tell me they cannot get lines of credit. so i know there is a huge stabilization. i'm not sure there is a lot of improvement, and i question what precedent you have set and what the impact is for financial stability in treating the uaw so differently than creditors were equal. >> i know you have had testimony

in this before, and i understand your concerns. many people have raised them for some time. but this was a process overseen by a bankruptcy judge. that looked at the terms of the agreement and reached a judgment about whether it was acceptable. >> it was financed under tarp. >> and i know you oppose the action, which i understand. but we took this action because we thought it was important and effective to do in the face of this crisis and recession, and i think this will be judged as an exceptionally well divine -- well-designed dramatic restructuring. it goes well beyond that which

was contemplated by members of this congress. >> another aspect i do not understand is how fiat is brought into the deal. 20% of chrysler, up to 35% if they produce cars that receive 40 miles to the gallon. i know the president and administration are passionate about their global warming agenda. we can have that debate. but i am having trouble finding out why fiat, who was not owe it does live -- who does not owe a dime, " having them use taxpayer money to produce these cars in the future had anything to do with protection our financial stability. i just do not get it. >> i respect what my predecessor did in the automobile industry, but companies are not forced to.

it is the use of what congress did best. >> bank. mr. silvers. thank you. >> my colleague appears to be under the misapprehension that you are in bankruptcy judge. >> last time you asked if i was an investment banker, and i said no. but i have also never been a bankruptcy judge. >> the term banker does seem to apply to the federal reserve bank of new york. >> that would be stretching the definition. >> is not a bang? -- is not a bank? -- it is not a bank? never mind. a provider of financing makes strategic decisions about how they want the money to be used,

right? i assume the treasury would, as well. >> yes, and we did what was best for the taxpayer, and those judgments were overseen by a bankruptcy judge. >> let me move on. you made some references to regulatory reform. one criticism of a program which i believe is a serious and positive program put up by the illustration is the criticism that it does not really deal with what structurally went wrong in our banking system and markets in that it does not deal with the combination and risk associated with investment banking, and in particular proprietary trading, combined with insured deposits. i am particularly concerned about this problem because of, to go back to my prior

questioning, the zombi bank problem. if you have weak financial systems with an explicit guarantee that has not been dissolved, they are very weak, there's a temptation to gamble that is almost irresistible. can you comment on how this will be addressed in the program? >> >> we have to make sure that there is insurance against risks for the future. it is like a rainy day fund, that they can draw on. it will make the system better able to understand the risk of failure, and that is the

centerpiece. and there is more capital held against the riskiest activities. it is probably the most important thing we can do. if we talked to the strategy of guaranteeing the financial system, not conditioning our insistence on the restructuring, i would be more worried about risks attached you refer to. >> is it your view that an aggressor proprietary trading desk is consistent with allowing -- consistent with being part of the holding company that has significant insured deposits, as a wise form of public policy? >> you should hold capital

against risk you take. we will be looking at this crisis for a long time. most of the losses that were material for the weak and strong institutions have not come from those activities. they came overwhelmingly from what you could describe as classic extensive credit, particularly where they are backed by real estate, and those classic banking decisions -- and this is the crisis -- >> if you look at where the holes came in the commercial banks, they were substantially -- i give one example. we did not make any subprime loans. at the capital markets desk, they were in the business of repackaging other vehicles. do you disagree with that as a characterization of how we got there?

>> these were extensions of credit. if firms were not forced to hold capital, we will be vulnerable again. we are not want to let that happen. >> i'm glad you have confidence in capital, but even with the levels you were talking about, it would not have prevented what went on last year. so some of it is flying by the seat of your pants, ultimately. one of the central things is predictability, because as he talked about aig, if you go back, it is a debate for a different time.

but turning around to freeze up the marketplace, people are concerned. but i want to get to the public- private program to get to where that stands. the two basic programs and the loan programs. the legacy in security program is one that has been going, and i'm wondering where that stands, how many purchases have been made, and if you view these as bible and the great scheme of instruments out there -- viable in the great scheme of instruments out there? >> we selected to raise capitals. all of them are raising a lot of interest. soon, there will be a position where they are buying securities in the market. but you saw when details were

put out a pretty significant effect on prices. the prospect of financing capital coming in did help improve liquidity in the markets. so as you saw before, we expect less demand for these facilities and was initially expected, in part because liquidity has improved, in part because more capital came into the financial system. but i think it is worth going over, and if there's a high return, then we would be open to expanding further. >> i think we can say that for another day, and your time is short. i will give him an activity, as well. >> you're right to say that if you look back over the arc of the crisis, one damaging thing was the lack of clarity over whether the government would step in and stabilize the

system. but to be fair, it was largely the consequence of the fact that until congress acted, the government of the united states did not have the authority to step in and provide capital, and only with that authority and subsequent actions were we able to have the tools necessary to stabilize this thing. clarity about strategy matched by resources and authority is central to confidence. and this crisis was more damaging and prolonged because of the constraints put on, and that is something we have to fix. we cannot go into a position where we put ourselves to the next potential risk with that limited set of tools. that is why the authority is so important.

>> i am not sure that your proposals will do that, actually. i think they raise other issues with the systemic regulator. it could be an issue for another time. >> again, we welcome the chance to talk in more detail about it, and we do not claim a monopoly of wisdom. we expect our approvals to be refined as they go through congress. but one thing to recognize is that we cannot go back to where things were with that much risk and so few tools. >> we're down to our last question. >> ipod the administration for taking the long steps with respect to financial services. i share this commitment to protection, and strongly agree

with your proposal to empower states for consumer protection, particularly by karen tiring -- by guaranteeing. but first, i have a fundamental concern about safety and soundness. these are not conflicting missions. isn't one of the primary reasons that a loan that is unfair is not a safe and sound love? doesn't that lesson argue for greater integration of the two disciplines into a holistic approach to supervision, rather than further segregation? i would also question whether it is necessary to create a new organization, with all of the unintended consequences it would bring, or whether expanding an agency like the federal trade administration, which its strong

track record, may have a better ability to expand the goals of regulatory reform without creating new bureaucracies and costs. my question to you is what thought, if any, was given to alternatives, such as expanding the position of the reserve board or expanding the jurisdiction of the ftc or a similar agency that could better protect consumers and not create new bureaucracy? >> we looked at a lot of models and thought about the concerns you expressed. we have been living as a country with a system where we gave bank supervisors the primary responsibility, and how did that turned out -- turn out? it did not work. it has failed in its most basic mission, and the reasons were complicated, but i think we had a test of the viability of the model that combines the

authority for provisions for protection and the judgment we reached was based on experience over many decades, several recessions, past crises, that you need to put authority in a single place with the resources. by clarifying where authority is, we will not be adding to the overall authority of the system. ftc has a great job and a lot to do. and in credit, it is very, very hard. looking at the best path forward, but i understand why you are a supervisor and why many supervisors look at the prospect of a different model and can be uncomfortable with the implications of change.

but i think the rules would be poorly written. >> but you do take strong action with respect to mortgages? >> i agree with you, and they provide reforms in the mortgage area, as well. but he said the important thing. when did those rules,? the federal reserve was directed to have the governor on board? >> we have to make a gesture with congress about what will be most effective, and we have had a painful experience which gave those entities responsibility for rules and enforcement, and it was a damaging failure. some of the most damaging things happened outside banks, and part

of the failure of the system was not to provide bigger protections, and that is the centerpiece of what we propose. let me move on to another area that is arguably not getting as much attention, and that his products suitability and effective disclosures. consumers and investors new disclosures, not just more pages of print. for example, made the suggestion of a nationally recognized rating system to communicate chronic safety and complexity, perhaps along with a one page or two page summary. i often compare this to the system on ski slopes. when i am on top of the mountain, i cannot imagine screaming without a green, red, or double diamond. >> when you compare that to the recommendations we made, we're

open to suggestions about how to get it better. >> we are out of time. >> i heard you, and we will try to respond. we will do as much as we can make sure you have good representation. thank you. >> thank you very much, mr. secretary. we appreciate you being here and giving detailed answers to your questions, and we look forward to seeing you soon. >> thank you very much. >> this hearing is concluded. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2009]

éé÷÷÷x÷÷>÷÷xx÷xxx÷x÷x÷÷yy >> of the house considers authorization of $24 billion for independent research for gas- efficient turbines and hybrid vehicles. lenders would continue as loan services. the money would be loaned directly by the federal government. the house gavels in on monday that 12:30 p.m. for general

speeches. next week, the senate continues work on 2010 federal spending the senate has passed four of the 12 bills with the new budget year starting october 1. the senate returns to work on monday at 2:00 p.m. eastern. tomorrow, we will show you the tribute to walter cronkite. president obama spoke at the new york city ceremony. you can watch that tomorrow night at 8:35 p.m. eastern. >> is there more than one definition of conservative? the new york times book review editor talk about the death of conservatism. look for the complete booktv schedule on line. >> 1.7 new immigrants -- 1.7 million new immigrants every year, half of them are followers

of islam. from weekly standard senior editor, christopher caldwell, c- span's q&a appeare. president obama attended the ceremony at the pentagon, joined by defense secretary robert gates. 184 people died when american airlines flight 77 crashed into the pentagon. this event is about 20 minutes. ♪

please direct your attention to the flag. the flag is flying at half staff. ladies and gentlemen, the national anthem of the united states. ♪ tbs ♪

>> ladies and a gentleman, admiral michael mullen. >> mr. president, madam first lady, secretary gates, a distinguished visitors, good morning and welcome. i offer a special welcome to the loved ones of those who died or were injured in the attack on the pentagon september 11, 2001. we're here to reflect and remember. but who among us can ever

forget? where we were, what we saw, how we felt as if citizens and as a nation. i remember the shutter and the smoke, the shipmates that i lost and how the whole world changed that day. as americans, we share a common sorrow for the 184 lives that perished here and for all those dead perished in new york and in somerset county, pennsylvania. some are young, some not so young, all of them taken from us, stolen from right before our eyes and well before their time. our grief is real and it is warranted. if i may, let me ask and let me urge that we look upon this day not only with sorrow, but also with hope for the future, that

those we honor wanted us to have, and gratitude for the life that they wanted us to live. let us face the future with the same resolve that our men and women in uniform exhibit, the same courage with which they serve and struggle to ensure another day like that day never happens again. america has sent her armed forces forward with that task. in harm's way, you have deployed them. and in harm's way, they stand for you and for each other. many of them, more than 1 million, have been listed after 9/11 because of 9/11. they volunteered to protect their country, to fight for something bigger than themselves. from afghanistan to iraq and a thousand other places, they are

doing just that and doing it magnificently. they are supported by extraordinary families who work and worry and wait and to serve every bit as much. all of them know the stakes. all of them know that the people behind the 9/11 attacks are planning and plotting others, that al qaeda and their extremist allies would like nothing better than to strike us again. eight years of war has changed our troops and their families, but it has not bested them. indeed, it is difficult to describe the selflessness that i see when i visit them in the field and in the fleet, in hospitals in here at home. rather than reach for words that i do not possess, store will turn to those of the poet william hanley which i believe speak best for what they

believe about the meeting of this day. in the clutch of circumstance, i have not winced nor cried aloud under the bludgeoning of chance my head is bloody but unbowed beyond this place of wrath and tears looms but the horror of the shade yet the minister of the years -- yet the menace of the years find me unafraid mr. president, ladies and gentlemen, the men and women of your military stand before you, mournful of our loss, respectful of our duties, but absolutely unafraid of the task before them and of the menace of these years. please join me now in a moment of silence and reflection.

of these years. join me now in a moment of silence and reflection. >> thank you. ladies and gentlemen, the secretary of defense, the honorable robert gates. >> mr. president, madam first lady, distinguished visitors, among all, family and friends, thank you for being here today. on september 11, 2001, the pentagon, world trade center and

a field in pennsylvania absorbed the worst attack since the war of 1912. speaking during the openings months of world war i said the stern hand of fate has centered us to an elevation that leads us to see the every lasting things of a nation. the key things we have forgotten, honor, duty and patriotism and the ar row of sacrifice pointing to the heavens. we honor the dead today and speak to the survivors whose lives were changed on that day eight years ago. words are inadequate to remove the pain of that loss. we can find some solace because they lived and because of the great sacrifice and thousands more since that day.

we remain a strong and free nation. they are represented by the men and woman they see around you. the program that begins today is being run by lisa dolan who lost her husband on 9/11. she and other 9/11 family members have added something to this program. we are grateful and honored on this day that the president and first lady who has made the welfare of military families her personal pry or theed is here to remember this anniversary. it's here i am proud to introduce the president of the

united states. >> secretary gates, admiral mullin, family and friends of those we lost this day, michelle and i are deeply humbled to be with you. eight septembers have come and gone. nearly 3,000 days have come and past. almost one for each of those taken from us. no turning of the seasons can diminish the pain and loss of that day. no passage of time and no dark skies could ever dull the meaning of that moment. on this day at this hour, once more we pause and prays a nation and an a people in city streets where our two towers were turned

to ashes and dust, in a quiet field why a plane fell from the sky and here where a single stone fell from the building and is black ned by the fires. we remember the names of those we have lost. we read their names and press on this day that marks their death, we recall the beauty and maening of their lives. men and women and children of every color and creed from across our nation and even others. they were innocent going about their daily lives. they now dwell in the house of the lord forever. >> we honor all those that gave their lives so that others might

live. men and women who gave life to the simple statement i am my brother's keeper. i am my sister's keeper. we pay tribute to a new generation. young americans saw their nation in an hour of need says i will do any part. wednesday more we grief you and your families, no words can fill the space in your heart, the empty space in your home. on this day, we pray you find solace in the faces of thoughs you love and know you have the unending support of the american people. skrip tur teaches us a truth.

the mountains may fall and give away the flesh may fail. after all the suffering, god will restore you and make you strong, firm and sted fast. so it is, so it has been for these families. so it has been for the nation. let us renew our resolve against those who plot against us still. in defense of our nation, we will never waiver. in pursuit of al qaeda, we will never faulter. let us renew the commitment in defense. all those who protect us here at home. mindful that the work is never finished. we will do anything in our power to keep america safe.

not the human capacity for evil but good. not the desire to destroy but the impulse to save and build. this first national day of service and remembrance, we can summon once more that the ordinary goodness of america to serve our communities and strengthen our country and better our world. most of all, on a&pá di when th sought to sap our confidence. let us remember how we came together as one nation, one people as americans united not only in our grief but in our resolve to stand with one another, stand up for the country we all love. this may be the greatest lesson of our day.

the strongest rebook to those who attacked us. with such sense of purpose need not be a fleeting moment. it can be a lasting virtue. through you, the men and women leave a legacy that still shines broitly in the darkness and calls on all of us to be strong, firm, united. that is our calling today and in all the septembers still to come. may god bless you and comfort you. may god bless the united states of america. [applause]

>> at this time, president obama will pay special tribute to the lives lost at the pentagon by placing a wreath at the pentagon memorial. . pentagon by playing a wreath at the zero age line of the memorial. ♪

♪

♪ >> ladies and gentlemen, this concludes our ceremony. thank you for your attendance. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2009] the speaker pro tempore: for what purpose does the gentleman from new york rise? mr. towns: for the purpose tore recognize national day of service and remembrance. the speaker pro tempore: the clerk will report the resolution.

the clerk: house resolution 718, resolution recognizing september 11 as a national day of service and remembrance. the speaker pro tempore: pursuant to the rule, the gentleman from new york, mr. towns and the gentleman from texas, mr. poe, each will control 20 minutes. the chair recognizes the gentleman from new york. mr. towns: i move that the house, suspend the rules and agree to house resolution 718. the speaker pro tempore: the gentleman is recognized for 20 minutes. mr. towns: i now yield myself as much time as i may consume. the speaker pro tempore: the gentleman is recognized. mr. towns: i ask unanimous consent that all members may have five legislative days within which to revise and extend their remarks. i now yield myself -- the speaker pro tempore: without objection, so ordered. mr. towns: i now yield myself such time as i may consume. the speaker pro tempore: the gentleman is recognized.

mr. towns: as we take time today to remember the tragic events of september 11, 2001, let us also remember the great compassion the americans showed each other following the attacks. they donated blood, searched through wreckage and sat to comfort one another. the service of volunteers helped our country through its time of crisis as it has so often done during our history. this is the spirit that we observe the anniversary of the attacks by not only remembering those lost and injured on september 11, 2001, but by serving our fellow americans in their honor. this is the proper tribute to those who served those in need on that day. i am proud that we are taking

time today to recognize these heroic volunteers. i would like to thank the leadership for allowing us to bring this bill to the floor today. i also would like to thank the ranking member of the committee on governor oversight and reform, mr. issa of california, for his support of the bill and i urge my colleagues to join us in supporting it. with that, mr. speaker, i reserve the balance of my time. the speaker pro tempore: the gentleman reserves the balance of his time. unanimous consent, the gentleman from california -- without objection, the gentleman from california will control 20 minutes. . >> the resolution before us is a commitment to reaffirm a sense of urgency of reminding all of us of the crisis that occurred not so long ago in the crumbling towers and the -- in new york,

and the crisis in the pentagon and in pennsylvania. i appreciate the chairman bringing this item before us and as a representative of the minority on the committee, i want to strongly urge its support. i appreciate the fact that the gentleman has worked bipartisan. i think this is one committee where the chairman and the ranking member have proven that washington, especially the house of representatives, can work in a cooperative manner. i think if there is any place the american people not only expect but demand that we find that bipartisan ground, i think we have found it in this resolution and on this issue. at this time i will -- i reserve my time, mr. chairman. the speaker pro tempore: the gentleman reserves the balance of his time. the gentleman from new york. mr. towns: i'd like to recognize the gentleman from new york, congressman engel, for three minutes. the speaker pro tempore: the gentleman is recognized for three minutes. mr. engel: i thank the chairman and my good friend from new york for yielding to me. mr. speaker, september 11 will

always have a special meaning in our hearts and in our lives. i guess the previous generation when you said december 7, pearl harbor day, that was something that stuck in their minds. but for us september 11 is a date that will live as president roosevelt said, in infamy. september 11 showed us the worst in people, the terrorists that killed approximately 2,000 people in new york, at the pentagon, and pennsylvania. but it also showed the best in people. new yorkers and others who came to try to save people, certainly at the world trade center. every week when i go back to new york i look at this skyline of new york and something's missing. it always feels to me empty. it always feels wrong.

of course the twin to youers of the world trade center are miss missing. as much as i have pain in my heart for the missing towers, it's nothing like the pain in my heart and grief i have for the thousands of people killed and their families. i was very proud to be a new yorker that day. i said it on the floor of this house soon afterwards eight years ago. i'm still very, very proud to be a new yorker. but there's still much more work to be done. we have been fighting for years for a health care bill that would enable first responders and good samaritans who came to the world trade center day in and day out, digging sometimes with their bare hands to try to find victims and very often did. now who are suffering from ir represent prabble injuries to their -- irreparable injuries to their lungs and health.

we need a bill, and the new york delegation has been fighting for a bill, who take care of these people who by the way come from all 50 states. this congress needs to do that. but we also, as mr. towns said, need to remember those people. the people who perished and the thousands of people who came to aid and help the victims, to save their lives, to escort them to safety, to come and try to find people in the rubble. and that again showed the best of humanity, the best of americans, the best of new yorkers, the best of what this country has to offer. again, mr. speaker, september 11 will obviously never be the same and will hold a special meaning. i generally have not attended meetings or any kind of things on that day in the eight years because for me it's day of

reflection, but i am very, very proud that this congress is taking up this resolution. the speaker pro tempore: the gentleman's time has expired. mr. engel: i urge my colleagues to support it. the speaker pro tempore: the gentleman's time has expired. the gentleman from california. mr. bilbray: mr. speaker, at this time i'd like to yield three minutes to the distinguished member from new york, the ranking member on homeland security, mr. king. the speaker pro tempore: the gentleman is recognized for three minutes. mr. king: thank you, mr. speaker. i thank the gentleman for yielding. i want to commend chairman towns and ranking member issa for bringing this bill to the floor. i want to thank congresswoman matsui for the tremendous work that she has done in leading the way on this legislation. i am proud to be a co-sponsor of the legislation. mr. speaker, i listened carefully to my good friend from new york, mr. engel, and he really articulated the way all new yorkers feel. september 11 will be a day that none of us will ever forget. it's a day that will be embedded into us because of the terrible

horror, the tragedy, all that occurred on that day, but also because of the tremendous valor, tremendous dedication, and the tremendous sense of courage which was also demonstrated on that day. i lost probably 150 constituents, friends, neighbors that day, and that is just all throughout downstate new york, almost every member of congress can say the same thing about the large numbers of deaths in their districts, friends, neighbors, who were murdered that day. it's really important as we go forward that september 11 never just be a day, never just be a who day, never be a day where some people get off or some don't, or a day used to go shopping, it should be a day where we find a way to remind ourselves of the sacrifice of that day, of the police officers and firefighters and the e.m.t.'s and construction workers who actually ran into the burning towers and suffered incalculable deaths, 343

firefighters, 60 police officers, number of e.m.t.'s, construction workers all of whom were killed rescuing people that day. mr. speaker, just as an historical note, this legislation initiated from an organization called my good deed, and this organization, one of the founders of it was jay, his brother, glenn, was a constituent of mine. glenn was actually working in manhattan that day as lawyer. he's also a volunteer firefighter. after he evacuated his own building he ran into the world trade center and was killed. this past week he was finally awarded the 9/11 med a.f.l. valor. but the family in honor of glenn personafide september 11 in that he was both a civilian and firefighter who in both capacities performed so brilliantly that day that he was -- his family thought of this organization which is the genesis of this legislation. could i have additional time?

is there a time problem? mr. bilbray: i yield an additional two minutes. the speaker pro tempore: the gentleman is recognized for additional two minutes. mr. king: also, for instance, tomorrow throughout my district there will be various types of service being carried out. for instance, in my own office, we have a blood drive, run by my sister, patricia. we'll have people lined up giving blood in honor of those killed on september 11. in my own school district, there will be a large commemoration and the coordinator, ken has cal, a firefighter who lost two brothers, he's coordinating where the students will show the good works that they did in honor of those who died on september 11. mr. speaker, this is a day which again as tragic as it was, as horrible as it was, it's also a day from which tremendous good came from that. let's go forward. let's adopt this legislation in the spirit of what happened on

september 11, both in memory of those who were murdered and honor of those who gave their lives and honor of those who in the days afterwards, con man engel said, not just from new york but all over the country, came to lower manhattan, the world trade center, came to the pentagon, went to pennsylvania to try to do what they could to help those and take part in the rescue operation, recovery operation, and really showed the unity of the nation maybe as never before. with that again i thank the chairman, i thank the ranking member, i certainly thank congresswoman matsui. i urge the adoption of the resolution. i yield back the balance of my time. the speaker pro tempore: the gentleman yields back the balance of his time. the gentleman from new york. mr. towns: i would like to yield five mints to the gentlewoman who really -- five minutes to the gentlewoman who is really responsible for us being here today. i want to thank her for her insight and making it possible for us to recognize the people who really contributed so much on september 11.

congresswoman matsui from california. the speaker pro tempore: the gentlelady is recognized for five minutes. ms. matsui: thank you very much, mr. chairman. mr. speaker, i rise today in support of house resolution 718, which recognize september 11 as a national day of service and remembrance. on april 21 of this year, with senator ted kennedy standing by his side, president obama signed into law the edward m. kennedy service america act. this landmark legislation makes historic investments in both national community service programs and helps to facilitate the extraordinary interest in volunteerism we are seeing throughout the country. and in my hometown of sacramento certainly, too. the serve america act also designates september 11 of every year as a national day of service and remembrance. this year and with this resolution we are recognizing the observance of the first ever federally recognized national day of service and remembrance.

this bipartisan legislation resolution calls upon all americans to engage in community service and contribute to local projects and their neighborhood on september 11. in tribute to those who selflessly serve their communities during the attacks. on that day as was mentioned by our new yorkers here, and people throughout the country, on that day and the days following, first responders, rescue and recovery workers, and perfect strangers came together to help those in need. their sense of patriotism and service truly made our nation great. this year we'll honor them not only by remembering their heroism, but by recommitting ourselves to bettering our communities and our country. this friday we'll join with americans across the country and give back to our communities by volunteering to build houses, participate in literacy programs, lead neighbor

cleanups, collect food and clothing for the coming winter. and really much, much more. as a result, extraordinary things will be happening all through this country. the service events taking place will hip address some of our nation's -- help address some of our nation's toughest problems from poverty and unmet education needs to preparing for natural disasters. as co-chair of the national service caucus, it's a pleasure to call attention to the tremendous work of volunteers participating in osh first ever national day of service and remembrance and partner with my colleague, peter king of new york, on this legislation. i also want to thank my good deed.org and the families of 9/11 who help make this a reality. and for promoting volunteerism and service in every corner of our country. i'm really proud that this body has come together and has been a leader in recognizing the importance of volunteerism and community service.

please join me in honoring the spirit of service by voting in support of this resolution. i yield back the balance of my time. the speaker pro tempore: the gentlelady yields back her time. the gentleman from california. mr. bilbray: at this time i yield to the gentleman from california, mr. dreier, as much time as he may consume. the speaker pro tempore: the gentleman is recognized. mr. dreier: i ask unanimous consent to revise and extend my remarks. the speaker pro tempore: without objection. mr. dreier: mr. speaker, i thank my friend for yielding. i have to say that i'm rather struck as i listen to my california colleague mr. matsui, and mr. bilbray, we have had three new yorkers and now three californians who have stood here to recognize the significance of what unfortunately is one of the most tragic days in the history of the 220-year history of the united states of america. and all of the remarks have been extraordinarily thoughtful and they have focused on why it is that we are here. and it is to remember those thousands of lives that were lost, but as was said by mr.

engel, mr. towns, and mr. king as well, and mrs. matsui, i know mr. bilbray, the good that has come from one of the most tragic days in our nation's history is that we saw a solidarity the likes of which we have not seen in a long period of time. and we saw so many great things done by courageous people. now, we have heard about the new yorkers and no one sacrificed more than new yorkers as we for literally months watched the cleanup take place at the world trade center. but i'm reminded of the fire department in southern california. it was so moved they came together and provide add fire truck to the new york city police department. and we have had three new yorkers and three californians i know we speak for everyone across this country when we underscore how important it is to recognize this one of the

most tragic days in our nation's history. . there are other things that have come from this. representative king is the former chairman of the homeland security committee which was established in the aftermath of september 11. as we sit here prepared to mark the 8th anniversary, i think it's important to note that another good thing has emerged and that is the fact that while most predicted that within a matter of months and certainly years, we would have another terrorist attack on u.s. soil. and it's due to the work of peter king and lots of other people in this institution in the executive branch and around the country that has ensured that we have not to this point and we hope and pray that this rig lance will continue and we

will never have another attack like we saw on september 11, 2001. and we also need to use this resolution, mr. speaker, to remind ourselves that we still live in a very, very dangerous world. there are people who would like to do us in. we know that. we find it out on a daily basis and we see it in tragic terrorist attacks that take place in other parts of the globe. and so i join, mr. speaker, with my colleagues in strong support of the efforts that ms. matsui and mr. king and others have put forth on this resolution in hopes that this will be a learning experience and as mr. engel mentioned the fact that december 7, 1941 was a date for past generations, we all remember the history of december 7, 1941 and similarly we hope that this resolution will ensure that future generations will

never forget what happened on september 11 of 2001. and i thank my friend for yielding. the speaker pro tempore: the gentleman yields back the balance of his time. the gentleman from new york. mr. towns: let me, mr. speaker, i would like to join my colleagues in saying that this was a day that i will never ever forget. as i stood and i watched the second plane hit and then i realized that this was a day that we would never ever forget. i also want to recognize those firefighters and those police officers and people who came from all over the nation to help us at that time, i mean new yorkers. and that's something we cannot forget. people just packed up, came to

help us clean up. and i never seen people work together the way they worked during the crisis of september 11. so i think it's only fitting that we stop and we recognize the great work of those volunteers. and i want to thank congresswoman matsui and congressman peter king for sponsoring this resolution. i remember a gentleman by the name of al walden who served in the congress with us who was a judge and his office was in the building that caught on fire, the first building. and i recall standing out here talking to him as we are looking at the problems and the smoke coming from the building. and as we heard the fire trucks and the volunteers running to help each other and that's the day i will never ever forget.

i remember getting a call indicating that fireman glassco, who was a very good friend was a good friend. i mean i can just go down the list calling the roll of all these people that lost their lives on that day. but i can't help from thinking about the togetherness that came from this and how people said let's do everything we can to assist the people in new york. i want to thank from all over this land for doing that. and of course, i have no other speakers. if the gentleman from california is prepared to yield back, i'm prepared to do so as well. the speaker pro tempore: the gentleman reserves the balance of his time.? mr. towns: i reserve my time. the speaker pro tempore: the gentleman from california. mr. bilbray: mr. speaker, i

appreciate the chairman's words and let me just say, december 7, 1941 was brought up earlier. and my father's birthday was december, 1941 -- was in december 7 and he was stationed at pearl harbor in 1941. and i think the big slogan we have heard about december 7 is never again shall we not be prepared to avoid this. i guess the goal we need to say is never again with 9/11. how many of us around this country, especially if you ask those in new york, how many thought that flight schools in florida or california was going to affect their lives. most new yorkers would probably say, it doesn't affect me. i guess how many people around this country would think that if virginia gave drivers' licenses to people who were not legally

in the country would think, does it matter? no, it doesn't matter. 9/11 has proven anything that happens in the united states would have a major impact at corners across this country. i have to say that we do talk about what happened in new york. we can identify where the pentagon was hit. sadly, i don't think most of us could point out where in a field in pennsylvania the heroes of that flight perished. in that field, somewhere in pennsylvania, there were the heroes who chose to stop an act of terrorism dead in its tracks. and i think every member of congress, when we tour the capitol and walk into the capitol, every member of congress should remember those heroes who perished in that

field in pennsylvania because, mr. speaker, we stand here today and we have the privilege of showing our constituents this structure to representative government, the capitol. we stand today proudly because these heroes were willing to give it all to protect the capitol of the united states. as far as i know, we were the next one on-line. and so as we stand here today in recognizing the sacrifice of the heroes and loss of 9/11, we should remember every day that a member of congress or the president has the privilege of serving the public in this building, in this temple of representative government that we ought to thank those heroes for preserving for us the rights for us to be able to represent them here in this structure.

without that heroism, not only would this structure not be here, but many of us who will vote on this resolution today. so i ask that we support this resolution. i ask that we remember what it's about and that we remember that the only way to make sure that it doesn't happen again is to take the time to do the right thing, learn from the mistakes of 9/11 and make sure we don't forget the mistakes of 9/11 so that we never repeat the tragedy of 9/11. i reserve -- gentleman ready? i would yield back. at this time, i'm ready to yield my time back to the chair. the speaker pro tempore: the gentleman yields back the balance of his time. the gentleman from new york. mr. towns: mr. speaker, how much time do i have? the speaker pro tempore: the gentleman has 10 minutes. mr. towns: let me make a statement and i would be prepared to yield back. again, i want the gentleman from

california, peter king, the gentlewoman matsui and congressman engel for his participation. and i would like to your knowledge my colleagues to join me in remembering september 11 as the ideal opportunity to going to giving back to our nation. and i yield back the balance of my time. the speaker pro tempore: the question is will the house suspend the rules and agree to house resolution 718. those in favor say aye. those opposed, no. in the opinion of the chair, 2/3 being in the affirmative, the rules are suspended, the resolution is agreed to. the gentleman from new york. mr. towns: i ask for the yeas and nays -- no, don't worry about it. i withdraw it. the speaker pro tempore: the resolution is agreed to. and without objection, the

>> the house considers authorization for nearly $3 billion through 2014 for research on gas efficient turbines and hybrid vehicles. also, moving private lenders from making federally subsidized student loans. the money would be loaned directly by the federal government. legislative workshop starts at 2:00. next week, the senate continues work on the 2010 federal spending, $122 billion for transportation and housing programs. the new budget year starting october 1. the senate returns to work on monday. tomorrow, we will show you the tribute to walter cronkite. president obama spoke at the ceremony along with others. you can watch that ceremony

tomorrow night at 8:35 p.m. eastern. this week during a special session, the supreme court heard oral argument on campaign finance, the first session for judge sonia sotomayor. >> wouldn't we do more harm than good by a broad ruling in a case that does not involve business corporations and does not even involve the traditional nonprofit corporation? >> here the oral argument in its entirety on c-span. starting october 4, an extensive look at the role, traditions, in the history of the court from its justices during supreme court week. >> this weekend, the role of conspiracy theories with the author of "real enemies."

>> the senate banking committee looks at the sec's investigation into the bernard madoff ponzi scheme and why the sec failed to identify it. it runs about 2.5 hours. >> today's hearing is titled the failure to identify the bernard madoff ponzi scheme and how to improve sec performance. let me thank the staff and others for the work that they have done on this issue. americans are well aware of these reports about taped

conversations between mr. bernard madoff and others, which is contempt for the process, the sec, and the american people is quite evident. first of all, this conversation, he says, it never took place, some indication of the psychopathic individual we are dealing with. i would like to make some brief opening comments and then i will turn to senator shelby for opening comments. there will be no statements from members of the committee before the opening round. >> mr. chairman, is that who we have to be thankful to prove >> i don't know. asked bob corker -- ask bob corker about that.

bernard madoff stole $50 billion, maybe more. he stole from individuals, pension funds, stole from charities, municipalities. he stole more than money. he stole retirement savings and the economic security of families and individuals, organizations, charities all across the united states. the agency charged with the responsibility of policing ham, the sec, did not stop him. i think there is no excuse for that failure by high demand from democrats and republicans, the victims of this fraud who hail all across the country who have testified before this committee, also demanded an explanation. how did this happen?

what went on? who was on the beat? what was going on that allowed this colossal thievery to occur? today, we hold our third hearing on ponzi schemes in the second on the bernard madoff fraud in particular to find out how this could possibly happen. and what we need to do as the government and as the congress to minimize this from ever occurring again. it emerged last year that the sec staff receive multiple complaints over a period of 16 years. from 1992 to 2008, bernard madoff's business was not legitimate and had not taken any effective action. the then chairman christopher cox directed the inspector general to conduct a full investigation of why these credible reports had been ignored.

the inspector general released a report last week and it is deeply disturbing the sec received more than ample information in the form of detailed and substantive complaints but a thorough and competent investigation was never performed. the report goes on to describe an embarrassing series of internal failures at the sec. incompetents supervisors looking only for the types of what they understood. inexperienced staff simply accepted the claims without making a simple phone call or sending a single letter that it would have taken to verify the information that was given. no. 3, no one ever thought it imperative for a closer look

that mr. bernard madoff traded in europe with a firm that was reported there that there was no activity in the account. divisions in all this is filled to coordinate shared information. this is an ugly stuff, to put it mildly. beginning in 1992, 17 years ago, the sec received information that should have led to the quick end of the ponzi scheme. because of the task of following up on that information was assigned to junior staff or supervisors with insufficient experience, because that staff failed to ask all these questions or take simple steps to verify what they were told, and because their supervisors discouraged in some cases further investigation, because the sec failed to do its job, bernard madoff stole $50 billion. today, we are going to hear from

the inspector general about his report. we will hear from an individual who early on sent the warning signals in detailed information about what he determined it was a ponzi scheme. he is an investment analyst that continue to attempt to get the sec's attention about his ideas for improving the organization. we will hear from the heads of the office of compliance and examinations and the division of enforcement about what the sec has done in light about these revelations and what chairman shapiro intends to do going forward. there are several clear steps that i believe and i hope others will agree that need to be taken. the sec staff should be trained in market and investment strategies so they can no fraud when they see it.

the very culture needs to be reform to encourage aggressive oversight. staff should verify self-serving statements by staff of targets of investigations and coordination between the offices and divisions must be improved. that is a point that i am going to come back to over and over again, this idea of coordinating activities. the sec is not the only organization that suffers from this mentality. particularly here where divisions within the organization are required to communicate with each other so you share information and knowledge are arriving at decisions on whether or not to go forward. like many americans, who obviously have been following this event since last fall, they have been stunned and angry that this fraud was allowed to

happen. i also believe the sec can do better. we are going to talk today about the sec. a lot of people work there. i have a high regard for the many, many people that work at the sec and do a terrific job every day. i don't want this to be seen as some sweeping indictment for everybody that works at this organization. i have a high regard for people that dedicate their lives and work long hours. this is trying to find out where we go from here, how this happened, and how we can step forward. there are hundreds of people who dedicate their lives to this agency and i think you personally for the work that you do. we want to prevent this even from ever occurring again.

i get e-mail's everyday from my constituents. these are people who work hard every day to save and retire. they have been ruined by what has happened. they have been wiped out because of what has happened. a constituent of mine testified in january in front of this very committee about what happened to him and the people and his medical practice. these people have been devastated. i don't know if there is any way we can compensate them adequately. i would like to hear my colleagues thought of what we might do but we have to make sure this does not happen again. i don't want every individual to feel somehow that this is an indictment across the spectrum everyone there that the sec but we clearly have to do a better job. this is infuriating. >> thank you, mr. chairman.

last january, a little more than one month after bernard madoff confessed to running a $50 billion multi-deck a ponzi scheme, this committee held a hearing to try to understand how it could go undetected by the sec for so many years. unfortunately, that hearing yielded few answers. in the intervening seven months, the inspector general who is here with us today has been piecing together what really happened. his report sets out a chronology that tracks 15 years of missed opportunities and considerable incompetence. the office of compliance and inspections and examinations and the division of enforcement of the sec were made aware at least six times that there might be something wrong at the firm. potentially fruitful leads were not pursued while significant

staff resources were devoted to running down clearly on productive avenues. investigations were unfocused, understaffed, and improperly documented. communication was so badly flawed that bernard madoff himself had to alert the new york examiner's that their counterparts in the washington office of the sec had been looking at similar issues. the culture and organizational structure at the sec discouraged employees from reaching out to one another to share market intelligence cannot obtain -- obtain expert advice, or to compare notes. the sec employees did not give weight to recommendations so a tip found credible by one group of staffers would be dismissed hastily by another.

the report documents that mr. bernard madoff despite his misrepresentations received greater deference from the staff at the sec then the tippers who spotted his fraud. the report indicates that the lingering questions and concerns of the sec employees were swept under the rug by inpatient and inflexible supervisors at the sec concluded that asking the next logical question would be too long or would be outside of the scope of the examination. in the aftermath of the investigation, the sec has climbed more funding would address its focus? will it? the report describes an agency that does not know how to use the information and resources it already has. fixing the sec would not merely involve more resources. the commission is going to have

to make a broad based change if it hopes to become its marker, more flexible, more productive and ultimately accountable organization. i am hopeful the sec will learn from its failures and seize this opportunity to reform itself from within. if it refuses to do so, congress will do it for them. >> think you very much, senator. i am going to introduce our panelists. these introductions are a little bit longer than i normally give but i think it is important to note that these are very talented people who recently joined the sec. i am hoping this will be a source of encouragement to people of the steps that have already been taken. david kotz is the inspector general of the sec, joining in

september 2007, previously served for the peace corps. i welcome your previous experience for covering the peace corps. prior to that, worked at the agency for private development, law firms, and he compared the extensive report that we are examining today. harry spoke with and gave detailed analysis to the sec staff raising questions about whether bernard madoff violated securities laws like operating a ponzi scheme from 2000 to 2008. he holds professional certification as an analyst and as a certified fraud examiners. he currently works as an independent investigator with the attorneys pursuing actions under the false claims act and

other statutes from 1991 to two dozen for. he became the chief investment operator -- the chief investment officer with the company. the sec and august of 2009 just a few weeks ago. he has served at the sec for 20 years. the division of enforcement and the special counsel to the special chairman. he has been a member of a staff since its creation in 1995. robert was appointed as the director of the sec division of enforcement in february 2009 and came to the sec from deutsche bank where he had served as general counsel to the americas since 2004. earlier as global head of regulatory and the best of --

and investigative operations. he served as a prosecutor for 11 years in new york, prostituting complex securities and white collar criminal matters including insider trading, pongee schemes, and accounting fraud. an extensive background. we thank all of our witnesses today for being with us. mr. kotz, we will begin with you. we don't want to cut you short but we would like you to move along so we can get to the questions. i thank you for the tremendous work you have done in preparing this report. >> thank you for the opportunity to testify today. in my testimony, i am representing the office of inspector general. immediately after bernard madoff confessed to operating a multibillion-dollar ponzi scheme, we commenced an investigation. on december 17, 2009, we issued

an agency wide preservation of this estimate request for dena records from the office of information technology. over the course of the investigation, we sought e-mail from over 70 employees for various time periods relevant to the investigation ranging from 1999 to 2009. in all, we obtained inserts approximately 3.7 million e- mail's. during the investigation, we reviewed work papers and examination files of the examinations of bernard madoff from 1990 until december 11, 2008, and sought documentation from third parties to undertake our own analysis of the trading records. to assist us in the investigation, we decade to set of outside consultants. the brewery to the us nine, -- in june 2009, we retained litigation consultant services to assist us in additional e- mail's that the sec had been

unable to provide. we also conducted 140 testimonies under oath or interviews with knowledge of facts or circumstances surrounding the fcc's examinations. i would like to acknowledge the extraordinary effort of the oig investigative team. these include deputy inspector general, assistant inspector general for investigation, and the senior counsels, as well as my assistant. without their devotion, we have not been able to -- we have not been able to complete the report in such a short period of time we issue to the sec chairman comprehensive report of investigation in the bernard madoff matter, containing over 400 pages of analysis. between june 1992 and december 2 dozen 8 when he confessed, the sec received six substantive

complaints that raise significant red flags concerning operations and should have led to questions about whether he was actually engaged in trading. we found the sec was aware of two articles regarding his investigative operations that appeared in publications in 2001 that questioned his investment returns. our report concluded that notwithstanding these, the sec never conducted a competent examination of bernard madoff for operating a ponzi scheme. that had such a proper investigation had been conducted, the sec would have been able to uncover the fraud. the first complaint was received at the sec in 1992, elected a company was offering 100% safe investment with extremely high rates of return over significant. the time to special customers. the second complete with very specific and different versions of it were provided to the sec in may 2000, marched to the us

one, and march 2005. the company submitted and head of the world's largest hedge fund is a fraud decaled approximately 30 red flags indicating that bernard madoff was operating a ponzi scheme, a scenario described. in may 2003, the sec received a third complaint from a respected hedge fund manager identified numerous concerned about the strategy of returns. it noted that the strategy and returns had no correlation to the overall equity market in over 10 years. according to a manager, the complete layout issues that were in addition of upon the scheme. the fourth complaint was part of a series of females that were discovered in 2004. they describe their red flags that employees had identified while performing due diligence on their own investment using widely available information. these red flags include the incredible and highly unusual

fil forls equity trade, option trading, inconsistent volatile returns over several years. one of the internal e-mail provided a clear step-by-step analysis of why he must be restructured them -- misrepresenting. it was viewed as indicating some suspicion as to whether bernard madoff was trading at all. the sec received a fifth complaint from an anonymous informant which stated i know that the company is very secretive about its operations. if my suspicions are true, they are running a highly sophisticated scheme on a massive scale and they have been doing it for a long time. the sixth complaint was sent by a concerned citizen, advising the sec to look into the firm. in march 2008, the sec chairman's office received another copy of the 2006 complaint with the additional

information that bernard madoff kept two sets of records. these complaints all contain specific information and could not have been fully resolved without a thorough investigation of him operating a ponzi scheme. according to our experts, the most critical step in investigating a ponzi scheme is to verify the subjects trading to an independent third party. the sec conducted two investigations and three examinations related to the business based on the detailed and credible complex that raised the possibility that he could of been operating a ponzi scheme. yet at no time did the sec verify the trading through a third party and never conducted a ponzi scheme investigation. in the first examination and investigation conducted, based on suspicions that and says it had been operating a ponzi scheme, the sec focused on bernard madoff's also see it.

after learning that he made all the investment decisions and cling to achieve returns over a period of numerous years with a very basic trading strategy, the sec seem to not have considered the possibility that bernard madoff could have taken the possibility. to parallel examinations were conducted. the exams were similarly flawed. the scopes of the exams were too narrowly focused on the possibility of running with no significant attempts to analyze the numerous red flags about his trading and return. during both of these examinations, the team discovered significant information and caught contradictions. they either disregarded these concerns were simply asked him about them and accepted his

answers at face value. but examinations were opened at the same time in different offices without either going the other was conducting a virtually identical investigation. but examinations failed to follow up without outside entities. the examiners drafted the letter seeking independent trade data but never sent the letter, claiming it would have been too time consuming. our expert replied that having this letter sent, it would have provided the intermission necessary to reveal the scheme. in a second examination, the assistant director obtain information from a financial institution that bernard madoff claimed used clear his trades. it failed to conduct any follow- up or share this in formation with the exam team. the investigation that arose from a complaint that solicit the -- specifically stated never really investigated the possibility of a ponzi scheme.

the importance that failed to appreciate this and directed most of their investigation at determining whether he should register as an investment adviser. the enforcement staff caught lies and misrepresentations but fell to fall on inconsistencies. when bernard madoff provided answers to important questions in testimony, this that simply accepted his explanations as possible. although the staff attempted to seek information, they failed to follow up. for example, when they received a report that he had no option positions on a certain date, they did not take any further steps. the letter was decided not to send to the counterparties. had any of these efforts been fully executed, it would have led to the ponzi scheme being uncovered.

my office also plans to issue three additional reports relating to the sec's failures regarding bernard madoff. because of the breakdowns, we plan to issue separate audit report providing the sec with recommendations to improve operations. the report is being finalized to analyze the analysis and provide lessons learned with recommendations to improve nearly every aspect of the operations. these recommendations which are currently in draft status are detailed in a written testimony. we are finalizing the report that analyzes lessons learned from the enforcement investigations of bernard madoff and describes improvement within enforcement. the force related investigations that we are considering are also detailed in my written testimony. both reports containing recommendations will be finalized and issued with the next few weeks. we plan to issue an additional report in november 2009 analyzing the reasons why the investment advisory unit did not conduct an investigation.

my office is committed to following up on all the recommendations we will be making to ensure the significant changes and improvements are made in the sec's operations. we are confident that under the leadership the sec will take the approach that to implement our recommendations and is with that fundamental changes are made in the operations said that the errors and failings we found are properly remedied and repeated. thank you. >> thank you very much. we appreciate the work that you have done. i am going to ask the clerk to keep on about seven or eight minutes for the first round. we have a second panel to go to. i am going to leave the record open for questions as well. i would appreciate that you respond to these questions as

soon as possible. i will make that similar request to our second panel. let me quickly if i can jump in. the report describes the number of very critical incidents is that the sec staff failed to seek information that you just enumerated in your testimony, getting information from third parties to verify the claims about trades. . .

>> the concern was that they would get tremendous amounts of information that would take a long time to peruse, but in fact, mr. madoff was engaged in trading, they would have received very little information, and they would have seen that on certain days that he was claiming in customer statements he had $2 billion in options, for example, there are no records of those. >> he made no trades? >> that is right. it was in very different amounts. during the course of our investigation, we went to dtc and got specific dates and we compared the documents, the customer statements with the documents from that dtc, and immediately we saw that there was no question that madoff was not making any where near the bottom he said he was. with respect -- those are

independent entities. madoff could not give them documents. those documents are independent. had they done that, they would have uncovered the scheme. >> so a single phone call or letter would have exposed this for what it was. this is a broad question, but what do you attribute to the lack of follow-through? was a lack of staff commitment? staff not want to antagonize powerful people within the industry? the office of compliance, that employees trusting people? what should the sec do it in your view it as a general matter to address this issue? >> i think there are a couple of reasons. they work too trusting of madoff.

they got complaints that gave indications of that ponzi scheme. they said the scope of their investigations too narrowly, so that when the jr folks wanted to continue, the senior people said it was not within the scope. there's too much emphasis on numbers. how many exams we are going to get done that year. there's a certain time when the examiners had made of's permit conducting an examination. the supervisor said time was up and had to move on to the next one, without going back to be sure they get a full and thorough job on that one. skepticism is very important, and a matter who it is. madoff certainly use the fact that he was the sole contact for many of the examinations. they sat with bernie madoff, four hours. he told them stories about how he was on the short list to be the next sec chairman.

he dropped a lot of names. there was not sufficient support from the senior level people. you cannot allowed a junior level person to be put in that position. madoff was very aggressive when they would ask for information he did not want to provide, and they did not get enough support and back up from their senior level people. madoff try to focus them to limited areas so they would not get sick certain areas, and he was successful in doing that. >> another is a follow-on you will be doing with some recommendations, but there are 41 that i counted. how do you prioritize these? which are the ones you believe are deserving of immediate attention to minimize if not entirely stop this kind of example from happening again? >> there are specific things that have to be done within the

examination program, in terms of ensuring that when a complaint comes in, all aspects of the complaint are reviewed. the hat to ensure that the planning memoranda are done abruptly. -- they have to ensure. they have to go to independent third parties. those are very important areas. you mentioned earlier about coordination among staff. that has to be addressed right away. you cannot have a situation where one side of the sec does not know what the other side is doing. in that examination, the centers for ready to confront madoff with some misrepresentations and inconsistencies. when they confronted him, he said the he had already provided it to their colleagues. it is difficult to continue that momentum when it seems that the individual you are examining knows more than you do. so that has to be remedied right away. the sec at a whole got numerous complaints over the years, but

nobody counted it up to say wait a minute, we got this complaint and this complaint, and taking it all in, there must be more to it than just front running. so that is something that must be addressed right away. >> a column recently suggested there is a culture at the sec that minimizes the following from tips. there is a rejection of tips coming in as not really worthy of a follow-on. do agree with that? >> the enforcement investigators fell that harry was not an insider and immediately discounted his complaint. what else could he have provided, other than perhaps myrna madoff told me he is

operating a ponzi scheme. -- bernie madoff. unless it is an insider, they had concerns about harry because he made reference is that he was only account for money. if you look carefully and is complete, he had to scenarios. one was a ponzi scheme, which he viewed as highly likely. the other wrist front running, which reviewed as unlikely. if he was only offer a bounty, he would have pushed the other one, not the ponzi scheme. there was a sense that we looked at of them not taking seriously enough complaints because the person was not an insider, because the intermission was not given to them wrapped up in a bow. clearly, the sec got sufficient information to then move the ball. that was one of our concerns.

they got the complaints but never to get anywhere from where the complex work. as you say, doing other things, such as contacting other independent third parties would have immediately moved the ball. >> are there jealousies within offices who initiated an investigation and who gets credit? is that a problem you encounter? >> the boston office was very impressed with the complaints. >> they wanted an investigation. >> at that time there was a concern in agency that offices were boarding cases. rightly so, the boston office felt they should not hoard the case. they should send it to new york. they made special efforts. the had the head of the boston

office e-mail the head of the new york office directly to make sure they understood this is not a complaint we want to just give you. this was a very significant complain. >> is that an extraordinary communication? >> yes, it was, absolutely. then they followed up a few weeks later to make sure someone was assigned to it. they did what they could to ensure that new york was doing it appropriately. ironically, had they courted the case, as was a concern within the agency, they would have likely taken the appropriate steps to uncover the ponzi scheme. >> the silo problem that you have already addressed to some degree. this is not unique problem. this kind of approach where there is not communication between divisions, for a variety of reasons, how serious a problem is this, and what do you recommend to be done? >> on the examination sign, it

was a concern. i believe that that issue has been rectified, and now they are doing exams with the joint groups. that is on its way to being resolved. on the enforcement side, the concern was madoff would say that his trading was in europe. we have an office of international affairs. if you have questions about trading in europe, you go to the office of international affairs. the enforcement of this did not do that. if they do not understand particular issues, they need to seek assistance in the agency. >> is there anything as simple as an interagency task force that sits down to talk about cases to determine if there ought to be some cross pollination in their efforts? >> i think it is a good idea. where you have an investigation that involves foreign issues, there should be some recording

that efforts were made by the enforcement investigators, almost like a check list, that they check off that they spoke to this office. there was not sufficient planning when they first got this complaint. they did not sit down and say how we go about investigating a ponzi scheme? they need to have that process in place. they need to have the experience to understand and be required to take certain steps. >> my time is up, but i just want to make sure that as you get these reports on further investigations, i want to maintain that we get that information right away from you. obviously we will follow up with it, but i want you to keep in contact with this committee on these recommendations. specifically, if there are any statutory recommendations. i would like to know whether or not you think there needs to be,

whether this committee has to take some action beyond holding hearings as to whether it is additional resources or anything else. all of us would like to know whether you making any recommendations that would require the action by the congress. i want to know that. >> absolutely. >> does simply providing more resources without other structural changes address the problems you have identified at the sec? >> i think it is more than just resources. >> it is structured, too, and leadership. >> all resources was a factor, at the end of the day, the sec spent years examining an investigating madoff, but did not do the appropriate things. additional people will not solve the problem. >> it just wastes resources. in your report, and it is very

lengthy and thorough, and we appreciate what you have done, he noted that some investors viewed the fact that the sec had inspected the madoff firm as a sort of regulatory seal of approval for the firm. what steps can be taken, in your judgment, to help investors understand that the fact that a firm registered with are inspected by the securities and exchange commission does not mean that the firm is legitimate or guarantee that it is operating in full compliance with the law? how we spread that needle? >> there has to be better educational process. that was a significant issue. we found folks who reinvested with madoff based on their feeling that the sec had checked him out. i had a very sophisticated hedge fund individual say to me he knew for sure that madoff was not running a ponzi scheme because he had seen the complaint and knew that the sec would look at that carefully, and there is no way they would not have called upon scheme.

part of that means the sec needs to do a better job in its investigations. they also need to explain to the public and investors exactly what it means when they close an investigation. it does not mean they are doing everything right. bernie madoff certainly use that fact, constantly reporting to the sec -- referring to the sec just being in here, to convince people who were hesitant. >> your report also describes a series of failures at sec that enabled mr. madoff to continue to swindled investors for decades. given that failures occurred repeatedly and threw out different parts of the securities and exchange commission, can we assume that other similar frauds are likely occurring or have occurred without detection? >> we have not looked at other specific matters, but it was a concern that the same pattern seemed to take place across the

spectrum. if you look at investigations from 1992 to the present, it was very similar. limited focus, not an up invested -- not enough aggressiveness in the investigations. it is a great concern. we spent a lot of time analyzing the madoff situation and issued a very long report, but we do not know what else is out there. it is a great concern that the seem to be systematic issues. the agency needs to address those issues in a systematic way. >> you offer a number of recommendations at the end of your report should improve the process by which matters are handled. one of the examiners you talked to lamented the fact that the typical sec examiner walks into a room where there are a bunch of dead bodies lying around, and they notice that the clocks are

10 minutes past. in other words, they noticed the wrong thing. are you concerned that even if your recommendations are implemented, that the culture of the sec is such that examiners will be rewarded for focusing only on technical violations rather than the real substance, looking behind compliance check list and identifying more serious problems such as this? >> we devoted a section of the report to interviews we had with folks outside in the private sector who conducted due diligence. we try to compare the methods they used to what the sec use. what we found was exactly that. they take a more holistic approach and look at larger issues rather than a checklist approach. was this signed, are the clocks on time, etc. the way to resolve that is to get more input from private

sector votes. there are a lot of smart people who make very good decisions about investments, folks who looked at madoff and immediately realized there was something wrong with his returns. the sec can get -- have educational opportunities for training from these outside entities. that will help them focus more on big picture issues rather than have a check list and not notice the fraud in the corner of the room. >> you also spoke with private entities that had conducted due diligence and concluded that madoff's reported returns were not legitimate. given that there seems to have been many people who suspected something was wrong at the madoff firm, why you think that more whistle-blowers' did not come forward to the sec, or were there enough whistle-blowers but

not enough diligence at the sec? >> i think there were sufficient complaints. a lot of people were skeptical about his returns. he was using what was called a plain vanilla at trading strategy. there were not a lot of people who did due diligence to necessarily thought it was a ponzi scheme. that may be reason why there was not more people through cracks but they had reason to believe that something was not right. >> people told us they are nervous about coming forward. another issue is to encourage people to come forward. one of the individuals who came forward anonymously ask us to keep his name anonymous in this report. many people ask specifically not to have their name reported. when the report came out, they

called and asked if we were sure there was no where -- no way their name was in the report. there is a concern about bringing information forward. when you have someone who is willing to come forward, you have to take that into the proper investigation. something needs to be done to encourage more people to file complaints. the folks in private industry have a good sense of what is going on. >> is it mindboggling to you as you did your research that a fraud of such magnitude, $50 billion or more, i assume it is one of the largest the sec has dealt with. how could it have happened, right? >> absolutely. myrna madoff have a a very good reputation -- had a very good

reputation, and that played a part. no one really believed that bernie madoff could be operating a ponzi scheme. that is the reason why many investors continue to invest with him. my position would be that if you get a complaint that says murray madoff as operating a ponzi scheme, you need to be able to believe it in order to conduct inappropriate investigation. you need to allow for the possibility is happening and check it out. when you see him saying things that are contradictory, you need to keep going. >> he not only fooled the investors, he fooled the sec big time. >> yes, he did. >> thank you for your report. we appreciate your efforts very much. approximately how many tips, complains, accusations do you think the sec gets a year?

>> thousands. i would not know the exact number. >> they are not of the order of specificity and detail of mr. markopoulos. is there a tree on--- a triage to separate those that are not as compelling and identify the compelling once? >> one thing the sec is doing is revamping the entire system. that have made great efforts to revamp the entire process. there were concerns about triage system, but they are exerting a great deal of energy to fix that system so there is a good system in place.

>> let me turn to that data and the systems that the sec has. everyone has alluded to exit, the stowe piping -- stove piping. you indicated to groups going in, and one being played off the other by madoff. is the capability there today to basically go to a terminal and be able to call up all the information relative to a reticular individual or case? -- a particular individual or case? >> yes, but there needs to be some improvements. there was a system for putting examinations into a database. the problem was twofold. the folks who did the exam did not put them in, and those doing the exam did not check. in this case, the two exams were operating at the same time, but

it was not in the system and the other entity did not check to see if it was in the system anyway. when you have those databases, they have to be used. the sec is making renewed efforts to ensure that they put information into the databases so that people know what the other side is doing. >> that is kind of surprising. i would assume that entering the data was a basic requirement of the investigative team, and they fail to do that? >> yes, that is right. >> is that routine, or is that an exception in this case? >> at that time we understood it was not uncommon for people not to put their exams in the database. i believe that things have changed since then, but at that time, we were told in our investigation that it was not uncommon at all. >> was madoff aware of the structural and cultural

shortcomings which allowed him to operate so successfully? did he have better intel than the sec? >> he was certainly aware that the sec was conducting two investigations of him at the same time. certainly he used his knowledge to impress the examiners. in many ways, he knew which buttons to push. he knew how to impress the examiners, and he knew how to get them off the track that would have disclosed the ponzi scheme. >> this whole area has been extraordinarily shocking to all of us, and a report has been extremely helpful and useful. there are changes you have alluded to with respect to technology, with respect injuring cases, different enforcement policies -- with respect to entering cases.

the sec seems to be heading in the right direction now. >> absolutely. this thing has really affected the sec greatly. chairman shapiro understands the importance of changing things. i have met with her many times on these issues. we are going to make many recommendations. a lot of things have begun even before the report came out. i was asked to provide briefings along the way. we will follow up with two reports in the next few weeks that will make over 50 recommendations. the sec understands that things need to be done and are taking actions. >> the more i look at institutions both here in the united states and across the globe, culture plays a huge role in how institutions operate.

can you comment on the culture then and the culture now of the sec? are there variables you would point to in terms of not strictly organizational charts? >> historically, the enforcement division has been very resistant to changes in general. there is a new director who is undergoing a major restructuring. there will be significant changes in the enforcement division. that is unique to his leadership. that may not have happened much in the past. that is an area where things will be different today than the work previously. >> thank you very much. >> that me just express my appreciation for the chairman and ranking member following up on this. i think it is enormously importeant.

since the story broke, we have all had an opportunity to watch the victims interviewed, and the tragic stories make you want to weep for them, people who are in their senior years to just have no chance of making this money back. they are not going to live long enough. i read your report, and i reached the obvious conclusion, the federal government blew it. what is the remedy? where did they go from here? >> i do not know. there are legal issues about what victims can do. to the course of our investigation, we met victims as well, and as senator dodd said, they were not all rich people who lost $100 million and have $100 million left. i talk to people who said that

for them, december 11 was there 9/11. their lives were devastated, and there is no question that we in the federal government must do better. >> i do not want to draw you into a political debate, because that is not the purpose of this hearing, but so many things are happening these days, big, huge federal government programs, health care and on and on. i read something like this and i just wonder, tell me something that will assure me that the federal government's can handle what it is heading out to embrace went does this so poorly -- when it does this so poorly. >> i cannot speak for the health care system. it is a concern on the sec level that there were so many opportunities, it seemed relatively easy to uncover this,

and it was not done. i can understand why there is a concern about the operation of a government agency. i do think that the sec can improve its operations so that it gets better and is able to do its job in the long run. >> that is the other part that i take away from your report. when it really came down to it, this was a no-brainer. he say that it was very easy to scratch into this, and you are in the midst of this enormous ponzi scheme going on. did you find any evidence of an undue influence being placed upon the examiners or the investigators? was there anything that caused you to believe that there was more to the story here than just you to believe that there was more to the story here than just